Roundtable: What's Up (Or Down) With San Diego's Economy?
The economy is supposed to be recovering. But this week Wall Street didn't get the memo. What they got was a serious panic attack that sent the financial markets down all week. Yesterday the major indexes -- the Dow, S&P, NASDAC -- all dropped between four and five percent. Today we got a little ray of sunshine with the news that job growth in July exceeded job growth in May and June combined.
But it has become frightening clear that we are not out of the woods, and another recession is not out of the question. So what does this mean for San Diego? And how might San Diego be affected by the debt ceiling bill, which calls for a trillion dollars in federal budget cuts, made later this year?
Guest: John Warren, Editor and Publisher, San Diego Voice and Viewpoint
Tom York, Contributing Editor, San Diego Business Journal
Kent Davy, Editor, North County Times
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FUDGE: Moving onto talking about the economy and the San Diego economy, it's supposed to be recovering. But Wall Street didn't get the memo. They got a serious panic attack that sent the financial markets down all week. Yesterday, the major indexes, the DOW, SMP, NASDAQ all dropped. Today job growth exceeded job growth in May and June combined. But it has become frighteningly clear that the economy is still shaky, and budget cuts required by the debt ceiling bill will mean more job losses. What does this mean for San Diego? Tom, let me go to you. When the government finally signs off on some deal that avoids controversy, we expect Wall Street to sigh with relief and start buying stocks. What's going on? YORK: I look at the San Diego economy like the title of a Tom Robbins book. I've been down so long, it looks like up to me. We've been through three years of pretty tough times here in San Diego, even though we've been able to side step the bulk of the trouble that hit California because of the fact that the military is so strong here. As recently as a few months ago, the unemployment rate was in the nines. And while the rest of California was 12.5%. That shows that the unemployment levels here are connected to the military and to defense spending helped us along. On the other hand, there's been some troubling signs in the private sector, housing is still down, it went down about 40%. It's only come up to about 35% of where it was in 2006. And the commercial construction is way down, 44% of the construction companies appear during this last recession, and they haven't come back except in certain areas, primarily connected to defense spending once again, asking to some government spending, state and local government. I'd say it's a mixed bag. Life sciences is doing pretty well. Not as good as it could do in a better economy. It's kind of uneven or all across the board. FUDGE: And we'll get back to specific things about the San Diego economy. Looking at the macro level, Wall Street, wouldn't you have expected the stock market to go up after they reached the debt ceiling deal? YORK: Well, I take the position that we were damned if we do, and damned if we didn't. The debt is too high. We're carrying too much debt in relationship to the income. It's precarious. And we flooded the economy with cheap money. That's why our economy is in kind of dire shape. We're in a global economy now and our trading patterns like China and other countries don't like the fact we inflated our currency, and we're living on borrowed time, on borrowed money. FUDGE: Let's go to some of the other journalists here. Kent Davy, what would you like to say about the current economic situation? DAVY: I'm no expert in the stock market certainly, but a lot of commentators yesterday and today seem to be pointing at the European debt crisis as the driver of the current bad performance. FUDGE: So we can claim the Greeks and the Spanish? DAVY: We'll blame the Greeks and Spanish and their crappy economies. FUDGE: Cool. DAVY: And that makes a certain amount of sense to me. If Europe -- if the European economies continue to really struggle the way they do and don't get their debt crisis, it will spill over just like it would work in reverse. FUDGE: John Warren? WARREN: Well, I think that we put too much emphasis on the debt ceiling as an issue and we ignored other factors that were on the table. It is the European scenario as Ken points out, Italy is in great problems, Spain, Greece, the United Kingdom could be, and there's still over a trillion dollars sitting in the coffers of investors in this country that could be in the economy that people are holding onto. And this struggle over the debt ceiling is partly responsible for the whole back wait and see. They were given so many stories about the end of the world coming, now folks want to wait and see, is it really happening. And that's impacting this economy. FUDGE: I read a column this morning in the New York Times by Paul Krugman where he was talking about the possibility that we are creating this permanent group of unemployed people. How do you create jobs? If you can answer that question, maybe you should be president of the United States. John? WARREN: I got an answer, but I wouldn't take the job as a gift, really. Too much value on what time I have left. All we have to do is look at history. The whole lay say fair concept, going back to Adam Smith and the start of this country. We had a change with the industrial revolution, now we're at a change with a technological. And we're not and that's why we're exhorting people under H1 visas from all over the world, when we should be providing those jobs right here. We don't have people trained for the jobs. YORK: We're exporting a lot of jobs in the same area. Now we're discovering that all kinds of jobs can be exported to India, China, and other places. We're in a global economy, and facing the consequences of that. FUDGE: And Tom, you claim to be a libertarian type of guy, but you will admit that government spending on defense is -- and I think you have already admitted that defense spending is important to San Diego. Is that going to go away? YORK: I think it is going to go away. We're winding down our operations in Afghanistan, trying to get out of Iraq, trying to put back our operations in other parts of the world. And the economy and everything else is cyclical. We're going to start heading interest a down cycle, and that's going to have an impact locally. How much of it is impacted, I think we have to way wait and see. WARREN: History shows at the end of each war, we have had an economic stimulus. It could have been the VA plan, the war on poverty following Vietnam, but there's always been a stimulus. And we can't address the issue at the same time we're complaining with how much money we don't have to spend. FUDGE: Kent? DAVY: It strikes me as unlikely that the administration or any administration whether it is this one or some future administration for the foreseeable future is going to have a whole lot of stimulus money to give out. There just isn't that much credit