Clayton, the Glenn Huie chair and eminent scholar in the Department of Finance, spoke to the Jacksonville Exchange Club on Jan. 24 to explain his take on the state of the economy.
Clayton said there are predictions that the U.S. economy, in the form of the gross domestic product, will grow about 2.5 percent this year and maybe 3.5 percent in the following years, depending on what Congress does.
Clayton said it’s possible some of the issues surrounding economic growth could stem from the many negative stories that appear in the media. “We hear a lot of negative things about the economy,” he said. “I just wonder if some of the slowness in getting out of the economic doldrums we’ve had might have to do with people being scared to spend their money because of what they hear.”
Clayton said he thinks most people would attribute most of the economic troubles to the housing bubble that began in the late 1990s.
“In the state of Alabama, we didn’t have as big a housing bubble and perhaps didn’t suffer as much from bursting of bubble,” he said noting states such as Florida as problem states in that arena.
The bubble, he said, probably came from a combination of greed and arrogance.
“Greed’s not necessarily a bad thing,” he said. “It’s is a pretty good motivator, but greed mixed with arrogance can create problems for us. Some people began to believe they were smarter than the market as a whole, and they could make better decisions and understand things better than the rest of us.”
But risk, Clayton said, is much like energy, which cannot be created or destroyed and merely changes form.
“If you have risk in the financial markets, it’s going to stay there,” he said. “It just depends on where it’s going to show up.”
One of the outcomes is that people choose not to heed warning signs that have told us that the mortgage market was overextended, that home ownership had increased to a level in that was not sustainable and that was not warranted by the creditworthiness of the populace of the United States.
“We had problem mortgages being put into a severely misunderstood mortgage market, and that process, that combination of things sort of engulfed financial institutions around the world.”
Clayton referenced Congress’ decision to set aside debt limits until May. Clayton pulled out his iPad, checking in on the National Debt Clock. In the three hours since his morning check, the 16.44 trillion debt had risen more than $1 billion—part of a calculation, not actual spending, he said.
“The world cannot afford for us to default on our debts,” he said. “We need statesmen and women to stand up and plan for the future of our country.”
He said for most of the nation’s history, there has been a pay-as-you-go type of government except in times of war. “At some point in time, we’ve got to start thinking that way.”
Balancing the budget, he said, could take the uncertainty out of markets. “If we can remove some of this uncertainty,” she said, “things will probably go up.”