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May 29, 2009

Trying to reduce debt

This recession has forced many consumers to re-examine their financial habits. There are reports that consumers are borrowing less and saving more as they try to put their financial balance sheets in better order. Is it working?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"We are paying down on our debts, particularly consumer credit, like credit card balances. For example, before the recession, households were adding to their non-mortgage debt at the rate of about 1 percent every three months. Their non-mortgage debt was going up 1 percent every three months. Now, they're actually reducing their non-mortgage debt at the rate of a half percentage point every three months. And what this has done is it has marginally pushed down the percentage of our income - our disposable income - that we households have to use to pay interest and principal on our consumer debt. It's gone down last year from 14.3 percent to this year at 13.9 percent. So that's all good. One of the problems, though, is that for many households - not all - it's kind of a race between reducing their debt as fast as their income is going down. And many households are finding that, yes, they are reducing their debt. They're paying down on credit card balances, but their income is going down, either because they've lost their job or maybe at least have had their hours cut back. So I think the bottom line here is that consumers are taking action, but many consumers are finding it's just not enough."

Posted by Dave at 08:00 AM

May 28, 2009

The role of health insurance

As a country, we're trying to find ways to both expand the coverage of health insurance as well as reduce its cost. Can we get some ideas for accomplishing this by looking at what health insurance is supposed to do?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, let's first look at the notion of insurance. The idea of insurance was originally to make small payments - that is, the person insured would make small payments - to buy an insurance policy that would come in and pay for unexpected large payments. So for example, let's say you're making payments to your health insurance policy. You're paying, say, $100 a month. What that guards against is the cost of major surgery, where you may have a bill that costs $30,000. So in that case, the insurance steps in and pays it. So that was sort of the initial notion of insurance. And you can apply that to auto insurance, life insurance, liability insurance, any kind of insurance. We've sort of been moving away from that to where - at least in the health insurance area - we now want health insurance to pay for planned health expenditures, that is, not unexpected but planned health expenditures, many of which are not catastrophic. A good example would be vision tests, which North Carolina's public health insurance at least did cover at one time. Now this is fine, but what it does is increase the cost to the insurance companies, and therefore, premiums, and the cost to the consumer or to whomever, maybe the state. Premiums on that health insurance policy have to go up. So I think one thing that we have to decide as a country is what we want health insurance to do. Do we just want to reserve it for those unexpected, catastrophic expenses or do we want it to pay also those planned small expenses. It makes a big difference which you choose on the cost of insurance."

Posted by Dave at 08:00 AM

May 27, 2009

Pay cuts in North Carolina

North Carolina state employees will be taking a pay cut for the remainder of the fiscal year amounting to one half of one percent of their salary. In exchange, they'll receive some time off. How does this compare to what's happening in the private sector?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"This is reflecting, unfortunately, what's happening in the private sector. Just in the last year, North Carolina's unemployment rate has doubled - exactly doubled - from 5.4 percent to 10.8 percent. This means an additional quarter million workers - 250,000 workers - have been sent to the unemployment rolls. Now if we look at what's been happening to pay and we look at pay in North Carolina only in the private sector - so not including government - we do have data that the government keeps on average weekly wages, and this shows that average weekly wages have actually been falling at an annual rate of 5 percent from late 2007, which is when the recession began, to late 2008. So the bottom line here is that, of course, state employees do not like getting their pay cut. They don't like the fact they're going to be forced to take some time off - the flexible furlough. But unfortunately this is happening in the private sector too, and it's simply a reflection of the tough times in the economy, which is affecting both private workers and public workers."

Posted by Dave at 08:00 AM

May 26, 2009

Maintaining a big lead

It's well known that having trained and skilled workers is essential to competing in today's global economy. When we look at the money spent by various countries on higher education in particular, how does the U.S. rank?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"We're considered one of the top countries in terms of the quality of our higher education. If you look around college campuses like I do, you see a lot of foreign students. Students are coming here because they know they get a quality education in our four-year institutions. One of the reasons I think we have high-quality higher education institutions is because we spend a lot more money on them than the average country. And the latest data that we have, which is for 2005, the U.S. spend almost 3 percent of our collective income, our gross domestic product, on higher education. Among developed countries, the next highest country was Sweden at 1.7 percent. So we're at 3 percent, and number two is at 1.7 percent, so we're almost double number two. Britain was at 1.4 percent, Germany at 1.2 percent. Now these numbers are for total spending on higher education, including both spending by the government as well as spending by the students or their families. In the U.S., about one third of the spending is from government; about two-thirds is from the private sector. Now if you look at just the government part, though, the U.S. does lag these other countries."

