Boone County Chamber of Commerce Executive Director Michelle Wiltermood introduces guest speaker Morton Marcus.

Reporter photo by Marda Johnson
Lebanon Reporter

Morton Marcus, director emeritus of the Indiana Business Research Center at Indiana University’s Kelley School of Business, had two points to make when he spoke at the Boone County Chamber of Commerce luncheon meeting Tuesday.

The first: When it comes to the economy, it’s impossible to forecast the future but imperative to understand the past.

The second: Purdue is bad.

Although he was speaking on the serious topic of the recession, Marcus sprinkled his presentation with wry humor, often at the expense at I.U.’s rival college, although nothing appeared to be off limits.

Marcus even took a swipe at members of his own profession, saying economists who believe they know what will happen next are “fantasizing,” and that he is starting a group, Economists Anonymous, for economists “who will give up the pretense of knowing what is going on and will swear off the addiction of forecasting.”

In fact, it’s hard to know what’s happening as it happens, Marcus said.

According to the economist, even the latest news about the economy is a reflection of the reality months earlier. Foreclosure and bankruptcy rates, “are all statements about the past,” he said, noting that months and possibly years of trouble precede a foreclosure or bankruptcy.

“And unemployment figures only tell about the past,” he said. “Businesses are slow to lay off and slow to hire.”

Instead of trying to forecast, Marcus suggested looking more closely at the reasons for the current economic woes and ways to address those concerns in the future.

He identified four precursors to the present recession.

First, he said, there was a large increase in the price of oil as a result of speculation.

“(Fuel prices) rising rapidly has preceded every recession since World War II,” he said. “This rise was incredible.”

“It is absolutely necessary that we move away from a petroleum-driven economy,” Marcus said, because it is too easily manipulated and because speculation has become destructive to the national interest.

“We do need to look at the whole process of speculation,” he said. “I don’t think it is healthy for the market. Somehow we have to differentiate between those who have a material interest (and others).”

The second precursor was the housing boom, Marcus said.

Marcus said Baby Boomers looking for their “climax home” — the biggest home they will own in their lifetime — resulted in a period of heavy construction of large and expensive homes, starting in 1996.

“You see them all over Boone County and you say ‘Who’s living in those houses?’”

Marcus said the homeowners are likely Boomers who built the homes when they still had teenage children living with them.

“But the Boom only lasts so long,” he said.

Marcus said the third factor is the propensity to want more, and the mistaken belief that all of the others who are having problems are morally irresponsible.

“Sure, some people bought homes they could not afford,” Marcus said, and some builders, mortgage brokers and bankers also made deals that were certain to fail.

“But compared to the number of people in the market, it is trivial,” he said. “Lots of people did everything right and ended up with tremendous failure.”

The desire for more didn’t just stop with homeowners, banks and builders.

He said corporate executives in all types of businesses set goals based on their desires, rather than on what’s happening in the market and to their competitors.

“Don’t assume that the future is going to be like the past,” he said. “Sometimes tomorrow is like today, but sometimes the conditions change.”

The final factor in the current recession, he said, was the desire to create a more prosperous future while failing to look back.

Marcus said no business school he knows of requires its graduates to take a course in economic history.

“Why? Because the past is not considered important. Today it’s what you can do to create something new.”

As a result, many of the people in senior management positions on Wall Street aren’t aware of the country’s economic history, and are young enough to have never even experienced a deep recession.

“They don’t know what’s going on,” Marcus said.

But now that we are in a recession, how can it be resolved?

Marcus said more government involvement is needed.

“No one wants more regulation ... regulation is always the government acting too late,” Marcus said. “But the truth is, regulation is the safeguard of business.”

He said that when motorists pump a gallon of gas, they believe they are getting a gallon of gas.

“Weights and Measures was the first regulation in Western civilization,” he said.

The country’s problems occur only when dishonesty or ignorance overcome the marketplace.

As for the immediate future, Marcus said the economy is still in decline, but the rate of decline is easing.

The economist said he expects an upturn to be evident by Christmastime, with the change actually coming early in the fourth quarter of this year.

“Fundamentally, I think the economy is looking good,” he said. “If you’ve made it this far, you are in reasonably good shape.”

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