NABE Policy Survey:
Tighter Economic Policies Needed, But Not Immediately
The NABE March 2013 Economic Policy Survey presents the consensus of a panel of 196 members of the National Association for Business Economics. Conducted semiannually, the latest survey was conducted between January 21, 2013, and February 13, 2013. Portions of this survey may be reprinted in whole or in part with credit given to NABE. View the survey results, including complete tabulations, online at www.nabe.com. This is one of three surveys conducted by NABE. The other two are the NABE Outlook Survey and the NABE Industry Survey. Jay Bryson, (Wells Fargo Securities) Chair; Constance Hunter (NABE Director); Charles Kennington (Virginia Economic Development Partnership) and Emily Kolinski Morris (Ford Motor Company) conducted the analysis for this report.
“The National Association for Business Economics (NABE) recently surveyed its members on a number of policy issues,” said NABE Policy Survey Committee Chair Jay Bryson, Global Economist at Wells Fargo Securities. “Regarding fiscal policy, a significant majority of panelists was opposed to full budget sequestration. However, there was nearly unanimous agreement that some form of deficit reduction should be enacted over the next 10 years. The preferred approach to long-term deficit reduction leaned toward spending cuts, with most respondents indicating that cuts should be focused primarily on entitlement programs. The panel was also heavily in favor of individual income tax reform, with the majority of participants preferring reform that raises revenue.”
A slight majority of the respondents indicated that monetary policy is “about right” at present, although the percentage responding that policy was “too stimulative” was significantly higher than the share that held that view in the September survey. Although most panelists felt that the Federal Reserve’s quantitative easing (QE) has been successful, most also favored termination of additional asset purchases sometime in 2013. Only five percent of respondents look for the Fed to hike interest rates in 2013, with the vast majority of the panel suggesting that the fed funds rate will not increase until 2014 or 2015. The panel was evenly divided on whether or not the Federal Open Market Committee should have an unemployment threshold in its forward policy guidance.
Three-quarters of the panelists said that the Obama administration should approve the Keystone XL pipeline, while a slight majority favored the continued subsidizing of alternative fuels. Panelists had more favorable views about the near-term survivability of the European Monetary Union (EMU) than they did six months ago, although a slim majority continues to believe that at least one current member will exit the EMU within five years.
The current survey panel was almost equally divided on the status of fiscal policy today, with 35 percent of participants each describing policy as “too restrictive” or “about right” and 30 percent stating policy is “too stimulative.” This distribution represents a slight shift from results of the September 2012 Policy Survey in which 43 percent of respondents considered fiscal policy to be “too restrictive,” and likely reflects the modest improvement in economic activity observed since the September survey was conducted.
In most other assessments of fiscal policy, the panel was more unified. Economists surveyed strongly favored deficit reduction, at least in the long term. More than 70 percent of the panelists opposed the implementation of full sequestration, but there was overwhelming support (94 percent) for Congress to enact policies to bring about further deficit reduction over the coming 10 years.
The preferred approach to deficit reduction leaned toward spending cuts; more than half of the survey respondents indicated that deficit reduction should be accomplished “only” or “mostly” via spending cuts (Figure 1). This share represents an increase from the almost 40 percent of respondents who held this view in the September 2012 survey. About one-third of respondents who supported deficit reduction also favored an “equal” mix of spending cuts and tax increases, but that is significantly less than the 45 percent of the panel which held that same view in the previous survey. About 12 percent of the NABE economists surveyed felt that deficit reduction should be accomplished “mostly” with tax increases, and less than one percent thought that deficit reduction should occur “only” through tax increases.
Figure 1: How Should Deficit Reduction be Accomplished?
The survey asked the panelists where spending cuts should be primarily focused. The majority (58 percent) cited entitlement programs. Three out of 10 respondents indicated that defense spending should be the primary focus and the remaining 13 percent favored non-defense discretionary spending as the primary source of spending cuts.
There was near-universal agreement (95 percent) among the panelists that Congress should reform the individual tax code. Within this consensus, the panel leaned toward a tax-reform outcome that would enhance revenues: 57 percent indicated a desire for a “slight” increase and 17 percent a “significant” increase in revenues (Figure 2). Another 22 percent preferred revenue-neutral tax reform and only four percent thought that reform should reduce revenues.
