The Great Brick Wall of China's Economy

On June 30 I tweeted:

"With China's economy continuing to slow, I wouldn't be surprised to see a major financial crisis there in the next three months."

This morning Nobel Laureate Paul Krugman writes in The New York Times:

"Yet the signs are now unmistakable: China is in big trouble. We’re not talking about some minor setback along the way, but something more fundamental. The country’s whole way of doing business, the economic system that has driven three decades of incredible growth, has reached its limits. You could say that the Chinese model is about to hit its Great Wall, and the only question now is just how bad the crash will be."

While Krugman points the blame at China's lack of consumption (which is a factor that will keep it from easily righting any downturn), a contributing factor is the persistent and extraordinary growth China has experienced the last few decades. As a result of that growth many investments have seen persistent and extraordinary returns. This in turn spurs greater investment...which we've certainly seen in China.

The problem is that those returns have been so consistent and so extraordinary for so long, that many expect they will continue indefinitely. As a result, But history tells us that extraordinary investment returns do not continue indefinitely. Furthermore, not all investments generate the same returns. My concern is that, like we've seen in developed countries during boom periods, that investors believe that these extraordinary returns will continue leading to overconfidence and malinvestment. Eventually, malinvestment (poor investment choices) lead to lower, even negative, returns. If the investors are highly leveraged (which they are in China), then these declines in investment returns leads to a much more significant financial crisis.

It's certainly difficult to tell what is happening in China as the data is all suspect. But with China's government now reporting that their economy is slowing...a more dangerous economic crisis becomes even more plausible.s

Oklahoma's Unemployment Rate Up To 5.2% in June

The U.S. Bureau of Labor Statistics is reporting that Oklahoma's unemployment rate ticked up again slightly in June, to 5.2% from 5.1% in May. This is the second consecutive month that the state's unemployment rate has increased (it was 4.9% in April). Just as concerning is the non-farm payroll data which showed a decline of 2,500 jobs in June. Since February the state economy has lost 4,300 jobs.

Yet some state officials still think that the state economy "remains on solid footing going forward."

Clearly they are wrong.

Digging deeper into the data though, one finds something else that is interesting: 50% of the jobs lost in the state the last 5 months have been government jobs...and that number rose to 88% in June just as the sequester really started taking effect. In short, Congress and state officials have been intent on shrinking the size of government. And they are doing so. As a result though, they are pushing Oklahoma's unemployment rate higher.

Another Reason We Need Comprehensive Immigration Reform

From The New York Times:

"Angeles P. Barberena has always tried to follow the United States’ immigration laws. She dutifully filed her petition to become a resident, complied with the requirements and paid her taxes and fees. 

That was 17 years ago. Ms. Barberena, who is from Mexico, is still waiting. Her file is inching through a backlog, and she has several years to go before she will receive the green card that will make her a permanent resident."

Simply unacceptable. If you want to come here, play by the rules, and work hard...we should welcome you, we should celebrate you, we should make your immigration here as easy as possible. But we don't.

The U.S. Senate recently passed legislation that would solve this problem for Ms. Barberena and 4.4 million others like her...legislation that is now languishing in the U.S. House. Naturally, Oklahoma's two Senators opposed the bill.

Derived Demand: The Case of Law School Professors

DC's New Living Wage Law = Fewer Jobs For Poor Workers

In a move that will provide university economics professors with another example of poor public policy, the Washington, D.C. council approved last week a new "Living Wage" bill that will require certain large retail employers to pay $12.50/hour ($4.25 higher than the current D.C. minimum wage). Due to the exemptions in the bill, it appears that the only firm to be immediately impacted is Wal-Mart who had plans to open six new stores in D.C. in the coming years.

What was Wal-Mart's reaction? According to The Washington Post, Wal-Mart has warned district officials that if the bill becomes law (which still requires approval from the Mayor and a Congressional review) then the large retailer will take its stores, and the thousands of jobs and low prices they bring, elsewhere.

No surprise there. In fact, this is exactly what we tell our Principles of Microeconomics students happens when the government imposes a price floor above the equilibrium wage. In such cases, some employers (not all) will find that fewer jobs are financially viable. As a result, they are willing to hire less.

