May 8, 2024 • 34 mins
Dr. Ralph Ford, chancellor of Penn State Behrend, talks with Dr. Ken Louie, associate professor of economics and director of the Economic Research Institute of Erie, about inflation, interest rates and economic growth.
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Dr. Ralph Ford (00:00):
Hello, I am Dr.
Ralph Ford, Chancellor of PennState Behrend, and you are
listening to Behrend Talks. Myguest today is Dr. Ken Louie, an
associate professor of economicsin the Black School of Business,
and director of the EconomicResearch Institute of Erie.
Welcome to the show, Ken.
Dr. Ken Louie (00:18):
Thank you very much. Thanks for having me.
Dr. Ralph Ford (00:19):
Well, we appreciate having you here and
you are a repeat guest. Wewanted to talk about the
economy. It's an interestingtime. But before we go forward,
I will just talk a little bitand tell our listeners about
your background. So you're wellknown in the Erie region, but
you hold a Ph.D. and a master'sdegree in economics from the
University of IllinoisUrbana-Champaign. your
(00:42):
bachelor's degree was also ineconomics and was earned at
Northwestern University. Allvery prestigious, great places.
You visited China as a Fulbrightscholar, and you were also a
visiting professor at JohnsHopkins University. Here at
Behrend, you have received manyawards, including the Council of
Fellows Excellence in TeachingAward, and the Guy Wilson Award
(01:03):
for Excellence in advising. Asdirector of the Economic
Research Institute of Erie, youlead a team that collects and
analyzes economic data thatpredicts the trends are as well
as you can in Erie's economy.
Your analysis has been featuredon CBS News, CNBC, and NPR,
among many other media outlets,truly tremendous background, we
(01:25):
appreciate you being here.
Dr. Ken Louie (01:30):
Thanks again for having me.
Dr. Ralph Ford (01:31):
Let's talk a little bit about the theory
economy, which is where youspend a lot of time what's your
broad view? How are we doing?
Dr. Ken Louie (01:38):
Sure, first of all, at the national level, the
US economy is still going verystrong. In fact, just this
morning, the Bureau of LaborStatistics reported that the US
added 175,000 jobs just in themonth of April, and the
unemployment rate held steady at3.9%, just slightly more than
the previous month. So we'restill fairly robust at the
(02:02):
national level. At the locallevel, broadly speaking, the
Erie economy also seems to beremaining steady and stable.
Employment, in fact, locally hasbeen increasing steadily since
the end of the pandemic. Sosince April 2020, Erie has
consistently added jobs.
Although currently we're stillslightly below the pre-pandemic
(02:26):
level we're about at 98%.
However, for the year, just pastyear, on year, as of March, the
Erie economy out of 1,700 jobs,the biggest sector, fastest
growing sector being theeducation and health services
sector, but even manufacturingadded 300 jobs, year over year
(02:50):
as of March. So in terms ofemployment, we're still holding
steady in terms of output, whatwe actually produce in terms of
goods and services. We're alsoholding steady, although the
increase in our output locallyhas been fairly modest. After
dropping by 6%, due to thepandemic, we've gradually been
(03:11):
creeping upwards. But last year,we only grew by less than 1%.
And compared to the Commonwealthas a whole, and the nation as a
whole, were a little bit laggingbehind in terms of the growth
rate. So good news is output isstill holding steady. Finally,
income may be the mostchallenging component of our
(03:34):
local economic performance, bothreal per capita income and real
median household income hasactually fallen somewhat in
recent years. So that'ssomething to keep an eye on. But
broadly speaking, once again,the economy seems to be holding
steady.
Dr. Ralph Ford (03:52):
When you say per capita income is decreased, is
that inflation adjusted? Or isthat real dollars?
Dr. Ken Louie (03:58):
Yes, that's inflation adjusted what
economists call real dollars. Soon a per capita basis, personal
income, for instance, was justunder $49,000. And that is a
somewhat of a decrease comparedto years gone by. However, on a
(04:19):
longer term basis, it has beengoing up. So if you go back to
say 10 or 15 years, we're stillat a higher level. But it's
recently that the real incomehas been falling somewhat.
Dr. Ralph Ford (04:31):
So would you say Have we recovered or rebounded
from the pandemic in your mind?
Where do we stand relative towhere we were prior to 2020?
Dr. Ken Louie (04:40):
Yes, as I said earlier, employment has bounced
back quite nicely, although it'sstill only at about 98% of the
pre pandemic level. In contrast,both in the Commonwealth and in
the nation as a whole employmentlevels have gone beyond the pre
pandemic level. So we're laggingbehind somewhat, but the fact
(05:01):
that we're so close to that prepandemic level of employment is
is good news. And as I said,that has been the result of this
consistent upward trajectorysince April 2020. When we were
in the depths of the, of thepandemic. So yes, things do seem
to be recovering quite nicely.
We always hope it could befaster. We're moving in the
right direction.
Dr. Ralph Ford (05:23):
One number that you quoted in there interested
me, and that was the fact thatin the last year manufacturing
jobs grew. It's great higher ed,you know, education, where we're
at and healthcare, that seems tobe a continuing trend. The
reason the manufacturing numberstruck me is that in a lot of
the previous recessions oreconomic shocks, we've seemed to
(05:45):
lose a lot in terms ofmanufacturing, is this time
different?
Dr. Ken Louie (05:49):
Yes, it does appear that we are having a
better experience recently. Ithink partly that's due to many
of the adaptations that firms inthat manufacturing sector have
taken and have made strides toconfront the challenges of
structural change, technologicalchange in the economy. So yes, I
(06:11):
think it's really heartening tosee that manufacturing is
holding its own and in fact,steadily increasing. The other
factor is that if you look atnational statistics, there are
some statistics that indicatethis so called trend of
reshoring. So that ismanufacturing concerns are
moving many of their jobs backto the US, given that traumatic
(06:33):
period of COVID pandemic. Andgiven all the supply chain
disruptions that caused manyfirms to rethink, you know,
disaggregating, their supplychain. So that's part of the
picture as well.
Dr. Ralph Ford (06:47):
Is there any, any evidence so far, and I
realized that maybe early, thatthe CHIPS and Science Act, and
that that sort of that spendingin that arena is having a
difference making thedifference?
Dr. Ken Louie (06:56):
Yes, I think it's a little bit too early to
pinpoint quantitatively theprecise impact. But I think if
you look just anecdotally, allover the country, it's
definitely having a positiveimpact in areas as wide ranging
as increasing broadband access,repairing outdated
(07:17):
infrastructure, bridges,highways, and so forth. So it's
definitely having an impact. Butit'll take some time before we
can actually quantify theprecise magnitude of the impact.
Dr. Ralph Ford (07:28):
Well, when we go back to the economy right now,
what what are you going to belooking at in the next three to
six months as indicators forturnaround or not a turnaround?
What are the things that you'relooking at right now?
