Paul Gigot, Editorial Page Editor, The Wall Street Journal
Tom Donohue, head of the U.S. Chamber of Commerce, listens to his fellow panelists on the Tuesday morning "U.S. Overview" session.
Panelists addressed the current economic climate in the United States, the housing market and the expected effects of government policy on the future of the economy.
Moderator Paul Gigot of The Wall Street Journal began the discussion by commenting on the sharp increase in commodity prices since August 2007, the record low value of the dollar and the risk aversion exhibited by investors. When asked whether the United States is in a recession, Peter Orszag of the Congressional Budget Office replied that we are experiencing negative growth, but the potential impact of the tax rebates that are being issued over the next quarter should not be overlooked. The stimulus totals more than 1 percent of annual GDP, but the rebates will have the effect of 4 percent of GDP since they are being administered in a single quarter. Regarding the housing market, Orszag said, "There was the potential for a 30 to 40 percent decline in housing prices, and we haven't come anywhere near that." He does expect another 10 to 15 percent decline in housing prices before values begin to recover.
Commenting on the likelihood of further write-downs by major banks, Suzanne Nora Johnson, formerly of Goldman Sachs, explained that mark-to-market accounting practices will result in additional write-downs as underlying assets (such as mortgages) continue to decline in value. "I think we are at the end of the beginning," she said. "We had a snakebite called leverage and are now starting to find the antidote."
Felicia Thornton of Knowledge Universe Education U.S. said that while middle-class residents of California, Arizona and Florida are experiencing noticeable effects from the economic downturn, "nobody is panicking." Thornton has seen a slowdown in turnover among the 50,000 employees in her organization due to an increased desire for job security.
Allan Hubbard of E&A Industries interjected that "it's very unclear that we're actually in a decline." He highlighted the Federal Reserve's aggressive action to cut interest rates in recent months, saying, "You can't criticize them for being inactive or inattentive." He also pointed out the role of allowing temporary, faster write-offs for business investments as part of President Bush's stimulus package.
Some panelists questioned the actions that Congress is taking to address the mortgage meltdown. Under legislation currently being considered, Hubbard expects that banks would keep the soundest mortgages and turn only the most risky loans over to the Federal Housing Administration. Johnson added, "The challenge is that Congress is in a very tough spot to show households that they are doing something to achieve parity."
Gigot turned the discussion to the long-term issues that the United States needs to address to sustain growth. Thomas Donohue of the U.S. Chamber of Commerce explained that "America is its own worst enemy." Education, immigration, energy, infrastructure and trade are all issues "that America can take care of itself." Hubbard called for the renewal of President Bush's tax cuts, while Orszag pressed the need to eliminate unproductive health-care spending. Thornton called for improving the quality of America's teachers, especially in the earliest grades. Johnson spoke of the need to invest in infrastructure — in the nation's physical as well as its human capital — to ensure that opportunity is available to all Americans and is not stifled by ineffective policies.
Global Conference 2013
Former Prime Minister Tony Blair, philanthropist Bill Gates and Strive Masiyiwa of Econet Wireless discuss advancing prosperity in Africa.
