Saturday, December 3, 2011

How Do We Get Out of This?

Yesterday, we saw some much welcomed news of a big drop in the national unemployment rate. Earlier in the week, we also saw a strong early start to the Holiday Shopping Season. Yet even though we received all this good economic news this week, folks here still sound like they're in the dumps. Even as Nevada's business leaders feel more optimistic...

Indeed [...], sales tax revenue has been up on a year-over-year basis across the state for at least 14 consecutive months, and fiscal 2011 finished well ahead of budget. “What that tells us is that business has shown some moderate improvement in activity, and we think that’s a positive note,” [said Jeff Mohlenkamp, Director of the Department of Administration for the State of Nevada.] Gaming tax revenue has been “a bit more volatile, a bit more up and down.”

Applied Analysis, the Las Vegas-based business advisory services firm, sees the state revenue coming in above expectations in terms of both sales and gaming taxes. “I think we will beat the Economic Forum’s expectation, which will leave them with what I think is going to be a relatively healthy overage,” says Principal Analyst Jeremy Aguero. “However, the state will still have a deficit when going into 2013.”

“People are consuming,” [Brian Bonnenfant, Project Manager for the Center for Regional Studies at the University of Nevada, Reno] confirms. “You’re seeing visitation numbers popping in Vegas and that’s real good, although that’s not really reflecting in the gaming side, which shows there are still some limitations on how much they’re willing to spend.”

The people aren't feeling it so much.

Donna West could once name the homeowners on her affluent Las Vegas street. Then came the recession, the vacant homes, and the parade of anonymous renters.

"To me, the recession hasn't ended," said West, a 55-year-old retired state worker. "We have more foreclosures happening in my neighborhood than a year ago."

Across this hardest-hit Western state, a battle of perceptions is being waged over whether Nevada is on the edge of recovery, or still falling four years after the collapse of its mighty housing, tourism and construction industries.

Looking objectively at the economic data, we ARE in recovery. But because we fell so far so fast, this slow recovery still feels like recession to those that haven't yet felt the better times for themselves. We may be seeing progress now, but there's still so much more that needs to be made.

So how have we been able to start getting out of this hole in the first place? Take a closer look at that second statistical point I noted at the top. When consumers re-enter the market and spend, the whole economy is all the better for it. Desert Beacon explained this in greater detail yeaterday. Here's the big takeaway:

A lack of demand is associated with several of the common factors for small business failure. Small businesses don’t fail because of “government regulations,” or because of “the Bank;” they fail because their numbers don’t add up. The number one reason for small business failure: “There is not enough demand for the product or service at a price that will produce a profit for the company.” This covers a host of other issues: Did the start-up try to compete with a company that can operate with economies of scale? Did the business open up in a declining market? Did the business over-expand?

Even a cursory review of the typical lists of reasons for start-up and small business failure will yield evidence that the owner failed to initially understand demand levels, failed to physically locate in areas of high demand, or became overly optimistic about the overall level of demand and over-expanded the operations. Failure to do proper budgeting and accounting within the firm means that there was no accurate way to determine if the demand was sufficient to keep the company floating above the profit line. These elements return us to the starting point: The business failed because there wasn’t enough demand to produce a profit for the company.

So conversely, businesses can't succeed on "LOW TAXES!!!" alone. It ultimately takes demand from consumers, and especially working class consumers that form the vast majority of our population, for businesses to succeed.

Because tourists are slowly trickling back onto The Strip and spending more (than they did in 2009, if still not nearly as much as they did in 2006) on everything from dining out to big ticket shows to shopping, our overall economy is rebounding off our lowest of lows. But because the real estate market is still weak and there's still no replacement yet for the real estate-construction bubble that propped up our artifically inflated economy last decade, many locals are still suffering.

So what can we do about it? It's simple, really. We need policies that improve consumer demand. And as we talked about earlier this week, the most effective ways to boost the economy is to put money in the pockets of people who need it the most. This is why the extreme austerity measures being pursued by the likes of Joe Heck and Dean Heller only serve to hurt their own constituents by ripping money out of their hands and throwing even more Nevadans into worse poverty.

Again, when consumers re-enter the market and spend, the whole economy is all the better for it. Because President Obama and Congress were able to pass the Recovery Act in 2009, and because he got Congress to agree to a payroll tax cut late last year, we're now seeing the economy pick up. But if we don't renew these policies and don't go all in on improving consumer demand, we will all suffer for it.

This is why we can't afford any more "tea party" preferred austerity. We need to empower consumers, NOT disembowel them. If we want a healthier economy, we know what we need to do.

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