Dr. Ken Louie (07:39):
Sure. So based on those statistics I mentioned,
these are typically whateconomists tend to focus on
employment jobs, output, what weactually produce an income,
which is ultimately thepurchasing power of average
households in the area. So thereis a turnaround in the sense
(08:02):
that we're still moving upward,albeit very modestly. But I
think the biggest challenge thatwe face in the upcoming months
and years, is to speed up thatprocess of job growth to create
more jobs. And related to thatnot just any jobs, but taking
advantage of technology so thatthe new jobs we create will be
(08:23):
higher paying jobs. Because inaddition to the sluggish job
growth, as I indicated, incomegrowth has also been fairly
stagnant in these areas, I thinkthose are the two biggest
challenges, job growth, incomegrowth. And we see this
reflected in other statistics aswell. So for instance, poverty
levels are still somewhatelevated, it's, I think,
(08:45):
something like 15%. And amongchildren, it's actually over
20%. So those are some of theeconomic challenges that I think
we need to confront.
Dr. Ralph Ford (08:53):
I think that leads perfectly into what I was
thinking about next, which isthe local investment. And we'll
talk about different aspects ofthat. But as we all know, led by
Erie Insurance, we have the ErieDowntown Development
Corporation, the transformationthat we are seeing going on
downtown, it's still underway.
But if you took a picture fiveyears ago, and you take one
today looks very different. Howimportant is that?
Dr. Ken Louie (09:16):
Absolutely crucial. The partnerships that
we have made in Eriepartnerships, specifically among
government, the private sectorand universities is absolutely
crucial. In fact, if you look atthe history of the US economy,
many experts point to the factthat the tremendous growth that
(09:38):
we experienced after the SecondWorld War was precisely
attributable to this positive,favorable collaboration among
the federal government, privatebusinesses and universities that
engaged in research and righthere in Erie, Pennsylvania,
we're doing exactly thosethings. So we have initiatives
(09:59):
undertaken as you said byprivate companies like Erie
Insurance, the medical centers,we now have a new company
located right here in KnowledgePark. We have an open lab system
where we try to encourageentrepreneurship innovation by
people in the community that cancontribute to the growth of the
area. And then just recently,Governor Shapiro has announced a
(10:22):
new initiative, I think thefirst major initiative to foster
greater development inPennsylvania and over 20 years.
And specifically within thatstate plan, he's focusing on
innovation as a main driver ofthat growth. So all the things
you mentioned, I think, arepositive developments. I'll make
one final point, which is, givenall these developments, we
(10:45):
actually are held up sometimesas a model of economic
revitalization. So there was aNew York Times story just back
in February, describing how GaryIndiana, a city in the Midwest,
very similar to Erie with itshistorical emphasis on
manufacturing. But Gary, Indianais actually looking to Erie,
(11:05):
Pennsylvania as a possible socalled template for a strategy
to revitalize their economy. Sowe shouldn't let all the
negative attributes that wesometimes see overwhelm us, I
think there are some positivedevelopments and to the extent
that others see us as a model ofrevitalization that I think
should boost our confidence.
Dr. Ralph Ford (11:27):
A lot in there.
And that's, you know, appreciatethe really detailed response on
that one of the things that, itseems to me that has to occur,
and it's maybe an obvious thingthat you don't always talk about
is population growth, driveseconomic growth. And it's hard
when you have a decreasingpopulation in Erie has for the
last 30 years. But it seems tome that it's slowed at least.
(11:49):
And I've seen some of theprojections from rural PA and
the like, now, they're prettyfar out to 2050. But if it is
wonderful that we retain our ownpeople, and we focus on that,
but we have to attract newpeople to the region, I mean,
how important is that?
Dr. Ken Louie (12:05):
It's also a very, very important variable, I teach
my students as a matter of fact,that of all the economic
resources that we deploy, laboris probably the most important
resource, upwards of two thirdsto three quarters of all of the
income and economic activitythat we that we generate is
(12:26):
attributable to thecontributions of labor, whether
through physical effort orintellectual effort. So labor is
really the key resource. And sothat's why population growth is
so important, because the sizeof the labor force is dependent
on the growth of the population.
So to the extent that you havepopulation growth, you can
(12:47):
expand those resources andexpand the economy. This also
feeds back to what I saidearlier, which is,
unfortunately, the major reasonswhy we're experiencing
population decline is the rathersluggish growth in employment
levels over the years and interms of income levels. And so
we need to, you know, do thingsthat will turn around those two
(13:11):
economic factors. I think, ifthat were to happen, the
population growth, potentiallycan resume once more.
Dr. Ralph Ford (13:21):
It will follow at that point. Yeah, it's me,
there's a lot to discuss her onthat. In fact, Wall Street
Journal just last week showedhow you know, the replacement
rates of birth rates in the USis continues to fall at alarming
levels. I called my childrentold them both start having
babies, they didn't like that,actually. But it is true without
growth in population, you seeplaces like Japan and others,
(13:43):
and it becomes a long termstruggle. And so what you're
telling me though, is that it'snot cliche when we leader say
our people are our greatestasset, it is truly an economic
factor as well. The more peopleyou have, the faster your
economy is going to grow.
Absolutely, absolutely. Let's dothings follow each other. Well,
let's, let's talk aboutinflation. I mean, it is been
something that's been with us ina way we haven't experienced
(14:07):
ever since the pandemic. And,you know, I can, quote some
numbers here. According to theBrookings Institution, rents
have increased almost 20% since2021. And that is amazing. Maybe
not in a good way, airfares areup 23 and a half percent.
Automobile Insurance is up, wecould go on and on what's caused
(14:28):
all of this to happen?
Dr. Ken Louie (14:31):
In the most recent period, the pandemic
certainly has been the keyculprit. In economics, we talk
about demand and supply.
Specifically, we teach ourstudents that outcomes are going
to reflect a so called shocks tothe system demand shocks and
supply shocks. Usually you haveone or the other. But during the
(14:54):
pandemic, we had really thisunusual combination of a
negative demand shock and anegative supply shock, the
supply shock. First of all, dueto the supply chain disruptions,
the productive activity that wasslowed down or halted altogether
because of the pandemic, on thedemand side, you had a drastic
(15:15):
reduction in consumption aspeople, you know, sheltered in
and didn't consume as robustlyas before. So that combination
of negative demand and negativesupply shock certainly added
trauma to the economy. Andinflation ultimately, was the
result. In order to address thedemand shock, obviously, we know
(15:38):
the government, the federalgovernment provided massive
financial stimulus. And so thatsustained demand, and to some
experts that stimulus to demandalso as a contributing factor.
