At the beginning of 2011, a lot of economists felt optimistic about the U.S. economy.
Among the reasons, federal tax increases were postponed and a payroll tax holiday was enacted. A group of 55 prominent economists forecast in January that the nation’s economy would grow 3.1 percent this year – and increased that outlook to 3.2 percent in February, recalled economist Ken Mayland, head of ClearView Economics in Pepper Pike.
That’s not the outlook anymore, Mayland said Wednesday.
While there are no signs the nation is in, or slipping into, recession, it’s likely that an upcoming monthly forecast by prominent economists will show them now expecting around 2 percent growth for the year, he said.
“The sentiment on the economy has changed. The prospects for the economy have continually been marked down,” Mayland said.
The momentum for the economy is still positive, “thank goodness,” Mayland said. The economists who say the nation is in recession are “yahoos” engaging in “silly talk,” he said.
“It may not be as much as we would like to see, but the economy has been expanding,” Mayland said.
He spoke as part of the 2011 Impact Manufacturing Forum put together by Akron accounting and financial services firm BCG & Co. Also talking were Ty Haines, vice president, manufacturing services at manufacturer advocacy group WIRE-Net and John Schober, director of innovation at the Manufacturing Advocacy & Growth Network, or MAGNET, both in Cleveland. The morning program took place before about 70 people in a seminar room at the Akron General Health & Wellness Center off Medina Road in Bath Township.
Mayland said he believes 2011’s poor performance is a result of the intersection of bad policy-making and the general economy.
Federal housing policy under multiple administrations to promote home ownership created a boom that ultimately led to the housing bust, he said, while the “go green” energy policy produced a big spike in the price of oil. Regulatory policy that includes upcoming mandatory health care coverage, along with 600 new regulations put on the books just in July, is “strangling” business, he said. Fiscal policy that has created a $1.5 trillion deficit this year and a projected $1.3 trillion deficit in 2012 also works against growth, he said.
“At this point in the business cycle, for an economy our size, we should be regularly producing 300,000 to 400,000 jobs per month. And we’re barely getting 100,000 jobs per month. And of course August came in at a big fat zero,” Mayland said.
Businesses aren’t hiring in part because of many uncertainties over such things as future tax rates and health care costs, he said.
Standard fiscal policy tools are now maxed out, Mayland said. Federal Reserve monetary policy led to a 3.6 percent inflation rate from a year ago, meaning people’s cash now has about 4 percent less spending power than a year ago, he said.
“That purchasing power is lost forever,” he said. “The Fed is continuing to debase the value of money.”
Mayland offered what he calls the ClearView Economics Plan for the Economy that he said could be enacted relatively easily and at virtually no cost to the budget deficit:
• Kill the 2010 health care reform bill.
• Reverse current energy policy to encourage developing domestic energy sources and allow such things as drilling for oil in the Arctic National Wildlife Refuge in Alaska. That will help lower oil prices and give consumers more money to spend, he said.
• Eliminate the minimum wage. That will help in large part unemployed teens, he said.
• Repeal the 2010 Dodd-Frank and the 2002 Sarbanes-Oxley laws because they put American businesses at a competitive disadvantage.
• “Rein in” the Environmental Protection Agency and National Labor Relations Board.
• Pass free trade agreements involving South Korea, Panama and Colombia.
• Pare back overly generous (99-week) unemployment benefits. This sounds insensitive, Mayland said, but research shows there’s a connection between length of unemployment benefits and length of job search.
• Trash the current tax code and install a flat tax with no deductions.
The economic slowdown is sticky and tactically this is a time for businesses to hunker down, he said.
The nation could fall into recession if it is hit by a big, outside shock such as an unexpected large spike in energy prices or if there is a collapse of the European economy over its ongoing sovereign debt issues, Mayland said.
But long term, there is hope, including a continued recovery in the auto industry, a big backlog in the commercial aircraft industry, a strong agricultural economy, strong health care industry and strong exports, he said.
“There is another housing boom out there. I firmly believe that,” Mayland said. The nation can sustain 1.5 million housing starts annually; the rate now is 600,000, he said.
“We have to clean up all the foreclosures in order to make that happen. That’s at least a year, maybe two years, off,” he said.
“This economy has room to run. It has room to grow, just given the right policies to allow it to grow,” Mayland said.
Jim Mackinnon can be reached at 330-996-3544 or jmackinnon@thebeaconjournal.com
