Happy Holidays!! The holiday season is a time for festive events and celebrations. It is a time for parties, presents, parades, pageants, pastries, and peace. In the midst of this ado, it is also a time when we, on occasion, pause to reflect on our blessings. From my vantage point in the misty clouds of economics, let me suggest just a few.
We are blessed to live in a place that offers us a cornucopia of opportunity. Our outstanding infrastructure, educational systems, and public safety networks create an environment in which all of us can strive to be better. Through improving our skills, working harder and smarter, taking intelligent risks, and being creative and innovative, we can reap great rewards from our efforts. Our economic system certainly doesn’t guarantee the outcome of any endeavor, but it does provide us with a pretty much unfettered opportunity to try. What more could we really ask for?
We are equally blessed to live in an age in which major technological marvels seem to surface anew every day. They enhance the quality of our lives, make us more productive, entertain us, clean up our air and water, give us greater access to the world around us, produce more and safer energy, and bring us new advances to improve our health and longevity. As long as markets provide substantial returns for their endeavors and governments support the underlying basic research, this glorious bounty will only expand in the future as our innovative spirit ascends to new heights.
Our blessings also extend to the most incredible production complex in the history of the world. From bread to steel to toys to computers to spaceships, we make things great and small with great efficiency. In the process, we employ millions of people and despite occasional interruptions the number continues to grow. As our workforce rises in magnitude, it also exhibits higher skill levels and greater adaptability to a dynamic economic complex.
We would be quite remiss if we didn’t include the blessing of an information system of unparalleled proportions. One of the most remarkable fruits of this progress is a democratization of credit availability, thus making the once unattainable dream of homeownership a reality for millions and expanding the options of countless others. It has also brought us an amazing ability to communicate instantaneously with friends, family, and business associates wherever they may be.
Our list of blessings would not be complete without at least some mention of the deregulation and the ongoing opening of global markets in recent years. These phenomena have brought us reduced shipping costs, cheaper and more ubiquitous telephone service, lower airfares and expanded routes, cheaper electricity, more extensive financial services, and an increased capacity to sell our magnificent, sophisticated goods and services across the vast expanse of the continent.
A final economic—and perhaps most important—blessing is merely the fact that we have increasingly benefited from these other gifts over time, and they will both persist and accelerate in the coming years. Thus, future generations can look forward to even greater opportunity; our kids and grandkids will be able to pursue their dreams in a framework well suited to accommodate their abilities and desires.
I realize this view of the world may seem a bit fanciful to those of you who don’t always see things through the lens of an economist. I can assure you, though, that it is both accurate and a source of great joy in this season of good tidings. These blessings do not compare with love of family and friends, but they beat the heck out of an ugly tie or a toaster. Happy holidays to all of you!!!
posted @ 09:11 AM CST [link]
Friday, December 19, 2004
Looking Ahead for Texas’ Metro Areas This fall’s version of our semiannual forecasting effort has been marked with highs and lows. I always enjoy the mental exercise and view with interest the emerging patterns in economic activity across the state. One unpleasant aspect of this round is that we’re in the midst of a major transition in the way economic data is collected and recorded, which had the effect of leaving me with a tedious translation and gap-filling chore. The new method is much improved, but the changeover is anything but seamless.
One of the best parts of this fall’s forecast was the large number of bright spots. From a revival in the tech sector in Austin-San Marcos to the activity generated by the wind farms popping up in rural areas of the Panhandle and West Texas, I’ve seen evidence of resurgence in communities large and small. Most industrial sectors are recovering from the doldrums of recent years, and apart from some lingering uncertainty, things look better than they have in quite some time. I’ll share with you a few high points regarding my expectations for the state’s metro areas.
For comparative purposes, the statewide growth rate (as measured by output or RGP) is expected to total 4.20% during the 2003 to 2008 period. (All of the expansion percentages reported here are compound annual growth rates, meaning they reflect changes in the base from which growth is calculated.) Employment (using the wage and salary measure) is anticipated to expand some 1.97%. To put those in perspective, the past five years saw output up 2.54%, with employment growing by 1.00%. So things are going to improve notably from the recent past, though possibly not at the clip of some periods of the 1990s.
In terms of the state’s largest metro areas, it looks like Austin-San Marcos will be a bright spot in terms of the expansion in business activity. Although portions of the regional economy were hit hard by the tech downturn, the area’s large, stable base continued to gain ground. RGP is projected to grow by some 4.51%, a healthy rate even if somewhat diminished from the late ‘90s.
