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Monday, July 15, 2019
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  • MUNCIE – The past decade has seen a blossoming of research on the geography of employment and the effect of automation on the demand for workers and skills. These studies benefitted from significantly richer data sets on people and skills that enabled substantially more sophisticated labor market analysis. I especially admire work done by David Autor and Enrico Moretti, whose work is rich and easily accessible to non-economists. Their research was promoted by real world happenings that could ultimately inform public policy. But, I have become frustrated at how few insights from the past quarter century are understood and applied to education and tax policies. In many states, and certainly here in Indiana, public policy towards education, tax incentives and the role of workforce training seem very focused on applying lessons from the 1960s and 1970s, while ignoring nearly everything important from the 1980s through the present. This column is part of my effort to draw out two or three critical lessons from the last two or three decades and tie them to state policies. The first lesson learned is the primacy of human capital in the success of regions. Nearly the only thing that differs among cities, counties or metro areas is the educational attainment of workers. 
  • MUNCIE  — Every presidential campaign contains a share of pandering drivel. One idea that currently fits that bill is the idea of cancelling the roughly $1.6 trillion of outstanding college debt. I will explain why this is a bad idea, and outline some of the real problems underlying college costs. However, I must begin by noting that this is a ridiculously absurd and frankly immoral notion. In a marginally better world, its proponents would be laughed out of public life. Alas, this horrendously bad piece of public policy is at least moderately good politics. That is where I must begin. Student loan debt comprises only 2.2% of all private debt in the United States. This is still a large number, some $1.6 trillion. Families who earn $100,000 or more owe more than one-third of all this debt. This fact alone frames both the absurdity and immorality of the issue. I am sure kids do not like to hear this, but every American college student is firmly in the global 1%, at least in terms of consumption. Moreover, a college degree confers an average of more than a million-dollar-lifetime wage premium to its recipient. 
  • MUNCIE  – I gave a talk to the Indiana Superintendent’s Summit this week, and thought the issues I discussed might be of interest to Hoosiers as we think about our state’s economy. I began by sharing what the state’s Constitution says about education: “Knowledge and learning, general diffused throughout a community, being essential to the preservation of a free government; it should be the duty of the General Assembly to encourage, by all suitable means, moral, intellectual scientific, and agricultural improvement . . . a general and uniform system of Common Schools.” This is exactly what an economist would say schooling does for an economy. Note that there is nary a word about filling ‘in demand jobs’ or satisfying the whims of important employers. That is because the authors of the Indiana Constitution knew state government did not have the competence to do such things, as current workforce policies are keen to demonstrate. I told the audience that labor markets are in the midst of a half century of marked change. Jobs have been significantly polarized into high-wage, highly educated jobs and low-wage, poorly educated jobs. There is also a growing geographic concentration of such jobs, with better-educated workers concentrating in urban places. 
  • MUNCIE — The research center where I work just released a study on immigration in Indiana. Sociologist Emily Wornell was the lead author of a work that most Hoosiers will find interesting. Part of the study reported surprising data, but there was also some analysis that should clarify many misunderstandings about the issue. Let me explain. So far this century, a full quarter of all the population growth across Indiana has come from immigrants. This is important in a state that is now growing at well beneath the national average. More critically, across the 32 Indiana counties losing population last year, a full 29 saw net immigration from immigrants. None saw growth in native-born citizens. Despite what many would think as a flood of immigrants, Indiana is only at about one-third of its peak immigration of the late 19th century.
  • Michael Hicks: Indiana's growth comes via immigration
    MUNCIE — The research center where I work just released a study on immigration in Indiana. Sociologist Emily Wornell was the lead author of a work that most Hoosiers will find interesting. Part of the study reported surprising data, but there was also some analysis that should clarify many misunderstandings about the issue. Let me explain.
     
    So far this century, a full quarter of all the population growth across Indiana has come from immigrants. This is important in a state that is now growing at well beneath the national average. More critically, across the 32 Indiana counties losing population last year, a full 29 saw net immigration from immigrants. None saw growth in native-born citizens. 
     
