Financial Planning | Technology & Social Media

What’s right — and wrong — with our economy

Recovery It's been a while since I last spoke with Anirban Basu, and that's a shame because (a) he's one sharp economist who delivers the goods in the financial-analysis department, and (b) he's just so much darned fun to talk to.

So I looked him up the other day. He didn't disappoint on either count.

Some of his points weren't entirely unexpected.

Yes, he said, our economy is recovering, though some troubling issues (unemployment and commercial real estate, for instance) remain.

And it's a tenuous recovery at best. Need proof? Look no further than the stock market.

"The financial markets have been reasonably good predictors of future Main Street economic performance," said Basu, CEO of Sage Policy Group, an economic and policy consulting group based in Baltimore. "The Dow Jones Industrial average peaked on Oct. 9, 2007 at 14,164.53 and started falling from that point, and by December 2007 we were in a recession. The Dow Jones bottomed out on March 9 of last year, ending the day below 6,500, and began a rally from that point on, and by August we were out of recession."

And today? We're seeing more volatility in the stock market -- a sign in Basu's mind that the economic recovery might stall later this year.

Basu's more interesting points, though, come when you ask him about what's been done right -- and wrong -- in addressing our economic woes.

  • The good: Monetary policy: "I think Ben Bernanke has done a spectacular job," Basu said. "Getting interest rates low, trying to build momentum in the housing sector, understanding that the risk in the near term is not inflation but a lack of economic growth. ... He was built to be Federal Reserve chairman during this period in economic history."
  • The bad: The stimulus: "The economic stimulus package passed in February (2009) I view as a complete and utter disaster," Basu said. "When you're going to spend not quite $800 billion, that's the time to be thoughtful. Instead, the package was crafted thoughtlessly, and that's one of the reasons why the unemployment rate is still 10 percent. Moreover, it's one of the reasons to believe that we might need another stimulus package if we want to bring unemployment below 10 percent sometime this year. That's really good evidence, isn't it, that the stimulus package hasn't worked as hoped? Even before a significant portion of the money has been spent, we're already talking about another stimulus package."
  • The state: "(Maryland) has pledged to spend a significant amount of money on education, but no countervailing sources of revenue were identified," he said. "We got away with it because the economy was artificially strong, which hid our structural deficit. Now that the economy is bad, it's starting to hurt. And in another year we'll be looking into the fiscal abyss. My guess is that after this fiscal year state government will shrink, and that will create downward pressure on the overall state economy."
  • The opportunity: Feed the pig: "One of the reasons that we're in this mess as a nation is that we made such terrible decisions, including at the household level," Basu said. "To the extent that (CPAs) can provide guidance related to what people really can afford, obviously that boosts productivity and economic sustainability."

Basu offers these and other thoughts in a recent CPA Spotlight podcast. Listen to it in its entirety.

Learn more at the Business and Industry Conference
Basu is also slated to give one of his popular economic updates during the MACPA's 2010 Business and Industry Conference, slated for May 14 at the Turf Valley Resort and Conference Center. Get details and register here.


Bill Sheridan