SEMO prof David Yaskewich on recession, state income tax cut, loan forgiveness

The Southeast Missourian asked Southeast Missouri State University's David Yaskewich three questions about the current economy. Yaskewich, who has been on the SEMO faculty for 10 years, is the current chairperson of Southeast's Accounting, Economics and Finance Department.

With unemployment relatively low both statewide and nationally and with a recent U.S. jobs report much more favorable than expected, is it accurate to say the U.S. economy is in a recession?

I would agree we've had two consecutive declining quarters of gross domestic product (GDP), which fits the formal and classic definition of a technical recession. Newer economics textbooks use an alternative standard, though, that looks at factors beyond GDP. The official definition I go by is from the National Bureau of Economic Research, which has a bit more flexibility on when a recession starts. NBER looks at whether or not there's been a significant decline in economic activity, if there is a decline of several months in duration and lastly a whether a noticed decline is diverse. What is meant by diversity here is a significant decline in economic activity in multiple areas: retail spending, employment and wholesale sales. Let's just look at the job market. The most recent Bureau of Labor Statistics report showed a gain of more than 500,000 new jobs. A number we heard all summer was that for every one unemployed person, there were two vacant positions. Yes, the labor market is not back to what it was and that's a downside. Some might be reluctant to say we're in a recession, though. Looking at monthly retail sales reports, I would probably classify the economy now as in more of a slowdown. We're maybe not in a recession yet but there's definitely a slowdown in the rate of growth. Clearly, inflation has slowed consumer spending.

Gov. Mike Parson is calling the state legislature into special session on Sept. 6 to consider his plan for what he calls a historic tax cut, the largest in Missouri history, because of a sizeable surplus in state coffers. As an economist, what are your concerns about a large income tax reduction -- from 5.3% to 4.8?

Linking back to the conversation we just had, it would be odd to have a surplus during a recession. Yes, there's a higher rate of inflation now and that means sales tax revenue would be higher. People are keeping up with spending, although maybe at a slower pace. Maybe they're substituting what they spend money on, but sales tax revenue is holding up. Incomes are higher. I'm not saying it's the roaring 1920s again but some of the strength of the economy is really being reflected in that surplus. Americans are spending considerably less for gas now than a few weeks ago, with CNN reporting motorists effectively have gotten a $100 per month raise because it's less expensive to fill up the tank. We also can't forget the federal transfers coming into the state, which are temporary. Ultimately, whether a tax cut is a good idea or not depends on what is done with the money. It's unlikely a tax cut would generate more income by causing more growth and eventually more tax revenue. What I'm hearing is we have a surplus; times are tough and there's a preference to give some money back to households. Some might say individuals deserve getting some of their dollars back and that'll be helpful as inflation stays stubbornly high. At the end of the day, whether it's a good idea to implement a large tax cut depends on the role of state government and the government's preferences and priorities.

A man checks prices at a gas station in Buffalo Grove, Illinois, March 26. The weeks-long drop in gas prices may be a quite visible indication of economic recovery.Associated Press

President Biden announced last week a level of student loan forgiveness via an executive order. Any red flags you see to this action on an economic basis?

If one wanted to take a skeptical view, if we forgive student loan debt today, it may cause an expectation that future debt would also be forgiven, that what the administration did was not just a one-time move. Again, it really gets back to what I said about preferences and priorities.

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