Government failure to reach a political consensus is a moral hazard for the U.S. economy, said Robert Dauffenbach, director of the Center for Economic & Management Research at the University of Oklahoma.
Dauffenbach spoke about the state and national economy Wednesday at Rotary Club of Edmond. Moral hazards caused the recent recession, he said. Be watchful of the Washington, D.C., crowd of politicians, Dauffenbach said.
Across-the-board cuts in federal spending went into effect Friday after congressional leadership along with President Barack Obama failed to reach an agreement to prevent sequestration.
“Write your congressmen. Write your senators,” Dauffenbach said. “… I fear that what they’re out to do is to deflate the values of the debt by inflating the inflationary means. And that’s a tax just as if somebody came out and presented you an inflation tax.”
There is evidence the economy is recovering, he said. Industrial production is at 70 percent of its peak levels. Retail sales have passed their previous peaks, Dauffenbach said. Unemployment in the U.S. is down from 10.1 percent to 7.8 percent, he said.
Underemployment is a problem lingering for people wanting to work full-time but for economic reasons are offered part time work, Dauffenbach said.
Entitlements make up 58 percent of federal budget expenditures, Dauffenbach said.
“Folks I don’t know how it’s going to end but it cannot continue.” He quoted the late economist Herbert Stein who said, “‘If something cannot go on, it will stop.’”
Federal Reserve Chairman Ben Bernanke continues overseeing the Federal Reserve printing more money. The federal balance sheets are at $911 billion. It has printed nearly $3 trillion, Dauffenbach said.
“Bernanke stands there with a straight face and says, ‘Well, our money supply measures aren’t going up that rapidly,’” Dauffenbach said. “… How about 10-11-15 percent a year. That sounds like pretty high growth of money supply to me.”
Locally, Dauffenbach pointed out that Oklahoma has the seventh lowest unemployment rate among the states. State Treasurer Ken Miller reported this week that Oklahoma’s economy is outperforming other states in the region as unemployment has dropped by 2 percentage points since the recovery started. The state labor force has expanded by almost 40,000 jobs, Miller said.
Oklahoma ranks the ninth highest in personal income growth, Dauffenbach said. The Oklahoma City metropolitan area of employment grew 4 percent in December from the previous year, he said.
The state’s February survey shows gross collections for the state is down $19.53 million or 2.4 percent.
“Gross income tax collections, a combination of personal and corporate income taxes, generated $235 million, an increase of $3.2 million or 1.4 percent from the previous February,” Miller said. Income tax produces nearly 37 percent of the state’s revenue, Dauffenbach said.
Rotary member, Carol Hartzog, asked how housing construction is impacting the economy. Dauffenbach said he is impressed with how construction is currently holding up in the economy. Low interest rates are promoting construction activity, he said. However, it is more difficult to get a home loan than it was before the recession, he said.
January pending construction contracts were up nearly 54 percent in Edmond, according to the last Preston Report. Homes sales for January were up 17.59 percent from the same time last year.
“Active homes on the market is at it’s lowest level since 2006 with under 1,200 homes on the market in the area. A lot better than pushing that 2000 mark,” the report stated.
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