My Pecha Kucha
Nevada Economics: Past, Present, and Future
Introduction:
Throughout its history, the state of Nevada has been iconized in various, unique ways. Whether it be the divorce capital of twentieth century America or the rich and controversial center of the world’s largest gambling chains, Nevada’s culture has been increasingly complex over time. Indeed silver and mining were a hallmark of the state’s business facet; however, Nevada was and has been diverse, both in terms of its vast culture and history as well as in its economy. And just like any other state and the nation itself, Nevada continues to evolve and innovate itself and its economics to fit the needs of the time. By analyzing the past, present and future of the state's economy, let’s attempt to demonstrate the extent to which Nevada is in fact more than just a single faceted state.
Past:
Nevada has oftentimes been considered a minor state in the vast history of the country. Even its statehood was issued in order to provide President Lincoln with the essential three electoral votes to ensure his presidency (UNLV News Center). However, Nevada has proven to be anything but minor throughout its history. However, when does the history of Nevada start? When it became a state? Perhaps earlier? For the purpose of conveying the the historical economic significance of the state, let’s assume that the economic history began when the land gained monetary value. This could be seen as occurring in 1851 when gold was discovered in the area surrounding modern day Dayton. At the time gold was everything. As author John Gould Fletcher wrote, “In the afternoon, over gold screens, I will brush the blue dust of my dreams” (“Gold Rush Quotes”). Gold became more than just a commodity, it became a symbol of hope. As news of the discovery of gold and silver spread from one area to the next, people began to migrate with hopes of a better, more prosperous future for themselves. Thus, as the metals symbolized hope, so did the land that it was discovered in. After the discovery of the Comstock silver lode in the 1850s, Nevada had been truly cemented as one of the most prominent centers for mining in the World (Bennett). However, according to economist and historian Dr. Elliot Parker of the University of Nevada, Reno, “The boom was relatively short-lived. By the late 1870s, silver had been effectively demonetized by the Fourth Coinage Act of 1873, though Nevada’s legislators were able to delay the impact on Nevada mining through the demands of the Carson City mint for producing less-than-popular silver dollars” (Parker 3). As development of the mines took place, specifically “Soon after the completion of the Sutro tunnel, the silver mines were exhausted” (Parker 3). “Though the search for minerals continued elsewhere in the state, Nevada entered a period of long-term decline” (Parker 4). With the departure of miners and the withdrawal of mining in general the economy declined until a new approach was discovered- divorce.
“The railroad town of Reno became the center of a divorce-driven tourist industry, as Nevada tried to take advantage of the fact that until 1969, other states required lengthy residency periods and were stringent about the grounds for divorce” (Parker 5). Divorce, paired with the changing cultural views on marriage in life, allowed Reno, in addition to other small Nevada towns, to prosper in its own, unique way. Beginning during the conception of the Comstock Lode, Virginia City became the center for divorces in the country. As more people drew into the land in search of wealth and prosperity, many of them wanted to do away with their so called loved ones (“Timeline Archive | Reno Divorce History”). This moment was still before Nevada officially became a state; however, once it did become a state, “citizenship and divorce laws are retained in the state constitution… [and] Divorce law allows seven grounds for divorce” (“Timeline Archive | Reno Divorce History”). Thus, upon reaching the state territory, its residents, those who lived in the state for at least twelve months, were allowed to file for divorce. However, the same divorce length was valid in various other states in America, so something was needed to make Reno a getaway destination for the ages. This opportunity came when one of the nation’s most influential people, Laura Corey, wife of the industrial and steel tycoon of the age, filed for divorce in Reno. “The Corey divorce is a turning point in Nevada’s divorce trade, for ‘after the Corey case burst upon the breakfast tables of America, rich and socially notable people started making the trek [to Reno]’” (“Timeline Archive | Reno Divorce History”). Furthermore, the arrival of one of the most prominent divorce attorneys in the nation, William H. Schnitzer, led to greater publicizing. With the addition of divorce, Nevada became popular in the nation once again; however, other facets of the culture and land continued to supply its economy. Ranching and farming provided some economic stability, as “a few small communities became dependent on the federally-funded diversion of water once flowing to Pyramid and Walker lakes” (Parker 7). Furthermore, construction of “the Hawthorne Naval Ammunition Depot in the 1920s helped the state economy, and the small town of Las Vegas became host to the depression-era federal workforce constructing Hoover Dam” (Parker 7). Thus, farming, ranching, construction, and divorce were the hallmarks of the Nevadan economy up until the present era.
