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Posted September 16, 2009 | Copyright © The Northern Virginia Daily
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Economist talks to Front Royal investors about recovery process

Jim C. Miller III speaks about the economy
Jim C. Miller III, a former budget director under President Reagan, speaks about the economy to a group of investors at Samuels Public Library on Tuesday. Rich Cooley/Daily

Jim Miller speaks to a group of investors
Jim Miller, a former budget director under President Reagan, speaks to a group of investors concerning the economy at Samuels Public Library on Tuesday. Rich Cooley/Daily

By James Heffernan — jheffernan@nvdaily.com

FRONT ROYAL — An economist and former budget director under President Reagan told a group of investors Tuesday that the federal stimulus package isn’t working, and a full economic recovery is still years away.

During a luncheon for Edward Jones clients at Samuels Public Library, James C. Miller III made a case for the role of free markets, saying the federal government cannot spend the U.S. out of recession.

“For one thing, it takes too much time for the money to get out, and by the time it does get out, the economy may be recovered, so you’re just pushing excess demand and raising prices,” he said.

Also, federal agencies that suddenly find themselves with extra cash tend to waste it, he said.

Very little of the $787 billion in the American Recovery and Reinvestment Act has been spent since its passage in February, he noted.

A Republican who twice made a run at a U.S. Senate seat in Virginia — losing to Oliver North in the state’s 1994 GOP convention and, two years later, to John Warner in a primary — Miller said if the Bush and Obama administrations simply had tweaked the financial system after its collapse and left the U.S. economy to its own devices, the country would now be on a better track.

“The recession would have been a bit deeper, but the recovery would have been quicker and far more robust than it will be,” he said.

As it stands, the economic downturn has bottomed out, Miller said, but the comeback will be unusually slow. He predicted that unemployment will hit 10 percent only briefly, but remain high well into next year, and it will take two to three years for the Dow Jones industrial average to hit 14,000 again.

Miller said the jury is still out on the unprecedented moves by the Federal Reserve and the Obama administration to prop up struggling institutions, namely the financial markets and the U.S. auto industry.

“Excessive [regulation] of these institutions can cause just as many problems as failure to oversee them,” he warned.

Moving forward, there are risks to economic recovery, Miller said. The feds may authorize more spending or try to impose new mandates, and some lawmakers may push for tax increases, he said.

“There aren’t enough rich people to finance all of these things, even if you taxed them all at 100 percent,” he said, a reference to Obama’s plan to pay for health care reform in part by raising taxes on the wealthiest Americans.

Other threats, according to Miller, include a potential trade war with China, labor unrest, inflation and the nation’s energy policy.

Asked about the federal government’s record $1.3 trillion budget deficit through August, Miller said the figure likely will continue to grow as the costs of entitlement programs like Medicare and Medicaid increase. The government is notoriously bad at estimating the costs of such programs, he added.

Even without the impact of health care reform — Obama’s plan calls for $880 billion over 10 years — there is still plenty in Washington to grow the deficit, he said.

“I think that a lot of members of Congress got a bit of a scare during the August recess about excesses, and they’re going to be looking at spending a lot more carefully than they had before. But things that are already in the pipeline will continue pushing spending up.”

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