11/8/99

KUFM/KGPR

T. M. Power

Mis-Projecting the Employment Impacts of Declines in Federal Timber Availability

I spent several days last week in the Clearwater and Selway country of north central Idaho, the area just to the west of us on Highway 12. The population centers, Orofino, Grangeville, and Lewistown, as well as the many small towns are usually described as timber towns. The folk economics of the area is that more than half of all employment and income in the region are tied to the forest products industry.

It was that folk wisdom that led to considerable distress in the early 1990s when Forest Service timber sales began to plummet because of difficulties meeting environmental constraints. The Idaho legislature, concerned about the loss of the federal raw material for Idaho mills, commissioned a study of the local economic impacts if the federal timber supply continued to be choked off. The University of Idaho forestry school was asked to carry out the study.

As might be expected since the point of the study was to put political pressure on the Forest Service to boost timber harvests, the study predicted economic catastrophe for north central Idaho. By the year 2000, 3,000 jobs would be lost and almost $90 million in payroll would be lost each year. For some of the individual towns, the impact would all but economically wipe the towns out: Pierce was projected to lose 82 percent of its pay and 75 percent of its jobs. Kooskia would lose half of its pay and a third of its jobs. Grangeville would lose a fifth of its jobs and pay.

As I drove through these towns, I did not see signs of the predicted economic collapse. None of the towns seemed to be headed toward ghost town status. In fact, they looked a lot more prosperous than they did back in the mid-1980s where timber supply problems were not a dominant concern but a third of the jobs and half of the payroll were eliminated by poor market conditions.

Curious, I checked with the Idaho Department of Commerce to see how employment, income, and population were holding up in these areas. I was startled by the results. Although timber harvests off of the Clearwater and Nez Perce National forests declined almost 90 percent during the 1990s, north central Idaho saw employment expand by about 25 percent, total real income grew by over 20 percent, and population expanded by about 12 percent. Rather than losing the projected 3,000 jobs, the region added over 2,000 jobs. Rather than payrolls shrinking by $90 million, real income expanded by over $20 million. Rather than ghost towns being created, between 1994 and 1998 almost all of the towns gained population and at the end of the 1990s were relatively stable.

How could the economic projections be so far off the mark? Easily! Remember the projections about how the decline in timber harvests was going to decimate the Western Montana economy and how spotted owl protection was going to lead to the creation of a new Appalachia in the Cascade region of Washington and Oregon?

The reason that projections of economic catastrophe due to declines in one part of the economy usually are wrong is that the projections are based on assumptions that largely imagine that we do not live in a dynamic, entrepreneurial, market economy. The typical assumptions that are made include the following.

i. They assume a static economy where every economic activity that is reduced causes a permanent economic loss. But in a dynamic economy, especially a growing one, that is not what happens. Expanding economic activities compensate for contracting ones.

ii. They assume complete passivity on the part of all economic actors. Economic actors make no adjustments to minimize the impact of economic changes. But in a market, entrepreneurial economy, that is not how we respond. Each of acts to protect our interests, and as a result, markets respond to reduce the impact of negative economic changes.

iii. They assume that valuable economic resources that become unemployed in one activity become permanently unemployed. But in a market economy that is not what happens. Economic resources, including workers, capital, and land, shift from less profitable activities to more profitable activities. They almost never remain permanently unemployed.

iv. They assume the only reliable, locally available, economic opportunities are those discovered and developed in the distant past. This is the "rear-view mirror" approach to the economy. It totally ignores the current sources of economic vitality. All it sees are the "traditional economic base." As a result the current and future sources of jobs and income remain invisible even when they are sprouting up throughout the local economy.

It is because the purveyors of doom and gloom assume away the dynamic economy that surrounds us that their projections go wildly astray. The "analysts" effectively assume the conclusions that they think will be politically useful. I cannot second-guess that political strategy, but I can emphatically say that this certainly makes for rotten economic analysis that misleads more than it guides.