July 2, 2010

A Measure of Sustained Suckitude

Justin Katz

We bat around the Lardaro Current Conditions Index from time to time, typically determining that it's not very useful, but it really does demand some .statement of context:

Rhode Island's recession is not over, but the end may be very close, according to the Current Conditions Index released Monday by University of Rhode Island Prof. Leonard Lardaro.

The index reported a value of 50 in April, down from 58 in March.

As I understand it, Lardaro's index measures current results against the same month one year prior, with a score of 50 indicating no decline or improvement. In other words, even if the recession technically ends in that the economy isn't shrinking, that doesn't mean that times are improving.

I say that not to issue in dark clouds, but because I think the general public thinks, when they hear that "the recession has ended," that the economy is back to normal, and if 2009 is Rhode Island's new normal, we're in a great deal of trouble. People in power keep pushing for economy-boosting reforms until the Current Conditions Index starts hitting 100, to compensate for the months on end that Rhode Island spent scraping zero.

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I guess the question becomes what your measure is........

Can you give us a long and sustainable time period to compare things to?

Surely, we cannot point to the housing bubble of the past decade as "normal", because if it was, a single family house like yours would cost $750K by now!

We'd have to probably go back to the mid-90's to even get an idea of the new normal.

IMHO, there is really no such thing! The new normal is not a bubble. Any improvements will be very slow, since they will be dependent on actual increases in production and services and income. Real work, as you well know, is MUCH harder than just shuffling mortgages and home equity loans. Slow and steady will win the race in RI in the end...

Posted by: Stuart at July 2, 2010 8:22 PM

Rhode Island is showing great promise and beginning to move out of the recession but the state as a whole has a very long way to go before anyone can say the recession is over in Rhode Island.

Unemployment peaked at 12.7% in Rhode Island making it the 2nd worst state in the nation behind Michigan. Rhode Island unemployment has dropped the last 3 months in a row to 12.3% (same as Oct 2009). Granted that is not significant but it is in the right direction. Every tenth counts for something!

Rhode Island has dropped back to 4th worst unemployment rate behind California, Michigan and new leader of the pack worst in the nation Nevada at 14% unemployment.

Rhode Island needs to get into the casino business like Nevada and maybe get the local tourism industry operational in the state!

As always I can’t comment without touching on the difference to my new state which Hawaii’s city of Honolulu unemployment has dropped to 5.2% because of #1 state industry tourism is rapidly increasing but still short 30,000 airline flight seats since bankruptcy of 2 airlines (state wide unemployment is 6.6%). Need those airline seats back and the Hawaii Tourist Bureau is working on it with the airlines!

However July 02, 2010 USA TODAY newspaper reader’s poll named Honolulu, Hawaii “Best American Destination” out of 24 major USA cities and 8 major National Parks. Over 70,000 votes were cast over 5 weeks: http://travel.usatoday.com/destinations/dispatches/post/2010/07/usa-today-readers-name-honolulu-best-american-destination/98789/1 .

This new designation “Best American Destination” should fill more flight seats and destination cruises. Beautiful photographs of Hawaii can be found at: http://www.thecolorsofhawaii.com/ .

Posted by: Ken at July 2, 2010 11:47 PM

"because I think the general public thinks, when they hear that "the recession has ended," that the economy is back to normal, and if 2009 is Rhode Island's new normal, we're in a great deal of trouble."


Professor Lardaro does a very good job pointing out the various ways that the General Assembly has brought a bad economy to the state - mainly by rendering the state anti-business. But I agree that this index can be a little confusing.

Posted by: Monique at July 3, 2010 7:03 AM

The more things change, the more they stay the same. As far as the United States goes, Rhode Island has been in economic decline, and an economic laggard, for decades. The Democrat General Assembly is aware of this, and has no intention of performing the major structural reforms that would put Rhode Island on a path to prosperity.

It sees it’s raison d’etre as serving as middle-man to enable the public sector unions to gorge themselves off of the private sector, and sustain and grow the poverty industry so it can do the same … and in return enjoy the personal enrichment that comes through the entrenchment of political power that those groups provide in return, and leverage that into patronage jobs for self and family, “clients” for personal law practices and for many, bribes and kickbacks. The Democrats have no interest in changing this dynamic, for it’s working for them, no matter that it has the state in a death spiral.

Don’t believe me? Check out this nearly three decades old analysis quoted in the General Assembly’s own “History of Rhode Island” and then ponder what about Rhode Island’s non-competitiveness has improved since that then (if anything); what meaningful steps has the Democrat General Assembly done during those decades to improve Rhode Island’s economic competitiveness; what is it doing now and what is it likely to do in the near and intermediate term future? The results speak for themselves – virtually nothing beyond tinkering at the margins and meaningless symbolism (e.g., posing with shovels at groundbreaking ceremonies for companies lured here with special / insider deals). Also consider the last sentence of the following quotations, and contrast with the fact that recently Forbes magazine ranked RI 50th of the 50 states for business climate:



This period has been one of unsettled economic conditions. The state's ever-growing need for revenue saw the sales tax -- introduced in 1947 at a 1 percent rate -- rise to 6 percent. The income tax was first introduced in February, 1971, as a temporary tax by Governor Frank Licht (1969-1973); by July of the same year, it became a permanent tax at a rate of 15 percent of each taxpayer's federal income tax. Stabilized within eleven years, the income-tax rate rose over 78 percent to 26.75 for 1983. In the same eleven year period, state expenditures increased approximately 16.4 percent: from $286 million to $756 million. The corporate tax rate for 1983 is set at 9 percent, scheduled to be reduced to 8 percent for 1984. In 1982, state-tax revenues totalled approximately $665 million. At the municipal level, $531 million was levied in taxes in 1983 by the thirty-nine communities. In 1982, Rhode Island was ranked the ninth highest in per capita property-tax collections in the country; measured according to personal income, Rhode Island's property taxes ranked sixth highest nationally at $50.23 per $1,000 of income.

