Dr. Rajeev Dhawan

Within just months of his appointment as the Director of Economic Forecasting at Georgia State University, Dr. Rajeev Dhawan had emerged as one of the Georgia’s leading economist and forecasters. Today, Dr. Dhawan is one of the state’s most sought after speaker in the field.

“Each day a forecaster has to get up, struggle with uncertainty, but still go out and speak his mind strongly and clearly to help people learn to face that uncertainty. It is very important for people to know where you are coming from. I have encouraged Rajeev to do just that. Rajeev is very good at making people think and not just look at numbers. I am very proud of him. Rajeev can be the President of the Federal Reserve Bank in ten years.”- Larry Kimball, mentor (Ex director UCLA Business Forecasting Project, Professor Emeritus of Business economics, Anderson Graduate School of Management, UCLA)

He is unlike your usual run-of-the mill crusty economist. If you think you can catch up on your sleep when Dr. Rajeev Dhawan talks economics, think again. His presentations are impeccable, his wit is infectious, and his warmth is catchy. Dr. Dhawan can run the entire gamut of non-economics topics with you, from how to mix drinks to heavy metal music to taking care of yourself after wisdom teeth extraction!

Dr. Dhawan recently took over as Director of Economic Forecasting at the J. Mack Robinson School of Business, which was rated among the top three nationally recognized forecasting centers last fall, and directs the School’s local, regional, and national forecasts. Prior to this appointment, Dr. Dhawan was the director of economic forecasting at UCLA’s economic forecasting center. Dr. Dhawan is frequently quoted in publications such as the Wall Street Journal, USA Today, Los Angeles Times, Atlanta Journal-Constitution, and Investors Business Daily. Moreover, he has provided economic analysis regularly on radio and television, including CNN. He has supervised several economic impact studies, developed a new technique to measure the productivity of an industry or a nation using firm level data, and authored “Firm Size, Financial Intermediation and Business Cycles,” a book exploring the effects of credit constraints on the U.S economic performance.

From a family of academicians (his father an economics professor, his mother a high school principal), Dr. Dhawan asserts that there was never any pressure on him to follow in his father’s footsteps. “It just happened. While growing up in a middle-class family In India, one thing became very clear: you had to make it on your own, or you would perish. Being in a university and around a lot of academicians I had great role models. I wanted to be an engineer but finally ended up at St Stephen’s college in Delhi studying economics. It was a good break for me. I went from a public school system to an elite environment. I couldn’t speak a word of English when I joined; now I earn my living as a speaker!”

Dr. Dhawan came to UCLA to do his PhD. He soon found out that people in academia dislike those who speak their mind. “If you wanted to fit in, you became wishy-washy. You didn’t make direct statements. Very soon I became a persona non grata. It was my mentor, Professor Larry Kimball, a Texan, who gave me a break when no one else would. You cross a Texan with a Punjabi and the combination is explosive! He taught me to be direct and self-assured. He said to me, ‘Rajeev, be often wrong but never in doubt, and when you make a blunder, learn from it and move on. You have to be thick skinned in this business.’

Dr. Dhawan went on to speak on a variety of topics with the same candor and certainty that makes him something of a maverick in a field where there are a lot of ifs and buts preceding any forecast.

Following is a conversation that provides a glimpse of the man and the economist:

Very few economists have been consistently accurate in their forecasts. Elaine Garzilly and Henry Kaufman were superstars; now they are in oblivion?
People are looking at the whole thing with the wrong lens when they ask for accuracy. If I were accurate all the time, why would I tell you? I would make the money for myself. That is what the impossibility theorem in economics is all about. We forecasters open our mouth 80 percent of the time – with the full knowledge that we may be wrong. Nevertheless, what we do – trying to tell people exactly how or why something is happening – is still a service. I do a lot of homework so I can be a step ahead of others in making judgment calls, but I usually have to make predictions based on data that is incomplete, possibly contaminated, or in need of revision. Soon after the New York disaster, the Atlanta Journal-Constitution conducted a poll of a thousand people. When asked how long they thought that the downturn would last, 85 percent said six months or more. When asked if they were afraid of losing their job, 85 percent said no. When asked if they were worried that their spouse would lose their job, 85 percent said no again. Finally, 85 percent responded no when asked if they had postponed their major purchases after the attack.
What does it mean when people say there is going to be a downturn, yet they are not going to pull back? It means the people lied. Usually major polls survey 5,000 people nationwide, so in terms of statistics, I should have hit the jackpot. But, I didn’t. This was a major poll by a big newspaper, and who wants to be perceived as unpatriotic? Who knows, the FBI may be listening. So how can I make a prediction when people are lying? Therefore, t is impossible to be accurate all the time.

