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Monday, January 18, 2021
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  • MUNCIE – The essential basis of an economy is trust. As the founding father of economics, Adam Smith noted, an economy “. . . can seldom flourish in any state in which there is not a certain degree of confidence in the justice of government.” Our modern world subsists almost wholly on a high degree of trust in the justice and capacity of government, business and households. Thus, among the many crimes committed by the insurrectionists of Jan. 6, 2021, was a full-fledged attack on the American economy. It was an assault upon the ‘confidence in the justice of government’ not only by a few tens of thousands of protestors, but among far too many elected officials, including members of Congress and the president. It is they who must reckon with an event whose lawlessness demands terse retelling. On Jan. 6, our Congress and vice president met to fulfill a solemn, if mostly symbolic, constitutional duty to certify election results from states. Outside, on the streets of our Capitol, the president caused to assemble a crowd of many tens of thousands. This angry crowd was fueled by dozens of political groups and members of Congress. These people had been carefully groomed for weeks to believe the Big Lie, that the 2020 election was fraudulent or stolen.
  • MUNCIE – The holidays are an indulgent time, so I spoil myself here with a bit of political economy. By way of background, I think it is now obvious that significant changes to our economy have wreaked havoc with our political coalitions. While this itself isn’t necessarily a bad development, it is something we will reckon with for years to come, so deserves some reflection. I’ll focus primarily on the conservative coalition, because it experiences the most disruption. To be a conservative in America means something different than it does anywhere else. The differences are so profound that what we call conservatism is referred to in Europe as classical-liberalism. The reason for this is simple. Those ideals American conservatives wish to preserve remain the most radical in history. Their essence lies in that one sentence George Orwell said could not be translated into newspeak. It begins, “We hold these truths to be self-evident . . .” Even today, it is radical to believe we must be equal before the law, free to think, worship and speak as we wish and that governments exist to protect individual rights that transcend human design. The American conservative movement has long held these ideas as central to their philosophy. I am unabashedly that kind of conservative.
  • MUNCIE – Summary: Our hospital monopolies are financially damaging to Indiana’s economy and Hoosier families. Last Sunday night I sat in front of the TV a few extra minutes basking in the Colts victory. Much to my delight, the venerable “60 Minutes” teaser announced they’d profile the civil anti-trust case of Sutter Health in Sacramento California. This reporting should be interesting to Hoosiers and their elected leaders. Here’s why. Since the Affordable Care Act was passed, healthcare systems in the United States have been rapidly acquiring independent hospitals. They have also bought up physician practices and specialty care clinics. This potentially limits patient choice of hospitals and monopolizes the stream of patients flowing into their facilities. Hospitals in the U.S. have also structured contracts that force bundles of services on employers.  Anyone who had a good American history course in high school might remember that these are textbook examples of those business practices that were prohibited by Gilded Age Anti-Trust laws. The landmark case was U.S. v. Standard Oil, which set the stage for modern anti-trust. Today, you can replace ‘oil company’ with ‘hospital system,’ ‘independent oil producer’ with ‘physician office’ and a tuxedoed John D. Rockefeller with a smiling CEO/physician in a lab coat, and you have much of today’s healthcare markets. It is a problem ripe for litigation. 
  • MUNCIE – Over the coming years, the inevitable slew of books on COVID will identify villains and heroes, missteps and moments of prescient action. History will metaphorically adorn some with clown shoes, and others with halos. Like the Great Depression, world wars, or 9/11, COVID will bequeath us a before and after moment. Even as we return to a new normal, nearly all of us will speak of a life that preceded the pandemic and compare it to the life afterwards. One important American institution that is sure to get less attention and praise than it deserves are those common and humdrum markets for goods and services. These most ubiquitous of human affairs, the buying and selling of products or labor, turned out to be the most significant and effective part of our COVID response. No doubt many a reader will be displeased at the notion that profit-maximizing firms were the fiber that held together the nation in the midst of the pandemic. However, this profit maximization may not be what is depicted in movies. Smart, successful businesses chase consumer interests. They listen to buyers, anticipate their needs and respond not out of charity or goodwill, but to make money. This doesn’t make them uncharitable, just wise enough to understand that hiring workers and buying supplies takes more than good will.
