Over the last few weeks, we have all witnessed the train wreck that has culminated from all of the bickering going on in D.C. which ultimately ended in the US credit downgrade for the first time in history (at least since our recognition of this standard.) Now, about the only certainty going on in the aftermath is that there will be days, weeks... OK, years where we'll be hearing about who to blame this fiasco on. Take your pick: Democrats in the Senate, Republicans in the House, Tea Party folks, the President himself, and even the S&P itself (because there are those who think the downgrade was unfair.) Personally, I think all of the above have contributed in wreaking havoc, except the S&P. On that note, claiming the S&P downgrade as being unfair, is about like getting mad at your neighbors for calling 9-1-1 when your house is on fire. Moreover, placing blame now is about like wondering who started the fire or how it started, when what you really need to be doing is evacuating from a burning building. If the truth be told, the fire started long before this 112th Congress came into session. What they were arguing about wasn't that there was a fire, but how to pull the fire extinguisher pin and where to aim it. Now that they've failed to do that, let's run out of this burning building, catch our breath, and discuss where to go from here.
Despite where you put the blame, I think at this point we can all agree that the situation that we're in is a train wreck, and it is likely going to take quite a bit of time before we can solve this problem. Much like the ongoing problems that we face, nearly 4 years after the start of the recent economic troubles, it took a long time to get to where we are at, and it will take us some time to get us out. To make an analogy, we discovered that building houses on the slope of an active economic volcano, just wasn't a great idea. Thankfully, I think for the most part we were able to see this problem, take some recommendations from economic experts, and we've made some corrective adjustments. Time will tell how the ultimate outcome of these decisions will be. But, as it stands, I think most of us can agree that pulling back on reckless lending will help us overcome this problem.
Now today, what we face is a much bigger problem. I can say that my entire lifetime has been eclipsed by deficit spending. The couple of years in the late 90's where we had a "surplus" was just a mere blip on the radar. A lot of today's problems can be rooted in Keynesian economics. Perhaps, more aptly, I would say our problems lies within the misapplication of Keynesian economics within our federal government. I am personally a proponent of the theory behind the policy. I do believe it has been given a bad name, however, due to it's misapplication.
Keynesian economics is like this: Imagine a child wanting you to walk her to a park with a swing set, and in this case, you agree to go. Now, once there, she spots the swing set and runs over towards it, and hops on. As she swings, she has no problem getting things started on her own. Now, with the desire to go a little higher, and faster, she asks for a "push" so you agree and stand behind her at that perfect distance from the midpoint withe the perfect timing, and give her the correct amount of force.
Now, pause this scene in your mind for a moment. Imagine if you had stood closer to the midpoint. If you stood too close, it becomes increasingly difficult to push her back. In addition to that, although you can reach her, she is not in a position that is optimum to where your arms reach her back. Likewise, if you stand too far back, you simply cannot reach her at all. Now, once you've determined the correct position, you must match the frequency of the child swinging back. Pushing too soon, or too late can result in the opposite effect of what you are trying to accomplish. You can actually cancel out the force of her swinging which will result in her slowing down. Finally, let's assume you've figured out the correct position to stand in and the correct frequency, but now you must push her with the correct force. If you are pushing with too much force, suddenly, swinging is no longer fun for the child, as she begins to scream, begging to slow down, or worse yet, she looses her grip, and falls. Now, if you don't apply enough force, you might as well be sitting on the bench, watching her swing on her own.
Pushing a child on a swing is a very natural thing to do. Without being conscious of the physics behind it, most people can master this technique. Anyone that has mastered it, or otherwise has been on the receiving side of the beneficial push, will recognize that the enjoyment of the child, (and perhaps the one giving her the push) is maximized versus simply sitting on a nearby bench watching her swing by herself. Keynesian economics, in essence, is the practice of the government acting in the role of the pusher. This sounds great in theory, but when politics is involved, unfortunately, those variables, of distance, frequency and force are often mismanaged.
Right now, our nation is about like a family with two inept parents teetering on divorce, with three children all wanting a push on the swing set. Imagine the parents arguing with each other about where to stand, and how hard to push. The next thing you know, Dad gets hit in the jaw, because he is not paying attention, and suddenly their son is knocked off, and busts his nose on the ground. Now, you've got crying children, a bloody nose to clean up, and no doubt, some parents pointing their fingers at each, all to blame the other.