For many D.C. residents, this is bad news. While Wal-Marts are not universally popular (existing D.C. retailers and labor unions don't like them), it is undeniable that they provide immense benefits to the communities they serve. For consumers, Wal-Mart provides significant cost savings...effectively boosting real family income. For workers, Wal-Mart stores provide hundreds of jobs. Yes, the jobs are primarily (although not entirely) low-paying jobs, they are still jobs people want. After all, a low-paying job is better than no job.

In the end the D.C. council's action threatens to hurt some of the very people who most need their help. In recent years I've been very critical of the willingness of some on the right to ignore basic economics. The actions from the D.C. council last week show that the left is willing to ignore those basic principles sometimes too.

State Revenue Collections Indicate State Economy Remains Weak

"The sustained growth in income and sales tax collections is a key indicator that Oklahoma’s economy had another nice year and remains on solid footing going forward."--Oklahoma Secretary of Finance and Revenue Preston Doerflinger

Well, it wasn't that nice of a year.

The Oklahoma Office of Management and Enterprise Services released their latest state General Revenue report last week that showed the state collected just over $527 million in June. This is $61 million less than the estimated amount and $54 million less than the amount collected last year. More concerning are the collections from the two most important revenue sources--income and sales tax collections--which both fell below the estimate for the month.

Despite the claims from state officials, declines in state sales and income tax collections are not indicative of a growing economy.

As I've been saying for months now, state tax collections have been indicating for months that the state economy has been weaker than many are claiming. Sales tax collections--perhaps the best indicator of state economic health-- have been stagnant since peaking early last fall. Plus, as I mentioned a few weeks ago Oklahoma personal income in the first quarter fell at a rate that ranked among the nation's worst.

Oklahoma's economy may not be contracting, but it's far from strong. The latest state revenue report does little to change that.

Picture of the Day: Public Sector Payroll Jobs During Recent Presidencies

From Bill McBride

Krugman Laments Lack of Urgency on Jobs

Princeton economist (and Nobel Laureate) Paul Krugman is correct in lamenting the lack the urgency among fiscal and monetary policymakers to boost job creation.

We certainly can’t count on fiscal policy. The austerity gang may have experienced a stunning defeat in the intellectual debate, but stimulus is still a dirty word, and no deliberate job-creation program is likely soon, or ever. 

Aggressive monetary action by the Federal Reserve, something like what the Bank of Japan is now trying, might do the trick. But far from becoming more aggressive, the Fed is talking about “tapering” its efforts. This talk has already done real damage; more on that in a minute.

Unfortunately, unemployment remains too high and the pace of job creation too slow (despite being the best year since 1999)...and Congress is facing little pressure to fix it. This means, sadly, that these families will continue to needlessly suffer.

U.S. Private Sector Adds 202,000 Jobs in June

The U.S. Bureau of Labor Statistics released the latest monthly employment situation report on Friday. Among the reports highlights:

• The U.S. economy added 202,000 private-sector jobs in June.
• June was the 40th consecutive month of private-sector job growth.
• Over the last 40 months the U.S. economy has added 7.2 million private-sector jobs.
• The BLS revised their estimates of April job growth by +50,000 and May job growth by +20,000.
• Through the first six months of the year the U.S. economy is on pace to add the most private-sector jobs since 1999

This report confirms once again that the U.S. economy is growing and strengthening. However, it also shows that with some assistance from Congress the economy would be even stronger today. Economic theory and evidence from past recessions shows that increases in government employment during periods of high unemployment can boost the economy and overall job growth. It worked during the Reagan Administration. It worked during both Bush Administrations. It worked during the Clinton Administration...and it even worked during the Obama Administration. But Congress remains intent on shrinking government--a policy which slows the pace of job growth in the economy.

Oklahoma Personal Income Falls 1.6% in Q1--Among the Nation's Worst

The U.S. Bureau of Economic Analysis reported this morning that state personal income declined by 1.2% across the nation in the first quarter of the year. The BEA attributed the decline to the increase in payroll taxes at the beginning of the year.

In Oklahoma though, the news was even worse. In the Sooner State personal income declined by 1.6% in Q1, which ranked 43rd among the 50 states. Furthermore, manufacturing earnings in Oklahoma fell more than in any other state in the nation.

There are two key takeaways from today's report. First, on the national stage the contractionary fiscal policy being implemented by Congress is having an effect in slowing income growth across the nation. With unemployment remaining above 7.5%, tax increases and spending cuts are the opposite policies that our leaders should be pursuing. Perhaps in bizarro world contractionary policy expands the economy, but in the real world contractionary policy contracts the economy.

