Wise Words with Randy Barcus

Randy Barcus, chief economist for Avista, is known for delivering economic forecasts in language everyone can understand. He did just that in a Wise Words interview with Rebecca Nappi of The Spokesman-Review. An excerpt was published Aug. 7, 2010. Here’s the complete transcript.

I grew up in the suburbs of Los Angeles in a city called Baldwin Park. Baldwin was a railroader who also donated the land where Santa Anita racetrack is and across the street from Santa Anita racetrack is his homestead, which is now the LA County Arboretum. Baldwin Park was named after “Lucky Baldwin.” And I was lucky to grow up in Las Angeles in the 50s and 60s. It was a fabulous time to be a kid and be in the center of an amazing period in Los Angeles. My dad was an accountant at the Southern California Gas Company. So I’ve continued on in the fine tradition of utility employment. My mother’s father worked for AT & T at their Western Electric Manufacturing plant in Los Angeles. He technically worked for Ma Bell. None of my children are working for utilities. We’ve broken the chain, though there’s still hope. My mother was a householder. I was an unusual person in those days, because both of my parents had graduated from college. That was pretty rare, especially in a suburban community with a 50 percent Hispanic population. It was a lower-middle income suburb, primarily blue-collar with a sprinkling of white-collar workers. Many were veterans. My father was a Naval officer. He bought his first home in the first subdivision in the city of Baldwin Park, which also happened to be in an orange grove. So I’ve got lots of childhood memories of times of changes. I was the oldest. I had one sister. That was also unusual in that time when most of my friends had many brothers and sisters. The community had a large Mormon population as well (as Hispanic, Catholic population).

Los Angeles is filled with freeways everywhere, and I’ve driven on every one of them. When I was a kid, the freeway ended 15 miles from where I lived. Now, they’re everywhere. I moved to Spokane 31 years, and the North-South freeway construction was imminent, and I was grounded in the fact that when someone said they were going to build a freeway, a couple of weeks later, it showed up. I still haven’t driven on the half of the North-South freeway that’s completed, because I haven’t been in that part of town.

I remember the stories my dad told about the Depression. He was born in 1919 and was in high school during the Depression. So they ended up, toward the end of the Depression, on the family farm in Missouri. He would talk about how tough it was. He was very careful with money. We lived pretty frugal. Utility employees in those days weren’t particularly well paid. It was a good company with good benefits, and I think my dad may have chosen to work for a utility, partly because he wanted to be an accountant and partly because he knew the employment would be stable. My mother’s story was quite interesting. Her dad was the only one in his family and his wife, my grandmother’s family, that didn’t lose their job during the Depression. My maternal grandfather and grandmother were the patriarch and matriarch of the family, and people would come live at their home when they had no other place to go. There weren’t the social welfare delivery systems. It was pretty much absent in the 1930s in Los Angeles. My mother, who is now 86, was telling me on the phone a couple months ago: “Yes, I remember when that happened, I would always have to go sleep on the enclosed porch, because a family member would come and take my bedroom.”

Will the people impacted by the recession now tell similar, powerful stories someday? I doubt it. In comparison to the Depression, this is a non-event. It just happens to be the longest and most severe recession we’ve had since the Great Depression, but because of social delivery system safety net, it’s not nearly as dramatic. I was an avid reader in my childhood, and I read Steinbeck’s “Grapes of Wrath.” And I recently read “The Worst Hard Times” which actually mentions my mother’s family name in that book. There were a couple of paragraphs related to her relatives. I don’t think we’ll have great stories, if you take a long enough perspective. The fact of the matter was that there was an earlier depression in the United States after 1900, and there were three or four in the 1800s. This recession had the potential to turn really super ugly. But I think some really smart people made some good choices and compromises along the way to mitigate a lot of the turns that could have happened. We could have gone into a Depression had the intervention, both by the fed and the Congress not occurred. At the time, I didn’t know half the stuff I know now. I’ve been reading the meeting minutes, because I’m a nerd when it comes to reading about that, and also I do moonlight teaching college economics classes and I get asked these things by my students. So you want to read up on it so you half a half intelligent response.

