Tag Archives: economic performance

The Things We Know That Just Aren’t So…

Michael Hicks is an economist on the faculty of Ball State University. He recently published two columns in the Indianapolis Star that deserve widespread attention.

Hicks documents two inconvenient facts: more people move into high-tax areas than into low-tax precincts, and economic conditions in Blue cities and states are significantly better than conditions in Red parts of the country.

Hicks makes that first assertion in a column discussing the repeated mantra of candidates for Indiana’s legislature--elect me and I’ll cut property taxes! High property taxes are why Indiana keeps losing population! He points out that–despite the popularity of these proposals, property tax cuts would be highly unlikely to grow population, employment, GDP or household incomes. The data shows that population growth tends to cluster in high-tax places.

In Indiana, the 10 counties with the highest effective property tax rates alone accounted for 27,105 new residents since 2020, a whopping 61.3% of the state’s entire population growth. The 10 counties with the lowest effective property tax rates saw only 878 new residents, or less than 2% of the state’s growth.

I know many readers will recoil at this challenge to a long-held notion that lower taxes cause growth. However, it is a cold, hard fact that both population and employment growth is positively correlated with tax rates on income and property.

In Indiana, a 1% increase in the average tax rate leads to a 2% increase in population growth. That is simple mathematics.

Why would that be? As Hicks concedes, no one looks at tax rates and says “Let’s move to where taxes are higher.” What they do look at are indicators of quality of life–public services and amenities that will be available to them.

These are places where families judge themselves better off. If you live in a state where families are moving from low- to high-tax regions, your state is underinvesting in local amenities such as schools, parks, and public safety.

That reality–anathema as it is to those who view all taxation as evil–goes a long way toward explaining another phenomenon Hicks has discussed–the difference between the economic performance of Red and Blue areas of the country.

Nationwide, it is unambiguously clear that the U.S. economy is performing historically well. On every important measure — employment, wages, GDP, or wealth — the overall economy is not just performing at record levels, but also outperforming the rest of the world.

Robust national economic performance has benefits for every county and small town, but that does not mean every place shares equally in economic growth. There are plenty of places that continue to do poorly.

And the gap between them is growing. Rich places are, for the most part, getting richer and poor places poorer–in contrast to what has typically happened before. Moreover,

poor places are increasingly governed by Republicans and rich places by Democrats. The gap between rich and poor places might help explain the partisan differences in perceptions of the economy.

The regional differences are compelling across dimensions of rural and urban places, as well as between cities and rural areas.

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Hype And Reality–Hoosier Version

It’s one thing when progressives or liberals criticize a state’s governance; it’s considerably more interesting–and should be more persuasive–when that criticism comes from the same side of the political aisle as the party controlling that state.

Aaron Renn is a conservative. He recently authored a lengthy article in a publication called American Affairs Journal (a publication with which I am unfamiliar) analyzing Indiana’s performance under the much-hyped “pro-business” model favored by the GOP supermajorities that dominate the Hoosier State. His recitation is much, much kinder to former Governor Mitch Daniels and even to former culture warrior/pious hypocrite Mike Pence than I personally feel is warranted, and his bona fides as a conservative are indisputable.

So what about performance? What does Renn see when he looks to the evidence supporting the “business-friendliness” of Indiana? Let me share a few of his statistics/observatons:

When Indiana became a Republican trifecta state, its average disposable income had actually declined to 89.5 percent of the national level. By 2019 (pre-pandemic),2 it had fallen slightly to only 89.4 per­cent, and during the pandemic it dropped to 88.7 percent in 2020. In short, under Republican leadership the state’s relative incomes started out low and got even lower….

Measured since the pre–Great Recession employment peak in 2007, Indiana has only grown its job base by 5.8 percent, trailing the national average of 9.4 percent…

Under Republican leadership, Indiana’s disposable incomes have declined relative to the national average. Since 2000, the state ranks a dismal forty-sixth in median wage growth, and the growth in median earnings has been at only half the rate of the rest of the country. Only 42 percent of workers in the state earn a living wage (adjusted for cost of living) and have employer-provided health insurance…

Indiana ranks thirty-ninth in its share of jobs in new companies, the major source of job creation, and has more old firms than young ones..

.Indiana’s demographics are also weak. During the 2010s, the state’s population grew by only 4.7 percent versus a national average of 7.4 percent. Its population growth rate has been decelerating since 2000. During the 2010s, the state grew at less than half the rate it did during the 1990s, when under Democratic gubernatorial leadership. Most of this drop mirrored the national trend, but Indiana’s growth rate declined more rapidly than the nation’s as a whole. Large portions of the state are either stagnant or declining in population. Over half of the state’s counties—forty-nine out of ninety-two—lost population during the 2010s.

