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September 17, 2014

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Q&A: Stephen Brown, director for UNLV’s Center for Business and Economic Research

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Christopher DeVargas

The primary driver of the Las Vegas economy, which is tourism, is in recovery,” says Stephen Brown, director of UNLV’s Center for Business and Economic Research.

The housing market is going to take some time to recover, but the new director for the Center for Business & Economic Research at UNLV says it’s showing signs of improvement.

Stephen Brown, who assumed the position in September, said he has some optimism because gaming revenues and visitor volume has increased.

“I think the U.S. economy recovery is picking up momentum and it’s likely looking back at this time period we’re going to say that Las Vegas was as the beginning of its recovery, although it’s hard to know at this time,” Brown said. “There are some signs that we’re at the beginning of the recovery and I think the gaming industry the recovery is going to look pretty good once the U.S. economy gets moving again but for the housing market it’s going to take a long time. It will take a several more years.”

IBLV: What prompted a career in economics?

Brown: I had four different majors in college at California Polytechnic State University. I started out in electrical engineering. I was behind almost a year my first week in class and discovered electrical engineering wasn’t that much fun. I switched to majoring in English and then I switched to mathematics. While I was a math student my adviser said go to take some economics for my degree requirement, and I did and I liked it. I majored in economics. I went off to the graduate school to the University of Maryland with the idea of being a college professor. I started off that way but ended up spending most of my career doing economic research, including 27 years at the Federal Reserve Bank in Dallas.

What did you do there?

I was hired primarily to do energy economics but in 1985 when the Texas economy collapsed as oil prices collapsed, the director of research asked me to redirect my focus to regional economic issues.

What did you know about Las Vegas before you took this job?

I was friends with (the late Keith Schwer, the former director of the center) and he and I talked about the Las Vegas economy from time to time when I saw him, which was once or twice or year. What I knew about Las Vegas is that the Las Vegas economy is really very dependent on a very narrow set of industries, primarily related to gaming and entertainment. I also knew there was a housing boom and collapse going on here. I knew from my study of economics and housing markets that housing booms aren’t sustainable. The only thing that really sustains a region’s economy is the ability to export services and goods to other regions of the country or world. I knew it was narrowly based, but knew that it was one that could be less volatile than some other industries because it’s one where if everyone else is doing well or one industry is doing well, those people will come here for entertainment.

Why did you want to come here?

I was in the midst of launching an energy center for Resources For the Future when Mary Riddel, the interim director, asked if I wanted to come here. I said, ‘No, I’m busy’, but I thought about for a while (and accepted). There is a real vibrancy to this community. It seemed like it would be a nice place to live and so I came out for an interview, things happened fast and it seemed like a good job and interesting place to live.

Any concern about filling Keith’s shoes?

I knew he was well regarded. I was in graduate school in Maryland when [Baltimore Orioles baseball legend] Brooks Robinson retired and the next guy who took over third base was a bum, right?

What does the center do?

The center’s main job is to keep track of economic conditions in Southern Nevada and disseminate information. We do that in part by collecting publicly available information and in part by our own surveys. That is our main thrust and there are other things we have gotten into as a result of that. We do surveys on a hiring basis for people.

What kind of surveys?

We do a variety of surveys. We’re doing work for the county on kiosks they want to put in that would be providing paper filing at remote locations. We’re doing a survey of how much business they might get and what kind of locations might be attractive.

Do you envision the role of the center changing?

I think the role of the center is going to change for a number of reasons. One of the reasons is that we have to respond to the changes in Nevada’s economic conditions. What worked in 2009 doesn’t work in 2010.

Like what?

Among the issues we’re confronted with here in Nevada is whether there any policies needed to promote economic diversification. And what kind of economic policies foster long-term economic growth. We’ll do more think-tank kind of work.

How big is your staff and what’s your budget?

There are seven of us and some graduate students. A third of our funding comes from the state and the other two thirds is referred to as soft money—grants and research contracts. I think it’s around $1 million.

Has your perception of Las Vegas changed since you arrived?

It’s not a very diversified economy, and I think the housing market is going to take longer than I thought coming in because I was uninformed.

How long will it take, do you think?

Several years. There is an oversupply of housing relative to the number of people who want to live here right now. The kind of boom that drove the housing market after 2000 was largely driven by a combination of loose monetary policy and financial innovation and some of that financial innovation has been cut off. We’re seeing loose monetary policy again, but I don’t think it will translate into another housing boom for Las Vegas.

What’s going on with the housing market?

The housing prices have been stable for 16 to 18 months, and it’s stable on a couple of different measures. If you look at multiple listing data, the average used house is selling for about the same price as it has the last 18 months. If you look at new house sales, they’re falling but the price per square foot has remained the same. What’s happening is the size of the house is getting smaller.

Do you not see the new home market bouncing back soon?

No, I don’t think so. The market is overbuilt. There are a lot of more houses than people who want to move here. It will take a lot of retirements and businesses coming here to boost the housing market.

Is the nation’s sluggish gross domestic product a concern?

Yes it is. This is a very sluggish recovery we’re seeing nationwide and the kind of measures the Fed is using as sort of like emergency medicine. This quantitative easing is something that what’s left that we can do. We can’t lower interest rates any more. Quantitative easing is about all that’s left.

That has been in the news a lot lately. What is that exactly?

That is the Fed going into the market and buys government bonds with cash. It essentially turns the government’s deficit spending into more money in the economy. What it does is it increases the amount of money in the economy. That idea is that will foster increased spending, but what it’s really doing right now is taking portfolios in banks that are held in government bonds and replacing it with cash. Unless the banks turn around and lend out the money, it doesn’t do much.

