Full Q and A
Economist Scott Bailey’s unedited question-and-answer session is online at The Columbian chat.
Economist Scott Bailey jokingly referred to himself as a voice of the Occupy movement when he stood on Tuesday to question Federal Reserve Bank of San Francisco President John C. Williams.
Bailey, who analyzes Southwest Washington’s labor market for the state Employment Security Department, said that he wished Williams’ analysis of the financial meltdown and the country’s slow recovery had paid more attention to big banks and income inequality. Following Williams’ keynote speech at The Columbian’s 2012 Economic Forecast Breakfast, Bailey participated in a panel discussion about job growth in Clark County, then joined in an online question-and-answer session.
Here are some of Bailey’s answers to questions about the Economic Forecast Breakfast and the state of Clark County and the U.S., edited for space and clarity.
What were some of the big takeaways from this year’s Economic Forecast Breakfast?
Well, there was an interesting keynote address by John Williams of the San Francisco Fed, and also interesting discussions on the panels. The consensus is that, at best, 2012 will be another crummy year. What some of the local folks are saying: continued high unemployment, slow job growth, little action in commercial or residential real estate, slow retail markets (especially with online competitors). Not a pretty picture!
What the keynote speaker didn’t talk about is the possibility of a recession. His own research shop has put the odds of a recession in 2012 at 50 percent. One of the best forecasting firms nationally, ECRI, has put the odds at 100 percent.
Despite some not-so-bad news lately economically, most of the indicators going positive are lagging indicators, meaning they have little predictive value. The leading indicators are not in very good shape.
You challenged Williams on some of the factors that contributed to the recession, beyond the housing crisis. For those who weren’t there, what are some of those factors, and are they still a big concern to you?
There’s a number of issues that he didn’t address in any depth that I see as core causes of the meltdown. For example, there is a huge shadow-banking system around the world that allows big financial institutions and wealthy individuals to move money around outside the control of regulators. There was basically a run on the shadow-banking system (which brought down Lehman Brothers, Bear Stearns, etc.) that was at the heart of the panic.
What decisions should Clark County residents and businesspeople be considering based on the information presented today? Or is economic data something that affects us, but that we have limited ability to react to on an individual basis?
Until we re-regulate the banking system and get the shadow-banking system under control, we will be prone to more financial crises. We’ve done very little in this direction. The Dodd-Frank bank reform bill didn’t do much to end the “financial innovations” like credit default swaps that are essentially weapons of mass destruction.
The takeaways are that our economy is still in deep trouble, and what we do locally is important but has limited impact. We need national action, and we haven’t been getting it.
You brought up wealth and income inequality in the U.S., which has obviously received plenty of attention because of the Occupy Wall Street movement. Can you elaborate on the role income inequality plays in our current economic problems?
Basically, almost all of the benefits of our growing economy over the past 40 years have been captured by the top one-tenth of one percent of households. For the rest of us, it’s meant stagnant incomes, despite more people, especially moms, working longer hours over the years. Incomes for men have stagnated. Couple that with easy credit, and it means people borrowed in order to keep up. Now that debt load (especially from refinancing) has come home to roost.
Put it another way — according to IRS statistics, if the distribution of income today was the same as in 1969, the average household would have 20 percent more income. That’s a big “tax” that we’re paying to the big banks and financial institutions.