EYE ON THE PIE: Change economy to raise incomes

January 7, 2008

My holiday gift was the latest quarterly data from the U.S. Bureau of Economic Analysis. Santa put them in my e-mail box and I played with them when not attending to ritual family matters. Yes, personalincome numbers for all the states right up to the third quarter of 2007. Oh, joy; oh, ecstasy-feeding my lascivious quantitative desires.

And what did I find? Over the past year, the third quarter of 2006 to the same quarter of 2007, Indiana has ranked 45th in the nation in personal-income growth. We grew 4.3 percent, while the nation advanced 5.0 percent (these numbers are not adjusted for inflation). This is the fifth quarter of the past six in which Indiana has not kept pace with the nation. It is the 11th time in 13 quarters that we have lagged behind the country.

This is nothing new. Every decade since the 1950s, Indiana has had slower growth in personal income than the nation. Over a period of 230 quarters, 58 percent of the time Indiana grew less rapidly than the nation.

State government officials have an interest in personal income because it is one of the primary numbers they use to forecast state revenue. Some even want to use the growth of personal income at the county level as a cap on local spending.

Sophistics, who know they know their statistics, say, "Personal income is falling because our population is falling. Well, not falling, but not growing as fast as is the rest of the country's. It's all that inmigration (domestic and international) to the South, Southwest and West that is reducing our personal income. If we could just close the borders to keep the foreigners out, all would be better. If we could just bribe our own children to stay home, we wouldn't be seeing this decline."

Others, however, are happy to sacrifice income growth in the state as long as they don't have to meet new folks in the grocery. Modernized retail facilities aren't important. Better medical care close to home isn't important. Anything can be tolerated if they don't have to send their children to schools with youngsters from families not known for at least three generations.

However, Indiana's problems are not related so much to its relative population decline as to its relative personal income decline. Over the past 56 years, compared to the nation, our personal income has been shrinking faster than our population. We had 2.63 percent of personal income and 2.61 percent of the nation's population in 1950. Pretty much on target. But in 2006, those numbers had fallen to 1.86 percent and 2.11 percent, respectively, a major mismatch.

What does this mean? Today, per-capita personal income in Indiana is $32,226. If our personal income had grown at the average rate of the nation, the average Hoosier now would have $4,700 more for shopping, rent, gas, taxes and all the goodies of life.

Why does Indiana's personal income lag behind the national growth pattern? Simply, wages and salaries here do not grow as fast as elsewhere. Our skills are not in great demand. Our industries make the products or provide the services of the past. Our executive leadership and their bonuses are out-of-state. Our banks and newspapers are excessively focused on their communities. Our citizens see little reason to be engaged with the rest of the world.

These are the challenges of economic development that are not revealed by the data alone. The BEA data allow us to monitor our progress. For nearly six decades, there hasn't been any sustained improvement.

Marcus taught economics for more than 30 years at Indiana University and is the former director of IU's Business Research Center. His column appears weekly. He can be reached at mmarcus@ibj.com.
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