Economists
break rank with
the Fed’s policy

A national panel recommends
policy changes that conflict
with Federal Reserve

By Lyn Danninger
Star-Bulletin

In a major opinion shift -- the first time in five years -- a national panel of economists is seriously disagreeing with the federal government's monetary policy and its effect on the U.S. economy.

In a report released today, written by David McClain, dean of the College of Business Administration at the University of Hawaii-Manoa, a panel of the National Association for Business Economics says the Federal Reserve has not lowered interest rates far enough.

The report's results are based on a survey of 267 members of an association panel.

McClain said the economists had a number of concerns about the government's monetary policy and its effect on the economy.

One-third of the association's panelists now believe the federal monetary policy is too conservative. In previous surveys over the past five years, no more than 16 percent of the panel have disagreed with the Fed's stance.

"It's been a long time since we thought the feds were too tight," McClain said. "Now, for the first time in five years, a full one-third of our panel is saying no."

Although the panelists agreed with the Federal Reserve and private forecasts that suggest the country is likely to experience moderate recovery in the second half of this year, they still want further tax cuts.

"Across-the-board tax cuts is the way to go. While paying down the debt makes sense, we need some tax cuts sooner than that," McClain said.

Based on passage of further federal tax cuts, some of the panel's recommendations are:

>> Reform and simplify the tax code.

>> Raise ceilings for 401K employee retirement plans.

>> Repeal the marriage tax penalty.

>> Lower all marginal tax rates.

>> Extend research and development tax credits.

>> Repeal or reduce the capital gains tax.

>> Reduce payroll taxes.

>> Raise child tax credits.

>> Reduce business tax rates.

>> Allow charity deductions for taxpayers who do not itemize deductions.

Nearly all the economists surveyed, 91 percent, said that the Social Security system needs reforming. Most now also believe that it is better to gradually pay down the national debt rather than making it top priority.

The panel also recommended spending more money on education. The survey indicated the economists were concerned about skilled-labor shortages and poorly prepared workers. It also favored spending more money on military preparedness and infrastructure improvements, and recommended a low-income health care subsidy.

But the panel was not in favor of either adding a prescription drug benefit to federal health programs or spending more money on law enforcement or the judicial system.

The economists will have their chance to voice their concerns in person to Federal Reserve Chairman Alan Greenspan, who speaks to the group tomorrow at their policy conference. McClain believes Greenspan will listen.

"It's noteworthy," McClain said. "He'll be addressing these issues and also fielding questions from members."