Batesville Herald Tribune, Batesville, Indiana

Local News

December 24, 2012

Locals have questions for economics expert

Three-part series

(Continued)

 

PART ONE

On the heels of Gov. Mitch Daniels’ Dec. 11 announcement that 2,552 jobs could be coming to Indiana, the Ball State University Center for Business and Economic Research director has a more sobering view of U.S. and Hoosier economies.

“A national recession remains highly likely this year,” Michael Hicks, Ph.D., told close to 90 Dec. 12 at Hillcrest Golf and Country Club during his outlook hosted by Hillenbrand Inc. in conjunction with the BSU center.

A written handout emphasized, “Either the composition of the ‘fiscal cliff’ or a sustained European recession alone is significant enough to push our economy into recession.” The fiscal cliff refers to a combination of tax hikes and spending cuts that will be instituted Jan. 2. The elimination of 2001-02 tax cuts will cause a  higher increase of taxes on middle income households.  For instance, a $40,000 household will pay $900 more in taxes and a $70,000 household about $1,800. Families earning between $32,000-$47,000 will be paying taxes for the first time since 2003.

“This fiscal cliff is coming and I’m not sure kicking it down the road another year is going to make a difference. It’s going to be painful,” the Yorktown resident predicted. He pointed out, “Now is not a good time to be raising taxes” with so many unemployed.

History repeats itself, Hicks believed. “Every time Europe has been in a recession, we’ve been in a recession. Folks, Europe is in a recession with record high unemployment.” Greece, Portugal, Spain and possibly Italy are experiencing their  highest numbers since 1933.

Because “my hunches are really bad,” the economist said his 2 percent growth outlook is derived from mathematical models used at Yale University and the University of Massachusetts and mirrors the number determined by Blue Chip Forecasters, a group of 80. “That sounds kind of good, ... but it is not.” The U.S. economy used to grow at 3.4 percent. “If we grow at 2 percent, the economy will double every 40 years. That’s very, very slow growth.”

The Indianapolis Business Journal columnist noted, “We are very sadly expecting the national unemployment rate to remain roughly where it is at 7.8 percent. In order for it to drop, we need to create 150,000 jobs monthly.  For us to have really dramatic economic growth,” like in 1982-83, 450,000 jobs would have to be added monthly.

Even though 146,000 jobs were created last month, 540,000 adults, ranging from retiring baby boomers to teens leaving for college, left the labor force. “That’s just an astonishing decline in economic activity. A shrinkage of the labor force means the overall economy is getting smaller.”

He blamed the jobless rate on what textbooks call structural unemployment and Hicks calls skills mismatch. “What businesses want and what workers offer” in skills don’t coincide.

When certain skills are no longer needed, people can’t find jobs. According to the associate professor of economics, “I was an Army officer, great with maps and a compass. My children say, ‘I’ve got a GPS, why do I need that?’” The problem of skills mismatch could mean even slower economic growth, he warned.

 

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