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California provides economic curse, blessing to Oregon

July 30, 2010

By Bill Watkins, Oregon Economic Forecast
California Lutheran University
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Oregon is in for at least a couple of more years of economic challenge, and there is little that can be done in the short run. The United States economy will be very soft, and Oregon has the assets and liabilities it has. To paraphrase a former Secretary of Defense, you fight the recession with the economy you have. Unfortunately, Oregon’s economy, while certainly diversified from, say, 20 years ago, is still very tied to building materials and California’s economy. Given our forecast of real estate prices and construction, the building materials sector will likely recover far more slowly than in past recessions.

California’s economy is significantly worse than that of the United State economy, due in part to its massive home-price bubble, a result of over-investment in housing. California is also moving forward with public policies and regulations that are increasingly motivated by non-economic factors, some of which are economically costly and put the state at a competitive disadvantage.

Oregon’s strong ties to California’s economy, a natural outcome of the immense size of California’s economy and California’s geographic proximity, will surely slow Oregon’s economic growth in the short run. However, Oregon’s ties to California are both a curse and an opportunity. Those ties have hurt Oregon throughout this recession, and they will continue to hurt in the near term.
Things are different in the long run, though. In the long run, California’s problems are Oregon’s opportunities. California shows no signs of correcting its many economic issues. Its educational system is in decline. It does not invest in infrastructure, and it hasn’t for decades. Its regulatory environment is oppressive and volatile. Its taxes are high. It has energy and water issues. Finally, many California communities would just as soon not see economic growth. Some California communities see jobs growth as a cost.

Oregon thus has the potential to replace California for some purposes. To do this, Oregon should look west. The State is perfectly located to profit from Pacific Rim trade. California’s ports are showing the signs of inadequate investment. Oregon can be America’s window to the Pacific and the point of entry for goods headed for locations throughout the United States.

Oregon’s location on the Pacific Rim and its abundant water and energy, combined with California’s forfeitures provide opportunity, but Oregon needs to be prepared for them. Unfortunately, Oregon has followed some of the same policies that have caused so much pain in California. Its taxes are high. Decision making is centralized. The regulatory environment is a source of higher costs and uncertainly.

Oregon is at a crossroads with unprecedented risks and opportunity. California’s weakness provides the opportunity. The risk is in inaction. Indecision is a decision for the status quo, weak economic growth relative to the United States, and deep recessions in the future.

  
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