Renn points out that weak population growth means equally weak labor force growth, which also means “that the era of job growth in Indiana is nearing an end.” If such job growth requires an educated population, we’re also out of luck: he notes that the state “also lags in educational attainment, with only 26.9 percent of the state’s adults holding a college degree, forty-second in the nation.”

He also acknowledges what our legislature–dominated by rural interests–persistently refuses to admit: to the extent there is any good economic news, it is due to the performance of the state’s metropolitan areas–especially Indianapolis. Indianapolis has 31 percent of the state’s population, but was responsible for 74 percent of the state’s population growth over the past decade, including, importantly, a “disproportionate and growing” share of the state’s educated residents.

That means that the parts of the state outside Indianapolis’ metro area are actually performing even more poorly than those weak state-level averages indicate.

What should concern our legislative overlords is another worrisome fact:  Indianapolis’ growth has come largely from the rest of the state. Renn reports that some 90 percent of the city’s net in-migration comes from the rest of Indiana; that is very different from the growth of Sunbelt cities like Austin, Nashville, and Raleigh, which have a national draw. In effect, he says, Indianapolis has grown by drain­ing the rest of the state.

Summing up, Renn says:

In the end, Indiana built its sandbox, but not very many people or businesses want to play in it, and the ones who do don’t have much money. The state attracts few new residents on net, and the businesses that are locating there are predominantly low-wage employers taking advantage of the state’s lower-skilled, poorly paid workforce.

Republicans like to talk about running government like a business. If Indiana actually were a business, shareholders would replace the man­agement after such a poor showing.

But of course, Indiana is gerrymandered to give outsized power to its dwindling number of rural residents, who resent the state’s city-dwellers and dismiss all the evidence of economic mis-management.

They’ll keep voting for the pro-gun, anti-choice, anti-vaccine (and frequently anti-Black) culture warriors –and buying into the clearly dishonest hype about Indiana’s “pro-business” policies.

Honest to goodness, Indiana!!

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Define “A Great Economy”

Our demented President continues to brag about the economy, claiming sole credit for producing good numbers, and (as usual) fabricating many of them.

That said, according to the metrics used by most economists and pundits, the economy is doing quite well.

Republicans running for the House and Senate are trying hard to emphasize that economic “good news,” and one of the more puzzling aspects of the midterm campaigns has been the lack of traction those efforts have generated. Usually, when the economy is humming along, that’s good news for the incumbents; this time, economic arguments don’t seem to be convincing many voters.

The “chattering classes” attribute this to a variety of factors– Trump’s extreme unpopularity, concerns about the negative effects of Trump’s tariffs and the escalating trade war with China. Those things clearly matter, but I have a different explanation: we are using the wrong metrics to measure economic performance . I’ve misplaced the link, but I copied the following paragraph from an MSN website that makes the same point.

A humming national aggregate economy does not necessarily translate into improved livelihoods for most workers. Since the recession, nominal wage growth has been anemic compared to past business cycle peaks. Health-care and education costs keep rising while job benefits disappear. Most households are still in rather precarious financial straits. And there’s still a large population of “shadow” unemployed the official unemployment rate isn’t catching.

According to official statistics, the net worth of the typical American household is still about 20 percent below where it was when Lehman Brothers’ failure triggered the financial crisis. It is true that the gross domestic product is now substantially higher than it was — but a majority of Americans have not seen their incomes improve. And as the above quote notes, the admittedly very good unemployment rate ignores people who have given up looking for work.

If a “good economy” is measured by stock market performance and corporate profitability, then yes, we currently have a good economy. If, however, it is measured both by aggregate indicators and the degree to which citizens share in the prosperity, our economic performance doesn’t look quite so good.

A recent analysis from the Brookings Institution addresses that disconnect. After conceding the positive indicators, the report notes that the labor market continues to struggle.

 Wage growth is still sluggish, with modest gains offset by inflation. Despite recent increases, the share of prime-age Americans in the labor force is still slightly below the pre-Recession level. Levels of unemployment vary widely across places and the population by key demographic characteristics.

The report was generated as part of Brookings annual update of the employment rate gap (which, as the authors explained, differs from the jobs gap), calculating each indicator  by race/ethnicity and level of education. The employment rate gap is the  difference between the demographically adjusted 2007 employment-to-population ratio and the same ratio at other points in time.

As the report concluded,

The Great Recession inflicted economic pain on many American families, but its burden was not equally distributed. Ultimately, the brunt of the Great Recession was borne by those without the protection of postsecondary education. College raises average lifetime earnings, and it also helps insulate workers from economic downturns, providing economic security in the times they need it most. Finally, racial disparities have been less severe in recovery than in the worst years of the Great Recession, though differences in employment rates persist. For the American labor market to be truly healthy, it needs to work for all people—not just some.

