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.
I would pick Anderson over Muncie as the perfect analogy between picking a place to live . Lets say I was hired at Nestle’s which sits right off of I69 and is a stones throw from Anderson. I have kids who I want to see go to college. Hmmm, do I pick to live in Anderson which now only has one high school and lower class students and a crumbling economy. Nope I pick Fishers, Pendleton, or Noblesville with first class schools and like minded citizens so my kids will hopefully follow the right path and head to college. Throw in the great entertainment and shopping venues and it’s a no-brainer.
The only thing I could think of to stem this tide is when giving out incentives to businesses to move to your area, try to mandate that so many of the new jobs must be filled by workers in the area. Good luck finding qualified workers and enforcing it. I do know Star Bank wants there employees to live in the area they work.
Unfortunately for Indiana’s cities and towns, the elected folks down at the statehouse tend to favor more sound economic policies than those elected folks in the municipalities. I’m not saying that state government spending is good, just that they tend to care about things such as issuing bonds that can be reasonably be paid, only making pension promises that can reasonable be paid, etc..
Democrat or Republican, left or right, I’ve seen lots of examples of local governments going out-of-control with their grandiose dreams. More and more, it seems the two big political parties have cast reasonable spending and reasonable taxation out the window. If the locals really were allowed to build what they want, and issue unlimited bonds, they would do so. They also would turn right around and not levy large tax increases. Instead, they would kick the can down the road and let it be a problem for others to fix.
The entire way this country, and more so the world, has been ran monetarily is rapidly evolving. We are now a nation where elected leaders want to dream big, to get reelected, and keep tax hikes to a minimum, to get reelected. So they borrow boat loads of money, fund stuff, then 20 years or so later read how pensions are being axed, bondholders getting screwed, and taxes/fees needing to be raised…all from their retirement condo.
We have allowed personal bankruptcy become something that governments should look forward to. Do whatever you can to please the population (build fancy things, don’t raise taxes too much, and keep the employees happy with high wages and huge pensions), then when it all comes crashing down, act like filing for bankruptcy is no big deal, and screw the bondholders and pension folks.
“I’m not saying that state government spending is good, just that they tend to care about things such as issuing bonds that can be reasonably be paid, only making pension promises that can reasonable be paid, etc.”
Wait – the same Indiana legislature that sees fit to issue small to the point of meaningless tax refunds when it has unfunded pension obligations on the books?
I’d love to see the state Republican Party return to the idea of local control- to untether the Greater Lafayette to better reach its full potential.
When traveling the state, we often take the “back roads” to see lovely rural natural scenery in all seasons, but it is somewhat depressing to drive through some of the small towns that have been left way, way behind. Probably lovely people live there and have for a long time, but the towns themselves are not where most would choose to locate today. Therefore, one can sadly predict what the next decade or so will bring. Or so it seems to me.
Sometimes you’ll see a weathered sign mentioning a bit of Indiana basketball history in which the town took part.
This Urbanophile post uses an interesting example to make a very similar point: http://www.urbanophile.com/2013/08/30/making-the-link-between-quality-of-life-and-economic-development/
“A rather prosaic economic development announcement in Indianapolis provides an opportunity to hammer home in a concrete way the connection between quality of life investments and economic development. [snip] The announcement in question is the relocation of a company called American Specialty Health from La Jolla, CA to the Indianapolis suburb of Carmel. This will involve 300 initial hires, growing to 675. While the company will retain a California operation as well as one near Dallas, the headquarters will be in Carmel, IN and 50 top managers, including the CEO, are relocating.
[big snip]
Here’s the link to quality of life investment: how do you get these call center and IT and other jobs? You do it by convincing 50 people, including the CEO, to move from La Jolla, which if you don’t know is, to put it mildly, a nice place to live. The average home price is north of $2 million. The people who live there (or elsewhere in the San Diego region and commute in) aren’t there because it’s cheap. These are people with enough money to buy nice stuff and with choices about where to live. Like most of us they are probably interested in saving a buck, but not at the expense of moving to the equivalent of Siberia.”
I will believe this when I see it. Either there is a catch—union busting, or drastically lowered wages for the bulk of the employees once the company relocates—or it ain’t happenin’.
Dog, this post hammers home the point from several directions that industries, businesses and corporate headquarters relocate to areas that have high quality of life. An area lacking amenities and a high quality of life is doomed to bounce along at ten-dollars an hour.
I live in a rather stagnant county in a rural area, and can tell you that people here are not interested in the towns gaining back some of their power. What they live for is to stop anything smacks of growth, cut taxes, and shift what taxes are necessary to the lower income and poor folks.
There has been no improvement in the quality of life in rural Indiana in my lifetime of 70 years. And who likes it that way? The farmers and land owners. They really don’t want anybody getting in their way or doing anything that might cost them a buck. Bankers used to care, but then they sold out to the big banks, and moved to warmer climates for their retirement. Is it any wonder that my county, Montgomery, had a net gain of only around 800 people over the last 10 years in the last census, or that many counties had net losses?
I know that you are right on the money with your essay, but I really don’t see much hope for the state as a whole. The rural and empty areas will still be gerrymandered so they can still stop most things, and Indy will go on without us — a one party state, with a hub that gets the grease, and the rest of the towns and counties like the rim of a wheel being beaten to smithereens from running on a flat.