But the other thing I would add,however, is those figures seem
staggering when we compare howmuch prices have risen, let's
(15:59):
say from 2021. But the good newsis that the rate of increase has
actually been falling. So forinstance, if you look at 2021 to
2022, versus 2022, to 2023,versus 2023, to 24. In each
successive year, the rate ofincrease in prices has slowed
(16:21):
down. So that currently on ayear over year basis, as of
March, the inflation rate asmeasured by the Consumer Price
Index is 3.5%. substantiallylower than where it had been
June of 2022, when it stood atover 9%. So yes, inflation is
still a problem, the Fed has atarget of 2% that it wants to
(16:45):
achieve. And sell 3.5% is stillabove their target. But once
again, the good news is that ona year over year basis, the rate
of increase has been declining.
Dr. Ralph Ford (16:58):
Well that is good news is there. When you
look at how much people havesaved, I mean, I think one of
the things I recall was theissue was people say ended up
having a lot of disposable cashin their savings actually
towards the end of the pandemic.
So they decided to buy cars andhomes. And are we seeing a
change in that as well?
Dr. Ken Louie (17:17):
Yes. And many people point to the fact that
the nature of demand isdifferent during the pandemic,
because people were shelteredin, they tend to buy a lot of
goods, a lot of it online. Andnow that we're sort of going
beyond the pandemic, the demandhas gradually switched over to
(17:38):
services. And I think, in fact,that's one of the main reasons
why inflation has remainedstubbornly above 3%, which is,
although the demand for goodshas been moderating the demand
for services has been going up.
For instance, we go out to eatmore often now that the pandemic
is behind us. And in fact, ifyou compare food prices, on the
(17:58):
one hand, food prices for thingswe consume at home, versus food
prices, when we go out to eatthe ladder has seen a much
higher rate of inflation. So Ithink that's keeping the rate of
inflation higher.
Dr. Ralph Ford (18:14):
And it's hard because people just they want to
get out. They want to live theirlives, they want to visit
places, and it just continueson. I mean, so the other
interesting part of that is theeconomy has continued to grow.
So there was this great concernthat we were going to go into a
recession, by and large thatseems to have abated, although
there are some who are sayingthat it's still coming along. I
(18:36):
mean, GDP has averaged, youknow, over 333 point 4%
Unemployment has remained low.
All these things aretraditionally like, you would
normally look at this and saythis is an unbelievable economy
right now.
Dr. Ken Louie (18:50):
Yes, it's really, overall a very, very good
picture. It's never perfect, wecan always improve upon certain
elements in the economy. Butbroadly speaking, we are doing
quite well. The growth rate, asyou said last year average over
3%. It is moderating somewhat soin the first quarter of this
(19:10):
year, the Commerce Departmentrecently reported that we only
had a 1.6% annual rate duringthe first three months of this
year, so it's slowing down. Butas you correctly point out, even
that's good news, because theFeds policy of trying to reduce
inflation by slowing down theeconomy seems to be working
(19:34):
really just as they had planned.
So they're not bringing theeconomy to a complete halt. But
they're slowing down the economyto the point where we're growing
more slowly. Inflation has beencoming down year over year for
the past couple of years. Andthis is really the ideal
situation what economists call asoft landing remains to be seen
(19:54):
whether that can continue andsince inflation is still
startlingly high, there is afear that the Fed might continue
to hold interest rates at thecurrent level rather than reduce
them. And so we can't be sureyou know what, what definitely
will happen in the next next fewmonths?
Dr. Ralph Ford (20:15):
Well, you know, I told you, I wouldn't go here,
but I'm going to the yield curvehas, I think it is inverted. And
I don't really, fully understandit unless I go, you know, Google
and look it up. And then itreminds me what it is. But
typically, whenever that isinverted, we've had a recession,
but it's inverted. And is thislike the first time it's
possible, it may invert, and wedon't have a recession?
Dr. Ken Louie (20:35):
Right, just very briefly, wian inverted yield
curve refers to the followingthat typically, if you look at
interest rates, and the ratesthat we pay, when we borrow
money, or the interest rates wereceive, and we deposit money
into savings vehicles, thoseinterest rates tend to be higher
(20:57):
for long term financialtransactions. And they tend to
be lower for short termfinancial transactions. And
that's a very, very commonsensical phenomenon, that if you
keep your money held in oneparticular asset for a longer
time period, typically you tendto be able to command a higher
(21:19):
interest rate, while an invertedyield curve simply refers to a
situation where short terminterest rates become higher
than long term interest rates,hence, the term inversion. And
as you correctly point out, eversince Second World War,
economists have pointed out thatwhenever the yield curve has
(21:39):
been inverted, that is shortterm interest rates higher than
long term interest rates, thateventually has led to a
recession. And just veryquickly, the reason for that is
that when there is thatinversion, what it signals is
that the monetary authoritiesare tightening up on the
economy. And that's what'scausing short term interest
(22:01):
rates to rise that monetarytightening. And so that's really
the reason why a recessiontypically as followed, but as
you indicated, we haven't seenthat recently, the inverted
yield curve has been observed.
And yet, we are not seeing anysigns of a recession, at least
not for the foreseeable future.
(22:21):
So that is an unusualcircumstance that is in
contrast, what we've experiencedhistorically.
Dr. Ralph Ford (22:28):
I'm going to stick with this a little
further, not the yield curve.
But one of the things that I'mcurious about is when the
pandemic first hit, I actuallyremember looking at GDP curves
of when the great pandemic hitback in, you know, 1919 1920.
And it's amazing how it droppedalmost exactly like it did for
us. But within a few years. Andif you extrapolate the curve,
GDP continues on or economicoutput. And it seems like that's
(22:48):
happened again. But all theseother factors were talking about
in terms of inflation, and like,did the 1920s give us any
indicator? Was the economy sodifferent then?
Dr. Ken Louie (23:00):
I think you're right to point out that,
overall, the trends seem to bebroadly similar. Real GDP in the
US fell by something like athird during the height of the
recent pandemic. But right afterthat, literally the quarter
after row GDP fell by a third, areal GDP rebounded really,
(23:24):
really robustly. So it was sucha short term dip, in fact, the
recession that resulted becauseof that contraction only lasted
for two months, from February toApril. So the overall pattern, I
think, is similar to what we'veseen in the past, I think the
nuance would be that we'velearned so much, and the
(23:45):
economy, I think is much moresophisticated in terms of
technology in terms of workerskills, that our recovery, I
think, is accelerated because ofthose positive trends. Whereas
it would have taken longer inthe past. Now it takes less time
to recover from such a traumaticevent.
Dr. Ralph Ford (24:07):
Well, let's switch a little bit, but talk
about the fact that we're in anelection year. And that makes
everything political. It'salways political, but the
economy always is. And I heardifferent statements. I'm gonna
take them from both sides, youknow, and I'm not asking you to
take a political position, ofcourse. So the one argument is,
(24:28):
from the Republican side is theyhear gas prices are up this
week. You know, it must be JoeBiden's fault must be the
President's fault. And then onthe other side, on the on the
left or the Democratic side. Oh,no, this is all due to something
called Green inflation andcorporations that have record
(24:48):
profits. So all of this is theirfault. Care to help us navigate
those waters. Do these thingsreally matter?
