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Saturday, April 10, 2021
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  • MUNCIE – The chances are that folks learn most of what they know about economics in their late teens or 20s, in a high school or college class. It is also often the case that the person teaching that class learned most of their economics 30 or 40 years before that. So, it may easily come to pass that an adult nearing age 60 is attached to economic ideas that are really 75 years old. I am not the first to observe this. John Maynard Keynes noted that “practical men, who believe themselves to be quite exempt from any intellectual influences, are usually slaves of some defunct economist.” Of course, there are abundant lessons to be had in the economic ideas of old. A person today could get on quite well in most professions knowing nothing more than economists knew about the world in 1946. Indeed, Keynes died in April of that year, and his influence lingers still today. But, as a profession, economists have come to learn more about the world in the past 75 years than in the 75 centuries before it. Some of those things have usefulness today. 
  • MUNCIE – In the coming months, the U.S. economy will appear as if it is returning to normal. That won’t really be the case, but the conversation about the economy will shift from stabilizing and relief to long-term growth. Midwesterners, particularly Hoosiers ought to be very nervous about the next decade. The last economic recovery left the region and our state in relatively worse condition than the Great Recession. There is every reason to believe the next recovery will again leave much of the Midwest farther behind the nation as a whole. The poor prognosis for the Midwest rests upon the long-term shifts, or what economists call ‘structural’ shifts, of our economy. Consumers spend a dwindling share of their earnings on goods, instead buying services such as recreation, travel, education and healthcare. That trend works against our strengths or comparative advantage. These shifting consumer preferences alter the calculus of producing goods and services. The demand for workers nationwide is overwhelmingly for college graduates. As I’ve repeated in this column, more than 8 in 10 new jobs created since 2010 went to college grads. Over the next decade, nearly all new jobs and most new wage growth will go to those workers with a four-year degree.
  • MUNCIE – On March 12, President Biden signed into law another stimulus bill to address the enormous damage done to our economy through COVID-19. There are principled arguments for and against most details of the $1.9 trillion bill. I feel Congress could’ve passed a much smaller bill, maybe half the size, and put in place an automatic second payment should the economy remain at risk through mid-summer. I’d have liked to see fewer regulations tied to spending and I’d have directed a greater share of money to poorer households, among many other concerns. I’m not alone in having these pretty reasonable objections. However, anyone arguing for a smaller stimulus must admit that one lesson of the Great Recession is the asymmetry of risk. Too little stimulus is far worse than too much. Moreover, at a time when the U.S. Treasury can borrow at a negative real interest rate, too much stimulus is a fairly low-risk affair. But, this is not a column about the stimulus, or good faith arguments about fiscal policy. Thankfully, many lawmakers are offering substantive criticisms of the bill. Still many are not, and I write today to call out the worst of the bad faith arguments. The most noxious version of anti-stimulus argument is some version of “the economy is recovering well, and this stimulus is nothing more than a bailout of badly run states.”
  • MUNCIE – With a minimum wage increase once again prominently featuring a policy debate, it seems wise to treat the issue a bit differently. Instead of outlining the positive and negative effects of a particular increase of the minimum wage, I’ll offer the best arguments for and against any minimum wage. In so doing I’ll attempt an ideological Turing test, making the arguments so clearly that a reader cannot discern my personal position. By explaining the best arguments on both sides, I hope to achieve two goals. The first is to make clear the need for compromise. The second is to maximize angry comments from readers. Wish me luck. The best argument for a minimum wage involves several labor market failures that affect low-wage workers. It begins with the fact that most low-wage workers are in a poor position to negotiate wages. They may be young, inexperienced, poorly educated or speak little English. Employers have enormous bargaining power over them in ways they do not with better skilled, better educated, more mature workers.
