(HOST) Commentator Art Woolf foresees a rocky economic road ahead and looks to Vermont’s past as a guide to what the nation, and the state, might expect in 2009.
(WOOLF) After a six year period when housing prices double, the housing market collapses. Construction of new homes plummets and home prices fall. Banks are left holding mortgages that are worth less than their face value. This leads to many bank failures. Financial markets are a mess, and there’s a credit crunch where businesses find it hard to get loans.
The U.S. in 2008? No, that was the situation in much of New England, including Vermont, in the late 1980s and early 1990s.
The U.S. experienced only a mild recession in 1990, one that lasted merely eight months. However in New England and Vermont the economic downturn was much more severe and began a full year earlier. The regional economy did not fully recover for five years.
Our experience in that downturn provides a useful roadmap for what the U.S. economy is likely to experience as a result of the current financial crisis, which was also caused by excessive investment in housing and what turned out to be, in hindsight, very poor judgement on the part of bankers.
How bad was it? Vermont’s unemployment rate stood at a record low level of 3% in the summer of 1988. By the spring of 1991, it had risen to 7.7%, and it stayed above 7% for a full year. Vermont lost 15,000 jobs between 1989 and 1991, a job loss of more than six percent — the worst job loss in Vermont since the Great Depression and four times the national rate.
Declining state revenues led to a huge budget deficit, which took Governors Snelling and Dean four years to pay off. State government spending remained virtually unchanged for several years, and sales and income taxes were raised to help retire the deficit.
That bruising recession provides a lesson for the nation, and for Vermont. The current recession – and, yes, we are now almost certainly in a recession – is likely to last much longer than the mild, and short, recession of 2001.
Unemployment – today 5.2% in Vermont and 6.1% in the nation – is likely to rise by nearly two percentage points.
Vermont is likely to lose upward of 6,000 jobs.
State government will see a dramatic decline in its tax revenues. And those conditions are likely to last for at least a year. Not a pretty picture.
So how can Vermonters cope? By getting back to traditional Vermont values: be frugal and careful with your finances; spend, save, and invest wisely.
Vermont’s government – and the nation’s – must do the same. We have come to demand more and more from government, and when times were good this was possible, if not prudent. We are now facing times that are anything but good. Revenues will fall, and budgets will be cut, and we all have to expect less from government.
We did it before, and we can do it again. Because, really, we don’t have much choice.