America is in a V recession, a Massachusetts Institute of Technology professor said Thursday, meaning that the economy will face a sharp drop followed by a quick rise.
Lester Thurow, who teaches management and economics at MIT, told a packed University of Montana Gallagher Business Building audience that while Americans may suffer during the drop, most of the impact will be felt in the rest of the world.
When you have an earthquake in America, most of the buildings that get knocked down are in the rest of the world, Thurow said.
He has authored several books on global economics and served as a staff economist on President Lyndon B. Johnsons Council of Economic Advisers.
Thurow said lost jobs and a slow economy are certain, but will be short lived, at least in America. Global consequences will be longer reaching, he said.
According to Thurow, the recession can be blamed on two things: subprime loans and high oil prices.
Of course we have a crisis, Thurow said. People are making loans they shouldnt make.
The housing market suffered a serious blow, he said, adding, The average house in America has gone down 60 percent.
Oil costs have also been hit hard, he said. Gas prices are just a start, according to Thurow, who predicted heating costs this winter will contribute to a slow holiday market.
What you do for heat in your house is much more important than what you put in your car, Thurow said.
Last weeks bailout was necessary to ensure economic recovery, Thurow said. Thurow offered two solutions for the crisis: government intervention to stop people from walking away from subprime loans and a government cap on oil prices.
We learned something from the Great Depression, Thurow said. You have to intervene. Its the nature of the beast.
And while Thurow said Montana is relatively insulated with a state surplus of over a billion dollars, it is not immune.
It will affect you in Montana eventually, Thurow said. It rolls through the economy.
Bob DeWit, a banker with Manhattan Bank, drove more than 200 miles from Bozeman for Thurows speech. He said he felt the speech addressed the current crisis clearly and effectively.
The cost of commodities thats going to impact us, DeWit said. Especially in eastern Montana.
Erika McLaughlin, a senior in marketing, said she felt the current situation is especially important to students.
It makes a difference to students as well because were going to have to go out into the workforce, McLaughlin said. Its good for us to be aware of the economic situation well be facing once were in the job force.