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Thursday, July 29, 2021
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  • MUNCIE – In May, Gov. Eric Holcomb’s announced an early end to pandemic unemployment assistance. This decision was a rare policy mistake for an administration that had spent more than a year handling COVID with admirable attention to data and good judgement. The mistake was also unusual in that the predictable result was economic damage to those Hoosiers who were most affected by COVID. This was a marked departure from the administration’s more than yearlong focus on the health and wellbeing of those most impacted by the pandemic. Fortunately, the courts reversed that decision and payments resumed earlier this month. Labor markets are slowly improving, so fewer families would’ve been substantially harmed by the payment turbulence. Ultimately, the decision to end pandemic unemployment assistance early will be only a footnote to an administration that performed commendably through the worst crisis Indiana faced since the Civil War. The sole reason I write about the topic is that this episode illustrates how inchoate Indiana’s workforce decision process has become. Moreover, the fiasco with pandemic unemployment assistance illuminates the folly of the Division of Workforce Development’s culture of supporting businesses at the expense of taxpayers as a whole. 
  • MUNCIE – Earlier this year, Indiana’s General Assembly passed Senate Bill 414, which required universities to survey students about the climate for free speech on campus. Schools must then report these findings to the Commission on Higher Education. Normally I’d be reluctant to weigh in on such a law; at first blush it looks like another volley in the destructive culture wars. But, I think this survey can be enormously instructive to university leaders and legislators alike. It should hardly surprise anyone that professors and college administrators are overwhelmingly from the political left. The balance isn’t even close. The Federal Elections Commission reports individual donations with place of employment. Since 2019, my colleagues at Ball State have contributed $120,765 to political campaigns and political action committees. These comprised 6,100 individual donations from fewer than 50 persons. Of these donations, 90.4% of were to Democrats, Democratic Socialists or left-leaning PACs. I choose Ball State University because it is often said to be the ‘conservative’ state university. That may be true, which should raise even more eyebrows on campus and in the General Assembly.
  • MUNCIE – Independence Day weekend is a good time for reflection. The style of that rumination needn’t be tedious; after all, hamburgers, beer and s’mores beckon. For me, it’s as simple as re-reading the second paragraph of the Declaration of Independence. The words can be so familiar that we fail to absorb just how radical these ideas were and remain. It begins, “We hold these truths to be self-evident. . .” Written at a time when our nation was ruled by a hereditary king and one in five people were enslaved, the perfection of these words continue to resonate. That world-changing revolution made clear that the principles that tore us from England were few but transcendent. These ideas came directly from the Enlightenment, and its core argument that individual liberty, reason and tolerance formed the basis for civilization. The Declaration repeated five interlocking ideas. They begin with the idea that each of us has inherent value, which is preserved by rights or protections. These rights are given to us by God, not government. This liberty cannot lawfully be denied, as it flows from the simple act of being human, not from religion or ancestry or race. Governments exist to secure these rights. Great Britain failed to do so. For these reasons we broke the bonds with England, and became a new nation.
  • MUNCIE – My colleague Dagney Faulk and I recently completed an analysis of the fiscal effect of school choice on Indiana taxpayers. The data came from a Department of Education report on transfer students across the state, which we matched with state spending and overall enrollment. During the process of the Ball State CBER study, I learned a few surprising things that are likely to prompt anyone with strong feelings about school choice. So, it’s best to proceed with an open mind. Indiana adopted universal school choice a little more than a decade ago. That occurred through a series of changes that together made Indiana the national leader in school choice. Beginning after 2000, the legislature created and then expanded charter school programs. These are public schools that are overseen by a university, a municipality or a local public school system. These schools range from large online programs to specialized programs operated by local school corporations like the McCullough Academy for Girls in Gary. The state also instituted full public school choice, permitting students to attend the school of their choice, with state funding following the student. There are some limits on student movement.
  • MUNCIE – It’s Father’s Day weekend, which caused me to think a bit about a century of change in the life of a typical American dad. This is a good story to tell through the lives of my and my wife’s grandfathers. These four men were born before Father’s Day was commonly celebrated in the U.S., and their experience is surprisingly representative of early 20th century fatherhood in the rural Midwest. The condition of their lives also offers shocking contrast with American life today. These four men were born in the late 19th and early 20th century, all within a 50-mile radius of one another. All were born on southern Indiana farms settled a century earlier by Revolutionary War veterans, part of a broad Scotch-Irish migration with the names Thomas, Hicks, Dye and Monroe. They came from families of farmers, soldiers and wanderers who arrived in Indiana with nothing more than a mule could transport. All told, they fathered 11 children between 1921 and 1939. One all raised four other young children as his own after marrying a young widow. All remained married to the same women until their deaths. Only one of these men finished high school. The other three advanced only through eighth grade, the only school available at the time within travel distance. This story is remarkably similar to the national average of the time.
  • MUNCIE – The Census Bureau is now rolling out their population estimates from the 2020 counts. We have state and now local municipal counts. These figures are used to determine the number of U.S. House of Representatives seats each state receives, and to draw congressional district lines within states. The census is also used for drawing Senate and House seats within states, at least for those 49 states that have a bicameral legislature. This is the 41st time the United States has conducted a census; the first was conducted in the summer of 1790, as required by the Constitution two years earlier. Demographers are also keenly interested in the decennial census. These counts give us a better idea if the annual population estimates conducted by other government agencies are accurate, and it provides a more comprehensive snapshot of changes in American population. The more detailed data that will arrive over the next couple of years will tell us more about the structure of age, education, race, ethnicity, ancestry, marriage patterns, family structure, and hundreds of other pieces of data.
