This little piggy went to…Tumon!

Sometimes the news and the real story are two different things.

Example: Tourism arrivals in June fell about 2 percent, compared to June of last year.

That’s the news. Now let’s look at the story.

Story #1 (little story): Arrivals from our main market, Japan, slid 5 percent in June, and remain down 10 percent for the year. If I was in the tourism business, I’d find that downright alarming.

Story #2 (big story): There was actually a bit of surprise expressed that June saw a continued slide in tourism arrivals. I’m surprised at the surprise. Why wouldn’t tourism arrivals fall? Japan is still in the economic dumps, and Guam has promoted tourism far more intelligently to this key market. The CNMI is getting a smaller slice of a shrinking pie. Duh.

I’m pretty confused at the Alice-in-Wonderland school of belief that says the great tourism god in the sky will somehow magically make things better for the Commonwealth. This is a chapter conspicuously absent from any texts I’ve consulted on business and economic topics.

Some economists have sort of poisoned the waters by using the term “economic cycle” a bit too loosely. The term does not generally mean that economies follow a predictable cycle like a sine wave–though that’s the way it’s commonly misinterpreted. Which means, of course, that it’s a lousy term and could stand some refinement.
I’ll vote for that.

An economic downturn does not mean that an upturn is just around the corner. And economic upturn does not mean a downturn is just around the corner. An economic plateau does not mean that an upturn or downturn is just around the corner. When pondering economics, forget your trigonometry functions (cycles such as sine and cosine): they don’t apply.

So what is an economic cycle? Consider a pig farmer. For some reason everyone gets a hankerin’ for bacon. The price of pigs goes up. Farmers raise more pigs to cash in. All these pigs go to slaughter, and since there are now more of them (increased supply), the price is driven back down. Falling prices, oops! Farmers raise less pigs. This reduction in supply pushes the price back up…and we start all over again. There we have it: a pig cycle.

The pig cycle is useful to illustrate market forces (the interaction of supply, demand, and prices), but we’d never see a real pig cycle in the real world, for a number of reasons. One reason is that farmers don’t have to wait until the pigs are slaughtered to get their price; they can lock into prices in the futures market and dodge the pricing risk. This dampens out cycles.

So much for the cycle thing. It seems to be the hidden postulate holding up the Alice-in- Wonderland school of thought. Just because things “used to be better” doesn’t mean they “have to get better.” Wishful thinking won’t bring the tourists back. There is no Japanese economic cycle that means redemption for that economy.
Neither is there one here. Tourism arrivals statistics might zig and zag a bit for the rest of the year, but the fundamental situations of the industry and the market have not changed a bit.