What are the biggest differences between now and the Great Depression? The social net is pretty substantial. The volunteer activities are similar. My wife is on the board of Women’s and Children’s Free Restaurant and their services have doubled in the last year. Their needs are enormous. So have the needs (encountered) by other volunteer agencies. But the government delivery system was negligible during that time. In 1930 and 1931, there wasn’t much of anything. And Grand Coulee Dam, and all the trail construction with the Civilian Conservation Corp, all that stuff, got invented during the Depression. We haven’t had to do any of those drastic, dramatic things. The unemployment rate is way too high, at 10 percent, but it was over 25 percent in the Depression, and that is when counting was tough. The drama here is that in normal times, we have 5 percent unemployment. Today, we have been through a period with 10 percent unemployment, which means instead of 95 percent of the people working, only 90 percent are working. In the Depression, the people not working were wage and salary workers, but half the country was agriculture, and agricultural workers aren’t counted. Today fewer than 5 percent of people in our country work in agriculture. And so in the depth of the Depression it was roughly half agrarian-half industrial society. It was a big deal. It was far more significant then. When my dad and my grandfather and my grandmother went back to the farm, they were working the farm. They weren’t technically unemployed. My dad’s dad was a carpenter. He built stairwells and banisters, mostly in schools and traveled around, primarily in the West.

Does it bother me when I hear the term “the biggest recession since the Great Depression?” Not a bit. I think what gets said after that often bothers me, because it’s over-embellished in my view. When it’s in the press, be it the print press or online, if the words used aren’t splashy, people lose interest. A lot of the people we see on TV, they either have an agenda or they are selling a book.

Will we have a double dip recession? The double dip today is being discussed. It’s probable but not likely. It’s tough, because when you are a forecaster like I am, you are almost always wrong. This is a yes, there is going to be one or no, there isn’t going to be one. You are always too high or too low. I’ve been chasing this recession downward as the economy has slowed faster than I expected and it continued to slow after I expected things to turn around. For example, I thought the stimulus package the Congress passed, combined with the really aggressive things that the federal reserve did, both lowering interest rates and buying lots and lots of securities to inject money into the system would turn the economy around and we’d see substantial growth. Now it looks like we’ll have sluggish growth for another year. We’re either going to have a double dip or we’re not, so talking about odds is kind of useless. Is it something to fear if it comes to be? Economists think a lot about folks out in the business world and in the consumer world and what their expectations are. A large body of economic thinking is about what people expect. If people expect there is going to be a double dip, they behave differently than if they think there isn’t. If I say I think there’s a 25 percent chance of a double dip, then some people might say, “That’s past my threshold for planning. I need to be more careful, because I don’t want to lose my business or my home or be unemployed or whatever.” Other people might say, “That’s a low number and I’ll continue merrily along.”

We’ve seen a slowdown in consumer spending. Some of that is almost being forced by the tightening by the banks. I lived through this back in the 1980s here in Spokane and back in the 1970s when I was working in Los Angeles when there was a significant recession for the times. In tough times, the only people who can borrow money from the bank are those who don’t need to borrow money from the bank. What we’re seeing is a lot of people who would like to get a car loan or buy a house or purchase some other things. Getting credit is really difficult, because the bank regulators have clamped down on the banks, and some of the banks have maybe overreacted a bit. Some of that is being pushed by bank regulation and some of it by the new financial law passed in Congress that the president is going to sign pretty quick.

What happened here in the 1980s? So we had a recession in 1981 that dragged into 1982. Things slowed down pretty hard here. And then 1984-1985, there was another bump in the road – shorter. And then another recession popped up in 1987. We had a couple of years in the decade of the 80s, where we had — the first time I could find looking at the data all the way back into the mid-’50s –a net-out migration. In other words, the population was barely growing. More people were leaving than moving here from other places. So four business leaders in the community got together and formed Momentum in (1987). That was the chairman of Washington Water Power Co (now Avista) Paul Redmond and Bill Cowles from The Spokesman-Review and Dave Clack who was on Washington Water Power’s board and also chairman of Old National Bank. They got together and said gee whiz golly, we need to do something here, because the community is basically exporting all of its talents. Many of us who had studied these things over the years had seen brain drains in Eastern Europe and brain drains in Ireland. A lot of physicians were being recruited to the US when there was a shortage of docs from England. That was understood, but the fact we seemed to be exporting our best and brightest is not a good outcome. It’s not a parochial view. It makes good business sense, because a growing economy is good for banking, good for the newspaper and television industry and the utility company. Were these men acting in their company and shareholder best interest? Absolutely. But it doesn’t make it any easier. They decided to pony up money and beef up economic development activities.

