Comparing New Hampshire’s Recoveries

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Joshua Elliott-Traficante

June 2015

Summary: Despite a history of leading the region out of recessions, New Hampshire’s recent track record of job creation falls well short of that legacy. Only as of March 2015 has the state returned to prerecession levels of employment and jobs numbers. This paper compares the last three recoveries to the current one, detailing the state’s increasing difficulty in recovering from economic downturns.

Econ Chart 1

New Hampshire has a strong track record of economic growth, especially in the 1980s, 1990s and early 2000s. This economic prowess helped give birth to the phrase “The New Hampshire Advantage” and made the state the envy of the region. Since 2002 however, the stiff wind that once filled the state’s economy’s sails has become a gentle zephyr at best. The last thirteen years in particular have seen mediocre growth in both employment and jobs. The recovery from the latest recession has been particularly slow. More than 5 years after the bottom of the recession, the state has only just recently returned to prerecession employment levels and jobs numbers.

Definitions and Layout:

Though ‘employment’ and ‘jobs’ are often used interchangeably, the Bureau of Labor Statistics has distinct definitions for each term, which will be used in this paper. ‘Employment’ counts the number of people employed based on where they live. ‘Jobs’ counts the number of paid positions based on where they are located. The employment figure for New Hampshire counts every state resident that has a job, regardless of where the job is located, while the jobs figure for New Hampshire counts the number of jobs based here, regardless of who fills it. For example, someone who lives in New Hampshire, but works in Massachusetts, would show up in the New Hampshire employment number, but their job would be counted in the Massachusetts job number. It is important to note that the unemployment rate is calculated off of the employment numbers, and not jobs numbers.

For this analysis, roughly the first 5 years of each of the last four recoveries are examined. The starting point is the lowest point in the recession (in terms of employment and job numbers), continues through the first 65 months of the recovery for employment numbers, and 63 months of for jobs numbers. This time frame has not been chosen arbitrarily; the state is now 65 months into recovery in terms of employment number and 63 months into recovery in terms of jobs. Doing so, accurately compares how well New Hampshire has recovered from economic downturns in the past, versus today.

Click here to read a pdf verson of the full report

 

 

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House “Conservatives” Lurch Into Price Controls

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Charlie Arlinghaus

June 3, 2015

As originally published in the New Hampshire Union Leader

In the world-turned-upside-down that is the New Hampshire legislature, a group of former conservatives has been reduced to arguing that the only real fix to health care is government price controls. Concerned about the lack of competitive pressures and other market mechanisms, they have decided the best of all solutions is to simply give up and give in to price controls. A legislator in search of a grand solution that can bear his signature in bold type is easily seduced by what he would eagerly call socialism if proposed by his opponent. But we are all easily persuaded that our own idea is merely “realistic” and that my case is an exception to the usual platitudes we espouse.

New Hampshire’s workers compensation rates are higher than average. Although in recent years we are one of only sixteen states that have seen our rates decline, they started out above average. Because of certain rules, the health care component of workers compensation has few competitive features.

Now comes the giant abandonment of principle that turns erstwhile conservatives and libertarians into reluctant statists embracing big government solutions.

The current system which requires employers or insurers to pay whatever charge is presented to them by whatever medical provider the injured worker chooses is rightly decried as anti-market. Legislative supporters of a pseudo-reform bill seek not to fix the competitive failure but instead to have the insurance department set up a schedule of “reasonable charges.” Their supposed past support of competition and angst at market failure has nonetheless driven them headlong into a scheme of government set and managed price controls.

Supporters argue quite nonsensically that their price setting isn’t a “fee schedule.” It is merely a calculation of the reasonable charge where the maximum charge the government permits is set as the average (which under basic math means the average and maximum are necessarily identical). The government (in this case the department of insurance) will set a price (reasonable charge) but we are told that this isn’t a price control. George Orwell call your office.

What I find most distressing is that so many tentative supporters of the price control scheme argue sincerely that their price control is better than other price controls because they use a different and perhaps better set of numbers to create their price.

Under this logic we are expected to endorse government control if the calculation is better. These legislators then must object to Obamacare simply because the right administrators have not been selected. Under their logic a single payer would be best if we let the author of the workers compensation pseudo-reform administer the system.

Of course now I’m being silly but that’s precisely how silly this headlong dive into government price controls really is.

The sad part of this debate is that the problem is understood and the solutions readily available.

The biggest problem is the first line of the workers compensation law requiring the insurer to pay the entire bill of whatever provider the employee selects no matter what unless the insurer can show just cause. This eliminates fraud and little else. It forces costs higher leaving the payer of the bill (employer or its agent) with no negotiating power.

Instead of forcing the employer to prove just cause, shift the burden to the provider and thereby change the negotiation. Or allow the employer and insurer to establish in and out of network pricing to pressure cost outliers.

In short, government set and managed price controls are not the only answer. Competition can easily be introduced to the system.

We faced this with state employees. The ability to go anywhere coupled with little or no exposure to price drive costs high. But the legislature never considered mandating a list of prices for the 80 or 90 most common or costly procedures. Instead, they created incentives in their own contract for consumers to receive a cash reward for using, if they chose, a low cost provider. My own health insurance has a similar competition-inducing mechanism and they are becoming more common throughout health care.