  • MUNCIE – In the century after the Civil War, the USA went through a long period of regional convergence. This simply means that as our standard of living grew, poorer places generally grew faster than richer places. This caused states and cities to “converge” towards one another at a time when our overall standard of living grew more than five-fold. By the 1970s the trend of convergence slowed appreciably, and by the 1990s reversed. Over the past three or so decades, rich places have grown more quickly, while poor places grew more slowly. Population flows exacerbate these trends. Rich places tend to attract more people, while poorer places shed them. This results in some stark geographic anomalies. For example, Columbus, Ohio, has captured 130% of Ohio’s population growth in the 21st Century, while Indianapolis captured 120% of all Indiana’s job growth. In recent decades, nearly all large urban places thrived, while smaller cities and rural places mostly stagnated. Unsurprisingly, decades of these patterns cause unease and even resentment among many residents. There are several good studies tying this divergence to growing political discontent.
  • MUNCIE – I start this column by admitting that I just don’t know what the right policy recommendation is for state leaders concerning this pandemic. That is a change from the early days of January through April, when we knew much less about the disease. Uncertainty is an input to decisions, and so many months ago, vigorous efforts to contain the disease’s spread were clearly warranted. Every serious benefit-cost analysis came to this conclusion.  While many epidemiologists still believe we can control the disease, I am less sanguine. This is not because I know more about the disease than they, I do not. Rather, it is because I think the politicization of basic public health measures leaves too many Americans scoffing at masks, social distancing and other steps to contain this global pandemic. Quite simply, the amoral buffoonery that animated the anti-mask crowd makes effective policies untenable. This is reminiscent of the early days of World War II. It took more than six months after Pearl Harbor to convince all East Coast mayors to enforce blackouts. The last holdouts came around only after the flotsam of U-boat attacks cluttered their ports. We Americans are stubborn people, for both good and ill. 
  • MUNCIE – The quasi-end of the election has most of us thinking about what the results mean for the economy. Other than forecasting a recession among political pollsters, there are few certain answers. However, we have to face the fact that bipartisan lawmaking has been absent since about 2002. That leaves a lot of issues needing the kind of thoughtful, principled compromise that is really the hallmark of American democracy. I’m not excited about some of the likely outcomes, but that is how compromise works. Here’s where compromise is most probable. We are in the worst economic downturn since the Great Depression, and that gives us a chance for Congress to compromise. The pandemic is worsening across most of the nation and nearly one out of every six Americans who was working last January is now jobless. This should prompt a major COVID relief bill. It will support workers, some businesses and state and local governments. It will also add something between $1.5 trillion and $2.5 trillion to our national debt. Federal taxes are certain to increase. The whopping $1.05 trillion deficit from the “world’s best economy” of 2019 illustrates the need for change.
  • MUNCIE – Many economists have analyzed the policy differences Mr. Biden or Mr. Trump will bring to the U.S. economy. Equally important will be the consequences to the economic policies of the losing party. Our two-party system depends upon the competition of ideas. The ability of both parties to eventually appeal to a majority of citizens tempers passions and promotes compromise. If Mr. Trump wins, the Democratic party will surely resume its debate over far-left versus center-left policies that animated their primary. This has thus far been a healthy debate, building on decades of democratic policy. I have strong disagreements with the Democratic platform, but no one can honestly argue they are not mostly serious and target the concerns of most voters. If defeated, the Democrats are unlikely to make substantive adjustments, viewing defeat as a problem with the messenger, not the message. To his credit, Mr. Biden said so himself. In contrast, if Mr. Biden wins, the Republicans have two truly extraordinary challenges in re-forming a coherent economic policy. The first lies in conjuring any set of policies from what is today a collection of often contradictory, sometimes transient whims. The second lies in attracting a majority of future voters given the broad electoral challenges that weigh mightily on the party.
  • MUNCIE – The COVID pandemic continues to affect commerce and government in what is clearly the worst year for the economy since the Great Depression. We don’t yet know how deep this will be, but there is growing evidence of an increasingly delayed recovery. There is some good news. The official unemployment rate has dropped significantly and commerce is clearly recovering in many places. Still, in October 2020, the risk of COVID remains significant and depresses consumer spending and business investment. The most alarming piece of data is the growing number of permanently unemployed workers. The COVID spike in those reporting permanent job losses returned us to 2013 levels. The economic absorption of permanent job losses is a major factor in the duration of recovery. If the re-employment of permanent job losers is twice as fast as it was after the Great Recession, it will take close to four years to recover.  I know of no economist predicting a labor market miracle in the wake of COVID. COVID will continue to cause permanent job disruptions until a vaccine is widely available. It is easy to build a plausible scenario where permanent job losses weigh on the U.S. economy well through the 2020s. Worse still, the administrative data on job losses report more than twice the rates of job losses than do the survey data used to calculate the official jobless rate.
