Business Economists' Take on
Current Economic Policy

What do economists think of current economic policies? The National Association for Business Economics released its semi-annual Economic Policy Survey in August. This year's assessment looks much different from a year ago. In August 2000 the top concerns regarding the U.S. economic outlook were a shortage of skilled labor (with consequent threats to productivity growth and the inflation outlook) and the stock market bubble. In contrast, this year the 254 members polled in the survey cited overcapacity (as a result of the ten-year capital spending boom) and excessive consumer and business indebtedness as the top two economic problems going forward. Somewhat down the scale but tied for third in importance were: 1) the growing inequality of income and wealth, 2) danger from the stock market bubble and financial market volatility (down dramatically from March 2001), and 3) the size of the unfounded Social Security and/or Medicare obligations. Some highlights of the survey follow:

• Business economists have become more comfortable with the Fed's handling of monetary policy over the past 6 months. The proportion of the NABE panel that believe monetary policy now is "just right" rose to 67% from 56% last March. However, most panelists believe the Fed's easing cycle is nearly over. At the time the survey was taken, only 10% expected short-term interest rates to fall below 3.25%. The survey was taken before the Fed's August 21st meeting when it lowered the Fed Funds rate to 3.5%.

• On a 10-point scale, the Bush Administration gets a score of 6 for its economic policies. Regarding the tax cut package, 56% of panelists supported it, 24% were neutral and 20% were opposed to it.

• As for other Bush policies, 42% thought Bush was wise not to sign the Kyoto protocol (for addressing global climate change) vs. 17% who thought not signing was foolish. The panel was evenly split on the missile defense system: one third thought it wise, one third thought it foolish and the remaining third was somewhere in between. Despite divisions on other policy questions, economists overwhelmingly support free trade policies: 91% said the U.S. should pursue lower tariff and non-tariff barriers to trade.