True Keynesian policy requires the dedication and finesse of a single person (or entity) with the best interest of the child (economy) in mind. Otherwise, with the misapplication, you might as well be sitting on the bench and let the economy swing itself, to minimize damage that can be done.
Currently, one part of the Keynesian economic equation that is controlled on a federal level is monetary policy which we have assigned to the Federal Reserve. Theoretically, the Federal Reserve acts in a non-partisan way to stimulate the economy, primarily by controlling the interest rates. If you set them too low, you risk over stimulating, and higher inflation, whereas if you set them too high, you can stifle the economy, and risk deflation. Economic stimulus and currency stability aren't the only roles of this federal institute, but they are no doubt, one of the more important ones.
Another component of the equation is fiscal policy, which is controlled by Congress, and ultimately approved by the President. Unfortunately, what we have learned to call this policy is "deficit spending." It's been called that, because that seems to be the only part of Keynesian economics that is ever applied. We have not learned to master the other side of this theory, and that is to learn to save (or otherwise let off) during years of growth. The idea is of Keynesian economics is for the government to spend, or otherwise stimulate the economy when it is down, and to back off when it is growing.
Since I've been alive, and even prior, we tend to give the child a push when needed, but then we run with the child to the other side, and keep on pushing, even though the momentum of the child would have been enough to carry her to the opposite point, as well as enough to make it all the way back to where you originally pushed her. The problem now is that the person doing the pushing becomes exhausted very quickly and before long he or she would want to give up. This is how we've mismanaged these goals in the past. Both political parties are to blame here, as both sides have done their fair share in spending, whether it's on entitlement programs that are out of balance, or military spending, or through mismanaged taxes. If one party pushes too hard, the other party attempts to run out and grab the child to slow her down. The next thing you know these two parties are at each other's throats. The child is then forced to choose a favorite parent (through elections) but ultimately they lock horns once again, and no real progress is made.
Now, with our current fiasco, we have discovered that it seems that neither party can get along. The situation is so bad, that the only thing that they could agree on, is to disagree, and to hold off on any real decision making until the after the next election cycle, (or beyond) to end this fight. This is the reason why the S&P downgraded the US. It was the lack of true leadership. Call it brinkmanship, call bad politics, or whatever you want, at the end of the day, our elected leaders failed to deliver. The S&P is simply looking at the situation, and they are placing their bets on the side that says, "I don't think this is going to get any better anytime soon." I don't think anyone can blame them for that. If history proves to repeat itself, then we'll see the same fight all over again in 2013 and beyond, unless we change something.
I propose that we change who makes the decision on how much of a deficit, or surplus we have and perhaps to some degree how we get to that point. What if we removed politics out of this decision? In a way, having politicians deciding what is right or wrong here, makes about as much sense as having congress vote on whether or not to call for evacuations for a given city, to get out of the way of an approaching hurricane. As a weather enthusiast, I can tell you that the professionals at the National Hurricane Center (NHC), rely upon all sorts of models, and data to make their forecasts, which ultimately determines who, if anyone, needs to evacuate. I can't even begin to imagine the chaos if this were some political decision. I've seen people argue over which models are superior, in the comment sections of weather blogs. Like myself, these people are usually passionate enthusiasts, but most of them aren't experts. Ultimately, though, none of the models are perfectly correct, yet the NHC gives fairly accurate forecasts, despite this. They are able to do so, because they are experts. For you sports types, just think of these weather blog commenters in the same way you hear from Monday morning quarterbacks, armed with the latest statistics. Perhaps Congress is a step or two above being a Monday morning quarterback, but do they really have the best long term goals in mind? More importantly, do you think they really understand what the economic data means and what policies to implement?
