Kyle

Continued stagnation is the best we can expect for the U.S. economy in 2012 unless there is another big injection of federal stimulus cash or a rebound of the housing market, according to Cornell economist Steven Kyle.

Kyle, a professor in the Charles H. Dyson School of Applied Economics and Management, made the prediction during his popular annual presentation at the Agribusiness Economic Outlook Conference, held Dec. 13 at the Statler Hotel.

He predicted the U.S. economy will continue to stumble along, possibly growing at a rate of about 1-2 percent and eventually reaching an equilibrium, although how long that takes will depend on domestic policies and foreign markets. He warned that we should be keeping a close eye on the European debt crisis and Chinese currency, in particular.

"The economy of Europe is comparable in size to the U.S., and they're over there right now inflicting the mother of all self-inflicted wounds on the world's economy," he said. "Even if they don't melt down completely, a recession for them is not going to be good news for us."

Much of our economic health hinges on the housing market, Kyle said. It's what precipitated the current economic state, and it's what will pull us out of it. New homes help stimulate an economy, thanks in part to the construction jobs and supply sales they spawn. But currently there is an abundance of existing homes and foreclosures.

"As long as there is a backlog of foreclosures and other repossessed properties, we are going to see big problems," he added.

The housing market has provided proof that government policy can have an effect, however. Homebuyer tax credits worked, just not on a big enough scale, Kyle said.

Likewise, a bump in employment figures during the Census proved that the federal government can produce jobs, and Kyle said that could be the key to solving stagnation.

He suggested that President Barack Obama invest in infrastructure improvement projects like road construction.

"We're going to need to do it eventually. We should do it at a time when we need the jobs, and we can borrow the money at zero percent interest," Kyle said.

Kyle also advocated for investment in research and development, and for a modest rise in inflation.

"Around 3 to 4 percent would do a lot to reduce the value of the debts out there and help the housing market," he said.

A little extra money in the pockets of the average citizen might also help.

"The Occupy Wall Street protesters have a point. Our nation's money is distributed strongly at the top income levels, and those people don't boost their consumption as much," Kyle said. "It would be good for the country, the patriotic thing, if all of us got a raise. We'd be more likely to spend it."

Recent debt ceiling debacles in Washington, D.C., have not inspired confidence in consumers or businesses, Kyle said, adding that congressional obstructionism and campaign rhetoric have not inspired him to feel confident that anything will get done during the election year.

"Their inability to do some basic things for our economy is a disgrace," Kyle said. "It's like King Solomon actually intending to cut the baby in half. It's good for negotiations, but it's bad for the economy."

One positive about the poor economy is that household debt has improved, as people are afraid to spend, and banks are unwilling to lend.

"We are forming the basis for a stronger recovery, if we can get there -- but we're not there yet," he said.

Stacey Shackford is a staff writer in the College of Agriculture and Life Sciences.