Duck — here comes a meteor
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 [email protected]