No Boom, No Bust, No Surprise

"It’s not Pittsburgh’s way to boom or bust"

"Pittsburgh has avoided many of the housing-related problems that plague the larger economy because home values here did not boom or bust during the mortgage bubble"

"Pittsburgh’s many years of ‘slow and steady’ job growth…insulated us from economic cataclysm and a boom-bust housing market cycle"

"Its housing market, which famously went boom-bust elsewhere, has been a portrait of stability"

"The Pittsburgh area did not see a building boom over recent years like that seen in other areas across the country — and it’s also not seeing a strong decline in recent months in new construction"

"Steady, manageable growth is better than a boom waiting for the bust. One need only look at the plummeting housing market in Las Vegas — the fastest growing metro region over the past five years — to understand that"

"The good news about Pittsburgh missing the nation’s recent housing boom is that, so far, it’s missing the bust, too"

The above quotes provide a sampling of opinion from November 2007 to mid-2010 and are predicated on the theme that Pittsburgh weathered recessionary times quite well because it never had the rapid growth experienced by other regions. In sum, Pittsburgh never boomed, so it never busted.

That’s great news when things go south, but not so much when there are signs of growth.

A new study from the Brookings Institution that points out Pittsburgh is lagging behind world economies and stands at 129th in a survey of 150 regions in what the report identifies as the recovery period when measured by gross value added, employment, and population. That’s one place lower than where it stood pre-recession but lower than where it was in the recession (41st out of 150). Given the nearly three years of consensus opinion the ranking, if accurate, should not come as a shock.

One of the study’s authors noted "standing still was a good place to be. Standing still now is not something a city should be doing."

But is the region poised for growth? What was a bad economic and labor climate prior to the recession has been made worse by the City passing new mandates for prevailing and living wages, the resistance to explore privatization and outsourcing as a way to lower the cost of government and the taxes and fees charged to businesses, and the fealty to public sector unions has not waned. Not positive signs that the region will make strides.

And the danger is this: if the region thinks it will always be in the middle of the pack with slow and steady growth then the resistance to bad public policy becomes even lower than it already is. What does that do for the relative standing of the region in comparison with other areas?

The Dangers of Ignoring Massive Imbalances

A wise economist once remarked that nothing grows exponentially forever. A corollary would be that rapid exponential growth of anything will not be sustainable for very long. It would have been wonderful if politicians, analysts and reporters had called attention to developing problems associated with excessive and out of balance growth in mortgages during the last 15 years or so and especially the 2001 to 2007 period. In 1980 home mortgage debt was about half of total business debt. By 2000 it had risen to 70 percent and then surged through 2006 to actually surpass business debt. Only with the collapse of the industry in 2008 did business debt move higher than home mortgage debt.

The private business sector is the driving economic force in the country. Growth in business debt is in part a reflection of the success the sector is having, although too fast growth can lead to problems there as well. The point is the massive increases in mortgage debt relative to the jobs producing part of the economy should have alerted regulators and analysts to a developing danger. Speculation of ever higher home prices in sections of the country and the efforts to get everyone who wanted one a mortgage were driving home loans to the stratosphere. A day of reckoning was inevitable. That day has come and it will take years to undo the damage caused by the failure of the Federal government to rein in the ludicrously imprudent lending practices fostered by Fannie Mae and Freddie Mac.

More locally, at the state level we see the consequences of year after year of big jumps in government spending and irresponsible pension promises. When hard times come, there are no choices but raising taxes, which makes recovery from recession harder, and cutting spending deeply. More pain is sure to come for Pennsylvania as a result of financial imprudence. In Pittsburgh, we see the effects of excessive generosity in labor contracts by the City and the Port Authority. They are scrambling for more revenue in an already extremely taxpayer pinched economy.

And still, there is no political will to seriously address the root cause of their problems, only incomprehensible hope that a miracle will happen and the bad situation they find themselves in will somehow magically disappear.

Some have foreseen the consequences of ignoring the imbalances that were building up and tried to warn of the coming disaster. But sadly, politicians and too many participants benefitting from the growing imbalances were all too willing to let the goods times roll, hoping not to avoid paying a high a price when the inevitable train wreck occurred.