NABE Policy Survey August 2000

NABE Survey Panel Says Monetary Policy Gets Closer to the Mark, Fiscal Policy Needs Work, and Lack of Statistics Funding is a Disgrace

Survey Highlights

• Monetary Policy and the Fed: Over half (54 percent) of NABE survey participants believed the Fed has already done enough—they would prefer that monetary policy stay on hold for at least the next six months.  They also felt, however, the chance of additional rate hikes remained high—61 percent expect that rates will actually go higher.
  
  

• Budget Surplus: With regard to the Federal budget surplus, the largest concentration (45 percent) of NABE panelists favored some combination of debt-reduction and a shoring up of the social security trust fund.  This is off only slightly from the 49 percent recorded last February, and no doubt reflects a modestly higher level of comfort with the projections for the budget surpluses. Tax cuts received a slightly more favorable rating this time around (26 percent in August versus 21 percent in February), but remained overwhelmed by concerns for paying down the debt.
  
  

• Discretionary Spending: Almost a third of NABE panelists expressed concern that politicians are going overboard with their additions to discretionary spending. The only place spending seems overwhelmingly justified to our members is in funding for the statistical agencies, which have been under-funded for eight consecutive years.
  
  

• Threats to the Expansion: In terms of threats to the expansion, concerns of a labor shortage and poor education registered high with 27 percent of respondents reporting those as a problem. Fears of a stock market bubble remained about the same as in the last survey, with 22 percent of the NABE panel citing this as a significant problem.
  
  

• Current Account Deficit: The NABE survey also queried the panel about the size of the current account deficit, which only mildly concerned the NABE panel. For the moment, most panelists seem to feel that the strong points of the U.S. economy—high productivity growth and a technological advantage—justify the country’s higher reliance on foreign capital.
  
  

• Government-Sponsored Enterprises: Concerns over Government-Sponsored Enterprises, especially in housing, ranked much higher on the list of worries, with some 60 percent of NABE panelists worried that the subsidies were a risk.  Distortions to credit markets were noted as the greatest threat that the subsidies posed. 
   

• Candidates’ Economic Proposals: Finally, the NABE panel was queried on its response to economic proposals on the current political agenda.  Social security reform should be at the top of the agenda; repeal of the marriage penalty was a close second; and, while politically popular, the reimbursing of prescription drugs for seniors scored low with the NABE panel.

by
Maureen F. Allyn, Scudder Kemper Investment, Inc., NABE Policy Survey Writer

The NABE Economic Policy Survey presents the consensus of a panel of 185 members of the National Association for Business Economics.  The survey was taken in August 2000.  May be reprinted in whole or in part with credit given to NABE.  View the survey results online at www.nabe.com.  This is one of three surveys conducted by NABE.  The other two are the NABE Outlook and the NABE Industry Survey.

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Support for Quality Statistics

NABE is not a lobbying organization—with one exception.  We will do everything in our power to make sure the nation’s statistical infrastructure does not deteriorate.  Since this stance has been repeatedly affirmed by our membership, it is not surprising that our members were concerned when they learned that the House appropriation bill for FY 2001 provided no increase for either Census or the Bureau of Economic Analysis.  At the proposed level of funding, several statistical programs would get the axe.  Furthermore, Congress provided adequate funds to conduct a successful decennial census, but it appears to have overlooked the next step of incorporating these data into other statistical programs.  The President had requested sufficient funds to maintain current programs but not enough to proceed on new initiatives, such as to better our measurement of the “new economy.”  When we asked our NABE panel if they felt Congress should grant the funding level the President requested, two thirds (66.5 percent) agreed Congress should do at least that much.  An overwhelming 83 percent wanted Congress to go further than the President had requested and increase the funding for our major statistical agencies so that they could step up efforts to track our changing economy.   Making good fiscal and monetary policy without good statistics is playing with fire.  On the other hand, 70 percent of the NABE panel supported the consolidation of agencies to make the most of the budget dollar.

Questions on Funding Federal Statistical Agencies
(percent reporting)

Monetary Policy and the Fed

The NABE panel has become much more relaxed about the appropriateness of current monetary policy.  Over three-quarters (76 percent) felt that monetary policy was “about right,” up a sharp 14 percentage points compared to February.  The biggest change was in the number who felt policy was too stimulative.  It dropped a very large 20 percentage points from 32 percent last February to just 12 percent today. Clearly the Fed’s tightening actions since February have calmed the worries of those who thought the Central Bank was getting “behind the curve.”   While only 9 percent feel policy is too restrictive, that’s the highest in three years.

