Economic Growth, Economic Policy and the Pawsox

The Bureau of Economic Analysis released its new economic growth numbers today.

A few things i want to ruminate on.

“Real gross domestic product — the value of the production of goods and services in the United States, adjusted for price changes — increased at an annual rate of 2.2 percent in the fourth quarter of 2014, according to the “second” estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 5.0 percent.”

This is a good one. The good times rolled in the third quarter. At 5% we could keep up with China. We fell back to earth in the 4th quarter, 2.2%, which just so happens to match the growth rate in each of the last 3 years. Interestingly the biggest swings in spending were by the federal government, especially in the defense sector.

“2014 GDP

Real GDP increased 2.4 percent in 2014 (that is, from the 2013 annual level to the 2014 annual level), compared with an increase of 2.2 percent in 2013.”
The chart that followed also included the 2012 number, 2.3%. GDP growth in the last few years has been remarkably consistent the last few years, 2.2 to 2.4%. Actually the economy has been averaging something in the low two’s for quite a while. The national average includes things like the fracking boom towns of North Dakota (growth rate in 2013 15%) and Texas, the financial and entertainment centers of the universe, and the rural counties of Mississippi.

An honest assessment of Rhode Island puts us slightly below the national average in assets and growth potential. We are not a natural resource boom town, we are not a mega city and financial center. We are an old industrial place that lost out when the nation stopped being water-powered and we were no longer cheap labor. Despite the screams of the John Birchers (I was handed a John Birch Society pamphlet at a public hearing recently), the heroic efforts of the business climate obsessives, and the promises of the legislature the fundamentals of the Rhode Island economy remain those of a post industrial medium sized city that is vulnerable to the vagaries of climate change and the slowing global economy.

RI public policy is predicated on rapid growth, 3.2% on average. A better understanding of ourselves, especially of how economy works in a 2% growth world, would go a long way towards aligning policy with bringing prosperity to our communities rather than just filling the coffers of the few.

The cause du jour for this sermon is the effort by some of the wealthiest men in New England to move the Pawsox to a park in Providence. Rhode Island has a sordid history on this sort of thing, Big money crushing communities and demanding subsidies or threatening to go elsewhere with their money. I do not like the deal, but who cares. The one thing you should care about is making sure that the whole deal gets a very full public airing and that this is followed by a series of public hearings in all the affected communities. Today I have been making calls seeking a hearing and CRMC says it will hold one if they get a formal application, but the effected cities should also hold hearings for the public to air their concerns.

The more I read about the land in question, the less I like the deal. Either stealing public parks and waterfront or admitting that the knowledge district is more fantasy than reality. Neither makes us look good. The first thing the lords of Triple A should do is state that since they believe they are high rent economic development they are willing to pay fair market value for any land they build upon including all of the land they use for parking. Let the public airing truly begin before this develops any momentum and any more palms get greased.

Pawsox to Provsox

There are a number of reasons why moving the Pawsox from Pawtucket to Providence is pretty numb, and there are numerous reasons why people have a right to be unhappy at this transaction. But even more astonishing is how anyone among the new owners, especially those involved in any way in the policy discussions on economic development in Rhode Island, could see the !-195 lands as an appropriate place for a baseball stadium.

For years RI leadership has been touting the I-195 lands as the economic savior of Providence with all the potential of the “Knowledge District approach to economic development”. How in hell could they acquiesce to the use of these lands for a baseball stadium and its attendant parking lots.

I have a long track record of stating that the medical industrial economy is not a good foundation upon which to build an economy. Betting your economy on the leading cause of bankruptcy in the country seems a strange strategy and there is no doubt the medical industrial complex has played a big role in growing inequality in the American economy. My warnings about the expectations of growth from the medical industrial economy have been ignored and the bandwagon for high tech medicine continued. But now we have a proposal to throw that all away for a baseball stadium despite overwhelming evidence that sports arenas do not really help downtowns and create few family supporting jobs.

If the politicians go for the stadium, I almost hate to say it, it will prove beyond a shadow of a doubt that even politicians have realized that the medical industrial economy is not going to do what they have been saying it would do all these years and it is time to give up. But i will say that giving up on the medical industrial economy can be done without doing anything as astronomically dumb as building a baseball stadium and parking lots. I sure hope the RI politicians will hold out for a better use of the I-195 lands than to sign it away to the lords of baseball.

