Profiles

John Geweke, Tippie College of Business/College of Liberal Arts and Sciences

	John Geweke, professor of economics in the Tippie College of Business and professor of statistics in the College of Liberal Arts and Sciences. Photo by Tom Jorgensen.

“Will there be a recession?”

John Geweke gets that question a lot lately, and he knows why. He’s an economist and director of the Institute for Economic Research in the Tippie College of Business, so people assume that with his finger on the pulse of the economy, he can confirm or deny that the news from the dismal science is as dismal as they hear.

And he replies with the only reasonable answer possible: who knows?

“The answer has been changing on a week-by-week basis,” he says. “Most economic forecasters put the chance of a recession at about 50-50, and that makes sense to me. But the thing about a recession is that we probably won’t know we’re in one until much later. A recession is conventionally defined as two consecutive quarters of negative economic output, and with data lag, it takes a long time to know that. Usually, economists don’t declare a recession until about a year after it’s over.”

Besides, he said, recessions aren’t what they used to be, relatively speaking (and economists use that word a lot, “relatively.”)

“Recessions over the last 25 years have been much less painful than before,” he said. “They tend to be shorter and less traumatic. Economists call it the Great Moderation, although there have been a lot of questions being asked lately about whether the Great Moderation is real.”

Geweke is the Harlan E. McGregor Chair in Economic Theory and holds a joint appointment in the Tippie College of Business and Department of Statistics in the College of Liberal Arts and Sciences. He became director of the Institute for Economic Research last July, succeeding Charles Whiteman, who stepped down after his appointment as senior associate dean of the Tippie College of Business.

What is the Institute for Economic Research?

Its primary role is to forecast general economic conditions in the state for the next year, and more specifically, to forecast tax revenues. Each quarter, I issue a report and brief the state’s Revenue Estimating Committee, and those are among the statistics they use to estimate how much tax revenue will be available for the governor and legislature to appropriate in the next fiscal year. By Iowa law, the state government can’t spend more than 99 percent of projected revenues, and the Revenue Estimating Committee was established as a nonpartisan, nonpolitical body to forecast those revenues. Not many states have a system like that, and it’s all in the name of clean, enlightened government that Iowa is known for. The University has a role to play in that with this institute.

What statistics do you look at for your report?

I look at a number of employment statistics, such as manufacturing employment or service employment. I look at personal income of Iowans, and real tax revenues that the state has collected recently.

What’s the general state of Iowa’s economy today?

The state’s economy is quite strong. Incomes and tax revenue held up well in 2007 despite the national slowdown. Job growth is keeping pace with population growth. A lot of people in Des Moines are trying to figure out why it’s held up so well.

If there is a recession, how will Iowa’s economy manage?

Iowa will be a good place to be in a national recession. Two important sectors of our economy are agriculture and financial services, and they don’t go up or down the way other sectors do. While manufacturing often struggles in a recession, our advantage is that the things we manufacture here aren’t as cyclical as in other states. Food prices are also rising, which is good for Iowa’s economy because we produce so much food.

Energy is becoming an important part of Iowa’s economy, too—an energy/agricultural sector that’s focused on things like ethanol production, biofuels research, and wind turbine manufacturing. Since there’s a scarcity of energy on the global market, this combined energy/agriculture sector shows potential for growth.

What’s the most important factor in Iowa’s continued economic strength?

Continued economic growth in China and India. As those economies grow, there will continue to be an energy scarcity globally and that will be good for Iowa’s energy/agriculture sector. The growth in global living standards will be the most important part of the state’s economic growth since we pulled out of the 1980s farm crisis. If India and China do well, Iowa does well.

Iowans heard more than a few economic proposals from presidential candidates during the caucus campaign. What was your take on those?

What I found interesting is that there’s a lot more serious thought being given to economic matters than in previous presidential elections. Global climate issues are an example. Climate change has huge economic implications, but we didn’t see the kind of reactions we saw in the past, “the sky is falling” from one side or “oil forever” from the other. There’s recognition that this is a serious issue that deserves serious consideration.

I noticed there was not a lot of discussion of our savings rate and that was frustrating. Americans aren’t saving money privately, and we’re selling American assets to China at the rate of $1 billion a day. If there was a global financial panic, we would be very exposed. How is this going to change? Politicians don’t want to talk about that.

What are your interests outside of economics?

My favorite web site is NASA’s. I was a child of the Space Race. I can remember when Explorer 1 was launched. I knew who James Van Allen was when I was 10 years old.

I grew up three blocks from John Glenn and can remember when there were 500 reporters camped out in his yard. I saw Lyndon Johnson in his limo parked on the street, pouting because Glenn wouldn’t let him in his house. This wasn’t anything against Johnson, it’s that John’s wife, Annie, was very private and he was extremely protective of his family’s privacy.

by Tom Snee

Past Profiles

Bill Casey, Daily Iowan

Pat Winokur, Carver College of Medicine

Tom Dean, Office of the President

David Redlawsk, Department of Political Science