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Sunday, January 19, 2020
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  • MUNCIE  – With the year ending, the one enduring bright spot of the domestic economy is consumer spending. Over the past decade, consumer spending accounted for between 67 and 69% of our total economy or gross domestic product (GDP). Consumers are a large and stable share of total demand for goods and services. However, continued high demand for consumer goods is not the same thing as economic growth. It is mistake to think that consumer spending is causing GDP growth, when consumer spending is simply a measure of demand. Over the long term, economic growth is caused exclusively by productivity growth. That is simply, how much more, per worker, the economy can produce or supply. Globally, how much we produce is identically equal to how much we can consume. However, inside each nation, we can sometimes consume more than we produce because other nations lend us money to do so. To borrow money like this is an example of economic strength, which, by the way, leads to trade deficits. That is another story. 
  • MUNCIE - I released my 2020 economist forecast last week, projecting the U.S. economy to slow significantly next year. The model I use projects that annualized growth rates will slip from 1.9% in the first quarter of 2020 down to 1.7 percent by the year’s end. Here in Indiana, my forecasting model has growth slowing to 1.6% in the first quarter and to 1.4% by the year’s end.  This is agonizingly slow economic growth. Like most of the Midwest, Indiana’s economy slowed through 2019 and is almost certain to end the year with fewer jobs than we had last January. This is not a nationwide recession, though it seems likely Indiana will continue to shed jobs through at least the summer of 2020. 

  • MUNCIE — I deliver my annual forecast later this week, so let’s review where we have come as an economy since the end of the Great Recession. The news is far more dismal than I prefer, but it is wise to know where we are coming from before discussing our future.  The Great Recession was deep and long. It stretched from December 2007 to June 2009, over which time U.S. employment declined by 5.2%. Indiana saw a deeper decline, with job losses accounting for 7.4% of our workers. Indiana actually fared better than should’ve been expected over this time. About half of recession losses to production occurred in consumer durable and business plant and equipment. As the nation’s most manufacturing-intensive state, we had to expect much higher job losses than a state like Florida, Virginia or California. We did, but the unemployment rate peaked well beneath the 1982 level, which is much lower than anticipated.  In 2011, I co-authored a study comparing Michigan and Indiana through the Great Recession. At its peak, I reported the unemployment rate in Michigan was a full 4.5% higher. Much of the difference was attributable to plant closures that were more concentrated in Michigan than in Indiana. I believe Indiana’s tax reforms, focus on fiscal solvency and more predictable business environment helped us weather the Great Recession.  This is good news so far, but states and regions with more volatile business sectors experience deeper recessions and more robust recoveries. So, from 2009 to today, Indiana should have enjoyed a far more robust economic recovery.
  • MUNCIE — I attended my first college reunion last weekend. It was a charming event, attended by well over half of the living graduates of my class at a small military college in Virginia. The weekend was even more special because my oldest son is undergoing the rigors of freshman year at the same school. The occasion allowed me to share a couple of meals with him and other young men and women in his class. That led me to think about these young people, this reunion and Veterans Day. Most of my 212 classmates spent several years in military service. Two of us advanced to general officer ranks and the four of us who roomed together my senior year all retired from the Army, Navy, or Air Force. What struck me about the weekend was how many of my classmates have sons or daughters following us into uniform. Among this group, the fact that both my college-aged children, a daughter and a son, are pursuing military careers was hardly exceptional. More than half the classmates with whom I spoke had kids in uniform.  It is no secret that military service in the U.S. has long been a family business.

