Top UCLA economists predicted “OK times in 2003″
Wednesday, but said ““Â time and time again
““Â people should not expect the sort of recovery that
often follows recessions.
The national economic forecast of the Anderson School at UCLA
predicted the resumption of normal levels of growth late in 2003
and little net economic impact in the event of war.
Despite some positive signs, however, those in the audience were
warned not to expect the “R” word.
“There’s no recovery,” said Edward Leamer,
senior Anderson economist and head of the widely-followed Anderson
Forecast. “Don’t talk about it anymore.”
The reason? Whereas recessions are typically slow-downs in
normal growth rates and increased consumer spending can lead to an
upswing, the recent downturn followed an Internet rush that created
an artificially inflated economy, forecasters said. Thus, a
recession gets the economy back to normal and there is not really a
recovery.
The economy is currently correcting itself
““Â “returning to normalcy,” as one of
Leamer’s colleagues said ““ but not
“recovering.” The Internet’s economic worth was
simply not as high as investors thought during the boom period in
the 1990s.
Specifically, Leamer outlined three “imbalances” of
the Internet rush in need of correction before the economy is
normal again:
“¢bull;Â Corporate investments that led to little
profit.
“¢bull; Abnormally high consumer spending and low savings.
“¢bull; An unsustainable level of capital investment in the
United States compared to other countries.
These corrections would effectively make up an economic
slowdown.
Leamer added later in his presentation a fourth imbalance that
could slow growth: expected cutbacks in state and local spending,
as governments across the nation are facing shortfalls.
Decreases in such spending could slow the gross domestic product
by 1 percent or more, Leamer said.
California is currently facing a multi-billion dollar budget
hole. It is not yet clear how much this will affect the overall
state economy, according to Tom Lieser, a senior economist with the
Anderson Forecast.
Lieser predicted that a stagnant information technology sector
will slow the state’s growth this year and that California
consumers will continue to be vulnerable to high gasoline prices.
But improvements in personal income and employment will take place
in 2004, he said.
The way the state’s budget crisis is dealt with will
affect the amount of business done in the state. Lieser said
potential businessmen ““ often willing to put up with high
taxes and strict regulations in the Golden State because of
California’s sheer size ““ might be turned off if there
is a “messy” resolution to the state budget crisis.
Locally, Los Angeles remains a bastion of strength, the forecast
said. Christopher Thornberg, also a senior economist with the
forecast, said that California is becoming “a tale of two
states.”
In fact, he said the greatest threats to the area’s
economy come from the outside ““ from its connections to the
state and national economies.
A statement from the Anderson school said Leamer recommends
temporary tax increases as a remedy for the state’s
economy.
Additionally Leamer said cuts in spending that can be made
without affecting unemployment levels are preferable to cutbacks
that do.