Final Say: Steven Lanza
Steven Lanza, 52, is an economist, a research associate at the University of Connecticut and executive editor of its quarterly The Connecticut Economy, having been with the publication since its inception in 1994. He resides in Storrs.
Do you know where the governor can find a few hundred million dollars?
[laughs] Maybe in the sofa cushions of the executive office building? I don’t know. The recovery has stumbled a bit in Connecticut in recent quarters. Income growth has slowed, especially in Fairfield County, and that’s certainly done a number on the budget. Plus, when times are tough, people look to government for public services so there’s a greater demand there, so that’s opening up the hole, which looks like it’s getting bigger as you project out into the future—not the direction you want to see things going. They always say, “Just cut waste, fraud and abuse!” [laughs] That’s where you start.
How much impact do the state government’s financial woes have on the rest of the economy?
Certainly, the state government sets the stage and the environment for business and job growth, but not all of that is in its control. Maybe we’ve got 15 percent control over our future—and that might even be kind of high. There’s only so much we can do, but that doesn’t mean throw up your arms and don’t try to do anything. It means you have to have public policy that makes sense.
So why can’t Connecticut break out of its economic rut?
Part of what troubles me reading media reports about our troubled economy is that they suggest that Connecticut is somehow unique in being stuck in this rut, and that things are better elsewhere. I think that we have an inferiority complex—I’m not sure where it comes from, maybe from not being New York or not having a city like Boston within our borders—but Connecticut is still tops in the country in terms of per capita income, and we’re among the most highly educated populations in the country, so we’re smart, we’re productive, we earn high incomes, and yeah, we’re suffering from some slow job growth right now, but it’s slow going everywhere, not just here in Connecticut.
Most underreported aspect of the economy?
I think that it’s partly misconceptions about the economy. I don’t know if there’s just one. Certainly that GDP [gross domestic product] number sort of jumps out. Per capita gdp is a number we use to judge the relative standing of nations around the world, yet with the 2011 data, we rank third in terms of per capita GDP, and the states that rank No. 1 and No. 2 are outliers—you have Alaska, who has a lot of oil revenue coming in, and Delaware, which is sort of a haven for corporate headquarters because of their tax laws. When you think in terms of the real value of goods and services that the people in the state are putting out there on a regular basis, we’re tops with those outliers aside. And we often forget that as we get mired in a sense of economic self-pity, and we don’t look at what we’ve accomplished and where we stand relative to other states.
That’s the kind of stuff we like to do at The Connecticut Economy—put things into some sort of frame of reference, to ask ourselves “compared to what?” You often hear that we’re a “high-tax state,” that taxes are high, and you could point to state taxes, which are higher than other states, but Connecticut is like a lot of New England in that we don’t have any sort of strong county government system. So we’ve got a lot activities that would take place at this middling level of government that either get shoved down to the local level or up to the state level. So when you look at the total tax burden for state and local government in Connecticut, and look at it as a function of income—including property taxes, sales taxes, income taxes, user charges for all sorts of government services—we actually rank quite low. We’re 45th out of 50 states in terms of how much of our own revenue we generate as a percent of income according to the latest U.S. census of government. That’s not the kind of thing we hear a lot about, so we have this misconception. Maybe it is great that we’re 45th—and maybe it isn’t—I’m just saying that sometimes we’re at risk of making bad policy choices if we don’t have all the facts. Maybe we want to keep making choices to make sure we remain 45th, but we’re not first, second or even fifth. A lot of these things escape our notice a lot of times.
We always hear about unemployment—why do we never discuss over 90 percent employment?
Although here in Connecticut, it’s closer to 90 percent with the latest uptick in unemployment. Again, we sometimes lose that frame of reference that’s helpful in our understand where we’re at with the economy, and [Greece] is a great example. You’re used to living in the U.S. and you look at some of these numbers and you think the sky is falling. I haven’t traveled outside the country in years, but when I was in college, I visited South America, and I felt like I had stepped back in time 30 or 40 years because living in a wealthy country as we do, sometimes we become immune to the fact that we are living among so much wealth. Our economic and social well being is really high. You travel to other countries, you realize, “Holy smokes, these people are living in the Ice Age here.” Of course, Americans don’t do that—not everyone has that opportunity, to put their lives into some sort of perspective. Sometimes, in a lot smaller way, when you look around and see the data and information out there, and try to make these comparisons in a small way, you are trying to put it into perspective.
