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Tuesday, February 25, 2020

Trump Economy Shows More Strength

Back in November, when some commentators and analysts were beginning to loudly whisper about a recession, I pointed to signs of resiliency in the U.S. economy. In December, when media focused on reduced corporate investment and took it as a sign of a looming recession, I explained why it was natural for capital formation to plateau at this point in the business cycle. Again, I noted, there were no significant signs of a recession. 

In January, when the GDP numbers came out for the last quarter of 2019, I repeated that we were not heading for a recession.

We now have the employment numbers from the Bureau of Labor Statistics for January. Once again, the Trump economy is showing remarkable resiliency. In the past year, the private sector has added 2,056,000 jobs, with a total of 6,351,000 since Trump took office three years ago; with a third of the total job growth happening in 2019, the Trump economy is not only strong, but grows jobs at a steady pace. This bodes well from an inflationary viewpoint: the private sector has time to expand capacity and avoid upward price pressure. 

A closer look at the distribution of job creation reinforces the impression of an economy in good balance. Capacity-growing industries such as construction and infrastructure services (technically known as "trade, transportation and utilities") only saw 21.7 and 28.7 percent of their growth, respectively, in the past year. Manufacturing has also reached a comfortable capacity level, adding only 7.3 percent of its total three-year job record in 2019. 

By contrast, services that tend to grow at a more mature point in the business cycle, saw strong job growth last year:

  • Education and Health added 666,000 jobs in 2019, which is 41 percent of industry total for the past three years; this industry saw its strongest job-growth year since 2016;
  • Other Services, which consists primarily of a conglomerate of consumer-oriented services, grew by 92,000 jobs, 43.6 percent of its total 211,000 jobs under Trump;
  • The information industry, which has added 68,000 jobs since Trump took office, added 69 percent or 47,000 of those last year.

Some industries are apace with the overall economy:

  • Finance and insurance added 32 percent of its Trump jobs in 2019;
  • For professional and business services, the same number was 35.2 percent; this industry expanded its employment more in 2019 than it had since 2008;
  • Leisure and health added 381,000 jobs in 2019, just over 38 percent of its total 996,000 in the past three years.

With all these numbers in mind, though, I maintain that while the U.S. economy is not headed for a recession, it is taking a breather. The investment plateau from late last year is combined with a slowdown in the growth rate of private-sector jobs. From January 2019 to January 2020 private employment grew by 1.64 percent in total. That number is a hair below the average for the preceding three years (1.76) and the lowest since 2011 (1.14), with the exception of 1.63 percent in 2018. 

It is also worth noting that the mining industry reduced its employment by just over 4.2 percent. This is far less than what we saw in the Great Recession (-12.6 percent in 2011) and the recent dip of 2016 (-178) and 2017 (11.65). It is much more in tune with the mild recession - basically another breather - in 2003, when the minerals industry reduced employment by just over 4.4 percent.

A small decline in minerals jobs is expectable when the economy has reached a satisfactory production capacity. The industry is also highly volatile, both in production value and in employment, somewhat limiting its predictive capacity in business cycle analysis. 

Again, these are just jobs numbers, a slice of the economy, but they do show that there is still steam in this business cycle. The Trump administration's combined policy of deregulation, tax cuts and a revamping of U.S. trade policy is working. 

The only thing to wish for yet, is a return to three-plus percent annual GDP growth. I have maintained that this is not attainable unless Congress does something serious about government spending; fortunately, the latest budget from the Trump administration would take a big step in that direction. Romina Boccia at the Heritage Foundation has explained this point well

If the president's budget were combined with a Tax Cuts 2.0 in the next 12-18 months, even four percent growth could become a possibility.

Should Taxpayers Have A Say on Taxes?

Representative Hallinan has an interesting idea:
A joint resolution proposing to amend the Wyoming Constitution to provide that for six years two-thirds (2/3) of state mineral royalties earned from the lease of state school lands may be appropriated by the legislature for the support of the public schools and providing a ballot statement.
Here is what Hallinan wants to see added to Article 7, Section 2 in our state constitution (amended text in italic):
Provided, that the rents for the ordinary use of said lands shall be applied to the support of public schools and, when authorized by general law, not to exceed thirty-three and one third (33 1/3) per centum of oil, gas, goal, or other mineral royalties arising from the lease of any said school lands may be so applied, except for the period from July 1, 2021 through June 30, 2027, during which time up to sixty-six and two-thirds (66 2/3) per centum of mineral royalties may be so applied.
This is a good idea, and a bad idea baked into one. The good idea is to put tax measures before voters; the bad idea is to keep spending money on school construction in a state where two out of three counties have lost population in the past five years. 

The focus on school construction funding is understandable. It is the official narrative that our state's budget deficit is exclusively tied to school funding. If that were the case, there would be no need for either a corporate income tax or any other tax bills brought before the legislature this session.

