State of the Economy A National & State-Level Examination MVEA - - PowerPoint PPT Presentation

State of the Economy

A National & State-Level Examination MVEA 52nd Annual Meeting

Vance Ginn, Ph.D.

Economist Center for Fiscal Policy Texas Public Policy Foundation vginn@texaspolicy.com

Texas State Budget: Where We Stand

Economic & political institutions matter

• Acemoglu and Robinson (2012)
• Extractive institutions: taking resources

through force and either enriching the leaders or redistributing those resources in society.

• Inclusive institutions: allowing resources to

be voluntarily distributed through market transactions.

Economic Freedom of the World

• Economic freedom is important

because:

• Economic rights are fundamental

to political & civil freedoms

• Prerequisite for economic growth
• Economic Freedom of the World Index (Fraser

Institute)

• One point drop indicates long-term economic

growth decline between 1.0 and 1.5 percentage points annually (Gwartney, Holcombe, & Lawson, 2006).

Substantial decline in U.S. economic freedom since 2000, especially after 2008

3 3 5 6 5 8 6 5 7 14 15 14 12 16

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Source: Fraser Institute, Economic Freedom

• f the World 2015, 157 countries

2013 (RANKINGS): SIZE OF GOVERNMENT (74), LEGAL SYSTEM & PROPERTY RIGHTS (29), SOUND MONEY (38), FREE TRADE (74), REGULATION (13)

Fiscal Policy? Substantial expansion of federal government

FEDERAL GOV’T

SPENDING UP 115% SINCE 2000 AND UP

27% SINCE Q4 2008. TOTAL DEBT UP 214%

SINCE 2000 AND UP

70% SINCE Q4 2008 Source: Fed FRED

Monetary Policy? Taylor Rule suggests a much different path for federal funds rate

Source: Bloomberg Business

No inflation? Substantial increases between when Fed targeted 0-0.25% rate & end QE

Source: Fed FRED

252% 155% 135% 124% 75% 58% 13% 12%

• 5%
• 5%
• 1%
• 53%
• 1%

8%

• 13%

5% 0% 17% EXCESS RESERVES MONETARY BASE WTI OIL PRICE S&P 500 M1 GOLD PRICE HOME PRICE CPI DOLLAR VALUE

• DEC. 2008 TO AUG. 2014
• AUG. 2014 TO SEPT. 2015

Desired outcome? Historically weak recovery with more on government dole

• Average annul real GDP growth rate of 2.2%

since recession ended < historic averages

• Increases before recession in 2007:
• Population: 7%
• Food stamp recipients: 71%
• Poverty level: 23%
• SSDI recipients: 20%
• Mulligan (2012): Implicit marginal tax rates

Disturbing disconnect in labor market data

Source: Fed FRED

Percentage point declines from unemployment rate peak in Oct 2009 to June 2015

• 2.4
• 1.6
• 0.7
• 1.7
• 4.7

LABOR FORCE PARTICIPATION RATES FOR EACH AGE UNEMPLOYMENT RATE

All Ages 16-19 20-24 25-54 55+

DECLINES IN LABOR FORCE PARTICIPATION RATES

SHOW THAT ONLY THE 55-PLUS AGE GROUP DIDN’T DECLINE SINCE OCTOBER 2009

Source: Fed FRED

New Model? Look at the states: Economic Freedom of North America, 2000 & 2012

3 6 39 46 1 21 43 47 Texas Florida California New York 2000 2012

Source: Fraser Institute, Economic Freedom

• f North America 2014

TEXAS HAS THE

HIGHEST LEVEL OF ECONOMIC FREEDOM IN THE U.S.

States with more economic freedom usually have higher growth in GDP per capita, 2004-12

Source: Fraser Institute, Economic Freedom

• f North America 2014

Nine states without personal income taxes & with highest income tax rates

FOR YEARS 2003-2013

• AVG. OF 9 STATES

WITHOUT

AN INCOME TAX

(ALASKA, FLORIDA, NEVADA, SOUTH DAKOTA, TEXAS, WASHINGTON, WYOMING, TENNESSEE & NEW HAMPSHIRE)

• AVG. OF 9 STATES

WITH HIGHEST INCOME TAX (CALIFORNIA, NEW YORK, HAWAII, OREGON, NEW JERSEY, MINNESOTA, VERMONT, MARYLAND & KENTUCKY)

POPULATION +14.2% +6.8% NET DOMESTIC MIGRATION +3.7%

• 2.0%

NONFARM PAYROLL JOBS +9.9% +4.3% PERSONAL INCOME +57.5% +47.8% GROSS STATE PRODUCT +61.9% +47.0% STATE & LOCAL TAX REVENUE +82% +54.3%

Average annual nonfarm job creation since 2000

Source: Vance Ginn, A Labor Market Comparison: Why the Texas Model Supports Prosperity

Average official unemployment rate since 2000, U6 rate much higher in U.S.

Source: Vance Ginn, A Labor Market Comparison: Why the Texas Model Supports Prosperity

Share of populations looking for work or working from 2000 to 2014

Source: Vance Ginn, A Labor Market Comparison: Why the Texas Model Supports Prosperity

Prime-working-age group (25-54) employed since 2003

Source: Vance Ginn, A Labor Market Comparison: Why the Texas Model Supports Prosperity

Civilian job creation since start of Great Recession through 2014, 73% of jobs since 2000

Source: Vance Ginn, A Labor Market Comparison: Why the Texas Model Supports Prosperity

Not just oil and gas jobs: Texas job creation from 2000 to 2014

Source: Vance Ginn, A Labor Market Comparison: Why the Texas Model Supports Prosperity

Low wage jobs? Real private pay up 67% more in Texas than the U.S. average since 2001

Source: Vance Ginn, A Labor Market Comparison: Why the Texas Model Supports Prosperity

Job growth across all wage quartiles from 2000–2014

Source: Vance Ginn, A Labor Market Comparison: Why the Texas Model Supports Prosperity

Income inequality? Top 10% of income earners share of total income

Source: Vance Ginn, A Labor Market Comparison: Why the Texas Model Supports Prosperity

Poverty? Supplemental poverty rates account for cost of living differences and gov’t transfers

SUPPLEMENTAL POVERTY MEASURE ALL WHITE BLACK HISPANIC

NATIONAL AVERAGE

15.9% 10.9% 25.3% 28.3%

TEXAS

15.9% 9.8% 20.7% 22.2%

FLORIDA

19.1% 13.3% 32.0% 29.2%

CALIFORNIA

23.4% 15.2% 31.8% 34.3% Source: Kathleen Short, Census Bureau, The Supplemental Poverty Measure

Comparison of economic freedom and labor market measures

Source: Vance Ginn, A Labor Market Comparison: Why the Texas Model Supports Prosperity

Economic & Political Institutions Matter: Hayek & Keynes had it right

State of the Economy

MVEA 52nd Annual Meeting Vance Ginn, Ph.D., Economist,

Center for Fiscal Policy vginn@texaspolicy.com

www.texaspolicy.com