The continued rise in taxes at all levels, coupled with an epidemic of plant closings, gave rise to mounting apprehension over the economic future of the state. In response to this loss of confidence in the state's economy, Governor J. Joseph Garrahy (1977-85; lieutenant governor 1969-1976) in 1982 announced his creation of a Strategic Development Commission, which he charged with formulating an "economic strategy for the future.'' After studying the economic scene, the Commission concluded that ''Rhode Island's economy has been in a holding pattern'' for the past twenty years, "scraping together enough jobs to stave off disaster, but suffering a steady decline in relative income."

“High energy costs and taxes, the perception of state government as anti-business, and the fact that Rhode Island factory workers are among the lowest paid in the country are frequently cited as prime causes for the state's ailing economy. A 1983 national study concluded that of the forty-eight contiguous states, Rhode Island ranked next to last in “attractiveness of business climate.”

Posted by: Ragin' Rhode Islander at July 3, 2010 12:15 PM

>>As far as the United States goes, Rhode Island has been in economic decline, and an economic laggard, for decades. The Democrat General Assembly is aware of this, and has no intention of performing the major structural reforms that would put Rhode Island on a path to prosperity. It sees it’s raison d’etre

Too quick on the "post" button. Should have the word "relative" before "economic decline" and the "it's" before "raison d'etre" should be its.

Sorry 'bout that.

Posted by: Ragin' Rhode Islander at July 3, 2010 12:20 PM

Great points, Ragin'. To add a couple more: What caused RI wages to be so low relative to other states? Industry mix is clearly one reason, but it begs the question of what caused the difference in industry mix. Could an anti-business reputation have anything to do with it? Beyond that, at the micro level, wages should reflect relative worker productivity. A quick way to estimate this is value added (company revenues less the cost of non-labor inputs) divided by the number of workers -- i.e., value added per worker or per worked hour. If you look at the data, you will find that, even in the same industry, Rhode Island's value added per worker was low relative to other states. And why was that? Broadly, there are three ways to increase value added per worker in a given industry. First, give them more capital to work with (e.g., move from a machinist with a manual lathe to a machinist programming a computer controlled lathe). Second, improve the quality of the worker, through better education and training. And third, improve the way the company that employs them is managed -- e.g., changing organization structure, process design, systems, leadership approaches, etc. Both common sense and research tell you that the most success results when all three of these factors work together to improve worker productivity and workers' wages.

In Rhode Island, I would argue that all three have been major problems for a long time. Returns to capital are more heavily taxed here than in most other states (via property taxes, etc.). For years, our public education system has produced poor results. And RI also has a sad history of corporate leaders who resisted change for much too long -- possibly because they were trying to squeeze out the last few dollars of profit from a system they (cynically but accurately) knew would always try to squeeze them ("Yankee Mill Owners") and would eventually kill them. So you had the likes of Browne and Sharpe and many others that were far from leaders in the application of modern management techniques.

All in all, it is a sad story that our children and grandchildren will one day read. The challenge for us will be to explain why decisions were made that seem, in the light of our children and grandchildren's hindsight, to be so short-sighted and self-destructive.

What will we tell them? That the new immigrants finally showed the Yankee Mill Owners who was boss? That the Italians finally trumped the Irish? That the Yankee Mill Owners took the private (if not the public) sector unions down with them? That at least RI didn't end up looking like Bosnia Herzagovina, thanks to the one respected institution in the state's ability to enforce the law with a good amount of fairness? (Let's face it -- build a wall around RI, take away the cops, give everybody an AK-47, and its Sarajevo all over again).

As we approach yet another 4th of July, the future of RI looks grimmer than ever.

Posted by: John at July 3, 2010 4:45 PM

Again, I don't hear the answer to the question of when the "normal" in RI existed......

RI has a strange history......it was always an outsider as compared to most other states, often for selfish reasons (what others are there?).

In the long long run, it would probably be better of if it merged with CT or MA.....because a lot of problems can be traced to too many levels of government. Just as corporations gain efficiency when they take over another company (duplicate efforts are reduced), so could a state.

As far as these so-called "death spirals"...that's a bunch of BS. Things are always bad and they are always good - depends on who is doing the talking. Lots of people just love living in RI. Only a few spend time complaining.

Posted by: Stuart at July 3, 2010 10:13 PM


I generally agree with your comments, and add that for decades now there's been a sort a brain drain involving the best and brightest from RI. College graduates who can't find decent jobs AND, e.g., the really motivated / entrepreneurial types who want to start a new tech company and so go to "where the action is" and where there is venture capital.

Also savvy business people whose companies aren't forced to stay in RI (e.g., non-tourist businesses).

And finally, more adventurous individuals who have that old America "go West" spirit and see the writing on the wall for RI's future and aren't afraid to make the big move.

What's left behind tends to be the trapped (e.g., family obligations), the timid and the crooked (businesses willing to play the RI game) ... and of course those directly sucking off of the public trough as public sector employees and welfare recipients.

>>Lots of people just love living in RI. Only a few spend time complaining.

Yes Stuart, the aforementioned public sector teat-suckers love living in RI and aren't complaining. As for the rest, with each passing year more and more reach their individual tipping point and leave -- it's no accident that RI is one of two states actually losing population (the other being Michigan) -- this on a net basis even after the influx caused by RI's welfare magnet status and the parade of baby momma's, illegal aliens and anchor babies taking up residence here.

Posted by: Ragin' Rhode Islander at July 4, 2010 9:27 AM
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