In his five years at the UCLA Anderson Forecast, Christopher Thornberg’s predictions have made waves across California. The outspoken, opinionated economist has became a popular pundit and media source. It’s a role he revels in at the forecast, which, despite its academic association, is a semi-autonomous, financially self-sufficient institution. For more than two years, Thornberg has been among the most vocal in sounding a warning that California’s overheated housing market is in a hyper-inflated bubble. Yet he recently bought a hilltop home on the Westside.
Question: Given your predictions, why did you just buy that house?
Answer:
I will simply say that I had an inside track and got a very good deal. This is kind of a long-run holding. Do we have a real estate bubble? Yes. On the other hand, I’m covered because I sold a place and I bought this place. So in a sense I took my ill-gotten gains on one house and rolled it into a new place. I’m also well within my income level; I can afford it. So if the price doesn’t appreciate for six or seven years, it doesn’t matter to me. And that’s the key point.
Q: So you’re not advising homeowners to stay out of the market because you believe there’s a bubble?
A:
People need to understand that we have gone through an environment where property prices have appreciated at a strong rate and now they are not going to appreciate for a while. We’ve gotten 10 years of appreciation in three years. If you’re in a good place financially and you’re not having problems, then don’t worry about the bubble. The problem is people buying for the first time, buying second homes or buying property they can’t really afford on the belief that appreciation is going to bail them out. And that’s what’s dangerous.
Q: So what got you started in economics?
A:
I studied business at (the State University of New York, Buffalo) and came out here for graduate school. I came to UCLA to get a Ph.D. in management. You ask “What the hell is a PhD in management?” It all depends on whom you study under. I was studying under Ed Leamer at the UCLA Anderson School and on the first day I said “Hi Ed, I’m here to do a Ph.D. in management with some emphasis in business economics” and he said ‘Great. See that building over there? That’s the economics department. Take all your classes over there.’ So for all intents and purposes I got an economics Ph.D.
Q: What came next?
A:
Clemson University in South Carolina was my first job. I was on the standard academic track: publish or perish, teach the undergrads, cloistered ivory tower, that kind of existence. Believe me, it was easy to give up.
Q: Easy?
A:
Academics is a strange field. It’s lots of people debating vigorously on fairly minor points. You spend six months writing a paper that 12 people are going to read. I don’t have any pretensions of being a Nobel Prize-winning economist. So I like working at the forecast. I get to do the academic research I like to do. I get to interact with business people and government officials. I feel my ideas have an influence and that’s nice.
Q: How did you come to join the forecast?
A:
In 2000 when Ed Leamer called and invited me back. Ed took over the forecast in 1999 and he needed help. At the time, the forecast was a disaster: it was losing money and had gone through a couple changes of leadership. The people who took it over weren’t committed to keeping it going. It just wasn’t doing well. When Ed invited me back I said: “But I’m not a macro economist.” And he said: “Yeah, that’s why you’re going to be a good forecaster.” It was kind of a shot at the typical, heavy model-driven arcane science of macro economics.
Q: Don’t you know those models?
A:
Not really. I studied some of it, but no doubt about it, I’m not a macro economist. I’m much more a micro economist, which means I think about markets and real things. That’s not to say I haven’t picked up a lot of stuff on macro economics. I’m forced to by definition. My skills and expertise are really more in thinking about real-world questions and thinking about data and how to use data to answer those questions. I’m not a guy who makes fancy theories. I’m the guy who gets dirty with the data.
Q: Does Wall Street pay attention to the UCLA Forecast?
A:
If you think about the West Coast, you don’t hear a lot of groups who get a lot of play on Wall Street. We do. I’m not saying we’re a major player, but we’re not a minor player either. We’re a West Coast group and we’ve taken some controversial stances in the past. Fortunately, we’re right more often than not. (The forecast correctly predicted the 2001 recession and 9/11’s relatively minimal economic impact.)
Q: Does it frustrate you that Wall Street pays little attention to the largest economy in the nation?
A:
You always have to be careful about making that claim. Geographically speaking, we’re the largest economy. But look at the aggregate New York area and all the way around. You’ve got New York, Philadelphia and all six major cities in the northeast. It’s no doubt that’s where the political and money weight of this nation still lies. You have some big cities out here but we’re not quite in the same category as that huge dense Northeast corridor.
Q: As L.A. becomes a more urban metropolis, will it gain influence nationally?
A:
It’s no longer a suburban city. Kicking and screaming, L.A. is going to be dragged into the era of being a dense city. We’re not Atlanta; we’re not Houston. We don’t have the ability for limitless sprawl. We do have mountains and hills and geographic terrain that slow things down. Certainly a lot of building here is infill. And of course downtown is starting to re-emerge, starting to bloom again. I think downtown will continue to expand and do better and better.
Q: By most indications the economy is strong and healthy, so why do many people seem so uneasy about the future?
A:
You’re not seeing incomes rising very rapidly relative to prices, particularly in California. Wages have been stagnant over the last few months. That makes people certainly feel uneasy and part of that is not so much that the economy is bad but because benefit costs are going up. People often forget there’s a lot of fungibility in that pay package of theirs. If your boss has to pay more for your health care, then you get a smaller raise.
Q: Is there any one sector that if it falters, could drag down the overall L.A. economy?
A:
Not anymore. We have a very non-centralized economy in many ways. Now there are some big industries. Apparel is still a big industry; aerospace still has some oomph in it. Certainly those are drivers. We still have a lot of manufacturing in the L.A. area, although it’s spread out quite a bit about and across different industries. Entertainment remains a big part of the area. (But) it’s a much more diffuse economy than it used to be.
Q: What happens to all those real estate agents if the housing market busts?
A:
They’re like our image of the Internet brat with his $200,000 stock option package rolling into work at 10:30 in sneakers. When that job collapsed, we sure didn’t like the slowdown in the overall economy, but we all had this little tiny smile of comeuppance in the back of our head. Like ‘OK buddy, now go get a real job.’ We’re going to see the same thing happen when the real estate guys start losing their jobs. The amount of money pouring into the real estate sector is sick. It’s going to get ugly out there; it’s going to be bloody in that particular industry.
Q: What’s the greatest obstacle the future of the L.A. economy faces?
A:
We are building a dual economy. My biggest concern is our failing public education system. We have massive amounts of new immigrants coming from Latin America; a lot of them don’t have skills, they don’t have training. You have to think about the U.S. economy. It used to be a low-skilled worker could get a job in manufacturing and do very well for themselves. But those jobs are going away. It’s shifting away from traditional industries like textiles and apparel to new high-tech refining and chips where you hire nerds in white coats to run the factory. What we can damn well do is make sure their kids are educated so the next generation is equipped to do well in this economy.
Q: How do you think Southern California will end up if we don’t fix the educational system?
A:
We’re going to end up with a Brazilian economy. I’m doing great, people I work with are doing great. People who are educated are doing fine. And then you look around. We’re going to have the very rich living next to each other with a giant wall. And I don’t want to live in that kind of place and that’s what worries me.
*
Christopher Thornberg
Title:
Senior Economist
Organization:
UCLA Anderson Forecast
Born:
1967; Rochester, N.Y.
Education:
B.S. in business, State University of New York, Buffalo; Ph.D. in management, UCLA
Career Turning Point:
Joining the forecast in 2000
Most Admired Person:
Ed Leamer, director of the UCLA Anderson Forecast
Hobbies: Skiing, sailing and traveling
Personal:
Single
