Uncertainty continues to dog economy
But at least something is being done to remove some of that risk.
That’s what was going on Thursday at the Vilar Center in Beaver Creek, where the American Enterprise Institute’s World Forum presented a public forum on personal investing in a turbulent market. While it was not a place for hot investments, the forum indeed presented a view of how global forces are affecting the world economy and what that can do to individual investments.
The panel, moderated by former President Gerald Ford, consisted of: keynote speaker Lawrence B. Lindsey, assistant to the president for economic policy; James Glassman, resident fellow at the American Enterprise Institute, author and columnist for the Washington Post and Kevin A. Hassett, resident scholar at the American Enterprise Institute.
The speakers outlined the forces at work on global economies and how policies can counter them.
Spending up; business down
While consumer spending has rebounded from the recession and terrorist attacks, said Lindsey, business has been much slower to react and the stock market has seemingly been disconnected from the spending rebound. The reasons are many, he said, but it’s what really is creating problems is uncertainty.
“We need to minimize uncertainty in the world,” he said. “The recession, terrorism, unrest in the Middle East and nuclear tensions between India and Pakistan are all affecting the global economy by injecting uncertainty.
The problem isn’t going to be resolved quickly.
“We have a divided government, so it takes a long time,” Lindsey added.
Lindsey later quipped that we need to change the majority in the Senate next fall to allow quicker decisions. At present the Democrats hold a one-seat majority.
Glassman, meanwhile, said the economy has begun to shake off the second deepest recession since World War II. Six trillion dollars was lost in stock value. Many stocks are now priced lower than they were in 1998, prompting many to suggest they were over priced.
Glassman said there are five factors at work making the stock market and economy unpredictable:
– A “panoply” of unresolved domestic policy issues.
– Fallout from the Enron scandal.
– Lower earnings and lower profitability in companies.
– Increased competition.
“Most of the impact came from terrorism,” he said. “Risk (of losing investment value from terrorism) is becoming unquantifiable, but government can make us feel more secure.”
“If you’re uncertain, you take your money off the table,” added Kevin Hassett. “You stop buying big-ticket items.”
Hassett said the White House has recognized the uncertainty affecting economies and individuals and has taken actions to counter it.
He even complimented President Ford for initiating the World Forum 22 years ago so policy makers of all stripes had a single venue to hash out issues like terrorism and trade.
A few questions were fielded from the full-house audience:
“Clearly risk has increased. With the big run-up of the stock market and its big drop, and consumer spending rebound, how do you put the pieces together?” asked Vail resident Pete Feistmann.
Lindsay suggested people made so much money in the stock market that there has been some holdover spending. He suggested there may be some “long-term averaging” to flatten out things.
Carolyn Cage asked about the probable effects of the expected $100 billion settlement expected in asbestos claims.
Lindsey suggested it will require tort legislation reform to limit damages. Previous measures have failed to become law because of the political pressure brought by lawyers.
“The only remedy is for the American people to give us a different Senate,” he said.
Ford speaks out
Pessimism in the questions from some members of the audience prompted an impatient and somewhat-frustrated President Ford .
“I’m fed up with the skeptics and cynics and pessimists that condemn our economy,” he said. “Our track record is that we have won two world wars and endured a depression. I personally saw people selling apples on the street corners in Detroit during the depression. It was horrible. We’ve proved democracy economically and politically can win war. We should be proud, not cynical and pessimistic.”
Ford’s comments prompted a round of applause.
Glassman, too, suggested that while the economic future is bright, getting there will take some time and patience.
“The unknown future can produce some terrible things, but it also can produce some fantastic things,” he said.
Difficulties with the new economy and its link to security was best illuminated by Lindsey.,
“We’ve got 88 Congressional subcommittees involved in homeland security,” he said. “We need a more sensible bureaucracy.”