Dallas is likely to see growth eclipsing the state pace as well, with output expansion over the 2003-2008 period totaling 4.44%. Virtually all segments of the industrial base will contribute to this gain, with particularly notable expansion in the durable manufacturing; transportation, communications, and utilities; wholesale and retail trade; and services sectors.
Fort Worth-Arlington is expected to see RGP trend upward at a rate of 4.41%, somewhat stronger than the Texas pace. Durable manufacturing will likely see expansion in the range of 5.50% per year, with renewed vitality in defense-related concerns as one source of new activity. The area’s wholesale and retail trade sector will also serve as an engine for growth.
The El Paso metro area is projected to slightly underperform the state average; one reason for this is the fact that a disproportionately large percentage of the regional economy is represented by the government sector, which is characterized by stability. Durable manufacturing, together with transportation, communications, and utilities, appears to be a source of significant new opportunity in the years to come.
Houston is poised on the brink of a period of healthy growth. The services segment will likely generate tens of thousands of jobs, with a full third of area workers employed in services-related industries in the near future. With the exception of agriculture, which represents a relatively small fraction of the area economy, all sectors will see output expansion of about 3% or better during the 2003-2008 timeframe.
Growth approximately equal to the Texas pace is forecast for the San Antonio area. Broad-based expansion is likely to characterize the next few years, with durable manufacturing leading the way. As one of the most diverse economies in the state, the region is expected to remain a leader through the years ahead.
Abilene, Amarillo, Beaumont-Port Arthur, Brazoria, Brownsville-Harlingen-San Benito, Bryan-College Station, Corpus Christi, Galveston-Texas City, Killeen-Temple, Laredo, Lubbock, McAllen-Edinburg-Mission, Odessa-Midland, San Angelo, Texarkana, Tyler, Victoria, Waco, and Wichita Falls are all expected to see modest expansion and healthy job gains.
A few smaller metro areas will outpace the statewide average. Longview-Marshall’s strong gains in manufacturing are expected to propel that city’s economy to new heights by 2008. Sherman-Denison is another top performer, with a recovery in nondurable manufacturing augmented by expansion in many areas.
Everywhere I looked I found signs of life, but even so, there remain significant challenges. Many areas continue to struggle with issues of diversification, though the situation is much improved for most. Others face fiscal difficulties. However, the vibrance of the largest metro areas will lead to spin-off activity in areas large and small, and the next few years should prove a welcome relief from the ups and downs of the recent past.
posted @ 08:05 AM CST [link]
Friday, December 12, 2004
It’s About Time
The Bush Administration has finally decided to eliminate the ill-fated tariffs on steel imports. As I vociferously indicated at the time, they never should have been instituted in the first place. Specifically, they led to retaliation, protests to the World Trade Organization, and a loss of our credibility and general impact in trade initiatives. As best I can tell, they did nothing to promote the long-term competitiveness and investment in our domestic industry. I am pleased to have this unfortunate incident behind us.
We have also recently completed a major round of negotiations to establish a Free Trade Area of the Americas, the most logical extension of the North American Free Trade Agreement (NAFTA) and an important step toward open global markets. Granted, the new accord did not go as far as I would like, but it is a good start in the right direction.
The two events, taken together, suggest that we are on a solid path toward free trade. While scholars have recognized that this mechanism was essential to maximizing prosperity for the better part of two centuries, it is amazingly stubborn to implement in practice.
Why is free trade so important? From the selfish perspective of the US, our capacity to sustain future growth is critically dependant on our ability to create, manufacture, and sell sophisticated, high-tech products and services. Because of simple demographics, our domestic market will not generate enough consumers to buy all of this stuff. Thus, we have to be able to market our wares to people in all parts of the world.
Additionally, much of the demand will occur in emerging countries as they develop the infrastructure and facilities to be integrated into the international business complex. It is both difficult and imperative to gain access to these customers. Virtually every developing nation goes through a period where it wants to export everything and import nothing, seeing the influx of resources as a key to growth. Inevitably, however, the folly of this approach is realized, as growth is stunted by protection of products and an inability to compete. When the US adopts its own restrictive policies, it only reinforces this inertia.
