FEBRUARY 2008: ECONOMIX
Duck — here comes a meteor
By John
Mitchell
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As the calendar changes and one has reached the age of a
harvestable Douglas fir, it is natural to reflect on the
economy. There are huge inventories of empty homes and empty
promises to repay. The cleansing and recapitalization processes
have started, but have a long way to run. The all-important
question for 2008 is whether there will be enough strength in
trade, investment and consumer spending to offset the
housing-related weakness. Many wonder if we will face the first
(but not the last) recession of the 21st century. Of course,
because expansions do not last forever. But global strength,
the resilient consumer and (for the most part) solid business
balance sheets suggest that we will dodge the bullet in
2008.
Going into the New Year, it’s important to focus on the
impact of choices and priorities. Oregonians saw a business
summit recently that was focused on transportation needs and
the sustainability industry, which has become the mantra of
economic development officials in many states. In December,
Kathleen Casey Kirschling received her first Social Security
payment as a retired baby boomer, purportedly the first; 78
million more will follow. In less than three years, she and the
rest of that mob will start to be eligible for Medicare.
Revamping of the medical system is going to be an issue in this
year’s election. Former Vice President Al Gore and the
U.N. Climate Change Panel are urging global action to reduce
greenhouse gas emissions. Oregon has emissions targets and
mandates, as do most states. World AIDS Day was last fall,
drawing attention to the millions who die each year.
The commonality in this disparate and incomplete list is that
resources will be required to deal with these problems. Many
economics textbooks open with the notion of opportunity costs
— when you do one thing, you give up what you otherwise
could have done. Corn for biofuel is not corn for food, and
transfers for seniors’ entitlements do not go to
education, research or infrastructure.
So choices have to be made, and they will be difficult because
they involve benefits and costs for different people or groups
of people at different times and places. The unfunded
entitlement issue will be on us soon as baby boomers,
symbolized by Kathleen, have begun to retire and collect
benefits.
In Amity Shlaes’ recent book, The Forgotten Man, Francis
Perkins, Franklin Roosevelt’s secretary of labor, said
FDR was uncomfortable with the unfunded promises of Social
Security when the system was being developed. But the future
was a long way off and not of immediate concern.
Bill Gates, a legendary economics professor at Williams
College in the mid-1960s, used a meteor to describe this
“discounting” that humans do. (The name did get
your attention.) His example was of an approaching meteor that
would hit Earth in 100 years and do serious damage, but if the
world started immediately to build a tower, the meteor might be
deflected and damages reduced. Would it get built or not?
Suppose last December you had the choice of attending
Oregon’s annual Civil War football game or working on the
tower to prevent a disaster 100 years in the future. What would
you have done? I suspect the stadium would have been full.
Which would you rather have: a dollar today or a dollar 10
years from now?
The world’s concern about climate change and the
post-Bali round of negotiations will require using
today’s resources to mitigate a distant problem. The
leadership and coordination issues are huge from a global
perspective: Developing nations and their willingness to change
are pitted against the interests of the already-rich
nations.
Leaders, if they are serious, will have to motivate billions
of the citizenry and thousands of companies to alter choices
now for the benefit of people in the future.
In many respects, the issue is not dissimilar to fixing
unfunded entitlements. (An issue virtually ignored in the
current presidential campaign.) The changes will involve
vehicles, homes, appliances, energy production and travel
patterns, just to name a few things.
Harnessing the ingenuity of the population and finding the
right mix of urgency will be a challenge for global policy
makers because most people would rather ignore long-term issues
and instead head to the game.
John Mitchell is a contributing columnist for Oregon Business
and former chief economist for US Bancorp.
Have an opinion? E-mail feedback@oregonbusiness.com