And what DO those still hanging on, getting poorer and poorer with each passing year care about? Well, running Planned Parenthood out of town, and stopping gay marriage attracts some interest, and creationist churches are big. Somehow, these entertainments don’t seem to create the atmosphere that attracts people looking for a quality place to live.
If anyone watched Jeopardy when big blue destroyed all the former champions, it is not long before a person in a call center picking up a phone will be replaced by a computer. A 60 minutes episode showed a warehouse having items picked off of shelves and transported to a shipping area. Another 10 years we as a people may need to figure out how to support a large part of our population that will no longer be able to find jobs. It will have to better then food stamps and welfare. I wonder if the have’s will find in their cynical hearts to help out the have not’s.
This is an excellent post. I hadn’t read any of these articles before I wrote mine. It’s interesting to see it all coming out at once.
A couple things. Firstly, managers living in Hamilton County represents not just an income drain but an opportunity. Would businesses locate in Anderson or Muncie if they couldn’t use Indianapolis suburbs as a recruiting tool for executives?
Secondly, the state allocates resources completely opposite to what you suggest. Everything about Indiana’s state policies is about catering to the hath not’s. This in appropriate in a way. We should have some degree of redistribution and I have no problem with the state working to help struggling areas transform.
The problem is that this has turned into policies that are crippling successful areas like metro Indy, Lafayette, Bloomington, etc. and threaten to kill the golden goose. It’s one thing to say we should some redistribution. It’s quite another to make the state government little more than the gigantic welfare engine it has become at some level.
Perhaps more later
By the way, it’s flat out wrong that there’s been no improvement in quality of life rural Indiana. I grew up in rural southern Harrison County. Just in my lifetime there’s been massive improvement, including a new high school, municipal water service (we used a cistern when I was a kid), trash pickup being available, digital telephone service (we could only get a party line as a kid as a result of infrastructure limitations). Additionally, Amazon.com, iTunes, etc put the world at our fingertips. Satellite gives you the ability to watch hundreds of TV stations (we had 5 when I grew up), get high speed internet, etc. All of the improvements that involved the public sector happened pre-casino.
Now, Harrison County is rural but not remote (part of the Louisville MSA). I’m sure places like Orange or Perry County haven’t come as far. But there has definitely been bigtime improvement.
It’s moved from primitive all the way to substandard.
To the point made in the article that PeterW linked to, I recall when Medco came to Indiana, they looked at multiple areas in Indianapolis before choosing Whitestown.
So not only was there competition between states, yes cities/towns within Indiana are competing with each other … and I don’t think a lot of the citizens of those cities/towns realize that. I think they are far too focused on the “now” – I don’t want to pay more in taxes now, screw the future. Thinking about the future is hard and would require leadership and might cost re-election.
So, sure, it’s easy to institute property tax caps because the schools don’t need to be so durn nice. It’s fine to take that position, but realize that your school district is in competition with every neighboring school district. Same for your downtown, same for your central business district, go down the list.
Anderson has tied their fortunes to building a new reservoir in the hope that a large “pond” will attract the uppity-ups that manage businesses, and thereby will bring in new investment with them. It would also give, supposedly, a boost to the never-ending idea that Anderson can annex its’ way to fame and fortune, especially in the northeastern, Union Township side of town, where a tax base exists that would help pay for the annexation of land along I-69 in the Pendleton/ Lapel area. Of course, this need not happen, as Anderson has a wealth of space for new business within its’ present borders; a new “pond” will only increase marginally (at least within Madison County) the availability of new housing, and job creation will also increase only marginally, and at the low end of the wage scale. I’ve noted the Anderson/ Muncie discussion in earlier posts; Anderson is particularly apt in this discussion, because back in the glory days of GM and the UAW, whatever one thinks of both entities, Anderson was a “have” community, with good schools, plentiful opportunities, and continuous growth with a good tax base. Now, Anderson is dependent upon job growth that will be “here today, gone probably within 10 years” for the most part, and will have problems attracting high wage jobs again, and therefore, likely will be for most folks only an 8-hour-a-day destination for work, and not a place that people see as a good place to live. Our mayor has placed his bets on overseas investment, the same as the mayors of a thousand cities, and overseas investment is dependent upon bottom-line wages. Oh, yes, the “pond.” Will it really change Anderson’s fortunes? Actually, it is just going to change a few prominent Andersonian’s fortunes. $400 million dollars (I’ll believe that when I see it. Probably will end up at double that “guesstimate.”) for a reservoir… how much did the Honda plant in Greensburg cost? I know the state kicked in about $200 million or so for “infrastructure” in the Greensburg area. Look at the benefits the people of Dearborn County have derived from that, in a short time span. And I read that Marchionne, head of Chrysler/ Fiat, says that Chrysler may have to build a new assembly plant somewhere in the U.S. in the next few years. Given Anderson’s past history with the auto industry, the large availability of cheap land (especially where the old Guide plant once stood, given its’ proximity to both I-69 and to the already existing rail yards no more than a quarter of a mile away) it makes more than a little sense that the movers and shakers in Anderson would be exploring this possibility of more efficient use of money in going after any potential Chrysler assembly plant rather than the Quixotic quest for a reservoir.
Considering Honda and Toyota did not want to build in Anderson despite the city’s history, why would Chrysler be a better shot?
I would guess that Honda and Toyota didn’t want to build in Anderson *because of* its history. My understanding is that those companies actively try to avoid union strongholds. Chrysler built a new plant in Kokomo relatively recently (as in within the last 15 years or so), so it is way more conceivable that a domestic auto company would find Anderson appealing.