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Ward: Wisconsin economy stable in midst of national problems
10/2/2008

By Brian E. Clark
WisBusiness.com

The nation’s credit markets may be all but locked up and the country’s finances teetering over an abyss, but Wisconsin’s economy is holding its own -- at least for now.

That’s the assessment of David J. Ward, head of Madison-based NorthStar Economics and the acting chancellor at UW-Green Bay.

While the jobless rate has increased somewhat in Wisconsin in recent months, Ward called it surprising that more people have not been laid off. He said the unemployment rate is “nowhere near” what it was during the economic crises of past decades, though it is enough to make people “uncomfortable.”
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Moreover, he said a state Commerce Department report released this week shows that although spending is flat, income is up half a percent, slightly more than the rate of inflation.

“But you can’t have a wobbly financial system and have that persist for long,” he said.

Nationally, though, “these are not good times ... and if this (crisis) persists for long, everyone is going to take a hit,” including Wisconsin, said Ward, who holds a Ph.D. in economics from UW-Madison and also has served as an interim chancellor at UW-Oshkosh.

“It’s sort of like Murphy’s Law. Everything that could go wrong is going wrong. Things are still fixable, but it doesn’t look very good right now,” he mused.

“Eventually, if businesses can’t get credit to finance inventory or if it is restricted, that reduces the demand for manufactured goods and services and begins to spiral down through the economy,” he said.

Auto companies are already announcing huge downturns in sales, with Ford and Toyota posting 30 percent dropoffs.

Ward blamed a lack of oversight, subprime mortgage lending and “unbridled” financial engineering – the creation of securities and obligations out of other securities and obligations to manage risk – for the mess on Wall Street.

“Now there are a bunch of securities out there that even sophisticated investors don’t know the risk and return characteristics of. The bailout bill was an attempt to unwind that by taking them off the market and letting them work out.

“So those who oppose this better have an answer,” he said, noting that the November election may take its toll on many incumbents.

Speaking before the U.S. Senate passed a modified bailout bill, Ward said his advice to Congress would be: “If you have to work 24 hours a day for the next five days, get legislation passed and give the market some confidence.”

Ward predicted there will be months of congressional hearings next year to sort out responsibility for the credit crisis.

“I think it will be interesting to see what role hedge funds played in all of this,” he said.

“There are huge pools of cash that move in and out of markets with such impact that I think it has created a new order and we have to figure out how to regulate that,” he said.

Closer to home, Ward addressed former UW-Madison Chancellor John Wiley’s harsh criticism of Wisconsin Manufacturers & Commerce, saying support for public higher education by most in the business community remains solid.

“Up here at UW-Green Bay, we have really good relationship from local businesses,” he said. “I think when you look at it on a local basis, that’s true throughout the state.”

Businesses and universities have a lot in common, he said.

“Businesses need highly educated people and universities need businesses to hire graduates,” he said. “I think long-term, we’re fine and business supports the university.”

But Ward said lack of adequate support from the Legislature for the state’s public colleges has caused a shifting of costs to tuition, which has made higher education more expensive for students.
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