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

State of the Economy A National & State-Level Examination MVEA 52 nd 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 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 3 3 5 5 5 6 6 7 8 12 2013 (R ANKINGS ): S IZE OF GOVERNMENT (74), L EGAL S YSTEM & P ROPERTY R IGHTS (29), 14 14 S OUND M ONEY (38), F REE T RADE (74), 15 16 R EGULATION (13) Source: Fraser Institute, Economic Freedom of the World 2015 , 157 countries

Fiscal Policy? Substantial expansion of federal government F EDERAL GOV ’ T SPENDING UP 115% SINCE 2000 AND UP 27% SINCE Q4 2008. T OTAL 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 E XCESS M ONETARY WTI O IL G OLD H OME D OLLAR R ESERVES B ASE P RICE S&P 500 M1 P RICE P RICE CPI V ALUE 252% D EC . 2008 TO A UG . 2014 155% A UG . 2014 TO S EPT . 2015 135% 124% 75% 58% 17% 13% 12% 8% 5% 0% -1% -1% -5% -5% -13% -53% Source: Fed FRED

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 L ABOR F ORCE P ARTICIPATION R ATES FOR E ACH A GE U NEMPLOYMENT R ATE 16-19 All Ages 20-24 55+ 25-54 0 -0.7 -1.6 -1.7 -2.4 D ECLINES IN LABOR FORCE PARTICIPATION RATES SHOW THAT ONLY THE 55- PLUS AGE GROUP DIDN ’ T DECLINE SINCE O CTOBER 2009 -4.7 Source: Fed FRED

New Model? Look at the states: Economic Freedom of North America, 2000 & 2012 Texas Florida California New York 1 3 6 T EXAS HAS THE HIGHEST LEVEL OF 21 ECONOMIC FREEDOM IN THE U.S. 39 2000 2012 43 46 47 Source: Fraser Institute, Economic Freedom of North America 2014

States with more economic freedom usually have higher growth in GDP per capita, 2004-12 Source: Fraser Institute, Economic Freedom of North America 2014

Nine states without personal income taxes & with highest income tax rates A VG . OF 9 S TATES A VG . OF 9 S TATES W ITHOUT W ITH AN I NCOME T AX H IGHEST I NCOME T AX F OR Y EARS (A LASKA , F LORIDA , N EVADA , (C ALIFORNIA , N EW Y ORK , 2003-2013 S OUTH D AKOTA , T EXAS , H AWAII , O REGON , N EW J ERSEY , W ASHINGTON , W YOMING , M INNESOTA , V ERMONT , T ENNESSEE & N EW M ARYLAND & K ENTUCKY ) H AMPSHIRE ) P OPULATION +14.2% +6.8% N ET D OMESTIC M IGRATION +3.7% -2.0% N ONFARM P AYROLL J OBS +9.9% +4.3% P ERSONAL I NCOME +57.5% +47.8% G ROSS S TATE P RODUCT +61.9% +47.0% S TATE & L OCAL T AX R EVENUE +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 ALL WHITE BLACK HISPANIC POVERTY MEASURE 15.9% 10.9% 25.3% 28.3% NATIONAL AVERAGE 15.9% 9.8% 20.7% 22.2% TEXAS 19.1% 13.3% 32.0% 29.2% FLORIDA 23.4% 15.2% 31.8% 34.3% CALIFORNIA 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 52 nd Annual Meeting Vance Ginn, Ph.D., Economist, Center for Fiscal Policy vginn@texaspolicy.com www.texaspolicy.com