  • MUNCIE – Last week’s column on school funding in Indiana stirred a great deal of conversation around the state. I am glad it did, but cannot take credit for the interest. Most Hoosiers are keenly attentive to their local schools and concerned about the economic performance of their cities and towns. These issues are intimately linked, yet too few Hoosiers appreciate how fully they are connected. For example, more than one person tried to explain that we could not afford more money for schools because higher taxes would slow the economy. He was wrong. My column is not politically biased; a desire for a better economy is hardly a partisan position. I’m an economist, and insofar as I have anything useful to write about education, it is about its effect on the economy. Among the most repeatedly demonstrated facts in the social sciences is the link between educational attainment and economic performance. On average, better-educated people are more productive, which means they produce more per year in goods or services and earn a higher income. Likewise, better-educated counties are more productive and earn more income. This relationship holds for cities, states, nations and continents. This is no accident.
  • MUNCIE – The Next Level Teacher Compensation Commission released their report in mid-December. All Hoosiers should be interested in what it did and did not say about teacher pay, along with recommendations they offered. I begin with some stark observations about education finance. After adjusting for inflation, Indiana spending per student is down more than 7% since 2010, and Indiana dropped from 22nd nationally in school spending per student in 2004 to 36th by 2018. It wasn’t in the report, but school spending, as a share of Indiana’s Gross Domestic Product, dropped from 2.6% to 2.2% since 2010. That means by last year we spent roughly $1.3 billion less per year on education than we would have if we grew educational spending at the same rate as the overall economy in that same time period. The Commission figured that the actual cuts to K-12 spending works out to about $580 million per year. That is almost identical to the $600 million they claim it would take to bring teacher pay back to 2010 levels. In other words, almost 97% of the reduction in educational funding came out of teacher’s salaries. This should make clear two important facts. First, it is unlikely that there are excess savings hidden somewhere in school budgets. 
  • MUNCIE – The Next Level Teacher Compensation Commission released their report in mid-December. All Hoosiers should be interested in what it did and did not say about teacher pay, along with recommendations they offered. I begin with some stark observations about education finance.  After adjusting for inflation, Indiana spending per student is down more than 7% since 2010, and Indiana dropped from 22nd nationally in school spending per student in 2004 to 36th by 2018. It wasn’t in the report, but school spending, as a share of Indiana’s Gross Domestic Product, dropped from 2.6% to 2.2% since 2010. That means by last year we spent roughly $1.3 billion less per year on education than we would have if we grew educational spending at the same rate as the overall economy in that same time period. The Commission figured that the actual cuts to K-12 spending works out to about $580 million per year.  That is almost identical to the $600 million they claim it would take to bring teacher pay back to 2010 levels. In other words, almost 97% of the reduction in educational funding came out of teacher’s salaries. This should make clear two important facts. First, it is unlikely that there are excess savings hidden somewhere in school budgets. Second, the difficulty Hoosier schools have in recruiting teachers is not a supply-side problem. It is about pay. 
  • MUNCIE – I’ve spent several days over the past month providing economic forecasts on Zoom. In this pandemic year, I gave a forecast for the five states of the Great Lakes region and seven metro areas. This is a broad set of forecasts, but the pandemic makes the forecast easier to explain. The evidence is very clear that the disease caused a sharp, historically unprecedented decline in economic activity before any state took action to slow the virus’ spread. The states that are recovering better today are not those with the lightest government action, but those who suffered the least spread of the virus. I don’t yet know if it was government action or luck that reduced spread; that’s the work of epidemiologists. Still, the economic evidence is overwhelming. It was always the virus that caused the recession. The looming universal availability of the vaccine means that we face a potential end to the pandemic. So, the real start of the recovery is in the hands of vaccine distributors, not economic policymakers. Viewers of my forecast asked many questions, but two dominated every presentation. These were, quite predictably, concerning the size of the federal debt and the long-term consequences of COVID. These are big questions, worth answering. 
