Nevada is the embodiment of a boom-bust economy. It always has been. These days, it’s best known for the bust.
Residents of other states look to Nevada as a cautionary tale, and, earlier in the recession, they feared that its problems would spread. “Nevada's economic misery may be America’s future,” warned a 2010 headline in The Huffington Post.
“Their problem epitomizes the nation’s problems,” said Mark Muro, director of policy for the Metropolitan Policy Program at the Brookings Institution. “This is an economy that’s kind of a hyper-version of the U.S. economy.”
As such, it’s a fitting location for the next Republican primary event. Nevada’s caucus on Saturday is the fifth of the earliest contests among the GOP contenders for the nomination for president. The candidate whose economic policies hold up in Nevada, where unemployment and foreclosures are worst in the nation, could make a good case those policies will do the same in November.
The Silver State’s latest bust is just that—the latest. The early economy of Nevada was tied to its land, and the miners and ranchers who worked it were accustomed to the financial peaks and valleys of their trades. Gambling, legalized in 1931, and tourism because the key drivers of Nevada’s economy after the Second World War.
The move away from a land-based economy and subsequent population boom didn’t bring economic stability. Overbuilding in the 1950s, stagflation and the Arab oil embargo in the 1970s, and the Reagan recession of the early 1980s each brought economic valleys to Nevada. There were also peaks. A 1987 article in the Los Angeles Times painted a picture of Las Vegas, the state’s largest city, on the brink of prominence, “just into its take-off phase, pulling itself up by its rhinestone cowboy bootstraps.”
But, in a familiar story, a bust struck again. Trouble in Asian financial markets in the late 1990s endangered several Strip hotels where Asian gamblers were the biggest high rollers. And then there were the Sept. 11 attacks. The day after, “you could shoot a cannon through a casino and not hit anybody,” said Michael Green, a history professor at the College of Southern Nevada.
The highs and lows illustrate what has since become painfully obvious: So long as Nevada depends heavily on tourism and gambling, it cannot thrive when everyone else is struggling.
When the recession hit in 2007, it caused a rapid unraveling of Nevada’s economy, which shrank 10 percent over the next three years. Nearly 170,000 jobs disappeared. Unemployment in Nevada was 14.9 percent for the majority of 2010, the highest in the nation—a dubious honor it shared with its foreclosure rate. It is often referred to as “ground zero” of the housing crisis.
The effects of the downturn were magnified through the state’s consumption industries. Construction and real estate, tourism and gaming, and retail trade make up nearly half of the jobs in the state. They also accounted for over 80 percent of the state’s job losses during the recession. Tourists weren’t coming at the same rate. And when they were, they just weren’t spending like they used to.
Nevada continued to record the highest unemployment rate among the states in the latest Bureau of Labor Statistics report, 12.6 percent in December, while nationally the rate was 8.5 percent.
Due to the heavy concentration of losses in consumption, there is a general agreement in Nevada that the best way forward is economic diversification, which is seen as an inoculation against another bust as severe as the current one. While the success of such diversification will depend on the state's business leaders in cooperation with state government, Nevadans will look to the presidential candidates for solutions to their current woes.
“The thrust of Nevada voting is really about taxes, limited government, and not about kind of social mores,” said Eric Herzik, a political science professor at the University of Nevada (Reno). “We’re a state built on gambling. The bars never close. We have legalized prostitution.”
One solution Silver State caucus-goers are likely to seek this weekend is to the state’s foreclosure crisis. Republican candidates have offered few specific plans to address the fallout from the housing bubble’s collapse. GOP front-runner Mitt Romney told the Las Vegas Review-Journal in October that the foreclosure crisis should be left to “run its course and hit the bottom.”
“I think that the people in Nevada have been dealing with this for so long now and they’ve heard so many ideas and grandiose plans,” said Stacy Gordon Fisher, associate professor of political science at UNR. “I think they are going to want something more specific than that.”
Whether they get more details in the short three days between Florida’s primary and the caucus remains to be seen. For now, Nevada’s economic fate remains tied to that of the nation. As the tentative U.S. recovery solidifies, which it showed signs of doing at the end of 2011, so may Nevada’s. But the state has a long road ahead.