Cornelson Lecturer Expresses Concerns About Nation's Economy
Alice Rivlin (r) with Dennis Appleyard, economics department chair and Duke Professor of International Studies and Economics
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4/1/2004
Contact: Bill Giduz 704/894-2244 or bigiduz@davidson.edu
by Matthew Handorf ' 05
The economics department’s annual Cornelson Distinguished Lecture this year featured an address by Alice Rivlin, Senior Fellow of the Economics Studies Program at The Brookings Institution, and an expert in fiscal and monetary policy, social policy, and urban issues.
Rivlin’s impressive résumé includes service as Alan Greenspan’s vice chair of the Board of Governors at the U.S. Federal Reserve from 1996 to 1999, director of the White House Office of Management and Budget from 1994 to 1996, founding director of the Congressional Budget Office from 1975 to 1983, and as assistant secretary of the Department of Health, Education, and Welfare from 1968 to 1969. In addition, Rivlin has received a MacArthur Foundation Fellowship, and taught at Harvard, George Mason, and New School universities.
At Davidson, Rivlin addressed a range of topics concerning the United States economy, and reflected on how past monetary and fiscal policies have affected the current economy.
Speaking to a large crowd of economics majors and professors in the newly renovated Gallery Room of Chambers Building, Rivlin opened her speech by asserting, “It is a confusing time to listen to economists, even if you are one!”
She proposed that the current economic uncertainty will continue to grow as markets become more global, and because of improved communications and globalization. In addition, she argued that market susceptibility to “irrational exuberance and pessimism” produced by the increasing interrelatedness of nations and shifts in tastes and preferences will also also produce economic uncertainty.
Rivlin said the current “jobless” economic recovery is one of the most serious problems facing the United States economy. As productivity rapidly grew in the latter half of the 1990s, wages and profits were rapidly driven upwards while inflation remained low. However, as seen most pointedly in the manufacturing industry, high productivity growth has also led to slower job hiring. Rivlin cited three reasons for the jobless recovery: 1) Many firms over-invested in capacity, such as in fiber optics; 2) The speculative stock market bubble burst; 3) Corporate malfeasance. Rivlin also claimed that there is a long term trend away from manufacturing in the United States, and that any attempts to reverse this trend with protectionism would result in a lower standard of living for U.S. citizens. She concluded that the United States should “embrace change and facilitate transition.”
Rivlin also spoke at length about the budget deficit. She said the country faces sustained large deficits for the next ten years, and argued that we must pay attention to the future. She said large deficits are a severe problem for several reasons—they crowd out investment and reduce productivity growth with increased interest rates, they hurt future tax payers, and debt leads to borrowing that makes the United States more dependent on foreigners.
Rivlin proposed three plans for balancing the budget—the “Smaller Government Plan,” the “Larger Government Plan,” and the “Better Government Plan.” The “Smaller Government Plan” calls for reducing spending by $400 billion in non-defense spending by eliminating items like commercial subsidies, agricultural subsidies, federal aid for housing, environmental spending, law enforcement funding, and NASA funding. However, she said fiscal spending reductions of this magnitude are unfeasible, and that new taxes need to be raised.
The “Larger Government Plan” calls for a $185 billion reduction in spending by 2014, along with a national health care plan and $600 billion in new taxes.
Finally, the “Better Government Plan” cuts a middle road between the other two, with modest new funding, drastic cuts in spending, and raising new revenues.
Rivlin said the difficulty of implementing any of these plans demonstrate that the U.S. is in a deep economic hole, and it is getting deeper. She said the deficit can only be reduced by making serious choices about about both spending and revenue generation.
Davidson College’s annual Cornelson Lecture is made possible by the Cornelson Endowment, which recognizes and honors six members, from four generations, of the Cornelson family. In addition to Rivlin, the Cornelson Lecture has featured other prominent economists such as Douglass C. North, Roger Sherman, and N. Gregory Mankiw.
The Cornelson Endowment also supports the college’s senior session in economics, a capstone course for senior economics majors.
Davidson is a highly selective independent liberal arts college for 1,600 students. Since its establishment in 1837, the college has graduated 23 Rhodes Scholars and is consistently ranked in the top ten liberal arts colleges in the country by U.S. News and World Report magazine. Davidson is engaged in “Let Learning Be Cherished,” a $250 million campaign in support of student financial assistance, academic resources, and community life.
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