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Sunday, September 15, 2019
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  • MUNCIE — Natural disasters, such as hurricanes and tornadoes, have economic costs. They also reveal much about market economies, government planning and response. As I pen this column, Hurricane Dorian is winding its way through the Atlantic. I cannot yet speak to its impact, but I can outline the costs that it, along with other natural disasters, may impose.  North America faces blizzards, large snowstorms, hurricanes, cyclones, earthquakes, flooding and tornadoes. All impose some of the same costs on society, businesses, households and government. There are three distinct types of impacts. Weather-related natural disasters cause trade interruptions. The effects are often modest, delaying shipments and travel by a few hours or days. Additional damages occur when businesses and conventions close, perishable foods are damaged and families miss reunions and weddings. These impacts tend to be modest, transient and easily insured. 
  • MUNCIE — Labor Day weekend is always a popular time to talk about work and worker issues. I wish to a put a twist on it and talk about some popular misconceptions about work and capital and the meaning of both. If you’ve been fed a steady diet of anti-capitalist nonsense, or are a diehard capitalist, this story is going to scramble many of your misconceptions.  I begin by noting that most American adults are actually laborers. Among those of working age, very few Americans subsist upon the accumulated capital of their ancestors. This is even though a higher share of Americans today own capital than at any other time in history. With some 60% of households owning some sort of retirement fund, it is fair to say that now we are all both capitalists and laborers. Ironically, labor force participation is higher among workers who possess capital than those who do not, though the direction of causation surely works both ways.  Many decades ago, economists spoke and wrote about economic growth as primarily caused by combining labor and capital. The profession acknowledged, but thought little about, the role of technology change.
  • MUNCIE — Last weekend’s column criticized three economic development deals. By Tuesday, the city cancelled the project that so enraged Muncie residents. This was good news, of course, but the project was bad economic development policy from the very beginning. The Muncie Redevelopment Commission should never have brought this plan to city officials. There is a lesson here for every Indiana community. At first blush, the deal to bring a recycling firm to Muncie might seem a good idea. The city has several million square feet of excess industrial property, including one behemoth factory site that used to house the Borg Warner plant. The plant would employ 90 or so workers and recycle metallic materials into usable products. Like most early 20th century industrial sites, the Borg Warner site is not usable for most activities. This might seem to be a good place for both tax incentives and a recycling plant.  Unfortunately, it never was a good idea. Fortunately, public outrage stopped the project.
  • MUNCIE — Over the past week, I attended a Muncie City Council meeting on very contentious issues and travelled to Wisconsin to speak to a group of economic developers about the Foxconn debacle. Both events have eerily similar aspects that should anger and frustrate voters.  In 2017, Wisconsin hastily put together the world’s largest tax incentive package to lure some 13,000 jobs to the state. This deal would have cost each Wisconsin family about $1,700 over the life of the project. This is more than $170,000 per job. The deal happened at break-neck speed, behind closed doors, and without benefit of any serious economic analysis. From beginning to end, this arrangement illustrated raw contempt for open government and the interests of citizens.  Once the dust settled, along came several economic and fiscal studies. All present some version of the same story; the Foxconn deal will never provide taxpayers a positive return, and as initially structured will damage the economy. This damning assessment is equally true in the matters before the Muncie City Council meeting I attended. 
  • MUNCIE  – The Federal Reserve Open Market Committee meets this week to consider whether to ease the money supply. The most obvious mechanism for doing this is by reducing the interest rates they charge member banks. This change will filter quickly to bank loans on cars, on homes and eventually on credit cards. More money leads to lower borrowing rates for consumers and businesses. The timing of the Fed’s action is subject to real criticism, and two members of the committee have spoken publicly against a rate increase. At the same time, a Fed nominee has argued in favor of a large cut. Both of these actions are unusual. Fed members usually do not air their disagreements in this way, and Fed nominees are usually tight-lipped about policy choices before the Fed. We live in interesting times. The global economy is clearly slowing. China is likely in a recession, though its publicly available data is hard to believe. There was even evidence last week of a liquidity crisis emerging between their banks. China is hardly a democracy that must suffer the ignominy of publicly available economic data, so it is hard to be sure what is happening.
  • MUNCIE  — This weekend marks the 50th anniversary of our first trip to the moon. I was not yet 7 years old, so was just old enough to sense the energy and pride that consumed our nation. Few people younger than I will remember the electric excitement of that week. The relevance of a grand governmental undertaking and national unity on the matter bears some relevance today. I watched the lunar landing late on a Sunday evening, July 20, 1969. As I recall, it was a delicious festival on a perfect barefoot summer night. I was too young to understand the consequence of the effort of that night, and to be honest, the moon never looked that far away. My father was then a professor at Johns Hopkins applied physics lab, and he somehow always made the heavens accessible. Moreover, he was a Purdue graduate, as was Neil Armstrong. As transplanted Hoosiers in a Maryland suburb, my mom and dad felt a kinship with the space program. Gus Grissom’s sacrifice and my dad’s work with early satellites made all of it seem very personal. 
  • 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 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. 
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  • Banks makes election promise to Trump
    "I promised President Trump tonight that Indiana would be the first state on the board for Trump/Pence shortly after 6pm on November 3, 2020!" - U.S. Rep. Jim Banks in a Facebook posting after House Republicans met with President Trump for their retreat in Baltimore. Indiana's polls are one of the first to close on Election Day and the state typically is one of the first to declare its 11 Electoral College votes for the Republican nominee, with the exception of 2008 when Barack Obama won the state.
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  • The NFL's Century season
    The Chicago Bears and Green Bay Packers kicked off the 100th season of the NFL Thursday nigth, meeting for the 199th time. The Bear defense lived up to billing. But Chicago third year QB Mitch Trubinsky ... not so much, as the Packers won 10-3, much to the howling, growling chagrin to the Bear faithful at Soldier Field. This, despite a pre-game appearance by the Punky QB (Jim McMahon). 

    There were 10 original teams of the NFL, including two in Indiana: The Hammond Pros and the Muncie Flyers. The others were Akron Pros, Canton Bulldogs, Cleveland Tigers, Dayton Triangles, Decatur Staleys, Racine Cardinals, Rock Island Independents, and Rochester Jeffersons. The Staleys would become the Bears. 

    The NFL wouldn't return to Indiana (beyond the Bears training camp at St. Joseph College at Rensselaer where Dick Butkus once said the statues were so ugly the pigeons wouldn't crap on them) until the Colts arrived in Indianapolis in 1984. It took 15 years before consistently great quarterbacking would establish itself in Indy, first with Peyton Manning and then Andrew Luck. Jacoby Brissett is now on the clock. - Brian A. Howey, publisher
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