Maine economists used to say that when Boston caught a cold, Maine got pneumonia to emphasize our dependence on the region’s economy. And economists are still fond of reminding us that what happens on Wall Street is not what happens on Main Street. And since Maine is more Main Street than Wall Street, we should look at what’s happening in our small villages to forecast the prevailing economic winds.
Given the relentless drumbeat of discouraging economic news since last fall, it is worth the effort to try to think through how current economic pressures might affect island and working waterfront economies during the remainder of the year.
First, I should confess that I have developed my own informal leading economic indicator at the Island Institute. Last fall, we were pleasantly surprised by three significant unsolicited contributions from individuals or institutions that called to ask if the organization had any new programs that needed support, because if so they had the funds. Given how hard all nonprofits work to raise their budgets, this should have been a cause for celebration (and it was). But these calls also made me profoundly uneasy, since the only other time in the 25-year history of the Institute that a similar windfall had occurred was in late 1999, just before the technology stock bubble burst — when there was too much easy money sloshing around in the economy looking for investment opportunities. Sure enough, a few months later, everyone could see Alan Greenspan’s unbreakable housing bubble had burst.
You might recall the last speculative housing bubble in Maine that burst in the late 1980s. That was when everyone was a real estate developer — even your neighbor — and eager young men showed up in planning board hearings in Mercedes Benzes, to sing the praises of raising the tax bases of coastal and island towns with their shorefront housing development proposals. The bursting of that bubble, which brought the great Great Diamond Island condo development to its knees and led to the demise of the late great Maine Savings Bank among others, also left a $500 billion (with a ‘b’) publicly financed hangover. It took the Resolution Trust Company (with your money and mine) half a decade to bail us out. The sub-prime mortgage losses have thus far exceeded $200 billion, but no one thinks we’ve seen the end of the red ink that is bleeding (hemorrhaging?) through an enormously more complicated and more global finance system than we had in the 1980s. Even the smartest guys in the room can’t seem to understand what’s happening.
Nevertheless, Maine’s housing prices have so far remained remarkably steady — we have weathered nothing like the declines witnessed across California, Nevada, Florida, Texas and even Massachusetts. Instead, Maine continues to experience a slow and steady increase in housing prices, especially in communities with resort-like economies — that is, lakefront, riverfront, mountain, coastal and island communities — where flush baby boomers from around the country with their kids matriculating from college are still planning to build their second dream homes, meanwhile those even more fortunate or slightly longer in the tooth are preparing for retirement in some quiet village with a high quality of life — Maine’s brand!
Then there is the effect of the falling dollar. If I were an enterprising realtor with Maine island and coastal shorefront to sell, I would not be advertising in the Wall Street Journal, but would start advertising in the Financial Times of London and the International Herald Tribune. Compared with almost anywhere else in the western world, Maine coastal and island real estate is still a bargain; and with the precipitous fall of the dollar, it’s a steal.
The perverse effect of this robust real estate market is that these quiet villages, where manufacturing, fishing, farming and forestry have all been in a long eclipse, have become Potemkin facades where natives live in trailers on back roads. Nowhere are the housing pressures worse than on islands: in the least affordable island community (perhaps the least affordable community in Maine), Great Cranberry, the average household income can afford to finance 12 percent of the average house mortgage, according to 2005 figures from the Maine State Housing Authority.
The next vexatious evil to jump out of Pandora’s box is the specter — now the near certainty — of $4 a gallon gasoline. This is a fearful prospect for tourist-oriented businesses whose owners wonder whether tourists will still come to Vacationland as we anticipate the summer driving season. But for the working waterfront, the price of fuel is much more serious because it means that diesel prices will head toward $5 a gallon. Unlike tourism, marine diesel engines do not have real alternatives, unless you are a lobstermen whose family happens to own a clam shack with enough fryolator oil to run a lobster boat. If you are in a business that sells luxury seafood to national and international markets during a recession, and if your harvest decreased by 25 percent last year and government regulators are going to impose new pot warp rules that will increase your cost of doing business for the otherwise lofty goal of protecting the endangered right whale — you have way too many reasons to be alarmed.
Add to this the cost of paying off a trillion-dollar war during the next generation (I know, I know, a Nobel prize economist says it will be three trillion, but who’s really counting in Washington?) and you could get really gloomy about the future. Except we’re Americans, admittedly descended from gloomy Europeans, and we believe in — belief! And belief is ironically what may save us from these economic juggernauts. We believe in ourselves to fix our problems. We believe that individuals and cranky individualists can still make a difference. We believe that small communities are not just at the whim of prevailing economic winds; we believe we can carve out smaller pockets — small islands of difference — and protect them from the most damaging national trends through collective communitarian efforts.
And so far, we’ve been right.