Perspective on Real Estate

October 10, 2002

October 17, 2002

October 23, 2002


The psychology of a fragile recovery

Economics is known as the dismal science. On Wednesday I listened to someone who is neither dismal nor pretentious.

Economics Professor Edward E. Leamer, director of the respected UCLA Anderson Forecast, was brought to San Diego by the UCSD Economics Roundtable to speak on the outlook for California, which he shared with perspective and humor. Listening is a great habit as well as the pathway for knowledge when articulated by a truthful observer of these dangerous, puzzling times.

Professor Leamer reviewed international, national and regional economics. He freely admitted what he could not evaluate within mathematical models, like terror and consumer psychology. However, the balance of important factors was carefully given comprehension through charts and words that conveyed complex knowledge reduced to understandable simplicity. For this we were grateful. I felt very good because my readers have already learned a lot of what was reviewed in these columns.

It is ironic that there is little common sense in our culture because constituents are preoccupied with their own lives and needs. However, terrorists have a great deal of common sense, for they know that fear is a contagious malady which can be manufactured with hardly any expense because the news media is a competitive yenta (gossip) whose freedom we have traded for our privacy. Here are one or two people creating terror in the nation's capital, who, if they prove to be terrorists, have learned that a few bullets in major cities can turn into enough frenzy as toppling buildings. How do you factor this into economic formula? You cannot.

Psychology is difficult to quantify also, yet it is as powerful and as fast as a racing comet. All politicians know when fear becomes rampant, government is sought that can protect the people. Economics take a back seat while the populace is afraid of something, as they are in the nation's capital.

Others look at new job creations with care and interpretation. I have referred to this as a "jobless recovery," which makes it especially painful. The good professor says this is normal during this phase (the early phase of a recovery) and later on there should be the job-creation phase we all expect.

We are making our way through what I call "the shadowland recovery," which pauses somewhere between invisibility and historic dynamics. September's net new job formation was much better in Southern California than it was in the northern portions of the state. San Diego has continued to be more impressive than all other regions except the Inland Empire, where land is more available and costs more "reasonable," so more employers make jobs available.

Professor Leamer told us that we are in a fragile recovery because of what I have called "borrowing from the future." When one can buy a home for the lowest interest rates in many years, or a car with low or very low rates, it tends to cause consumers to buy now rather than wait for better times. It is a good thing, because this has allowed the consumer to replace the corporation in digging us out of the recession.

But business is still showing doubts as it examines its own lack of profitability, its extremely high indebtedness and that of its consumers, and the psychology of doubt and fear. We have noted that people do not save any more, that businesses have been seeking customers (expanded marketplace) rather than profitability, that imports and exports continue in huge disequilibrium which could have dreadful consequences, that states and the feds have no surplus to invest in desperately necessary infrastructure or the domestic poor.

So this UCLA giant says the main recovery is scheduled to come into the station next year sometime, and I ask what will cause that to be? Because we cannot see the future, we use numbers to quantify what we cannot know and then cross our fingers to pray that we are almost right. But the truth is that this time there are too many unknowns, too many factors that give these times a uniqueness --which can make any observer more nervous than usual.

Goodkin has been a business ethicist and housing analyst since 1956. He may be reached at sanford.goodkin@sddt.com.


October 10, 2002

October 17, 2002

October 23, 2002