On the monetary policy side of things, the Federal Reserve, acts much like the NHC. When you read their commentaries, and their reports, they are written from the standpoint of economics, oftentimes with dry language that gets to the point. They make their monetary policy decisions based on this economic information and not politics. (Sometimes they are even known to oppose the party that appointed them.) On the other hand, for fiscal policies, at best, they just provide advice to Congress. At the end of the day though, Congress must still decide on fiscal policies. Unfortunately, even the best of them have a propensity to miss the mark, simply because politics stands in the way. As I've demonstrated by my swinging child example, any variable that is off can actually be counter productive. Even the Federal Reserve has missed the mark in the past, but for each target they miss, they learn to better adjust their aim. The NHC, likewise does the same for hurricane forecasting. Each year, though, they fine tune their craft, and forecasts do get better.
The understanding of economics in many ways, is not much different than weather. So, why not have more experts involved with the decision making. Why not have experts that have goals that last more than 4 years? I know the idea of stripping this from Congress seems, perhaps like it is a step too far, as if we are removing power from the our representative government. But, then these days, it seems that we cannot afford to give them the responsibility either.
My initial thoughts on this are to put more of this fiscal responsibility into the hands of the entity that we currently call the Federal Reserve. Why? Simply because they already have the capabilities to "read" the economy. They have the best tools to decide when to push, and when to step back and they have the experience to use those tools. They implement this information every time they meet to make adjust monetary policy, why not do the same for fiscal policy? Perhaps Congress would have some role in making these decisions, and they should, but perhaps their policies should fit within the recommended range of this entity. If the entity says to raise the taxes, Congress would simply ask "how high". Or better yet, if they suggested to lower them, Congress asks how low, or for whom. When it comes to having a deficit, balance or a surplus budget, this entity could decide which policy to follow, and by how much, and pass that guideline to Congress. Congress at that point, would have to hash out the details as they have always have done, but keep within the prescribed range. Perhaps this entity could hash out the details ahead of time, and create a few variable plans, and hand those to Congress who would then vote on them based on what would best serve their constituents.
I think these ideas are certainly something worth debating. Ultimately, in order for this to work, you would have to give this entity some teeth, enough to enforce their guiding budget principles. Not doing so would all be a legislative waste of time. I have no doubts someone would bring up the constitutionality of such a measure. If that is true, then maybe this is something that should warrant such a change. I do know one thing though: the status quo is not getting the job done, and I'm afraid we are running out of time. This is just my idea, but if you think of something better, then by all means, let's discuss that. We cannot afford to sit around and do nothing.
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Showing posts with label Economic Policy. Show all posts
Showing posts with label Economic Policy. Show all posts
Tuesday, August 9, 2011
Monday, December 22, 2008
Developing in High Risk Areas
These days, it seems like news of natural disasters have become more frequent lately. Most of this recently is due to the ongoing 20 year uptick in tropical/hurricane activity. Place on top of that wildfires, tornados, earthquakes, avalanches, blizzards, ice storms, record heat, record cold, floods, droughts, and the list goes on and on, its amazing any of us are even sane enough to live at all. Recently, I read this article on CNN, talking about how the people in the "Last House Standing" in Gilcrist, Texas are celebrating Christmas. Gazing towards the bottom at the comments, it looks like the typical range of responses there. "I can't believe they rebuild on the coast." "I can't believe we allow the government to insure these home." Then of course its done with absolute sarcasm and bitterness towards fellow man. On the other hand you've got those who applaud the rebuilding and stand up/justify their reasonings why they think people should stay, citing every thing from the amount of years they've lived there, to the fact that their jobs require them to work nearby. Then, out of those two primary arguments, a war of words ensues.
First of all, the arguments here are mostly a waste of breath, (or rather typing if you prefer.) But, I guess its the Internet, so we get seemingly unlimited spaces to post our thoughts and we live in a "free country," so why not? It's completely absurd to think anyone will actually win an argument. You will rarely see anyone actually concede to another person's point of view. (The one time I actually tried to concede to the other person's point of view, he or she just kept on, so I gave up on that.) And of course, the more the controversy there is, the more impassioned people are to say nasty things thanks to the anonymity of the poster. Plus, I think some people post arguments back and forth against themselves just for the sake of creating buzz about an article. We can't help it, its all human nature, even it is rather silly sometimes and very predictable. I bet I could write a program to simulate post-article commenting to demonstrate. But, I digress, the point of this post isn't to discuss post-article commenting tactics of the public but to address our development in areas that are known to have higher risks of disasters.