Posted by Dave at 08:27 AM

May 25, 2009

Discouraged workers

Here's some confusing information: In March, North Carolina lost 33,000 jobs, almost twice as many as in February. Yet while the February unemployment rate jumped by a full percentage point, in March it rose only one tenth of a percentage point. This just doesn't make sense.

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"First of all, these numbers are accurate, but what we need to know is more about what those numbers really mean. And we need to focus on what it means to be called unemployed. Now, the unemployment numbers actually come from a survey that the federal government does every month. They survey about 60,000 households across the nation. To be counted as unemployed, you not only have to be not working, you not only have to say that you want a job, but you have to be actively looking for work. What does that mean? That means you have to be sending out resumes. You have to be contacting businesses, and you have to be going on job interviews, all within the last four weeks. If you're not actively looking for work - even though you tell the surveyor, 'Hey, I don't have a job. I want to work,' - but if you're not actively looking for work based on that definition of what active means, you're not counted as unemployed. And in fact, we economists have a name for these folks. We call them discouraged workers. So what happened in March is, yes, we actually lost twice as many jobs in North Carolina in March as we did in February. The unemployment rate, however, barely budged because so many workers who are unemployed - and we know they're unemployed - simply have given up looking for work, so they're not officially counted as unemployed. Now actually the government keeps a secondary set of unemployment numbers that takes account of these so-called discouraged workers. If we were to count them as unemployed in North Carolina in March, it would have added about a half percentage point to our North Carolina unemployment rate."

Posted by Dave at 08:00 AM

May 22, 2009

The pulse of the economy

Just as a doctor treats a patient, economists periodically take the pulse of the economy in order to gauge its condition. The latest reading just came out. What does it show?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"This is our broadest ready of the economy; it's called gross domestic product, and we look at how fast it grows in any given period of time. And so we have numbers for the first three months of this year, and the numbers showed that gross domestic product dropped at an annual rate of over 6 percent, about the same as it dropped in the last three months of 2008. Now on the surface, that seems bad. Actually, after that report came out, the stock market went up. So what's going on? Well, what analysts did is they looked behind that number, and they saw that there were actually some encouraging signs. For example, consumer spending actually went up, and inventories went down. Now, why are those two things important? Well, consumer spending, of course, drives the economy. We consumers account for 70 percent of the economy. So if there are signs that consumer spending is coming back, that certainly bodes well for the economy down the road. Inventories dropping . . . that's actually a good sign because that means that at some point, businesses are going to need to restock their inventory, what they have in stock, so to speak. That means they'll have to restart production lines and bring back people. So all in all, although overall this number went down and showed a declining economy, there were some bright signs and hopefully those bright signs will get bigger down the road."

Posted by Dave at 08:00 AM

May 21, 2009

Reducing pollution

Most of us agree that we would like to see lower levels of pollution, both for health and global climate reasons. But the big question is how to achieve this goal. What are the options?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"I think there are three major options, and we can see these options discussed today in the public policy debate that's going on about how to reduce pollution. One is to rely on technology. It is to develop new ways of bringing fuels and power to us that pollute less. So the key here would be on developing that technology, and obviously that means research, research and development at universities and businesses. So the focus there is, let's get clean energy developed. Secondly is to try to motivate consumers to use less-polluting products today. And the way to do that would be through education. And so we obviously have had a lot of education over recent years trying to convince people - children, older people - about, look, what are you doing when you burn that fossil fuel? What are you doing to the environment, your health, etc.? The third way probably is the most controversial. And it says, look, technology's fine but it take many years to develop. Yes, education is fine, but not everyone follows that. So we have to nudge people with taxes. We either have to tax the producer who's producing a polluting product, or we have to tax the consumer, the consumer who's using that polluting product. And the idea is that taxes are the fastest way to get people to change their behavior. You will hear all three of these approaches discussed, and that's obviously one of the biggest public policy debates we have currently about which method or combination of methods is the best way to go."