What drew you to economics?
I think it was the fact that it provided a framework to think about questions and to get at some answers with some intellectual rigor. It gave you a mechanism with which to look at the world and ask questions and come up with an interesting answer. In school, I started out as a political science major and it was my dad who said, “You’ve got to take an economics course while you’re in college.” He wanted me to learn about economics—which to him was business and finance and money. So I started out with a macro [economics] class, and that was okay—and I’ve grown to appreciate macroeconomics over time—but it was really the microeconomics class that really appealed to me because I saw that as a rigorous or formalized kind of common sense. It just sort of gave me a way of analyzing and looking at the world and coming up with answers that you just weren’t getting in the political science classes or the philosophy classes. I did stick with it long enough—there were some twists and turns along the way—to get my Ph.D. Oddly enough, I did get in the history of economic thought, which was going back more toward my history, political science and philosophy roots. And it is fascinating stuff, although not at all practical.
But it was really as a grad student near the tail end when one of my last assignments was working on the quarterly as a grad assistant that I actually started looking at a real-life economy and real-life data, and seeing how using methods of statistical and economic analysis could really help you to get a really interesting picture of the world. It was as much my graduate assistant work that I was getting paid for and then my job as an editor on the quarterly—that’s really where I’ve gotten my education about the economy. Not so much in school, and not so much from the stuff I studied in the textbooks, but from just doing my job, asking questions, trying to find tools to answer those questions and then sort over time I developed an interest and ended up someplace that I never thought I’d be. Of course, everyone says that about their lives—“Starting out I was going to be a lawyer or a politician.” Right now, both my sons insist they’re going to be baseball players; I’ll be happy if they’re coaches. I think they’d be great. The economic way of thinking just appealed to me from the start. To me it was a way that I was already thinking about the world, but then, it just sort of clicked and made sense. “Now here are some tools to help me to do that in a more rigorous and systematic way.”
What’s the biggest challenge in presenting economic information to a wider audience?
Getting past the fear and snooze factors of it. That’s also the challenge with teaching—communicating the importance and relevance of it, and not putting students to sleep. Sometimes that’s really tough, especially if you’re teaching a class at night.
Have you ever had a student try and turn in something you wrote?
No. I have had two different students turn in the same paper in two different classes, though! As I was reading through, it sure seemed familiar, but the real giveaway was on the last page. I could see that my remarks, and in fact, the final grade I’d given the paper, were erased and whited out. I could still see through it! It wasn’t even a good grade; I’d given the paper a C- or something like that. When I confronted the student, he hit his head with his hand and said, “Oh, shoot! I forgot to put the photocopied page on as the last page. I gave you the original!” So he didn’t deny it! [laughs] So I said, “Couldn’t you find a better paper than this one? It wasn’t very good.” And he said, “Well, it was the one my roommate had, so . . . .”
How do you handle people who ask you for financial advice?
[laughs] I guess I tell them, “If you could see my personal finances, you wouldn’t be asking me that question!” I tell them there are better places to go.
When you go to the store, are there certain things you look at the price of as an economic indicator?
We used to track prices in The Connecticut Economy—that’s a feature that over the years, sort of fell by the wayside. In fact, there wasn’t a big change in prices from year to year. With low inflation, it’s become less of a policy priority than it was back, say in 1970s, when you had 12 and 14 percent inflation. I’ve heard about these things—the Big Mac indicator and things like that, things you’d buy every day as an indicator of how the economy is going. Living here in Storrs, they’ve just opened up some shops in what’s called Downtown Storrs, these boutique-ish shops, and I’m just astounded at people’s willingness to pay five and six times what you’d pay at a grocery store for a piece of chocolate or a cookie. They’re doing that, so I guess I take that as a good sign for the economy that places like this that are selling “an atmosphere” or the cachet of being in this downtown area, are drawing crowds and bringing people in. Because that’s what they’re paying for—not the stuff as much as they’re paying for the locational utility of being in an “in” place.