No matter where we live on the planet Earth, we are all subjected to some risk of disasters. But, we can all also recognize that some people live in higher risks areas than others. (Or so, our perception and intuition tell us so.) I don't need to do a 10 year study to say that its probably better (from a disaster-survival point of view) to live in an established small town in the heartland of the US vs. living at the base of an active volcano. We always get these routine arguments, but no one is standing around talking about how we should actually go about having people live with this known probability in a way that will have the least economic impact to the rest of us. Most arguments stem around the belief that its either the wealthiest who live on the extreme edges of the Earth (i.e. wealthy celebrities in California getting their houses burned by wildfires), or the most ignorant and impoverished people, who are clueless to the disaster that awaits them (i.e. New Orleans refugees after Katrina), that are always in the middle of these events. Few people place the middle class in these situations, and when it is done, its usually done so with a more justifiable, stance and its usually a disaster that hits everyone of all socioeconomic backgrounds (i.e. earthquake rattles SoCal, or ice storm blankets thousands in New England.) Real quick, it makes sense that the wealthy tend to place themselves in harm's way at "earth's extremes" with mountainside properties in the thick woods or perhaps stilted mansions on the coast, while flood plains are typically really cheap and affordable for the poor. I say to those that are wealthy who loose their homes, tough, I don't want to hear the complaints, because you knew the risks when you built or bought your home. You could even apply this to some middle class folks who are asking for trouble placing their life's savings to live in places where they ought not live. Things are perhaps different for those that are less fortunate. Perhaps its possible that some of these people really are clueless to the possibilities of disaster and as a result are ill prepared when it does happen. You could take this a step further and say that they are aware of the danger, but either lack the means (money) or motivation to evacuate or adequately prepare. Those all seem to make sense (through my white middle-class perspective), but let's move beyond typical places to find where to place the blame.
To dig further in thought, I'd like to focus on those who are living near the coast who are dependent on jobs that are made available because of it's close proximity to the coast, particularly the US Gulf Coast. These jobs could be anything from shipping, to working at coastal refineries to shrimp boating, not to mention all of those people who work in jobs that service those communities (teachers, grocery store clerks, doctors etc.) All of these are jobs are not only important to the local community, but as soon as you think about that last tank of gas that you bought, or the product that used any chemical from plastics to detergents, or the good shrimp you've eaten recently, you realize that those people living on the coast are important to all of us. Now let's assume that most of these people don't live directly within a stone's throw of the oceanside property, but they do still live within harms way. On the Gulf Coast, its quite common for properties 10 to 20 miles from the coast lie no higher than 20 to 30 ft. above sea level. That means that the first 3 or 4 miles inland, those properties are subjected to storm surge from run-of-the mill hurricanes. To overcome this, houses within these areas are built on stilts. That's good, as long as those houses are built to withstand the accompanying winds. For those who live above the storm surge line, you'll still need to have a house built to withstand sustained winds of at least 120 miles an hour. Keep in mind, the saying, "its not that the wind is blowing, but its what the wind is blowing." So even if your house can withstand the high winds, you're still going to need to have a way to protect your house from the debris that's blowing around because your neighbor forgot to tie down his gas grill in the backyard. That sounds great until you find out that building a house large enough for a standard family of 4 or 5 people is too expensive for the refinery worker and the shrimp boat assistant to afford. Throw in the school teacher who lost her husband to war with 2 kids to take care of and you can quickly see where the economic problem lies. Where do these people live, 30 or 60 miles inland? An affordable, but crowded, government subsidized housing complex? Perhaps, if those workers united and asked for higher pay from their employers they could afford those houses closer to work. That sounds good, but now you've got a company that's either going to give in to those demands and simply pass on the costs to its customers, or it'll be forced to relocate over seas or across the border where its more affordable to operate. The bottom line is, we're tied in to those communities' economies, and we're all indirectly responsible for those who live on the coast. And whether its the government or big business that pays the initial up-front cost, we all end up paying for those the costs in the long term either through higher prices or higher taxes (or lost jobs to overseas markets). This is just another example of the hidden costs of products that are priced too low. (You can bet I'll have a blog entry on the hidden costs of cheap goods, imported or otherwise.)