    Despite what many would think as a flood of immigrants, Indiana is only at about one-third of its peak immigration of the late 19th century. From what this study can tell, immigration may be the single biggest source of population growth for Indiana in the coming decades. Again, that is not a new development. Roughly 150 years ago, when my most recent immigrant ancestor, Michael Joseph Young, arrived from Wales, nearly one of every 11 Hoosiers was foreign born. 
     
    It is fair to say that the big decline in immigration to Indiana accompanied our state’s long, slow relative economic decline. The absence of immigration did not cause it, but immigrants seek opportunity. Declining opportunity in the late 20th century caused immigrants to move elsewhere. The uptick in immigration to Indiana in this century signals better opportunity. We must hope to sustain it. 
     
    New immigrants in Indiana should be especially welcomed. On average, they are better educated than the typical Hoosier adult and, unlike the state as a whole, educational attainment among immigrants is growing briskly. Immigrants to Indiana are, on average, a major benefit to the state, and contribute more in tax dollars than they receive in benefits. There is little doubt about that conclusion, despite political rhetoric to the contrary.
     
    However, the benefits and costs of immigration are not equally distributed. The costs are very isolated, while the benefits are spread more uniformly across households. Like other researchers, we found that immigrants affect labor markets. On average, immigrants boost wages by buying more goods and services. However, for workers with a high school degree or less, immigration reduces starting wages by roughly 2%. While that amounts to as much as $70 a month, which is not a trivial amount, the effect is limited to starting wages. The effect of immigrant competition is erased after three months on the job. 
     
    For workers with college experience or degrees, the effect is wholly positive. Working in places with a greater share of immigrants boosts wages. That should not be surprising, since proximity to better-educated workers broadly boosts wages. Moreover, the services produced by better-educated workers appears to be in higher demand across immigrant households. 
     
    We also examined the potential negative consequences of immigrants on student learning. This is the one place where the costs for the state would be most impacted. Fortunately, the state keeps close tabs on the number of English Language Learners (ELL), or students for whom American English is a second language. Over the past four years for which we have uninterrupted data, there is no effect of different shares of ELL students on school performance. 
     
    Perhaps the most interesting finding detailed in the study is the more rapid pace of immigrant assimilation that accompanies current waves of immigrants. A century ago, language and cultural institutions were slower to adjust than today. This part of the study was also interesting in pointing out that immigrant assimilation is partially a two-way street. But, that should be obvious in a state where burritos and curry are becoming as common as potato salad, bratwurst and pierogi. 
     
    It is unfortunate that such a straightforward issue should be so politicized, but I suppose that is a residual of our times. I hope readers will come to www.bsu.edu/cber to read this analysis. It will erase any misgivings you may have about immigration in Indiana. 
     
