PSU economists say $700 billion bailout a good remedy for national economy

As a faculty led panel discussion called “Whither Our Economy?” began on Tuesday evening, students and community residents packed a Smith Memorial Student Union room in an attempt to fully understand the economic crisis. Each professor delivered a 10-minute speech accompanied by Power Point slides to create clear definitions and explanations for the students and was later followed by a question and answer session.

As a faculty led panel discussion called “Whither Our Economy?” began on Tuesday evening, students and community residents packed a Smith Memorial Student Union room in an attempt to fully understand the economic crisis.

Each professor delivered a 10-minute speech accompanied by Power Point slides to create clear definitions and explanations for the students and was later followed by a question and answer session. The first speaker, André Rossi de Oliveira, a visiting associate professor of economics, explained how a successful housing market transitioned into a foreclosure crisis. He indicated that the housing boom substantially raised the prices of homes, leading to overbuilding and increased investment in houses.

Subprime lending enabled borrowers that failed to meet regular requirement to accept large loans. During the summer of 2006, the excessive number of available homes decreased consumer demand and subprime lending resulted in higher interest rates, foreclosures and defaults.

Oliveira stressed that the economic decline affects not only corporations but also student loans.

“It affects you guys and you are now subject to the scrutinizing process,” Oliveira said.

As banks strive to reestablish credibility and security, said Oliveira, they are refraining from lending money to any investors deemed to have risk factors.

Oliveira outlined the lessons that he thinks should be implemented in the near future: providing people with incentives and opportunities for profits, and elevating the necessity of an efficient regulation system.

Oliveira also cautioned that the failure of one or two institutions could affect the rest of the economy. To provide a global context for current conditions, Hiro Ito, an associate professor of economics, indicated that Europe is experiencing a similar version of the subprime crisis, and Japan faced an economic recession that lasted for 15 years.

Ito suggested that less spending by American consumers due to their fear of economic conditions leads to “a bad economy, a self fulfilling prophecy.”

As he concluded his presentation, Ito noted that the results could be better than expected if certain conditions are met.

Ito said that if the banking systems retain credibility, the U.S. government elevates spending in projects rather than cutting back, and if international cooperation leads to the formation of single rather than multiple policies, the value of the dollar could remain stable and deflation could be avoided.

Economics professor John Walker provided further historical context of economic crisis. “All capitalist countries bailed out their governments at least once in the last 30 years,” Walker said.

While restructuring the economy is perceived as a rare occurrence, the United States has restructured its economy five times, Walker said. Walker used historical examples to support his argument and said that America has “reorganized its financial system in the next decade, not next year.”

Walker said that the government began deregulation policies 40 years ago due to popularity, and that an emphasis on regulation will resume to shape economic policy.

To provide a more local context on the economic crisis, John Potiowsky, a professor of economics and an economist for the state of Oregon, analyzed how the national situation is affecting Oregon.

“Everything is affected,” Potiowsky said.

Potiowsky, however, painted a relatively sunny picture for Oregon’s economic future. Potiowsky said that the unemployment rate and the decline in housing prices in Oregon will recover as soon as national economic activity becomes stable, unlike other states such as California and Arizona, which Potiowsky said face a longer recovery period.

All four of the speakers Wednesday supported the $700 billion bailout, reiterating that a quick recovery will reduce long-term effects and promote a stable economy. They also agreed on the necessity of regulation to reduce the level of risky economic investments and policies.