Taking The Temperature Of The Economy

Taking The Temperature Of The Economy

If an economy could be compared to the human body then a healthy economy would be one which, under normal conditions, maintains a stable, if not constantly improved quality with little or no fluctuation in its vital signs. When an illness strikes certain indicators such as temperature or a general feeling of well being are likewise effected.

Physicians have instruments to measure and monitor the human condition. Likewise, economists have techniques to measure the condition of the state of an economy. The primary tool being statistical data of a wide variety. Of course, a single set of data does little good since there is nothing with which to compare a solitary measurement which usually represents the present or existing condition of the economy. Economists are a little like the “do do” bird. It flew backwards always looking at where it had been – rather than forward to see where it was going. Economists must look back to examine historical data to study trends. If you don’t know where you have been – there’s a chance you don’t know where you are – or where you are going. It’s a little like, “where ever you go – there you are.” When looking forward to evaluate a particular event or issue that must be measured, economists rely on a technique known as a projection. Some people refer to this as a “guesstimate.” Whether looking forward or backward, a statistical data base is essential. Which brings me to the point of this article and the postulate that, “a statistic that can be misunderstood – most likely will be.”

As one who has relied heavily upon government generated statistical data such as the results of a census of population, revenue collections, etc., the ability to obtain accurate information on a timely basis is essential. Economic data in the form of total generated business gross revenue, total wages and salaries paid, etc, can tell you whether the situation in the economy is such that there is an increase, decrease or whether conditions remain unchanged. Imports and exports, for example, are either up, down or flat (unchanged). The growth or decline in the number of nonresident workers, telephone subscribers, bank deposits, retail and wholesale sales and so on are also helpful measures. Understanding statistics is easy. As my ol’grandmother once said: “some of it plus the rest of it equals all of it.” This was always followed with the advice that “the product of a mathematical computation is the answer to an equation – not a solution to the problem.” The Feds know this very well. Most problems have either many answers or no answer and when you have worked out an answer, start checking – it probably isn’t right as your checkbook will frequently confirm.

Statistical data are extremely important. For example, any agency or group that deals with the Federal government must present some form of statistical data either economic, financial, demographic or whatever. For Federal agencies it’s their “financial statement” just as a balance sheet, or profit and loss statement is essential for any business. If you do business with any Federal agency you had better have numbers to back up your claims because that’s what makes an impression far greater than any promise of – “that’s what we’re gon’a do someday” assertion without numerical data to measure an issue or support a position. One of the difficulties decision makers have, whether they are in government or business, is obtaining accurate data on a timely basis thereby permitting the possibility of taking action to mitigate any unpleasant situation. Reliable data available on a timely basis goes a long way in avoiding, “crises management.” Having such information – to coin a county boy’s phrase – is a little like knowing when to close the barn door before the horse escapes. We have a situation like that now in the Commonwealth with respect to the garment industry as some in the U.S. Congress feel the “garment horse” is already long gone. One must always maintain a perspective as to what statistical data tells us and what it does not. Care must be taken to avoid a situation such as the man who made a study to find out why his black horses ate more that his white horses only to discover that he had more black horses.

When the garment industry finally leaves as a result of the General Agreement on Tariff and Trade, the North America Free Trade Agreement, an increase in minimum wage or whatever – my guess is (and it is a guess) – the economy will revert back to somewhere around the 1990 level if the shortfall is not made up by increased tourism activity. This would mean reduced government revenues, less business activity, fewer nonresident workers, less pressure on infrastructure and a reduction in the level of rhetoric associated with the issue and fewer subjects for guys like me to write about and even less for the “hand-ringers” opposed to the industry to complain about. About a year or so ago I was asked to undertake a study to determine the number of tourists necessary to make up for the economic loss of the garment industry as it existed at that time. My analysis revealed that more than twice the number then currently visiting the CNMI would be required, considering their average daily expenditures and the length of stay – resulted in an estimate at the time that about 1,430,251 tourists would be necessary, (I just arbitrarily added the extra one to make it appear more scientific, you can round the figure off if you like to 1.4 million). The analysis was predicated on the fact that the hotel rooms necessary to accommodate such an increase would be available. This was, of course, before the “downturn.” At any rate, determining the number of visitors required was the easy part – the hard part is convincing those that can afford it to come. That’s a marketing and sales endeavor. There are several useful economic thermometers which we call “economic indicators.”

The best one is the “gross island product”, (GIP), or the value of all goods and services produced. Unfortunately, deficiencies in the Commonwealth’s data collection efforts results in such a measurement being suspect. The next best measure is the total reported business gross revenue usually presented on an annual basis by major economic sectors and unfortunately, usually a year or more late. That is – too late to do anything about a serious downturn in business. Oh, the business community will tell you at an early date that things are not well – but again, the government needs numbers as proof and too often the numbers come out months later after the fact. What is needed are quarterly reports even if they are only rough indicators – it’s still better than nothing. The same is true of wage and salary payments, another valuable measurement. Statistical data can provide valuable insight. For instance, they can tell us that when a large number of people are out of work it can lead to unemployment, (or is that an obvious inference?).The Commonwealth also needs an accurate survey of the average daily expenditure and average length of stay of it’s visitors. It is the only way to evaluate the contribution of the tourist sector and the overall economic well being of the islands. In an economy that generated total “reported” business gross revenue of two billion dollars in 1995 the issue is no small matter. One data collection effort that would be helpful in measuring the condition of the economy which is not presently provided is an annual determination of the number of businesses, by type, which previously had been issued licenses to operate an activity but failed to renew upon expiration. This information can tell you several things: (a) something happened in the economy that put them out of business; (b) it is not an endeavor you want to invest in; (c) the profit earned was not worth the effort expended; (d) the” business pie” was only large enough for a limited number of slices and so on. Economist can simplify all of the above reasons by stating, “the market demand was not there.”