Present:
As Nevada entered the 21st century, the economy, along with the culture, changed greatly. Throughout the early 2000s, Nevada experienced substantial economic growth. In fact it was even labelled as the fastest growing state in the nation, according to Forbes magazine. Furthermore, “As of July 1, 2007, Nevada was the fastest-growing state in the country. With a population of over 2.5 million, the Silver State flourished because of continued real estate development in its marquee city, Las Vegas” (Sherman). However, due to the recession of 2008 much of the above mentioned real estate market crashed. Additionally, many jobs that were seen as being permanent by many middle class Nevadans were either shipped off to other states or other countries to save labor charges. According to the Guinn Center for Policy Priorities, On August 15, 2014, the Nevada Department of Employment Training and Rehabilitation (DETR) announced that Nevada’s unemployment rate for “July 2014 was 7.7 percent” (Brune). The good news is that Nevada’s unemployment rate has been steadily declining since the high of 14.4 percent in 2010. However, the standard, official unemployment rate leaves out many discouraged workers who want and are available for work, as well as workers employed part-time for economic reasons. Taking these factors into account, Nevada’s unemployment rate climbs to 17.4 percent for the period of Q2 2013 through Q1 2014” (Brune). “At its peak in 2010, the rate for U-6 was 23.6 percent in Nevada and 16.7 percent for the nation. In 2013, Nevada’s rate was still 18.1 percent, which far surpasses the rate of 7.6 percent in 2007 before the Great Recession” (Brune). Clearly the recession’s effects were were no less than crippling for the foundation of the state’s economy. Such a catastrophe prompted economists such as Dr. Elliott Parker, from the University of Nevada Reno’s School of Business, to conduct research on the true extent of the damage caused by the recession and the state’s ability to recover.
According to Parker, the recession began with an extreme decline in gambling, in fact “gaming declined from 17% of Gross State Product in the 1980s to 10% in 2007, and then 8% by 2009 during the Great Recession. This created serious revenue problems in a state that depended significantly on gaming and tourism to finance its government” (Parker 10). Thus, as the state’s main attractions, casinos began losing money on an incredible rate, much of the state began to follow the same path. The next sectors to be significantly impacted by the downfall of gambling were construction and the housing markets. However, the problem with construction as well as the housing market began long before the downfall in 2008. According to Parker, “construction took up much of the slack instead of a more general economic diversification. Once again the backflow from California brought a boom to Nevada. The construction of new casinos was augmented by the construction of new homes for the casino and construction workers moving here, and when another housing bubble began in California, Nevada’s construction sector became the largest in the nation, as a share of the economy, and twice the national average” (Parker 12). Clearly, the problem began before the recession, when potential for future growth led housing and construction developers to begin projects that were not validated by the economic conditions and did not have an impending need to be created.
Finally, Parker outlines a strategy that Nevada must employ in order to reach its status as the fastest growing state in the nation once again. He states that: “Now that the state has lost its gambling monopoly and the California-driven housing bubble has burst, Nevada must find a way to begin the accumulation of productive resources if it is to return to growth. Free markets can do many things, but relying on the magic of the free market alone will not bring Nevada back to a path of economic growth. Low taxes notwithstanding, in a state with few resources, in the high and dry desert of the Great Basin, productive investments and productive people are likely to flow out of the state, not in” (Parker 13).
But the budget crisis that the crash created is leading Nevada to do the wrong thing. In an economy in which productive people are the primary resource, Nevada is on the verge of significant cuts to education that could lead to a brain drain and an economic downward spiral. The proposed cuts to higher education are only likely to worsen the crisis, leading to a decline in the attractiveness of an in-state college education for Nevadans, and pushing firms out instead of pulling them in” (Parker 11).Additionally, Parker mentions that if the state government does not take the necessary steps to remedy these issues of economics, the state could expect “a decade or more of depopulation ahead” (Parker 11).