Taking a more global view, as each nation pursues its most effective products and services, the pie gets bigger and everyone gets a bigger slice. This outcome (though we can’t ever seem to get it right) is not a pie-in-the-sky theory; it is a mathematical certainty.
The most recent brouhaha in this arena is the concern over the loss of “white-collar” jobs to lower wage countries. While there are certainly short-term dislocations associated with transition, this situation is no different than any other. The segment of engineering, financial analysis and other similar tasks that is routine in nature has become a commodity. It will flow to the lowest cost location (shareholders will see to it), which is how it should be. We have lost other production categories in the past, and we will do so again in the future.
Our comparative advantage is in the creative, high value-added segments of the economy. Our minimum wage is several times the average wage in many parts of the world. With that position comes higher standards of living and greater opportunities for individual success. It also comes, however, with the assertion that we will not get to do the “easy” work that can readily be accomplished at a lower wage. Our goal should not be to get back the jobs somebody else does in a more cost-effective manner. It should be to create more of those that take advantage of our incredible intellectual resource base.
Simply stated, free trade is good!!!
posted @ 08:24 AM CST [link]
Friday, December 5, 2004
Clean Energy: A Catalyst for Economic Growth The relationship between the economy and the environment has long been quite complex and multi-dimensional. At times, it appears to be one of conflict, as interested parties clash over the proper development of economic resources or the best way to improve environmental conditions. On the other hand, a substantial body of evidence suggests that environmental quality contributes to economic growth, particularly among high-tech industries which seek desirable and attractive locations. Similarly, clean air and ample supplies of clean water are vital to public health.
Moreover, the clean energy industries themselves serve as important catalysts for growth. In the decades to come, fossil fuels will become increasingly difficult and expensive to produce. Reliance on imported oil also reduces America’s ability to meet the goal of energy independence. In both absolute and relative terms, the consumption of imported petroleum has grown substantially since the embargo and oil crisis of 1973, thus leaving the US vulnerable to severe economic disruptions resulting from any one of myriad potential dislocations in an increasingly unstable region of the world. As the markets for highly efficient cars, appliances, and building materials develop, it is imperative that the US be at the forefront of both creation and production of these essential items. Given future patterns in demand and supply, any such efforts are unlikely to adversely affect the current domestic energy sector. In fact, as new technologies for extraction and use develop, there will be even more opportunities for domestic production.
There is little doubt that the path to future vitality for the US economy lies in the ability to create, implement, and commercialize new and innovative technologies. Fundamentally, the US has a high value-added, high-wage business complex that can only prosper through the introduction and capture of markets for emerging goods and services. In recent years, many traditional industries have either been eliminated by new discoveries or transferred to low-wage countries.
The coming together of these phenomena in the domestic economy is at once both exhilarating and challenging. It permits remarkable, sustained prosperity, yet requires constant reinvention as the breakthroughs of one decade become the commodities of the next. In such an environment, firms, no matter the breadth and depth of their past achievements, are only as good as their next market entry and can only share in the bounty to the extent they maintain a presence in emerging sectors. The markets for clean energy are anticipated to see exponential growth in the decades to come and represent a vital addition to the American business complex. Additionally, a business climate characterized by outstanding infrastructure, enhanced mobility, and desirable levels of clean air and water is becoming essential to the capacity to provide the resources for growth in other key sectors.
The decade of the 1990s was an era of incredible economic growth and prosperity; the past few years have been more difficult. Although output has grown at a reasonable pace, the job market has lagged. In particular, the manufacturing sector, the traditional export base which has dominated US expansion for over a century, has suffered dramatic declines in employment. While the nation has benefited from technological advances over many decades, newly emerging sectors are being disproportionately captured by other parts of the world.
Stripped to its essentials, the future prosperity of the US is critically dependent upon the capacity to be the leader in the next generation of products and services—and very little else. In an increasingly global and competitive environment, such innovation represents the primary advantage America enjoys in the international marketplace. While the US certainly remains the predominant economy of today, disturbing trends in investment and technology implementation could undermine this position in the future. Merging business and environmental concerns in a productive and mutually beneficial manner is a goal worthy of substantial effort.
The ideal solution involves a spectrum of efforts aimed at both improving environmental conditions and spurring growth in domestic clean-energy industries. Pursuing new development and enhancing the prospects for success among US firms will help ensure a place at the forefront of this nascent field, a position which will both enhance environmental conditions and provide a long-term source of economic stimulus.
posted @ 08:03 AM CST [link]