Appalachian Perspective: Dr. Todd Cherry on North Carolina's Economy

Hosted by Appalachian State University's Chancellor Kenneth E. Peacock, Appalachian Perspective cable television program has featured prominent and interesting North Carolinians, the university's leading academic and public service programs, and other topics of statewide interest. Episodes air across the state on cable operators' community access channels. The 30-minute program is a production of the university's Office of University Communications.

How do you improve policy- and decision-making? Appalachian State University students and faculty research current economic and policy issues, economic development, environment and energy, and public finance. They use three laboratories on campus to conduct their research. Meet Dr. Todd Cherry, the man who coordinates this research that is helping improve decision-making in North Carolina.

Transcript

Chancellor Ken Peacock: How do you improve policy- and decision-making? Appalachian State University students and faculty research current economic and policy issues, economic development, environment and energy, and public finance. They use three laboratories on campus to conduct their research. Coming up on Appalachian Perspective, we'll meet the man who coordinates this research that is helping improve decision-making in North Carolina.

KP: Welcome to Appalachian Perspective. My guest today is Director of Appalachian's Center for Economic Research & Policy Analysis, Dr. Todd Cherry. Welcome Todd. It's good to have you here.

Dr. Todd Cherry: It's good to be here.

KP: First, how long have you been at Appalachian State? Tell me a little about that.

TC: I think it's going on ten years now.

KP: In your role right now, you are the Director of the Center for Economic Research and Policy Analysis - a fairly new center on our campus. Tell us about that work and what you do.

TC: The Center is relatively new. It's been around a year, maybe two. But the work it houses has been going on for about eight or ten years. Going back to when we started the Western North Carolina Economic Index, and that was like the first effort in this regional economic development engagement that we do. That kind of grew into other activities and we've adopted experimental economics, public finance, and energy and the environment is big in the Center. Eventually, the activities grew so much that it made sense to have a center that facilitated and managed those activities. So, while the Center's new, the activities that take place within the Center have been evolving for the past eight years or so.

KP: Todd, do you have other faculty members that work with you, and how do you engage students in this work?

TC: We have probably ten to twelve faculty members engaged in various projects throughout the Center. We have different clusters underneath the Center. We have an experimental economics cluster that looks at policy and simulations in the lab. Then we also do energy and the environment and we do public finance and regional economic development. We have these clusters and each cluster has a program director and so we have faculty engaged in those specific areas on campus. We engage students—we have research assistants that help us on individual projects on a need basis.

KP:Todd, you're one of our faculty members that's frequently cited by the news media, whether it's radio, television or the printed media for research projects that you are working on. Sometimes you're actually just hired to do a project for them. What are you working on right now—what are the hot topics?

TC: Right now, we just wrapped up a project that we worked on for the UNC system. We looked at the research activity on the UNC campuses across the state and really looking at the economic impact that they have on the state's economy. We just wrapped that up and it had some very interesting results. The data was from 2008 and the state, in that year, invested about $70 million into research on UNC campuses. That, in turn, generated enough activity to generate about $800 million worth of economic activity for the state. The real surprising result was that that activity that it generates through hiring new researchers and bringing in people from out of the state to North Carolina generates enough tax revenue to almost offset—and the estimate was actually a little higher than—the initial $70 million invested. It was a result that was somewhat unexpected, but it was intuitive in a sense, because it's really providing seed money for research on UNC campuses that then provides the faculty the capacity to go out and get external money and bring it to the state. So, we go and get federal dollars or funds from other states and bring them to North Carolina and have the activity in North Carolina which would be taking place in other states if we didn't have that capacity here. So, the state investing in that capacity up front enables the faculty and the campuses to generate that activity that wouldn't be here otherwise. So, it's really a direct injection into the state's economy that makes a significant impact, and that really ignores the broader benefits of the research itself, in terms of education and just the creation of new knowledge that takes place in the state.

KP: What was that number, one more time, that you said the system generated?

TC: I think it was $840 million. And that translated to about 8,200 jobs. So if you look at what the state does to bring firms to the state, then this is by far a better deal than you see in those other deals that they come up with.

