vol. XVII no. 1

				This issue of The State of Business provides an in-depth examination of the domestic economy, and Rajeev Dhawan's regular economic forecast report has been replaced by the following interview. Business writer Doug Monroe sat down with the Robinson College's forecasting expert to find out what Dhawan thinks about the current state of the economy and what he sees on the horizon. Is this economic recovery real? It certainly doesn't look like it. You're right, if you're entering the labor force and having trouble getting a quality job. And companies are cutting costs because revenues aren't growing. They are outsourcing or turning to what I call BPM — business process management — where they use technology to get rid of the lower-middIe-level manager. To me, a real economic recovery would happen when companies' revenues start to grow and they start to hire people. What will be the long-term effect of the federal budget deficit and the trade deficit? They're big, but the issue is, first, what's the cost? Second, who's holding the federal debt? If it's being held within the country, then you know we will have to pay it back. If it's being held outside the country redemption will come down the road, but you have an exchange rate so you can inflate the value of the debt a little bit. But that's only a one-time solution.The real question is, why are these people holding the debt? It's because we are the best place to invest, even with all the uncertainties. But can these deficits continue indefinitely? The deficits can't keep on growing forever because in the end the servicing cost becomes too high. At some point. when there are too many I 0-year bonds floating around, the price of the bonds will come down. Then interest rates go up, which causes capital losses for bond holders. What impact will the dollar have? The declining dollar is going to turn out to be very good for the U.S. economy. It's a problem for the Europeans and the Japanese. Foreign automobile producers often find their cars are now 35 percent more expensive here.What do they do?They're eating the cost because they have to sell those cars over here. Where else are they going to sell them? China, India, Asia, Europe? No. Even combined, they don't hold a candle to the U.S. market. What about car sales in booming economies like China's? China's total car sales are less than a million.We sell 16 million cars in the United States in a bad year. Producers will eat the profits and, eventually, put their plants over here. Those jobs will come to the United States? If you need to sell it to the American people, then you have to make it over here to get over the fluctuations of the dollar. That's what the Japanese did in the early I990s. It's not an overnight process, it's a long-term change. But the Southern states will benefit because that's where they are going to come. Is offshore outsourcing undermining the U.S. economy? Outsourcing gets undue blame for lack of job growth. It is partly responsible, but the biggest factor is business process management - eliminating labor with the help of technology. And that is going to be the major facet of this decade. Will it get worse? No. But are we going to get back to the '90s, when we were adding 250,000 jobs a month? No, We would be lucky to add 150,000 jobs per month down the road. Top | Next Page

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