Second, for Oklahoma this report confirms what I've been detecting for months...that the Oklahoma economy slowed considerably early this year. Even though state officials still kept touting the strength of the state economy...the data that was coming in pointed to a considerably weaker state economy. The good news though, is that my data has been indicating that the state economy strengthened a little in the second quarter of the year...so the next state personal income report could very well look much better.

U.S. Personal Income Increased By 0.5% in May

The U.S. Bureau of Labor Statistics reported this morning that real personal income rose by 0.5% in May, and personal consumption expenditures rose by 0.3%. With inflation running round 0.1% for the month, this is a healthy growth in incomes, spending and savings for the month. In the short-term this is an indicator of continued economic growth. In the longer-term, this growth in savings is a healthy sign for future investment.

Some Unemployed Workers Keep Losing Ground. Thanks Congress

The Wall Street Journal has a nice story today reminding us about the plight of the long-term unemployed. While the economy is growing, and the labor market has been improving since February 2010, it hasn't improved fast enough for the economy to climb out of the Great Recession-sized hole in employment.

During the recession the U.S. economy lost more than 8.8 million private-sector jobs. During the recovery over the last three years, the economy has added 6.9 million private-sector jobs. This still leaves a deficit of 1.9 million private-sector jobs. When you add on the 600,000 government jobs lost during the recovery (thanks for helping Congress) we still have a 2.4 million jobs deficit.

In short, it's not a surprise that unemployment remains above 7.5%.

But it didn't have to be this way. Yes, the hole was deep. Yes, we are making progress. But if Congress had been more focused on jobs, more focused on stimulating the economy, then unemployment would be much lower today.

Instead of fighting unemployment Congress became distracted and began fighting deficits. Despite historically low interest rates (real interest rates have routinely been below 0%) and no evidence to support their belief, Congressional leaders argued that more borrowing was bad. Essentially, Congressional leaders chose to ignore the teachings of economics and implemented a contractionary fiscal policy. Not surprisingly, the economic growth hasn't been strong enough to lift us out of the hole yet.

Today, our unemployment rate remains too high. Today, too many families continue to suffer. Unfortunately today, Congress is still not fighting the right battle.

S. 744: Making America the Land of Opportunity Once More

“We have a strange immigration policy for a nation of immigrants. And it’s a policy unfit for today’s world.”—Mark Zuckerberg, Chairman and CEO of Facebook, Inc.

Mark Zuckerberg is right. For a nation that prides itself on being a land of immigrants, we make it surprisingly difficult to be a legal immigrant. For a nation that prides itself on being the “land of opportunity”, we close the doors of opportunity to too many talented people who want to live here. And for a nation that prides itself on possessing the world’s most innovative economy, we aren’t very open to attracting the world’s most innovative people.

Thanks to a bipartisan group of U.S. Senators though, this might begin to change.

This month the U.S. Congress is inching closer (albeit slowly) to passing a comprehensive immigration reform bill—one that would significantly modernize our nation’s immigration policies. The measure, S. 744, would significantly enhance border security, increase the number of legal immigrants allowed into the U.S. each year, and provide a (long) path towards citizenship for current undocumented immigrants. In short, it would make us safer, more prosperous, and more consistent with our nation’s ideals.

While much of the attention will focus on the bill’s provisions to increase border security (to appeal to conservatives) and provide a (long) path to citizenship for the 11 million undocumented immigrants in the U.S. currently (appealing to progressives), arguably the most important provisions would increase the number of highly-skilled knowledge workers who will more easily be able to receive a visa to work in the U.S. It is this aspect of the bill that has attracted support from a who’s who of high-tech corporate executives including Bill Gates and Steve Ballmer (Microsoft), Mark Zuckerberg (Facebook), Eric Schmidt (Google), Marissa Mayer (Yahoo!), and Drew Houston (Dropbox).  These leaders know that their continued success depends upon their ability to attract and retain the most innovative employees…something that is becoming increasingly difficult under current immigration laws.

The fact is that the limitations in the current employment-based immigration rules have made it impossible for companies to attract sufficient numbers of highly-skilled employees because the U.S. government caps the number of employment-based immigration visas allowed for citizens of each country. Not only are the caps too low to satisfy the labor needs of American corporations, but they unduly limit the number of visas granted to countries like China and India who are sending more students to study in the U.S. each year.