Probably right now, the most relevant price for the economy’s fortunes is the price of housing and homes, and whether or not we’re going to be seeing those coming back. So much of that feeds into the financial conditions that households are in, their ability to borrow money, the confidence they have in the economy and their future, the ability to keep a job and keep up payments on a home. We’re starting to see that turn around here in Connecticut by a few different indicators. There’s an indicator that’s produced right here at UConn in the real estate center—an economist by the name of John Clapp has an index of Connecticut home prices. What’s nice about it is that it’s a constant-quality home price, so he’s not just looking at the median sale price, he’s sort of modeling what the same home would cost to buy quarter after quarter by statistically controlling the characteristics of the home. We’re now starting to see home prices turn around on a statewide basis and across some metro areas, and that’s coming at a crucial time for the economy, and it’s great to see that the housing market might be firming up. To keep going in the right direction we’re going to have to avoid a disaster in the coming days. Hopefully we start building some momentum in the economy. Then we’ll start to see some increases in job growth and then the housing prices may really come around. And once we do, there’s really a chance that things can turn around. I think there’s a lot of pent-up demand out there. You have a lot of young kids who are tired of living at home with mom and dad. They’d love to have a job and buy a condo, or young couples who want to start families and have a home. So that’s the critical price to keep an eye on out there.
Where should the Connecticut economy be by President’s Day?
The best thing for us would be for the U.S. economy to really start picking up strength. For us to come together and solve our problems at the national level, which would give a boost to Connecticut’s economy and maybe turn around some of these forecasts we have for budget problems going forward. Ideally, we would like to be gaining jobs again, seeing a rebound in the recovery and then hopefully by the end of year, really ramping up those gains and starting to show some momentum, and adding back 3,000 to 4,000 jobs per quarter. A lot of analysts looking at the economic picture think that, for a variety of largely self-inflicted reasons, 2013 will be touch-and-go, but 2014 will be stronger. Unless there’s some other unforeseen obstacle, I expect job growth to gain some traction in 2014.
So should we be stuffing our mattresses with cash?
Actually, that’s the worst thing we could do, right? If everyone had that view, the economy would take a header for sure. We want folks out there spending their money and creating jobs for other people. So no, don’t stuff your money in your mattress!
On one side of the argument, we’ve lowered our personal debt, but on the other side, our retail-based economy has suffered for it.
Yes, short term we’re really paying for that, but long term, we’re going to be a lot better off because these same households down the road are going to be in a lot better position to finance spending. This recession has really been a life-changing event for a lot of people. It’s changing our habits in lots of ways. We’re becoming more frugal about spending, so I think we’re not ever going to go back to our carefree ways of just before the Great Recession. But we will come back. Our household budgets will be in better shape, our debt levels will have a more realistic view of what we can afford, what we really need and what we might think we want. So we’re all chastened a bit by this experience, but I think it’ll make us savvier consumers in the future, and the economy will come back, and it’ll be a more genuine and sustainable level of growth for the economy as opposed to a lot of what happened just before the recession where it was a lot of smoke and mirrors and people thought they could afford the lifestyles they were living and actually in reality, they couldn’t. So it’s been really difficult for people to accept that fact, but over the years, we’re learning that’s the case. You don’t need the McMansion. You can be quite comfortable in four-bedroom with a bath-and-half, 1,800 square feet and live fairly modestly. If everyone in the household is gainfully employed to just pay the mortgage, maybe folks can spend a little bit more time at home with each other, having dinner with each other and getting to know each other.
I have to ask because you’re at UConn—favorite flavor of ice cream at the Dairy Bar?
Well, I’ll tell you—and I’m not trying to be self-serving or ingratiating myself with the [UConn] president [Susan Herbst], but the coconut is really amazing, especially if you put some hot fudge sauce on it. I’m sure she doesn’t do that, but it’s an awesome flavor. I’ve tried it at other places—last summer we were at the Cape and I had coconut ice cream there and it couldn’t compare. It’s awesome here at the Dairy Bar.
Is Connecticut still a great location for a MLB franchise, as you have written?
That actually was one of my favorite pieces [in The Connecticut Economy]! Peter Gammons had said that a major league team was scouting Connecticut for a possible relocation. That may have just been to get a better deal back home, but the Bridgeport-Stamford area came up high on the radar apparently. I was like, “You’ve gotta be kidding me—this can’t be true!” So just to satisfy my curiosity, I built a little model to predict the location of a baseball team, without planning to do an article, and Bridgeport-Stamford area came out as viable. I was like, “Holy smokes! There really is something to it!” That’s what sometimes looking at the numbers can do. It can surprise you.