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Tuesday, December 7, 2021
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  • MUNCIE – Thanksgiving is upon us again, bringing to mind the Pilgrim story. That is a fine tale of religious refugees, which is probably the most enduring and evocative American experience. But rightly understood, the American Thanksgiving comes to us from Abraham Lincoln. It was made by his proclamation of Oct. 3, 1863, while the Gettysburg dead were still being gathered, on an autumn day in the shadow of our nation’s darkest hour. If Mr. Lincoln could find reason to call us together for a day of gratitude, we can now have no cause to do otherwise. Shifting focus to our most recent year, America’s factories have recovered and produced more goods this summer than at any time in history. Our ports are full, sending a record value of these goods abroad. At the same time, ships bring more goods to our factories and stores from trading partners abroad. Our American dollar rules the globe, denominating everything from global oil shipments to taxicab trips in Bangladesh. All of this happened in the wake of the biggest economic shock in global history. Today, Americans have never been richer. Indeed, we are so affluent that our standard of poverty lies slightly above the global average income per household. Thus, a very poor American is richer than half of all living people. One out of three Americans has wealth that places them in the top 10% world wide.
  • MUNCIE – The U.S. Congress is turning its attention to something called the Build it Back Better (BBB) bill. This is a good time to think critically about the political economy of our national debt. It is good to start with some facts and acknowledge what we do and do not know about the economic consequences of a large public debt. A big part of this is discussion must be the question of how we tax ourselves to pay for this debt. Public debts aren’t new, and the U.S. government has spent more than it has received in taxes for almost all of the past half century. Despite our economic cycles, we remain the largest rich economy, with reasonable long-term growth and currency that is the most dominant in world history. Clearly, a rich nation can run a debt for a long time without meaningful consequences. A nation like ours can also finance big negative shocks, like a world war or global pandemic. We have been successful in paying these back over long periods, financed by sufficient economic growth that our tax revenues exceed spending. However, we can also hold debt for decades, if what we buy is a boost to long-term economic growth.
  • MUNCIE – Last month, the Indiana Economic Development Corporation made public all 17 regional proposals for the state’s READI Grant program. Since the program was announced, I’ve been dreading this date primarily because I was confident the program would fall short of even modest expectations. The program was hurried through the General Assembly, and the time frame for this type of process was extremely short, just a few months. I couldn’t have been more mistaken. I have now read all 17 proposals, covering all of Indiana’s 92 counties. It is a monumental achievement that 16 of these proposals would’ve been competitive for the Regional Cities Initiative from 2015. Only one proposal failed to lay out the details asked in the guidelines. Of course, that doesn’t mean all 16 should receive funding, simply that the selection committee faces a tough challenge in selecting the nine regions to fund. It isn’t surprising that the three areas from the Regional Cities Initiative provided very strong proposals, or that the weakest one came from the same region with the worst Regional Cities proposal. Still, there were a number of surprising developments. The Indianapolis Metro region divided itself into four different regions, which allowed for more focus on particulars of each plan. Also, several cities in four counties aligned themselves with different groups. Some of this makes sense, given the geography of each of these counties.

  • MUNCIE – Secretary of Transportation Pete Buttigieg received a great deal of criticism lately for taking paternity leave. It is a time of snarled port traffic, understocked grocery shelves and growing worry about supply chains. I think these critiques are in bad faith and unworthy of an intellectually confident political movement. But, that’s where we are now. Congress could spend serious effort to ease logistics problems in any number of ways; the private sector is already at work. Outside of complaints about Mr. Buttigieg, Congress has been silent on the matter. Let me make three points. First, parental leave policies are nothing new for the federal government. These policies, which apply to both parents for childbirth and adoption, intend to reduce workplace disparities arising from the absence of women during and after childbirth. The evidence remains mixed; still, it is federal policy. If a cabinet secretary were to skip his parental leave, it would signal further down the chain that family matters are not important. One may disagree with Mr. Buttigieg on issues of policy, but his leadership has been exemplary.
  • MUNCIE – Today’s tight labor markets, which seem especially pronounced among low-wage jobs, have led to considerable speculation about the future of work. Of course, the labor market shocks of the pandemic set new records of unemployment, and the disease likely caused a million Americans to die early. It is natural that we should anticipate many long-term economic changes. However, the likelihood that the pandemic has radically altered the prospects for low-wage workers seems pretty modest. It is true that pay and benefits for traditionally low-skilled jobs are rising, and likely to continue to increase over the coming months. This will be welcomed by many, but there’s a catch. The new higher wages must be accompanied by higher productivity from these workers. These are markets; employers can only sustain higher labor costs if the workers are actually producing more value in the workplace. As this occurs, there’ll be fewer jobs available in these occupations. That dynamic is normal in a market economy. History is full of occupations that disappeared due to rising wages that were not matched by productivity growth. That’s really the story of economic growth, captured well by Agatha Christie’s quip, “I couldn’t imagine being too poor to afford servants, or so rich as to be able to afford a car.”
