Economic Development or Corporate Welfare?

dollar-signBy: Dr. Lynn Reaser 

A San Diego City Council committee recently approved $150,000 worth of subsidies to two local breweries that are planning to expand.  Is this a good model for economic development?

The answer is a strong “no.”  Governments should not be trying to pick winners and losers but leave that to the marketplace.  That is the foundation and core strength of the U.S. economy.  The subsidy or incentive path is slippery.  What industries or firms should receive them—the most promising or those who need the most help?  This model diverts resources to lobbying policymakers and can be a door to corruption.  The granting of subsidies to some firms is unfair to those not receiving them.  It also drives one city to compete against another at the expense of the region.

This is corporate welfare and is bad economic policy.  A much better solution would be to reduce the regulatory barriers to starting and growing all enterprises.

Chargers Back on the Radar Screen

By: Dr. Lynn Reaser

ImageWhile most San Diegans are focusing on the Padres, the issue of the Chargers and a new stadium has again surfaced with the Mayor and Charger’s President again talking. Should we “pay to make the team stay?”

While the Chargers add value to San Diego, there is no valid reason why taxpayers should subsidize them when most other enterprises also adding value receive no special benefits.  San Diego has a $1 billion backlog of critical infrastructure needs that the Mayor and City Council are only beginning to address.  The region’s roads, storm drains, transportation system, fire stations, and street lights all need attention.

Football’s long-term future may also be at risk as it confronts the potential damage of concussions incurred during the game.  This is a risk the public should not bear.

If the Charger organization, National Football League (NFL), advertisers, sponsors, and fans want a new stadium, that is fine.  But they should pay, not the public.  

Employment at Record High, but Jobless Still In Need

By: Dr. Lynn Reaser

While total employment in San Diego County has reached its peak of mid-2007, another 65,000 people have entered the workforce.  ImageThe jobless rate is still around 7.0% and it may be another two to three years before it returns to its prerecession 5.0% level.  Over one-third of those currently unemployed have been out of work for over six months.  Individuals without work for extended periods often lose skills and face reluctance by firms to hire them.  Other employees would rather “full-time” than full time. 

Continued economic recovery will help, but more targeted training and education will be necessary to address San Diego’s jobless problems.   

San Diego Finally Recovers Jobs Lost During Recession

ImageBy: Dr. Lynn Reaser

It was a painful recession and the recovery has been erratic and sometimes frustratingly slow.  Yet, San Diego, based on February’s numbers, has finally recovered all of the jobs lost during the recession as payrolls have reached an all-time high.

 

San Diego joins seven other areas in California to have recovered all of the jobs lost.  These include the metropolitan statistical areas (MSAs) of San Francisco, San Jose, San Luis Obispo, El Centro (Imperial County), Bakersfield, Napa, and Merced.  The regions that have totally recovered the lost jobs account for about 25% of the state’s total employment. 

California has a whole still has nearly 100,000 jobs to recover.  However, if job growth continues at the average pace recorded in 2013, those jobs will be regained in only about three months.  Los Angeles and the Inland Empire (Riverside and San Bernardino Counties) on this basis will each take 13 months or about a year to recover.  For Orange County, it might be 23 months or about two years to fully recover the lost jobs.

San Diego has thus taken the lead as Southern California’s first major metropolitan area to recoup its recession job losses.

Student Athletes—Students or Employees?

By: Dr. Lynn Reaser

A legal and political debate is raging on whether football athletes at Northwestern University should be regarded as employees and able to form a union.  The outcome of this debate could have profound implications not only for college sports but also for higher education in general.

Northwestern University Football PictureThe drive to treat college players as employees is wrong footed.  Student athletes are students first and athletes second.  These individuals receive their tuition, housing, meals, preferential enrollment for classes, tutoring, and other benefits.  Their showcasing builds a brand name that they can capitalize on in their future athletic careers or in other professional endeavors.  Turning student athletes into employees would further tilt colleges and universities towards becoming athletic enterprises rather than institutions of higher learning.  Other students would bear the greater costs of athlete compensation on top of already high tuition and rising student debt.

This is a path we should not follow.

An End to the Era of Super Low Interest Rates?

By: Dr. Lynn Reaser

ImageThe Federal Reserve has held interest rates near zero since the financial crisis struck at the end of 2008.  It has been an extraordinary period, giving homebuyers the opportunity to lock in record low mortgage rates, while boosting the stock market to all-time highs.

This rare period of history may be drawing to a close.  Look for the Federal Reserve to begin raising rates towards the middle of next year.  The economy should be strong enough to support the gradual return to a more “normal” monetary policy.  Real gross national product (GDP) should be growing at an annual rate closer to 3% rather than 2%, while the job market improves further.  With the respite from sequestration of at least two years, fiscal drag will be less than expected.  Meanwhile, the U.S. economy seems to be weathering international turbulence, ranging from problems in some of the emerging market economies to conflict with the Russians.

 Delaying the upward move of interest rates could raise the risk of either asset bubbles or future inflation.  Nearly seven years of zero interest rates will be enough, with the risks outweighing the benefits.

The Ukrainian Crisis—A New Hazard Facing the U.S. Economy?

By: Dr. Lynn Reaser

ImageAs the Russians threatens to send more troops into the Ukraine and the U.S. counters with a pledge of economic and political sanctions, markets have seized up in fear.  Does the Russian invasion of Ukraine raise near-term concerns about the impact on the economy, particularly here in San Diego?

The answer is “yes,” even though the effects may not be large or long-lasting.  Any escalation of international tension is cause for concern.  Although the U.S. is not at risk of major losses in terms of vital imports or trade in general, financial markets will reflect any fears of a further deterioration in Russian-U.S. relations.  Falling stock prices will, in turn, impact consumer confidence and spending.  Ukraine, already struggling with a large debt burden, could be forced into default, raising fears about the financial exposure of various banks and other emerging markets.

San Diego’s economy may see little direct impact.  However, San Diego’s military community will be on alert and we probably all should be until tensions around the Black Sea hopefully ease.