  • MUNCIE  — A background to the coming election will be the growing rural-urban divide in America, and how it affects political prospects on the coming decades. Some of the handwringing will be overwrought, but there are a few critical points to consider in the years ahead. Let me try to address some of the issues that will certainly influence economic policy towards city and rural communities in the decades ahead. I begin by dispelling some myths. Rural places are culturally and ethnically very diverse. They differ profoundly in types of economic activity, the ethnic origin and religion of inhabitants, and the political tendencies of voters. West Texas ranches are vastly different from Vermont farms or inland California almond farms, which differ greatly from Nebraska row crops, Florida orange groves or Washington vineyards. Looking beyond agriculture, we see that manufacturing, mining and tourism mean the industry structure of rural places are also very different. These places are populated by different people, from different places, and are as diverse and full of cultural variation and wonder as any great city. 
  • MUNCIE  — Most every chat I have about the U.S. economy inevitably turns to the size of the national debt. Of course, this used to be an issue that mattered to those who called themselves conservatives, but that was in an earlier, more innocent time. Before I lament the recent dissolution of reason on this issue, it’s important to explain how the debt does and does not matter. The most dishonest argument about the debt compares government to a business or household. The argument, most famously made by Ross Perot, is both silly and dangerous. It is silly because families and businesses borrow money. Indeed, many financial advisors will say it is wise to borrow money to buy a home that is worth between 2.5 and 3.0 times your family’s annual income. The U.S. has a debt that is about equal to one year of GDP.  The comparison of government debt to family or household debt is dangerous because it fails to recognize the special role of government. Government provides goods and services that should outlast every household and business.
  • MUNCIE  — The economic statistics that aid us in understanding the current state of the economy are in the midst of an unusual, if not unprecedented, upheaval. Combined with the equally unparalleled oscillations of the economy through the early months of COVID, economy watchers are naturally confused. Add to this the tendency towards dissembling that accompanies elections, and we are poised for a couple of months of economic confusion. This column is aimed at relieving some of that confusion. The staff of the U.S. Bureau of Labor Statistics, Bureau of Economic Analysis and Census survey teams are responsible for compiling and reporting data on employment, GDP and other economic data. They are, by far, the best economic statistical services ever devised. Governments have been at this for more than a millennium, and the work done today is first rate and thus far immune from political shenanigans. Americans should be pleased with the economists, statisticians and data scientists doing this work. They are not perfect. 
  • MUNCIE  — The recession that began formally in February continues to weaken the economy. While the early burst of lay-offs has passed, a more permanent loss of jobs and businesses is settling into a record pace. The call-back of those temporary lay-offs is welcomed, but it masks the fact that continuing job losses remain at a pace not seen since the Great Depression. Despite the cheerful claims of the Trump Administration and its supporters, just last week we lost jobs at twice the rate of the worst period of the Great Recession. The pandemic continues to exert a historic effect on our economy, and we must confront it with honesty, facts and determination. The uneven experiences of many families during this downturn may prove a more lasting effect of this downturn. Over the past six months, cumulative job losses tell a stark story of this recession. Cumulative employment for college graduates is down 1.7%. This is horrendous and is more than twice the cumulative loss of jobs for college-educated workers we experienced during the 2007-2009 downturn. Despite this, they are the lucky ones. 
  • MUNCIE – Almost every casual conversation I have about the economy turns to the stunning recovery of the stock market. From investment professional to anxious observer, few can reconcile a Great Depression level of unemployment and GDP declines with the resurrection of stock markets that took place since the crash of March 2020. Now, I don’t wish to pretend I can forecast stocks or fully explain why they’ve recovered. If I could predict the stock market 60% of the time, I’d be among the richest men in the world in just a few weeks. What I can do is offer some reasonable causes for the wild swings and nearly full recovery we’ve experienced over the past six months. To begin, I’ll have to share some too infrequently spoken truths about stock markets. The first is simply that stock markets exist to match household savings with investment opportunities. This is what all financial services do, and stock markets are especially good at it. For all the convenient critiques of Wall Street as a place for rich people, most American families own stock. If you have any retirement fund, at any time in your life, you are a Wall Street investor. You may pick stocks yourself or, like my family, let a fund manager pick them. Either way, you are a capitalist. In fact, we are nearly all capitalists now. That is news to celebrate, because the future will require the economic growth that only capitalism can deliver. The stock market is important for other reasons. 
