CA Urban/Community Forest Conference:The Economy 2012

Palo Alto, CA September 16, 2011

Robert Eyler, Ph.D.Professor, Economics

Frank Howard Allen Economics Research FellowDirector, Executive MBA Program

Sonoma State Universityeyler@sonoma.edu

1

Major Economic Issues• A year of mixed signals and international issues– International concerns worldwide

• Domestic economy in US continues to struggle– International issues transmission to US– US issues transmission to world building: is the debt a big deal?

• State: Budget passed, mix of cuts and new taxes– Where will the new unemployed public workers find jobs?– Is there a commitment to anything in Sacramento?

• Commercialized science the key long-term: pulls all behind– Where is the investment?

2

What we have tried• Monetary Policy: about $1.2 trillion– Generate investment from lower interest rates and

increasing money supply– Good: stimulated exports– Bad: inflation potential and lack of focus

• Fiscal Policy: over $800 billion– Advertised as “New Deal 2”, some of that happened– Lack of investment in science, no focus here either– New jobs packages more rhetoric than real for now

• If innovation and entrepreneurship the way out of recession, not much direct investment

3

Excess Reserves at U.S. Banks (Loanable Funds Not Lent), 2008$Jan 2000 - Aug 2008

0

2

4

6

8

10

12

14

16

18

Month

Bil

lio

ns

of

$

4Source: Federal Reserve Board

5Source: Federal Reserve Board

6Source: Federal Reserve Board

7

S&P 500 Index, 1990 - Present

Sources: Reuters and CREA at SSU 7

8

S&P 500 Index, 2007 - Present

Sources: Reuters and CREA at SSU

9

Philadelphia FED Business Survey, 1968 – Aug 2011

Source: Federal Reserve, Philadelphia

What we want (or should want)• Investment in solutions to scientific problems– We know these problem are coming or are here

• To remain the technological and scientific leader worldwide– We know competition is coming from all points on

the globe– Who in here likes math?

• To create jobs and businesses– Science has a large multiplier effect on our

economy

10

11Source: BEA (www.bea.gov)

12Source: BEA (www.bea.gov)

13Source: BEA (www.bea.gov)

Unemployment Rates, US and CA, Seasonally Adjusted, 1976-2011

14Source: BLS (www.bls.gov)

15

California

• 2011-12 likely to be slightly better than 2010-11– If recovery is truly in place, CA will feel effects of

recovery

• Labor market still the big deal– Private and public issues: job creation vs. destruction– Need to stimulate jobs and business and retain both

• CA slowly bifurcating in terms of housing markets– Interior valleys likely to have a Japanese-like recovery– Coastal recovery dependent on general economic

recovery and conversion of emerging wealth to housing demand

16

TechPulse Index, Jan 2007 = 100

Source: BEA (www.bea.gov)

Source: BEA (www.bea.gov)17

Source: BEA (www.bea.gov) 18

Investment in Environmental Change

• Three biggies:– Peak oil, petroleum use and culture– Generalizing the use of renewables: wind, solar– Rising oceans and climate change effects

• Three issues– Lack of ROI short-term: need to commoditize

solutions– Political will around this, especially in CA– Bad advertising to Wall Street: housing markets a

good example of how Wall Street works

19

Housing and Environmental Issues• People make consumption choices, households

make savings choices• Forestry use: are we still using new wood to build?• Need households to generate demand for many

environmental solutions– Do teenagers consume micro-wind turbines?– Do teenagers consume solar paneling, low-flow toilets,

instant hot water heaters?– Do people see oceans rising?– Are teenagers buying high MPG cars en masse?

20

Environ Employment, 1990-2011, Index (1990 = 100)

21Source: BLS (www.bls.gov)

Peak Wood? Index (1979 = 100), 1979-2011

22Sources: BEA (Residential) and BLS (Softwood Prices)

Where are we headed?• Recession-like activity through 2011: labor markets– Hiring not concentrated in private firms or with

sustainable funding– Unlikely to see a national surge in 2012, as elections and

continued uncertainty will drag• CA economy now starting to pull and push– Tech firms and activity doing well– 2012 as an election year may also slow things down

• Recognize slower growth and better choices– Economic development choices have economic and

environmental effects on communities– Investment in solutions to scientific problems a good

long-term, slow growth bet23