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Economists gather in Virginia to ponder uncertain U.S. future

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BY JOHN REID BLACKWELL

MEDIA GENERAL NEWS SERVICE

Published: February 6, 2009

RICHMOND, Va. - Economists are likely to debate the causes and solutions of the financial crisis and economic recession for a long time to come.

What seems certain is that lasting changes are under way, some prominent economists said last weekend during a conference at the University of Richmond focusing on the crisis.

Years from now, "I think we will see this period . . . as an inflection point in economic history - that this is the end of something and the beginning of something else," said Perry G. Mehrling, a professor of economics at Columbia University. "We are not exactly sure what that something else will be. That is what we are trying to sort out."

Sixteen economists - including two Nobel Prize winners in the field and Federal Reserve Bank of Richmond President Jeffrey M. Lacker - gathered at the university for a full day of private meetings focusing on issues raised by the financial crisis, such as transparency, standards and the role of experts.

During a question-and-answer session later in the day with students and faculty, guests and news media, the discussion turned more toward the causes of the crisis, potential solutions and the long-term implications of the $700 billion taxpayer-financed bailout and $800 billion stimulus package.

"What we are seeing now and living through now - this unprecedented set of events - is a result of a combination of private and public failings," said Sandra J. Peart, a historian of economic thought and dean of the Jepson School of Leadership Studies at the University of Richmond. "And in part because it is that kind of combination, I think we agree that it is not something that can be easily fixed."

Peart and David M. Levy, professor of economics at George Mason University, in Fairfax, Va., organized the conference in part because of criticism surrounding the $700 billion bailout package for the financial industry passed by Congress in October.

"There was just so little discussion before the (bailout) package was passed, it seemed to us important that economists take some time, and all of us take some time, to think about not just the short-term strategy of getting us out of these problems, but how to avoid a situation like this in the future," Peart said in an interview before the meeting.

The economists expressed differing views over the role of monetary policy versus fiscal policy in addressing the economic spiral, though several expressed skepticism about the stimulus plan proposed by the Obama administration.

"At the same time when we are adding maybe $2 trillion of debt to the federal government, at least in the short term, the other countries in the world may be much less willing to lend us that amount of money," said William A. Niskanen, senior economist at the Cato Institute, a libertarian think tank.

Others said that a fiscal stimulus is necessary, despite the debt it brings.

Dean Croushore, associate professor of economics at the University of Richmond, said now is a good time for the government to invest in infrastructure when private spending is low. "It is good timing to borrow when interest rates are low," he said. "If you are going to do something like this, now is the time."

The economists also seemed to agree that the crisis underscores some difficult long-term problems the country is facing, even though they say it will recover from the current recession.

They said consumers and government will be forced to think more about savings instead of borrowing and spending, and several suggested that the tax system needs to be shifted more toward consumption instead of income.

"We will need in the future some fairly stern fiscal discipline, and we will need to adjust so people have more incentives to save," said Sidney G. Winter, professor-emeritus of management at the University of Pennsylvania's Wharton School.

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