Dr. Ken Louie (24:56):
Sure, I'll do my best. So There are certain
forces in the economy thatreally work at a fundamental
level that produce the outcomesthat we see. And those forces
are indirectly affected by thedecisions of policymakers like
(25:17):
the president. But the importantthing to keep in mind is that
the way the President can affectthe economy really, is only in
conjunction with congressionalaction. The main way in which
the President affects theeconomy is through fiscal
policy, but fiscal policy isimplemented in the US by the
(25:38):
President, along with Congress,those the two out of the three
parts of our federal governmentthat are responsible for fiscal
policy. So that yes, thePresident indirectly has a role
to play. But really, it's alsoin conjunction with what
Congress either authorizes orrefuses to authorize. So who's
(25:59):
responsible for the outcomesthat we see? Yes, there's this
indirect responsibility, butit's on the part of both the
President and Congress. Andsecondly, what's difficult often
is we cannot disentangle theforces that I'm referring to,
which is the forces of demandsupply, consumption production.
(26:20):
Those forces often cannot bedisentangled from political
events. And so that's why it'soften hard to to gauge how much
of this is due to politics andhow much of it is due to true
economic factors. That's achallenge for people like us to
try to study and understand.
Dr. Ralph Ford (26:39):
Companies legitimately had super high
changes in their costs. So theyhad to raise prices. And, you
know, so it seems legitimate,that they would they would raise
prices, but have they done ittoo much. Is there any
indication when we look at thedata that there's price gouging
and other things going on?
Right?
Dr. Ken Louie (26:59):
So I think our very own senator, Senator Bob
Casey received much publicizedpress attention when he recently
issued his report on reflation,but they go back to what I said
earlier, there may very well beisolated instances where firms
(27:20):
are deliberately raising pricesand taking advantage of the
current economic conditions. Thedifficulty, though, for
researchers like us is that it'svery hard to quantify and
disentangle how much of that isdue to true greed, right? True
price gouging on the one hand,on the part of the firm versus
(27:42):
how much of that is attributableto fundamental economic forces.
So for instance, we talkedearlier about the demand shocks
and the supply shocks to theeconomy. Well, the fundamental
forces that are at work, ifdemand shifts and supply shifts,
fundamentally, that will produceprice changes, and if a
particular company happens to beproducing a product that's
(28:05):
affected by those supply anddemand changes those shocks to
demand and supply that can verywell push up prices and allow
those firms to earn higherprofits who are in those
markets. So how much of it isdue to deliberate manipulation
and greed and how much of it isdue to fundamental market
forces, very hard to ascertain?
What I will add is also that ifwe are fearful that there may be
(28:31):
instances of corporate greed orinstances where companies are
deliberately raising prices totake advantage of the situation,
I think the appropriate responseis really in the regulatory and
antitrust area where we try topromote greater competition,
because economics teaches usthat the surest way to avoid
(28:53):
having firms do things like thatis to maintain a healthy degree
of competition. So if you do seeprice gouging or or unfairly
high prices, it's usually due tofirms having excessive market
power, where there'sinsufficient competition.
Dr. Ralph Ford (29:13):
This is very helpful. And I think the one big
takeaway is always be skepticalof these political claims. The
world is an economics are a lotmore complicated. And while some
of it may have merits, look deepat all of these claims, I think
that's very helpful. Well, let'sswitch a little bit to your day
job. You're a professor here,teacher at Penn State Behrend
(29:37):
and why they should studentsstudy economics.
Dr. Ken Louie (29:42):
Wow, that's I think, the most important
question students and by theway, not just students, I think
everybody should studyeconomics, even if they've never
been exposed to economicsbefore. I think there are two
major reasons there are manymany other related reasons but I
think the two major reasons arefor First, it helps us to
understand society. And none ofus not one of us lives isolated,
(30:10):
apart from the rest of society.
So whether it's production,consumption, income, employment,
purchasing power, poverty, weaffect the rest of society
ourselves. And we are affectedin turn by what happens across
the society. And economics hasthe power to enable the person
(30:31):
who studies economics, tounderstand some of these forces
that affects society. So that'sthe first reason the second
reason is at a more practical,more mundane level. economics
teaches us how to make the bestchoices. It's somewhat common
for people to associateeconomics with making decisions
(30:53):
in the financial arena, whatstocks to buy, what bank to go
to, should I take out a loan,but really, economics, if you
study it, you come to realizethat it teaches you how to make
the best decisions, evendecisions that transcend
ordinary financial kinds ofchoices. And so combined, I
(31:15):
think that's a very, verypowerful script to enable
yourself to be a more productiveand a more wise decision maker
in our society, to understandsociety, and to know how to make
the best decisions underdifferent circumstances.
Dr. Ralph Ford (31:35):
Very well said, you know, I, I am fascinated by
economists and economicthinking, truly, because I, as a
young person, I'll give you myexperience. And I think the one
maybe people hear too much whenthey're in school, which is, you
know, oh, my God, I'm going totake either micro or macro
economics, which should I take,this is so hard, and you just
(31:57):
make some choice, that makes nosense. Whereas once you start to
really interact with economists,and you listen to them for a
while, you realize all thethings you just said, which it's
about decision making applies toso many different domains in
life. So I really appreciate youhearing that. Do you think we're
getting the message out more andmore to our students better than
mine? I was a student. I don'twant to date myself. But that's
(32:18):
what I recall was it was thescary decision that I heard. And
I hope we've changed thenarrative by now.
Dr. Ken Louie (32:23):
Yes, I hope so as certainly here on our campus,
Well, I'm going to give you thelast word here. I will also note
whenever we have open house orother events that in which we
talk to students, we do try toimpress upon them, the broader
nature of economics, andcertainly in the very first day
of class. That's one of thefirst things I tried to tell my
(32:43):
own students, which is thateconomics really focuses on
broader issues, not just narrowfinancial sorts of questions.
that today is the very last dayof final exams, and we have
commencement this evening. Sowe're sending another class of
students out into the world. Butany anything you'd like to add?
(33:06):
I think the major thing I'd liketo say is that we should feel
good about how our local economyhas withstood such a traumatic
series of events related to thepandemic. And that despite that,
like the national economy, weare resilient, things can always
(33:27):
be better. But we are very, verysteadily moving in the right
direction. The initiatives thatwe've taken locally among the
universities, among government,among local entrepreneurs and
innovators, those all, I think,make me heartened that in the
future, we will benefit fromthese investments and
(33:49):
initiatives. So I think that'sthe major takeaway that I would
get from looking all the datathat I've been seeing recently.
Dr. Ralph Ford (33:55):
Well, you indeed get the last word. I'm Dr. Ralph
Ford, Chancellor of Penn StateBehrend, You have been listening
to Behrend Talks. Thank you. Dr.
Ken Louie has been my guesttoday, faculty member in
economics in the Black School ofBusiness and director of the
Economic Research Institute ofErie. We'll get you back on the
show.