Posted by Dave at 08:00 AM

May 20, 2009

The value of health care spending

Much of the discussion of health care focuses on how much we spend, both individually and collectively. A goal of many of the proposals for changing our health care system is to reduce these costs. But isn't there a flip side to this debate that looks at what we get for our health care spending?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Indeed, there is, and when we look at that flip side, we see a lot of good things that we've gotten from our health care spending. If you look at the U.S., we've made a lot of progress in health care: increased longevity, improvements against disease and injuries, lower incidence of infant deaths. You can also look at the fact that as our society increases income, and living standards rise, people want to become more healthy. And we're willing to spend more money on health care. And there has been an effort by economists to put a dollar value on the benefits of our health care spending. Now these, of course, are controversial, but I think they do give us some perspective. One study, for example, estimated that these benefits are enormous, averaging over $3 trillion each year between 1970 and 2000, equal to half the annual gross domestic product, or total output of our economy over that period. So keep this in mind; certainly we want our health care system to be as efficient as possible. We want to spend as little as possible and get the same outcome, but don't forget to look at those outcomes. And when we do, we see a lot of good things."

Posted by Dave at 08:00 AM

May 19, 2009

The benefits of finance

The financial sector has taken hits, both economically as well as in reputation during the recession. Many people blame financial firms for our current economic troubles and question what they really contribute to the economy. Can you provide an answer?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, financial firms really serve as middlemen. Think of - let's look at something outside of finance - think of a real estate agent or an auto broker. What they do is they match up buyers and sellers. Yes, you could go out, for example, and look at a house on your own, but it's going to be much more efficient if you have a real estate agent whose full-time job is to find houses. Well, think of someone in the financial industry as bringing people who have money to loan together with people who need to borrow money. Think, for example, of all the inventors out there, all the innovators out there who have great ideas . . . they just don't have the money to finance them. Well, this is where you see the benefit of financing. A bank or maybe a venture capitalist will gather the money together, will get that money, perhaps, from people like you and me, who are saving for our retirement. They will get that money together, and they'll match it up to that inventor, than innovator, and hopefully there's a good product down the road. I think sometimes we devalue too much what we'll call these middlemen or middlewomen, the people who bring parties together. They do serve a vital function in our economy."

Posted by Dave at 08:00 AM

May 18, 2009

Restricting choice

Most people don't like to be told what they can and can't do. Yet there are many public laws and rules that do just this. What is the justification for these restrictions on choice, especially in a country that values freedom so highly?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Actually, there are three, I think, reasonable reasons we might restrict choice in, as you say, a country that values freedom so highly. One is where the individual making the choice is really not capable of fully evaluating the consequences of their decisions. And this usually applies to young people. So we put restrictions on what young people can buy because their brains haven't fully developed to be able to evaluate that. I think most people would agree with that. Secondly, we sometimes put restrictions on people's activities when what they do may adversely affect other people. The biggest examples here would be smoking in public places, also restrictions on alcohol consumption if you're going to drive afterward, the idea being that if you are under the influence of alcohol and drive, you may have a crash and hurt other people besides yourself. The third one, I think, is perhaps more controversial. And this is when the playing field between the parties engaged in the trade - the business and the consumer - isn't level. And usually this means that the business knows a lot more about the product or service than the consumer. And you can never hope to bring the consumer up to the same level as the business. So oftentimes, we'll see restrictions here, and these usually apply to the business. And these are usually in the areas of things like health and finance."

Posted by Dave at 08:00 AM

May 15, 2009

Confusion on tax terms

With the deadline for paying federal income taxes just past, taxes are on people's minds. Review for us some key tax terms and possible confusion they may entail.

