Panel stresses weight of economy in race
Economics faculty members advise students to pay attention to numbers
With the presidential elections looming on the horizon and unemployment rates high in the United States, how each candidate plans to boost the economy could decide who wins the race.
A panel of faculty from the Department of Economics spoke to a crowd of about 100 people at the Rutgers Student Center on the College Avenue campus yesterday about what is at stake when the nation’s unemployment rate is the highest since the Great Depression.
Voters should pay close attention to the numbers and figures of detailed policies so they can make informed decisions, said Rosanne Althshuler, professor in the Department of Economics.
“It’s your tax dollars,” she said. “We need to be concerned with how much money we’re taking in because we have deficits and a federal debt that are projected to be extremely big over the future, to the extent that it’s probably going to be a drag on the economy.”
Economics Professor Mark Killingsworth said the issue of financial inequality concerns most of the population and should start being discussed among the candidates.
The phenomenon of incomes rising progressively has dropped, he said, with the after-tax-income only growing 1 percent each year for the bottom 80 percent of the population.
“We are doing poorly in mobility in relation to other developed European countries,” he said. “While liberals have banged the drum about this for a long time, even conservatives like Rick Santorum and Paul Ryan are becoming concerned.”
The $105 billion government bailout of eight big banks is what pushed the recession over the edge in 2008, said Eugene White, a professor in the Department of Economics.
Catching banks when they fall can be a dangerous move, as it creates the illusion of a fool-proof system that sent the United States into a crisis in the first place, he said.
“If you try to make banking perfectly safe so that no depositor or creditor ever sustains a loss, it casts a moral hazard and forms a socialization of risk,” White said. “The ironic part about this is that losses of some kind are required to improve incentives to risk-taking.”
After the boomer population entered into the elderly demographic, the demand for Social Security started to rise, becoming too high for the system, said Jeffrey Rubin, a professor in the Department of Economics. This trending problem eventually led to a brick wall in 2011, when Medicare spending exceeding its revenue.
“In 2001, Medicare was spending more than it was bringing in — and that’s the problem,” he said. “There’s only so much money sitting in the trust fund. It’ll run out very quickly.”
Rubin said accessible health care is essential for minority groups responsible for 55 percent of Medicaid spending. Among these are citizens with chronic disabilities, mentally ill children, those with significant birth problems and elderly in nursing homes.
“They are the ones that are using up most of the Medicaid dollars,” he said. “It’s not the
35-year-old guy who isn’t working and is trying to live off the government system.”
This is among many stereotypes that political figures use to influence the election, but have no root in reality, Altshuler said.
She said the 47 percent of the population that Romney labeled as dependent on government welfare actually consists mostly of working people who contribute to payroll tax, the poor and the elderly.
But problems extend beyond the mere game of politics. If Obama stops prolonging the Bush tax cuts that were due to expire in 2011, taxes would rise more than $500 billion in 2013 — with the average tax rate increasing by $3,500 per family, Altshuler said.
She said Obama does not seem to be offering an alternative solution and Romney is proposing a 20 percent tax cut across the board.
“Our tax rates are going to go up if Congress does nothing, and Congress is really good at doing nothing,” she said. “This means the first week of January, when people get their paycheck, it’s going to have less money in it unless Congress does something.”
To get the economy moving, a properly executed value-added-tax should be put in place, as it would raise revenue without significantly affecting consumer behavior, Altshuler said.
“We’re basically the only country that doesn’t have it,” Altshuler said. “The problem is that every leader that’s imposed them was then voted out of office. It’s not a great record, but it’s extremely efficient.”
If future generations have a chance, America desperately needs to improve its education quality to catch up to the rest of the first-world countries, but that is in the state’s hands, Killingsworth said.
“Most people are getting killed, and only high-skilled people are doing well in this economy,” he said. “Fixing the school system would seem to be a very high priority, but a lot of that is up to the states. It’s a very slow system to get moving.”