Hopefully, this doesn’t herald the return of the nightclub and long lines to buy gasoline. But inflation is once again stalking Orange County and the whole country. That’s according to Chapman University’s June 16 economic forecast, the most accurate in the country.
I’ve been attending the preview for 34 years now, when it included lunch served in a mid-sized classroom, instead of the beautiful new Musco Center on their campus. As always, Jim Doti, President Emeritus and Economist, gave a fun and informative presentation.
For OC, the main takeaway is that house prices are now in a “bubble”, with prices over the next two years falling as much as 15%. The strong increases of recent years – 15.5% this year compared to 8.6% in 2020 – cannot be sustained.
The spark of the decline will be familiar: Anticipated interest rate hikes as the Federal Reserve ends its ZIRP zero interest rate policy The forecast came hours after President Jerome Powell announced that the Fed planned to hike interest rates twice in 2023.
Doti pooped the ad. He stressed that the mandate of the Congressional Fed includes maintaining price stability. So no matter what Powell says, if inflation takes off, interest rates will be raised. And higher interest rates translate into higher mortgage rates.
On inflation, Doti quoted his professor, the great Nobel laureate in economics Milton Friedman: “Inflation is always and everywhere a monetary phenomenon. The Fed injected billions of new simoleons into the economy to end the Covid recession. This money circulates everywhere, stimulating demand, which in turn puts pressure on supply and causes prices to rise.
The money created, he said, takes about two to three years to seep through the system. This should lead to an inflation rate of 5.3% by 2023.
In turn, Chapman’s figures indicate that mortgage rates will rise to 4.7% in 2023, from 3.0% today.
Orange County is part of California. The economy is recovering strongly. But during the Covid recession, the Golden State lost 8% of its jobs, compared to 6% nationally. This is 320,000 more lost than what would have happened if the state had been better managed. The number is more than half of the entire population of Wyoming. Lots of pain.
And while the population of the Golden State increased by 350,000 people ten years ago, there is no more increase or decrease possible. The net inward migration to other states is 260,000. It takes monumental political stupidity to take people away from perfect weather to Siberian Dakota.
Chapman Number Calculators have come up with an interesting new analysis, based on data from the Mercatus Center at George Mason University. The average number of state regulatory laws is 100,000. But California suffers from 395,000, by far the most onerous burden in the country. “The number is very large and increasing” because it affects the economy, said Doti. “It’s a great state, but Sacramento is screwing it up.”
He pointed out that Missouri aims to cut red tape by a third to free its people and create jobs.
Another big negative factor, of course, is taxes. At least we’re not the worst. We are second, after New Jersey.
Doti also presented the preliminary results of a new Chapman-UCI innovation indicator. Jobs in innovation do not only include computer scientists, but also engineers, scientists and others. In California, they pay an average of $ 210,000, more than double the average of $ 90,000 for other jobs.
Oddly enough, during the recession, the number of innovation jobs continued to increase by 1.6% in California. “This is where the action takes place,†Doti said.
Oddly, Orange County is falling behind on this measure. The number of innovation jobs here has remained virtually the same as in 2005, at 68,885 in 2020. But San Diego – similar to us in terms of population size, demographics and climate – has seen a growth of almost 50%, to 95,945.
Doti said they are now looking for the reason for the dichotomy. Maybe it’s the San Diego Zoo.
If you are an innovator and have a high IQ, California is still Xanadu. Otherwise, high taxes and 395,000 state regulations make your life a sketch of the Monty Python where a 16-ton weight falls on your head.
John Seiler is a Registry columnist.