House District 32 Representative Tim Hallinan said that there is a roughly $396.7 million deficit in school foundation and school capital construction spending in the state. He said that the legislature has been unwilling to raise taxes and have likewise failed to find ways to cut spending.
I appreciate Representative Hallinan's precise language on this official deficit story. We sometimes hear that the deficit is about "school funding" in general, something that obviously is not the case. School operations funding is separate from the funding of school construction - just as it should be - and more than adequate. As per 2017, the latest year for which the Census Bureau publishes school funding data, Wyoming had the 7th highest per-student funding in the country:

Table 1
Source: Census Bureau
Per student
NY 23,091
D.C. 21,974
CT 19,322
NJ 18,920
VT 18,290
AK 17,838
WY 16,537
MA 16,197
RI 15,943
PA 15,798
NH 15,683
IL 15,337
DE 15,302
MD 14,848
HI 14,322
ND 13,760
ME 13,690
MN 12,647
OH 12,645
NE 12,579
CA 12,143
WA 11,989
WI 11,968
MI 11,907
VA 11,886
WV 11,554
IA 11,461
MT 11,443
OR 11,264
LA 11,199
KS 10,961
SC 10,590
MO 10,589
GA 10,205
KY 10,121
IN 10,045
AR 9,967
SD 9,939
NM 9,881
CO 9,809
AL 9,511
TX 9,375
NV 9,320
TN 9,184
FL 9,075
NC 9,072
MS 8,771
AZ 8,003
OK 7,940
ID 7,486
UT 7,179



How does a rural state like South Dakota or New Mexico get away with spending about 60 cents to the dollar of what we spend? Well, that's a question for another day... For now, let us note, again, that Representative Hallinan's HJ1 is not about the funding of school operations, but rather school construction. That is a good focus, but as mentioned the bill has two parts that we should separate in order to truly accomplish what the good legislator is aiming for. 

The first part has to do with the idea of putting government funding before the voters. Hallinan's intention, as he explains it to Cap City News, is good and foresightly:
"Nothing else has worked," Hallinan said in explaining why he was proposing asking voters to decide. "The people will decide. If they don't want this, then that is a license to raise taxes, in my opinion."
It is not correct to say that the failure of this resolution in a general election constitutes a blank check to raise taxes. For that purpose, this ballot measure would be far too narrow and technical in nature. However, he is correct in that voters and taxpayers should have the final say in how their money is being spent. If this is something that our legislators are interested in from a broader perspective, I would recommend that they get behind Representative Gray's HJ2, the WyoTABOR bill that would split the jurisdiction over taxes and spending between elected officials and we the voters. 

A clear-cut ballot measure giving voters a straightforward chance to say no to higher taxes, would do what Representative Hallinan is alluding to, namely solve the current impasse in the legislature between tax hikers and fiscal conservatives. It would be surprising if the tax-hungry members of our legislature would dare face the voters in this unmasked fashion, but the initiative would certainly be welcome.

The second part of Hallinan's HJ1 is more problematic. The funding he wants to get voter approval for would go straight into the school construction fund. I do not have immediately available data over how many schools we have built in the past five years around the state, but given that the state has depleted the fund for such projects, one has to wonder just how prolific this construction activity happens to be. 

This question is central not just because construction funding is being portrayed as the deficit culprit, but also because we are a state with a declining population. In the past five years, two out of three counties in Wyoming have lost population:

Table 2: Population change, 2013 to 2018
Source: Bureau of Economic Analysis

  5yr
Statewide -0.8%
Albany 2.8%
Big Horn -0.5%
Campbell -4.0%
Carbon -5.5%
Converse -5.1%
Crook 4.2%
Fremont -3.4%
Goshen -1.3%
Hot Springs -5.7%
Johnson -2.1%
Laramie 3.4%
Lincoln 6.1%
Natrona -2.4%
Niobrara -6.2%
Park 1.0%
Platte -1.6%
Sheridan 1.7%
Sublette -3.6%
Sweetwater -4.7%
Teton 3.4%
Uinta -3.1%
Washakie -6.3%
Weston -2.4%

Instead of diverting even more money into building schools around the state, the legislature should put a one-year moratorium on those projects and give itself some time to reconsider the very funding model itself. Obviously, we need to replace old, worn-down school buildings, and there is always a need for ongoing renovation and general upkeep. However, a look at the population trend around the state suggests that this might be a good time to take a more comprehensive look, not just at school construction funding but at our K-12 system as a whole.

Again, I applaud Representative Hallinan's idea to ask voters for a decision on taxes. This particular initiative, his bill HJ1, is not the right one for that purpose, but it points in the right direction. Once we open for voters to have a direct say in how they are being taxes, we have taken one step closer to a Taxpayer's Bill of Rights here in Wyoming. That, in turn, is a step closer to real, structural and long-term fiscally sustainable reforms to government spending. 

Monday, February 24, 2020

The Tax Hiker's Last Stand

Beware of these tax-grabbing three bills, which are still alive and kicking in the legislature. Be especially aware of HB186.

Sunday, February 23, 2020

The Budget, Part 1: Foresight 2020

We need to change the long-term conversation about the state budget. Specifically, we need more accountability on how our dollars are being spent.

Saturday, February 22, 2020

A Note on Excess Government Compensation

One of the problems with big government is that it slows down the growth in the very tax base that pays for that same big governments. Here is an example of how this "boomerang" effect works.

Thursday, February 20, 2020

Leftist Group Supports Case Against Higher Taxes

Isn't it nice to see that even the left is getting worried about what taxes can do to low-income families?

Wednesday, February 19, 2020

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