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, first of all, taxable income . . . you're not taxed on all the income you earn, you're only taxed on so-called taxable income. You get taxable income by using deductions that you're allowed to take. And deductions are simply expenditures that the federal government smiles on and says you can reduce your gross income to taxable income by taking those deductions. Also, you can take exemptions, which is a monetary amount based on how many people you have in your household. Secondly, credit. A credit is actually a very valuable tax term because it actually reduces the amount of your taxes paid dollar for dollar with the credit. So a credit is much more important than a tax deduction. Tax rate, there are really two key ones here. The average tax rate is simply your taxes paid divided by your taxable income, so it's on average, how much taxes do you pay. But your marginal tax rate is the tax rate that you pay on additional money that you earn, additional taxable income. And the two can be different. In fact, they usually are different, especially for the federal income tax. And then finally, we talked about a tax credit reducing your taxes dollar for dollar, what is the value of a tax deduction? You would find that by taking the monetary amount of the deduction and multiplying it by your marginal tax rate. Usually that marginal tax rate is about 25 to 30 percent. So every deduction you have saves taxes at a rate of about 25 to 30 cents per dollar."

Posted by Dave at 08:00 AM

May 14, 2009

Perils of a gold standard

There are many people who think that numerous problems in our economy could be solved if the country went back on a gold standard. Briefly explain what a gold standard is and why not everyone is in favor of returning to it.

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"A gold standard simply means that your paper money is backed by gold, meaning there's a set price between the dollar, in our case, and gold. And people can - whenever they want to, if they feel like it – redeem their dollars for gold. Now, we went off the gold standard really in two phases; first, in the 1930s when the exchange rate, if you will, between the dollar and gold was altered and then in the 1970s, when the so-called gold window was finally closed. Now, advocates of a return to the gold standard say that it fundamentally restricts the ability of the government to print money, and therefore, it will limit high inflation and perhaps limit some of the massive lending that we've seen in recent years. Opponents say, however, that restricting the increase in paper money can still be accomplished outside the gold standard by the Federal Reserve. In fact, they show evidence of this by looking at the relatively low inflation rates we've had in the last 10 or 15 years. Opponents also say that if we had a gold standard, it would restrict the ability of the government to respond to economic emergencies like we have now. And indeed, some scholars - some economic scholars - say the fact the U.S. was on a gold standard during the so-called Great Depression actually contributed to making that downturn deeper than it would have been."

Posted by Dave at 08:00 AM

May 13, 2009

We're still number 1

We have to congratulate the North Carolina Tarheels for winning the national championship and being number 1 in college basketball. Yet speaking of number 1, with all the problems in our economy, does the U.S. economy still hold the title of number 1 in the world?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well of course, there are lots of elements to the economy, so it really depends on what you're measuring. But if you're measuring - this is the traditional measure - if you're measuring how much we produce, from our factories, our farms, our offices, then, yes, we are still number 1 in the world, and by a mile. The measure that economists use is called Gross Domestic Product. Again, it's simply the value of all final goods and services produced in the economy in a year's time. The U.S. has a Gross Domestic Product, or GDP, right now of $14 trillion, that's with a 'T,' trillion dollars. Next is Japan, then China and then Germany. And Japan is about half of our value, so we are still clearly the dominant economy in the world. We clearly have more production, more market transactions than any country in the world. And it's going to be a long, long time, economists feel, before we give up that title."

Posted by Dave at 08:00 AM

May 12, 2009

The plunging trade deficit

The government recently reported the trade deficit took a big dip. On an annualized basis, it is now down more than 50 percent compared to last year. Why has this happened, and is it good?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"This has gone largely unnoticed, but it is a fact. The trade deficit is way down, I think, for a couple of reasons. One, the lower value of the dollar in recent years did at that time make our exports cheaper, our imports more expensive. That works to lower the trade deficit. We're seeing the benefits of that now. Secondly, the recession. The recession means that we're simply buying less of everything, including imports. And I think thirdly, the end of cheap and plentiful finance to provide the money for us to buy those imports. The benefit of this - I think the big benefit - that many economists see is that the U.S. will not have to borrow as much money from overseas to finance our operations here. When we run a trade deficit, we're sending dollars overseas. If we want to access those dollars, we have to borrow them from those foreign owners. If more of those dollars stay here, we can - so to speak - self finance. However, a disadvantage is that this is going to hurt other countries, other countries that are very dependent on world trade . . . countries like Japan, Germany and China. And of course, we're in a world economy now, so to the extent that those countries are hurt, we do feel some of their pain."

Posted by Dave at 08:00 AM

May 11, 2009

Are there 'glimmers of hope?'

