A buzzing throng of local business figures, students, and other guests assembled at the Hannaford Lecture Hall at 7 am on January 14th to witness Muskie School professor Charles Colgan’s annual economic forecast.
A morbid excitement filled the air prior to the lecture, as more than 400 guests milled around the urns of coffee, platters of danishes and sliced canteloupe.
“You always see more people at these things when the economy is bad,” remarked Jim Ortiz, president of SMCC. Ortiz has been present at the last five presentations and said that every one has been worth attending.
In addition to holding positions in several national and local economic organizations, Colgan is a professor of Public Policy and Management at the Muskie School, and the chair of Muskie School’s Community Planning and Development Program.
This year’s lecture marked the 16th annual “Breakfast with Charlie,” where he analyzes previous economic trends in an attempt to map out a prediction of Maine’s economy in the coming year.
His forecast for 2009 ranged from the pessimisstic to the depressing, with a few brief moments of guarded optimism.
On one hand, the end of 2008 may turn out to be the worst point of the recession. On the other hand, Colgan doesn’t see the recession ending until the third fiscal quarter of 2012.
He forecasts 2009 as being a year of steady decline for Maine’s job markets. By the end of the recession, he estimates that 17,000 jobs will have been lost from the local economy.
“And this is my optimistic forecast,” he warned.
By most accounts, Colgan’s forecasts have historically been accurate, though he is the first to point out that “the dismal science” is not an inerrant predictor of human behavior.
“For the first three quarters of 2008, my forecast was relatively on track,” he half-joked at the beginning of the presentation. “I did however miss the collapse of the financial system.”
Colgan explained that accurate forecasts of economic trends are predicate upon certain assumptions about the economy holding true.
“Economic forecasting, like weather forecasting, is actually pretty good, if the system behaves itself,” he said last Thursday.
USM economics professor Michael Hillard agrees that forecasting can be problematic when unpredictable forces intervene.
“The basic problem that forecasters face is that they can only extrapolate from what they know today, and what they know from the recent past… Extrapolation doesn’t work when there are sudden turns of events.”
Colgan says that this years forecast is based on a set of prerequisite policy intiatives being put in place to stave off future decline.
“If those assumptions are wrong, I’m not going to be anywhere near right,” he said.
According to Colgan, before the economy can begin to recover, credit markets must first recover their function. The basic inability of people to procur loans has effectively halted the flow of credit. The Federal Reserve’s attempt to stimulate the economy by pumping billions of dollars into the stalled banking system is a futile pursuit without a functioning credit market, he says.
Colgan says the next step is an effective fiscal stimulus, which newly inaugerated President Obama is currently working to draft into law.
According to Hillard, the success of Obama’s stimulus package is difficult to predict.
“All things being equal, the stimulus package should help. but we don’t know if that will happen successfully, or if it will be enough.”
State governments are hoping for a piece of this stimulus to shore up widespread budget shortfalls. However, given the depth of Maine’s current budget crisis, whether the University of Maine will get any of this money is uncertain.
“With Baldacci’s position, the University will be well back in the line in terms of any kind of stimulus that the state gets,” said Hillard.
Both economists agree that the impact of the current recession on state universities is nothing new.
“We have been through this before,” says Colgan.
The recessions of 1975 and 1991 were the worst in recent memory for state universities, he says.
“Those two both saw pretty heavy cuts to the university system. there were a lot programatic cuts, layoffs, and so on.”
Hillard remarked that state support of publicly funded universities generally drops during times of recession, but due to increasing health care costs over the past 20 years, the state never returns to its previous level of funding.
Hillard agrees that there is a predictable tightening of the belt for higher education in recessionary times, but that this time around, the University may feel the pinch more than in previous times.
“The depth of this crisis is as big as we’ve seen in a generation,” he said.
Colgan says his yearly forecasts are meant to provide an interpretation of the vast wealth of economic information available to the public.
“What I do is try to link all the national news into an outlook for Maine. And that helps a lot of people put their own plans into context.”
What people choose to do with his predictions is ultimately up to them, he says.
“I don’t know if it helps them or not. I do know that a lot more people come today than used to.”
To listen to Dr. Colgan’s presentation, and view the presentation slides, visit:
https://blogs.usm.maine.edu/publicaffairs/archives/148