TRANSCRIPT
Dick Pryor: This is Capitol Insider - taking you inside politics, policy and government in Oklahoma. I'm Dick Pryor with Quorum Call publisher Shawn Ashley. Our guest is Dr. Robert Dauffenbach, professor emeritus at the Price College of Business at the University of Oklahoma. Bob, good to have you with us today.
Dr. Robert Dauffenbach: Glad to be here.
Shawn Ashley: Dr. Dauffenbach, how would you characterize the current state of the national economy in terms of the ups and downs of the economic cycle?
Dr. Robert Dauffenbach: Well, it's really a tale of two outlooks. And I have some of my economist friends look to the positive side. They see that we've certainly had good reports on growth in gross domestic product, 2.8% reported in June. Inflation's coming down. That's the positive. The unemployment rate may be rising somewhat but is still indicative of a full employment level. On the other hand, I have other economist friends who think that we've had the rates at a very high level for a long time, an inverted yield curve, higher short-term rates and long-term rates. That continues. And that's likely to still pressure the economy. And of course, we've seen growth in the unemployment rate. And that's of concern. So, some, some of my economist friends on one side, some on the other, and I with my friends.
Dick Pryor: How is the Oklahoma economy faring?
Dr. Robert Dauffenbach: The Oklahoma economy, I'm afraid to say, is not very impressive in some regards. Certainly, on the total employment side, we're looking at not too different results from what the state has done in comparison with the nation. Since June of 2019, I choose that date because it's prior to the Covid pandemic and the U.S. economy is, employment, has grown by 5.1%, the state's grown by 4.7%. But a large part of the growth has been Oklahoma City and Tulsa. Over that five-year period, Oklahoma City has gained 8.9% in employment, and Tulsa has gained 3.6%, so below the national average. In the balance of the state outside those two metropolitan areas has only grown by 0.7%. State taxes, remarkably, are down from a year ago. And that is, got to be of, of some concern that the total tax collections were down nearly 9% and severance taxes were down 40%. There's concern there.
Shawn Ashley: Inflation continues to be an issue. What has the Federal Reserve done in order to curb inflation?
Dr. Robert Dauffenbach: Well, the Federal Reserve was somewhat late to the game. They initially thought that inflation was going to be transitory. And then when it proved to be not transitory, they raised rates very dramatically, historic increases, essentially going from 0 to 5.3% in short-term interest rates. We've been at that level for about 14 months. And many thought that that would have a very damaging effect on the economy. It turned out that the economy was more resilient than many would come to believe, with that much pressure on the economy. So, they got into the game a little late, but they've been successful in bringing the rate of inflation down.
Dick Pryor: Who has this inflation benefited, and who's been hit the hardest among households and businesses?
Dr. Robert Dauffenbach: Among the benefits, not surprisingly, are the moneyed classes, because essentially it went from very low interest rates to much higher interest rates. And of course, the lower end of the income stream has been hit with rising prices and really to the point of being unaffordable. Many of the purchases. There's signs of consumer slowdown across the board. But small businesses and households have been hit, hit very dramatically.
Shawn Ashley: You mentioned the Fed has been able to move inflation downward, but is inflation under control and headed back to the Fed's target rate of 2%?
Dr. Robert Dauffenbach: I'm quite convinced that we're headed to lower rates of inflation. But the problem is, you may be headed to lower rates of inflation, but we still have price levels very much higher than, and that's, that's affecting business decisions, affecting household spending, even though we're bringing the rate of inflation down. It's still very damaging on the economy and why the Fed has a 2% goal, I don't know. Why not have a 0% goal?
Dick Pryor: What concerns you about the national and Oklahoma economic future right now?
Dr. Robert Dauffenbach: Well, what very much concerns me about the national scene is the continuing deficits that we've had. We've been running $2 trillion deficits at the federal level. $2 trillion. That's about 7% of GDP. And the cost of servicing the debt, buying bonds for those that are expiring, is really getting to be at a troubling level. Servicing the debt now relates to a level that is approaching what we spend on national defense a year. And the Congressional Business Office has these 7% deficits running clear into the future, to the mid-30s. Social Security and Medicare trust funds, Medicaid trust funds are going to be under a lot of pressure as we move through this latter half of the 2020s. So, I predict this is going to be a very heavy conversation, and we simply have too low of taxes for the level of entitlements that we have.
Dick Pryor: Bob, thank you for joining us today.
Dr. Robert Dauffenbach: Glad to be here.
Dick Pryor: That's Dr. Robert Dauffenbach, professor emeritus at the Price College of Business at the University of Oklahoma. And that's Capitol Insider. Until next time, with Shawn Ashley, I'm Dick Pryor.
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