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Hipple expecting stronger recovery

By Jeff Keeling
Press Business Editor
jkeeling@johnsoncitypress.com

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Local economist Steb Hipple is feeling bullish — at least relative to a year ago, and compared to many economists’ sense of how brisk the pending economic recovery will be.

“I think there’s enough stimulus in place that we are going to have a recovery next year that’s a little bit stronger than the consensus,” Hipple told the local chapter of a society of operations managers, APICS, at a Tuesday dinner.

Hipple, an economics professor at East Tennessee State University, interprets quarterly jobs market and retail sales data out of ETSU’s Bureau of Business and Economic Research.

He spoke to APICS for the second straight year Tuesday, and left no doubt of his belief in at least two things: that fiscal and monetary stimulus have been key contributors to the nascent recovery, and that GDP growth or no GDP growth, the recession is here until adequate job creation returns.

A year ago, Hipple predicted that “you can write off 2009.”

“Sadly my forecast was accurate,” he said Tuesday. “2009 will not be a year we look back upon fondly as a good year for the economy and for the broader society.”

In fact, Hipple said, this recession has surpassed the 1981-82 downturn and become inarguably the worst economic situation since the Great Depression. The country didn’t enter another Depression, by Hipple’s reckoning, because of lessons learned from that sad chapter in our nation’s history.

He said the central bank failed to inject liquidity into the banking system in the early part of the Depression, and Franklin Roosevelt bowed to political pressure in the mid-1930s and put the brakes on fiscal stimulus. While he believes the recovery itself isn’t in jeopardy, Hipple said it may be slowed if a second round of fiscal stimulus is needed but not enacted.

“If enough shouting is occurring from other sections of the economy by economic illiterates we may see what FDR did in the in the mid-’30s,” Hipple said.

He argued that due to the intricate relationship between the central banking system and the U.S. Treasury, the sky-high deficits currently being run — at an estimated $1.8 trillion for fiscal 2009 represents more than 10 percent of gross domestic product — can be erased down the road without excessive taxation.

The stimulus that created the current deficit should lead to visible recovery soon, Hipple said — even in what he called the most important indicator of economic health, the labor market.

“I think that the recovery is probably going to be a pleasant surprise and that we may see improvement in labor market conditions sooner rather than later.”

Still, Hipple said, the recession has been brutal, and is still very real, particularly for people who don’t have a job. Of all the indicators he discussed — GDP, industrial output, inflation, etc. — Hipple called employment “the hardest number and the best number.”

He said full employment is considered the 5 percent or so enjoyed in the last couple years before the current recession, but that with official unemployment above 10 percent and the true picture even worse, “this is not an output recession. This is a labor market recession.”

It is the inability of jobless Americans to spend, Hipple said, that has wrought havoc with state budgets and multiplied the recession’s pain and suffering. He said California, whose budget problems are among the nation’s worst, is considering a 40 percent hike in college tuition, and important government programs that help vulnerable Tennesseans are at risk as well.

“Until we are stopping the loss of jobs and are starting to create jobs I don’t see any official end to the recession.”

Hipple repeated several times that additional stimulus may be needed, and touted the background of Fed Chairman Ben Bernanke, Treasury Secretary Timothy Geithner and, when it comes to economic understanding, President Obama.

Hipple, who called himself “a lifelong Republican, said Obama has wasted political capital with what he called “the train wreck” of health care reform. Combined with fears of inflation by some economists, particularly on the right, that Hipple called unfounded, the result could be a weaker recovery than necessary.

“My fear is that we might need a second stimulus package and we might not have the political will or the common sense to do it.”