    Michael J. Hicks, PhD, is the director of the Center for Business and Economic Research and the George and Frances Ball distinguished professor of economics in the Miller College of Business at Ball State University. 
  • MUNCIE - The national economy grew at an annual rate of 3.2% in the first quarter. I had forecasted a 2.9% growth rate, but worried the obvious slowing of the US economy would weigh heavily on growth. What might be happening and what it means for the future are worth thinking a bit more deeply about. I begin by explaining why economic growth is so important. If you came of age during that long period from the end of World War II through the Great Recession, you’d experienced average economic growth of a bit above 3.4%, and population growth of 1.1%. A bit of arithmetic yields the fact that, at these growth rates, the standard of living of the average American would double every 30 years. Since the Great Recession, growth has averaged 1.7% and population growth has slowed to 7.2%. At these rates, the standard of living of the typical American will double every 68 years. These data understate the change that occurred over this time. Lifespan in the United States increased by 20%, so folks born today should expect to live more than a dozen years longer than someone born in 1950. However, the rate of growth in life expectancy has crashed since the Great Recession, and even declined for some groups. 
  • MUNCIE - The United States Census Bureau released their annual estimates of population change last week. The data told a familiar tale for Indiana. Indiana very clearly struggles with population growth, and what growth we do experience is concentrated in just a few places. However, the data is not without bright spots. Indiana enjoyed population growth of 31,796 in 2018, of which 40% was net migration. That growth rate is about 0.48%, which is lower than the national growth rate of 0.62% last year, itself a post-war low. In terms of raw population growth, 2018 was beneath Indiana’s post-war and 21st Century averages. For Indiana, the post-recessionary period has been one of dramatic slowing of population growth. Among declining counties, population loss is accelerating. Within the state, only 15 counties grew faster than the nation as a whole. Six of those were in the Indianapolis metropolitan area, and accounted for 49% of the state’s growth. Of our fast-growing counties, all but one were in metropolitan areas. At the other end, a full 32 counties lost population in 2018. The remaining 45 counties grew, but at a rate slower than the nation as a whole. These are in relative population decline. 
  • MUNCIE – Over spring break, I read a Bryan Caplan’s very popular book, The Case Against Higher Education. Many readers of this column might suppose I’d like this book. I tend to support smaller government, and am a frequent critic of higher education. Recall that I’m the professor who thinks tenure is mostly counterproductive to good research and teaching. While I’d strongly recommend this excellent book, the central policy prescriptions are mistaken. Worse still, they are unwisely becoming a faddish part of the education debate. Let me explain. Caplan argues that the value of a college degree is split between actual learning and signaling to employers that you are conscientious and intelligent. He makes a very compelling case, concluding that 80 percent of the wage benefit of a college education is signaling, and 20% actual learning. While several reviewers have tried to poke holes in his analysis, I will not. Because even if he is right, his policy prescription of eliminating public support of higher education is deeply mistaken. Here’s why.  If the learning that results a college degree is only worth one-fifth of its total value, it is still by far the best public investments most state or local governments make. 
  • MUNCIE – A recent survey of economists posed two questions about the recently popular Modern Monetary Theory (MMT). The results were clear. Three out of four economists strongly disagreed with its central premises, and one out of four merely disagreed. Precisely zero survey respondents agreed or strongly agreed with the fundamental predictions of the theory. This was wholly unsurprising, as MMT is nonsense, but it caused me to think about the way economists discuss ideas that are politically popular yet have been proven false. The most obvious example of that, other than MMT, is modern supply-side economics. Indulge me in some musing on how these two ideas continue to have legs after being rejected by careful research using abundant data. MMT concludes that government debt does not matter and, as long as government can print money, it need not collect taxes. This would be a political panacea, of course. We could finance the building of the interstate highway system, World War II and the modern welfare state simply by printing money. It is absurd. 
