The recent raft of troubling economic news had seasoned academicians searching for policy answers Friday and hoping the new government will strike the right balance.
"I think that in the near future, the issue of job creation will be the most volatile on the horizon," said John Delaney, dean of the University of Pittsburgh's Joseph M. Katz Graduate School of Business.
Delaney joined a half-dozen other Pitt faculty members who addressed the nation's tandem crises of jobs and credit, as well as what course the administration of President-elect Barack Obama should take.
Economists and policy makers were jolted yesterday by news that employers eliminated 533,000 jobs last month -- the deepest employment cuts in 34 years. That made November the 11th straight month with job losses, while October's reductions were revised to 320,000 from 240,000.
"There will be a lot of pressure for government job creation, whether it's a WPA program or something else," especially as the economy "starts to cycle down," said Delaney.
The WPA, or Works Progress Administration, was a Depression-era program that created millions of jobs nationally between 1935 and 1943.
The seven business professors yesterday differed about how long and deep the recession will be.
Jaffer Qamar, visiting professor of finance, doubted the downturn would "be very deep" or last more than another 12 months.
Economics professor Josephine Olson, though, was "not as optimistic." She envisioned a deep recession like that of the early 1980s because consumer spending has plunged and exports, formerly a bright spot, are slowing with the sluggish global economy.
"The problem is a tremendous lack of confidence," said Jay Sukits, assistant professor of business administration, who was reluctant to characterize the recession. "No one wants to lend to the next entity that's going to go bankrupt."
Sukits said that lack of confidence and the resulting freeze in credit stem from the lack of transparency in pools of mortgages that were packaged into securities in the last 10 years. Owners of the mortgage-backed bonds too often did not know the default rates on the underlying home loans and thus, no one could properly value the securities, he said.
"The genesis of the crisis was the total abdication of fiduciary duties by Fannie Mae and Freddie Mac (mortgage-lending giants) and Moody's and Standard & Poor's, who rated those securities," said Sukits.
Ratings agencies were assigning premium-grade "AAA" ratings to mortgage-backed securities, when "what they actually were were junk bonds," he said.
The Obama administration should not rush to reregulate the securities industry, Sukits said.
"Overregulation of the capital markets has never worked in the past," said Sukits.
Qamar said the next administration should focus more on the credit needs of smaller companies. They tend to generate the most jobs, he said, but are the first to lay off during tough times because their credit terms tend to be the most tenuous.
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