Don't get me wrong, there are some other remedies to the situation. For example, living below sea level, near the coast doesn't make sense and should be prohibited. Why even bother with coastal levies, they're expensive to build and maintain, and when they fail, its disastrous. (If you want to make Death Valley your home, have at it, but I'm not covering the cost of that either.) It also makes sense to do things like allow for natural, undeveloped buffers to exist between the coast and the towns that are economically tied to the sea. This is particularly true for areas near the mouth of the Mississippi and other rivers along the Gulf Coast. These buffers also act to take the blow of a storm surge and can also give some room to allow a hurricane's winds to slow down some before having the chance impact human development. Other things like better levy management upstream to allow silts, which are important to sustaining coastal wetlands, (the needed buffer described above) to build up as they naturally would have done so. Think of the Gulf Coast as being like a cell wall (think Biology 101, not prison). The cell wall needs to be able to allow important materials to pass through, but it also needs to keep the dangerous substances out and help regulate the balance of materials. (Urban development and economics based off of biology will be a future blogging topic as well.) (In fact, someday, I'll be discussing many other systems that are similar to biological structure (such as corporate structures and the movement of goods, people and information in a urban environment.)
Unfortunately, there's bound to be some resort hotel and luxury home owners that will claim that its their right to develop within a stone's throw of the coast. I suppose that limited developments could be allowed, but only if they followed strict development guidelines. Such development must be done at their own expense, never subsidized, nor publicly insured, and must place the value of preserving the natural resources above their own benefit. It would be much like the labels you see on electronics that state that the device that you are using must not interfere with other electronics from a higher class and must receive any interference from electronics from a higher class. The integrity of the coastal buffer must take precedent over the any development directly on the coast, without exception. Certainly there's a lot at stake here, with millions of people and billions, if not trillions of dollars on the line. Its a sensitive subject that pits public policy against private land owners and industry. There is no quick, blanket solution that can be given, while at the same time all cost, hidden or not, should be considered when taking a true measure of the economic impacts of the decisions to be made.
Read More!
First of all, the arguments here are mostly a waste of breath, (or rather typing if you prefer.) But, I guess its the Internet, so we get seemingly unlimited spaces to post our thoughts and we live in a "free country," so why not? It's completely absurd to think anyone will actually win an argument. You will rarely see anyone actually concede to another person's point of view. (The one time I actually tried to concede to the other person's point of view, he or she just kept on, so I gave up on that.) And of course, the more the controversy there is, the more impassioned people are to say nasty things thanks to the anonymity of the poster. Plus, I think some people post arguments back and forth against themselves just for the sake of creating buzz about an article. We can't help it, its all human nature, even it is rather silly sometimes and very predictable. I bet I could write a program to simulate post-article commenting to demonstrate. But, I digress, the point of this post isn't to discuss post-article commenting tactics of the public but to address our development in areas that are known to have higher risks of disasters.
No matter where we live on the planet Earth, we are all subjected to some risk of disasters. But, we can all also recognize that some people live in higher risks areas than others. (Or so, our perception and intuition tell us so.) I don't need to do a 10 year study to say that its probably better (from a disaster-survival point of view) to live in an established small town in the heartland of the US vs. living at the base of an active volcano. We always get these routine arguments, but no one is standing around talking about how we should actually go about having people live with this known probability in a way that will have the least economic impact to the rest of us. Most arguments stem around the belief that its either the wealthiest who live on the extreme edges of the Earth (i.e. wealthy celebrities in California getting their houses burned by wildfires), or the most ignorant and impoverished people, who are clueless to the disaster that awaits them (i.e. New Orleans refugees after Katrina), that are always in the middle of these events. Few people place the middle class in these situations, and when it is done, its usually done so with a more justifiable, stance and its usually a disaster that hits everyone of all socioeconomic backgrounds (i.e. earthquake rattles SoCal, or ice storm blankets thousands in New England.) Real quick, it makes sense that the wealthy tend to place themselves in harm's way at "earth's extremes" with mountainside properties in the thick woods or perhaps stilted mansions on the coast, while flood plains are typically really cheap and affordable for the poor. I say to those that are wealthy who loose their homes, tough, I don't want to hear the complaints, because you knew the risks when you built or bought your home. You could even apply this to some middle class folks who are asking for trouble placing their life's savings to live in places where they ought not live. Things are perhaps different for those that are less fortunate. Perhaps its possible that some of these people really are clueless to the possibilities of disaster and as a result are ill prepared when it does happen. You could take this a step further and say that they are aware of the danger, but either lack the means (money) or motivation to evacuate or adequately prepare. Those all seem to make sense (through my white middle-class perspective), but let's move beyond typical places to find where to place the blame.