From the Bottom Up, Regulations and Economic Development

The mantra says if you lower taxes and reduce regulations the invisible hand of the market will bring you prosperity and perpetual growth. The facts do not bear this out.

The reality is closer to if you lower taxes on the rich and reduce regulations on polluters the few who are already rich will benefit while the rest of the community will be harmed and poorer. The underlying assumption of the already wealthy is that economic development policy should be geared towards making them wealthier with trickle down carrying benefits to the larger community. The results have been 99% of the growth in income going to 1% of the population while 60% of Americans are getting poorer. In low income neighborhoods, economic development that actually reduces poverty and benefits communities is a bottom up process. The use of assets to generate wealth must place the overwhelming majority of the benefits in the hands of the poorest members of the community if poverty is to be reduced. This is why gentrification and real estate driven development is so problematic. The benefits flow out of the community into the hands of “developers”. We merely displace the poor to another spot. This process mirrors almost exactly what is happening to tropical forest communities as their economies change. When the community gets secure tenure to the forest, everyone benefits. When the forest is no longer locally controlled, it disappears, the children get hungry, and those people who do not die move to shanty towns. Until brownfields are turned into assets that directly benefit the people already living in the neighborhood poverty can be shifted to another location, but it will not be eliminated.

On the regulatory issue, everyone agrees that the process should be efficient, fair, transparent and reasonably swift. The problem is that as the government and its prodders seek to streamline the process they also seek to reduce the quality of protections for the public, AND they seek to cut the public out of the process. If you remember the bottom up approach from the previous paragraph, then you know that cutting the community out of the process of seeing if a particular project is appropriate for the community almost guarantees failure, and in Rhode Island, almost guarantees inside dealings. As we streamline the permitting process it is critical to our success as a state to make it easier for communities to intervene at the appropriate times and places and to stop bad projects.

History tells us that when the wealthy are allowed to do as they please, it almost always comes to a bad end. We all know how bad 38 Studios turned out for the people of Rhode Island, and we also know that public hearings would have shown the politicos the folly of the project. We need to remember that the flip side of this is the public involvement that helped stop the building of a container port in Quonset, much to the chagrin of the governor, the legislature, and the growth obsessives. The public outcry, sustained over an 18 month period, prevented a one billion dollar debacle that the taxpayers would still be paying off.

In our neighborhoods, as the greening of the economy becomes ever more important and critical for our prosperity, to streamline the regulatory process to the point where the public is streamlined right out of the picture means that truly inappropriate buildings will get built in truly inappropriate places. The long term economic benefits will disappear when in our haste to give out permits we create floods that could have been prevented.

You can not end poverty without healing ecosystems, you can not heal ecosystems without ending poverty, and if Rhode Island wants prosperity we need to stop genuflecting to those who demand that we help them line their pockets through less regulation and lower taxes.

Economic Growth in Rhode Island

To the Editor,
The article “Economy grows despite weakness” in the February 18, 2015 Projo reported that the economic growth rate in Rhode Island was lower in the 4th quarter, 1.8% compared to 2.4% in the third quarter, and lower than was anticipated. Rhode Island’s economy is growing slower than the global average, the national average and the regional average. John Simmons comment ”trending lower… is a sign that the state economy has inherent weakness” seems to be in line with the sentiments of Rhode Island’ political leadership.

Simmons, and the rest of the business climate obsessives keep thinking they can pump up the growth rate by becoming “business friendly”, but any honest assessment of our growth potential will conclude that Rhode Island is going to be one of the places with a slower economic growth rate.

Instead of obsessing about a faster growth rate, the people of Rhode Island might be better served by a government that seeks a greater and more widespread prosperity in a low growth environment via ecological helping and economic justice.

Rapid growth will occur only in places that have the right conditions: New natural resource exploitation industries like fracking, rapidly expanding newly industrializing cities growing as rural people are driven off the land, or megacities with large financial sectors. Half the world will have growth that is below average. The sooner we learn to accept our low growth rate and create public policy that creates prosperity in our communities even under conditions of low growth, the better.
Greg Gerritt
Providence RI