KP: Given the budget situation in our state—in every state—we have to be careful about every dollar that's invested. We have to look at all centers and institutes that have been charged to do that by people in Raleigh and Chapel Hill to make sure that we're doing things that do benefit our campus and our region and our state. The center where you direct, talk to me about how that really directs people in this region and how it serves the people of North Carolina.

TC: Going back to the Western North Carolina Economic Index, the point of that project was to generate information that wasn't readily available to business and political leaders in Western North Carolina, because being in this part of the state oftentimes we're overlooked in terms of information and some of the issues that we face are overlooked. That was one of the purposes of that report—to not only provide timely information that can help decision-making, but also highlight some of the issues that the region faces. One aspect is just providing information in a usable fashion. But we also, through research, generate new information that isn't available, but we also try to take information that's available but disseminate it in a way that's usable to business leaders, and local governments as well.

KP: In Western North Carolina, talk a little bit about how we're doing. You go to some areas, whether it's Boone or Asheville, and you feel pretty good. You go to other areas and you feel kind of depressed about things. How, as a region, do we compare to our state or other parts of our state?

TC: It's difficult because a region varies—it varies across a region. You have Asheville and Hickory—we define Western North Carolina as including Hickory and that metro area—so you get the rural counties, you get Asheville, and then you have Hickory and even the foothills are different than the High Country. There's a lot of variation in terms of economic conditions, even social conditions, across the region so when we do the monthly report that we do, we give some broad idea of how the region is doing, but we try to break it down and try to acknowledge and take into account those differences within the region. You're exactly right. Some areas are doing well and some areas are not doing as well. If you look at the last decade—we just did a report reviewing the region's performance from, I think, 2000 to 2009, like a decade review, of how the region performed relative to the state and the nation. It was a tough decade for the country with two recessions in that period, but it was particularly hard in North Carolina. The first recession hit Hickory and the foothills extremely hard and then this latest recession just hit everyone. It had different fundamentals that were taking place. Over that period, in that decade, it was not a good decade because by the end of 2009 we were down 50,000 jobs relative to what we had at the beginning of that decade. That's about 8% of our job base that we've lost. The first recession wasn't as bad. I think we lost about 20,000 jobs in that recession. We regained those 20,000 and were actually up 10,000 before this last recession. That was, as everyone knows, a severe recession. We ended up losing 60,000 jobs in that recession. We've gotten a little bit back since then, but we're still struggling in terms of job growth and creating those opportunities in the region. Obviously the state and the nation as a whole are not doing as well either, but in relative terms we did a bit worse. And a lot of that is in the Hickory area, because they were hit so hard in that 2001 recession and they never really recovered. The old saying in that recession was that we're losing jobs that we're never going to get back, and that was exactly what happened, we didn't get those jobs back. Hickory and the Hickory-Lenoir-Morganton metro area—you could characterize them as being in an eight-year recession because they never really got out of the first one before the second one hit. So that's really driving a lot of the numbers in the Western North Carolina region.

KP: When you look at these recessions from the state's perspective, who has fared better? Has it just been everybody?

TC: Everyone's feeling pain. The issue is is it disproportionately felt by one area or group or part of the state. Rural areas have been hit particularly hard. Western North Carolina has been hit particularly hard. The first recession was more manufacturing-based, so that was in the foothills where there were more manufacturing-centered economies. Those were hit particularly hard. This latest recession, it was more of the housing bubble and financial, so Charlotte was hit particularly hard in that latest recession. The one area that did well, relatively speaking, was Asheville and that area because it didn't have the manufacturing that was hit so hard in the first recession and it felt some of the downturn in this latest recession but it had a more firm foundation to hold itself up with.

KP: If you had the chance to advise the Governor, what would you say to help us do better or come out of this thing faster? What would be your advice?

TC: It's a really difficult question. There are things that can be done that might, I guess, speed up the recovery somewhat, but this is more of a national downturn. I think that one thing that's taken place these last nine years is our emphasis on attracting outside activities to the state. We're doing a lot of bidding for projects, doing a lot of bidding for firms. There are really three legs to economic development. You create new opportunities, create new activities within your borders, your community or your state. You can expand existing opportunities—make what you're doing better, increase it. Or you can attract someone else's activity to come to your state. One, attracting industry from another state is not really economic development, it's just competing for somebody else's development. You're competing for existing opportunities instead of creating new opportunities. There's a place for that, but the difficulties we've faced recently have shifted our attention to doing that as a short-term fix. It's a short-term approach to economic development. Hopefully we're not forgetting the long-term issues—workforce development, investment in infrastructure and those things that take a long time to see the return, but without those, you're not going to do very well. I think that in the broader scheme, that you would keep in mind diversifying the activities and diversifying your efforts and taking care of some of the basics and not forgetting those while you're running after attracting activities from other states.