I doubt that anyone knows the full extent of the use and value of coupons. This is a situation where the product is produced and delivered within the islands but the goods and services are frequently sold outside the CNMI and redeemed in the islands with scrip. One would need to know this value in order to complete the equation necessary to accurately calculate an estimate of the gross island product. Then there is the so called “under ground” economy. This is revenue or the value of goods and services that goes unreported either as a result of cash sales, barter or non monetary exchange such as, “you fix my plumbing and I’ll repair your VCR.” Since it is unreported no accurate figures are possible, but I’ll hazard a guess and state that it must be 10 to 15 percent of that which is reported. Land Data The Commonwealth does not know the total amount of land that has been leased to persons of non Northern Marianas descent for periods of up to 55 years – two generations or one half century, ( I have lived longer than that and I can tell you it’s a long time). Nor does the CNMI know the ethnicity or nationality of those who will control the land for that period of time. Perhaps it’s not important, but I would think that given the uniqueness of the land alienation law that such information would be of interest to the indigenous people. It is after all, genealogically speaking, their island – the bones of their ancestors are here.

While not all land transactions have involved leased land there have been 60,400 recorded since 1980. What happens for example when a person not of NMI descent and absent from the Commonwealth has leased land with future plans to construct, say, a hotel only to discover some time later than the land has been zoned residential. How is he or she to be contacted and thus informed of such restrictions? Should, sometime in the future, a property tax be imposed, how would an absentee leaseholder be notified of his tax obligation before it is confiscated for non payment? Incidentally, the Constitutional prohibition on imposing a tax on real estate only applies to owner occupied residential units. No mention is made of commercial property or renter occupied structures. So beware during “tough times” when legislators go looking for more tax revenues. Section 5 of the Commonwealth Constitution provides that "no tax may be levied upon any owner occupied single family residential, agricultural or unimproved real property unless approved by three- fourths of the votes cast in an election conducted in the Senatorial District in which the tax is to be levied." Would all property owned by an indigenous person other than that he or she “occupies” be subject to a tax on real estate? While on the subject of real estate and deviating a bit from the main subject, I seem to recall that the legality of condominium ownership has not been decided by the courts. The question centers around clear title to a condominium unit above the ground floor and right of access. Amendment 35 to the Constitution increased the lease period of land to persons of non-CNMI descent to a maximum period of 55 years and exempted from this restriction ownership of units in a condominium above the first floor. If the validity of the Amendment is upheld, ownership by persons of non CNMI decent in a condominium unit could also include interest in the common elements of the land and on the first floor which are necessary for access to the units above the ground floor. According to an analysis "to hold that Amendment 35 allows ownership of condominium units but not the opportunity of access or full use and enjoyment would be a strained and unreasonable interpretation." In all probability the matter will not be resolved until a declaratory judgment is made by a federal court since the issue involves an agreement (Covenant) between the CNMI government and the federal government. Amendment 35 of Section 3, Article XII of the Constitution clearly indicated that persons of non-CNMI descent could purchase fee simple ownership of condominium units above the first floor. However, since the purchase of such a unit must include access, obviously the purchaser should also be purchasing an easement of access through the ground floor.

Such an arrangement would seem to conflict with Article XII. This subject has nothing to do with statistics but I thought I would throw it in anyway. Many government employees in the Commonwealth that collect and report economic and financial information do a good job. You will not find a more professional and dedicated group of people than those in the Central Statistics Office. If there is criticism it is that many in other agencies who collect and process such information are not always aware of how valuable their work is and the wide variety of diverse uses to which such economic intelligence can be applied. Uses which are above and beyond that which they may be required to acknowledge within their own agency.

When decisions are made effecting the economy which in turn influence business profits, tax revenues and the welfare of employees, they had better be made on the basis of the most current and reliable data possible. Otherwise you may have to contend with the unanticipated, unintended consequences – which, more often than not, will be unpleasant for someone. Finally, be cautious of computer analyses – in any collection of data to be processed – the figure that is most obviously correct – beyond all necessity for checking – is very often the mistake. If you put an error into the computer the error will come out, but since this occurs after being passed through a very expensive machine it is somehow “consecrated” in a mysterious way and few dare to criticize it. In conclusion, remember that very frequently the information you have is not what you want. The information you want is not what you need. The information you need is not what you can obtain. The information you can obtain costs more that it’s worth. So how accurate is our economic thermometer? Not too bad, but it is in need of calibration.