Economists offer guide to recovery

When you’re deciding whether to buy stock or purchase a house, check your emotions and sharpen your logic.

If you’re trying to figure out where the economy is headed — and how you might fare in it — read a lot, including a smart blog or two.

And if you’re a Clark County resident wondering where we went wrong with our economy, that’s probably not the right question to ask.

Those were just some of the points punched home by two economic experts who spoke Friday at “Economic Recovery and Southwest Washington,” an event held at Washington State University Vancouver as part of the university’s Chancellor’s Seminar Series.

Scott Bailey, Southwest Washington regional labor economist for the state Employment Security Department, and John Nofsinger, a WSU finance professor and expert in behavioral finance, presented their analyses to more than 90 attendees.

Bailey went first, showing data point after data point detailing Clark County’s economic rise and fall. From 1988 through 2006, for example, the county issued permits for an average of 3,800 housing units per year. In 2008, 1,200 permits were issued. In 2009, only 700.

The county lost about 6 to 7 percent of its entire job base in the crash, Bailey said, with construction shedding about 30 percent of its jobs and manufacturing losing about 20 percent. While there are positive signs in the national economic recovery, Bailey said, Clark County — where the December jobless rate was 12.9 percent — is “not showing any upward trend right now” and “not much in the way of a recovery yet.”

Some people are wondering where the county went wrong with its economy, Bailey said. But that question doesn’t really apply, given what pushed us into our current predicament. “Sometimes bad things happen to good people,” Bailey said. Then he launched into a step-by-step dissection of how a deregulated Wall Street and other factors blew up the economy.

A blogger knew

Bailey said he felt there was something wrong in 2006 but couldn’t pinpoint it. While The New York Times reported problems in the housing market, Bailey said, he unexpectedly found deeper answers from a couple key online blogs, including “Naked Capitalism,” by Yves Smith.

Smith, who put Lehman Brothers on deathwatch on his blog, knew the investment bank was going down before others did, Bailey said, “like the head of the Federal Reserve Bank.”

After Bailey finished his take on the local and national economy, Nofsinger stepped up to focus on how our individual behavior and our cultural norms color our economic decisions. Nofsinger said our emotions often guide our investment decisions. While everyone says you should buy low and sell high, recent economic bubbles have shown we actually behave in the opposite manner. People rush to buy when everyone else is already buying — on the high side — and then sell when everyone is already selling — on the down side, Nofsinger said.

We also tend to be short-term thinkers, Nofsinger said. For example, many people took on adjustable rate mortgages that sounded like great deals in the short run, he said. They found out differently when their monthly mortgage payments shot up. Even percentages elude people, Nofsinger said. Many think there’s not that big of a difference between, say, a 10 percent interest rate and a 10.8 percent interest rate. But on a $250,000, 30-year home loan, that difference is almost $1,800 every year. “Those little changes make a big difference,” he said.

Nofsinger also puzzled over our cultural norms, including what in the economy prompts outrage in us and what doesn’t. He said the investment bank Goldman Sachs, for example, defaulted on office buildings in San Francisco and figured it was better to off-load the buildings on its creditors, anyway. There was no uproar about a major institution’s failing to meet its obligations, Nofsinger said.

However, when homeowners defaulted on their mortgages, he said, others who hadn’t fallen behind castigated them for it.

“We expect our financial institutions to be heartless,” Nofsinger said.