Economy and Education & Workforce Development and Government and Economic Development

EYE ON THE PIE: What politicians don't know can hurt us

April 18, 2005

Last week in Jefferson City, I heard Missouri's governor outline his economic and budgetary concerns. It sounded very much like a speech I could have heard in Indiana.

His speech went something like this: Medicare is about to eat up the state budget. We have to find ways to use school funds more effectively because our education system is not sufficient for the needs of our citizens. We have to protect taxpayers from the burdens of new taxes. We need to bring quality jobs to our state to help workers and to increase our tax base.

Gov. Matt Blunt is a recently elected Republican who told his audience good jobs are those that pay more than the average wage in the county where they are to be located. Further, he declared that tax breaks would not be available to firms until they could prove they had created the jobs they promised. This sounds similar to the Economic Development for a Growing Economy (EDGE) program Indiana has had for many years.

Sadly, Blunt seems to ignore basic arithmetic, just as Indiana has for more than a decade. Yes, if we bring in jobs that pay $25 per hour to a county where the average wage is $15, the average wage will rise. But if we bring in jobs that pay $10 to the same county and drive out $7 jobs, the average also will rise.

"Low-paying" jobs offer opportunities for many of our poorly educated workers. "High-paying" jobs may offer nothing to these people. Often, "high-paying" jobs can be filled only by importing labor from some other place. They do little for the people of the county who are supposedly the beneficiaries of the job-creation program.

I do not recall hearing the governor of The Show-Me State talk about raising per-capita personal income, but I would not be surprised if it is in his speech kit.

Our new administration talks about percapita personal income as one of the metrics state officials will use to measure economic-development success. I have no doubt they understand the per-capita part of that number. Some in the dominant party of the Indiana General Assembly even want a constitutional amendment to tie government spending to aggregate personal income. But do they know what personal income is?

Personal income would seem to be the income of people. But it is not as simple as that. Here's why:

It includes income a person cannot spend, such as dividends and interest imputed to pension funds, IRAs, 401(k)s and other saving plans.

It excludes income a person can spend, such as realized capital gains.

It does not include payments or withdrawals from those same pension funds, IRAs, 401(k)s, etc.

It rises with government subsidies such as welfare and unemployment compensation.

It also rises with Social Security payments, so the more older or disabled persons in the state, the more personal income a state might have.

In both of these latter instances, legislators could be misled into seeing prosperity where there is only relief from poverty.

These are just a few of the personalincome oddities that decision makers either do not understand or do not care to consider. Public policy made on the basis of the wrong numbers will sound good to the uneducated ear. Who is responsible for the education of our public leaders?



Marcus taught economics more than 30 years at Indiana University and is the former director of IU's Business Research Center. His column appears weekly. To comment on this column, go to IBJ Forum at www.ibj.comor send e-mail to mmarcus@ibj.com.
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