  • MUNCIE – As I pen this column, Congress is debating a follow-up to the CARES Act, aimed at mitigating the effects of a worsening economic downturn. There are many points of contention between the parties. Among the most important disagreements is that of economic support for state and local governments. Several prominent members of Indiana’s congressional delegation have spoken out against this proposal, decrying it as a bail-out for fiscally imprudent states. They are right to be wary of this. Federal taxpayers should not bailout irresponsible cities and states. If that were the case, I would support that position. However, the economy is worse than generally believed, and the depth of fiscal distress felt by state and local governments much worse than generally understood. In fact, Indiana’s experience demonstrates why the nation needs a very large state and local tax support payment. Indiana’s economy has thus far been less affected by COVID-19 than most states. We are manufacturing-intensive, so a fair share of joblessness in the state was temporary. That is reflected in the large reductions of unemployment reported over the last two months. However, while many businesses are able to adapt, the underlying loss of permanent jobs is alarming.
  • MUNCIE - Economic data releases this past week painted a darkening view of the U.S. economy as it starts its third quarter of contraction. Declines in economic activity from February through June were stark. I pen this column before the release of Second Quarter GDP growth, but there is little doubt it will be the worst single quarter of growth in U.S. history. The consensus is that it will be somewhere between twice and three times as bad as the sharp drop in 1958 that accompanied the flu pandemic of that year.  More ominously, nearly every other indicator suggests a deepening economic downturn. Consumer confidence continues to plummet, rates of return on capital drop and we see an uptick in initial jobless claims. I could use the entirety of this column to describe the cascades of bad economic news. Instead, I will discuss the single piece of good news, and explain why it is a mirage. The spike in unemployment that took place from March through May is receding. Many workers faced temporary lay-offs due to interruptions in supply chains and initial reactions to government shutdowns. Those whose businesses remain are returning to work at a rapid pace, providing the illusion of a quick recovery in the monthly job reports. This disguises two other indicators of a weak economy.  The first is that a large share of workers who now report temporary job losses are mistaken. Business surveys suggest maybe half those currently unemployed face permanent job losses. These workers will not go back to their old jobs. The second problem is that we’ve stopped counting the 7 million or so workers who have exited the labor force since February.
  • MUNCIE – America’s colleges and universities are in the midst of reopening in what is sure to be a reckoning for many. My oldest already began her senior year, and my college sophomore heads back in early August. Both face strict rules on mask wearing and social distancing. They return to a combination of online and in-person instruction, with a schedule fraught with uncertainty. Right now, about a third of schools have announced this hybrid model, with more than half planning for in-person classes. A few have elected to be online only, but this raises real challenges to colleges. I have written about the economic effects of the K-12 decisions before us, but there are economic effects to reopening colleges as well. Some of the costs of COVID-19 on U.S. colleges are already emerging. International enrollment will drop, perhaps profoundly, as few students can travel to the U.S. to start school. Some will take online courses, but many will opt to delay a year or substitute a Canadian or U.K. university for a pandemic-stricken American school. This loss of out-of-state tuition will be enormous for some schools, and it is combined with a drop in other revenues.  Nearly every U.S. state has announced or implemented budget reductions for higher education. For those with endowments, stock volatility augers little good news for financial returns in the year ahead. Research dollars are likely to be down this year, and extra revenue from summer programs and athletic events face epic declines. Nearly every American college or university is downsizing staff. 
  • MUNCIE – With some reluctance I write about the decisions that grip some 30,000 school districts across the country. I am hesitant because I don’t wish to be prescriptive about the most contentious issue of in-person versus remote learning. In our republic, decisions of this nature are inherently local. As both a parent and keen observer of schools, this suggests to me that school districts are trying to address issues as completely and thoughtfully as possible. What I wish to do with this column is outline the very high stakes of this decision and walk through how the rest of us might make that decision simpler. Both the decision to hold in-person classes and the decision to go online have enormous costs. The landscape for decision making is tough.  Indiana has about 1.1 million kids in grades K-12 spread across almost 300 school corporations. Of these, about 7% or more have no internet at home, and many more have intermittent service or slow download speed. All told, somewhere between one third and one half of Hoosier kids face real learning obstacles with online instruction. It should be obvious that the school closing in March was most damaging to those students who were already the most vulnerable. It is likely the learning gap between the poorest and most affluent students grew more last year than at any time in American history. This is a strong argument for opening schools, but there is more. If schools do not re-open, we will extend the single worst labor supply shock in U.S. history. By my count, 7% to 10% of workers are either single parents or one partner of a dual income couple with children age 5 to 12 years. Many, perhaps most, of these workers will be unable to work if schools don’t re-open. The loss of this many workers alone is enough to push us right to the brink of a depression. 