Current* Monetary Policy Is:
(percent reporting)

Note:  Percentages may not add to 100 across columns due to rounding. *Surveys prior to Feb 2000 phrased the question, “Over the past six months, monetary policy was. . .”

Even though so few of the NABE panelists felt current policy was too restrictive, their answers suggest that they have concerns that the Fed could tighten beyond what they feel is necessary in the future.  While only 35 percent would prefer that policy become more restrictive in the next six months, 53 percent expect that it will become more restrictive. Still, this is well down from our prior survey, when expectations were virtually unanimous that the Fed would be tightening policy further.  Fewer than 5 percent of our panelists expect policy to become more stimulative in the next six months.

Numbers may not add to 100 due to omitted and blank responses not reported.

Interest Rate Expectations

Even though just over 60 percent of the NABE panelists expected short-term interest rates to go up, only 4 percent thought the rise would be greater than 50 basis points.  Hardly anyone (7 percent) expected rates to fall, while 31 percent thought rates will remain the same.

Sharing the Fed’s Concerns

In several of his recent speeches, Fed Chairman Greenspan has identified (1) a shrinking pool of available labor and (2) reliance on foreign savings as two of the major imbalances in the economy.  We asked the NABE panelists if they felt either of these was a threat to the expansion.  Like Greenspan, they are most concerned about the tight labor market.  Only 13 percent felt the shrinking labor pool was no threat, while 21 percent deemed it a major threat.  Two-thirds rated it somewhat of a threat.  Forty-three percent suggested more immigration as one way to expand the labor force.  Impressively, almost 10 percent volunteered education and training as a solution—our blushes, we had not offered this as a pre-printed option.  Since one volunteered response is worth a multiple of check marks, we can conclude that education and training is high on our panelists’ priority list for alleviating the economy’s most pressing bottleneck.

Respondents were somewhat less concerned about the current account deficit.  Over a third (34 percent) felt it was not a threat at all.  Only 14 percent rated it a major threat to the expansion, while just half thought it was somewhat of a threat.  Nor did our panelists have a consensus remedy to cure this imbalance.

On the Fed Concerns. . .
(percent reporting)

§         Shrinking pool of workers is

If you believe it is a major or somewhat of a threat, what is the appropriate policy response?

§         Reliance on foreign savings (current account deficit) is?

If you believe it is a major or somewhat of a threat, what is the appropriate policy response?

Problems and Strengths

Confirming how concerned our members are about the labor market, 27 percent picked either “poorly prepared labor” or “labor market shortages” as the most serious problem facing the U.S. economy today.

The stock market still has many of the NABE panelists concerned.  Despite a flattening out in equity returns in the past six months, nearly 22 percent of our respondents cited the “danger of a stock market bubble/U.S. financial market volatility” as the greatest threat to the expansion.

On the other side of the ledger, it’s pretty clear that economists think the underpinnings of the “new economy” are for real.  Nearly 37 percent picked America’s “technological lead” as the U.S.’s greatest economic strength.  A further 23 percent chose “productivity gains,”—which of course have been made possible largely because of the new economy.  Third runner up, with 11 percent of the votes was America’s deep capital markets. 

Two problems related to government that had economists worried a year and a half ago have receded dramatically from the NABE panelists’ radar screens.  Only 9 percent rated “excessive growth in or size of government spending” as the economy’s biggest problem.  In March 1999, nearly 20 percent had put it at the top of the list.  Similarly, less than 5 percent thought the size of unfunded Social Security and/or Medicaid spending was the chief problem; in March of 1999 17 percent of those polled saw this as key.

Major Economic Problem
(percent reporting)

Major Economic Strength
(percent reporting)

Surpluses and What to Do with Them

No doubt one reason it is hard to worry about government spending and unfunded liabilities is how fast those federal budget surpluses keep piling up.  At the time of our February 2000 survey, the Congressional Budget Office had estimated that surpluses would average 2.4 percent of GDP over the next 11 years.  The most recent estimate included in our August 2000 survey was that they would average 3.4 percent of GDP during the next 11 years.

