Economic Forecast Highlights County “Unequality”

Annual UCSB Summit Talks Local, National Economic Issues

Albert Shu/Staff Photographer

Jeremy Levine
Staff Writer

Businesspeople from across the country came to hear nonpartisan professionals give global, national and local economic diagnoses at this year’s annual summit by the University of California, Santa Barbara Economic Forecast Project on Thursday, May 5 at the Granada Theatre.

Four individuals spoke at the three-and-a-half-hour conference disseminating information on Federal Reserve Bank — or the “Fed” — policy, markets and investing: James Bullard, president of the Federal Reserve Bank of St. Louis; UCSB alumnus Rob Arnott, “investment guru” of global investment firm Research Affiliates; UCSB alumnus Chris Ludeman, global president for commercial real estate firm CBRE; and Peter Rupert, executive director of the Forecast Project and chair of the UCSB Economics Department.

Rupert took two directions with his talk, one contextualizing Santa Barbara County’s economic situation within those of the United States and California, and the other contrasting the concepts of inequality and “unequality” — the latter a term he invented for purposes of discussion.

“I don’t like using the word inequality,” Rupert told the audience, “because when people think of inequality they think of unfairness.” Without claiming that inequality is morally fair, Rupert said the concept of “unequality” represents some members of society gaining more from an economic system than others, though all make some kind of gain.

Despite its affluence compared to the rest of the country, there’s significant “unequality” in Santa Barbara County, according to Rupert. His statistics showed that the south county’s economy is driven by higher-paying service jobs, in contrast to the dominant agriculture and retail in the north. South county boasts far more residents with salaries over $100,000 a year and a regional average of $56,042, towering over the north county’s $37,039.

Overall county unemployment matches the national rate of 4.9 percent and falls slightly below California’s overall unemployment rate of 5.5 percent. The county’s income per person, or per capita income, is $50,523, according to his findings — reasonably higher than the national per capita income of $46,039 and California’s $48,985.

Rupert also compared how counties across America have fared economically relative to their conditions before the 2007-2008 financial crash. Coastal areas suffered more severe unemployment spikes after the crash than did the central U.S., though the latter has generally remained poorer. Huge wage growth in oil-rich regions, Silicon Valley and the Northeast contrasted with wage stagnation across much of the rest of the country.

Significant economic differences between counties, states and regions mean that contentious national policies such as a $15 hourly minimum wage may not be the best methods to generate equality across the nation, according to Rupert’s analysis.

Bullard spoke first at the summit, on what he called the most important issue currently facing the Federal Open Market Committee (FOMC): raising the federal funds rate. The Fed indirectly controls other interest rates through the federal funds rate — or the rate at which banks can make loans to each other overnight — and higher interest rates make borrowing more difficult and expensive for everything from a mortgage to a college or small business loan.

Bullard argued that making borrowing harder in this way is best for current economic conditions. “U.S. labor markets are at or possibly well beyond reasonable conceptions of full employment,” he said.

He added that inflation has held closer to the two-percent Fed target recently than in most years since the Great Recession of 2008, and noted calming international markets as evidence favoring the FOMC’s planned rate raised. However, he acknowledged that below-trend gross domestic product (GDP) growth in the U.S. and imperfect inflation could be reasonable arguments against the proposed rate hikes.

The Fed views the economy somewhat like Goldilocks viewed the three bears’ porridge: it can be too hot, too cold or just right. Recession is cold porridge, rapid inflation is hot porridge and “a low unemployment rate, increasing asset prices stocks, real estate, etc., low interest rates, brisk but steady [gross domestic product] growth and low inflation” generally characterize “just right,” according to economics site

Arnott’s lecture focused on opportunities for investing both at home and abroad. He claimed Fed policy and a strong dollar have created bear markets in many emerging countries — situations where stock or bond prices fall and investors sell in a vicious cycle — that have high risk, but can be entered cheaply by any investor for enormous reward if those markets recover. He concluded by advising the audience not to fear investing outside of the United States, but to tread with caution.

Ludeman’s talk revolved around real estate but began with a warning that three economic “dampers” threaten to cause recession: a Chinese currency devaluation, oil and bond investment volatility and the federal funds rate hike Bullard had earlier endorsed. Regardless, he said the real estate market has been very strong since 2009. He forecasted continued strength in the housing market through 2017 and a contraction in the industry — where prices and demand temporarily fall  — in 2018.