‘Hard choices have to be made’

By Dennis Seid/NEMS Daily Journal

OXFORD – Leaving a place you’ve called home for nearly a quarter-century is never easy, but William Shughart is doing just that.
The renowned economics professor, who’s written more than 200 articles, books and reviews, retired from the University of Mississippi on June 1. But he’s not quite ready to retire completely; Shughart is headed west to Utah State University.
Last week, the Daily Journal caught up with Shughart in his office at the Ole Miss School of Business Administration, where he was starting to pack up his office. Highlights from the interview:

Q:So why are you headed to Utah State? It has to be a little bittersweet to be leaving.
A:Yes it is. I’m going to miss my students and colleagues here at Ole Miss, but opportunities like I’ve taken don’t come around very often.
At Utah State, I’ll be the J. Fish Smith Professor of Public Choice in the (Jon M.) Huntsman School of Business there. (Editor’s note: The school is named for Jon M. Huntsman, founder of chemical company Huntsman Corp. He’s also the father of Republican presidential candidate and former Utah governor Jon Huntsman Jr.)

Q:What’s your take on the economy? Are we facing a double dip or have we turned a corner?
A:My expert opinion is that we’re possibly on the edge of cliff, that we could be pushed back into a recession. I think the current administration’s economic policies are wrong-headed. Ben Bernanke doesn’t know what’s going on with the economy, and if he’s puzzled, I think we’re all in a little bit of trouble because I don’t really think he has a strategy for exiting these quantitative easing programs he’s initiated two times now. There’s some talk of a third, but I don’t think that’s feasible given the current political climate.

Q:If you were President Barack Obama’s economic adviser, what would you tell him?
A:If he would listen to me, and he hasn’t called me on the phone or visited me in Oxford since the debate I guess, I would advise him to take whatever he’s doing now and do the opposite. I think we need some permanent tax cuts across the board, including businesses, and they need to be set in stone long enough so businesses can plan for investment and consumers can plan for their spending. Right now we’re in a position where the so-called Bush tax cuts are extended a few years, but that will be ending sooner rather than later. If the president is successful in ending those tax cuts and we’re back to those level of taxes from five years ago, that will be a drag on the economy, take more money out of the private sector and make even less disposable money available in businesses and individuals.
Q:The president and his allies would say extending tax cuts adds to the deficit, which is another hot topic of discussion. How do you respond?
A:The only way we can get out of the current doldrums where unemployment is still very high and more people have been out of work for a longer time than even the Great Depression is to realize that economic activity is driven by the private sector. Public spending doesn’t create jobs or increase wealth. My proposal would be to cut taxes and cut government spending. And cut the deficit by reining in federal spending, which is virtually out of control.

Q:Do you think a deal will be made to raise the debt ceiling?
A:Yeah, I think there eventually will be a compromise to raise the debt ceiling in return for some budget cuts. You know the credit rating for the U.S. is already a bit shaky. You can’t borrow your way to prosperity, and at some point, hard choices are going to have to be made to reduce the current budget deficits and to start reducing the accumulated debt from the past. Something’s got to give.
The federal debt’s percentage of the gross national product is higher now that it was in the second world war. We borrowed a lot of money to join it, but that got paid off in about 10 years. By 1962 or so we entered this era of permanent deficit spending. We got a little break during the late 1990s with all the economic activity from the dot-com boom. Bill Clinton happened to be in the right place at the right time. But then we had the dot-com bubble, then the housing bubble. Ever since, we’ve been spending money like there’s no tomorrow. But tomorrow will come.
But I don’t blame just the current administration. The previous administration under George W. Bush, despite his conservative credentials, spent a lot of money by introducing Medicare Part D, supporting No Child Left Behind. … He may have been a social conservative but he was not a fiscal conservative by any means.

Q:How would you gauge the Mississippi economy?
A:I think we’re better off than most states. Mississippi has a fragmented banking system, where you have a lot of locally owned banks that dealt primarily with local people. For the most part, they didn’t get in a situation where they would lend to people who couldn’t pay them back. They’ve remained in pretty good financial shape.
As for the state economy, when you’re near the bottom there’s really not much farther to fall and there’s nowhere else to go but up. So I think the fiscal policies of the past eight years at least have been responsible and haven’t gotten us in a situation like Wisconsin and California, where they’re having trouble with state pensions and state employees. Our state retirement system is in reasonably good shape. … By and large, we’re not going to have the problems of many other states because spending has been kept largely under control.
There’s some debt overhang out there for some bond issues to finance for incentives for Toyota and Nissan and other companies.

Q:And you haven’t been a big fan of incentives.
A:No, I haven’t. There’s not much support in economic literature for those kinds of programs paying off in the long term, I’d like to see Mississippi get out of that arms race with other states to try to get these big-name coporations to build a plant here or relocate here. I’d rather see business taxes cut for everyone so that businesses already here can grow as well.

Q:Is the the economic power of the U.S. waning? China is at No. 2 and growing. Is it inevitable that China overtakes us?
A:I’ve just written a column like that, and it should be getting into the McClatchy papers soon.
The question that was asked by an editor was should the current income tax system be switched to a flat tax so that we can regain our competitive advantage with China.
The answer is “no,” it will have little or no impact on our competitive advantage with China because all the flat tax proposals that are out there are revenue neutral. So the amount of money that Washington spends is what Washington brings in. That’s the problem now – spending.
The current tax system is bizarre, bynzantine and it costs $300 billion a year in compliance.
Going back to what I said earlier, getting our fiscal house back in order is the key to regaining our role as a world economic superpower.
It’s going to be painful. Hard choices have to be made. But something has to be done because there are train wrecks in the future that we can see.