A truly “great” economy distributes its largesse widely. It is that often-referenced rising tide that lifts all boats.

When most of the benefits generated by economic productivity enrich only the top 1%–or even the top 10%–that economy is only “great” for the pigs who have monopolized access to the trough.

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The State of Our State

Welcome to a new year, fellow Hoosiers.

Given that 2016 will be an election year, Hoosiers will hear lots of rhetoric about Indiana’s economic performance, both from the incumbent administration and those seeking to replace it; a credible analysis of that performance is thus essential if we are to separate the wheat from the chaff.

Morton Marcus is an economist who spent nearly 40 years at IU’s Kelley School of Business,  where he presided over a center that generated data about Indiana’s business climate. He is now retired (but by no means retiring), and he still writes a column carried by a number of newspapers around the state.

A recent Marcus column measured Indiana’s economic performance.

Let’s start with Real Gross Domestic Product (GDP), which Marcus defines as  “the value (adjusted for inflation) of all the goods and services produced in a nation or a state, over the course of a year or a quarter of the year.”  “

And how has the Hoosier state done by this measure?

The United States’ Real GDP has grown by about 13 percent in the last decade, while Indiana has added only 7 percent….If you look at the nation’s Real GDP each spring (the second quarter of the year), the progress made by Indiana every year since 2012 lags the growth of the nation. Indiana ranked 32nd with 2.8 percent compared with 5.8 percent for the U.S.

Then there is the question of jobs and wages.

The total of wages and salaries takes into account both how many people are working and what they make for their labors. Nationally, from the third quarter of 2005 to 2015 and after adjusting for price changes, wages and salaries grew by 13.2 percent. Here, in the Hoosier Holyland, the growth was 5.5 percent.

The news isn’t unremittingly negative: as Marcus tells us, “Non-durable goods were a winner; Indiana up one percent while nationally that sector was off by seven percent.”

But in durable goods, like autos, RVs and steel, the news was less cheery: “Indiana was down eight percent at the same time the country slipped six percent.”

All in all,

Over the past decade, the nation’s output and wages both grew by about 13 percent. In Indiana, however, they both trailed the U.S.; Hoosier output (Real GDP) grew by only 7.1 percent and wages by a mere 5.5 percent. Why aren’t Hoosier businesses and workers keeping pace?

As we head into 2016 and the inevitable political spin, it may be worth revisiting this analysis of actual economic performance—and considering whether we’d be better served by replacing our current Governor with someone less fixated on protecting retailers who want to refuse service to same-sex couples, and more committed to conventional economic development.

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How Are Hoosiers Really Doing?

Morton Marcus can always be counted on to debunk official happy talk. In a recent column (link not available), he did it again.

Responding to what he characterized as “recent self-congratulatory claims from the State Office for Ooze,” he chose annual data for two decades (from 1994 to 2004 and 2004 to 2014), a time period that allows him to paint a more accurate picture of how Indiana has been doing compared to the nation.

Here are the numbers:

  • At the national level, the number of jobs grew by 17 percent from 1994 to 2004. In the next decade (2004 to 2014), U.S. jobs grew by 10 percent. For those two decades, Indiana’s job growth rate was 9 and 4 percent respectively.
  • Over that 20 year period, jobs in the U.S. grew by 29 percent while Indiana advanced only 13 percent. Indiana ranked 47th among the states.
  • Between 1994 to 2014, Indiana fell from having 2.3 percent to barely 2 percent of all American jobs. (As Morton points out, that may not seem like much, but that “little difference is the equivalent of 950,000 jobs over those 20 years. That failure to just keep pace with the nation, means our addition of 442,000 jobs between ’94 and ’14 was 53 percent short of mediocrity.”)
  • Also during this time frame, Indiana lost 26,000 construction jobs or 12 percent of the jobs in that industry while the national decline was only 7 percent. Indiana also saw greater percentage declines in computer and electronic products employment than did the nation, although the state experienced lesser percentage losses in primary metals and motor vehicle manufacturing.
  • Indiana had job losses in every category of retail shops while some types of retail grew at the national level. “Despite the Great Recession, finance and insurance jobs grew by 22 percent nationally, but only 9 percent in the Hoosier state. Food service and drinking places had job growth of 20 percent across America, but only 10 percent here.”

Next year, Indiana will elect a new Governor. Candidates for that position need to tell us how they plan to improve–rather than continue to spin– the state’s dismal economic performance.

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