around. YORK: The federal reserve is flooding the economy with money. It just hasn't worked. And the reason why is because there's so much concern, as you say, a trillion dollars sitting in corporate coffer, waiting to be deployed. But there's just too much concern about what lays ahead. FUDGE: Let's go to Meredith in Encinitas. Our call-in number is 1-888-895-5727. Go ahead. NEW SPEAKER: I'm calling in regards to your discussion on taxes and the need to increase taxes. And I've heard numbers as high as 49% of people as of the April 15th deadline didn't pay taxes or didn't need to pay taxes. So I'm just wondering where are those people invested? Maybe they're large industry and there are loopholes, but I'm just wonder about that group that doesn't have to pay taxes. FUDGE: Thanks very much, Meredith. Kent Davy was at first nodding then he started shaking his head. So what's your response? DAVY: Meredith is correct. About half of Americans do not pay personal income tax. Their next is sufficiently low that they come underneath the threshold. There are people who make an argument typically or oftentimes on the libertarian side who say that everybody ought to be invested at least a little a little bit in paying taxes. FUDGE: And once again, you're listening to the midday Roundtable, I'm Tom Fudge. Here sitting at the table with John Warren, editor and publisher of San Diego Voice and Viewpoint, Tom York of the San Diego business journal, and Kent Davy who is editor of the New York Times. Tom, let me get back to you. I'm getting a little depressed here. Looking at the San Diego economy, is there any good news? Are there any sectors of the economy that are doing well? YORK: I think the life sciences sector is doing pretty well, considering what's going on. There's a lot of money being -- from venture capitalists and other private concerns, big Pharma, to pursue, you know, cures resolving around the human genome. And I think there's hope there. I think there's a lot of money being spent on government on construction. The airport's undergoing a $2 million expansion, and modernization, there's a lot of work being condition there, and a lot of work being done by the community colleges, they're rebuilding facilities adding facilities. Down in the east village, you're seeing a lot of construction going on. There are pockets of hope. It's just when you look at the over all economy in San Diego, it's sort of up and down. And now with the debt ceiling agreement in place, and the fact that there's going to have to be some cutting going on, I think there's reason to be concerned. WARREN: We can't talk about the national issue and ignore what's happening in the state in early its of budget cuts, cuts to education, cuts in every direction here. That's a factor too in terms of impacting us. When you mentioned the airport, I couldn't help but remember, this airport was caught into that same FAA freeze that's just been temporarily unlocked am that was another example of those 40,000 people with jobs who weren't going to get paid until the action that was taken I believe yesterday or this morning with the Senate. We can't separate the state. Also remember the state is $11 billion in debt to the federal government in terms of the unemployment insurance trust fund, and we have a tree hundred million dollar interest payment coming due in September, which is going to further impact the state. FUDGE: Tom, what about house something we talk about housing a lot because the construction industry is so dependent upon it. YORK: Well, in doing a bit of research on housing what I found is that housing is still down considerably from the high of 2006. It's down about 35%. But the good news is that the price of houses have come down. We're seeing now mien sales around 300 to $400,000, which I think puts it in the rank of more people to be able to buy housing. And it's still 30,000 units a year moving here in the county. I think that's a fairly accurate indicator that things may be down, but they're not totally out. DAVY: North County home sales on a number of unit basis is still very depressed and losing ground. Median prices have gone up. They bottomed at about 380 or so according to our data and finished up about 440 or so lately. That's a tiny bit of good news I guess for somebody who's got a house but things are not healthy in the housing market at all. There are a couple of bright spots though in North County economy that are worth noting. Tourism, international tourism, probably because of the dollar exchange rates. It's a good deal to come from a foreign company to go shop at Carlsbad company stores. There is some hotel building going on in North County. And I'm told that the hospitality industry is doing okay right now. There has been something of a bubble in commercial building prices show up. So -- FUDGE: Huh. Go figure. Since we're talking about the economy and political consequences, I am tempted to bring up the subject of President Obama's prospects. He's facing an election next year, and I don't think many people expected the economy to be down this low this long. John, is President Obama going to be a one term president? WARREN: I don't think so. As much as the tea party would like to see it happen, as much as the new Republicans made the statement at the beginning of the year when the Congress opened that their agenda was to make him a one term president -- and I think people are going back to last December when he was held hostage to the estate taxes, trying to get unemployment insurance to people, people are beginning to understand just as he did with this bill, he's always keeping the families and their ability to reach people. The Congress has a 14% approval rate. He has a 48%. I think that says a lot. FUDGE: And Tom, I guess the other issue with Barack Obama is, even if he's beatable, who's going to beat him? YORK: There's nobody who can beat him. FUDGE: Not mit Romney? Not what's her name from Minnesota? YORK: Well, I think Sarah Palin and Michelle Bachman provides a bit of humor to the race, a bit of theatrical performances. But I think in relationship to Barack Obama, he's been very presidential, he's had some tough times, some tough battles. And he's held his stature very high. And I think that's the most important thing. He's going to be tough to beat simply because he's doing a good job under difficult circumstances. I'm not necessarily in agreement with everything he's done, but I just don't think there's anyone out this on the horizon that can beat him. FUDGE: Last word on this subject to you, Kent Davy? DAVY: I would agree with Tom on the financial analysis. But mostly because I don't see the Republicans have a candidate that they seem to be much interested in. The field is so split, and nobody's raising money right now. And it's going to take a lot of money. FUDGE: Our guests today are John Warren, Tom York, and Kent Davy. Juan adjourn is editor and publisher of San Diego Voice and Viewpoint. Tom York is a contributing editor to the San Diego business journal, Kent Davy is editor of the New York Times.