Jay Prag
While the economy looks good on paper, America didn’t exactly come bounding back from the Great Recession.
The recovery, according to Professor Jay Prag of the Drucker School of Management, has come slowly and strangely, hindered by a series of fiscal policy missteps, courtesy of the federal government.
“I’ve been around watching this stuff since the ’80s, and this has been a weird economic period with the United States,” said Prag, the keynote speaker at the California Apartment Association’s Professional Property Managers’ Forum in June. The CAA Greater Inland Empire event attracted about 90 rental housing professionals to the DoubleTree Ontario Airport. The next such forum is scheduled for July 23 in Newport Beach with a focus on trends in customer service.
During Prag’s 45-minute talk, the professor delivered insights, facts, and even a few jokes, in whirlwind fashion. Characterizing the recovery as weak, Prag cited slow quarterly growth and pointed to four quarters of either zero or negative growth.
“I saw a story in the paper just this morning that referred to retail sales or something or another, and it said that the economy was picking up steam,” said Prag, whose presentation style is conversational but fast-paced. “Jeez, we are five years into this recovery. We shouldn’t be picking up steam. We should be flying. We should be blasting through. This is not picking-up-steam time, you know?”
To Prag, ill-conceived moves by the current administration included dumping $1 trillion into fiscal stimulus, an example of the flawed Keynsian philosophy at work, and overhauling health care during an economic downturn.
“The policies that were undertaken at the beginning of the recession, the response to the recession, were inappropriate for the problem that we had,” Prag said.
Instead, he said, the government should have focused on retraining displaced housing-sector workers. Many jobs — flattened when the real estate bubble burst — aren’t likely to return, leaving a large segment of Americans needing new skills for new careers.
Meanwhile, indicators of the economic recovery can be misleading, Prag said, pointing to the unemployment rate, which peaked in the recession at about 10 percent. Nationally, it’s dropped to about 5 ½ percent.
“There is something amiss,” Prag said. “If you read the stories about this, you know that a lot of people have simply dropped out of the labor force during this recovery.”
The professor also took aim at local-level policy mistakes, citing Los Angeles’ recent minimum wage hike.
“I think minimum wages are absolutely catastrophic for the very people that policymakers claim to be trying to help — working-class people,” Prag said. “You cannot show me a $15 minimum wage that doesn’t kill jobs. It’s just not possible. There are just too many people whose productivity for the company isn’t worth $15.”
The silver lining? Companies unwilling to pay the higher minimum wage in L.A. may move operations farther inland, bringing employment opportunities to the Inland Empire.
After all, the Inland Empire is a Southern California hub for working-class jobs in fields such as logistics and transportation, fulfillment centers and warehousing.
And while these may be good jobs, they don’t epitomize high-income positions brimming with upward mobility, or the types of skilled positions that lead to homebuying or luxury-apartment living. And unlike a college-educated workforce, or workers with lifelong skills like electricians or plumbers, today’s worker in the Inland Empire may face a harder road when the economy stalls again.
“What skills are we giving them so that when the jobs leave, or when things slow down, they can still earn money?” Prag asked. “I mean, the step down after working at a standard fulfillment center job is I guess being a stock boy at Walgreens. And that’s what I did when I was 17.”
Besides a limited skillset among today’s workers, Prag frets about the methods government is considering to meet affordable housing needs. Instead of making it easier to build housing or offering tax credits for affordable housing construction, politicians are contemplating policies such as rent control.
“I don’t get what they’re seeing. Where did that ever work? Where did rent control ever do anything other than decrease housing creation and increase shortages? It has to. It’s a supply and demand curve. It’s an easy draw. I don’t get what they don’t get.
“What they get is right this minute I can control the rent on every housing unit that’s currently here. Swell. Don’t ever expect another one.”