These students come to the U.S. to get a college degree. They want to stay in the U.S. to work. But for too many, we don’t let them.

We can, and we should, change this.

The passage of S. 744 will begin to make these needed changes. Under the legislation, graduates in the STEM (Science, Technology, Engineering, and Math) disciplines would be exempt from the employment-based visa caps, and the country-specific caps would be removed. In short, S. 744 would help ensure that today’s best and brightest workers have the chance to work here and build a better America.

In the amazing story that is America, it is our openness to new ideas, new cultures, and new people that have continuously propelled us forward. It is our belief that all people, not just U.S. citizens, are endowed with the inalienable rights to life, liberty and the pursuit of happiness that has built the American Dream. And it has been the waves of immigrants—the tired, the poor, the huddled masses yearning to breathe free—that have made this the greatest nation on earth.

S. 744 is not a perfect bill—no legislation that has a chance of passage ever will be. But it will move us forward. Not only will this measure boost our economy, and increase the likelihood that the next generation of technologies are developed here in the U.S., but it gives us the chance to once again embrace our heritage. We are, after all, a land of immigrants. A people drawn to this place by the unique opportunities and freedoms it offers. A people bound together not by race, nor birthplace, but by a set of ideals. A people who regardless of birthplace or status, simply want to be known as “Americans”.

Video: Emma

Oklahoma Unemployment Rate Ticks Up To 5.0% in May

The U.S. Bureau of Labor Statistics reports this morning that Oklahoma's unemployment rate ticked up slightly to 5.0% in May from 4.9% in April. This coincides with a decline in state nonfarm employment for the month of 1300 jobs. Oklahoma was one of only 17 states who had an increase in unemployment last month...Clearly, this is a weak jobs report for Oklahoma.

While some of this weakness might be attributed to the severe weather the state saw in May, some of it could well be detecting the general economic weakness plaguing the state for months. Labor market data tends to lag economic activity by several months. Since my data has shown that the state economy has been weak for most of the last 10 months, this weakness might still be affecting May's jobs numbers.

OKonomics Classic: A Nation of Immigrants

Periodically, I'll post some of my favorite columns from the previous version of this blog--what I'll call the OKonomics Classics. In honor of the immigration debate raging in the Senate, here's a column I originally posted six years ago when the Oklahoma Legislature passed what was referred to at the time as the nation's toughest immigration law.

A Nation of Immigrants
(Originally posted on May 8, 2007)

"Keep, ancient lands, your storied pomp!" cries she
With silent lips. "Give me your tired, your poor,
Your huddled masses yearning to breathe free,
The wretched refuse of your teeming shore,
Send these, the homeless, tempest-tossed to me,
I lift my lamp beside the golden door!"
by Emma Lazarus, New York City , 1883

What would you do if your children were hungry? What would you do if you could not make enough money to feed them? What would you do if there were no employment opportunities available in your community? What would you do if you heard about a prosperous place far away that offered hope for a better life? What would you do if you had to break the law to get there?

I know what I would do—I would go there anyway.

Last week the Oklahoma Legislature approved (with bipartisan support) what some are calling the toughest state-level immigration reform in the nation. Meanwhile in Washington , D.C. (where the real responsibility for immigration reform lies) the debate rages on about what the federal government should do. Unfortunately, these debates all too often portray immigrants as dangerous deadbeats seeking to undermine the American way of life. The reality though, is much different.

Virtually all of the illegal immigrants in this country came here not to harm us...but to help themselves. They are not deadbeats, they are economic immigrants looking for a better life. In their home nation, these immigrants had little hope for success. There are few employment prospects. There is little possibility of providing their families with even the essentials like adequate food, clothing, and shelter. In short, there is little hope.

They do not even have much hope of emigrating here legally. Current U.S. immigration policies allow two main types of immigrants into the nation: 1) immediate family members of U.S. citizens or legal residents, and 2) highly skilled knowledge workers. Frankly, impoverished, unskilled workers are not likely to qualify for legal immigration into the U.S.

As a result, these families are left with a draconian choice. They can either choose to stay in their home nation and live legally in extreme poverty, or come to the U.S. and live illegally in relative prosperity. Many of the people being ostracized as illegal immigrants worthy of the wrath of the U.S. government, are simply hard-working, deeply religious people trying to provide for their families. These are not people we should condemn, but people we should welcome.