Dr. Ken Louie (34:14):
Thank you so much. I appreciate it. Thank
you.
Hello, I am Dr.
Ralph Ford, Chancellor of PennState Behrend, and you are
listening to Behrend Talks. Myguest today is Dr. Ken Louie, an
associate professor of economicsin the Black School of Business,
and director of the EconomicResearch Institute of Erie.
Welcome to the show, Ken.
Dr. Ken Louie (00:18):
Thank you very much. Thanks for having me.
Dr. Ralph Ford (00:19):
Well, we appreciate having you here and
you are a repeat guest. Wewanted to talk about the
economy. It's an interestingtime. But before we go forward,
I will just talk a little bitand tell our listeners about
your background. So you're wellknown in the Erie region, but
you hold a Ph.D. and a master'sdegree in economics from the
University of IllinoisUrbana-Champaign. your
(00:42):
bachelor's degree was also ineconomics and was earned at
Northwestern University. Allvery prestigious, great places.
You visited China as a Fulbrightscholar, and you were also a
visiting professor at JohnsHopkins University. Here at
Behrend, you have received manyawards, including the Council of
Fellows Excellence in TeachingAward, and the Guy Wilson Award
(01:03):
for Excellence in advising. Asdirector of the Economic
Research Institute of Erie, youlead a team that collects and
analyzes economic data thatpredicts the trends are as well
as you can in Erie's economy.
Your analysis has been featuredon CBS News, CNBC, and NPR,
among many other media outlets,truly tremendous background, we
(01:25):
appreciate you being here.
Dr. Ken Louie (01:30):
Thanks again for having me.
Dr. Ralph Ford (01:31):
Let's talk a little bit about the theory
economy, which is where youspend a lot of time what's your
broad view? How are we doing?
Dr. Ken Louie (01:38):
Sure, first of all, at the national level, the
US economy is still going verystrong. In fact, just this
morning, the Bureau of LaborStatistics reported that the US
added 175,000 jobs just in themonth of April, and the
unemployment rate held steady at3.9%, just slightly more than
the previous month. So we'restill fairly robust at the
(02:02):
national level. At the locallevel, broadly speaking, the
Erie economy also seems to beremaining steady and stable.
Employment, in fact, locally hasbeen increasing steadily since
the end of the pandemic. Sosince April 2020, Erie has
consistently added jobs.
Although currently we're stillslightly below the pre-pandemic
(02:26):
level we're about at 98%.
However, for the year, just pastyear, on year, as of March, the
Erie economy out of 1,700 jobs,the biggest sector, fastest
growing sector being theeducation and health services
sector, but even manufacturingadded 300 jobs, year over year
(02:50):
as of March. So in terms ofemployment, we're still holding
steady in terms of output, whatwe actually produce in terms of
goods and services. We're alsoholding steady, although the
increase in our output locallyhas been fairly modest. After
dropping by 6%, due to thepandemic, we've gradually been
(03:11):
creeping upwards. But last year,we only grew by less than 1%.
And compared to the Commonwealthas a whole, and the nation as a
whole, were a little bit laggingbehind in terms of the growth
rate. So good news is output isstill holding steady. Finally,
income may be the mostchallenging component of our
(03:34):
local economic performance, bothreal per capita income and real
median household income hasactually fallen somewhat in
recent years. So that'ssomething to keep an eye on. But
broadly speaking, once again,the economy seems to be holding
steady.
Dr. Ralph Ford (03:52):
When you say per capita income is decreased, is
that inflation adjusted? Or isthat real dollars?
Dr. Ken Louie (03:58):
Yes, that's inflation adjusted what
economists call real dollars. Soon a per capita basis, personal
income, for instance, was justunder $49,000. And that is a
somewhat of a decrease comparedto years gone by. However, on a
(04:19):
longer term basis, it has beengoing up. So if you go back to
say 10 or 15 years, we're stillat a higher level. But it's
recently that the real incomehas been falling somewhat.
Dr. Ralph Ford (04:31):
So would you say Have we recovered or rebounded
from the pandemic in your mind?
Where do we stand relative towhere we were prior to 2020?
Dr. Ken Louie (04:40):
Yes, as I said earlier, employment has bounced
back quite nicely, although it'sstill only at about 98% of the
pre pandemic level. In contrast,both in the Commonwealth and in
the nation as a whole employmentlevels have gone beyond the pre
pandemic level. So we're laggingbehind somewhat, but the fact
(05:01):
that we're so close to that prepandemic level of employment is
is good news. And as I said,that has been the result of this
consistent upward trajectorysince April 2020. When we were
in the depths of the, of thepandemic. So yes, things do seem
to be recovering quite nicely.
We always hope it could befaster. We're moving in the
right direction.
Dr. Ralph Ford (05:23):
One number that you quoted in there interested
me, and that was the fact thatin the last year manufacturing
jobs grew. It's great higher ed,you know, education, where we're
at and healthcare, that seems tobe a continuing trend. The
reason the manufacturing numberstruck me is that in a lot of
the previous recessions oreconomic shocks, we've seemed to
(05:45):
lose a lot in terms ofmanufacturing, is this time
different?
Dr. Ken Louie (05:49):
Yes, it does appear that we are having a
better experience recently. Ithink partly that's due to many
of the adaptations that firms inthat manufacturing sector have
taken and have made strides toconfront the challenges of
structural change, technologicalchange in the economy. So yes, I
(06:11):
think it's really heartening tosee that manufacturing is
holding its own and in fact,steadily increasing. The other
factor is that if you look atnational statistics, there are
some statistics that indicatethis so called trend of
reshoring. So that ismanufacturing concerns are
moving many of their jobs backto the US, given that traumatic
(06:33):
period of COVID pandemic. Andgiven all the supply chain
disruptions that caused manyfirms to rethink, you know,
disaggregating, their supplychain. So that's part of the
picture as well.
Dr. Ralph Ford (06:47):
Is there any, any evidence so far, and I
realized that maybe early, thatthe CHIPS and Science Act, and
that that sort of that spendingin that arena is having a
difference making thedifference?
Dr. Ken Louie (06:56):
Yes, I think it's a little bit too early to
pinpoint quantitatively theprecise impact. But I think if
you look just anecdotally, allover the country, it's
definitely having a positiveimpact in areas as wide ranging
as increasing broadband access,repairing outdated
(07:17):
infrastructure, bridges,highways, and so forth. So it's
definitely having an impact. Butit'll take some time before we
can actually quantify theprecise magnitude of the impact.
Dr. Ralph Ford (07:28):
Well, when we go back to the economy right now,
what what are you going to belooking at in the next three to
six months as indicators forturnaround or not a turnaround?
What are the things that you'relooking at right now?
