What’s Up with the Economy?

1. What’s Up with the Economy? Fenway CDC Annual Meeting Barry Bluestone Dean, School of Social Science, Urban Affairs, and Public Policy Northeastern University May 11, 2009

2. A Snapshot of the U.S. Economy

3. An National Economic Recession with Few Parallels • Already longer than any since 1929 and not over yet • December 2007 – April 2009 (17 months) • As deep as the most pessimistic forecast made earlier this year • GDP contraction the steepest in 50 years • With unemployment that may reach 10 percent

4. Length of U.S. Recessions (1900 – Present) Average Length of Recessions since Great Depression: 10 Months This one is 17 months old and could last 24 months or more ? Source: NBER

5. Worst quarterly losses in 50 years Source: CEA

6. Nearly 14 million Americans out of work Source: CEA

8. Updated January 6, 2009 8

9. Updated January 6, 2009 Actual 2008:IV -6.3% Actual 2009 -6.1% 9

10. Updated January 6, 2009 10

11. Updated January 6, 2009 Actual April 2009: 8.9% 11

12. Debt Driven Recession • Continued stagnation in income • Rise in foreclosures • Initially due to Subprime Mortgages and declining home values • Now due to rising unemployment and falling income • Impending increase in credit card & auto loan defaults • Continued falling home prices

13. Stagnating Income since 2000 Source: CPS

14. Massive Increase in Consumer Indebtedness $2.5 Trillion Source: CEA

15. Massive Increase in Mortgage Debt $13.5 Trillion Source: CEA

16. Challenges Facing Massachusetts Economic Trends Demographic Trends Cost of Living/Cost of Housing Structural Deficits

17. Massachusetts Economic Trends

18. Massachusetts real gross domestic product has already declined more than in the prior recession.

19. Initial unemployment claims are higher than in the ‘89-91 recession. 1989- 1991 2007- 2009

20. More severe than the last recession, but not as bad as the 89-91 recession.

21. The pace of decline in Massachusetts may be slowing.

22. Mass Tax Revenues: Another severe revenue crisis

23. The capital gains nightmare was not just a dream. Source: DOR

24. Population Trends • Between 2000 and 2007, the population of Massachusetts increased by less than 87,000 (1.4%) – the second slowest increase in New England (after Rhode Island) … and 1/5 the rate in the U.S. • Since 2000, Massachusetts has suffered a net domestic out-migration of over 305,000 residents. • This outflow of people has been softened only somewhat by the arrival of about 206,000 foreign immigrants.

25. U.S. Bureau of the Census

26. PopulationTrends in New England

27. Immigration & Net Domestic Migration Massachusetts Domestic Net-Migration and Foreign Immigration

28. Who’s Leaving Massachusetts? Percent Change in Population by Age Cohort, Massachusetts v. U.S., 2000-2006

29. The Future Demographics of Massachusetts Projected Percent Change in Households by Age Cohort, 2006-2017 Of a net increase of 193,500 households, 244,600 are projected to be age 55 + Source: U.S. Census Demographic Projections

30. Cost of Living/Cost of Housing • Greater Boston most expensive metro area in the country • High cost of living is adversely affecting population growth • We are losing the 3rd U.S. Civil War … the battle between states and regions for young people

31. Boston Monthly Housing $1,266 Monthly Food $ 587 Monthly Child Care $1,298 Monthly Transportation $ 321 Monthly Health Care $ 592 Monthly Other Necessity $ 500 Monthly Taxes $ 824 Monthly Total $5,388 Annual Total $64,656 Raleigh-Durham-Chapel Hill Monthly Housing $ 779 Monthly Food $ 587 Monthly Child Care $ 866 Monthly Transportation $ 358 Monthly Health Care $ 368 Monthly Other Necessity $ 369 Monthly Taxes $ 350 Monthly Total $3,677 Annual Total $44,124 A Tale of Two Cities: The Cost of Living Challenge Source: Economic Policy Institute, “Family Budget Calculator, 2005”

32. Boston vs. Raleigh

35. Housing Costs – Top 10 MSAs 1. Honolulu, HI 2. San Francisco-Oakland-Fremont, CA 3. Santa Cruz-Watsonville, CA 4. Oxnard-Thousand Oaks-Ventura, CA 5. San Diego-Carlsbad-San Marcos, CA 6. Boston-Cambridge-Quincy, MA-NH 7. Santa Barbara-Santa Maria-Goleta, CA 8. Washington-Arlington-Alexandria, DC-VA-MD-WV 9. New York-Northern New Jersey-Long Island, NY-NJ-PA 10. Los Angeles-Long Beach-Santa Ana, CA

39. Massachusetts State & Local Government in Trouble Facing a continuing budget crisis

40. Current deficits are only the tip of the iceberg in the Commonwealth • The cost of state government services is spiraling out of control • Given the rising cost of debt service, public employee pensions, and Medicaid, the Commonwealth is facing a massive long-term “Structural Deficit” that will destroy public services

41. Price of State & Local Services rising twice as fast as overall prices

42. A deepening structural deficit in Massachusetts

43. Debt Service, Public Pensions, and Medicaid will devour most of the Mass State Budget

44. How Do We Solve the Structural Deficit? • Reform inefficient government bureaucracies and government programs • Transportation • Public sector union reforms • Work rules and job classifications • Pension & medical insurance reform • Raise more tax revenue • Sales tax, gasoline tax, income tax • Regionalize public services

45. A New Grand Bargain • Reductions in Work Rules and Job Classifications • Public Sector Pension Reform • Universal buy-in on Group Health Insurance • Advocate for School Reform • Wage Freeze during times of grave economic crisis • Keep public services public