President Obama recently said he sees signs the economy is improving. In fact, he used the term, "glimmers of hope." And the president is not alone. Others have suggested cautious optimism. What are these positive signs in the economy that the president and others are seeing?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"I think it's a matter - and I think it's really subtle, but it's important - of things still getting bad, but they're getting bad at a slower rate. Think of the recession as you backing up a car. And the more you back that car up, the deeper the recession. However, eventually you're going to come to a stop, and before you come to a stop, you're going to slow that car down. That's sort of where we are right now. The recession is still going on. We're still going to lose jobs. We're still going to lose income, but we're losing them right now, we think, at a slower rate. And before we do reach a bottom, that rate has to slow. So these, I think, are the good signs. Now, what are some of those suggestions that things are getting bad but at a slower rate. Well, one big, important one is first-time unemployment claims. They're still rising, but they're rising at a slower rate. This doesn't mean the unemployment rate is going to go down, but it's going to go up at a slower rate. Home buying activity has picked up. Orders from factories are up. The stock market certainly has had a good run. However, one very important point is that all of these gains are from very, very low levels. Still, though, most economists have forecast that the economy in this quarter, the second part of the first half, is going to slip; probably slip in the third quarter. Potentially, the economy will show a growth phase in the last quarter. But again, the unemployment rate will still likely climb the rest of this year."

Posted by Dave at 08:00 AM

May 08, 2009

Taxing services

There's discussion in the North Carolina General Assembly of the idea of applying the state sales tax to services. What's the motivation behind this idea? Is it designed just to increase tax revenues, of is there a different reason?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"I think there are both short- and long-run reasons. Depending on how it's structured, it could increase tax revenue now. But I think in the longer run, what it would do is address a major issue with the sales tax. The sales tax as we know it today was really developed in the 1930s. It was applied to what people bought then, which is what we'll call 'hard goods.' We didn't have the service industry as we have it today. But now consumer spending has shifted over time, away from hard goods to services. Those services aren't taxed, so the sales tax is being applied to a smaller and smaller base. That's one reason why we've had to increase the rate. So the idea here is, look, if we want the sales tax to apply to what people buy, we have to include services. So let's eventually expand the sales tax potentially to all services, to everything people spend money on, and then what we can do is actually lower the rate. This will benefit the state because it won't matter if people shift what they spend their money on over time. There are lots and lots of issues here besides the political ones. One issue: would it be revenue neutral? That is, would we have a tax increase or tax decrease on net? Would it promote the purchase of services outside of North Carolina, and what would be the impact on taxpayers at different income levels? So stay tuned."

Posted by Dave at 08:00 AM

May 07, 2009

Is the 'real' unemployment rate higher?

The nation's unemployment rate stands at over 8 percent, but is this rate actually too low? For example, how does the government count people who have a part-time job but who really would like a full-time job? What about people who have been out of work so long they've given up looking for a job? Who is included in that 8 percent rate?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, the two groups that we've mentioned are not included in that 8 percent rate. Technically, that rate only includes people who are out of work, who want a job and who have been actively looking for work. So people who have to settle for part-time work aren't included as unemployed. People who have given up looking for work are not included as unemployed. Now, fortunately the government does keep alternative measures that take into account the groups we've mentioned. For example, if we include those people who have given up looking for work - who legitimately are unemployed but they simply don't qualify as unemployed because they've not gone on job interviews - if we include those, the national unemployment rate as of February would be 8.5 percent rather than 8 percent. If we include those people who are working part-time, only because of the economy - they really want full-time work, but they can only find part-time work - the unemployment rate would be 14.8 percent. So, unemployment depends on who you count. You get different measures depending on what groups you include."

Posted by Dave at 08:00 AM

May 06, 2009

Is North Carolina importing unemployment?