We certainly need reform, but we also need compassion. The reason we have so much illegal immigration, is that we have made it unnecessarily tough to become a legal immigrant. Therefore, a helpful immigration reform bill will make it easier for economic immigrants to enter this nation legally. We should once again open our doors to those impoverished people who want to work hard...doors that have been closed for too long. Furthermore, we should also allow current illegal immigrants to become legal residents, and eventually invite them to become citizens. After all many of these illegal immigrants have children who are already U.S. citizens. The Urban Institute reports there are nearly 3 million U.S. children in this situation today.

While everyone agrees that we should do all we can to protect our citizens from terrorists, and we should do everything in our power to keep our citizens safe from evildoers, we should also never forget who we are as a nation.

We are a nation of immigrants—a people who faced hardship and hopelessness in far away lands, and who came to these golden shores with little but hopes and dreams. We are also a nation that has an ugly history of mistreating these immigrants as each new wave of immigration has elicited a corresponding wave of bigotry and fear. Yet, we are a nation who is better because these immigrants persevered, worked hard, built a better life, and as a result…a better America .

Instead of more meanness, we need more compassion. We need to recognize that most illegal immigrants just want hope. We need to remember that these illegal immigrants are like us in every way except for their birthplace. We need to understand that these immigrants are people who need our support.

And we should offer this support not because it is easy, not because it is free, but because it is right; because that is who we are as a people; because that is what defines us as a nation…a nation of immigrants.

The Economic Impact of Immigration Reform

The Congressional Budget Office released a new report detailing the economic effects of the proposed immigration reform. Their findings:

"In sum, relative to current law, enacting S. 744 would:

• Increase the size of the labor force and employment,

• Increase average wages in 2025 and later years (but decrease them before that),

• Slightly raise the unemployment rate through 2020,

• Boost the amount of capital investment,

• Raise the productivity of labor and of capital, and

• Result in higher interest rates."

We often hear how liberalizing immigration will harm American workers and the American economy. But this isn't true, while some workers will see lower wages as a result of this action...some will see higher wages too. Furthermore, increased immigration will boost the rate of economic growth eventually increasing average wages across the country.

Given that we are a nation of immigrants, given that more liberal immigration policies will boost economic growth, and given that we should welcome those individuals--regardless of nationality--who want to come here to work, I am a strong supporter of S. 744. It's not perfect legislation by any means, and I wished it would go even further to open opportunities to many more potential Americans, but it is progress. For that, I hope the U.S. Congress makes this bill a law.

Six years ago, in one of my blog posts I called for something similar:

The reason we have so much illegal immigration, is that we have made it unnecessarily tough to become a legal immigrant. Therefore, a helpful immigration reform bill will make it easier for economic immigrants to enter this nation legally. We should once again open our doors to those impoverished people who want to work hard...doors that have been closed for too long.

This is still true today.

Real Average Weekly Earnings Fall 0.1% in May

The U.S. Bureau of Labor Statistics reported this morning that real average weekly earnings fell by 0.1% in May. During the month nominal earnings were flat but a 0.1% increase in the CPI-U (Consumer Price Index for Urban Consumers) led to a decline in real earnings.

Over the last year real average weekly earnings have risen by a reasonably healthy 2.3% (especially given that unemployment remains above 7%), but for the last two months the growth has slowed. In March, real average weekly earnings rose by 0.5%, in April it was 0.3%, and now a decline in May. More complete economic data will be coming in the next few months, but today's earnings report indicates that the U.S. economy might be slowing a little here in the second quarter.

Taxes and State Economic Growth: What Does the Research Say?

The Center on Budget and Policy Priorities has released a new report exploring the findings of academic research on the relationship between state taxes and state economic growth.

"Organizations advocating lower and less progressive taxes can find some studies by reputable economists that find that above-average state and local taxes have a measurable and consistently adverse impact on state economic performance. However, many equally reputable studies reach the opposite conclusion, and the results of many more are mixed, ambivalent, or show that any adverse impacts are small. There is simply no consensus whatsoever that cutting taxes is a good strategy to boost state economic growth and create jobs."

I think it's safe to say that in Oklahoma, the opinions of our leaders are not consistent with the findings of academic research.

With Record Wealth Why Aren't We Spending More?

Robert Samuelson had an interesting column in The Washington Post this weekend explaining why American households, despite possessing record levels of wealth, aren't spending at record levels.