To dig further in thought, I'd like to focus on those who are living near the coast who are dependent on jobs that are made available because of it's close proximity to the coast, particularly the US Gulf Coast. These jobs could be anything from shipping, to working at coastal refineries to shrimp boating, not to mention all of those people who work in jobs that service those communities (teachers, grocery store clerks, doctors etc.) All of these are jobs are not only important to the local community, but as soon as you think about that last tank of gas that you bought, or the product that used any chemical from plastics to detergents, or the good shrimp you've eaten recently, you realize that those people living on the coast are important to all of us. Now let's assume that most of these people don't live directly within a stone's throw of the oceanside property, but they do still live within harms way. On the Gulf Coast, its quite common for properties 10 to 20 miles from the coast lie no higher than 20 to 30 ft. above sea level. That means that the first 3 or 4 miles inland, those properties are subjected to storm surge from run-of-the mill hurricanes. To overcome this, houses within these areas are built on stilts. That's good, as long as those houses are built to withstand the accompanying winds. For those who live above the storm surge line, you'll still need to have a house built to withstand sustained winds of at least 120 miles an hour. Keep in mind, the saying, "its not that the wind is blowing, but its what the wind is blowing." So even if your house can withstand the high winds, you're still going to need to have a way to protect your house from the debris that's blowing around because your neighbor forgot to tie down his gas grill in the backyard. That sounds great until you find out that building a house large enough for a standard family of 4 or 5 people is too expensive for the refinery worker and the shrimp boat assistant to afford. Throw in the school teacher who lost her husband to war with 2 kids to take care of and you can quickly see where the economic problem lies. Where do these people live, 30 or 60 miles inland? An affordable, but crowded, government subsidized housing complex? Perhaps, if those workers united and asked for higher pay from their employers they could afford those houses closer to work. That sounds good, but now you've got a company that's either going to give in to those demands and simply pass on the costs to its customers, or it'll be forced to relocate over seas or across the border where its more affordable to operate. The bottom line is, we're tied in to those communities' economies, and we're all indirectly responsible for those who live on the coast. And whether its the government or big business that pays the initial up-front cost, we all end up paying for those the costs in the long term either through higher prices or higher taxes (or lost jobs to overseas markets). This is just another example of the hidden costs of products that are priced too low. (You can bet I'll have a blog entry on the hidden costs of cheap goods, imported or otherwise.)
Don't get me wrong, there are some other remedies to the situation. For example, living below sea level, near the coast doesn't make sense and should be prohibited. Why even bother with coastal levies, they're expensive to build and maintain, and when they fail, its disastrous. (If you want to make Death Valley your home, have at it, but I'm not covering the cost of that either.) It also makes sense to do things like allow for natural, undeveloped buffers to exist between the coast and the towns that are economically tied to the sea. This is particularly true for areas near the mouth of the Mississippi and other rivers along the Gulf Coast. These buffers also act to take the blow of a storm surge and can also give some room to allow a hurricane's winds to slow down some before having the chance impact human development. Other things like better levy management upstream to allow silts, which are important to sustaining coastal wetlands, (the needed buffer described above) to build up as they naturally would have done so. Think of the Gulf Coast as being like a cell wall (think Biology 101, not prison). The cell wall needs to be able to allow important materials to pass through, but it also needs to keep the dangerous substances out and help regulate the balance of materials. (Urban development and economics based off of biology will be a future blogging topic as well.) (In fact, someday, I'll be discussing many other systems that are similar to biological structure (such as corporate structures and the movement of goods, people and information in a urban environment.)