There have been so many rate cuts recently by the US Federal Reserve. Nonetheless, consumer sentiment has not risen to lift the economy. Why has it not happened so far, and are you going to give me the cliché answer, “Oh, the economy has to wring out its excesses from the previous years?”
Yes, that is the jargon the academicians will feed you. I was actually quite pessimistic when I wrote an article in February and captioned it “Murder on the Orient Express.” What happened in the book, where every character had a part to play in the murder, was similar to what happened to the economy. The crash of the stock market, the Federal Reserve’s raising its rate, the technology boom’s coming to an end, and the blowing up of the dot coms all happened simultaneously. The dollar was not too strong at that point, and the foreign countries were not doing well. Now, with the New York disaster and the threat of war and bio-terrorism, consumer confidence plunged even lower.

In the height of the boom, everybody was saying that this time it is different, that the internet revolution was a fundamental paradigm shift, and that the traditional boom-bust cycle will go away due to the instant availability of information.
This reminds me of the railway revolution in the 1840s. Everyone was playing the rail lines. The queen of England was taken out in a railway carriage to show the masses how safe it was so that they would invest. When the bubble burst, people did lose money. However, in the end, there was a network of railway lines that really helped England with the industrial revolution. I think the internet is a very good device. The big question is who is going to make money and who is not. In the case of the dot coms, 90 percent of them were obviously going to fail, though we were being told otherwise. No one knew when the bubble would burst, and I guess it all boiled down to the level of greed. I didn’t invest and didn’t make any money. People knew that the dot com freight train was going to crash, and everyone thought they were smart enough to know when to jump off. The ones who didn’t, went down.

In the 1990s there was a lot of productivity led by technology. Are these gains sustainable in this decade? In the next few years which sector do you see leading the US economy back?
The productivity gains will be there because the internet is for real, as is the computer revolution. Whether the productivity gains will translate into profits for the companies is the question. Take, for instance, the automobile industry. Last year the US economy was buying automobiles at the rate of 19 million vehicles around February/March. Typical sales on an average basis in a very good year were about 15 million vehicles. We are still selling 16.5-17 million vehicles a year, but everyone is saying that the automobile industry is doing badly. They hiked up production expecting an increase in demand that didn’t quite measure up. Thus, people have been let go, and that is how recession hit the Midwest. I will say that the stocks have been really overvalued in the past few years, and even when you wring out the exceess, and the stocks come back to normal, it will still seem like they are not making money. I think the technology industry will be the last to recover. There is still excess sitting in the system right now, and I don’t expect the great ride of 1998 to 2000. It’s a once in a century flood. It will be the Wal-Marts and the Home Depots with a steady rise of 5-6 percent who will recover first.

How do you see the Indian entrepreneurs heading small high tech companies doing in the current economic environment?
The good thing is that the Indian venture capitalist network has developed tremendously over the past decade. It will all depend on how much faith the VC of Indian origin, going by his past experience, has in a company. In the past, a focus of a lot of Indian entrepreneurs here was to work for American companies doing either back office work for them or providing software training or consultancy services. China will catch up in another few years so, to survive in the long run, it is very important to shift focus on product development.

What is the future of foreign direct investment in India, given that after a positive flow of multinationals, firms like G.E., Enron, Motorola and Siemens are disgruntled by the infrastructure?
In India things vary from state to state. There is a lot of political instability, and investors will think twice before interacting with someone who may not be there in six months. The Indian economists, bureaucrats, and politicians are very close-minded. Our hang up of being a colony still exists. We open our economy only when we are under a lot of economic pressure. We have to borrow funds from IMF and others, and in return we have to open our economy. The lack of liberalization in India was not forced by its being in a fiscal problem. Even though China does not have as good a middle class as does India, it receives most of the investments from the United States. I see the pie as remaining the same as it has been, but I believe that some people like the noveau riche and the intermediary traders are getting a bigger slice.

So what is your forecast for Georgia and the nation?
It is my most pessimistic yet. The tragedy of September 11 and the anthrax attack pushed the economy into recession. Atlanta will be impacted because of its substantial dependence on industries related to travel and tourism. Consumers will wait and watch due to job losses and fear of the unknown, and that will adversely affect retail sales. Congress’s fiscal stimulus will not arrive in time, and no sales tax holiday will do much to change the fiscal picture. Things will pick up in the summer but not before Georgia has lost approximately 125,000 jobs. Nationally too we will see slim chances of recovery by summer if a fiscal stimulus package is passed in the spring. This recession will be deeper than the recession experienced in the early 1990s. Recovery, however, will be prompt both in terms of income and job growth.