Recession taking toll on Minnesota’s poor, may end in ’09

The economy is in the toilet. Anyone not locked in a basement bathroom for the last six months will have noticed the daily cascade of mass layoffs, cratering stock prices and dismal retail reports.

But in a forum at the University of Minnesota’s Humphrey Institute yesterday, five eminent economists sounded surprisingly upbeat about the future.

Art Rolnick, director of research at the Federal Reserve Bank of Minneapolis, began the discussion by pointing out that the country cycled through 10 recessions since World War II and always rebounded. Although he’s troubled by the systemic collapse of the housing market, he expects the current downturn to be no different.

“When you’re in a recession it feels pretty bad,” Rolnick noted. “If history is a good measure of what’s going to happen in the future, odds are we’ll be out of this recession by the end of the year.”

Dan Laufenberg, chief economist for Ameriprise Financial, blamed most of the current problems on a breakdown in consumer confidence, and therefore spending, rather than fundamental problems with the economy.

“I’m even more optimistic than Art,” he said. “I think this thing could end sooner than the end of this year.”

But not everyone was so sanguine about the country’s economic prospects in the near term. Minnesota State Economist Tom Stinson was the most pessimistic of the bunch. He pointed out that the state’s job losses have actually been worse than in the country as a whole. Stinson also brought up a statistic to highlight the severity of the economic malaise: sales tax receipts in Minnesota were down by more than eight percent in the period from October through December.

“We’re not done with the decline in the economy,” he predicted.

Maria Hanratty, an associate professor at the Humphrey Institute who specializes in poverty, pointed out some significant signs that poor people are suffering disproportionately during the recession. She noted that participation in the federal food stamp program is up 14 percent nationwide and that the number of families staying at homeless shelters in Hennepin County has ballooned by 20 percent in recent months.

“The evidence of increases in homelessness isn’t something that we’ve heard of in quite a long time,” she said.

Hanratty also pointed out that this is the first major recession to hit the country since the overhaul of the welfare system in the mid-90s. She doesn’t believe state programs for the poor have sufficient resources or flexibility to adequately assist the growing number of people in poverty.

The panel was lukewarm on whether a stimulus package, such as the one currently being debated on Capitol Hill, will have a significant positive impact on the economy. Stinson was enthusiastic about the prospect of Minnesota receiving significant federal aid to deal with its looming $5 billion budget deficit.

But Rolnick argued that such infusions of government dollars have not historically proven very effective.

“If you’re giving people more money to spend on TVs and cars and stuff like that it doesn’t get you out of a recession,” he said.

But he did express support for increased spending on long-term investments such as early-childhood education and health care.

Rolnick also argued for some tough love going forward in how the government handles struggling banks.

“Those banks that aren’t solvent, that are having significant trouble, they should close their doors,” he said. “We should let some banks fail.”

So how will we know when the economy has started to rebound? According to Stinson, the answer is simple: when job growth returns.