Dr. Ken Louie (07:39):
Sure. So based on those statistics I mentioned,
these are typically whateconomists tend to focus on
employment jobs, output, what weactually produce an income,
which is ultimately thepurchasing power of average
households in the area. So thereis a turnaround in the sense
(08:02):
that we're still moving upward,albeit very modestly. But I
think the biggest challenge thatwe face in the upcoming months
and years, is to speed up thatprocess of job growth to create
more jobs. And related to thatnot just any jobs, but taking
advantage of technology so thatthe new jobs we create will be
(08:23):
higher paying jobs. Because inaddition to the sluggish job
growth, as I indicated, incomegrowth has also been fairly
stagnant in these areas, I thinkthose are the two biggest
challenges, job growth, incomegrowth. And we see this
reflected in other statistics aswell. So for instance, poverty
levels are still somewhatelevated, it's, I think,
(08:45):
something like 15%. And amongchildren, it's actually over
20%. So those are some of theeconomic challenges that I think
we need to confront.
Dr. Ralph Ford (08:53):
I think that leads perfectly into what I was
thinking about next, which isthe local investment. And we'll
talk about different aspects ofthat. But as we all know, led by
Erie Insurance, we have the ErieDowntown Development
Corporation, the transformationthat we are seeing going on
downtown, it's still underway.
But if you took a picture fiveyears ago, and you take one
today looks very different. Howimportant is that?
Dr. Ken Louie (09:16):
Absolutely crucial. The partnerships that
we have made in Eriepartnerships, specifically among
government, the private sectorand universities is absolutely
crucial. In fact, if you look atthe history of the US economy,
many experts point to the factthat the tremendous growth that
(09:38):
we experienced after the SecondWorld War was precisely
attributable to this positive,favorable collaboration among
the federal government, privatebusinesses and universities that
engaged in research and righthere in Erie, Pennsylvania,
we're doing exactly thosethings. So we have initiatives
(09:59):
undertaken as you said byprivate companies like Erie
Insurance, the medical centers,we now have a new company
located right here in KnowledgePark. We have an open lab system
where we try to encourageentrepreneurship innovation by
people in the community that cancontribute to the growth of the
area. And then just recently,Governor Shapiro has announced a
(10:22):
new initiative, I think thefirst major initiative to foster
greater development inPennsylvania and over 20 years.
And specifically within thatstate plan, he's focusing on
innovation as a main driver ofthat growth. So all the things
you mentioned, I think, arepositive developments. I'll make
one final point, which is, givenall these developments, we
(10:45):
actually are held up sometimesas a model of economic
revitalization. So there was aNew York Times story just back
in February, describing how GaryIndiana, a city in the Midwest,
very similar to Erie with itshistorical emphasis on
manufacturing. But Gary, Indianais actually looking to Erie,
(11:05):
Pennsylvania as a possible socalled template for a strategy
to revitalize their economy. Sowe shouldn't let all the
negative attributes that wesometimes see overwhelm us, I
think there are some positivedevelopments and to the extent
that others see us as a model ofrevitalization that I think
should boost our confidence.
Dr. Ralph Ford (11:27):
A lot in there.
And that's, you know, appreciatethe really detailed response on
that one of the things that, itseems to me that has to occur,
and it's maybe an obvious thingthat you don't always talk about
is population growth, driveseconomic growth. And it's hard
when you have a decreasingpopulation in Erie has for the
last 30 years. But it seems tome that it's slowed at least.
(11:49):
And I've seen some of theprojections from rural PA and
the like, now, they're prettyfar out to 2050. But if it is
wonderful that we retain our ownpeople, and we focus on that,
but we have to attract newpeople to the region, I mean,
how important is that?
Dr. Ken Louie (12:05):
It's also a very, very important variable, I teach
my students as a matter of fact,that of all the economic
resources that we deploy, laboris probably the most important
resource, upwards of two thirdsto three quarters of all of the
income and economic activitythat we that we generate is
(12:26):
attributable to thecontributions of labor, whether
through physical effort orintellectual effort. So labor is
really the key resource. And sothat's why population growth is
so important, because the sizeof the labor force is dependent
on the growth of the population.
So to the extent that you havepopulation growth, you can
(12:47):
expand those resources andexpand the economy. This also
feeds back to what I saidearlier, which is,
unfortunately, the major reasonswhy we're experiencing
population decline is the rathersluggish growth in employment
levels over the years and interms of income levels. And so
we need to, you know, do thingsthat will turn around those two
(13:11):
economic factors. I think, ifthat were to happen, the
population growth, potentiallycan resume once more.
Dr. Ralph Ford (13:21):
It will follow at that point. Yeah, it's me,
there's a lot to discuss her onthat. In fact, Wall Street
Journal just last week showedhow you know, the replacement
rates of birth rates in the USis continues to fall at alarming
levels. I called my childrentold them both start having
babies, they didn't like that,actually. But it is true without
growth in population, you seeplaces like Japan and others,
(13:43):
and it becomes a long termstruggle. And so what you're
telling me though, is that it'snot cliche when we leader say
our people are our greatestasset, it is truly an economic
factor as well. The more peopleyou have, the faster your
economy is going to grow.
Absolutely, absolutely. Let's dothings follow each other. Well,
let's, let's talk aboutinflation. I mean, it is been
something that's been with us ina way we haven't experienced
(14:07):
ever since the pandemic. And,you know, I can, quote some
numbers here. According to theBrookings Institution, rents
have increased almost 20% since2021. And that is amazing. Maybe
not in a good way, airfares areup 23 and a half percent.
Automobile Insurance is up, wecould go on and on what's caused
(14:28):
all of this to happen?
Dr. Ken Louie (14:31):
In the most recent period, the pandemic
certainly has been the keyculprit. In economics, we talk
about demand and supply.
Specifically, we teach ourstudents that outcomes are going
to reflect a so called shocks tothe system demand shocks and
supply shocks. Usually you haveone or the other. But during the
(14:54):
pandemic, we had really thisunusual combination of a
negative demand shock and anegative supply shock, the
supply shock. First of all, dueto the supply chain disruptions,
the productive activity that wasslowed down or halted altogether
because of the pandemic, on thedemand side, you had a drastic
(15:15):
reduction in consumption aspeople, you know, sheltered in
and didn't consume as robustlyas before. So that combination
of negative demand and negativesupply shock certainly added
trauma to the economy. Andinflation ultimately, was the
result. In order to address thedemand shock, obviously, we know
(15:38):
the government, the federalgovernment provided massive
financial stimulus. And so thatsustained demand, and to some
experts that stimulus to demandalso as a contributing factor.
But the other thing I would add,however, is those figures seem
staggering when we compare howmuch prices have risen, let's
(15:59):
say from 2021. But the good newsis that the rate of increase has
actually been falling. So forinstance, if you look at 2021 to
2022, versus 2022, to 2023,versus 2023, to 24. In each
successive year, the rate ofincrease in prices has slowed
(16:21):
down. So that currently on ayear over year basis, as of
March, the inflation rate asmeasured by the Consumer Price
Index is 3.5%. substantiallylower than where it had been
June of 2022, when it stood atover 9%. So yes, inflation is
still a problem, the Fed has atarget of 2% that it wants to
(16:45):
achieve. And sell 3.5% is stillabove their target. But once
again, the good news is that ona year over year basis, the rate
of increase has been declining.
