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Economist addresses Brazoria County EDA
Published November 5, 2009
WEST COLUMBIA — Consumers can benefit from current economic conditions and businesses making money have no reason to apologize, an economist told attendees of the Economic Development Alliance for Brazoria County’s annual membership meeting.
After last year’s economic plunge caused by what Mark Dotzour called bad banking and real estate investment practices, the federal government began printing money to help solve the problem. But the bailout can’t work, so the Federal Reserve Bank, which operates independently of the federal government, will keep interest rates low to allow banks to “earn their way out of” the current recession, said Dotzour, chief economist and director of research at the Texas A&M Real Estate Center.
In the meantime, consumers can save money by refinancing their mortgages at rates at or below 5 percent, he said.
“It’s a gift your government is giving you,” Dotzour said to about 120 people Tuesday at the Columbia Lakes Conference Center. “The government is paying for it. Use it.”
Businesses flourishing before last year’s plunge, now or in the future have nothing to apologize for, he said.
“That’s why we get up at 7 o’clock in the morning and put on these clothes,” Dotzour said, motioning to his coat and tie. “Be proud of it. Profit is good. It’s something you do.”
Recessions come and go are a natural part of the American economy, he said. Government bailouts are a mistake which might prolong the problem.
“We have recessions,” he said. “(The economy) goes up and you make a lot of money. This is how it works all the time, only this time, we decided we can’t survive without the government printing more money and give us stuff.”
Pending “cap and trade” legislation will result in downward pressure on the economy, he said. Cap and trade is an environmental policy in which the government would “cap” greenhouse gas emissions. Businesses that can’t meet the government’s “enforceable limit” could buy, or “trade,” permits from those companies that can.
If that legislation passes, it will result in higher fuel and electricity prices as companies pass on the expenses of paying for a global demand for reduction in greenhouse gases.
When financial markets plunged last fall, consumers curbed spending, Dotzour said. Businesses did the same, including cutting jobs, and the government began printing more money.
“They’re going to have to scale back too, or raise taxes astronomically to pay for it,” he said.
The best-case scenario has corporate profits and consumer confidence climbing and an end to layoffs by the end of this year. In the worst case, government intervention on things like a capital gains tax would lead to “high political risk” for businesses, which would in turn “sit on their hands” until something more sure comes along, he said. Unemployment would continue at more than 10 percent.
But the economy has been through many recessions before and the federal government has been in debt deeper than it is now, he said. Consumers have the key to getting the economy moving again, he said.
“When people decide they’ve saved enough, that will be the bottom of the economy,” he said. “When that will happen, nobody really knows.”
Alliance Chairman Jim Heath said the presentation was sobering but not dire. Business people should stop listening to political pundits and “work to make some money and work ourselves out of this mess we’re in.”
Alliance CEO Robert Worley said Dotzour’s report wasn’t rosy but was informative.
“He didn’t tell us what he thinks will happen but he did give us some scenarios,” Worley said. “If the worst things happen, it’s pretty frightening and we’ll be in this economic slump for a long time. If certain other things happen, it looks pretty good.”
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