discusses post-recession
N.J. at chamber meeting
Dean of Bloustein school
discusses post-recession
N.J. at chamber meeting
By clare marie celano
Staff Writer
MARK LAMHUT Dr. James Hughes, dean of the Edward Bloustein School of Planning and Public Policy at Rutgers University, New Brunswick, discusses the state of the Garden State’s economy during a talk at the Western Monmouth Chamber of Commerce headquarters, Freehold.
FREEHOLD — Calling himself the "Dr. Kevorkian" of the economy and the "Garden State Doomster," Dr. James Hughes told Western Monmouth Chamber of Commerce members who came to hear him speak at a recent meeting that "our economy is in a state of ‘light beer recovery’ — not very filling."
Hughes, the dean of the Edward Bloustein School of Planning and Public Policy at Rutgers University, New Brunswick, said he "was a lot better at forecasting the past than he was at forecasting the future."
Dubbed the "guru" of economics by chamber President Arthur Kondrup, the president introduced Hughes by stating that the guest speaker was dean of one of the nation’s foremost schools on public planning and policy issues.
Hughes gave those who came to hear his presentation on July 24 at the chamber headquarters on Broad Street a thought-provoking talk and explained where he thought the state is economically. He said he based his findings primarily on where New Jersey has been.
Though based on serious issues, Hughes’ talk was laced with humor and self-deprecating barbs as well barbs he aimed at his fellow economists.
Referring to the varying opinions of colleagues and the delicate art of "predicting" economic "upswings" and "down cycles," Hughes told his audience, "If you lined up all the economists in New Jersey, you’d still have them all pointing in different directions."
The comment elicited smiles and audible giggles from the packed room. Then Hughes got down to work.
"We’re all interested in our future," Hughes told the crowd, "but I must forewarn you, this is very difficult to predict."
To come up with a basic perspective of current economics one must look in the "rear view mirror" and examine the important business cycle swings that are helping to shape the post-9/11 economy, Hughes said.
"There have been three distinct economic phases in New Jersey, followed by two others, as the new millennium unfolds," the dean explained.
Hughes began by talking about the first era, which he referred to as the "Great Boom of the 1980s."
"This was a New Jersey economic miracle," Hughes said. "Now, of course, it’s all ancient history. We had such an employment surge, it was like an economy on steroids."
The dean said there was an enormous office boom as well, which transformed offices, making them the "factory floor of the new economy." He said 80 percent of the office space currently existing in the state is due to the building surge of that era.
These facts, along with the home price surge of the 1990s, fueled the new economy of that time. Hughes said that between 1980 and 1988 home prices increased 45 percent on a national level and 145 percent in New Jersey. To clarify this statement, Hughes said, "When people begin to say that they cannot afford to purchase their home in the current market, it has gotten out of control.
"People were making more money going to sleep at night in the homes they owned than they were making going to work the next morning," he said with humor. "But we’ve yet to invent a boom that will last forever. This one was an unprecedented real estate bubble that was soon to hit reality."
Hughes went on to explain the cyclical downturn of 1989-92. This period he dubbed "recession with aspirations."
"The bubble burst and a generation of young professionals found themselves on an extended holiday. We had a 38-month period of recession, the deepest and longest since the Great Depression," Hughes said.
He commented that although New Jersey experienced a 38-month recession, the nation as a whole only experienced an eight-month recession.
May 1992 saw the third economic era, according to the economist, who called this time the "Great Transmillennium Economic Expansion." Recovery was a slow process, according to Hughes, who went on to explain that it would take until 1997 to recover the job losses sustained in the recession. Home prices spiked upward in 1998 and the state had additional growth in employment. This long up cycle propelled New Jersey into the information technology age which Hughes said was an "interplanetary success story" that has moved the state along the first leg of the millennium.
He explained that 2001 began the start of the fourth era — the end of the Transmillennium Economic Expansion.
"Compare this to old age," Hughes said. "You don’t like it. There’s not a whole lot you can do about it, and eventually it kills you."
New Jersey employment peaked in June 2001, Hughes said; then, the state "lost our economic traction." The job-creating economy became a job-devouring economy. Needless to say, he noted, economic forecasters were not held in high esteem.
Between June and September 2001, he said, there was an economic hemorrhage. Then came Sept. 11.
Considering the total aggregate of employment loses, it was quite mild in New Jersey compared to the nation, according to Hughes. September through December saw some growth in jobs with relocations, but the state began losing growth again in January through May, he said.
June saw employment growth resume, according to the dean. New Jersey had lost 26,000 jobs this time around as opposed to 260,000 jobs lost in the recession of 1988.
Calling this a "recessionette," Hughes said that although this job loss was small compared to the 1988 recession, it still "created real economic pain."
"What do the characteristics of this downturn tell us?" he asked, adding that it moved New Jersey into the fifth era.
He took a look back and reminded the audience that New Jersey is no longer a state that depends on manufacturing for its livelihood. In 1943, 55 percent of the jobs held in the state were manufacturing jobs. That figure had declined to 33 percent in 1970 and to 18 percent in 1988. Currently, New Jersey is a state which has only 10 percent of its jobs in manufacturing, he said.
"We are no longer a blue-collar state," Hughes said.
New Jersey has been enveloped by a national slowdown caused by the bubble-bursting era, he explained.
"You never know you’re in an economic bubble until it bursts," he added.
The bubble-bursting syndrome has left New Jersey with a lot of empty office space and, according to Hughes, about 97 percent of all the installed fiber optics lying dormant today, among other things. People built things according to the way they saw the economy going.
Hughes said the business capital investment bubble of the information technology age burst and said a strong recovery will depend on the return of business capital investment.
The new economic retreat reflects this new slowdown.
The current slowdown, before 9/11, was led by a decline in business capital investments partially from high technology, the dean explained. Construction and housing kept the economy afloat, but the downside is that allows for only limited growth potential, he told the audience. Normally, what jump-starts a recovery are the pent-up demands of consumers so there is a limited upside to this. New Jersey companies now have higher productivity, but, according to Hughes, they are achieving this with fewer employees.
According to Hughes, this is the downside — a jobless economic growth.
"One person’s productivity growth is another’s unemployment," he explained. "Be assured that this is a different type of recovery, just as it was a different kind of recession. We are all in uncharted territory."
He said that in this post-recession economy, two things have to happen simultaneously — a sharp consumption, which happens immediately after a dip in the economy but then stops right away, which he called a V-shaped curve, and spending in high technology, which he characterized now as a visit into the "valley of doom" or the U-shaped curve.
"The nightmare for 2002 is that the V-shaped curve will peter out before the U-shaped curve gets its legs on balance," he said.
He explained that an economic meltdown would yield a double dip and plunge the economy back into a recession. Hughes said the possibility of that happening now is less than 50 percent.
To illustrate his point, he explained that the stock market, once America’s national sport, is now America’s nightmare
He added that the post-recession world is now one of more modest economic growth.
"I’m going to go out on a limb and say that the post-recession future in New Jersey has already begun, although it is very weak," Hughes said.
He concluded his talk by reiterating words he’d heard from one of his teachers years ago.
"Speak the truth but leave immediately after," he said, then added with a slight laugh, "Thereafter has just arrived."