Wednesday, April 12, 2017

EAD Admits: Crisis Not Over

Never bark at the Big Dog. The Big Dog is always right. 

Over the past four months I have been publishing article after article explaining:
  • that our state is in a long-term macroeconomic decline;
  • why this is no longer primarily a minerals crisis; 
  • how the downward trend is tapering off and being replaced by a new, lower-activity "normal"; and
  • the reasons why this does not precipitate a recovery.
For a series of my articles on the macroeconomic situation here in Wyoming, click here. Also, click here for articles on the jobs trend (apologies for overlaps).

On March 31 the Economic Analysis Division published its latest Macro report on the state's economy. Today, KGAB interviewed Senior State Economist Jim Robinson, who, as far as I can tell, now for the first time admits that there is no recovery in the making:
Senior State Economist Jim Robinson says overall the numbers in the new report show the same trend as other recent economic surveys in Wyoming.
“It looks like things have bottomed out,” he says. “Things aren’t getting much worse but they also aren’t getting better.” Robinson adds.
He says there is no way to know when the state economy might improve.

Read More: Wyoming Lost 11,500 Jobs In 2016 |
Senior State Economist Jim Robinson says overall the numbers in the new report show the same trend as other recent economic surveys in Wyoming. “It looks like things have bottomed out,” he says. “Things aren’t getting much worse but they also aren’t getting better.” Robinson adds. He says there is no way to know when the state economy might improve.
I am glad to see that Robinson is coming on board. It is about six months too late; his admission that this is indeed a protracted crisis, possibly even a new depressed state of long-term stability, would have been welcome before the legislative session. Had he agreed with me in December, our lawmakers would probably have been much more interested in structural spending reforms - and much less interested in raising taxes - than they now were. As things now turned out, I was the only one who pointed to the true nature of our state's macroeconomic crisis; since not enough legislators listened to me (big thanks to those who did!) Robinson's absence effectively meant that we as a state lost another year, in legislative terms.

It is, frankly, a bit disturbing that it has taken so long for Robinson and the EAD to come to the same conclusion that I formulated almost a year ago, and that I saw the making of already in 2014. No, I am not gloating - I am pointing out the professional responsibility that public-policy economists have. When we do not tell it as it is; when we do not provide what we judge as dispassionate analysis; when we allow our analytical work to be contaminated by irrelevant preferences; then in the end people suffer. It is not like when a medical researcher screws up a medicine - when that happens, people die - but our failure to be professional has other, serious consequences. 

If an economist, whom legislators trust, says that the economy is probably going to recover, or that it is not in a state of permanent depression, when in reality it is; then legislators are likely to decide on economic policies that will end up doing more harm to people whose lives are already negatively affected by the economic crisis. When legislators are led to believe that there is room for tax increases, when in reality there is not, then they may very well go ahead and raise taxes. When they do, more people lose their jobs; families have their savings wiped out; children are being uprooted from their friends and their schools because their parents can no longer put food on the table where they live. 

I sometimes hear that the squabble between economists is akin to eclectic flea killing, with little or no relevance to the daily operations of businesses and the daily lives of their employees. In some instances, that is true; it is of no immediate consequence to anyone if Austrian monetary theory is correct or false (the correct answer is false); but if I give advice to legislators based on erroneous theory and ill-designed analysis, then their economic policies will end up hurting people. 

There are instances in history when economists have dispensed advice with catastrophic consequences. The wave of austerity in Europe during the 1980s, 1990s and the Great Recession are my favorite, modern examples, but they are not the only ones. Not by a long shot. However, we do not have to go to such grand-scale examples to see what erroneous economic advice can do, nor does it have to be the product of ill-conceived economic theory. All it takes is, really, contaminated analysis. 

Let me make clear, right now, that I am not accusing Jim Robinson or anyone at the Economic Analysis Division of purposely contaminating their analysis of the Wyoming economy. I believe them to be honest, decent and sincere people. But analytical contamination is not always explicit. Sometimes, all it takes is subconscious attention to how people will react to your analysis. If an economist subconsciously worries about how legislators are going to react if they present a highly pessimistic outlook, then it is not out of the realm of the possible that they will hold back in their analysis. 

This is, in fact, a problem of which politicians are guilty more often than many people realize. I saw the first example of it 30 years ago when an entire country's economy tanked and fell into a depression because politicians demanded a certain kind of economic analysis, and put anyone who disagreed in the political freeze box. But we do not have to beat that big of a drum: not too long ago, I was asked by a politician running for office to put my name on a statement saying that a certain negative economic trend was caused by a certain series of policy decisions. I was given a very tight deadline, within which it was impossible for me to verify any such causality. I wrote back and explained this, whereupon I was ostracized from this politician's circles. 

I don't mind that. Professional integrity is more important than personal vanity. What concerns me is that people with this kind of attitude tend to win elections and tend to gain influence over economic policies that affect our lives. By going into decisions on government spending and taxation with a set of pre-set notions about what is right and what is wrong, and about what matters and what does not matter, our elected officials can turn a promising economic trend into an unmitigated disaster - or just get the economy stuck idling in the ditch, like Obama did. 

I do not know to what degree the belated come-to-the-truth process over at the Economic Analysis Division has anything to do with what leading legislators want to hear, or do not want to hear. But with 30 years of experience in macroeconomics and economic policy; with 12 years specializing in state-level economic policy; and with life long, first hand experience of (with) politicians; I do not hesitate to suggest that our state legislators in general, and our legislative leadership in particular, may want to rethink what they ask for in terms of economic analysis. They may want to rethink what variables in our economy they think matter, and what the end goal with their tax and spending policies really is.

If they do, it is entirely possible that people like Jim Robinson might want to be more forthright in the future. I have no doubt, namely, that he has seen the macroeconomic reality here in Wyoming as clearly as I have, for as long as I have. He just haven't been willing to come forward with it. Until now.

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