Economists Are Always Wrong
Headline writing is an art not a science. I want people to read my column every week, but who wants to read about the economy? Yawn. Really big yawn. Take today’s headline as an example. It is subject matter that will turn off many of my readers, except maybe the two or three who consider themselves actual economists. These guys love a good debate. I hope the rest of you will too.
Today I want to point out how difficult it will be for politicians to attack President Obama’s economic performance, and then tout Governor Pence’s. For those who try, listen very carefully. Because it should be a fascinating tale.
I studied economics in college, and actually worked with economists when I worked in government. I like economists. I listen when they speak. I am a child of the “it’s the economy stupid” campaign declaration of former President Clinton. And I know the difference between a real economist and a political one.
The campaigns we are about to experience will put all economic “fact checkers” into rebuttal exhaustion.
Following Governor Pence’s State of the State address on January 12, and President Obama’s State of the Union later the same night, I thought I would check in and compare their economic stat sheets.
Indiana politicos in the Statehouse like to behave as if our economy operates in a silo. They work to keep a safe distance from the evils of other irresponsible states (i.e. Illinois). But we are more accurately and mainly a subset of the American economy. Statistical data backs this up.
The easiest statistic to point to is the oft touted unemployment rate. Governor Pence loves Indiana’s 4.4 percent. Nationally though, we are at 5.0, down from the 7.8 percent that it was in January, 2009. Indiana’s rate peaked at 10.7 percent in July of 2009 following the recession of 2008. Our economic woes were more severe and slower to recover due to our state’s manufacturing job base.
Regionally, Illinois’ most recent number from November is at 5.7 percent, but Kentucky (4.9) and Ohio (4.5), are keeping pace with Indiana.
Real gross domestic product (GDP) statistics paints a more troubling comparison for us though. Indiana’s growth for 2014 of 0.4 percent is the lowest in the Great Lakes region and significantly lower than the national GDP of 2.2. It is likely that our trailing number there is also due to our reliance on manufacturing, with improving numbers slower but likely on the way.
Indiana has done some good things in its approach to tax policy over the last several years. There are statistics and more subjective rankings that show our state is more attractive to “do business in” than other neighboring states (again, Illinois). Legislative leaders should be proud of their work to attain those rankings and accolades. Over time, I would like to see that progress translate into progress on other indicators as well, specifically wage disparity. I happen to think that is possible, and since I am not an economist, I could be right.
So what should we make of all of this?
I conclude that while we have control over a handful of things that affect our local economy, the vast majority of factors are beyond state and local political control.
The economy in the state and nation is far more complicated than any short list of things. The things that effect the economy are infinite. While economists are pretty good historians when it comes to describing what has already occurred, they are awful at delivering a plan that will work in the future. In that regard, they are always wrong. If any one of them were predictably correct, every politician would logically follow that plan. Right?
So let’s compare a few federal and state highlights of what has already happened.
On the President’s side, the auto industry bailout clearly worked. And as painful as this is to hear for Republicans, the Affordable Care Act has not produced the doomsday they seemed to be rooting for.
On Governor Pence’s side, well, he hasn’t made the big economic mistake yet. The outcome of this year’s infrastructure policy will matter economically, but not before the election. And while I personally believe the state budget surplus is overvalued and wrong to tout, others disagree.
But no economist has been able to quantify the effect Governor Pence’s social policy mistakes have cumulatively had on our economy yet. This is vital, since this has occurred within our silo, and will eventually be quantifiable. Again, as a non-economist, I can’t fathom how RFRA or what appears to be inevitable inaction on civil rights reform can be anything but economically damaging to the state.
And that is the biggest economic oversight of all. The social issue aspects of Governor Pence’s first term is likely going to be his most distinct and measurable economic policy. It’s a problem spot of his own making, and letting it linger without resolution will allow our trusty economists to look back and put a price tag on all of it. That will not be pretty.
Voters this year need to put their guard up when listening to political economic speak. The social issue madness actually is the economic issue that is unique to Indiana. The bulk of our state’s economic successes have to be shared to varying degree with the nation. And ironically, the one policy Republicans can’t blame on the President will certainly have a negative economic impact.
It is a failed policy completely of their making, and completely within their control.