  • MUNCIE – Inflation talk continues to animate the airwaves, or at least cable TV, and remains part of the political conversation. Economists should have something to say about this; after all, it has been a central area of research for much of the past century. Still, we should approach the issue with an abundance of epistemic humility. Those who warned about high inflation in the wake of the Great Recession were wrong. A casual observer might view this with some relief, since we nearly all erred in overestimating inflation. Still, this should be of no comfort. The mathematical models we use to understand and predict inflation perform poorly, and there is plenty of opportunity for symmetry of error, so there is a real possibility of underestimating the risks of inflation this time. The fiscal and monetary stimulus following the pandemic recession is much larger than that of the Great Recession. Of course, the economic damage of the pandemic is far worse. One great unknown is whether we have too much or too little stimulus today.
  • MUNCIE – Today, many businesses struggle to hire the workers they need. Whatever the causes, this current challenge will surely prompt widespread changes by employers. This type of adjustment isn’t a new phenomenon, but economists allocate very little time explaining the mechanics of change. Nor do we explain that these types of corrections are normal and generally, if not always, make society better off. This is true across many types of labor market changes. But, even as the world improves, there are some winners and losers, or rather each of us experiences some benefits and costs. That too is worth explaining, along with some examples. When businesses cannot hire enough workers at the wage they think is appropriate, they call it a labor shortage. Of course, workers get a voice in work as well, and a business thinking a wage is fair doesn’t matter if a worker doesn’t agree. This process of workers matching with employers is messy and slow, and government cannot do much about it. We try of course, and states are all funded by the federal government to create an online help-wanted database. It’s even possible that in a few years, with a few million dollars more, some states will have just as good a system as had back in 2004.
  • MUNCIE – The monthly state-level employment summary this week reported that Indiana lost 4,200 jobs in August, while the nation as a whole saw a tad more than 250,000 new jobs created. This was worse than the July jobs report, where Indiana picked up a paltry 10,000 jobs out of the 1.1 million created nationally. That’s less than half the job creation rate we should’ve experienced. The national economy is slowing quickly once again due to COVID, and with Indiana’s low vaccine rate, we should be unsurprised by our relatively poor economic performance. Still, it is good to think through the many possible causes of our slowing economy. Business leaders continue to complain about few applications to open jobs. A trip to any fast food restaurant or retailer confirms their challenge. Still, in the first two weeks in August when this jobs survey was taken, 18,000 Hoosier workers lost unemployment insurance. We should doubt the argument that generous UI benefits are keeping large numbers of workers at home in meaningful numbers. Something else is happening in labor markets.
  • MUNCIE – Many business leaders are reluctant to say so publicly, but President Biden’s vaccine mandate is a welcomed gift. It offers them and their employees a relatively easy way to dodge what may be a looming health insurance price spike. For businesses that find it hard to hire and keep workers, this should be especially beneficial. It will also help maintain workplace comity at a time when it is about to be heavily stressed by rising healthcare insurance costs driven by unvaccinated workers and their families. Faithful readers of this column will know my distaste for much government regulation. It has become so extensive and intrusive that businesses often find themselves spending time and energy over patently silly rules. From occupational licensing of interior designers to annually changing standards for commercial fans, there are endless examples of overregulation. If you’ve ever filled out an OSHA safety form for window cleaner, you’ll know exactly my point (but all that is for another column).
  • MUNCIE – On this anniversary of 9/11, many Americans will naturally feel conflicted about our role in Afghanistan. Whatever we each feel should be tempered by the realization that our fight against the extremists who attacked us 20 years ago is ongoing. We have forces deployed to dozens of nations in a conflict that will extend through the remainder of this century. The choices we now face are how, when, and, at times, where to fight. Having spent almost a third of my adult life training, fighting and planning for war, I can assure you there are no easy choices. There are none without risk; none possessed of certainty; none that do not cost us treasure and youth. It is easy to cast blame for the collapse of Afghanistan’s government because there’s plenty to go around. I suggest we instead be concerned with drawing lessons from this experience. We must do better in this fight. We must also find ways to honor the unfinished work of those men and women, living and dead, who sacrificed in Afghanistan.