The tough thing with economic development is when you start, you try and try and try, but the payoff is down the road. It might be three or even five years later. All those changes you made to be able to accommodate growth come to the for. What had happened here during the boom times of the 1970s – one of the catalysts was the World’s Fair in 1974 and all the construction and stuff that went on. But it transformed the community which led to a fairly nice boom in growth and development here. HP (Hewlett Packard) located one of their satellite factories here. They were having trouble recruiting engineers, so they said we’ll put a facility every place someone could possibly want to be and then we’ll hire them and say where do you want to live? If you want to hunt and fish, you could come to Spokane. They put one in Boise and all over the place. The largely distributed location was a recruiting tool. We had an HP, we had American Sign and Indicator, a big employer here really taking off because of the technological advances going on. What happened is that people in the late 1970s got comfortable. Economic development is not something you can get comfortable on, because of the cycle time being five years. If you rest on your laurels, or maybe the anti-growth people pop up with a little louder voice. At City Hall or at County Commissioner hearings or at neighborhood meetings, the pendulum can swing, and people can lose enthusiasm. Plus, economic development is hard. It takes a lot of effort, and it’s distracting for people doing it on a volunteer basis. You’ve got to have staying power. One of the things we learned is you can’t stop doing economic development. If you slow down at all, your competitors will eat your lunch.

Did Momentum work? I think it did. I think the payoff from Momentum was the boom we had in the last decade. What happened here in the past five years when we had a nice boom, people were tired. They had been working on it for 20 years. It was time for someone else to step up. But between cost cutting and between budget constraints and excuses that get made when times are really good, I think we lost a little focus. When you lose that momentum, it’s tough to get it rolling again. That’s why I’ve been participating in the comprehensive development strategy that the county does every year that allows us to apply for economic development grants and things like that. But it’s been a smaller push. It’s possible some might say that when the EDC and the chamber merged into Greater Spokane, we lost our focus. I think that’s incorrect. I think what happened is that we went through a phase where things were good, a lot of folks were tired, it was tough to recruit people to do this. A lot of other communities lost the same focus. And now we have the great recession, and everybody is redoubling their efforts when budgets are tight everywhere. Cities in Los Angeles are laying off all their employees and contracting the work to private businesses or to other government agencies because they can no longer afford to provide services. I’m hopeful we’ll grow our way out of this soon enough before we have to take drastic measures. Everything is always 10 times worse in Los Angeles.

Are recessions ever good? There is always some good that comes from everything in a business cycle and often it depends on your point of view. Some businesses are – compared to other businesses – inefficient, and when times get tough, the inefficient businesses are the ones that go out business. Then when times get better, the efficient businesses expand and have more customers. In the recession of 2001, we had some significant job losses and it took a couple of years to recover, there was some consolidation. The strong companies either waited it out, and their competition went out of business, or they bought them so they wouldn’t have to compete with them down the road. What a recession will do is lead to higher levels of efficiency and higher profits for businesses and the potential for better quality services to customers and better prices. It’s a dynamic thing. Even in the best of times, businesses make bad decisions. Circuit City didn’t go out of business because of the economy. They went out of business because their business model was flawed, because they didn’t change with the times. Typically what happens in a recession is that larger businesses take over a larger share of the market. How could that possible be good? Because then the creative people, the entrepreneurial people figure out where the gaps are and they start up whole new businesses. The best example is banking. And sure, the banks are having a tough time now and some of the boutique banks have been having the biggest problems because they sort of lost their way. They sort of forgot we have downturns and some people might not pay you back. So they are capital starved and many of them are being acquired or taken over. What happened during the last big wave of mergers is that a lot of small banks popped up. We have a large bank here that was a savings and loan that converted to a savings bank. It’s a big bank and now having some problems. It filled a niche because it was providing a banking service that big banks were not. The big banks have a different agenda and the small banks come in and fill those niches. And that’s in all industries. It happens in all industries. The interesting one for me is the restaurant industry. You have a bunch of chains come in. People complain well there’s not very many choices and then we have all these little bistros pop up all over the place. They are marketing it fresh and local and it tends to be marketed word of mouth. It provides a niche. Recessions provide opportunities, but it’s painful for an awful lot of people, because often it requires a different way of thinking, different training, different sets of skills. Which is why I’m a big fan of education and retraining.