Dr. Ralph Ford (16:58):
Well that is good news is there. When you
look at how much people havesaved, I mean, I think one of
the things I recall was theissue was people say ended up
having a lot of disposable cashin their savings actually
towards the end of the pandemic.
So they decided to buy cars andhomes. And are we seeing a
change in that as well?
Dr. Ken Louie (17:17):
Yes. And many people point to the fact that
the nature of demand isdifferent during the pandemic,
because people were shelteredin, they tend to buy a lot of
goods, a lot of it online. Andnow that we're sort of going
beyond the pandemic, the demandhas gradually switched over to
(17:38):
services. And I think, in fact,that's one of the main reasons
why inflation has remainedstubbornly above 3%, which is,
although the demand for goodshas been moderating the demand
for services has been going up.
For instance, we go out to eatmore often now that the pandemic
is behind us. And in fact, ifyou compare food prices, on the
(17:58):
one hand, food prices for thingswe consume at home, versus food
prices, when we go out to eatthe ladder has seen a much
higher rate of inflation. So Ithink that's keeping the rate of
inflation higher.
Dr. Ralph Ford (18:14):
And it's hard because people just they want to
get out. They want to live theirlives, they want to visit
places, and it just continueson. I mean, so the other
interesting part of that is theeconomy has continued to grow.
So there was this great concernthat we were going to go into a
recession, by and large thatseems to have abated, although
there are some who are sayingthat it's still coming along. I
(18:36):
mean, GDP has averaged, youknow, over 333 point 4%
Unemployment has remained low.
All these things aretraditionally like, you would
normally look at this and saythis is an unbelievable economy
right now.
Dr. Ken Louie (18:50):
Yes, it's really, overall a very, very good
picture. It's never perfect, wecan always improve upon certain
elements in the economy. Butbroadly speaking, we are doing
quite well. The growth rate, asyou said last year average over
3%. It is moderating somewhat soin the first quarter of this
(19:10):
year, the Commerce Departmentrecently reported that we only
had a 1.6% annual rate duringthe first three months of this
year, so it's slowing down. Butas you correctly point out, even
that's good news, because theFeds policy of trying to reduce
inflation by slowing down theeconomy seems to be working
(19:34):
really just as they had planned.
So they're not bringing theeconomy to a complete halt. But
they're slowing down the economyto the point where we're growing
more slowly. Inflation has beencoming down year over year for
the past couple of years. Andthis is really the ideal
situation what economists call asoft landing remains to be seen
(19:54):
whether that can continue andsince inflation is still
startlingly high, there is afear that the Fed might continue
to hold interest rates at thecurrent level rather than reduce
them. And so we can't be sureyou know what, what definitely
will happen in the next next fewmonths?
Dr. Ralph Ford (20:15):
Well, you know, I told you, I wouldn't go here,
but I'm going to the yield curvehas, I think it is inverted. And
I don't really, fully understandit unless I go, you know, Google
and look it up. And then itreminds me what it is. But
typically, whenever that isinverted, we've had a recession,
but it's inverted. And is thislike the first time it's
possible, it may invert, and wedon't have a recession?
Dr. Ken Louie (20:35):
Right, just very briefly, wian inverted yield
curve refers to the followingthat typically, if you look at
interest rates, and the ratesthat we pay, when we borrow
money, or the interest rates wereceive, and we deposit money
into savings vehicles, thoseinterest rates tend to be higher
(20:57):
for long term financialtransactions. And they tend to
be lower for short termfinancial transactions. And
that's a very, very commonsensical phenomenon, that if you
keep your money held in oneparticular asset for a longer
time period, typically you tendto be able to command a higher
(21:19):
interest rate, while an invertedyield curve simply refers to a
situation where short terminterest rates become higher
than long term interest rates,hence, the term inversion. And
as you correctly point out, eversince Second World War,
economists have pointed out thatwhenever the yield curve has
(21:39):
been inverted, that is shortterm interest rates higher than
long term interest rates, thateventually has led to a
recession. And just veryquickly, the reason for that is
that when there is thatinversion, what it signals is
that the monetary authoritiesare tightening up on the
economy. And that's what'scausing short term interest
(22:01):
rates to rise that monetarytightening. And so that's really
the reason why a recessiontypically as followed, but as
you indicated, we haven't seenthat recently, the inverted
yield curve has been observed.
And yet, we are not seeing anysigns of a recession, at least
not for the foreseeable future.
(22:21):
So that is an unusualcircumstance that is in
contrast, what we've experiencedhistorically.
Dr. Ralph Ford (22:28):
I'm going to stick with this a little
further, not the yield curve.
But one of the things that I'mcurious about is when the
pandemic first hit, I actuallyremember looking at GDP curves
of when the great pandemic hitback in, you know, 1919 1920.
And it's amazing how it droppedalmost exactly like it did for
us. But within a few years. Andif you extrapolate the curve,
GDP continues on or economicoutput. And it seems like that's
(22:48):
happened again. But all theseother factors were talking about
in terms of inflation, and like,did the 1920s give us any
indicator? Was the economy sodifferent then?
Dr. Ken Louie (23:00):
I think you're right to point out that,
overall, the trends seem to bebroadly similar. Real GDP in the
US fell by something like athird during the height of the
recent pandemic. But right afterthat, literally the quarter
after row GDP fell by a third, areal GDP rebounded really,
(23:24):
really robustly. So it was sucha short term dip, in fact, the
recession that resulted becauseof that contraction only lasted
for two months, from February toApril. So the overall pattern, I
think, is similar to what we'veseen in the past, I think the
nuance would be that we'velearned so much, and the
(23:45):
economy, I think is much moresophisticated in terms of
technology in terms of workerskills, that our recovery, I
think, is accelerated because ofthose positive trends. Whereas
it would have taken longer inthe past. Now it takes less time
to recover from such a traumaticevent.
Dr. Ralph Ford (24:07):
Well, let's switch a little bit, but talk
about the fact that we're in anelection year. And that makes
everything political. It'salways political, but the
economy always is. And I heardifferent statements. I'm gonna
take them from both sides, youknow, and I'm not asking you to
take a political position, ofcourse. So the one argument is,
(24:28):
from the Republican side is theyhear gas prices are up this
week. You know, it must be JoeBiden's fault must be the
President's fault. And then onthe other side, on the on the
left or the Democratic side. Oh,no, this is all due to something
called Green inflation andcorporations that have record
(24:48):
profits. So all of this is theirfault. Care to help us navigate
those waters. Do these thingsreally matter?
