More Demand = More Jobs; How Do We Get It in Oregon?

By Christopher Gergen

In this fourth installment of our five part series on job creation we are going to look at a few specific steps local and state governments must take in order to create more demand and begin the economic healing process in our state and county economies.

First, a brief summary of how we arrived at this point.

Both public and private sectors have significant roles to play in creating an environment that increases consumer demand, which is essential to the creation of permanent jobs. Though many would tilt the level of responsibility toward one or the other of these sectors, the burden of creating demand rests on both.

While both sectors are key players in job creation, ultimately it is you, the consumer, who through the mechanism of demand creates jobs. Therefore it is you who possess the ultimate power to create economic demand in Lane County and in Oregon at large.

Creating permanent jobs in Oregon and Lane County depends upon Oregonians spending money.  While it is preferable to make these expenditures at locally owned businesses, we must also acknowledge that job creation occurs when an out of state company creates jobs in Oregon to satisfy increased local demand.

Local and state governmental bodies (the public sector) participate in local job creation by, when costs are equal, employing Oregon businesses and Oregon citizens to perform Oregon’s public business.  So the government should spend Oregon’s tax revenue in Oregon’s economy whenever possible and prudent.

There is not room enough here to list all of the many issues state and local governments in Oregon need to address to aid in the creation of a healthy economy.  However, here are three key issues that need to be addressed immediately:

     1.     Restructure PERS

The issues directly related to the huge shortfalls created by runaway PERS expenses are so complicated that I doubt there is a way to fix the system as it exists today.  Thus I would not presume to offer a comprehensive solution for this issue at this time.

But I will assert that both Republican and Democratic leadership in Salem must muster the moral and political courage required to make tough decisions about PERS reform.  Some might argue that there is an effort to get this done on both sides of the aisle, but at the end of the day, Oregonians understand that effort is nice—but results matter.

If Oregon’s Legislature and Governor do not address the PERS challenge meaningfully, Oregon will careen into a financial abyss with bankruptcy at the bottom.  Already, many states are, thanks to their legislatures’ inability to make meaningful changes to their pension plans, staring into this abyss.

According to a paper published by the Nation Bureau of Economic Research, “Seven states (will) run out of money before the end of 2020, including Illinois (2018), New Jersey (2019), and Connecticut (2019). 20 states will run out by the end of 2025, and 31 states by the end of 2030.”  The same research shows Oregon will run out of money in 2039—a mere 27 years from now (1).  Unfunded pension liabilities are major contributors to these states’ predicaments. Clearly, the current PERS system isn’t sustainable for Oregon.

For more on the challenges Oregon faces from an unreformed PERS go back to the Healthy Communities Initiative home page, click on “Issues” and then click on “PERS.”

        2.     Lower (or eliminate) government spending for non-essential budgetary items and redirect this funding to essential budgetary items such as public safety and education

Examples of wasteful government spending in Oregon are legion.

Back in 2000, while Oregon was suffering the effects of an energy shortage, State government decided that the best use of several Public Utility Commissioners’ time, energy and salaries was to send them to seven countries, including Armenia and Zambia, to promote Oregon’s model utility system (2).

More recently, Oregon spent $900,000 of Federal stimulus money to erect, alongside  existing bike signs, nearly duplicate signs, the only difference being that “…(they) include arrows, distance, and travel times to key destinations.” (3)

For every year (day?) between “The Utility Commissioners’ Excellent Adventure” and “Why Buy Just One Bike Sign When Two Will Do Nicely?” examples of laughable government spending abound.

      3.     Repeal Measures 66 and 67

According to Kiplinger, because of Measure 66’s increase of personal income tax rates and Measure 67’s increase in corporate taxes, Oregon is the fourth most unfriendly state for retirees, earning it a not-so-envied place on its “Do not live here in your second act” list (4).

Both measures discourage outside money from coming to Oregon and circulating in our economy. Measure 66 is, in reality, an incentive to people to move somewhere other than Oregon. This is especially true of high earners such as doctors, dentists, lawyers and others who, because their businesses are “Subchapter S” entities, have their business income taxed at personal income rates. Remember: high earners tend to be high spenders and investors – just the kind of people Oregon most needs.

Measure 67, with its tax on Oregon sales (irrespective of profits), discourages businesses from forming in or moving to Oregon.

Prior to the vote, the Tax Foundation predicted that, with passage of both measures, Oregon would drop six places in its ranking of states based upon business climate (5).  Subsequent passage of these measures signaled to large and small employers alike that Oregon is not serious about creating an environment friendly to economic growth.  The root of many of these damaging policies is Keynsian economics.

Many in Salem, agreeing with English economist John Maynard Keynes, believe that, in a stagnant economy, the government must inject money into the economy to drive economic growth. But the catch is that in order for state and local governments to do this, they must first extract this money from the economy through taxation—thus the rationale for Measures 66 and 67.

Somehow, the fact that this never works seems irrelevant to them.

It’s worth noting that these measures have utterly failed to produce their intended results.  Besides damaging both supply and demand climates, Measures 66 & 67 have missed their revenue projections by a staggering 50% (6) and fallen victim to the economic certainty that when tax rates rise above a specific point, total revenue actually declines. The “cure” for Oregon’s budgetary woes has left the State with continuing, huge budgetary challenges.

In this installment of our series we’ve discussed what government actions do and do not  create the demand that sustains a healthy economy. In the next issue of Lane Solutions we’ll look at the proper role of business in creating permanent jobs which lead to the demand we so desperately need in Oregon. Be sure to come back and join the discussion.

1. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1596679 (reference found on pages 14 and 27.  You must download the paper)
2.  http://www.chicagotribune.com/features/tribu/sns-pgc-wastebook-2010-pg,0,4199163.photogallery
3. www.cagw.org/assets/state-piglet-books/2002/2002-oregon.pdf – 2009-03-10. Open the first link on the page, scroll to “2002 Piglet Book” and scroll to “Travel Woes.”
4. http://www.kiplinger.com/slideshow/TaxUnfriendlyStatesRetirees/5.html#top (10 Tax-  Unfriendly States For Retirees 2011)
5. http://www.taxfoundation.org/news/show/25680.html
6. http://www.oregonlive.com/news/index.ssf/2010/08/measure_66_tax_revenue_coming.html

Chris Gergen is a Springfield based financial advisor and is the author of The Quality Paradigm: Why You and Your Business Need it to Succeed. He blogs at Be Epic.Daily. He can be reached via email at chris@chrisgergen.com.

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