By Richard Gambino
A saying comes to mind regarding economic forecasts. “Economists have predicted five of the last three recessions, and four of the last two recoveries.” So if that’s true, why shouldn’t I join them in making imperfect predictions?
The South Fork is made up of a mix of economic sub-groups. Each with a sub-culture, defined by its interests and values as lived here on the South Fork, which determine how it spends its money. For example, a century ago, chief among the economic groups here were farmers and fishermen, living here, of course, full-time. Sag Harbor’s economy was driven by these groups, and also by the Fahys (later Bulova) watch case factory, its economic dependents living full-time locally.
Today, one economic sub-group/sub-culture on the South Fork, very wealthy Manhattanites who are “seasonal residents,” drives the main economic force out here, real estate. This group is supplemented by rich celebrities, most from pop culture and show biz. The South Fork economy is unusual, and in fact peculiar.
So, in a time when real estate sales here are down, the market prices of the most expensive real estate here are still high. (Look at real estate ads in our local papers.) On February 18, 2010, the Sag Harbor Express reported that in the village, real estate sales went down 67% from 2005-2009. But at the same time, it reported an all time record high sale in the village — a home on Shaw Road that sold for $13.75 million. And on January 19, 2010, Business Week pronounced Sagaponack “the most expensive small town in the United States,” based, of course, on its real estate prices. Other South Fork towns that made the top 50 most expensive in the U.S.: Water Mill, #6; Bridgehampton, #8; Wainscott, #13; Quoque, #30; Northwest Harbor, #32; East Hampton, #42; North Haven, #48.
By this time, you may be thinking, “So what?” Well, the high-end real estate prices here are driven by the most powerful sub-economy in Manhattan: Wall Street/Big Banking. And the folks there are doing very well — their multimillion-dollar bonuses (totaling $20.3 billion) for 2009, paid, of course, in 2010, are up 17% from the year before. And this economic force, bailed out by Washington because it is “too big to fail” (without bringing on a great depression), contributes heavily to both political parties. Thus, my first prediction: The high-end of the real estate business out here will continue to do well in the foreseeable future. This will benefit some of those who meet the needs of big spenders from the worlds of high finance and celebritydom — some, not all, caterers, interior designers, trendy boutiques, chic restaurants, gardeners/landscapers, concerts and theatre.
E.g., in February, we learned that Madonna has purchased 50 acres on Mitchell Lane in Bridgehampton, to have a “horse farm.” And according to Newsday (Feb. 25, 2010, p. A10) the second 25 acres of the 50 cost multiple millions. Here’s how Newsday described the deal: “She paid about $2 million. The pop star closed last week with the owners, who are two sisters, after Suffolk County and Southampton Town closed Feb. 3 on the developmental rights to the land, with the county paying 90 percent of the of the $10 million price.” The newspaper concluded (March 2, p. A14) the deal “allowed her to buy the property … at a fraction of the market value.” As I said, the tops of the celebrity and Wall Street sectors continue and will continue to live la dolce vita on truly sweet terms on the South Fork.
The next group, seasonal home owners of the McMansions we see littering former potato fields and woods, spend in the same ways, setting their eyes on the hedge-fund and Madonna types as “the Joneses” they strive to appear to keep up with. But the income of many McMansionites has dropped, and they are spending less. Another group, the owners of very modest second homes, many built before 1990, is feeling the current economic recession, and spends less than before 2008. So, many of the aforementioned businesses will also be down in income, compared with the high economic times before ’08.
Lower down on the economic totem pole are the various economic sub-groups who comprise the “locals.” These are divided into full-time dwellers and “snowbirds.” Notably, one-in-six South Fork people is 65 years old or older. Being heavily dependent on pensions and other investment income, retirees’ spending is down, and will stay down, as they pay property taxes here, and snowbirds pay, in addition, property taxes or rents elsewhere.
The non-retired locals who live here full-time comprise different economic sub-groups. Those in the public sector (working for governments) who are unionized, or at the top of the political class, earn more than ever, and will continue to do well. In fact, those who are the cream of the political class — elected officials and their appointees at the tops of agencies — take turns getting elected as officials and appointing each other to high salaried bureaucratic posts. The appointments are made even across town and village lines, and also to high salaried county positions.
Local politicians, as do most politicians, usually spend money to protect and expand government, even in times of bad economic recession. (Not to mention that the Southampton and East Hampton town boards have been, financially, scandalously incompetent, or worse, in the last years, running up big bills yet to be paid.) Witness Sag Harbor’s latest scheme, to install an unnecessary, costly traffic court in the village. This on the heels of its disastrous condos policies which have cost — and the tab is still climbing — tens of thousands of taxpayer dollars. (Or is it hundreds of thousand by now?) So, the Southampton and East Hampton boards raise budgets each and every year, paid for by increases in property tax assessments and/or rates. Which brings us to the bottom, major part of the public sector. Here there have been some layoffs of very unfortunate individuals, but it’s not likely there will be more.
The numerical majority at the lower private sector — construction workers, shop clerks and owners, family restaurant people — will continue to have to pull in their belts hard. (Day trippers from up west who stroll along our main streets on warm weekend evenings will spend as much as last summer, but not more.) In addition to local higher property taxes, consider some other facts. Facing a $13 billion deficit, Albany has proposed new taxes on everything from soda drinks to downloading movies from the Internet. (Little wonder that 1.5 million people moved from our highly taxed state from 2000 to 2008.) And on the federal level, three figures tell the story: 1. The national debt has grown from $8.35 trillion in January 2009 to $12.5 trillion today, and is climbing rapidly. (One trillion=one million millions.) 2. The GDP — the total value of all goods and services produced in the U.S. in a year — is less than $15 trillion. 3. The entire national wealth of the United States population is less than $55 trillion. The notion that this situation can be addressed by raising taxes only on those with incomes above $250,000 is an arithmetic fantasy. Higher taxes usually deepen and prolong recessions, thus …
Sometimes economics truly is, as they say, a “dismal science.”
RICHARD GAMBINO moonlighted on a weekly basis for eleven years helping to write and edit an economics newsletter for 500,000 subscribers at the Research Institute of America in Manhattan.