  • MUNCIE  — After facing three weeks of withering criticism about new visa restrictions, the Trump Administration took the opportunity this week to further damage the U.S. economy. This time, the damage may be far more immediate and widespread, affecting hundreds of American cities, more than a million foreign college students and millions of U.S. workers. With every American college and university considering fully online courses this fall, the Trump Administration announced it would revoke the visa of any foreign student enrolled in a school that will be doing online-only classes. As best I can tell, well over 90 percent of U.S. college students will take one or more online courses this fall. Nearly every American university will be a hybrid of online and in-person classes.  Should the disease spread, as it is now doing across much of the nation, many schools will drop in-person classes. This puts more than a million foreign college students and their families at risk of deportation. Here’s what that would do to the American economy. Foreign college students are one of our largest export sectors. If this rule is actually enforced, even for a quarter of students, it would be the single worst loss of American exports since World War II. 
  • MUNCIE  — The past several months ushered in unprecedented changes in economic activity. By the end of May, roughly one in four workers was unemployed and many sectors of American commerce ground to a virtual stop. The previous high of unemployment was registered at 25.5% in the summer of 1933, the depths of the Great Depression. While our data may soon eclipse that level, our economic conditions are far better. After adjusting for inflation, we are six times more affluent than we were during the Great Depression. This fact manifests itself in our economic worries. Today, we concern ourselves with internet access for students, economic security for gig workers and other matters an epochal distance from the worries of the Dustbowl. Our affluence permits us the ability to replace lost income and subsidize healthcare. In terms of human suffering, our economy today is not comparable to the Great Depression. Still, current economic conditions may well grow bad enough to destabilize the Republic. No democracy with an unemployment rate of 25% has failed to face significant challenges to its liberty. In 1932, the communist and socialist parties received nearly a million votes in the U.S. presidential elections.
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  • Holcomb closes Indiana Statehouse, suspends legislature for inaugural week
    “The safety and security of our state employees and the Hoosiers who use our state services are always top of mind. After an evaluation with public safety leaders, we have decided to err on the side of caution and close the state government complex to the public. Hoosiers will still be able to access essential state services online, on the phone, or in-person at branches around the state.” - Gov. Eric Holcomb, announcing that due to the threat of armed demonstrations connected to Wednesday’s inauguration of President-elect Joe Biden in Washington, the Indiana General Assembly will suspend activities and the Indiana Statehouse and government complex will be closed next week. House Speaker Todd Huston said, “This decision was made out of caution and in the best interest of everyone involved in the legislative process. Public gatherings are a critical component of our democracy, and I pray that any demonstrations are peaceful and respectful of the incredible privilege we all have as Americans to make our voices heard.” Senate President Rod Bray added, “We have a lot of work to do this session on behalf of Hoosiers, but the safety of every person in the Statehouse is always our number one priority. We trust (Indiana State Police) Superintendent Doug Carter and his team, and at his urging, made the decision to cancel our activities out of an abundance of caution.”
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  • HPI Power 50: Crisis shapes 2021 list


    INDIANAPOLIS – After two decades of publishing Power 50 lists in the first week of January, this one comes in a true crisis atmosphere. As we watched in horror the U.S. Capitol being overrun by supporters of President Trump on Wednesday, the COVID-19 pandemic has killed more than 8,000 Hoosiers and 350,000 Americans, shutting down our state and nation for nearly two months last spring. While vaccines are coming, there will be a distinct BC (Before COVID) and AC delineations as this epic story comes to a close. It gripped like a vise key figures, from Gov. Eric Holcomb to Vice President Pence. It delayed an election, closed schools and restaurants, reordered the way we do business and buy things, and will set in motion ramifications that we can’t truly understand (like the virus itself) at this point in time. There’s another crisis at hand. It’s our society’s civics deficit, fueled by apathy that transcends our schools and societal engagement, and allowed to fester by a news media in atrophy. That three members of the Indiana congressional delegation – U.S. Sen. Mike Braun and Reps. Jim Banks and Jackie Walorski – signed on to a protest this week, induced by losing President Donald Trump to “investigate” widespread vote fraud that doesn’t exist, is another indicator of the risks a polarized and undisciplined political spectrum brings to the fragile American democratic experience.

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