Unfortunately, there's bound to be some resort hotel and luxury home owners that will claim that its their right to develop within a stone's throw of the coast. I suppose that limited developments could be allowed, but only if they followed strict development guidelines. Such development must be done at their own expense, never subsidized, nor publicly insured, and must place the value of preserving the natural resources above their own benefit. It would be much like the labels you see on electronics that state that the device that you are using must not interfere with other electronics from a higher class and must receive any interference from electronics from a higher class. The integrity of the coastal buffer must take precedent over the any development directly on the coast, without exception. Certainly there's a lot at stake here, with millions of people and billions, if not trillions of dollars on the line. Its a sensitive subject that pits public policy against private land owners and industry. There is no quick, blanket solution that can be given, while at the same time all cost, hidden or not, should be considered when taking a true measure of the economic impacts of the decisions to be made.
Read More!
Monday, November 24, 2008
Economic Turmoil? Why Texas may keep its head above water.
After watching or reading the news, it doesn't take much to get a sense that the economy isn't so bright these days. Never before in my lifetime (only 28 yrs) have I ever encountered such negative, pessimism about the economy.
Here, where I live in North Texas, we seem to barely be holding off the soon-to-be-declared recession that is gripping the nation. Yes, we've been lucky here so far with natural gas royalties and all things Barnett Shale related, but even that opportunity is drying up as natural gas prices plummet, for now. Still, despite that, around here, houses are still being built, albeit, at a slower pace, apartments are still being constructed and hotels are still popping up.
For Texas, there are still lots of opportunities for economic growth. This of course, is assuming that the financial markets continue to see some loosening as Uncle Sam lives up to his promise or buying up bad debts and restructuring the financial industry. Texas has a slight upper hand here as two things go into play: housing prices, which, here, never got over-inflated to begin with, and the fact that Texas has had to endure this sort of thing before relatively recently through the real estate crunch and the savings and loan crisis of the 1980's. Perhaps, because of the learned lessons from that time, Texas banks have been better prepared this time around, and didn't make as many risky sub-prime loans that seemed to have plagued the larger financial institutions of the US. An example of this is Frost Bank, which was bold enough to turn down federal bailout money.
Another important contributor to the health of the Texas economy is due to the diversification of the economy that has developed in the last 20 yrs. When energy prices plummeted in the 80's the Texas economy suffered, and really only rebounded thanks to growth in the technology and service industries. This growth was of course spurred by the relatively cheap cost of business, lower cost of living and the availability of higher education for its citizens. In the early 2000's, when technology peaked, energy prices began steadily rising, resulting in the first significant new growth in the energy sector in over 20 years. This more than offset any losses due to any decline in the IT industry. Texas was also able to maintain generally lower costs of living due to lower housing costs (thanks to the seemingly endless amounts of land available and availability of cheaper labor mostly from bordering Mexico.) Texas has also enjoyed some of the lowest energy and transportation costs (thanks, of course, to the energy industry itself.)
Because of these advantages, along with business friendly laws, many companies and organizations have either relocated their headquarters to town, or they've brought in significant production facilities. With many companies looking to save on their bottom line, I won't be surprised to see more offices opened up down here. Still, there is a possibility that Texas will eventually succumb to the recession forces that are roaming around the land, but even so, it should occur at much less of a blow to the economy than in other states. Texans could all benefit from a slowing of economic growth to give us the opportunity to catch up on building new infrastructure to help serve the growing population. If President-Elect Obama's economic plan is passed through Congress after his inauguration, Texas should stand a good chance to see some funding come from long awaited and overdue projects that we've been needing for years. Hopefully, all states will have a fair share as well, proportional to their needs, but, of course that's all in the eyes of policy makers. Another great opportunity that Texas should benefit from, is from the growing need for "green" energy. If you didn't know otherwise, your intuition would likely give you the idea that this would harm the Texas economy since it has been so dependent on fossil fuels. Thankfully, Texas has not only been blessed with a plethora of fossil fuels, but also a treasure trove of potential green energy sources from biowaste energy in East Texas, to biofuels, such as biodiesel, grown in the open plains of Central Texas, to wind and solar resources in West Texas.
