NORWICH – If there is a recession due to the subprime fallout, it won’t last long, one economist predicts.
“If we do have a recession, it will be moderate – not very long, not very deep,” said Dr. Edmond Seifried, an economics professor at Lafayette College and finance analyst for a consulting firm in Pennsylvania.
Seifried, who has been published numerous times and lectures across the country, was the special guest speaker Tuesday morning before a crowd of 70 to 80 who attended Commerce Chenango’s Economic Forecast Breakfast held at the Canasawacta Country Club in North Norwich.
The professor said he expects there might even be some positive growth by year’s end, if only 1 or 2 percent, and inflation could even go down.
That’s after the subprime mortgage crisis gets worse in the coming months, he contends.
How? Because of something called the “Great Moderation” theory. Seifried says it’s the emerging idea that the U.S. economy, since roughly 1984, has been able, and will continue to be able, to protect itself and shake off setbacks that in years past would have sent the country into a tailspin.
In short, the economy – specifically inflation and the stock market – is significantly less volatile; by 60 percent, some estimate. The proof, Great Moderation supporters say: There hasn’t been a recession in 18 years, when there used to be one every four or five.
For local business owners and financial institutions, the economist believes banking on this theory could help change their outlook, and returns, from bleak to bright.
“I think it can change your life,” said Seifried, “if you truly buy into it, understand it and accept it.”
According to a business survey conducted by Commerce Chenango, the top issues on the minds of local business community in 2008 are health care, energy costs and high taxes.
Commerce Chenango President and CEO Maureen Carpenter says the problem starts at the state level, where taxes are 56 percent higher than the national average. Health care has also gone up 12 to 15 percent. Her organization plans to focus on lobbying the state for incremental health care plan restructuring and continued lower-energy cost programs for area businesses. Locally, Commerce Chenango will continue to “keep the lines of communication open” between local leaders on government consolidation issues, Carpenter said.
“It’s not the fault of local businesses, local government and local residents,” said Carpenter, referring to the business climate in the state. “We need to be able to increase our tax base and share the burden.”
The reasons behind the Great Moderation: Globalization, sound federal reserve policies, deregulation, tighter corporate practices and having the world’s largest and most diverse economy. All have played a role in what Seifried called America’s still-developing “bullet-proof vest.”
A solid work ethic has also helped. “Nobody can out-work us,” he said.
Critics of globalization and trade deregulation argue, however, that both have hurt the middle and working class by sending industrial jobs oversees, pulling the rug out from under many once-booming American cities.
Seifried used his home city of Bethlehem, Pa., which lost 36,000 jobs when the Bethlehem steel factory closed in the 1990s, as an example of that trend. However, he said Bethlehem has transformed itself from a rust belt town to the fastest growing city in the state.
“We found ways to compete in other things and we’re winning,” he said.
Seifried said he believes Chenango County has the potential to turn things around, but “it will take a lot of hand work” finding ways it can re-invent itself in the global world.
The year 2005 – marked by the devastation of Hurricane Katrina, escalation of the Iraq war and high interest rates – was a good indicator of the country’s ability to avoid recession, Seifried said, calling it the “poster child year” of Great Moderation.
In 2008, the country is still carrying on with the war, and now 100-a-barrel oil prices, which many previously thought would cripple the economy.
Seifried also said President Bush and Congress’ $160 billion stimulus package should help offset a $100-$200 billion drop in consumer spending, due to 10 percent decrease in housing starts.
As for the subprime mortgage crisis: “We’ll shrug that off, too,” he said.
Seifried is a consultant for m.rae. resources, inc. of Bethlehem, Pa., a private consultant for banks across the country, including NBT Bancorp, who sponsored the breakfast, along with The Evening Sun and Chenango Union Printing. Seifried also holds positions at several graduate level banking schools, and is the dean of the Virginia and West Virginia banking schools.