With the new year upon us, the Daily Bruin sat down with UCLA
Anderson School of Mangement forecaster Michael Bazdarich to
determine the most important fiscal issues facing the United States
in 2005.
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Daily Bruin: If you could conduct the United States’
fiscal policy for 2005, what would be your most important
priorities?
Michael Bazdarich: The first thing that comes to mind is not the
most important, but I think maybe third or fourth on the list, and
that would be pushing the tax reform issue that the president has
been advocating. It’s not something that’s going to
help balance the budget, but it’ll help economic growth in
the U.S., and it’ll help us on the budget down the road once
these reforms have spurred economic growth.
Now we have a more immediate problem in that we have built up
this substantial deficit over the last few years. One of the
easiest things to do on the budget side, but not one of the
quickest, will be on defense. From what I can tell, we’ve
built up defense spending about $100 billion a year more than it
otherwise would have been because of the Iraq war. So the one thing
you could do would be to try to reduce some of the expenditures as
quick as is feasible ““ as quick as policy lets you.
Taxes are a tough issue. We didn’t really need a tax cut
four years ago on the budget side. We didn’t have taxes that
were especially high, but we did have a recession upcoming. Bush
provided some short-term stimulus to the economy that probably
worked, but we don’t need it as much now as we did four years
ago.
DB: Do you consider the falling dollar-euro ratio to be a
problem?
MB: Not a problem in and of itself. Whenever you talk about
foreign exchange rates, and whenever you talk about foreign
considerations, you’ve got to talk about what the underlying
problem is.
The dollar didn’t fall just out of the blue; it’s
falling for a lot of reasons. One, we were the only major national
economy which attempted to stimulate its economy in the last four
years in order to mitigate recession. The problem is we were the
only country that did that, so we generated a massive trade
deficit. That trade deficit in turn is helping to generate a lot of
weakness in the dollar.
I think another thing that’s working to hurt the dollar
now is what’s going on in China and India. You get all these
cheap goods, but we’re outsourcing and that kind of thing,
and that’s generating some of the downward pressure on the
dollar.
DB: What could we do to help strengthen the dollar?
MB: I think people ought to think about buying American
products. There are some things that we need to import, but then on
the other side, I don’t understand why people buy Lexuses and
Mercedes or BMWs instead of American cars.
I think people kind of just casually prefer foreign products
over U.S. products. I think we’re very rare among world
people that way. Japanese consumers are extremely conscious of
buying Japanese products, and I think European consumers prefer
European products over American products because they see the
effects on the economy.
DB: Do you think that we should change the ratio of the
dollar to Chinese currency?
MB: It’s not going to help that much, frankly. The Chinese
worker is making $2 a day, or whatever it is exactly ““ even
if it’s $20 a day, compared to an American worker making $20
an hour.
DB: Is there any possibility that a weak dollar would lead
to it no longer being the world’s reserve currency?
MB: Yeah. It’s a potential. I think 50 years ago the
dollar became the world’s currency because we were really an
export powerhouse in those days. The dollar first became a reserve
currency because people were able to buy U.S. goods. The dollar is
still a reserve currency now because of the freedom. You know you
can get the money out; you know you can spend it as you wish. You
don’t have to worry about the government confiscating it.
There’s still a lot of capital control in other areas.
DB: How important is it that the deficit be
reduced?
MB: I’m going to go against the grain here, but personally
I don’t think it’s that big of a deal. As a share of
the economy, the deficit now is smaller than it was 20 years ago
and that deficit didn’t kill us. What bothers me more is the
level of government spending.
Interview conducted by Colleen Honigsberg, Bruin senior
staff.