  • MUNCIE – This Labor Day weekend comes in the wake of a turbulent pandemic, accompanied by record high unemployment followed abruptly by concerns about a labor shortage. These facts occasion some introspection about the future of work in America. To do so means recognizing the current and likely future state of labor markets, as well as an acknowledgement of a deeper, more complex role that work plays in our lives and wellbeing. Humans were made to work, and the celebration of labor is a key part of every successful modern society, nowhere more so than in the United States. Alexis de Tocqueville, the great chronicler of early America noted, “Among a Democratic people, where there is no hereditary wealth, every man works to earn a living, or is born of parents who have worked. The notion of labor is presented to the mind, on every side, as the necessary, natural and honest condition.” Even today, Americans work almost a full week more per year than the average developed nation. Work has the potential to provide meaning and satisfaction, unconnected to the economic importance of the task at hand. Work gives us sense of accomplishment, social interaction and the opportunity to earn respect for what we do, not who we are. These are human traits brought to fullest fruition in a market economy like ours. I like to tell my European friends that what differentiates us is that in America we judge someone not by who their parents were, but by what they create for their children.
  • MUNCIE – Earlier this month, the Infrastructure Investment and Jobs Act (HR 3684) passed the U.S. Senate in an overwhelming bipartisan vote. This legislation launches a multi-year one-trillion-dollar effort to improve roads, bridges, water and sewer systems, broadband, the electrical grid and other mostly traditional infrastructure projects. This is the type of legislation for which there is both principled opposition and support. In other words, this is a normal law. One way to think through this law is to consider the magnitude of this spending and what infrastructure spending does and does not do for the economy. This legislation spends roughly one trillion dollars over several years on infrastructure. The total value of publicly owned infrastructure in the U.S. is about $30 trillion. Our annual federal budget is about $4.5 trillion per year, and state and local tax collections add another $1.8 trillion per year. Spread over seven years, this is investment equal to about 0.4% of total capital stock and 2.2% of state and local tax revenues. Placing that in the context, let’s compare this bill to a homeowner who earns $50,000 a year and owns a $150,000 home.
  • MUNCIE – My 18-month work-from-home experience has come to a formal end. No one, except maybe my wife, is more excited than I. The experience has caused me to muse upon the leadership and management differences the COVID pandemic yielded, and what the effect on individual business and the workplace might be. COVID had very different effects on the work performed by each group of workers. In nearly all cases, the lack of physical proximity caused by the pandemic required us to reschedule and reform instruction for executive education or academic classes. We struggled to become acclimated with four or five major conference software offerings, but within a few weeks it turned out to be a fairly straightforward technology fix. In terms of purely administrative tasks, most of what we did could continue to be managed through digital systems we already had in place. But, like most businesses, we still send and receive mail and sign documents such as checks and performance evaluations. With people working remotely, we had more hardware and software challenges to solve without the direct support of our technology office – a challenge, but ultimately most of us became a bit better at troubleshooting software and hardware problems.
  • MUNCIE – One of the great recent puzzles in economics has been the absence of inflation, particularly in the years after the Great Recession. Some recent research explains why inflation has been so muted for so long. This work also suggests that inflation will be of diminishing concern in the future. Those conclusions will be hard for many to swallow, so let me explain. Americans under age 50 will have no meaningful memory of inflation, while Americans over 60 will have sharp and unpleasant memories of its effects. Fixed mortgage rates provide a good example. A 1981 home buyer faced a 30-year-fixed mortgage rate of 18.5%, but a decade later, in 1991, it was half that rate. That same mortgage is today at 2.8%, perhaps a record low. Inflation affects nearly everything from the price of goods and services to credit card rates and wages. It is not something that affects just a few products or commodities. In that way, inflation reduces the standard of living of families. Inflation also slows economic growth by imposing a de facto tax on savings while shifting wealth from those who save to those who borrow. The reemergence of inflation risk is not an idle worry. Inflation helped push Hitler to political prominence, and ushered in dictatorships from Argentina to Zimbabwe. Inflation is not just a minor financial phenomenon.
  • MUNCIE – Just a few short months ago, economic optimism was strong. A fast recovery seemed imminent even if actual data revealing a rapid recovery was sparse. Businesses were beginning to re-open and hire, the vaccine was becoming universally available. Most of us were eager to return to restaurants, theaters and other places that were unsafe during COVID. Spring was as it should be, hopeful and optimistic. As of mid-summer, the very rapid recovery has failed to fully materialize. Wage growth last month was weak and the mix of new jobs signaled growth in lower-wage sectors rather than across-the-board growth. In a normal labor market, we would welcome the 2021 average of a half a million new jobs per month, but that speed of recovery will not see us hit pre-pandemic employment levels until the summer of 2022. At the current pace of job growth, it will be late-2023 or 2024 before we return to trend employment levels. The more-sluggish-than-expected recovery comes at a time when combined economic stimulus remains near an all-time high. Additional fiscal or monetary policies will not rescue us from slower growth. That isn’t an argument against any piece of legislation or federal policy, simple an acknowledgement that the slowing growth isn’t really a direct economic policy issue. It is something else. Over the past few weeks, COVID is again filling hospitals and killing Americans at an accelerating rate. But, the effects of the disease and its likely economic effects are not equally distributed.
