While many of my Tuesday interview posts have drawn varied reactions from you, the readers, none has caused quite as much uproar as the interview I ran a month and a half ago with Dr. Robert Frank, professor of management and economics at Cornell’s Johnson School of Management and author of The New York Times’ “Economic Scene” column.
In the initial interview, Frank shared his views on ways in which government spending, universal health care and a progressive consumption tax can help fix our economy. The post drew 111 comments, some supportive of Frank’s ideas, but the majority were dismissive – strongly dismissive. So it only seemed fair to invite Frank to react to some of your responses. Below are excerpts from our recent exchange.
BNET: Many readers commented on the divide between theory and experience; how do you respond to the idea that you need to have run a business in order to understand what’s good for business?
Frank: A professor of mine in graduate school told me a story about presenting testimony in a hearing and being asked by a skeptical opposing attorney whether he had ever met a payroll. As it turned out, before my professor decided to pursue an academic career, he had owned a printing business that had gone bankrupt. His answer to the attorney’s question was that he had not only met many payrolls, but had also failed to meet some.
I, too, ran a few small business ventures when I was young. For example, my brother-in-law and I once built children’s playground equipment and worked as home remodeling contractors. In graduate school, I built and sold stereo loudspeaker cabinets. Those experiences clearly don’t qualify me as an authority on running small businesses. But I’m not totally unfamiliar with that world, either.
BNET: Readers also expressed concern that some of President Obama’s policies will lead to massive inflation and the devaluation of the dollar.
Frank: Our unemployment rate is approaching 10 percent and our manufacturing capacity utilization rate is at its lowest level in decades. Producers can’t sell as much as they’d like to at current prices. If they raised their prices, they’d sell even less. So inflation poses no risk in the short term. The government’s first priority now is to end the downturn as quickly as possible, which means heavy monetary and fiscal stimulus measures are the right moves. The downturn will end, but it won’t end overnight.
Those who view inflation as a current threat need to examine data from the bond market. The current price of inflation-indexed bonds suggests that the market’s expectation for what inflation will be a decade from now is less than 2 percent, which is close to the Fed’s normal inflation target. Bond traders make their livelihoods on the basis of being able to make accurate predictions of future inflation. That’s no guarantee that they’re right, but skeptics need stronger arguments than they’ve offered so far to support their claim to the contrary.
Next week, I’ll share Frank’s responses regarding your comments on corporate bailouts, taxes and government intervention in business. Stay tuned.