"The “wealth effect” isn’t what it used to be. For those who have forgotten, this refers to households’ tendency to spend some part of their increased real estate and stock market wealth and thereby boost the economy. During the boom years, Americans borrowed lavishly against rapidly appreciating home values. One Federal Reserve study estimated the extra cash at $700 billion annually from 2001 to 2005. Now psychology has changed. Careless optimism has given way to stubborn cautiousness. Wealth gains don’t translate into similar amounts of higher spending."

Samuelson posits two possible explanations for why consumers aren't boosting spending as quickly as in the past: 1) that consumers are being more cautious after the Great Recession of the last few years, and 2) that consumers are more focused on paying down their debt (perhaps because of explanation #1). Both explanations are reasonable and both conform to previous evidence.

What does this mean though? In the short-run, this unfortunately means that the Fed's ongoing efforts to keep interest rates low will likely have little stimulative effect on the economy as low interest rates won't be enough to stimulate greater spending. In the long-term though, these greater levels of savings must translate into greater levels of investment...boosting economic growth over time.

Yes, Income Tax Cuts Reduce State Tax Collections

Throughout the tax cut debate here in Oklahoma we constantly here that cutting the income tax actually boosts the economy so much that tax revenue increases. The data tell a very different story.

Since 2000 Oklahoma has enacted several income tax cuts. While Oklahoma personal income has risen by 75.40% during that time (according to the U.S. Bureau of Economic Analysis), Oklahoma income tax collections have risen by only 26.68%. Generally, we would expect income tax collections to slightly outpace the growth in personal income (due to bracket creep). But in Oklahoma we have seen income tax collections fall way short. In fact, if income taxes collections had risen just at the same rate that personal income has grown during the same period, state officials would have an additional $1 billion annually to spend on education, health care, roads, and prisons.

In short, the cost of tax cuts is real and significant.

My OKC Biz Article: Dark Clouds Still Loom

In case you missed it, here is my latest OKC Biz article on the state of the Oklahoma economy.

"As Oklahoma City thaws out from a spring ice storm, the latest economic data doesn’t indicate that the state economy is thawing yet."

It is important to note that this was written before the latest state revenue report was released which gave me a little more optimism. But I have to admit that our economy still faces some of the same obstacles as I mentioned in this column. In fact, I'd still say this closing paragraph remains true.

"However, the latest economic data continues to show that our economy is not quite as strong as many state officials have lead us to believe. When one figures in the effects of looming federal government spending cuts (which will further dampen the economy) along with continued weakness for some major players in Oklahoma’s energy industry, we could still be months away from the time when Oklahoma’s economy is ready to soar once more."

I'd say though that today we are just a little closer (I think) to seeing the growth start once more.

State General Revenues Are 3.3% Below Estimate for May

Oklahoma General Revenue Fund collections for May were 3.3% below the official state estimate according to the latest general revenue report released by the Oklahoma Office of Management and Enterprise Services yesterday. The report continues a trend of lackluster revenue reports for the state that indicate the state economy has been stagnant--something I've been saying since last September.

However, in the latest revenue report are some signs that Oklahoma's economy is starting to grow again. Each month I track my favorite indicator of state economic activity--seasonally-adjusted sales tax collections. To me, this metric is the best available because 1) the seasonal adjustments allow for month-to-month comparisons, 2) it is timely, and 3) sales taxes have less variation than other tax collections like income taxes. When I track the level of seasonally-adjusted sales tax collections I noticed that since peaking last April (at $164.8 million), they have trended downward until March (at $154.0 million). However, the last two months have shown steady increases with May's figure at $162.1 million. While still below the peak, this latest number tells me that the Oklahoma economy is picking up speed once more.

The Case For Medicaid Expansion

In my latest By The Numbers column for The Edmond Sun I make the case for accepting federal funds to expand Medicaid.

"Expanding Medicaid will provide a multi-billion dollar boost to our state economy while providing health insurance to another 180,000 Oklahomans. We can do this. We should do this. We just don’t want to. 

Across the country Republicans are recognizing the benefits of accepting these federal dollars to care for their citizens. Each year we wait, is another year we are economically and morally poorer than we should be."

Frankly, accepting federal funds to expand Medicaid is not a hard case to make. It makes financial sense and it makes public policy sense. The problem is that our leaders just aren't willing to listen.

