Montana Economist Describes Economic Future with One Word – ‘Pain’
Dr. John Lott, president and founder of the Missoula-based Crime Prevention Research Center, is also a noted economist.
Lott has held positions in law and economics at several institutions, including the Yale Law School, the Hoover Institution, UCLA, the Wharton Business School, Texas A&M University, and Rice University. Lott was also the chief economist at the United States Sentencing Commission.
KGVO reached out to Dr. Lott for his views on America’s economic future with rising interest rates and stampeding inflation.
“I don't think it looks very good,” began Dr. Lott. “I think it's pretty certain we're going to be in a recession; in fact, we may already be in one right now. We had negative growth during the first quarter and usually the way they define a recession is two quarters in a row of negative growth. I mean, housing starts plummeted in May and the higher interest rates are going to cause all sorts of dislocations in the economy with housing just being one area.”
Lott explained one immutable fact about economics; that interest rates must be higher than the inflation rate in order for the economy to function correctly.
“You're going to have to have interest rates above the inflation rate,” he said. “They increased it by three-quarters of a point yesterday, but they’ve got a long way to go to get it up anywhere near whether it needs to be. Right now the inflation rate is 8.6 percent in place and that we've had over the last year or the 12 percent that we've had there.”
Lott expanded on the relationship between interest rates and inflation.
“Interest rates have to go up substantially above what the inflation rate is,” he said. “I'm not going to lend you money unless you give me back money, at least add value to what I gave you, plus something over and above that. The reason why they've been able to keep the interest rates down so much is because the Fed has been out there buying bonds and buying mortgages, but they're beginning to stop doing that.”
Lott said consumers will definitely be negatively affected by what the government must do to bring inflation under control. In other words, there will be pain.
“You got to have some pain,” he said. “You're going to have to get this inflation out of the system. We've done this before. We did this in the early 1980s. Last time we had inflation anywhere near this high (President Ronald) Reagan, fortunately, was willing to bite the bullet, and he wanted to have somebody running the Federal Reserve who was willing to bite the bullet.”
Dr. Lott said the nation owes Senator Joe Manchin a debt of gratitude for blocking President Biden’s Build Back Better Program because if it had passed the nation would be even deeper in the hole, and facing even more economic pain.