If economists are going to add value, they need to change how they do their jobs. Instead of staying in their “Ivory Towers”, economists need to mix it up with the “regular people” and do original, fundamental, on-the-ground research. And, Las Vegas is where they should be going to gather data. Few economists view Las Vegas as a valid research site even though every week tens of thousands of business people go to Las Vegas to sell their goods and services in organized industry specific trade shows and marketplaces. Las Vegas is where an enormous amount of North American trade occurs and business activity in Las Vegas is a leading indicator for the entire U.S. economy. What takes place in Las Vegas doesn’t stay in Las Vegas; orders for goods and services that are placed in Las Vegas ripple throughout the economy and are a very accurate predictor of the U.S. economy.
The methods taught and used by economists have failed to predict future economic activity with any level of accuracy. Econometric models failed to predict the current economic crisis and are fatally flawed and somewhat useless. The problem is that most economists are applied mathematical technocrats who run sterile models based upon stale government data. Their work is disconnected with reality and often lacks practical application. On the other hand, Las Vegas is a messy Petri dish of economic reality. Economists who stay in their academic office and don’t see what is going on in the real world can’t do a good job.
I have been attending Las Vegas trade and industry conferences for more than 25 years and have never heard of a serious economist who went to Las Vegas to gather economic data in an organized and diligent manner.
For example, last week’s World of Concrete trade show (the annual international trade show for the concrete and masonry industry) provided a glimpse of future activity in the construction industry. According to the Las Vegas Sun, this year’s show drew 70,000 people which was approximately 15,000 people less than in 2008 and more than 21,000 people less than in 2007. And, the World of Concrete show used only 825,000 square feet of convention space as compared with more than 900,000 square feet of space in 2007. The reason these statistics are important is because they indicate increased risk that cement and masonry sales are going to continue to trend down in 2009. If buyers and sellers don’t come to the trade show, less cement and masonry will be sold and less will be produced. Attendance at the World of Concrete trade show is a leading indicator that commercial construction will continue to drop from its already reduced levels.
Later this month Las Vegas will be hosting the MAGIC show, which is the semi-annual trade convention where retailers place apparel orders for the upcoming season. If economists want to know what 2009 spring/summer apparel sales are likely to be, they should go to the February MAGIC show. If goods aren’t ordered at the February MAGIC show they won’t be on the shelves in the summer. 2009 attendance is anticipated to be down 30% and the show is one day shorter than in previous years. Guess what my prediction is for spring/summer retail sales and retail bankruptcies?
This week I am at the American Securitization Forum meeting in Las Vegas. The securitization and structured finance industry make up a large segment of the “shadow banking” industry that is talked about so frequently in the press and by economists. In 2006, the attendees at this conference provided more credit to American consumers than the entire banking industry combined. And, without a restart of the securitization market, banks do not have the financial capacity to prevent further economic decline. The Federal Reserve is trying to restart this market and Treasury and the Federal Reserve are announcing policies to help investors buy securitized debt. Yet, there appears to be no economists at this convention, just like there were no economists here in 2006 when they could have noticed that this industry was out of control. This year’s ASF convention is about 40% smaller than in 2007 and has a different composition and agenda than in previous years. ASF’s first day (which was Sunday) didn’t give me a warm and fuzzy feeling that the securitization markets are about to unfreeze and today’s sessions made me feel that the industry was almost totally disconnected with reality. Unless securitizations restart there won’t be liquidity for automobile loans, credit cards, student loans, home equity loans and other consumer and commercial loan facilities. But there are no economists here in Las Vegas trying to figure out whether or not the securitization market is restarting.
There are literally hundreds of conventions and trade shows that come to Las Vegas every year. The Las Vegas Convention and Visitors Authority keeps a calendar of events and the larger trade shows provide a good cross section of U.S. industry, commerce and banking. Of course, Las Vegas isn’t the only place that trade shows take place. There are numerous trade shows in Asia, Europe and the Middle East. As an example, in early January the toy show in Southeast China was a disaster with many no show’s and low attendance. It wasn’t hard to predict what was going to happen to toy industry exports and employment in China; in late January the industry crashed. But, again economists were absent from this and other trade shows and have been unable to predict the depth and severity of the Chinese recession.
Economists need to change their methods and get “into the game” if they want to remain relevant and restore their credibility. And, a great place to start changing is in Las Vegas.