U.S. Economy Adds 178,000 Private-Sector Jobs in May

The U.S. Bureau of Labor Statistics reported this morning that the U.S. economy added 178,000 private-sector jobs in May. This marks the 39th consecutive month of private-sector job growth in the U.S. During that time the economy has added more than 6.9 million private-sector jobs. Furthermore, the economy is on pace to add 2.3 million jobs this year, which would be the third consecutive year of 2 million + jobs created--the first time that has happened since the 1990's. Overall, the report confirms that the U.S. economy continues to grow despite the contractionary fiscal policy coming out of Congress.

BEA: Oklahoma's Economy Grew By 2.1% in 2012

The U.S. Bureau of Economic Analysis announced this morning that Oklahoma's economy grew by 2.1% in 2012--the 22nd fastest pace in the nation. The top six states last year were:
1. North Dakota (13.38%)
2. Texas (4.82%)
3. Oregon (3.95%)
4. Washington (3.63%)
5. Minnesota (3.55%)
6. California (3.47%)

Given the claims we've heard incessantly in recent years that states with low personal income tax rates grow faster than states with high rates, it's interesting to see how Oklahoma's income tax rates compare to these six states:

1. North Dakota (3.99%)
2. Texas (0.00%)
3. Oregon (9.99%)
4. Washington (0.00%)
5. Minnesota (7.85%)
6. California (12.3%)
21. Oklahoma (5.25%)

Now, I'm not saying that tax rates don't matter. But I am saying that tax rates don't matter much compared to many other factors.

My Oklahoma Gazette Column: Death By A Thousand (Tax) Cuts

From my Oklahoma Gazette column published this week:

"Generally, tax revenues grow when personal income does. Since 2000, personal income in Oklahoma has increased by 75.4 percent. During that time frame, state sales tax collections, which typically grow at a rate slightly below personal income growth, have risen by 62.05 percent. 

However, personal income tax collections, which typically grow at the same rate as personal income, have risen by only 26.68 percent since 2000. So, yes, personal income tax collections have risen while Oklahoma has been cutting the income tax — but the collections have not increased as far as they would have. 

In fact, if state income tax collections had risen at the same 75.4-percent rate as personal income, the state would be collecting an additional $1 billion more per year. That’s an additional $1 billion annually that could be educating our children, caring for the needy, improving our roads and protecting us from criminals. 

One small tax cut shrinks core government services. Many small tax cuts, however, cripple those services." 

At Least We Aren't Kansas

As much as I've been critical of the choices our Oklahoma leaders have made in emphasizing tax cuts over education spending, I am thankful we aren't in Kansas. As Nicholas Johnson from the Center on Budget and Policy Priorities' Off the Charts blog, Kansas legislators are even less supportive of education these days:

"Kansas legislators passed a plan this past weekend to drain the state’s reserves, cut taxes for the rich, raise taxes for many lower-income families, and slash education in the process.  The state is on a path to ruin unless it changes course."

At least it's not that bad here...not yet anyway.

Affordable Care Act Is Shielding Young Adults from Emergency Room Costs

A recent study is showing that the Patient Protection and Affordable Care Act, often referred to as "Obamacare" by conservatives, is already saving young adults millions of dollars in emergency room costs. The report by the Rand Corporation which was published in the New England Journal of Medicine finds that one of the law's more popular provisions--allowing children between 19-25 years of age to be covered by their parents' insurance plans--is working to protect those children and their families from unexpected emergency room costs.

"Examining hospital emergency department use during the first year after the federal Affordable Care Act provision went into effect, researchers estimate that $147 million in nondiscretionary medical care was newly covered by private insurance. Without the new regulation, those costs would have been paid by young people and their families, or been written off by hospitals as uncompensated care."

This is why health care reform is so important. By ensuring that more Americans have health insurance, the Affordable Care Act allows more Americans to have access to affordable health care. And when, as sometimes happens, we are faced with a significant health emergency that insurance will protect us (and the providers) from financial ruin.

The Affordable Care Act is far from a perfect law, but as this new report shows, in some very important ways it is a significant improvement.

The Cost of Saying "No"

A new report by Carter Price and Christine Eibner of the Rand Corporation confirms what many of us have been saying for months--the cost to states refusing to accept federal funds to expand their Medicaid programs will run in the billions of dollars.

"With fourteen states opting out, we estimate that 3.6 million fewer people would be insured, federal transfer payments to those states could fall by $8.4 billion, and state spending on uncompensated care could increase by $1 billion in 2016, compared to what would be expected if all states participated in the expansion." 

