Unemployment GDP keep lid on economy

September 25, 2011
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What happens when Main Street meets Wall Street?

That was the topic of discussion at a recent breakfast meeting of Grand Valley State University’s Seidman College of Business Alumni Association, which put together a panel of economic and financial experts to tackle the topic: “Political Fallout: Impact on Main Street and Wall Street.”

“In 2010, we, as an economy, were growing and rebounding really well,” said Sridhar Sundaram, chair of GVSU’s Finance Department and co-moderator of the event. “The confidence seems to have been shaken between early 2011 and the summer of 2011. How did we get into such a dysfunctional state?”

Sundaram fingered a couple of culprits largely responsible for the recent regression from 2009 and 2010: a dip in the real gross domestic product and stagnant employment numbers.

Panelist Erika King, a professor of political science at Grand Valley, referenced a combination of political phenomena coming together this summer for what she called a perfect storm. The economic crisis, combined with an extreme ideological divide in the nation’s political system in the midst of campaign season, has contributed to an increase in the polarization between political parties, she said.

While these factors are not unique individually, King noted that together they are creating a shift in the country’s political system.

“Political parties are playing a smaller role in our electoral politics,” said King. She suggested that this leads to candidates’ increased need to appeal to a smaller, more ideological electorate, like those who support the Tea Party.

“This is a recipe for not necessarily coming together with members of the opposite party,” said King.

This turbulent political climate paired with the unsettled political and financial situations in continental Europe has led to a volatile market. Panelist Mitch Stapley, managing director of Fixed Income Strategies at Fifth Third Asset Management, pointed to Michigan’s plummeting consumer confidence rate as a place where Main Street and Wall Street intersect.

“The biggest decline that we’ve had in consumer confidence prior to this was post-Katrina. After that was the September 2008 financial crisis,” said Stapley. “This is number three.”

Consumers aren’t the only ones who have grown hesitant with their money, he said. Employers are choosing overtime and automation over the commitment of hiring new employees.

“No one likes to hire someone and go back the next day to let them go,” said panelist Bob Roth, president and CEO of RoMan Manufacturing.

Roth touched on the dislocation of the unemployed as they fall behind in terms of training and skills and then have their jobs taken over by technology without new ones being created.

All was not grim, however. Roth also said that energy costs and Americans’ desire for security may lead companies to think twice about using offshore resources and personnel.

“These supply chains that wrap halfway around the world have some vulnerability and costs associated with them,” said Roth, adding that it might be more efficient to find suppliers closer to home.

Paul Isely, chair of GVSU’s economics department and co-moderator of the discussion, said it will take “a balanced approach on the federal level” to rebuild the nation’s economy. He said government may need to take a lesson from Main Street and be open to the idea of making the necessary $400 billion in cuts across the board.

“That’s something that everyone in business has already done over the last 10 years,” said Isely.

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