The Best of Times to the Worst of Times— What’s Next?

Joe Cortright BS ’76, one of Oregon’s leading economists, tackles questions about the Great Recession.

by Romel Hermandez

When the U.S. economy imploded in the fall of 2008, toppling huge financial institutions and wreaking havoc in the lives of millions of Americans, Joe Cortright was as distressed as anyone.

At the same time, he couldn’t help being fascinated by what he was witnessing.

“To an economist,” Cortright says, “this event was like Mount St. Helens to volcanologists—the sort of thing you read about in textbooks but never think you’ll get to see close-up … a financial panic the likes of which we had not seen in more than 70 years.”

Cortright BS ’76 studied economics at Lewis & Clark and public policy at the University of California at Berkeley. He makes his living studying, analyzing, and forecasting economic trends.

After a stint as head of the Oregon legislature’s Trade and Economic Development Committee, he has worked since 1995 as a consultant. His Portland-based firm, Impresa, has a wide array of clients, ranging from the Oregon Business Council, whose members represent the state’s largest employers, to CEOs for Cities, a national network of urban leaders. Cortright is currently chair of the Oregon Governor’s Council of Economic Advisors. He is also a nonresident senior fellow with the Brookings Institution, a Washington, D.C., think tank on public policy.

In the fall, Cortright sat down with the Lewis & Clark Chronicle to discuss the state of the economy and his outlook for the future.

What do you think is most misunderstood about the work you do as an economist?
Oh, gosh, there are lots of possible answers. The most common misperception is that economists only deal with macroeconomics [the study of large-scale economics, usually on a national or international level]. The job is really more about using a set of analytical tools to solve a wide range of problems. Another misperception is that you’re involved in predicting the stock market, which is actually a very small and arcane piece of economics.

What questions are you hearing from your clients?
The first thing people are wrestling with is the short-term situation. What’s the path out of this recession? When will things improve? The other question is the long-term picture. What does this event signal in terms of the way the economy works? We’re in what is probably the most profound economic transformation we’ve seen since the 1930s, when we saw the advent of the modern industrial economy and the creation of a new set of institutions to support that economy.

The crisis we’re experiencing now stems from the fact that we’ve allowed our financial institutions to get too big to fail. So we need to think about creating some new financial rules and regulations for the game. Also, we’re going to see changes in the way health care operates. And we need to put a price on carbon, because we live in a world where we can no longer regard the atmosphere as an unlimited, free dumping ground.

A lot of experts didn’t see the current crisis coming. When did you know the country was in trouble?
I’d felt for several years that the housing markets were getting out of whack. When the real estate bubble popped, starting in 2006– 07, that triggered a whole bunch of things: a decline in construction, finance, and realty jobs; the end of home equity loans and “re-fi” to finance current spending; mortgage defaults; and, ultimately, the financial panic. Also, we had let the financial markets run amok. I don’t think anyone fully understood how overleveraged we were or how interconnected the markets were. In the end, we saw the effects of these events multiply throughout the economy.

The recession hit Oregon and the Northwest particularly hard—why was this so?
There are four factors driving that—manufacturing, exports, the timing of the housing market collapse, and in-migration.

We still have an economy that makes things—wood products, high-tech equipment, machinery. These durable goods are especially volatile in a recession, and durable goods make up about a third more of the economy in Oregon than in other states. Related to that, Oregon’s economy relies on exports. As the markets seized up and the global economy went into recession, import and export activity declined more sharply than the rest of the economy.

Then there’s the issue of timing. Our region’s economy was outperforming the rest of the nation’s from 2003 until 2008. We were growing faster; we had more momentum. Even though housing prices peaked nationally in 2006, they kept increasing here—as did construction starts. We were doing really well, even into early 2008, and then it all caught up to us at once. Oregon’s housing market collapsed in about half as much time as the rest of the country’s.

The last thing is in-migration. In a typical state—say, Florida or North Dakota—when jobs go down, people leave the state and/or in-migration declines sharply. But in Oregon, we’re continuing to see people moving here even in the face of really bad unemployment because this is such a desirable place to live. That has the effect, at least in the short term, of pushing up unemployment.