In short, states will receive less in federal funds but they will also have to spend more because uncompensated care costs will be higher. This is the point that is often overlooked by those opposing the Affordable Care Act--when uninsured people cannot afford to pay their health care bills, those costs are borne instead by providers (in the form of lower revenues), insured individuals (in the form of higher premiums), and taxpayers (in the form of higher spending for the uninsured). Health care, even when it isn't paid for by the sick, isn't ever free. According to this Rand Corp. study, in 2016 alone the 14 states that have refused to accept the federal funds will pay an additional $1 billion to cover these costs.

So there is a very real financial cost for states like Oklahoma when we reject federal funds to expand Medicaid. At a time when real state spending is still below pre-recession levels, when our teachers and firefighters are among the nation's lowest paid, can we really afford to say "no" to billions of dollars?

The Medicaid Expansion Debate Rages On (Except in Oklahoma)

There was an interesting story this weekend in The Washington Post about the debate within GOP circles whether states should accept federal funds to expand Medicaid:

"Despite expressing distaste for the new law, some GOP governors have endorsed an expansion of Medicaid, and three — Jan Brewer of Arizona, John Kasich of Ohio and Rick Snyder of Michigan — are trying to persuade their Republican-controlled legislatures to go along. The governors are unwilling to turn down Washington’s offer to spend millions, if not billions, in their states to add people to the state-federal program for the poor. But they face staunch opposition from many GOP legislators who oppose the health-care law and worry that their states will be stuck with the cost of adding Medicaid recipients."

As I've stated publicly, from an anti-poverty perspective not accepting federal funds in Oklahoma to expand Medicaid is a mistake. From an economic development perspective, turning down billions of federal dollars is an incredible mistake.

U.S. Manufacturing Sector Contracts in May

The Institute for Supply Management

The latest data released this morning by the Institute for Supply Management showed the U.S. manufacturing sector contracted in May for the first time since November 2012. The monthly PMI  registered a reading of 49.0% (a reading below 50.0% indicates the sector contracted). The 49.0% reading is 1.7 percentage points below April's reading of 50.7% and the lowest since June 2009 during the depth of the Great Recession.

Overall, ISM finds that while the manufacturing sector declined in May, the overall economy continued growing for the 48th consecutive month. Still, a weak manufacturing sector, if it persists for another few months, does not bode well for the overall economy in the coming months.

OKonomics is Back!

I couldn't stand to be silent any longer.

Ten years ago, shortly after the birth of my daughter Grace, I was troubled by the state of economic affairs. I saw a conservative movement so enamored with tax cuts that they were willing to slash spending on core government programs like education, health care, roads, and prisons. I saw a progressive movement who refused to accept the power of market forces to bring about positive change. And I saw a world my daughter was entering into, that seemed utterly unprepared to stand up for our children.

So I began to write...a lot.

I started with a weekly online column that grew in a few years to a weekly column in the Edmond Sun. In 2007 I started the OKonomics blog where I shared daily commentary on the economic news of the day--a blog that at times garnered national attention. While it's hard to say that my writings had much impact on public policy, I at least knew that I was doing something to fight for my children's future.

Then in 2011 I was named the Dean for the College of Business at the University of Central Oklahoma. It's a position that offered new challenges for me both personally and professionally. It's a position that also offered me a chance to help lead an organization to reach its potential. However, the demands of leading an organization with an $11 million annual budget meant I had less time to write, and less time to be engaged. So, in March of 2011 I stopped blogging.

This spring my daughter turned 10 years old...and my son turned 7. This spring the Oklahoma Legislature spent more time debating the UN's Agenda 21 than they did education funding. They spent more time trying to nullify the federal health care law than they did trying to ensure that all Oklahomans have access to quality health care. In short, I still see a world where our leaders are unwilling to invest in our future.

And once again I find that I can't stand to be silent any longer.

So, OKonomics--my blog on the economic issues affecting Oklahoma--is back. I can't promise that I will be posting every day. After all, I still have a College of Business to lead. But I can promise that here you will find a perspective that values solutions instead of slogans, that chooses good policies over good politics, that places truth above fiction.

My kids are growing up quickly (much too quickly if you ask me), and someday soon will be ready to inherit the world we leave them. This blog, and the ideas I share here, are this one lone man's attempt to make that world a little better. For when it comes to fighting for our children, one more voice is never enough.