Calling the recent “fiscal cliff” negotiations in Washington a lost opportunity, Bank of Idaho President and Chief Executive Officer Park Price says if Congress and the White House can successfully resolve the looming debt ceiling and sequestration budget controversies, he expects robust economic growth in Idaho and the United States during 2013.
If agreement is not reached, America will teeter and lurch back into recession, he anticipates, noting the federal sector accounts for 20 percent of the economy.
Noting that six million jobs have been lost since the nation’s economic meltdown of 2008, Price says he hopes 2013 will see business start to hire more people, which is a must for the nation to pull out of its worst downturn since the Great Depression.
But uncertainty over whether the U.S. will default on its national debt or whether massive automatic federal budget cuts will be imposed by sequestration on March 1 has companies reluctant to resume hiring. When they are forced to lay off quickly, they tend to hire slowly, says Price, who earned an economics degree from Dartmouth College in New Hampshire.
“Businesses hate uncertainty,” Price says. “The longer this goes on, the harder it is on the economy.”
For 13 years, Price specialized in capital investments for General Motors. From 1979 to 2003, he owned and operated Park Price Motor Co. in Pocatello, which was founded by his father in 1947. In July 2003, Price became president of the Bank of Idaho, which has seven branches in eastern Idaho and real estate offices specializing in mortgage originations in Twin Falls, Pocatello and Idaho Falls. He became the bank’s CEO in 2010.
The recent disappointing fiscal cliff debate resulted in some tax increases with no spending cuts. A more comprehensive package was needed on a grander scale, Price says, adding that deficit spending cannot be sustained at its torrid pace.
“It’s clear that the path we’re on is unsustainable. We continue to mortgage the future of our children and grandchildren. It is morally unacceptable to tolerate this,” the former Pocatellan says.
On the other hand, if spending is cut too aggressively, it could be a shock to the economy, tax revenues could fall and the federal deficit worsen, he cautions, urging that cuts be done gradually, not drastically. Congress won’t agree to raise the federal debt ceiling as President Obama wants without significant spending cuts, he observes.
Because of the fiscal cliff outcome, taxes are now off the table, Price notes, stressing he hopes cooler heads prevail as the new Congress gets organized. “Unfortunately, we don’t have much time,” he says.
Bank of Idaho President/CEO Park Price converses with Pocatello philanthropist Dorsey Hill and Dr. Bill Stratton, retired dean of the Idaho State University College of Business, following a Pocatello Rotary Club presentation.
“Sequestration” was incorporated into the Budget Control Act of 2011 to task a “super committee” with cutting the federal budget by $1.2 trillion through 2021, but because it failed to do so, the entire federal budget will be subject to a series of mandatory, immediate cuts – with the defense department taking the biggest hit.
Price said it is possible sequestration could take effect. “That’s like trying to do a difficult surgery with a meat ax. You probably cut the problem off, but there are lots better ways to do it,” he remarks, adding it would cause huge layoffs in the public and private sectors that would hurt the economy.
The Idaho National Laboratory, Boeing, General Electric, General Dynamics and universities dependent upon federal research grants and government contracts could be hard hit if budgets are slashed.
Battelle Energy Alliance has announced it plans to cut 450 jobs at INL this year after eliminating about 180 positions in 2012. CH2M-WG Idaho, the contractor in charge of the Idaho Cleanup Project at INL, reduced about 400 jobs last year. Sequestration could trigger more draconian cuts.
The economy could absorb $2 trillion in spending cuts over 10 years, but sudden massive curtailments ranging from 20 percent to 30 percent would hurt it and cause unintended consequences, the Idaho Falls banker says.
Polarization in Congress between those opposed to spending cuts and those opposed to tax increases is the crux of the problem in Washington, causing a high degree of rancor and distrust, Price says, calling for compromise on both sides. He advocates reforming the complex, Byzantine U.S. tax code as part of the solution, which could lower tax rates by broadening the tax base.
“This tells me the division between the conservatives and the liberals is too tough right now. Hopefully, the results of not dealing with this are so drastic that people will come to their senses,” Price says.
If Washington can avoid sequestration and a default on the $16 trillion national debt, Price sees the nation’s economy growing by 3½ percent to 4 percent in 2014 and 2015. The U.S. economy’s growth in 2012 was an anemic 1.8 percent as compared to Idaho’s 3.4 percent growth last year. The Federal Reserve projects the U.S. growth to be 2.5 percent in 2013.
In 1947, manufacturing as a percent of U.S. Gross Domestic Product was 14 percent and the sector employed 33 percent of the U.S. work force. In 2005, it was 14 percent of GDP, but the sector only employed 10 percent of the work force. “This sector has been on the decline for 60 years, and the decline isn’t abating,” he says.
If gridlock can be averted in the nation’s capital, Price sees Idaho’s economy poised to surge another 4 percent in 2013. He credits strong commodity prices and good farm employment as a huge reason the Gem State’s economy has done so well the past three to four years. Noting that the agriculture sector can he cyclical, he cautions that a weather event, a price event or disease could change that favorable equation.
When asked how inflation has stayed subdued despite consecutive $1 trillion deficits the past four years, Price quoted former Wyoming Sen. Alan Simpson who said the United States is “the best horse in the glue factory” compared to other nations.Share on Facebook