What will get us out of this? It’s like my dad used to say, “Son, when you find yourself in a hole, the first thing you do is stop digging.” It’s an old Missouri saying. He had a bunch of them. And the idea is that if we do nothing, we’ll come out of it. If we need to do something, it’s do no harm, and also if you do something and it makes you feel good but has no effect, that’s probably OK, but you do want to channel your efforts to do things that are helpful.

I’m very bullish long term, because there’s a whole host of people who would have retired over the last two or three years who postponed retirement. And every year they don’t die, they get a year older. We have a whole big group of folks that are going to be turning 65 in the next 10 years in our community. The estimate is that the head of household, which is a census term that means you are living by yourself or you’re living with people related by blood or marriage, right now in Spokane County there are 30,000 households that are headed by people over the age of 65. Not very many. About 13 percent. It’s going to be 70,000 in 10 years. How is this good for the economy? It will provide a lot of upward mobility. When people retire, it will provide a lot of promotional opportunities for people within medium and larger firms to get their bosses’ job, because usually your boss is older than you. To get a promotion, you have to wait for them to retire or leave. If we do nothing, it will be a challenge to replace all these people. In fact, that’s one of the things we’re working on in this Greater Spokane-led comprehensive economic development strategy. Make sure everyone is aware that if we don’t do something, we’re going to have a labor shortage. It’s going to be tough to recruit enough people to replace all these folks, especially if like in normal tough economic times, your younger people move to the larger cities for the jobs. When will the cycle start? Yesterday. The boomers started turning 65 this year.

When will we get back to 5 percent unemployment? Ten years. Part of that will be because we’ll have a labor shortage in the country, because we’re not the only place facing all these boomer retires. Some places like Phoenix, because they have a larger concentration of immigration, will stay young. There is a huge group of over 65 seniors in the Phoenix metro area, but Phoenix is actually getting younger, because of immigration and immigrants tend to concentrate in large metropolitan areas. So in the places where immigration will dominate population growth, you won’t see as a big of a shift, but most of the Northwest is going to see the unemployment rate go down because we are going to run out of workers. It will be gradual. We’ll knock off 1 percent a year for a couple of years, and then it will slow down and it will be about half a percent for the rest of the decade. But the 5 percent we went through the last five years was very unusual. Unemployment rates here had always bounced around. Six percent was a good year; 7 was OK; 8 was not so good, 9 was bad and 10 was awful. We’ve always been above average, and Kootenai County always had a higher unemployment rate than Spokane County by 1 or 2 percent, because of the seasonal nature of the recreation industry, on and on and on. Then it flipped in the second half of the last decade, and they started importing workers from Spokane.

What I think I did well in term of my forecasts was I said that Post Falls and Liberty Lake and the Valley would probably be the fastest growing places in the decade, 10 years ago when I did the forecast. What was my first warning sign of the recession? I expected things would slow down. I was hoping for a soft landing, similar to what happened in the early 90s. Unfortunately, we didn’t get it.

How did I get the Avista job? I’m reading the Wall Street journal in the fall of 1978 and it says, “Wanted: Economist forecaster, Spokane Washington.” I had to look Spokane up on a map. I was living in Los Angeles and working for Southern California Edison Company. So I applied for this job, get a phone call and they say, “Great.” I asked them, “How many interviews do you do? I’d like to bring my wife along to make sure she’s OK with moving to Spokane. I had been to Spokane many years before and had been at a Spokane Indians game when all the LA Dodgers were all playing for Spokane as a Triple A teams. I knew they came to the bigs from Spokane. But I hadn’t been to Spokane for a long time. I brought her to the interview. They offered me the job two weeks before Christmas. I started on Feb. 1. I’ve been here for 31 years. Do I ever miss LA? I went down for a visit to LA for my aunt’s 90th birthday party. I flew in on Saturday morning and flew out on Sunday afternoon and that was my vaccination, good for another five years.