North Carolina's unemployment rate has more than doubled in just over a year, and we're now one of the leading states in the nation in unemployment. Some analysts have said one reason for these results is that the state is importing unemployment. First, what does this mean? And second, is it accurate?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, what it means is simply that people are moving here in search of jobs because they've heard in recent years that North Carolina is a great place to find a job. They get here, though, and they find that North Carolina is in a recession just like every other state. The jobs aren't available, and so they go on unemployment. And they get unemployment insurance, they get Medicaid and all the other services. And so there's a concern that, indeed, people are coming here because of this job search, and they're going on the unemployment roles, and ergo, we are importing unemployment. Now, whether it's accurate . . . well, on one hand, yes it is. If you look at the increase in North Carolina's labor force, the number of people here who are either working or want to work since the recession started, it has increased six times faster here in North Carolina than it has in the nation. So we are having more people move here, more people coming into our labor force. So I think the issue does have merit, but on the other hand, it's not an new issue. It's actually a recurring issue. If you go back to the last five recessions, you see the same thing, that we've had a bigger expansion of our labor force here in North Carolina than the nation. So I do think we are importing unemployment during this recession, but it's not a new issue. We always have during previous recessions."

Posted by Dave at 08:00 AM

May 05, 2009

The future of saving

The amount households save as a percentage of their income is now at its highest level this decade. Do you think this is a permanent change, or will we stop saving once the recession is over?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Many economists think this is a permanent change for two big reasons. First of all, the drop in household wealth that we have seen during this recession has been unprecedented since the 1930s. In fact, we've never seen as big a drop in household wealth since detailed data have been kept on this factor, since the early 1950s. We've lost right now $13 trillion in wealth, about 20 percent of all wealth held by households. So this is a big blow, and it's going to take households a long time to recover it. And they way they recover it is to save more. So I think there's going to be a constant motivation by households in coming years to save more money. Now on the other side of the ledger - lenders. I think lenders have been criticized recently for having higher standards to loan money. I think they're going to keep those standards high. They've also obviously been hit hard by this recession. They know the hit households have taken, so I think it's actually going to be tougher for households to borrow money. So I think on the one hand you have this motivation to save; on the other hand, you make it more difficult for people to borrow. I think that's going to combine to really change the landscape for savings. Saving will be 'in' over the next couple of decades."

Posted by Dave at 08:00 AM

May 04, 2009

Will the auto industry make it?

There have been some big shakeups in the U.S. auto industry recently as the companies struggled to meet the government requirements for financial viability. For the big three in Detroit, it seems like a long road ahead. In 20 years, will there still be vehicles made here in the U.S.?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"I definitely think so because there's always going to be a benefit to making a vehicle - a car or truck - in the country where you're going to sell it, simply because of the cost of moving those very bulky commodities. So, yes, we will have vehicle manufacturing plants here in the U.S. Now, the question is, will they be American companies? Will they be foreign companies? And where will they be located? I think what we can see is a trend away from American companies, and actually a trend away from the big auto manufacturing plants in the Midwest - Michigan, Ohio and Indiana, where the traditional American auto industry was centered. And really what we have right now is two auto industries in the U.S. We have the Detroit-based - Midwest-based - and then we have the southern-based. The southern-based auto industry has grown tremendously in the last 20 years. It's primarily an industry that's using foreign ownership, so there are foreign factories here. This is the part, I think, of the U.S. auto industry that will grow. It will grow here in the South, and it will primarily be from foreign-owned companies."

Posted by Dave at 08:00 AM

May 01, 2009

Getting the economy right

It seems there's always some issue with the economy. Either prices are too high for some, or prices are too low for others. Or there are too many people out of work, or there's not enough available labor to attract new businesses. Why can't you economists and policy makers solve these problems and have everything on an even track?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, an excellent question. That's a question I often get when I do talks around the state. And in defense of economists and policy makers, I would argue that we've been trying for a long time, and I think things are getting better. I think if you look over the broad span of history, the economy's performance has actually improved quite a bit over the last 70 years as compared to, say, the previous 100 years. But beyond that, people have to realize, we have a gigantic economy. Just here in the U.S., we have 140 million workers. We have $14 trillion of annual economic activity. We have millions of economic decisions being made every day. It stands to reason, those decisions are very hard to control. Now, yes, we could have some kind of an economic czar to coordinate everything, and countries have tried that, countries like the former Soviet Union. They have found that leads to disaster. I would argue, to paraphrase the great politician and prime minister Winston Churchill, that, yes, the economic system we have is a flawed system, but it's probably better than all the other systems that you could possibly have."

Posted by Dave at 08:00 AM