  • MUNCIE – Job quality, especially with respect to wages and benefits, will be a central part of the next national election. With job creation strong but wage growth lagging, we should expect tough questions about a variety of labor market policies. This will be especially true in the few states that have experienced mostly low-wage job growth in recent years. With Indiana growing low wage jobs at a disproportionate rate, we should think through what “good” jobs might look like in a modern economy, and what role government could take in promoting them.  I’m a free market economist, so I think the best definition of a good job is one that a firm will offer and an employee will take. But, there are two sides to that definition. Labor markets match workers and employers, who both have a say in job quality. Workers need to obtain more education and skills when they cannot find the jobs they desire. Likewise, businesses need to offer better pay or benefits when they cannot find the workers they want. Workers and businesses are equal parties in labor markets, and government should treat them as equals. 
  • MUNCIE  — I spent much of last week at the policy meeting of the National Association of Business Economics in Washington, D.C. The theme of the conference was the dual considerations of promoting global economic growth and domestic economic security. So, it should come as little surprise that discussions of short-run economic projections, trade wars, tax cuts and the underlying factors that cause economic growth dominated the agenda. I’m not a business economist, but I was heartened by how much focus on the longer-term growth seemed to worry most of the crowd. American business seems to suffer perennial critiques of its focus on short-run profits, but the talk last week among business economists was almost wholly about the absence of solid long-run economic growth. I could not visit all the talks, but found two elements very intriguing, and worth sharing in this column.
  • MUNCIE — Indiana’s General Assembly is working through some details on the final education budget, and there are issues that merit discussion. Be warned, this column is likely to leave most folks a bit flustered. Facts are unfriendly to badly informed opinions. I begin by noting that the State of Indiana does not pay teachers. The State of Indiana funds K-12 education, and school boards pay teachers. It is critical to be clear about this, and not submit to the temptation of silly retail politics. This is important because school boards make decisions that affect teacher pay. For example, almost four out of every 10 school corporations in Indiana are so small that overhead costs eat a disproportionate amount of state funding. In these places, consolidating corporations would free up money to keep local schools open and pay teachers better.  Most other teacher pay decisions are likewise part of a school board’s job. Statewide, the data are clear; there is no teacher shortage. However, in many school corporations, finding and keeping the teachers those schools need is very difficult. Folks, if your school corporation is too small to attract the teachers you need, the problem isn’t in Indianapolis, it is at your school board.
  • MUNCIE – As 2019 begins anew, economists suggest a softening national economy.  Industrial production is in decline and retail sales dropped in December. Consumers even shifted their purchases to Walmart, signaling lowered expectations about the economy.  Much of Europe is sliding into recession and China may already be in a slump.  The sole unambiguous piece of good news is found in the unemployment rate, but that is a lagging economic indicator.  The spate of worrisome news could signal the beginning of a recession, but I think it is more likely a return to trend. But, the problem is that the trend has been very unkind to the Hoosier economy.  A return to trend is not good news for Indiana.  Let me explain. U.S. economic growth in the post-recessionary period averaged 2.25%, while Indiana lagged a full 0.2% behind the nation as a whole. This may seem like a minor difference, but this difference over a decade amounts to a significant and alarming relative decline in the Indiana economy.  Small growth rate differentials matter, and with the average Hoosier now earning less than 87% of the typical American, we should be very worried about stagnating long-term economic growth.
  • MUNCIE – A year ago, my Center colleagues and I met with staff from Accelerating Indiana’s Municipalities to consider several different issues facing Indiana over the coming years. Among the leading issues they asked us to study was housing. That is the genesis of a housing study published by Ball State last week. The results will be surprising to many Hoosiers. Our study examined more than 20 years of home prices, construction costs, and other factors that influence new home construction across all Indiana counties. The chief finding of the study is that the traditional economic factors of supply and demand explain nearly all new home construction in Indiana’s counties. In short, in a world where markets often do not work well, housing is a place where markets set home prices and quantities very effectively.  The problem is that many folks don’t like those market outcomes. This will be especially hard for many groups who have been arguing that there is a shortage of housing in many corners of the state. That view is mistaken and it doesn’t take sophisticated economic models to debunk the notion of a housing shortage in Indiana. After all, the U.S. Census reports more than 300,000 vacant homes across our state. There are enough vacant single-family homes to house almost one-third of all Hoosiers. 