Figure 2: Tax Reform Should:
When asked about specific tax policy changes, 80 percent of respondents prescribed some change to the deductibility of mortgage interest expense, slightly preferring an income or debt cap to a complete phase-out. Two-thirds of the respondents favored reducing marginal rates of corporate taxation. (Marginal tax rates range from 34 percent to 38 percent on taxable income above $335,000/year.) The panel did not express a strong view on moving to a territorial system of corporate taxation, with over 40 percent of survey participants expressing no position. Among those who stated a preference, responses were roughly two-to-one in favor of a territorial system.
There was wide agreement on the panel that uncertainty regarding fiscal policy still is contributing to a slower economic recovery. Nearly 80 percent of respondents held this view, down only slightly from the 87 percent reported in the September 2012 survey.
A slight majority of survey respondents (53 percent) characterized current monetary policy as “about right,” down from the nearly 60 percent who held this view in the September 2012 survey (Figure 3). Moreover, there was a marked shift in share of respondents who felt that current monetary policy is “too stimulative.” In the September survey, one quarter of the respondents said that monetary policy was “too stimulative.” That share rose to 44 percent in the current survey. The decision by the FOMC in December 2012 to purchase $45 billion worth of long-term Treasury securities per month, the third round of quantitative easing (QE3), may have contributed to the rise in the percentage of respondents replying that current monetary policy is “too stimulative.”
Figure 3: Do You Consider Current Monetary Policy to be:
Even so, two thirds of the economists surveyed felt that the quantitative easing (QE) that has been undertaken by the Fed has been a success, but a similar two thirds of the panel also thought that the Fed should terminate additional purchases of assets sometime in 2013, with 17 percent favoring immediate termination. Although a majority of respondents (61 percent) said that the FOMC should have an explicit threshold for projected inflation in its forward policy guidance, there was no consensus regarding the unemployment rate. Nearly one half (46 percent) of the economists surveyed thought that the FOMC should have an explicit threshold for the unemployment rate, with a similar percentage (50) replying that it should not.
Only five percent of the panelists expect the Fed will raise its target for the fed funds rate this year. The vast
majority replied that rate hikes would begin either in 2014 (49 percent) or in 2015 (38 percent). Looking further
ahead, most panelists (60 percent) anticipate that PCE inflation will be “near” the Fed’s two percent objective in
five years. However, a significant share (38 percent) projected that PCE inflation will be “significantly above” two
percent in five years.
Members of the NABE Policy Survey Committee asked panelists their opinions of existing or proposed regulatory policies related to the financial and energy sectors. About 60 percent of survey respondents believe that a Volcker-type rule, which would prohibit banks from engaging in trading for their own accounts, should be enacted. That percentage is down slightly from the 67 percent reported in the September 2012 survey. There is a bit less consensus among panelists on their views regarding policy toward big banks. Slightly more than half (54 percent) indicated they favor breaking up banks that are deemed “too big to fail” while one third opposes such a policy.
Panelists answered several survey questions regarding energy policy, including whether or not the Obama administration should approve the potential construction of the Keystone XL pipeline, which would transport oil from Canada to refineries along the Gulf Coast of the United States. A similar question was asked in the September survey. A larger share of respondents was in favor of approval in the current survey (78 percent) than in the previous one (69 percent). A slim majority (52 percent) said that national regulations over hydraulic fracturing (“fracking”) should be enacted, and the panel continued to be evenly divided on whether or not the federal government should continue to subsidize the use of alternative fuels (wind, energy, geo-thermal, etc.). The survey results show that 51 percent favor continuing these subsidies while 43 percent were opposed.
European Monetary Union
Panelists have a much more favorable view currently about the near-term survivability of the European Monetary Union (EMU) than they did six months ago. Three quarters of the survey respondents believe that all 17 members will still be in the EMU one year from now, compared to the less than one half of panelists who held this view in the September survey (Figure 4). The European Central Bank implemented its Outstanding Monetary Transactions (OMT) program in September, which many analysts have subsequently credited with defusing tensions in European financial markets.
Figure 4: Will All 17 Members be in EMU One Year from Now?
Over a longer time horizon, however, panelists continue to foresee a lesser likelihood that the EMU remains fully intact. Only 25 percent of survey respondents indicated that they think all 17 current member nations will remain in the EMU after five years, compared to a slight majority (51 percent) who said the union will not contain all 17 current members in five years.
Policy Survey Committee
Jay Bryson, Global Economist, Wells Fargo Securities (Chair)
Constance Hunter, NABE Director
Charles Kennington, Economist, Virginia Economic Development Partnership
Emily Kolinski Morris, Senior Economist, Ford Motor Company
Lynn Reaser, Chief Economist, Point Loma Nazarene University
Survey responses were tabulated by Point Loma Nazarene University.