Economist: Recovery will take years

By Don Shilling

YOUNGSTOWN — An economic recovery will begin this spring, but it’s going to take years to restore the damage, an economist said.

Michael Lewis, president of Free Market Inc. in Chicago, compared the pending recovery with getting over the common cold.

“You can take decongestants. You can take tea. You can listen to your friends and take a steam, but the reality is that it will take seven to 10 days to get over it,” Lewis told a gathering of about 130 Huntington Bank employees and clients Thursday at the Youngstown Club.

The recovery, however, will be measured in years, not days, because the system will need time to remove the large amount of debt that soured on consumers in recent years, Lewis said.

Of all the efforts to hasten the recovery, nothing compares to allowing time to pass, he said. Time has allowed businesses to work off their inventories, consumers to boost their savings rates and banks to consolidate, he said.

He classified federal actions to buy mortgage securities and increase stimulus spending as having moderate impact.

One effort that hasn’t worked is government plans to remove so-called toxic assets from banks, he said. No one wants these packaged groups of bad loans, so the only solution will be for banks to write them off and raise more capital over time, he said.

What concerns him is the Obama Administration’s proposal for reorganizing Chrysler in bankruptcy court, which also may be extended to General Motors. He said the government is proposing to change the nation’s property rights by awarding the government and United Auto Workers — and not secured lenders — the controlling ownership in Chrysler.

He also doesn’t like efforts to force banks to accept renegotiated mortgages because failure rates often are high.

He assured the crowd, however, that this recession, although severe, is nothing like the Great Depression. Unemployment rates and the contraction of the economy was much worse in the 1930s, he said.

The Depression was aggravated by poor government policies that ignited a trade war, increased interest rates and encouraged monopolies, he said. Though most of the world was recovering by 1931, the depression in the U.S. continued throughout the decade, he said.

Those mistakes are unlikely to be repeated today because of the movement toward free trade and more educated decisions by the Federal Reserve Board, he said.

shilling@vindy.com