Currently the state seems to be well on the path to recovery. As the unemployment rates begin to decline to the pre-recession levels and the state population increase, the state of the economy seems to be improving. According to the Nevada Governor’s Office for Economic Development, the advantages of doing business in Nevada include the fact that forty million people visit the state every year, the state is also ranked number one for economic development programs in terms of job creation, retention and training (“Advantages of Doing Business in Nevada | Nevada GOED.”). Even local business owners, such as hotel franchisee, Jaswinder Dhami, states that especially after the recession, “a general decline in tourism” plummeted his businesses; however, the gradual decline in unemployment as well an increase in the tourism revenue has brought the businesses “nearly to the same level as in 2007 and earlier” (Dhami). Additionally, Dhami, owner of five separate hotels in northern Nevada, felt the effect of the the recession from both an economic and personal perspective. “Before [the recession] a certain percentage of our company’s annual profits were donated to various charities,” which focused on helping the impoverished and homeless in the Reno and general northern Nevada area. Thus, as profits decreased with a lack of tourist activity, Dhami and his associates could no longer donate to these charities any longer. This is just one example of how the recession had far reaching effects throughout the socio-economic chain the state.
Moving back to the improving economic conditions in the state, the local government imposes no corporate, personal, franchise, inventory, unitary, or special intangible tax on Nevadan businesses (“Advantages of Doing Business in Nevada | Nevada GOED.”). The benefits of fewer taxes vary greatly; however, generally they mean that businesses can increases profits. Increased profits in turn means that more businesses are likely to move into the state, and, as the number of businesses grow, the rate of job creation will increases, leading to to an overall increase in per capita earning for Nevadans and a more prosperous future for the economy of the state. Furthermore, “It is argued the private sector is more efficient in spending money than the public sector...Government spending tends to be wasted, with high bureaucracy costs” (Pettinger). Therefore, giving the private sector higher potential to grow through tax decreases would enable the money circulation in Nevada to be much more efficient than through government businesses. Additionally, “It is argued lower income taxes will encourage people to work longer hours and new people to enter the labour force (Pettinger). Lower corporation tax will encourage firms to invest in the country. Finally, “It is even argued that cutting taxes can even increase government revenue...because if taxes are too high people don't work, so don't pay taxes. However, if people do work more, the government can actually gain more revenue” (Pettinger). Clearly, by decreasing taxes in the state of Nevada, the local government is putting its people and its economy in the best possible position to succeed. With that being said, what does the future of Nevada’s economy look like?
As discussed earlier, Nevada’s economy has evolved greatly throughout the state’s history. It is very likely that the this trend will continue through the future; however, in terms of the next two or three decades, what can we expect to arise in the state? First of all, a major player in the future economy of the state is of course Tesla. The manufacturing company led by tech mogul, Elon Musk, announced earlier that the company would create a new project in Northern Nevada- the gigafactory, which would lead to greater job creation.