KP: If we have—and I agree with you totally—lost jobs that will never come back, what do we do as a university to go out and help people say, "Here are the jobs of the future. Let me help you. Even though you may have worked twenty years in one particular job, it's now gone and it's not coming back." What do we do? How do we advise and how do we assist?

TC: What I tell my students is that it's another world out there. Things change so quickly and we don't know what are going to be the jobs of the future. I always tell my students that it's important to be flexible and have those skills that are transferable from one job to another job, because things just move so much faster now than they used to.

KP: Are things, in your opinion, in the economy, are they better now than they were eight months ago or a year ago? Are we coming out of this?

TC: The latest report we did, we saw a little uptick, which was nice because before that there were a few months where it looked like it was weakening. Whenever you have one data point, you can't really draw too many conclusions. You look for the trends. We came out of the recession when the NBER defined the recession to end. We saw some growth coming out of there and then it stalled. I think everyone kind of observed that and even experienced it to some degree. There was some talk of a double-dip recession and we saw some weakening that that was a possibility. Albeit maybe not a high likelihood, but it was a possibility. The latest numbers do show a little bit of an uptick. We're starting to see, maybe, it break that trend, which was a good sign in terms of prospects. But when you're talking about not declining and you're happy about that, that tells you something about where you're at. We still have so much ground to catch up in terms of a recovery. There have been estimates that it could be five years or more before we start seeing any kind of level of employment like we had just a few years ago.

KP: Find an answer, we don't want to wait five years. That's a long time. Being a non-economist, but listening to the news and hearing the reports, they'll say things like this data point here is encouraging and things are getting a little bit better. The next thing they'll say is that people aren't buying—they don't have confidence. So, if there are signs that say things are a little better, why don't we feel it? Why don't we know it? How can we get to that point that we do, as they say, spend things. I understand the spending thing. I get that.

TC: Because our economy is made up 60%—two-third—consumption. When people cut back like they have, it makes a dent in our economic activity, our overall growth rates. We were on such of a high in terms of a bubble, and almost living beyond our means to a certain extent, that coming back down ... it's going to be a long time before we get back up to that level. That's really what the problem is. What is the baseline that we're comparing ourselves to? To compare what we're experiencing now to where it was at the peak of the bubble isn't a really realistic comparision. But it does have a lot to do with confidence and there really isn't a lot of confidence out there right now in terms of consumers. The good side is that people are saving more. But the bad thing is that banks are also sitting on a lot of cash and it's not out there. You don't really know if it's the banks or maybe people just aren't borrowing because they don't want to take on that debt. At one point when the crisis hit everything kind of froze up and it's not frozen now but it's going to take some time before people start relaxing enough to where they can take some risks from the business community and the households, their consumption patterns.

KP: Aren't the banks being a lot more strict now to whom they will lend money or allowing you to have a large down payment before they will talk to you?

TC: That's what I hear. I have colleagues that have bought houses recently and they've gone through the process and it seems like it's working fairly well. But you never know what it's like for individuals in a different situation. People are trying to refinance now with the interest rates being so low. Refinancing has increased but I'm not sure if that's going to be enough to take it to the next level of confidence and spending.

KP: Todd, you are at a university that people ask at times, "What do you do to really strengthen the economy of where you are?" What's the university's role in economic development? We talk about strengthening the economy. Do we hire people? Do we have jobs for them? We need people of all different skill sets and all different education levels. So a university itself does things like provide jobs, but is the role more than that?