Are the large federal deficits hurting that lending?

I don’t think so. There’s usually some concern that deficit spending can crowd out private investment, but I don’t think that’s happening right now. The primary thing that’s limiting investment is a perception there aren’t a lot of attractive investments to be made. The second thing is that often in a recovery we see a lot of the growth comes from the small business sector and a primary means of financing is home equity loans. It’s not very easy to get a home-equity loan to expand a business.

How would you grade how the Fed has handled the recession?

C minus. I don’t think enough was done early on as we went into the recession. The policies were too gradual and I also have to look at the Fed was one of the major contributors to the economic bubble that led to the recession.

In what way?

From about 2000 onward, the potential economic growth of the U.S. economy slowed and yet the Fed maintained a high degree of liquidity. Within the Fed, arguments were made that interest rates were low because the Chinese were saving so much and putting all of their money in the United States. But that turns out that wasn’t really happening. Instead, interest rates were low because the Fed was holding them low with monetary policy and that didn’t show up as regular inflation in commodities and goods and services. It showed up as asset appreciation, primarily in the form of housing. The Fed fueled the bubble that led to the collapse.

What should have been done?

Nothing has been done to solve the financial crisis from the point of view of individuals in houses. Banks have been taken care of and that was important to be done because however big of a mess we are in now it would have been much worse if all of the banks have failed. I know people don’t like bankers but if all the big banks or most of the big banks had failed, the economy would be in much worse shape. But I don’t think enough has been done to fix the balance sheets of the households.

Who do you blame for the Great Recession?

It’s really not fair to blame one person but if I did it would be (former Fed Chairman) Alan Greenspan because he’s the one who conducted the loose monetary policy. He was the also the person who conducted monetary policy in the 1990s when we had unparalleled economic growth. He had the insight to recognize that the economy had a lot more productive capacity to grow. What Greenspan failed to realize is when that was coming to an end, he didn’t realize the potential growth of the economy has slowed down. But it’s easy to say that in 2010. He didn’t realize it had come to an end and kept pushing up the money supply.

What impact did the $787 million federal stimulus have on the economy?

It’s hard to know. We can only look at that with a model. Most likely, the economy would have done worse, but I’m saying that based on economic thinking than actually knowing. The stimulus package given the weakness of the economy probably wasn’t enough and it might not have been directed at all of the most useful things. Part of the stimulus package hasn’t been spent yet.

If you were (Fed Chairman) Ben Bernanke what would you do?

Probably quantitative easing like he’s doing now. I’d probably be more active in advocating more of a stimulus package and something to fix people’s mortgages.

What can be done to diversify the Las Vegas economy?

The work I have seen on diversification suggests it ‘s largely driven by markets than government policy. Government policy can get in the way but it can’t do a lot to foster diversification. There are some things government can do which is to make sure the universities have the right licensing policies to see that science and engineering is well funded. Here I am sitting in a university and recommending that they fund us, but universities are known for spin offs to the private sector.

Is this a good time?

The opportunity for diversification actually occurs at a downturn.

What are the opportunities for that?

As I understand things, there are certain businesses that are finding it attractive to move out of Los Angeles. There are even aircraft manufacturers moving operations here. I think more of that will happen. Given that Las Vegas has become a major travel hub, it’s completely possible that you could see with all the trade shows done here that it could be more of a merchandising center that would rival Los Angeles. The problem is Los Angeles is pretty close, but compared to LAX, McCarran is a wonderful airport.

You’re optimistic about diversification taking place then?

I think it will occur. If you think about the right kinds of diversification, the area is attractive. One of the things right now is investment in the United States is weak and diversification requires investment. But something like merchandising Las Vegas would be fabulous.

What are signs of a recovery in Las Vegas that you’re seeing?

We’re seeing gaming is up and visitor volume is up. Retail sales are still bumping along but on the whole they seems to be more positive. Unfortunately, we can’t quite separate retail sales out visitors versus local. Anecdotally, the visitor retail sales are up and the locals are hurting. All of those suggest that the primary driver of the Las Vegas economy, which is tourism, is in recovery along with the U.S. economy.

Where do you see the Las Vegas economy in the next five years?

There is still the overhang of all these people underwater in their houses that will continue to hinder the economy. I think gaming and tourism will pick back up. I think there will be some things that are a little different. The housing boom made people not just here in Las Vegas but nationwide wealthier and that feeling of wealth contributed to the growth of the gaming industry. There will be more moderate growth in the gaming industry than over the last 20 years. I think it will still be pretty strong growth, but it will be growth more of the lines of the national economic activity rather than gaming accelerating faster than the national economy.

How does the takeover of the House of Representatives by Republicans affect what will happen?

I was very happy with the stalemate we saw during the Clinton years in part because I’m not a big government person. We were enjoying a peace dividend and why let the government waste it on its own stuff? Let us waste us on our own stuff. My sympathies in general are for smaller government but in the midst of the worst recession in my lifetime and worst recession since the Great Depression, I’m not sure it’s helpful to have stalemate when it comes to economic policy.

How important is extending the tax cuts for the economy?

I think it’s pretty important to keep the tax cut extended and I can understand reasons for wanting it to have it as big as possible or just the middle class tax cut but I think it’s important to have it be in place than argue over who’s going to get the extra money.

What about the deficit?

In the long run I’m worried about the deficit, but it’s more important to get the economy moving because the economy being weak contributes to the deficit as well. I’d be in favor of a short-term extension. I’d be in favor of another stimulus package with an emphasis on infrastructure.

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  1. Excellent interview. Interesting comments about economic diversification.