  • MUNCIE – The 2021 state legislative session is remarkable for a series of bills that limit the existing power of Indianapolis city government. One of these would remove the control of the police department from the elected mayor and city council. Another removes the city’s legal authority to provide bus rapid transit, and yet another would prevent the city from regulating the placement of 5G wireless devices. The state legislature also appears poised to override Gov. Holcomb’s veto of a city ordinance that provided extra protections for tenants. These are unusual issues for a state legislature to become involved in, but there’s more. One bill would prevent Indianapolis, or any other city, from changing its name. To be fair, that bill might be targeted at Russiaville, Toad Hop or Slab Town, not Indianapolis. Another would limit the powers of Indianapolis to undertake land-use authority within its city limits. A casual observer might conclude that some members of the General Assembly have abandoned federalism, that mainstay of conservative thought for the past 244 years. That couldn’t possibly be the explanation, though; it must be something else.
  • MUNCIE – A common belief I hear repeated often is that too many young people go to college, and that more should go into the trades where they can avoid the wasteful debt of college and still earn a good living. The problem with this argument is that the few parts that are true are largely benign, and the parts that are demonstrably false guide much of Indiana’s education policy. It is clearly true that a young person can earn a decent living in the trades or other careers that do not require a college degree. There are plenty of anecdotal examples of clever, industrious people enjoying a successful and financially secure life without a college degree. But, that is far from the typical experience. From 1992 to the end of 2019, the U.S. was a job creation engine. Among workers older than 25, we saw a cumulative growth of 39.8 million jobs. Of those, 31.7 million jobs went to workers with a bachelor’s degree or higher, and a further 11.4 million of those workers had been to college without earning a bachelor’s degree. 
  • MUNCIE – We approach a full year since the start of the COVID recession. So, it is timely to assess where the recession has turned out differently than seemed likely at the start. Some of the developments are happy, while others are not. I begin by noting that employment in Indiana fell throughout 2019. For much of the Midwest, 2019 was effectively a recession year, even if that downturn was masked by the cataclysm of COVID. However, the forces that slowed our economy in 2019 were entirely different from the COVID effects of 2020, and these forces befell a different set of people and businesses. Most economic forecasts in March and April projected the deep GDP losses in second quarter and rapid recovery in third quarter. I think these forecasts were right enough about the depth and dynamics of the COVID downturn to have been helpful for policymakers and businesses. It appears now that we’ll end 2020 with a downturn that ranks in the top five to seven worst years since the 1920s.
  • MUNCIE – The end of Mr. Trump’s presidency is a good time to review the policy landscape of the past four years. As with any president, there are successes and failures as measured against his own standards of success. The rest of us might offer judgements as well. In the case of our 45th president, I am tempted to call this the good, the bad and the ugly. I review them in order. First, the good. Mr. Trump’s successes include sweeping removal of many of Mr. Obama’s executive orders, and regulatory expansion. Regardless of your feelings about the wisdom of any of these orders, Mr. Trump demonstrated the fleeting nature of non-legislative policy maneuvers. Of course, these are likely to disappear in the coming weeks as well. Mr. Trump successfully attacked ISIS, and dismantled a deeply flawed Iranian nuclear deal. He also attacked individual Iranian terrorists, sending a stark message to that regime. His policies led to a modest improvement of relations between nations in the Middle East who fear the spread of Iranian terror.
  • 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.
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  • Holcomb vetoes emergency powers bill
    “I firmly believe a central part of this bill is unconstitutional. The legislation impermissibly attempts to give the General Assembly the ability to call itself into a special session, thereby usurping a power given exclusively to the governor. Avoidable legal challenges during a state of emergency will only serve to be disruptive to our state.” - Gov. Eric Holcomb, vetoing a bill that would have allowed the Indiana General Assembly to call itself into special session during a public emergency. The bill had passed by wide margins in the Republica super majority-controlled House and Senate earlier this week.  Legislators are expected to override Holcomb's veto with simple majorities in the House and Senate, before Indiana courts rule on the constitutionality of the bill.
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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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