Dr. Ken Louie (24:56):
Sure, I'll do my best. So There are certain
forces in the economy thatreally work at a fundamental
level that produce the outcomesthat we see. And those forces
are indirectly affected by thedecisions of policymakers like
(25:17):
the president. But the importantthing to keep in mind is that
the way the President can affectthe economy really, is only in
conjunction with congressionalaction. The main way in which
the President affects theeconomy is through fiscal
policy, but fiscal policy isimplemented in the US by the
(25:38):
President, along with Congress,those the two out of the three
parts of our federal governmentthat are responsible for fiscal
policy. So that yes, thePresident indirectly has a role
to play. But really, it's alsoin conjunction with what
Congress either authorizes orrefuses to authorize. So who's
(25:59):
responsible for the outcomesthat we see? Yes, there's this
indirect responsibility, butit's on the part of both the
President and Congress. Andsecondly, what's difficult often
is we cannot disentangle theforces that I'm referring to,
which is the forces of demandsupply, consumption production.
(26:20):
Those forces often cannot bedisentangled from political
events. And so that's why it'soften hard to to gauge how much
of this is due to politics andhow much of it is due to true
economic factors. That's achallenge for people like us to
try to study and understand.
Dr. Ralph Ford (26:39):
Companies legitimately had super high
changes in their costs. So theyhad to raise prices. And, you
know, so it seems legitimate,that they would they would raise
prices, but have they done ittoo much. Is there any
indication when we look at thedata that there's price gouging
and other things going on?
Right?
Dr. Ken Louie (26:59):
So I think our very own senator, Senator Bob
Casey received much publicizedpress attention when he recently
issued his report on reflation,but they go back to what I said
earlier, there may very well beisolated instances where firms
(27:20):
are deliberately raising pricesand taking advantage of the
current economic conditions. Thedifficulty, though, for
researchers like us is that it'svery hard to quantify and
disentangle how much of that isdue to true greed, right? True
price gouging on the one hand,on the part of the firm versus
(27:42):
how much of that is attributableto fundamental economic forces.
So for instance, we talkedearlier about the demand shocks
and the supply shocks to theeconomy. Well, the fundamental
forces that are at work, ifdemand shifts and supply shifts,
fundamentally, that will produceprice changes, and if a
particular company happens to beproducing a product that's
(28:05):
affected by those supply anddemand changes those shocks to
demand and supply that can verywell push up prices and allow
those firms to earn higherprofits who are in those
markets. So how much of it isdue to deliberate manipulation
and greed and how much of it isdue to fundamental market
forces, very hard to ascertain?
What I will add is also that ifwe are fearful that there may be
(28:31):
instances of corporate greed orinstances where companies are
deliberately raising prices totake advantage of the situation,
I think the appropriate responseis really in the regulatory and
antitrust area where we try topromote greater competition,
because economics teaches usthat the surest way to avoid
(28:53):
having firms do things like thatis to maintain a healthy degree
of competition. So if you do seeprice gouging or or unfairly
high prices, it's usually due tofirms having excessive market
power, where there'sinsufficient competition.
Dr. Ralph Ford (29:13):
This is very helpful. And I think the one big
takeaway is always be skepticalof these political claims. The
world is an economics are a lotmore complicated. And while some
of it may have merits, look deepat all of these claims, I think
that's very helpful. Well, let'sswitch a little bit to your day
job. You're a professor here,teacher at Penn State Behrend
(29:37):
and why they should studentsstudy economics.
Dr. Ken Louie (29:42):
Wow, that's I think, the most important
question students and by theway, not just students, I think
everybody should studyeconomics, even if they've never
been exposed to economicsbefore. I think there are two
major reasons there are manymany other related reasons but I
think the two major reasons arefor First, it helps us to
understand society. And none ofus not one of us lives isolated,
(30:10):
apart from the rest of society.
So whether it's production,consumption, income, employment,
purchasing power, poverty, weaffect the rest of society
ourselves. And we are affectedin turn by what happens across
the society. And economics hasthe power to enable the person
(30:31):
who studies economics, tounderstand some of these forces
that affects society. So that'sthe first reason the second
reason is at a more practical,more mundane level. economics
teaches us how to make the bestchoices. It's somewhat common
for people to associateeconomics with making decisions
(30:53):
in the financial arena, whatstocks to buy, what bank to go
to, should I take out a loan,but really, economics, if you
study it, you come to realizethat it teaches you how to make
the best decisions, evendecisions that transcend
ordinary financial kinds ofchoices. And so combined, I
(31:15):
think that's a very, verypowerful script to enable
yourself to be a more productiveand a more wise decision maker
in our society, to understandsociety, and to know how to make
the best decisions underdifferent circumstances.
Dr. Ralph Ford (31:35):
Very well said, you know, I, I am fascinated by
economists and economicthinking, truly, because I, as a
young person, I'll give you myexperience. And I think the one
maybe people hear too much whenthey're in school, which is, you
know, oh, my God, I'm going totake either micro or macro
economics, which should I take,this is so hard, and you just
(31:57):
make some choice, that makes nosense. Whereas once you start to
really interact with economists,and you listen to them for a
while, you realize all thethings you just said, which it's
about decision making applies toso many different domains in
life. So I really appreciate youhearing that. Do you think we're
getting the message out more andmore to our students better than
mine? I was a student. I don'twant to date myself. But that's
(32:18):
what I recall was it was thescary decision that I heard. And
I hope we've changed thenarrative by now.
Dr. Ken Louie (32:23):
Yes, I hope so as certainly here on our campus,
Well, I'm going to give you thelast word here. I will also note
whenever we have open house orother events that in which we
talk to students, we do try toimpress upon them, the broader
nature of economics, andcertainly in the very first day
of class. That's one of thefirst things I tried to tell my
(32:43):
own students, which is thateconomics really focuses on
broader issues, not just narrowfinancial sorts of questions.
that today is the very last dayof final exams, and we have
commencement this evening. Sowe're sending another class of
students out into the world. Butany anything you'd like to add?
(33:06):
I think the major thing I'd liketo say is that we should feel
good about how our local economyhas withstood such a traumatic
series of events related to thepandemic. And that despite that,
like the national economy, weare resilient, things can always
(33:27):
be better. But we are very, verysteadily moving in the right
direction. The initiatives thatwe've taken locally among the
universities, among government,among local entrepreneurs and
innovators, those all, I think,make me heartened that in the
future, we will benefit fromthese investments and
(33:49):
initiatives. So I think that'sthe major takeaway that I would
get from looking all the datathat I've been seeing recently.
Dr. Ralph Ford (33:55):
Well, you indeed get the last word. I'm Dr. Ralph
Ford, Chancellor of Penn StateBehrend, You have been listening
to Behrend Talks. Thank you. Dr.
Ken Louie has been my guesttoday, faculty member in
economics in the Black School ofBusiness and director of the
Economic Research Institute ofErie. We'll get you back on the
show.
Dr. Ken Louie (34:14):
Thank you so much. I appreciate it. Thank
you.
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