The bottom line here is this: because Texas won't see as severe of an economic downturn as the rest of the nation and since Texas still has a lot of untapped resources that are compatible to our desires to meet our future's greener energy needs, Texas will be poised to take the lead with great economic growth opportunities to economic for the state, which should benefit the rest of the US and the global economy as well. Our abundance of energy will be met however with new demand for it (despite our future gains in conservation and efficiency.) We'll have new needs like desalinating sea water and urban food production along with newer types of transportation to water, feed and move a population that will nearly double in size with each passing generation. The key is for the US to take this economic turmoil and use it to shift gears from a 20th century economy to a 21st century model and that can start right here with Texas.
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Here, where I live in North Texas, we seem to barely be holding off the soon-to-be-declared recession that is gripping the nation. Yes, we've been lucky here so far with natural gas royalties and all things Barnett Shale related, but even that opportunity is drying up as natural gas prices plummet, for now. Still, despite that, around here, houses are still being built, albeit, at a slower pace, apartments are still being constructed and hotels are still popping up.
For Texas, there are still lots of opportunities for economic growth. This of course, is assuming that the financial markets continue to see some loosening as Uncle Sam lives up to his promise or buying up bad debts and restructuring the financial industry. Texas has a slight upper hand here as two things go into play: housing prices, which, here, never got over-inflated to begin with, and the fact that Texas has had to endure this sort of thing before relatively recently through the real estate crunch and the savings and loan crisis of the 1980's. Perhaps, because of the learned lessons from that time, Texas banks have been better prepared this time around, and didn't make as many risky sub-prime loans that seemed to have plagued the larger financial institutions of the US. An example of this is Frost Bank, which was bold enough to turn down federal bailout money.
Another important contributor to the health of the Texas economy is due to the diversification of the economy that has developed in the last 20 yrs. When energy prices plummeted in the 80's the Texas economy suffered, and really only rebounded thanks to growth in the technology and service industries. This growth was of course spurred by the relatively cheap cost of business, lower cost of living and the availability of higher education for its citizens. In the early 2000's, when technology peaked, energy prices began steadily rising, resulting in the first significant new growth in the energy sector in over 20 years. This more than offset any losses due to any decline in the IT industry. Texas was also able to maintain generally lower costs of living due to lower housing costs (thanks to the seemingly endless amounts of land available and availability of cheaper labor mostly from bordering Mexico.) Texas has also enjoyed some of the lowest energy and transportation costs (thanks, of course, to the energy industry itself.)
Because of these advantages, along with business friendly laws, many companies and organizations have either relocated their headquarters to town, or they've brought in significant production facilities. With many companies looking to save on their bottom line, I won't be surprised to see more offices opened up down here. Still, there is a possibility that Texas will eventually succumb to the recession forces that are roaming around the land, but even so, it should occur at much less of a blow to the economy than in other states. Texans could all benefit from a slowing of economic growth to give us the opportunity to catch up on building new infrastructure to help serve the growing population. If President-Elect Obama's economic plan is passed through Congress after his inauguration, Texas should stand a good chance to see some funding come from long awaited and overdue projects that we've been needing for years. Hopefully, all states will have a fair share as well, proportional to their needs, but, of course that's all in the eyes of policy makers. Another great opportunity that Texas should benefit from, is from the growing need for "green" energy. If you didn't know otherwise, your intuition would likely give you the idea that this would harm the Texas economy since it has been so dependent on fossil fuels. Thankfully, Texas has not only been blessed with a plethora of fossil fuels, but also a treasure trove of potential green energy sources from biowaste energy in East Texas, to biofuels, such as biodiesel, grown in the open plains of Central Texas, to wind and solar resources in West Texas.
The bottom line here is this: because Texas won't see as severe of an economic downturn as the rest of the nation and since Texas still has a lot of untapped resources that are compatible to our desires to meet our future's greener energy needs, Texas will be poised to take the lead with great economic growth opportunities to economic for the state, which should benefit the rest of the US and the global economy as well. Our abundance of energy will be met however with new demand for it (despite our future gains in conservation and efficiency.) We'll have new needs like desalinating sea water and urban food production along with newer types of transportation to water, feed and move a population that will nearly double in size with each passing generation. The key is for the US to take this economic turmoil and use it to shift gears from a 20th century economy to a 21st century model and that can start right here with Texas.
Read More!
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