![]() ![]() ![]() “Our results suggest that economic freedom can play a significant role in mitigating the impact of economic crises,” they concluded.Ī few weeks ago, the Fraser Institute released its latest Economic Freedom of North America rankings. More to the point, Callais and Pavlik found that when the Great Recession hit in 2007-08, the metros that had improved their economic-freedom scores during the prior five years recovered more quickly from the recession than did otherwise-comparable metros. Using data from the years 2002 to 2012, they found that metropolitan areas with higher economic-freedom scores tended to experience lower unemployment, higher job creation, and higher income growth than less-free places did. That’s what Texas Tech economists Justin Callais and Jamie Bologna Pavlik found in a study just published in the journal Economics of Governance. These include fiscal and regulatory measures that make it easier for enterprises and individuals to respond quickly to changing conditions.Įconomic freedom can be, in other words, a kind of “shock absorber” during recessions. What lawmakers can do - and what North Carolina lawmakers have done - is enact public policies that make the private economy more resilient. A major economic downturn would wreak havoc on private finances and employment, and it would be neither wise nor feasible for the state to attempt to build up enough reserves during good times to bail out companies and households during bad times. After all, we aren’t just worried about government finances and public employees. That’s not the only way our leaders have hedged against recession risk, however. Even if revenue collections take a major hit next year, lawmakers will be able to maintain core public services without raising taxes. Through prudent budgeting, the General Assembly has built up nearly $9 billion in rainy-day funds, unreserved credit balances, and other reserves. In other words, buckle up: perhaps we won’t have a major recession in early 2023, but I wouldn’t bet on it.Īs I’ve observed in the past, North Carolina’s state government is far better prepared today for a possible recession than ever before in modern history. That was the largest inversion of the yield curve since 1981. Drive it down far enough, and you have an “inverted yield curve,” which is historically one of the best predictors of a recession.Īlas, as of November 30, the yield on a 10-year Treasury note was running 0.78 points below the yield on a two-year note. What about abnormal markets, though? When creditors get pessimistic about the current economy, they tend to move their money to longer-term bonds - which drives up the price of those bonds, thus driving down the yield. That’s because these creditors are assuming more risk that they won’t be paid, and because a dollar of interest received tomorrow is usually more valuable than a dollar of interest received years from now. RALEIGH - In a normal market, creditors demand higher interest from borrowers to whom they lend money for longer periods of time. ![]()
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