Just in case it still wasn't clear just how bad the economic outlook is for cities and states, Moody's economist
Mark Zandi laid it on the line: "The fiscal situation of the state and local governments has never been as bad as it is today It's incredible to me to witness the economy unravel this quickly."
Zandi, an economist with 25 years of experience and the founder of Moody's Economy.com (and the newly anointed go-to guy on the federal stimulus), was the keynote speaker today at GOVERNING's Outlook on the States and Localities conference. He echoed previous speakers in saying that the current recession is unique. "It's not only the severity of the downturn and the length of it, but also in terms of its breadth. We're seeing job losses in all sectors, in all regions of the country."
Previous recessions were caused by an overextended business sector, he said, but the current downturn stems from overextended households. In the United States, household wealth hit a $64 trillion high in mid 2007. In the past 18 months, though, household wealth has plummeted to $47 trillion. When personal wealth falls like that, Zandi said, consumers become extremely cautious. "People are battening down and running for the bunker."
That's where the government comes in, he said. "Households aren't spending. Businesses aren't investing. U.S. exports are flat. What's the only source of growth? Government. I believe government can do good -- and in fact it needs to do good -- in times of crisis."
Zandi said the proposed federal stimulus package was solid, calling it a "reasonably efficacious piece of economic legislation." He said there were aspects he would change if he could. He advocates increasing the size of the stimulus, for example, augmenting it with temporary tax cuts to spur an even faster injection of cash into the economy. Overall, though, he said passing the stimulus was necessary to keep the current recession from turning into an extended depression.
Ultimately, Zandi said the stimulus and government's most vital role is to restore consumers' belief in a strong economy. "To me, the stimulus isn't about dollars and cents. It's about trying to reestablish confidence. And that's why it's so important to get it done quickly and with bipartisan support."