By My Yen La
Daily Bruin Contributor
Talk of economic downfall may have begun as whispers, but it
became loud and clear as America blasted into the new year.
Speculations about recession and economic downfall have
permeated the airwaves and have been continually discussed and
debated by the media.
“News reports have been very pessimistic about the
economy. President-elect Bush has been very pessimistic about the
economy,” said economics Professor Lee Ohanian.
With the recent bombardment of grim economic predictions,
worries arose that the economy will get talked into a recession.
But there is little evidence in the theory, according to Edward
Leamer, the director of the Anderson Business Forecast.
“I don’t think the comment creates the
outcome,” Leamer said. “It’s kind of like saying
that spring causes summer.”
Polls about consumer confidence, Leamer said, do not necessarily
correspond with economic health.
“Consumer attitudes that are routinely recorded
don’t help to predict recessions,” Leamer added.
“Recession is driven by forces that aren’t
psychological.”
Although many economists, such as Leamer, continue to expect an
economic downfall, Ohanian said the media has exaggerated economic
conditions. The current and last few quarters of growth, he said,
is comparatively slower than the unusually large growth at the
beginning of last year but the slowdown is simply approaching
historical averages rather than new lows.
“There’s no big cause for concern,” Ohanian
said. “I still expect productivity growth to continue at a
historical average.”
Productivity growth, the main engine of economic growth which
determines the health of the economy, has slowed in the last two
quarters of the year.
Experts predict the economy will continue to grow ““ at
about 2 percent this coming year. Last year, economic growth
dropped from about 4 to about 2 percent per year during the last
half of the year, according to Ohanian.
Student investors, such as first-year undeclared student David
Safani, are not all worried. Although his stocks went down and the
media gave grim reports of economic slowdown, he said he will
continue to invest.
“It went up a lot, but then it went down more,”
Safani said. “But I’m optimistic.”
Safani has been more optimistic since the Federal Reserve Board
decreased the federal funds rate.
Despite ominous reports about the economy before the federal
funds rate decreased, graduate student at the School of Public
Health Michelle Moghadassi also continued to keep her and her
husband’s long-term investments the same.
“I think the slowdown is kind of expected,”
Moghadassi said. “I think the worst thing to do is panic. I
don’t think in the long term there is a tragic
consequence.”
Economic conditions have been worse in previous years, Ohanian
said.
During the 1990s, the overall economic growth was healthy.
However, in the 1970s, productivity growth slowed tremendously
because new government work safety laws restricted businesses from
working in the most efficient way possible.
Despite the apparent slowing of the economy, Ohanian believes
economic health is unlikely to deteriorate to the point it was in
the ’70s.
“The economy has changed dramatically in the last 20 to 30
years,” Ohanian said.
He said new technology and better communication have effectively
increased productivity tremendously and that as long as
productivity remains stable or increases, the economy is unlikely
to worsen.