This recession will end sooner than the local business climate will improve; right now it looks like 2012 will be a very good year for Spokane and Coeur d’Alene. We will muddle along in 2011 because a there are a lot of things in the regional and state economy that will need to be “fixed” before we can see healthy growth again. State and local government are big contributors to growth, and because of revenue declines they necessarily will be spending less money on infrastructure; and they need to replenish the trust accounts they’ve borrowed from to support spending plus they’ll need to replenish their “rainy day funds” to keep their borrowing costs as low as possible. This will take time, probably not until 2014, which is why the private economy growth will both lead us out of this trough in 2012 and the spending on taxable sales will help improve government cash flow. In the meantime, I expect State and local government to be in a hunker down mode for several more years, perhaps leading to some innovation in government with respect to the ways governmental services are being provided. Just like I mentioned (before) recessions improve the efficient businesses and eliminate the inefficient ones, the depth and breadth of this recession may lead to some improvements in governmental efficiency. At least his is my hope.

What did I mean when I said I work to live rather than live to work? My “work to live” comment I believe applies to me but is also a characteristic of everyone in the West. Which, in my opinion, is why all the people in the East have such a hard time understanding us. Of course, this doesn’t apply to everyone, but I believe it certainly applies to the majority of folks here in the West and particularly in our region. Well over half of us living here have moved here from somewhere else, which is to say we weren’t born here. I believe it takes a special personality type to “pick up and move” at least a thousand miles from where you were born and raised. This is why most people in the West are different. Folks in the East don’t have that “wanderlust attitude” like we do. It makes us different because we process information differently. Perhaps we are more inventive, more entrepreneurial. Think about Microsoft, Google, Amazon, and Apple among others. Where are they? In the West. Yes, we have the Dell’s in Texas and the Walton’s Wal Mart in Arkansas but the real game changers in the country predominately are in the West because we think and act and do differently. But more to the point about me, I think I realized the “work to live” impact when in 1995 Washington Water Power was planning to merge with Sierra Pacific Power in Reno and my new job location was going to be Reno. Not to be overly dramatic, but Reno in 1995 was not a place you’d want to move with young children. Real estate was expensive compared to Spokane and the lifestyle was a complete 180 degrees different; it reminded me of why I left Los Angeles. As employees, we were offered “after the merger closed” the transfer or to accept a severance payout and terminate our employment. I elected severance, which surprised a lot of people because they said they didn’t think I liked Spokane that much. It wasn’t about Spokane, although I do like it a lot here. I had no hope of finding a comparable job here, and pretty much expected I’d be moving someplace else. At the time, I said I’d go for a similar job in a nicer place or a better job in a similar place. I’m sure many people have made these choices. In fact, it’s often more difficult for an economist because we tend to over analyze the tradeoffs. Needless to say, the merger didn’t happen. The new combined company name of Avista was adopted by Washington Water Power and here we are today. Yes, that was a tough decision because of the unknown consequences, but I knew then and still believe now it was the correct one. During that six months between electing severance and the cancelled merger, I went home every night after work and saddled up my horse and went for a ride in the hills all by myself. Life always looks better from the back of a tall horse, and life looked pretty darned good at that time. I would be remiss if I didn’t mention how important it was (and remains) to have a supportive wife. We made these decisions together to do what was best for all of us, knowing we might have to make some big sacrifices. I’m glad the merger didn’t happen, because now 15 years later I’m looking at retiring in a few years with an adequate pension, which of course would not have been the case had I left. I won’t be riding off into the sunset, because we sold our riding horses a couple of years ago to do some other types of travels. Our roots are 15 years deeper in the community, and I feel we have made a number of contributions to it. I served for nine of those years on the County Parks Advisory Board and my wife has been involved in charity work, giving back to a community that has served us and our family well. I believe we have a lot of great opportunities here but we have to take advantage of them; and overall, I think it leads us and many of our friends to have a more healthy and full life.