Despite the astonishing increase in the official estimates, fewer of the NABE panelists are skeptical that they will come to pass.  To be sure, a majority (54 percent) continued to think that CBO is too optimistic, but that is down from 59 percent six months ago.  Some 41 percent bought into the estimates, up from 33 percent six months ago.

There’s been only a slight movement in what our panelists think is the appropriate use for the government’s extra money.  The biggest single response was to use it to reduce federal debt (45 percent, down only slightly from 49 percent six months ago).  The second most popular use would be tax cuts (26 percent, up from 21 percent six months ago).  Doing both received 22 percent of the vote, vs. 25 percent six months ago.

What might make the surplus smaller than current estimates?  The NABE panelists were most worried about politicians going overboard with new discretionary spending problems—which got 39 percent of the vote.  A recession came in second place, with 30 percent.  Absolutely no one was concerned about military cost overruns, and only 3 percent thought escalating health care costs would be the culprit.

What Should we do with the Surplus?
(percent reporting)

Economic Rating for Political Proposals

We asked the NABE panelists to provide their judgment on four policy initiatives that the two Presidential candidates have surfaced in their campaigns.  We asked them to rate the initiatives as to whether they would be good economic as opposed to political policy, on a scale of 1 to 5, with 5 being the best and 1 being completely inadvisable. 

Of the four, Social Security Reform got the highest score.  Two thirds gave it either a 4 or a 5; only 3 percent thought it was completely inadvisable.  The mean score was 3.9.  However, neither of the two specific Social Security proposals we tested scored as well.  Putting 2 percent of the contributions into private accounts had a mean score of just 3.3—54 percent gave it a 4 or a 5, and 16 percent thought it would be completely inadvisable.  Investing some of the Trust Fund in the stock market fared even worse.  Its mean score was just 2.4, with only 26 percent of our panelists thinking it rated a 4 or 5.  Over a third (37 percent) thought this would be completely inadvisable.  Our professionals do want Social Security reform, but they seem to want the candidates to go back to the drawing board. 

Of the two tax cuts being considered, repealing the marriage penalty was considered better economic policy.  Its mean score was 3.9, with two thirds scoring it a 4 or a 5 and only 5 percent believing it was completely inadvisable.

Repealing the estate tax racked up a lower score—3.3.  Just under half gave it a 4 or 5, while 17 percent thought it would be completely inadvisable.

The one policy that all politicians seem to like—reimbursing prescription drugs for seniors—scored lowest with our panelists, 2.9.  Only 26 percent gave it a high score of 4 or a 5.  On the other hand only 13 percent thought it completely inadvisable.  The majority (60 percent) clustered in the middle.

Numbers may not add to 100 across middle five columns due to omitted and blank responses not reported.

Government-Sponsored Enterprises

The House Banking Committee, some U.S. Treasury officials, and the Federal Reserve have raised questions about the role of ongoing subsidies for Government-Sponsored Enterprises (GSEs), in particular those that participate in the mortgage market.  NABE panelists also questioned the role of the government in this market.  Nearly 38 percent of our respondents thought the subsidies should be eliminated entirely.  A further 28 percent thought the subsidies should be continued, but the enterprises should be restricted from entering into new markets.  About 20 percent thought current policy should remain unchanged, while 9 percent were in favor of expanding the role of the enterprises to cover more low-income housing.

Would curtailing the role of the GSEs hurt the housing market?  A slight majority (53 percent) thought not.  They either believed that the market would adjust or that housing no longer needed a subsidy.  Just over 42 percent thought either housing prices would go up or mortgage market liquidity would go down or both if GSEs were reined in.

Are government guarantees a free lunch?  Not according to our NABE panel.  Some 60 percent thought there were risks to continuing the subsidies to the GSEs.  Of those who thought there were risks, about 43 percent thought the biggest risk was distortions to the credit markets.  About 19 percent of the respondents concerned about risks thought they provided unfair advantages vs. other lenders and another 16 percent thought GSEs posed a risk to Federal finances, should the guarantee need to be activated.

§         Do you believe that the government should continue to play a role in subsidizing housing through GSEs?

§         Do you believe the housing market would be significantly hurt, if the role of the GSEs was curtailed?

§         Do you believe there are any risks to continuing subsidies to GSEs?

If yes, the biggest risk is:

Numbers may not add to 100 due to rounding.

For more information, see the Statistics Report