The purpose of the gigafactory “will churn out batteries for the company's electric cars. But it's also making something new — a battery for the home” (Sommer). Although very little is being shared about the factory itself, primarily due to the fact that access into it is extremely limited and restricted, with only few, key personnel allowed entry, Tesla has announced that the factory is already creating and shipping batteries globally and should reach full capacity in 2020 (Sommer). The price tag associated with the entrepreneurial venture is just as jaw dropping as the concept, with official costs estimated around $5 billion (Sommer). With the price being so high, potential economic disaster is also a potential consequence if the gigafactory fails. This is because Nevada itself has invested in the gigafactory itself, which it hopes will provide an estimated 6,000 jobs over the course of the next 2-3 years (Sommer). According to NPR, “Nevada beat out several states by offering an incentive package worth more than $1 billion. State lawmakers are watching like hawks for the economic benefits, such as making sure Nevadans make up a big part of the factory's 6,000 workers.” As of April of 2016, only 14% of the gigafactory has been built (Sommer). However, just how big of an impact will the new gigafactory make on Tesla’s grand plan to electrify the automotive and household industries. As a company representative put it, “ the equipment in the factory will double the world's capacity to make lithium-ion batteries. Tesla hopes to produce 35 gigawatt-hours of energy storage annually, which could supply 500,000 of its electric cars” (Sommer). And as the company, as well as the gigafactory itself, grows, the batteries will be produced in an even greater bulk, thus, driving the costs down- increasing demand and enabling even more production. This positive feedback loop of production will result in even more jobs for local Nevadans if the plan carries out to completion. In addition to these batteries, the new Tesla 3, Tesla’s first small-sized, affordable concept car, is planned on being produced in the factory once its construction is complete. There are already over 350,000 pre-production orders for the Model 3; however, Tesla cannot officially begin large-scale production until the factory is complete. Finally, the gigafactory will also produce a new concept of the company- the Powerwall. A small, compact battery intended to energize residences (Sommer). With the production of these three major technologies in the upcoming year, Tesla hopes to drive up demand and lower costs to a point at which “you can have an electric car in your driveway and a Powerwall” for only $3000 (Sommer). Not only would this demand and game changing strategy lead to a “transportation…[and] energy landscape” change, but it would also, according to Severin Borenstein, an energy economist at the University of California, Berkeley, be a “game changer for reducing greenhouse gas emissions” (Sommer). Although Tesla may be the biggest game changer for Nevada, many other companies are inquiring into investing in Nevada.
These companies represent a wide spectrum of business facets. From technology to manufacturing, Nevada is becoming the home of some of the biggest and best companies in the nation. The companies include Switch, Zappos, Spectrum, and Apple (“Advantages of Doing Business in Nevada | Nevada GOED.”). Switch, a technology company that represents the future of online, efficient, and effective data storage, is headquartered in Las Vegas. It’s founder and CEO, Rob Roy, “has developed more than 218 patent and patent-pending claims covering data center designs that have manifested into the world-renowned SUPERNAP data centers” (Switch). Furthermore, the company’s staple idea is the “SUPERNAP Prime™” datacenters, which, according to Switch, “lead the industry with their high-density, multi-tenant locations that provide unparalleled agile technology ecosystems and the unmatched cost-saving”. Zappos, an online shoe retailer, has become one of the largest online retailer specialists in the world. Stemming from the idea of creating a unique, personalized shoe buying experience, the company strives to take advantage of quicker delivery by housing them in the company’s own warehouses. These warehouses provide essentials jobs for Nevadans and make Zappos a crucial component of the increasingly diverse economy of Nevada. Spectrum, “is a rapidly growing, global, diversified, market-driven consumer products company” (Spectrum). The company manufactures and ships a wide variety of industrial and household items from batteries and hardware, construction supplies to pet, home, and personal care items. This wide range of products enables them to appeal to a very wide customer base. With more customers, the company can ensure that the demand for their products will continue and even increase as long as their pricing is competitive, and this increase in demand would lead to greater production of goods, which in turn would enable greater job growth for locals, thus boosting the Nevadan economy (Spectrum). Although Apple is not headquartered in Nevada, their branches and stores in the state establish jobs. Additionally, simply the fact that the company has chosen the city of Reno and the state in general as a destination to open their stores speaks to the potential of the state and the people to be a successful site for future technology companies to invest in. Such an expansion of investors and incoming companies signals that the future of Nevadan economics is nothing but bright.
By observing the past, present, and potential future opportunities that fuel Nevada’s economy, we have effectively shown that Nevada is much more than the gambling and legal prostitution state that many think of. Instead, Nevada is becoming one of the leading entrepreneurial investment and technological states in the nation. With a diversified economy and a state government that seeks to transform the state into an investor’s paradise, the state is simply being set up for economic success. Even economists agree that the state’s economy, as long as no unpredictable catastrophes occur, looks to be one of the fastest growing in the nation (Sommer). However, what the future holds is in fact almost always unpredictable, but what the present tells us is that we have only tapped into a small portion of what the potential of the state can be. With the current economic trend the future of Nevada’s economy seems to be well off to a great start.
Works Cited:
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