  • MUNCIE – Monopoly is again becoming interesting, and I don’t mean the board game. Over the past few years, both academic and policy researchers have found growing evidence of market concentration or lack of competition in many business sectors. For a variety of reasons, this will likely emerge as a campaign issue in the next national election, so it is helpful to understand what economists mean when they talk about competition. Economists favor competitive markets over monopoly-like markets because competition yields much better outcomes to both consumers and producers. However, this remains a hard concept for many to grasp. It’s likely that everyone understands that competition yields lower prices, higher levels of production and, over the long run, more innovation. It also yields more efficient use of inputs such as land, talent and capital. Competitive firms also adjust more quickly to consumer demand, supplying everything from water or gasoline in a natural disaster to high-end consumer goods in the place and time people want to buy them. 
  • MUNCIE – The past few weeks have contained more reports of newspaper downsizing at metro daily papers in Indiana. This news involved some of our state’s largest daily print publications, but it is a familiar story affecting papers large and small in the age of the Internet. Last week Muncie saw the first sentencing in a broad federal investigation of local government corruption. If reports are to be believed, this investigation has already touched nearly every arm of local government, the city’s largest institutions and has peeked into nearly every local public project. The local paper reported all of this to taxpayers, serving its primary goal as a watchdog of the public sector.  With local newspapers threatened, it is useful to evaluate the connection between newspapers and the corrupting influence of power in local government. One of the better studies of this is by Dr. Pengjie Gao of Notre Dame and two colleagues from Chicago. In this very carefully crafted study, Dr. Gao finds that the closure of a local newspaper leads to higher costs of local government borrowing. He attributes this to loss of monitoring of local government leading to higher inefficiencies in several areas. 
  • MUNCIE – Manufacturing employment has enjoyed a long recovery since the darkest days of the Great Recession. As of late last year, we have a full 108,000 more factory jobs than in summer 2009, which marked the trough of the business cycle. This recovery eased some of the deep impacts of automation and trade that cost the United States and Indiana about one third of all factory jobs. Here in Indiana, from January 2000 through the start of the Great Recession, factory employment dropped some 126,600 workers. From the December 2007 through the end of the Great Recession in July 2009, factories shed a further 119,700 jobs. This employment loss was a full 36.8% of all factory jobs in Indiana. There is an interesting debate among economists about just what caused those factory job losses. The consensus appears that the majority of job losses in factories were due to productivity gains. However, much of the observed increase in productivity likely came from businesses responding to significant threat from foreign competition. It’s not clear how those job losses should be accounted for, but there are a few facts that bear on the discussion.  First, growth in transportation and logistics jobs has more than offset the losses in manufacturing, and so has growth in other sectors. International trade doesn’t cause a net loss of jobs, but changes the skills and location of jobs. Second, trade deficits and deals are not correlated with large factory job losses. The last two lengthy periods of factory job growth occurred in the years after NAFTA and following the Great Recession. These were two periods of growing trade deficits. However, the big factory job losses of the early 2000s occurred at a time of both rapid growth in our trade deficit and very rapid growth of factory productivity. 
  • MUNCIE  – The Brookings Institution recently published a study for the Central Indiana Corporate Partnership outlining labor market challenges in the region. It is a good study that I admire because it restates many of the points I have been making over the past years regarding failures of economic development and workforce training policies in Indiana.  Most of the media coverage of the study has focused on mistakes in business attraction policies. In particular, the finding that a quarter of the jobs attracted to Central Indiana are essentially dead-end jobs. They are right, of course, but anyone who understands job attraction efforts should be surprised that only one quarter of the jobs we subsidize are, in effect, dead-end jobs. The important part of the Brookings study was its broad and scathing assessment of Indiana’s workforce development policies. Space limits prevent me from doing their criticism full justice, but I will try to cover the major points. The first complaint about Indiana’s workforce development policies is an implicit criticism of the state’s research of workforce issues. The Brookings research team performed an analysis of the skills workers need to see wage growth. That is a study that our workforce development officials could and should have done years ago. That modest piece of analysis should be sufficient to cause a major redeployment of dollars surrounding the ways Indiana educates and trains workers. 
