TASCA: Here we are, nearly three weeks into the Russian invasion of Ukraine. We’ve heard a lot about the global implications of this conflict. How is it impacting us here in Rhode Island?
LARDARO: Well, to put it into context, we were actually coming out of the negative effects of the pandemic. So we have some forward momentum from that. We don’t know how this is going to resolve with Russia, but I think it’s reasonable to say that we’re looking at, probably, elevated commodity and energy prices at least through the end of the summer, and more likely through the end of the year.
That becomes a problem for Rhode Island. Number one, manufacturing, which is still an important part of our economy, is fairly energy-intensive. So this raises their costs, on top of the higher commodity costs, difficulties with labor, all of that. With this, we’re also going to see a continuation, and probably some acceleration, where small businesses that were just managing to hang on might not be able to hold on through all of what’s coming.
TASCA: Is there anything state government can do to combat the astronomical increase in gas prices and energy prices? It seems like it’s inevitable that we’re going to see $5 per gallon gasoline in the not-too-distant future.
LARDARO: State governments can try to pick up the pieces or prop things up from falling too far. Maybe we might think of lowering or eliminating the gasoline tax at the state level. That’s certainly fair because who gets hit the most with high energy costs? Low-income individuals. But it’s going to raise demand and exacerbate the shortages, probably propping up price and keeping it higher than it would have been for a longer time period. We should really thank God that this is happening toward the end of the heating season.
This is going to change incentives. In the short run, when these things occur very quickly, you can’t adjust very much. That’s the sad part and that’s where you get the real carnage that can sometimes tilt you toward recession. But the longer the time period, incentives change. We’ll start to move toward more energy efficiency, electric cars, and things of that nature. You’re going to find more people really trying to insulate their house or conserve energy because it is so expensive. It’s just one of those things we’re going to have to live through.
It’s going to be a very different summer this year than it would have been based on how many people are going to the beach or how often they come. The bad news there is Rhode Island is very heavily-dependent on tourism – and I’ve been arguing for years and years, too dependent on tourism – and not dependent enough on growth-oriented industries like manufacturing.
TASCA: It appears as if this could be a protracted war in Ukraine. This is something that may drag on for months or maybe even years. Are these increased prices going to become a way of life for Rhode Islanders, at least in the short-term?
LARDARO: I think the changes are going to occur in the short-term very clearly. But the longer the time period, the more people will adjust what they do, whether it’s their purchases or how often they go out. There’s all kinds of possibilities.
But at the same time, offsetting that a little bit, as we were coming out of the pandemic, to some extent people are so anxious to just go somewhere during the summer. They might be willing to absorb the higher prices, saying ‘What the heck, for two years now we’ve been all cooped up. We’ve got to do something.’ So there are pluses and minuses all over the place.
I think it’s very obvious that economic growth for Rhode Island and the nation is going to slow down, which it would have anyway, because fiscal policy effects nationally are wearing off and monetary policy is going to start to tighten. Let’s hope that we’re ready.
TASCA: With all of the economic pressures we’re seeing at the global level, is it possible that we could be on the verge of a recession here in Rhode Island?
LARDARO: No, I don’t think we are. We have a billion-plus dollars to spend, and as we put that to work in the economy, that’s going to stimulate growth and it’s going to offset some – probably a lot of – the negatives that will be occurring. So I don’t see a recession in Rhode Island’s near-term or even this year unless at the national and international levels something really abrupt and significant occurs. I’m just keeping my fingers crossed that doesn’t come to pass.
Joe Tasca can be reached at jtasca@ripr.org
