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MyspaceOver eggs and bacon, Peter Rupert, a professor of economics at UCSB, spoke to about 50 people dressed in suits and ties for the Chancellor’s Community Breakfast. His talk, at El Paseo restaurant last Thursday, was titled “Economic Policies in Tough Times.”
Rupert joined UCSB in 2007 after serving as a senior economic advisor at the Federal Reserve Bank of Cleveland. He spoke on the current recession, and why he thinks politics and policies is a bad mix. “The point of a policy is a definite course of action,” Rupert said. “The thing about politics is that it’s very reactionary and short term.”
His advice is, “Make the policy ahead of time and stick to it.” Ad hoc policies like Cash for Clunkers and subsidies for first-time home buyers tend to be most dangerous to the economy, according to Rupert, because they attempt to temporarily fix a problem, but ultimately waste taxpayer dollars.
Instead of creating demand, Rupert said, the Cash for Clunkers program in 2009 created a void in auto sales down the road when people would have normally purchased their vehicles.
The subsidy for first-time home buyers was considered to some a waste of money because many who purchased homes were not qualified for the credit. An audit by the Treasury Department found that hundreds of millions of dollars in credits went to people who had not actually bought homes, or who were not first-time home buyers, as the program initially required.
“When you get politicians telling the Federal Reserve how to spend money, you spell disaster,” Rupert said.
Toward the end of his talk, Rupert made time to promote the UCSB Economic Forecast Project website, which will provide analysis of local and even statewide data. People will be able to compare housing foreclosures in Santa Barbara to foreclosures in Anaheim, along with the demographics behind the data. Other areas the project will likely delve into are home sales, home prices, and the changing population and labor force, among other things. Rupert hopes the site will be fully functional in the next couple months. “The role of the Forecast is to allow people to know where we are and where we stand,” Rupert said. “People can write your own narratives.”
Rupert also left time for questions from the audience. Asked about Obama’s tentative agreement to extend Bush-era tax cuts for the wealthy, in exchange for extending unemployment extension benefits for the next 13 months, Rupert pointed out that this is exactly why people need to stick to policy. “Well, it’s refreshing that they’re willing to listen to each other,” Rupert quipped. “But these people know that unemployment benefits are provided for 26 weeks… . Now what you see is potential employees waiting around for as long as 106 weeks for better jobs. And now we’re paying for these huge unemployment benefit extensions.”
Another person from the audience asked Rupert what should be done locally to make 2011 a more vibrant year. Rupert’s prescription was, “We need to reduce the cost of business and get people to hire people.”
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Comments
Pointing to the void down the road or to the cheaters and saying these programs were a waste of money is like focusing on Marylin Monroe's mole and calling her ugly. The temporary fix is for what is hoped to be a temporary problem, a recession. The idea is to make the hole we are falling into less deep even if digging out takes a little longer. And what about the offsetting tax revenues generated by the increase (or less decrease) in economic activity as a result of these policies?
I must agree with Prof. Rupert's analysis on extending unemployment benefits. This is likely keeping millions from competing with illegal aliens for farm worker jobs.
Ezzyme (anonymous profile)
December 15, 2010 at 6:49 a.m. (Suggest removal)
Professor Ruppert leaves a whole of questions unanswered
1)He asserts that the Cash for Clunkers program left a big void in later sales. Does he have any evidence that the people taking advantage of the program would have bought a vehicle if there had been no program? If so, why would they drive clunkers before the program was announced, and the unsaid benefit from this program is the removal of an awful lot of smogsters, and of course the sales increase for many struggling auto dealers, which kept some workers employed, not a bad thing.
2)The claim that the subsidy for first time home buyers was giving money to some who didn't buy a home implies that all one had to do to obtain one was saying that he or she was going to buy a home and a check would be handed over. Not even his version of the failure of government is that foolish, unless ,of course, the good professor believes in the tooth fairy. Besides I suspect that first time home buyers really don't have enough cash to buy a home without a bank loan. You might remember bank lending to unqualified buyers is what got into this mess. And I think that these buyers had to satisfy the lenders before they could get the subsidy. And so, why is the professor blaming the government, I suspect, because it is easy to since they don't reply.
3)And with respect to the claim that politicians telling the Federal Reserve what to do, almost any first year economics student will know that the Federal Reserve is an independent government agency, which politician has the right to tell them what to do? None.
4) it is a canard to believe that unemployed people want to wait for a better job, particularly because when they were working they were spending their wages supporting the economy, during a period when savings were less than one percent of our economy. Can you picture an unemployed professor slinging hash in a diner, or picking fruit to make a living? Being unemployed is a tragedy, and after you sit at home for a very short while, it is the last thing you want to do, and of course the psychological trauma of not being able to support yourself is devastating. Those of us who have employment realize that our self respect is important. Any educated person wants to be productive and being unemployed is the other side of a bad coin.
5) Business is important and it is what makes our economy function,and being employed is an important ingredient of that economy, and the suggestion that taxes prevent business from functioning is nonsense. All any businessman wants is to be successful, and not hiring people to help sell your product is counter productive, so if you can make a profit by selling more why would any businessman not want to hire more people to serve his customers if his product is desirable? You can't have a democratic society without paying for it, and borrowing to fund it only makes the hole deeper.(How's that for mixing metaphors)
I
Allan Ghitterman
gitran (anonymous profile)
December 15, 2010 at 9:29 p.m. (Suggest removal)