TC: Yes, it is. We actually did a study that estimated the economic impact of Appalachian on the five-county region, the High Country region. We estimated that the economic impact was about $500 million for the region and generated about 5,000 jobs. So, those are the impacts, the direct impacts we have of just our existence, but that really isn't the mission of the university, because you could put any type of state operation here and run it and it would create activity and jobs. There are some locations that they've lobbied to have a prison put in their county because it generates jobs. So just the activity itself, though it creates jobs, is not the broader purpose of the university. In my opinion, the university has a long-term perspective that is critical in terms of economic development for the state and the country. I talked a little bit about the three legs of economic development, and universities, if you think about it, historically have always been about economic development because we provide economic development one person at a time by giving them skills and education and knowledge so they can go out and succeed at a social level and economic level. You add up all of the individuals that go through all of the universities every year, that is workforce development. That's our teaching mission and that is one of our central objectives. The research component has more of a broader social economic development goal where we generate new knowledge or new opportunities for society to take advantage of. So, if you think about universities as a whole, we've always been about that economic development in that sense, but those are all long-term prospects and that's the threat that we have to stay away from in terms of the universities responding to more of the short-term needs and demands. Our perspective is a long-term perspective, whereas the political arena and other agents in the state's economy, they look at more of the short-term. There's a role for that, but we don't want to fall into that realm of activity. We have a special role that we have to play and we have to maintain that, I believe.

KP: In the Center, what is one of the most impressive projects that you have come out with that might be an example of economic development, where you've taken something to advance it or brought innovation in that could benefit our state or our region?

TC: I think that it's just knowledge. Right now, we've just finished a study that we worked with the North Carolina Rural Center with. It was looking at individuals and households living at the economic margin, and it really wasn't looking at those living in poverty, but the ones that are at risk of falling into poverty. One thing that you might understand is that it could be a lot easier and less expensive to address ... to keep people out of poverty than it is to bring them out of poverty. So, if you could address those issues and address those risks that those households face that might push them into poverty, then you might be helping the state as a whole in the long run. So, in that project that we just completed, we tried to look beyond the standard measures of income and employment numbers and look at some of the hidden contexts, the hidden risks that they face like child-care issues, transportation issues. If someone's car breaks down, does that mean that they can't get to work? Do they lose their job? That might put that household into another reality. Some states have experimented with transportation assistance or car purchasing assistance or those types of problems. Trying to look at and identify the specific risks that these households face so policy can be better informed and better targeted to help those individuals.

KP: Well, in addition to being a faculty member at Appalachian State University and the director of a research center, you also are a visiting scholar with the Center for National Climate and Environmental Research in Oslo, Norway. How did you get that and what are your responsibilities there?

TC: I'm working on the second project that I've had with them and it's part of a larger research agenda looking at acceptability and feasability of climate change policy. It has broader implications than just climate change. It's about any policy, really, because one of the problems that we have is that we can't enact or implement solutions to some of the problems we have. We have some answers, we have some solutions, but often times public opposition and government operations just doesn't allow for those solutions to be implemented. This whole research agenda is trying to look at some of the ways that policy-makers and policy can be designed or presented or even experimented with to try to overcome some of that opposition and aversion to some of these solutions. It's amazing, though, that individuals and the public can oppose policies that would actually make them better off. They do not see how it would work, or they have misperceptions or they just don't trust that the policy is going to be implemented the way it was said it was going to be implemented. We just finished up a study that follows from Stockholm, Sweden, a trial run that they did, a congestion charge. They have a traffic problem, Stockholm does. They proposed a congestion charge, which is a pretty common solution. It's essentially a tax on driving, but only 34% of the people supported it. The vast majority of the people opposed that idea. So Stockholm, they said alright, we'll do a trial run and at the end of the trial run we'll do a referendum to see what you think after we do it. So they essentially said, OK, we're going to make you eat your peas and just try it and see if you like it. I can't remember how long the trial period lasts, but it was a long enough period that they experienced how the policy would work, the impacts of the policy. After it was over, they held the referendum and it passed by over 60%. So, just experiencing ... having a trial run, in some cases, can help facilitate a solution being enacted. That wouldn't work for all cases. The reason why that worked so well is because you have immediate ... you observed the results immediately. They immediately saw that congestion was alleviated. Other policies that have a longer term impact might not work—a trial run might not have that same effect. That's just one example of trying to be creative in trying to see how we can get policy over the hump and make things better.

KP: Well, Dr. Todd Cherry, thank you very much for being a guest on Appalachian Perspective. Thank you for the great job you do for Appalachian and for the Center in Norway. We appreciate you very much and thanks for your leadership.

TC: Thank you.