“The importance of money flows from it being a link between the present and the future.”
John Maynard Keynes

The King of Spain tried in vain to understand how his country could be facing an economic crisis when in his harbor’s galleons gold and silver were being unloaded from the New World.  Ever since then, the layman has endeavored to untie the Gordian Knot of economics, even though it is the one, universal characteristic that separates us from other animals.  Adam Smith observed centuries ago, “The propensity to truck, barter and exchange one thing for another is common to all men and to be found in no other race of animals – no dog exchanges bones with another.”

For insight and information SCB sat down with Florida Tech Associate Professor of Economics Dr. Michael Slotkin to get his perspective on the current economy, locally and globally.

SCB: Though you are versed in Macro Economics, where do you see things going in the local economy?

MS: Unfortunately Brevard, like most of Florida, Arizona and Nevada, is in the epicenter of the real estate bubble and therefore suffering more severely the consequences of that bubble bursting.  Homes were built based on speculative demand, verses actual residential demand; therefore it is going to take time for those surplus inventories to be purchased.  What is more, what people paid for homes is now less than its current market value, so the ability to sell a home and relocate for job opportunities becomes far more challenging.

SCB: So what is on the horizon?

MS: Employment reports document that the pace of job loss in the 1st quarter of 2010 is lessening.  From the 4th quarter of 2008 through the 2nd quarter of 2009, Brevard County was losing about 1,000 jobs per month.  In the 3rd and 4th quarters of 2009, it dropped to 750 jobs per month.  In the first 2 months of 2010 it was down to 500 jobs per month.  At the current time, employment stabilization is gaining traction, although we are still losing jobs.  And of course, even if recovery does commence during 2010, it may turn out to be a temporary respite when the events at KSC unfold.

They call it a recession for a reason.  People respond to economic downturns almost like the predictable stages of grief.  First stage is denial and the final stage is acceptance, which usually means recognizing the time it takes, which in this case well into the decade, to move out of one of these downturns and taking the steps that move us towards recovery.

SCB: What do you think those steps should be?

MS: There are two basic ways to stimulate the economy: one is by the government spending more or by the government taxing less so the people spend more.  Either way, it is the infusion of spending and consumer confidence that spurs recovery.  If the government spends less, often quality of life issues tend to suffer and people may withdraw from that region.  To have a vibrant recovery you have to fund it.

SCB: So you are in favor of the “stimulus” approach?

MS: Balancing the budget is an important goal, but you don’t try to get a patient on an exercise and weight loss program in the emergency room.  You do whatever is necessary to save the patient.  The question with much of the “stimulus package” is how quickly can you get a project going that will actually impact the economy in any particular region?  Most of these projects are not what they call “shovel ready” and may take months or years of planning and permitting to begin.  Again, we have to think of a “stimulus” like CPR, not physical therapy; it has to be large enough and dramatic enough to bring some immediate response from the patient, in this case the economy.

SCB: What do you see as the primary economic impact of the Health Reform legislation? MS: We’ve enacted a plan that nearly universalizes coverage, and according to CBO, provides modest budgetary savings in the first decade and more significant savings in the following ten years. To what extent health reform curb costs…well, there are aspects of reform that will only play out over time and I suspect some amount of legislative tweaking will still occur.  I don’t believe health care reform will be “one and done.”

This is long-term structural reform.  For many people reading this magazine little change or impact will be felt.  For others, the reduction of economic insecurity due to improved affordability or prohibitions on cancellations/denial of coverage will be significant.

 

SCB: What are the key indicators the average business person should look at to evaluate the economy and the pace of recovery?

MS:  We are continuing to compare where we are to the pre-recession bubble, which is basing our perspective on grossly inflated data.  For instance, 3{099636d13cf70efd8d812c6f6a5a855fb6f8f27f35bea282d2df1d5ae896e2c2} unemployment is an unrealistic goal; to get back to 5-6{099636d13cf70efd8d812c6f6a5a855fb6f8f27f35bea282d2df1d5ae896e2c2} unemployment is more realistic and attainable.  Also “home sales” is not the most viable indicator.  To have a rise in home sales is good, but often that is simply people shifting from a home that is too expensive, to a more affordable one.  Actual building permits are a more viable indicator.  Also car sales are a good way to gauge an increase or decrease in consumer confidence.

SCB: Is the fear over deficit spending and higher taxes an alarmist reaction or something that could stall, if not derail, the recovery?

MS: I think in hindsight the fear over deficit spending influenced the size of the original stimulus bill and thus the pace of recovery.  While in my opinion, and based on the estimated size of the output gap, the stimulus bill needed to be larger, it’s done, recovery is underway, and it is unlikely the President would reverse track and sign an austerity package anytime soon.

It’s interesting to hear the anti-stimulus and anti-deficit rhetoric, especially in Florida where the legislature has now decided to borrow from the Feds in order to pay its unemployment compensation benefits.  This avoids a negative influence on the economy caused by reduced household consumption spending, and all funded by borrowed money from the federal government.

So I don’t see the fear of deficit spending derailing the national recovery.  I am, however, genuinely fearful for our local recovery, in light of the ending of specific KSC operations expected later in 2010 or early 2011.

SCB: Explain the services you provide through PRÆCIPIO EFS, Inc.?  How did that get started, who is your target market and how do you handle marketing these services?

MC: Well, for years Dr. Roger Manley, a management professor and former dean of Florida Tech’s College of Business, extolled to me the virtues of performing consulting services for the business community.  Roger is an organizational behaviorist, our department’s most senior faculty member, and a dead-ringer for Obi-Wan Kenobi.  Anyway, he saw it as a win-win situation in that many consulting jobs generate valuable data sets and/or case studies which can be used for publication purposes as well as enhancing the “professing” aspect of our job.  By enriching our lectures with actual business applications, you complement textbook theory and also do a better job of holding the students’ attention.  Since there’s also a compensation aspect I suppose it should be characterized as win-win-win.

So after turning down solicitations for years, we started a few years back – myself, Dr. Alex Vamosi, an economist/statistician and the associate dean of Florida Tech’s College of Business, and Dr. Karen Chambliss, formerly of Florida Tech’s College of Business and UCF, who is our finance PhD – to accept inquiries from folks who would contact us for help.  We’ve performed economic impact studies, feasibility and cost-benefit studies, reports to be used for litigation or arbitration purposes, statistical training for general purposes or in preparation for Six Sigma  …  in short, if there’s a particular business problem where it would be helpful to have an economist on board, we’re appropriate, and our work markets itself.  All our clients are from word-of-mouth referrals.

And as for the win-win, Roger was right.