  • MUNCIE – The research center in which I work released our 2019 economic forecast this week. Like all economic forecasts, this one is likely wrong, but is hopefully useful. To talk about the forecast, it is best to re-examine 2018. In many ways, this has been a good year for our economy. Employment growth nationally has been strong, and median wages for the world rose roughly one full percentage point above inflation. More people returned to work, with labor force increases strong throughout most of the year. It was, in short, a mostly good year, but the end of year news is far less salutary. The Tax Cuts and Jobs Act, which I supported, proved a disappointment. Among its goals was the repatriation of between 2.0 trillion and 2.5 trillion dollars in assets held abroad. Only about 10% of that actually returned as investment. Another goal was to cause businesses to invest domestically. Business investment actually slowed deeply by year’s end. As it appears today, most of the economic effect of the TCJA was to promote domestic consumption.
  • MUNCIE – Over the summer, Indiana’s economy showed clear signs of weakening. This same story played out across the manufacturing and farming intensive states of the Midwest. To be sure, it is still easy to paint a rosy picture of our economy. Jobs are plentiful, pay has finally begun to rise and tax coffers are full. We are less than a year away from tying the longest recovery in U.S. history, which began in early summer of 2009. Still, the warning signs are clear. Nationally, manufacturing employment growth has slowed since April, and here in Indiana, it dipped into negative territory for two consecutive months. The index of leading economic indicators declined modestly since spring, and auto sales dropped sharply across spring and summer. The manufacturing portions of the Fed’s Midwest economic index have been negative for four months. It’s risky to draw conclusions from a single six-month period, but growing evidence suggests manufacturing growth stalled over the summer. There’s more. This is a stunningly beautiful season in the Midwest, when combines harvesting beans fill the fields on warm October days. Driving by these fields, I often wonder what majesty and dignity a modern Winslow Homer might portray in this setting. However, even in these idyllic scenes, all is not good. 
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  • Pence finds 'tough' conditions at overwhelmed border facility in Texas
    “I was not surprised by what I saw. I knew we’d see a system that was overwhelmed. This is tough stuff.” - Vice President Mike Pence, visiting an over crowded border facility at McAllen, Tex. According to the White House pool report, Pence saw nearly 400 men crammed behind caged fences with not enough room for them all to lie down on the concrete ground. There were no mats or pillows for those who found the space to rest. A stench from body odor hung stale in the air. When reporters toured the facility before Pence, the men screamed that they'd been held there 40 days, some longer. They said they were hungry and wanted to brush their teeth. It was sweltering hot, but the only water was outside the fences and they needed to ask permission from the Border Patrol agents to drink. 
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  • Epstein, Acosta and the perversion of power
    For those of you wondering why Labor Secretary Alex Acosta resigned Friday despite President Trump's assertion that he is a "great labor secretary," spend 15 minutes to read Miami Herald reporter Julie K. Brown's "Perversion of Justice: How a future Trump Cabinet member gave a serial sex abuser the deal of a lifetime." You'll learn that District Attorney Acosta bowed to the demands of pedophile Jeffrey Epstein's all-star legal team, cut "an extraordinary plea agreement that would conceal the full extent of Epstein’s crimes and the number of people involved." This is about a lurid a tale of crime and power as I've ever read. While this was going on, Epstein's enforcers were tracking down witnesses and journalists, issuing threats.

    Brown writes: "Not only would Epstein serve just 13 months in the county jail, but the deal — called a non-prosecution agreement — essentially shut down an ongoing FBI probe into whether there were more victims and other powerful people who took part in Epstein’s sex crimes." We are learning that Epstein's circles included dozens if not hundreds of underage girls, recruiters, presidents, princes and the rich and famous.

    Florida State Sen. Lauren Book, asks: “Where is the righteous indignation for these women? Where are the protectors? Who is banging down the doors of the secretary of labor, or the judge or the sheriff’s office in Palm Beach County, demanding justice and demanding the right to be heard?"

    Of course President Trump said of Epstein in 2002, “I’ve known Jeff for fifteen years. Terrific guy. He’s a lot of fun to be with. It is even said that he likes beautiful women as much as I do, and many of them are on the younger side." Wink-wink. That was three years before Trump's infamous Access Hollywood comment (if you're rich and famous, "you can grab them by their pussy") and five years before Acosta's plea deal with Epstein. It begs the question, What would Mother think?  - Brian A. Howey, publisher
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