  • MUNCIE – As this pandemic hopefully winds down, it’s useful to think through the forecasts and analysis that economists got right, and what we got wrong. This is important because the U.S. has not ever been through such a deep, rapid, nearly simultaneous economic downturn. Never has our fiscal response been as rapid or comprehensive. Thus, economists have played an important and lingering role in this pandemic. I begin with what we got right. The pandemic’s effect on the economy was fast and furious. Nearly all the jobs lost during the downturn occurred before any government action to close restaurants and bars, enforce mask standards or limit gatherings. State governments responded with wildly different limitations, making it relatively easy to isolate the effect of disease and government action on the economy. Over the past several months a number of high quality studies have made clear that it was disease, not government, that delivered and sustained this recession. From the very beginning, the economics profession made it clear that fixing the economy meant ending the pandemic. 
  • MUNCIE – This month, nearly 2 million Americans will graduate from college with a bachelor’s degree. Roughly 800,000 will receive a master’s degree, and just over 200,000 will receive law, medical or doctoral degrees. Additionally, just over 1 million students will receive an associate’s degree. Some of these graduates will continue their education immediately; most of the rest will directly enter the labor force. This is an interesting time to think about what those labor markets hold for them. The unemployment rates for college graduates is unusually high right now, at 3.5%. This is somewhat expected, given we are near the tail end of a very difficult economic downturn. However, the unemployment rate for high school graduates is almost double that, at 6.9%. The unemployment rate isn’t the whole story. The labor force participation rate of college grads is 72.2%, while the rate for high school graduates only is 55.3%.
  • MUNCIE – With Mother’s Day upon us, it is time to do what any loving son and husband must, and write about that sentimental topic of labor force outcomes for women. Of course, this year we have to dwell heavily on COVID and what it means to American women. The experience of women has differed from that of men in some key respects, some better and some worse. To begin, it is useful also to set down some pretty straightforward facts. First, women engage in formal work at a lower rate than men, but it is not a spectacular difference. Men work at about a 10% higher rate than do women. Most of this is attributable to at-home childcare, which women do at higher rates than men. Second, women on average earn less than men, but nearly all of that difference is due to the choice of occupation, educational attainment and tenure on the job. None of these facts suggests there is not job discrimination; there surely is.

  • MUNCIE – Many businesses are reporting difficulty in finding workers. I hear this from business owners whose judgement I trust. I also read about it on social media, here in Indiana and around the country. These reports don’t square with the data that show very large numbers of unemployed. There are more than 130,000 fewer workers in Indiana than in February 2020. So, one would imagine there are plenty of available people to take open positions. There are a few possible explanations for the feeling that there is a labor shortage. One of the most popular arguments is that government benefits, especially the generous CARES Act supplementary unemployment payments, cause people to avoid work. That is surely true for some workers, but the notion that this is widespread is just not supported by the evidence. First, the benefits are generous, but temporary. There’s just not a lot of evidence that workers make long-term decisions about work based on short-term benefit programs.
  • MUNCIE – One feature of the past two or three decades is what economists call the polarization of labor markets. This is a fancy way of saying that we are seeing growth in high- and low-wage jobs, but a decline in middle-wage work. By any definition, the U.S. still has a large middle class, but three decades is a long time to be in decline, and there is no evidence that this trend is about to turn around. There is growing concern about this phenomenon, and much of the COVID relief and infrastructure proposals hold policies designed to bolster middle-wage jobs. Unfortunately, there’s little reason to hope that short-term spending policies will have much long-term effect on this trend. The reason for this is that the root cause of these problems is not likely to respond to direct subsidies or stimulus. Over the short run, say a few months or even a few years, an economy can experience too few jobs of one sort or another. For example, during COVID the declining demand for restaurants, hotels and recreation caused a big decline in low-wage work.
  • MUNCIE – We are now a year past the darkest days of the COVID recession. As the economy slowly begins to recover, we should recognize that Indiana has still lost six years of job creation. Total employment in Indiana is back at April 2015 levels, and there are only 1,500 more people working than we had back in the summer of 2000. This should be pretty sobering news. Still, as we ponder the pace and shape of the recovery, it is encouraging to consider what good might have come from this disaster. There are many little things we can point to. Household savings have spiked and many tens of millions of families made investment in the physical stock of their homes. As with any recession there is some of what economist Joseph Schumpeter called “creative destruction.” This is the closure of failing firms and a reallocation of their assets to more productive purposes. There are glimmers of hope on firm productivity growth, which languished over the past decade. But one of the biggest changes is a great leap forward on our use of communication technology in business, government and education.  It is hard to overstate this latter effect. A year ago, I didn’t know what Zoom was. Today, I have mastered several types of videoconferencing software and pre-recorded an entire graduate class on Open Broadcaster Software. 

  • 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. 
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  • Dr. Carroll on 'different pandemics'
    “To suggest that Covid-19 is an escalating emergency in the United States is not quite right. The truth is that the vaccinated and unvaccinated are experiencing two very different pandemics right now. If we don’t confront that, the nation can’t address either appropriately.” - Dr. Aaron E. Carroll, chief health officer for Indiana University, in his New York Times column "Covid is now a crisis for the unvaccinated" on Wednesday.
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