JOHNSTON, Iowa (AP) — The nation’s economic meltdown may be more than a traditional recession and could shift the nation’s standard of living to "a lower plateau" that will endure, prominent Iowa State University economist Neil Harl said Friday.
Harl predicted that the Dow Jones industrial average could fall to 5000 — barely a third of where it was when the meltdown began — and that land prices could level off and begin to fall. Land value declines were key to the farm-based recession of the 1980s.
In addition, Harl suggested that Gov. Chet Culver and lawmakers should look for ways to cut state spending.
"I think the best thing they can do is to be cautious, a little on the conservative side," said Harl. "I would be working actively behind the scenes to get a good line on where we could cut spending because I think we’re going to have less revenue."
Harl gave his gloomy assessment during a taping of Iowa Public Television’s "Iowa Press" program. The warning from Harl to tighten spending carries special weight because he’s a long-time Democrat who backed Barack Obama in the last election cycle.
ADVERTISEMENT
In assessing the state’s economy, Harl said there will be an immediate impact on the state’s budget, and one that could last.
"It will hit the sales tax first, then it will hit the other taxes," said Harl. "I think we’re going to be scrambling for the next two sessions of the Legislature."
Sales tax revenues likely would drop quickly because nervous consumers will reduce discretionary spending.
Harl’s outlook adds to what is shaping up to be a difficult legislative session. State Auditor David Vaudt has said budget increases already on the books will put state spending as much as $600 million above projected state revenues.
Harl said lawmakers and Culver understand the financial and political pressures they are under.
"They understand politics," said Harl. "I think the prudent thing for the party to do is move a little bit toward the cautious side, and watch carefully what’s happening."
He also raised the issue of government jobs, saying lawmakers should "reduce employment, maybe through attrition. The pressure is going to be there."
Many economic models point to a decline in living standards throughout the country, Harl warned.
ADVERTISEMENT
"If I’m correct in my assessment that this is not a normal downturn, that this is a downshifting to a lower plateau, Iowa is vulnerable if it doesn’t look at its expenditure patterns," he said.
Harl is a professor emeritus of economics at ISU and is considered a national expert on the farm-based economy of the state and region.
