Optimism, Pessimism, and Reality
Last winter I gave a forecast to the agents of a commercial real estate company. The forecast was necessarily negative, but it was well received by the agents. The company’s president was another matter. He was downright angry. I wasn’t optimistic enough. A very similar vignette played itself out when I gave a forecast to the customers and potential customers of a regional bank. After I finished, the bank’s president did his very best to argue that my forecast was wrong.
This happens all the time, and it sometimes costs my university money. I’m pretty sure I won’t be talking to that real estate company or that bank again, even though subsequent events have confirmed my forecast. I’m also regularly criticized by economic development people, city managers, tourism professionals, and real estate sales people, for either not being optimistic enough or for pointing out issues such as high marginal tax rates.
This confuses me.
It seems to me that when you ask an economist to speak, you would want the truth as they see it. You are presumably looking for information to help make better decisions, and I don’t see how sugar coating things helps decision making at all. I’m guessing that many people who made decisions last summer based on talk of green shoots and claims that a real estate recovery was imminent have a few regrets today, and a smaller net worth. Optimism didn’t help these people.
That’s not to say I’m always right. I’ve been wrong, and I’ll be wrong again. That’s the nature of forecasting. That’s the reason I always recommend that people listen to many economists, and then make their own decisions. When doing that, it makes a lot of sense to pay particular attention to those who’s opinions might conflict with your interests or priors.
So, I have a few suggestions: If you want a motivational speaker, get somebody with an inspiring life story. If you want a sales person, get a sales person. If you want to try and understand economic activity, get an economist.
Kudos to you, Dr. Watkins, for your incisive analysis and refusal to sugar coat your economic forecasts and studies. As you’ve mentioned in other reports, job creation needs to be at the center of economic policy reform and recovery for the State of California.
Central to job creation and a sustainable economic recovery, in my view, would be the creation of a state-owned bank along the model of the Bank of North Dakota, which , as you probably know, is the nation’s only state-owned bank and has been crucial to the state’s economic growth and welfare over the past 90-years–www.banknd.com/. One of the chief advantges of the state-owned banking system is that it allows a state to forge its own economic destiny largely free from the fetters of major Wall Street financial-services corporations, which have done very little to assist small or medium-sized in terms of providing them with vitally needed loans.
By establishing its own credit lines, state-owned banks would be able to provide essential business start-up and business-expansion loans, at low-interest rates, to enterprise owners which would generate more employment. Typically, like regular commercial banks, state-owned banks would be able to leverage $900 in loans for every $100 on deposit and would be able to make healthy profits which could then be plowed back into job creation and economic development for the state.
You may have read extensively on the topic of state-owned banks, Dr. Watkins, but if you’d like more information relative to the economic feasibility of such an institution, I’ve written a topical article on the subject for the following web site: http://www.bestthinking.com/ Search: Dave S. Morse . Or, if you like I can e-mail a copy of the article to you. If you’d like for me to do so, please send an e-mail to me at the address printed in the e-mail address frame above.
Meanwhile, if you have the chance, I would really like to hear your views on the feasibility of a state-owned bank for California to spark job creation and to fuel sustainable economy growth, either in this forum or in an e-mail message to me. Thanks again for your very insightful articles, and have a very blessed afternoon and evening.
Best regards,
Dave Morse, MA, MMPA
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