LITTLE ROCK — The U.S. economy is faring better than many people think by key measures such as personal spending and business investment, a nationally recognized economic forecaster said Monday.
Brian Wesbury, chief economist at First Trust Investments L.P. in Wheaton, Ill., spoke at Capital Hotel in Little Rock in a wide-ranging talk titled It’s Not as Bad as You Think.
Personal consumption is back on the same trajectory as before the recession, he said. The recession started in December 2007 and ended in June 2009.
According to the U.S. Bureau of Economic Analysis, personal spending rose to $9.45 trillion in the third quarter from $9.29 trillion in the third quarter of 2007, adjusted for inflation and in 2005 dollars.
While unemployment nationwide has more than doubled — from about 4 percent before the recession to 8 percent to 9 percent recently — Wesbury said Americans who have jobs have seen incomes rise in recent years.
Disposable income rose to $10.12 trillion in the third quarter, up from $9.89 trillion from the third quarter of 2007, just before the recession officially began, also according to the Bureau of Economic Analysis.
Wesbury, whose speech was presented by Delta Trust and Bank in Little Rock and attended by about 45 people, said that government, not capitalism, failed during the 2008 economic crisis by making homeownership as “cheap as we possibly could,” creating a bubble of overvaluation and forcing banks to take bigger writedowns on mortgages than warranted.
Other economists aren’t ready to place blame so squarely on the government, however. Kathy Deck, director of the Center for Business and Economic Research at the University of Arkansas at Fayetteville, said she tends “to be in the camp of it’s everybody’s fault, that no one should escape blame for how this all worked [out].”
“You can blame that on the government,” Deck said, “or you can blame it on the banks — who should have done more due diligence to better estimate the risk that people wouldn’t be able to pay back their mortgages.”
Consumers also share blame, Deck said, because household debt levels made it clear that they “generally have been living on borrowed money” because they thought their homes would appreciate and allow them to pay off the debt.
While retail reports lend weight to the idea that consumers have started spending again, Deck said that “when you look at their debt-tohousehold income ratios, they’re not good. Households have not deleveraged to the point where you’d say, ‘They’ve cleared the decks and now they’re ready to go at it again.’”
The conventional wisdom of the 2008 crisis, Wesbury said, is that capitalism is prone to bubbles and that the government exists to correct them.
“People began to think there’s something wrong with our system,” he said.
However, Wesbury said banks currently have as many industrial and commercial loans outstanding as they did in 2007. What’s more, business investment in software and equipment has soared, reaching a record $1.14 trillion in the fourth quarter, he said.
Wesbury said some business authorities believe “China gets it,” but he believes “there’s nothing magic about China.”
He said one could make an economy like China’s grow by 10 percent a year by not doing “anything for 200 years and then import the technology” that everyone else has invented.
By doing so, China has “strapped a jet engine to a Model-T Ford.”
Wesbury, who believes the U.S. stock market is undervalued, said factors that make him optimistic about the U.S. economy include mobile computing, which he thinks is a “revolution as big as we saw in the 1990s with the Internet,” as well as natural-gas shale being developed nationwide.
“We have become the Saudi Arabia of natural gas,” he said.”
Factors weighing the economy down, he said, include government regulations. Wesbury at one point suggested he didn’t “think it’s crazy” to get rid of the U.S. departments of agriculture and education, later qualifying that he thinks the departments should be “sunsetted” and “rejustified.”
Wesbury has a Master of Business Administration degree from Northwestern University’s Kellogg Graduate School of Management. He is a member of the Academic Advisory Council of the Federal Reserve Bank of Chicago and in 2001 was ranked as the nation’s top economic forecaster by The Wall Street Journal, according to a biography
Business, Pages 23 on 12/20/2011