What do you make of how the Obama administration has handled the crisis?
They’ve done all the right things—textbook. Also we’re fortunate to have Ben Bernanke, a noted scholar of the Great Depression, as head of the Federal Reserve Board. The fact that we’re not spiraling downward, that we’ve blunted the decline, is very much a product of the actions of the Fed and Obama’s stimulus package. What remains to be seen is whether these measures are enough or we’ll need another dose. I’m not sure we’ve turned the corner. There’s still risk out there.

Have we hit rock bottom? What can we expect over the next year or two?
Over the course of the fall, economists have pointed to evidence that the recession is over. In a purely technical sense, they’re right. The free fall is over. Now the question is, “Do we bounce back up?”

My concern is that I don’t expect unemployment rates to go down. In fact, unemployment may keep rising. Most people are worried about jobs, and it may be two or three years before we see substantial gains in employment.

“Recovery” is a misleading term because it implies that we will get back the same jobs, businesses, and economic activity that we’ve lost. That’s not true. Many of the jobs we have shed and many of the businesses that have failed are not coming back. So we have to invent new jobs and businesses to take their place. We have to set the stage for entrepreneurship. We have to figure out where the opportunities are going to be.

What impact has the crisis had on you and your family and friends?
We’ve been very lucky. Of course, our house value has gone down, but I never believed in inflated housing values to begin with. I’ve been fortunate in that work for economists is a bit countercyclical. When the economy is bad, people want to talk to you. Not everyone can pay you, but they want to talk. But I have friends who lost their jobs or who were heavily involved in the housing market, fixing up houses and reselling them, and they are under a great deal of financial stress.

Going forward, what does Oregon, specifically, need to do to put itself in the strongest, most stable economic position?
First, you have to build on your strengths. I can’t think of a better statement of economic strategy than “Keep Portland Weird.” The key to success is knowing what makes you different and playing to your strengths.

In Oregon, I’d push sustainability—not because it’s hip, but because we have an edge. I don’t think we should be pursuing something like biotech, for example, where we don’t have an advantage. We shouldn’t play in that game. It’s like being five feet two and trying to break into the NBA. But I definitely believe that with sustainability—new ideas, new inventions—we have a huge opportunity going forward.

As we adopt more sustainable practices, we help the economy in other ways, too. We know, for example, that Portlanders drive about 15 percent less than typical Americans. That works out to a billion dollars a year we’re not spending on cars and gasoline. That’s a billion dollars more that consumers have in their pockets to spend.

The next piece is education. There’s incredibly powerful evidence that the education level of your citizens is the single biggest determinant of your economy’s success. People who are well educated are willing to try new ideas and are better equipped to deal with change—whether they’re engineering that change or responding to it.

Right now, education is not an advantage here in Oregon, it’s not a strength. If we were looking at this like a stock portfolio, I’d say we need to invest a lot more dollars in education. Let’s look at it purely from the point of view of a fiscal conservative. Those who are

in penitentiaries, on welfare, or unemployed are disproportionately people who don’t have a good education. If we want to lower the cost of public expenditures, we need people to be as well educated as possible. But even more than that, educated citizens are assets to the place where you live.

In your work, you state that industry “clusters” are central to making sense of the way regional economies function. Which clusters do you see as key drivers for the Northwest?
Our region is home to several clusters that have real promise going forward. There’s the big umbrella of sustainability—wind energy, wave energy, electric vehicles, energy conservation, green building. Other big ones are the high-tech industry (we’re one of the largest centers for chip design and manufacturing in the world) and wood products. Also food: wine, microbrewing, organic and natural foods.

What advice do you have for college students who will be entering the workforce in a few years?
Don’t worry about chasing the hottest careers. You have to think about the job you’re best suited for. What are your strengths? What are your passions? Pursuing those areas will bring you the most success.

Another thing to consider is the likelihood that you’re not going to have the same job for the next 40 years after you graduate from college, and that the economy will continue to change further. So you have to equip yourself to be flexible, to be creative, to be a lifelong learner. ■

Romel Hernandez is a freelance writer in Portland.