Politics and Economics Don’t Mix

Over 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.”