Predicting economy is murky, warns economist

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Michael Wilkerson, senior economist with ECONorthwest, gave the keynote address at last week's Keizer Chamber luncheon at the Keizer Civic Center. (KEIZERTIMES/Craig Murphy)

Michael Wilkerson, senior economist with ECONorthwest, gave the keynote address at last week’s Keizer Chamber luncheon at the Keizer Civic Center. (KEIZERTIMES/Craig Murphy)

By CRAIG MURPHY
Of the Keizertimes

Consume goods now, or invest for the future?

That was the question raised during last week’s Keizer Chamber luncheon at the Keizer Civic Center. Michael Wilkerson, a senior economist with Portland-based ECONorthwest, was the keynote speaker.

Most of Wilkerson’s talk focused on sustainability.

“The No. 1 nightmare of sustainability: no one knows what it means,” Wilkerson said as chuckles filled the room. “That’s the No. 1 nightmare for economists. The No. 2 nightmare is predicting the economy.”

Wilkerson noted that in 1987, the United Nations World Commission on Environment and Development came up with a definition of sustainable development: “Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.”

Wilkerson said there are two things to do with capital.

“You do a cost-benefit analysis: consumption versus investment, or saving,” he said. “If you consume goods now, you sacrifice the future.”

Figuring out what present net values will be worth in 30 or 40 years is “difficult to monetize,” Wilkerson said.

“It requires forecasting,” he said. “Most economists who make forecasts are wrong, 99 percent of the time. Numbers are hard to value. We don’t know what it really is and it’s hard to make guesses about the future. We don’t know things like consumer behavior.”

As an example, Wilkerson pointed to different approaches taken by Britain versus Norway benefitting from North Sea oil.

“Britain spent revenue on reducing taxes and debt, which is the consumption approach,” Wilkerson said. “When that’s done in 15 to 20 years, that’s gone. They’ve consumed a non-renewable resource. Norway did the opposite approach: they put all the revenue into a fund. As resources deplete, the fund grows. Now they have $780 billion in the fund for a population of five million people. That would be $156,000 per person if they cashed out now.”

Scott Casebeer, president of Capitol Auto Group in Salem, said it seemed Wilkerson was saying one choice was better.

“You make it look like Britain made a bad choice,” Casebeer said. “I don’t think that’s the case.”

Wilkerson emphasized he wasn’t making a judgement on which approach was the right one.

“There are always uncertainties you deal with. There is no good answer,” Wilkerson said. “I wasn’t trying to make a case that Norway is genius and Britain isn’t; I’m just showing two different approaches.”

Wilkerson said the 2008 recession lasted 18 months and was the worst since the Great Depression in the 1930s.

“It lasted 18 months,” he said. “The recession ended in the third quarter of 2009. But more than 80 percent of Americans still believe we’re in a recession. When we came out of other recessions, we had massive growth. With this one, it hasn’t happened yet. We haven’t had periods of robust growth yet.”

Wilkerson said the official unemployment rate uses the U-3 Unemployment Rate, which was 8.7 percent for the third quarter of 2013. However, he feels more attention should be given to the U-6 Unemployment Rate, which reflects people who either gave up looking for work or took a job with fewer hours. The U-6 rate was 16.9 percent in the same quarter.

“The government wants you to believe unemployment has gone down,” Wilkerson said. “But it’s still a major issue.”

The luncheon was part of a day-long chamber event at Keizer Civic Center. There was also a Sustainability in the Mid-Willamette Valley Breakfast, breakout sessions and a trade show.

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