Providing an economic forecast is truly a question that has no “correct” answer. Everyone is using the “Pocket Economist,” talking points and their favorite news station—all while being risk adverse since the Great Recession was only 10 years ago. Our own individual lenses of “what is rational” will limit or support GDP growth in 2019.
Understanding how to make actual optimal economic decisions as opposed to sub-optimal speculative revenue decisions that limit growth will be the key to build our economy in 2019. Tribes have taken great strides toward economic decisions that bring in needed revenue to support tribal citizens by covering the gaps related to the U.S. trust responsibility. Economic decision makers within Indian Country will have to move beyond talking points and basic economic heuristics to truly optimize opportunity for tribes.
Despite increases in the stock market, GDP remains constant, and in some instances less than average. This paradoxical relationship has been caused by an abundance of new money (well beyond the tax cuts) in hopes of strong corporate growth. Year-over-year GDP growth has averaged 3.2 percent since 1948, while it was recently 3 percent from the year-ago quarter. We are still a long way off from the record high of 13.4 percent. This begs the question about why GDP growth remains flat, while the stock market has seen incredible growth.
With current annualized returns amounting to 3.4 percent growth and 4.2 percent in the previous quarter, historic performance would lead to a possible dip in GDP annual performance. Inflationary pressures are slightly rising, and unemployment levels are hitting a plateau. That will not change until corporate profits normalize at levels to increase productivity with wage rates toward the low unemployment levels seen in 1953, 1969 and 2000. Additionally, export promotion (which currently hovers around a negative 5 percent for net exports GDP) has leveled off with the global restructuring with tariffs, trade relations and other strategic partnerships.
GPD consist of four components, two that are critical for this conversation. Whereas investment makes up approximately 15 to 17 percent of GDP, consumption is responsible for approximately 70 percent! With the tax-cut package approved in the first quarter of 2018, the country is seeing increased growth in the markets, but the gains have not impacted wage growth and GDP performance. Based on the above-average returns, lower productivity and continual pressure on the federal deficit with less revenues from Trump tax cuts, the U.S. deficit will align GDP to predictions of annual returns of about 2.5 percent to 2.8 percent in 2019. These volatile shifts typically occur around quarterly reports; I had been concerned with third quarter reports impacting the market in October, which would lead to a recommendation of preparation in the first quarter.
While the stock market grows and GDP rises close to average performance, Indian Country still lags behind other economic clusters in the United States. Parity between Indian Country amounts to 42.35 percent of other groupings, which shows the opportunity to grow. As an emerging domestic market, tribes can utilize competitive advantages to impact tribal domestic product not by settling for revenue goals but moving toward high impact decisions to improve the domestic product for the tribe. Despite the lagging progress, there are some opportunities. Based on the progress of other developing nations, economic progress can be made by understanding current economic conditions, developing a strategy to use our competitive advantages and executing a plan toward building a tribal economy.
A couple of recommendations:
Reduce risk and uncertainty by moving from suboptimal performance with blind investing in the “market” and finding ways to achieve optimal returns from activity that is connected to the government. Government domestically makes up 15 to 18 percent annually of GDP, so capturing dollars from insurance, construction, printing and other activities provides a direct impact. It’s low hanging fruit.
Collaboration is key. There are many different political agendas between our 573 federally recognized tribes, Alaskan and Hawaiian natives. There are different advantages, from location, tax advantages, information and communications technology, government-contracting, and even sun, snow, water. By leveraging these relationships, government contractors can realize tax reductions, international trade routes could utilize tribal ports, trade zones, and economies of scale can be achieved by lowering costs and maximizing economic multipliers.
Work on keeping the dollars on the reservation. Consuming on the rez by far has the largest impact on the economy. By providing a balance of economic activity so that individuals, government and business spend money within a tribal economy, the multipliers far exceed other one-off projects. Gaming is still king, but find ways to get gas, food, health care, groceries and entertainments truly moving from revenue to GDP.
Federal Policies-Opportunity Zones allow investors to shift their money without paying a large capital gains tax as long as the investment is within an opportunity zone. With the additional levers that tribes have, “foreign direct investment” will be able to realize higher returns investing on reservations. I am currently working with a couple tribes and other investment funds that realize this potential.
I am sure that not everyone agrees on the forecast or recommendations, but I would challenge the rational thought of continued hyper-growth with average GDP returns and stagnant wages. This translates to how Tribes can be proactive. Tribes should apply their sovereignty and look for economic solutions that follow market trends and principals, so approaches can be executed in the best interest of the tribe. The strategy should move from singular investments to a governance structure that removes uncertainty and risk, allows greater participation from producers and consumers, and supports additional capital. Tribes will be then protected from other market volatility and provide solutions for other emerging industries. ♦
Eric S. Trevan, PhD, is a national advocate for entrepreneurship, innovation and economic development. He focuses on working with small, minority and Native American business.
He is a member of the faculty and on the tenure track for Evergreen State College in Olympia, Washington.
He recently ended a term as chairman of Gun Lake Investments, which fosters tribal economic development. He is the past president and CEO of the National Center for American Indian Enterprise Development.