1/17/99

KUFM / KGPR

T. M. Power

Is There an Economic Crisis in Montana?

The political dialogue coming out of Helena appears to reflect a consensus that Montana is in the midst of an economic crisis that calls for immediate and strong public intervention. The statistics that are quoted to document that crisis, however, raise some serious doubts about the reality of any recently developed set of serious economic problems.

The statistics that are constantly quoted as proof that we have to act and act quickly are Montana’s relatively low average income and pay per job. Average incomes in Montana are about 20 percent below the national average. Pay per job is almost 30 percent below the national average. By either figure, Montana is in the bottom half-dozen states of the nation. As one politician put it, "being the last best place should have nothing to do with being last." It is that fear of falling to the bottom of the economic barrel that has energized a political mobilization to solve this "crisis."

The problem with seeing this as a crisis is that Montana arrived at its current position over ten years ago. Since then, it has actually stabilized or improved somewhat without any particular government intervention. This raises the question of why this crisis was not discovered earlier and why action was not proposed before this. Between 1973 and 1988 pay per job fell from being 96 percent of the national average to being 70 percent of the national average. It has remained at that level for ten years. If the part-time and seasonal nature of many jobs in Montana is taken into account by looking at pay per worker rather than pay per job, there has actually been improvement in relative pay per worker during the 1990s.

Average incomes went through a similar decline between 1973 and 1988, falling from 95 percent of the national average to 76 percent. Since 1988, relative incomes have actually improved somewhat rather than deteriorating further. In terms of real dollars, during the 1990s average incomes and earnings per worker have both actually increased, not decreased as is often suggested.

So, if there is a crisis, it occurred during the early 1980s, not the 1990s. The depth of this crisis occurred in 1988. But how did it remained hidden for ten years, only to be discovered in 1999? Are we that slow in discovering what is going on in the state?

These are fascinating questions that should remind us that there is an important political dimension to our understanding and description of our economy. Alternatively one might say that economic conditions are not always accurately portrayed by politicians.

Actually, there may be a somewhat less cynical explanation for the recent discovery of a decade-old phenomenon. During most of the 1990s, the Montana economy was expanding relatively rapidly in terms of both population, employment, and total real income. That quantitative economic growth, although it concerned some citizens worried about its impact on the social and natural environments, satisfied the business community and most of our political leaders. That growing economy did not do much for our relative average incomes or pay, the things our politicians are now so concerned about. If the economy is performing poorly today, it is simply a larger poorly performing economy than what we had ten years ago. But our economic boosterists really do not care about either average income or pay per worker. They care about growth. As long as the economy was expanding vigorously, our economic spokespersons did not mention our relatively low pay or low incomes.

The difference between now and the early 1990s is not that our incomes are lower or our pay lower. They are not. Nor is it that we have slipped even further behind the national averages. We have not. What has changed is that the economic expansion has slowed considerably. Population and employment growth now is much slower than at any other time during the 1990s. Many people are breathing a sigh of relief over that given that their communities had been having a difficult time coping with the more rapid growth. But the business community and politicians never like a slow growing economy.

The reason for the current slow down in the Montana economy appears to be a familiar cyclical force rather than some new problem. During much of the 1990s a construction boom took place in Montana. Between 1987 and 1996 construction employment in the state almost doubled. 15,000 new construction jobs were created as new subdivisions were built to house the growing population, as new big box stores and strip malls were build by national chains that had rediscovered Montana, and as public spending on highways and schools boomed. The building boom on the University of Montana campus is a good example. That expansion in construction jobs came just in time to absorb workers leaving jobs in forest products and mining and to provide relatively high paying jobs to new entrants into the Montana work force.

That construction boom, however, could not go on forever. Construction, because it represents very long lived economic assets, tends to over- and under-shoot the economy. Construction fell far below what was needed just for replacement during the 1980s and then during the 1990s soared to a level that was far beyond what was sustainable. Since 1997, employment has fallen by almost two thousand jobs, almost a ten percent decline. That unavoidable downsizing is having measurable impacts throughout the economy. Whether is will completely offset normal growth elsewhere in the economy is unclear, but it could. In any case, the expansion of the Montana economy has slowed considerably.

That, I suspect, is what has brought our relatively low incomes and pay to the attention of the politicians. The two are not at all related. Rapid growth during the 1990s did not boost our relative position. Nor is the current slowing of the economy the cause of something that happened ten or fifteen years ago.

But keep you hands on your pocketbooks. The convenient discovery of a decade old problem is going to be used to justify spending your money to "stimulate" more business activity. That means transferring money from you to private businesses. Of course it will be done in the name of ultimately boosting your income, but don’t hold your breath. Just keep a tight hold on your wallet.