Wednesday, September 4th, 2013
[ I mentioned in yesterday's post from Brian Howey that blogger Doug Masson had also weighed in on Indiana's economic issues and the quality of place/economic development nexus. He was also nice enough to allow me to repost his piece. And you might also want to see my take from last week - Aaron. ]
Ball State scholars Michael Hicks, Srikant Devaraj, Dagney Faulk, Dick Heupel, and Sharon Canaday recently released a paper entitled The Causes of State Differences in Per Capita Income: How Does Indiana Fare? (pdf) Yesterday, Brian Howey offered the opinion that Indiana’s jobs problems are perhaps the result of challenges and limitations at the local government level rather than state economic policy.
The Ball State Report noted that per capita income for Hoosiers ranked 21st in the nation in 1950, 30th in 1980, and 40th as of 2010. There is a verse in the Bible (Mark 4:25) which says “For he that hath, to him shall be given: and he that hath not, from him shall be taken even that which he hath.” Howard Bloom likes to use that verse as a way of describing the algorithm by which groups allocate their resources. The group devotes its resources to those parts of the group that appear to be having success as a way of ostensibly maximizing success. You don’t waste your scarce resources on losing strategies.
Hicks and Howey offer the following (from the Howey column):
Hicks explains: “This is a really a local, not state problem. Almost all our local economic policies target business investment, and masquerade as job creation efforts. We abate taxes, apply TIFs and woo businesses all over the state, but then the employees who receive middle-class wages (say $18 an hour or more) choose the nicest place to live within a 40-mile radius. So, we bring a nice factory to Muncie, and the employees all commute from Noblesville.”
. . .
[The General Assembly has] passed tax caps that have crimped city budgets. The hope was that municipalities would consolidate, but what’s happened has been cuts in parks budgets and a curtailing of school bus service. So when cities compete for that new corporation, and the executives survey a city with shabby parks and kids walking to school in 10 degree weather, they go elsewhere.
Hicks said, “As Americans became richer, schooling and community amenities matter more. This is an iron law of economics, that the share of income we spend on some goods rises as we get richer. Education and amenities (like health care and recreation) are two of these things. So, the Midwest built its small towns long before the quality of a place made much difference in migration or incomes. Today, quality of place matters deeply, and we are, in many places, unprepared to deal with it. [emphasis added]”
The highlighted portions brought to my mind Bloom’s biblical algorithm. The employees with money go to communities that are not deteriorating. The executives choosing new business locations choose communities with parks and schools that are not in disarray. People with resources and choices want to allocate those resources in places that appear to have winning strategies.
This is why Indiana’s relative per capita income matters. The authors of the Ball State study are quick to point out that Indiana’s absolute standard of living has improved. The problem, however, is that we have put ourselves on the wrong side of the economic snowball. Those who have are going to put their resources in places that have. We’re putting ourselves on the “hath not” side of the equation; and, if we’re not careful, even what we have will be taken from us. If our economic policies appeal to low end employers, our people will get low end jobs where the value of our production is taken from us and distributed to the people and places on the “hath” side of the equation. The Ball State study shows that there is a large gap in household incomes for those who migrate out of the state versus those who migrate into the state; with poorer families moving in and wealthier families moving out.
The Ball State study also took a look at county level differences; comparing the per capita income in 2010 to the national average over time. The average LaGrange County per capita income in 2010 was the same as the national per capita income in 1964: lagging behind by nearly half a century. Only Hamilton and Boone Counties were ahead of the curve; with per capita incomes at the estimated national average for 2019 and 2018 respectively. Indiana as a whole is at 1996 levels.
Government power is fairly centralized in Indiana, with the General Assembly meddling significantly in local affairs. At some point, there will likely be a renewed battle for local control; with the areas having better prospects seeking to limit their connection to State mandated policies that yoke them to the areas with poorer prospects.
This post originally appeared in Masson’s Blog on August 31, 2013.