By Lucas Sullivan
This past Wednesday, economist R. Glenn Hubbard gave a speech at the College Avenue Student Center at Rutgers concerning our current economic situation, the lessons to learn from the past, and what to look out for in the future.
Hubbard is the Dean of the Graduate School of Business at Columbia University, and has a prestigious history in economics: he was the chairman of the Council of Economic Advisors from 2001 to 2003, the chairman of the Economic Club of New York, and very nearly took the place of Alan Greenspan as chairman of the Board of Governors of the United States Federal Reserve.
Attendees at the lecture numbered around forty or fifty, including some Rutgers Economics professors such as Neil Sheflin. Hubbard started his speech proclaiming that his goal was to “take something that works in practice and prove it can work in theory.” He then reminded the audience of the tough times we are in, stating that “the forecast is presently grim…continued job shedding is very troubling.” Overseas, the situation is not much brighter: economic growth in China and India is “slipping,” and Japan is currently in a recession. “Humility is in order,” said Hubbard, who asserted that we need to shake up the system in order to bounce back out of the slump. “Currently,” said Hubbard, “we have a banking panic…the instinct is to run for cash.”
How did we end up in this situation in the first place? Hubbard noted three main causes: low interest rates, lax monetary policy from 2003 to 2005 (which led to inflation), and the capital requirements to make transactions being too high. Hubbard suggested that the path to recovery requires confidence and a “principled policy of response” to economic troubles, as opposed to an “ad-hoc” reaction that will be too late in correcting a problem. His main proposition for the future was that instead of hiring more regulators, we hire better ones; doubling the number of poor regulators will do us no good, Hubbard concluded. We should also try to weed out the good banks from the bad ones, or eliminate the bad banks and bad assets altogether; this would provide protection from loss that would be a comfort to the consumer.
Hubbard also discussed the recent stimulus package signed by President Barack Obama. He claimed that it didn’t have enough “bang for the buck,” and that we will not likely see it add significantly to GDP in the next 12 to 18 months. Also troubling was Hubbard’s prediction that the package “may necessitate higher taxes in the future.” The package did have its upside, however, as it will bolster the supply side in the US and keep structural productivity high, according to Hubbard.
Near the end of the lecture, Hubbard fielded a few questions from the audience. One student asked for Hubbard’s opinion on the future of some of the currently competing banks; Hubbard stated that he believed many of the struggling midsize banks will fail in 2009 and 2010. The biggest issue, Hubbard emphasized, was focusing on the long term. Hubbard closed his lecture with a humorous quote he had found in a fortune cookie that he said is analogous to our current economic situation: “riding a flying tiger is easy; it’s just landing that is difficult.”