  • MUNCIE – In May, Gov. Eric Holcomb’s announced an early end to pandemic unemployment assistance. This decision was a rare policy mistake for an administration that had spent more than a year handling COVID with admirable attention to data and good judgement. The mistake was also unusual in that the predictable result was economic damage to those Hoosiers who were most affected by COVID. This was a marked departure from the administration’s more than yearlong focus on the health and wellbeing of those most impacted by the pandemic. Fortunately, the courts reversed that decision and payments resumed earlier this month. Labor markets are slowly improving, so fewer families would’ve been substantially harmed by the payment turbulence. Ultimately, the decision to end pandemic unemployment assistance early will be only a footnote to an administration that performed commendably through the worst crisis Indiana faced since the Civil War. The sole reason I write about the topic is that this episode illustrates how inchoate Indiana’s workforce decision process has become. Moreover, the fiasco with pandemic unemployment assistance illuminates the folly of the Division of Workforce Development’s culture of supporting businesses at the expense of taxpayers as a whole. 
  • MUNCIE – Earlier this year, Indiana’s General Assembly passed Senate Bill 414, which required universities to survey students about the climate for free speech on campus. Schools must then report these findings to the Commission on Higher Education. Normally I’d be reluctant to weigh in on such a law; at first blush it looks like another volley in the destructive culture wars. But, I think this survey can be enormously instructive to university leaders and legislators alike. It should hardly surprise anyone that professors and college administrators are overwhelmingly from the political left. The balance isn’t even close. The Federal Elections Commission reports individual donations with place of employment. Since 2019, my colleagues at Ball State have contributed $120,765 to political campaigns and political action committees. These comprised 6,100 individual donations from fewer than 50 persons. Of these donations, 90.4% of were to Democrats, Democratic Socialists or left-leaning PACs. I choose Ball State University because it is often said to be the ‘conservative’ state university. That may be true, which should raise even more eyebrows on campus and in the General Assembly.
  • MUNCIE – Independence Day weekend is a good time for reflection. The style of that rumination needn’t be tedious; after all, hamburgers, beer and s’mores beckon. For me, it’s as simple as re-reading the second paragraph of the Declaration of Independence. The words can be so familiar that we fail to absorb just how radical these ideas were and remain. It begins, “We hold these truths to be self-evident. . .” Written at a time when our nation was ruled by a hereditary king and one in five people were enslaved, the perfection of these words continue to resonate. That world-changing revolution made clear that the principles that tore us from England were few but transcendent. These ideas came directly from the Enlightenment, and its core argument that individual liberty, reason and tolerance formed the basis for civilization. The Declaration repeated five interlocking ideas. They begin with the idea that each of us has inherent value, which is preserved by rights or protections. These rights are given to us by God, not government. This liberty cannot lawfully be denied, as it flows from the simple act of being human, not from religion or ancestry or race. Governments exist to secure these rights. Great Britain failed to do so. For these reasons we broke the bonds with England, and became a new nation.
  • MUNCIE – My colleague Dagney Faulk and I recently completed an analysis of the fiscal effect of school choice on Indiana taxpayers. The data came from a Department of Education report on transfer students across the state, which we matched with state spending and overall enrollment. During the process of the Ball State CBER study, I learned a few surprising things that are likely to prompt anyone with strong feelings about school choice. So, it’s best to proceed with an open mind. Indiana adopted universal school choice a little more than a decade ago. That occurred through a series of changes that together made Indiana the national leader in school choice. Beginning after 2000, the legislature created and then expanded charter school programs. These are public schools that are overseen by a university, a municipality or a local public school system. These schools range from large online programs to specialized programs operated by local school corporations like the McCullough Academy for Girls in Gary. The state also instituted full public school choice, permitting students to attend the school of their choice, with state funding following the student. There are some limits on student movement.
  • MUNCIE – It’s Father’s Day weekend, which caused me to think a bit about a century of change in the life of a typical American dad. This is a good story to tell through the lives of my and my wife’s grandfathers. These four men were born before Father’s Day was commonly celebrated in the U.S., and their experience is surprisingly representative of early 20th century fatherhood in the rural Midwest. The condition of their lives also offers shocking contrast with American life today. These four men were born in the late 19th and early 20th century, all within a 50-mile radius of one another. All were born on southern Indiana farms settled a century earlier by Revolutionary War veterans, part of a broad Scotch-Irish migration with the names Thomas, Hicks, Dye and Monroe. They came from families of farmers, soldiers and wanderers who arrived in Indiana with nothing more than a mule could transport. All told, they fathered 11 children between 1921 and 1939. One all raised four other young children as his own after marrying a young widow. All remained married to the same women until their deaths. Only one of these men finished high school. The other three advanced only through eighth grade, the only school available at the time within travel distance. This story is remarkably similar to the national average of the time.
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