One week after the National Bureau of Economic Research confirmed that the U.S. economy has been mired in a yearlong recession, Cornell economist Steven Kyle predicted that the financial tumult would continue well into 2009.
Speaking Dec. 9 at the annual Agribusiness Economic Outlook Conference in Kennedy Hall, Kyle noted that every major economic indicator is "cliff-diving," including record lows for housing starts and consumer confidence. In the best case, he said, the national markets will show zero growth in 2009, with unemployment rising to as high as 8 percent or more from its current 6.7 percent and a continued decline in exports as foreign markets also retrench.
All of these gloomy data led Kyle, associate professor of applied economics and management, to offer this blunt advice: "If you have a job, be grateful, and don't quit."
Kyle warned that the U.S. economy could suffer further as a Keynesian paradox of thrift comes into play -- a scenario in which wary consumers cut spending at the very moment the economy needs an infusion of cash. It falls on government, in Kyle's view, to fill that gap.
The Federal Reserve has no power remaining to fix the economy, said Kyle, since it has already slashed interest rates (the target rate for federal funds) to 1 percent. "We're now in a situation where we have no monetary policy bullets left to shoot ... it's up to spending to pull us out of this."
Kyle joins a growing chorus of economists and lawmakers calling for a massive stimulus package to jump-start the flagging economy. He suggested as much as $1.3 trillion, or about 10 percent of gross domestic product would be necessary, focused on measures like the extension of unemployment benefits, capital projects and aid to state governments that will lead to immediate spending.
"We need a stimulus shock and awe," Kyle said. "It requires something that causes people to be jolted out of this pessimistic thinking."
In the wake of multiple government-led bailouts of financial institutions and, this week, a tentative plan to prop up Detroit automakers, Kyle conceded that a stimulus proposal could be difficult to pass. Such a massive program would also swell the federal deficit, which has grown markedly over the last eight years. Still, Kyle cautioned that policymakers cannot lapse into "Hooverism," and take no action as the markets plummet.
"The risk from doing too little is far worse than doing too much," Kyle added.
He doubts any such deal will arrive during the remainder of President Bush's term. Instead, he said, it could come in the Obama administration's first 100 days, particularly with Democratic majorities in Congress. The president-elect has repeatedly called for an economic stimulus and has touted a plan to save or create 2.5 million jobs by 2011.
If such a plan passes, Kyle foresees stagnant growth in 2009 -- a "bad" rather than "truly awful" economy.
This marks Kyle's seventh year predicting the state of the national economy. Following his talk, Todd Schmit, assistant professor of applied economics and management; Sam Simon, president of Hudson Valley Fresh; and New York State Commissioner of Agriculture Patrick Hooker discussed market opportunities for New York agriculture producers. The conference concluded with two sessions assessing specific markets for dairy products, feed grains and specialty crops.
Ted Boscia is a staff writer for the College of Agriculture and Life Sciences.