  • MUNCIE — The economic recovery beginning in the summer of 2009 is now over for Indiana. Factory employment is down for the year, and overall employment is on trend to be down in 2019. Overall employment has only declined in Indiana a dozen times since the end of World War II, marking precisely the dozen post-war recessions. The nation may not slip into recession, but by any meaningful measurement Indiana now has. Sadly, the recovery has been very poor, partly because our education policies have dampened the type of workforce vibrancy that is the hallmark of a healthy economy. Worse still, this sets us up for tough decades ahead. Since Third Quarter 2007, when the economy was booming, Indiana’s workforce down-skilled profoundly. We’ve seen 31% growth in workers with less than a high school diploma, nearly no change among those with high school diploma and under 5.0% growth among those who have been to college or have an associate’s degree. The simple fact is from Third Quarter 2007 to Third Quarter 2018, a whopping 55% of new workers had less than a high school diploma.
  • MUNCIE — The debate on trade and automation was on prime display during the Democratic presidential debate this week. There is a lot packed into this discussion, from trade policy and taxation of capital to the role of place-based economic development efforts and the design of pre-K, high school and college curriculum. My colleagues and I at Ball State have written widely on these issues, and I am familiar with the technical details that underlie this debate. It isn’t going away, so it is good to focus on facts and risks, not hunches and soundbites. Over the past 50 years, the U.S. has been a job-creation machine, adding some 82 million jobs. Of this job growth, 88 million, or about 107%, have been jobs outside of factories. Yes, I did the math right. We have 6 million fewer factory jobs since 1969. The biggest loss of jobs happened from about 2007 to the end of the Great Recession. That was a time of rapid new imports from China, and it was also a time when factories were experiencing significant productivity growth. Both of these factors shifted the need for workers in U.S. factories, leading to large job losses.
  • MUNCIE – Last week’s column on Indiana’s hospital monopolies generated ten times the emails of any other column I’ve penned over the last decade. Hoosier taxpayers are interested in understanding who caused this problem and how we can fix it. I commend the thousands of readers who visited our website to read the study.  What you learned is that my study is just one of several recent reports alerting Indiana to monopoly problems in hospitals. Moreover, you know that my study combined data from several different sources including the IRS, Department of Commerce, Center for Medicaid and Medicare Services and the Rand Corporation, the nation’s most respected think tank. Awareness of this issue is important because Indiana’s not-for-profit hospital industry surely earned a billion dollars in interest on their accumulated profits last year, through their hedge fund and money market investments. That kind of money should attract thorough scrutiny of my work.
  • MUNCIE - Several weeks ago, a concerned citizen sent me a financial summary of Indiana’s not-for-profit hospitals. He asked that I look into the issue of excessive profits by these systems. I was skeptical that the issue would be relevant. Profits are critical to an economy; they serve as a guide to pricing and investment decisions and reward the men and women who create value. The demonization of profits is a sure sign of unformed thought. Moreover, not-for-profit hospitals have explicitly chosen to forgo profits as part of their operations, so I doubted the financial summary would reveal anything important. I was mistaken. What I discovered will deeply anger every Hoosier and should embarrass most hospital administrators and board members. I also expect it to cause significant changes to state policy with respect to these hospitals. This is likely to change the way we tax them, regulate their competitors and enforce anti-trust laws. It will surely lead to civil litigation involving billions of dollars of excess profits.  It turns out the not-for-profit hospital industry and their network of clinics is the single most profitable industry in Indiana. These profits are so large that when accumulated, they account for roughly 9 percent of the state’s total economy. 
  • 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. 
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  • Parnas implicates Trump, Pence in Ukraine scandal
    “The announcement was the key at that time because of the inauguration and I told him Pence would not show up, nobody would show up to his inauguration. It was particularly Vice President Mike Pence.” - Lev Parnas, the indicted friend of President Trump's personal attorney Rudy Giuliani, in an interview on MSNBC's Rachel Maddow Show, where he implicated Trump, Vice President Mike Pence and Attorney General William Barr in the quid pro quo of the Ukraine scandal that prompted Trump's impeachment. Parnas said that Pence's attendance at Ukraine President Zelensky's inauguration was cancelled the day after Parnas called on Zelensky to announce an investigation of Joe and Hunter Biden, When asked if Pence was aware of the quid pro quo, Parnas said, “I’m going to use a famous quote from [Ambassador Gordon] Sondland. Everybody was in the loop.” 
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  • Pence, Holcomb, Buttigieg head 2020 HPI Power 50
    By BRIAN A. HOWEY in Indianapolis
    and MARK SCHOEFF JR., 
    in Washington

    As we unveil the 2020 version of the Howey Politics Indiana Power 50 List, Hoosiers appear to be relatively satisfied with their state government, unsure about the federals and specifically President Trump, and are most concerned about health care and the economy.

    These are the latest survey numbers from the We Ask America Poll conducted in early December for the Indiana Manufacturers Association. They accentuate the formulation of our annual Power 50 list headed by Vice President Mike Pence, Gov. Eric Holcomb, former South Bend mayor and Democratic presidential contender Pete Buttigieg, and the state’s two Republican senators who will likely sit in judgment (and acquittal) of President Trump in an impeachment trial later this month. 

    As Pence appears to be heading off thinly veiled attempts by Jared Kushner and Ivanka Trump to get him off the 2020 ticket, Hoosiers by 47.4% approve to 47.7% disapprove of President Trump’s job performance. This is consistent with 2019 polling by Ball State University and Morning Consult. On the national right/wrong track, just 37% of registered voters in Indiana feel that the country is headed in the right direction, while a majority, 52%, say that things have gotten off on the wrong track, including 51% of independents and 26% of Republicans. Among female voters, the right/wrong track split is 29%/58%.

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