I don’t understand the number of conservatives who prefer price controls of one variety or another to trying to introduce competition. Saying the system isn’t free market so we must introduce government set pricing is quite different from the saying the system is not free market so let’s eliminate the anti- competitive language. Price controls are the same thing as giving up. 

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NH has Slipped from Mediocrity into the Terrible 10

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Charlie Arlinghaus

May 20, 2015

As originally published in the New Hampshire Union Leader

Recent college graduates and others trying to decide whether to commit to New Hampshire long term have every reason to leave and few to stay. I hope that by now it is universally accepted that New Hampshire’s prospects are, at best, mediocre. What seems increasingly likely is that those of us hoping for mediocrity are pie-eyed optimists. Things are bad and the state is losing pace. States don’t become backwaters actively. The rest of the world just passes by lackluster states while they go along pretending everything is fine. We’re pretending, doing little or nothing, and life is passing us by.

In the last week, the Pew Charitable Trust released data pointing out that recovery from the last recession is complete but robust in some states and pathetic in others. Guess which category we fall into?

Pew’s research service on state government policy Stateline found that “while all states have added jobs since their economies hit their nadir during the recession, some have added far fewer than others.” Pew went on to highlight ten states with anemic growth of 5% or less. In this group, which might well be dubbed the pathetic 10, is New Hampshire.

Consider a recent college graduate thinking about where to start his or her career. New Hampshire is a pleasant spot and has much to offer. But what is has little of and little hope for is job growth. Why on Earth would you start your career by shackling yourself to one of the pathetic 10 — the worst states in the country in which to hope to find a job?

The national average was growth of about 8%. But more likely, if you are just starting out, you want to go to one of the Top 15 states who all boast growth rates of at least 10%. Michigan’s growth rate of 11% is more than double New Hampshire’s of just 5%.

Did you ever think we’d reach the day when Detroit was the land of opportunity compared to the decaying former economic power of New Hampshire?

Actually, I grew up in Detroit. It’s nice to follow the remarkable progress they’ve been making in recent years — jettisoning me might have been the spark they needed.

States across the country are doing things to attract jobs, to make themselves more competitive, to make their economies more dynamic. While they act and act often, New Hampshire is content to rest on its laurels.

A very long time ago (in economic terms) we were a robust, thriving economy. People moved here in droves. Jobs expanded here so fast that at times the labor force couldn’t keep up. Unemployment was below full employment and jobs went unfilled ( a problem North Dakota now has because of the oil boom).

The experience colored us and changed the way too many people think. Too many policymakers had that vision burned into their retinas and have been very slow to catch up. These are not the 1980s and our economy is not attracting thousands of economic opportunity migrants every year. We resemble Maine more than we resemble the land of milk and honey.

We are not the envy of our neighbors — as the Federal Reserve wrote about us 15 years ago. Instead we are one of the pathetic 10 and the so-called New Hampshire Advantage is a mythological creature of the past not the present.

The two worst measures that doom us are taxes and energy. When industrial users of electricity would have to pay more than twice the national average price for the privilege of being here, don’t expect them to show up.

On corporate taxes, we are better in some areas than others but we’re 48th in the Tax Foundation’s Corporate Tax Index. Very high corporate taxes coupled with ridiculous energy rates weed out an awful lots of jobs.

While we stagnate, other states are making an effort to improve their position. States all around us are lowering corporate tax rates in an attempt to get out of the bottom 10. In contrast, even a pathetic little cut in our business taxes is controversial here.

Gone is the time when we needed to preserve a New Hampshire dynamism. Now we have to try to figure out how to create one. Mediocrity is something we can hope to achieve in the future. In the meantime we are stuck in the pathetic 10.

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Too Many Bananas Are Ruining Our State

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Charlie Arlinghaus

May 6, 2015

As originally published in the New Hampshire Union Leader

Are you a Banana? New Hampshire has too many bananas and is suffering because of it. The world is populated with millions of us who seek to live in the modern world when we want to enjoy its conveniences and then turn on our back on that same world and hope that someone else with pay attention to the details that make that convenience possible.

There is a common aspect of human nature that infects so many decisions about the infrastructure that surrounds us. Most of us are familiar with the acronym NIMBY — an abbreviation for Not In My Back Yard. You picture someone saying “that’s a great idea, we should have one of those but not in my back yard. It would better in yours. Big giant compost heap in your yard and we can use mine to sip lemonade.

New Hampshire’s response to infrastructure has always had a bit of a NIMBY element to it. But lately we seem to have graduated to tropical fruit. Our best acronym now is BANANA — Build Absolutely Nothing Anywhere Near Anything. Every new project is opposed for some reason or another, often for any reason at all. There seems to be an active and vocal group traipsing from one meeting to another seeking to stop anything new from happening.

The problem with these banana people that the status quo is a bad thing and needs to be changed not preserved. The state has spent decades pretending everything is fine with its electricity markets and that nothing needs to happen. and it’s killing us.

Slowly but surely the dynamism that used to be our job market has turned to stagnation. Mediocre job growth means people don’t move here much, younger people can’t stay even if they want to, and too many Granite Staters have to work in Boston or some other place at the end of a horrific commute

And the biggest hole in our competitive armor is electricity.

The fight for jobs needs to be fought on as many fronts as possible but on the electricty cost front we’re not just losing but getting routed.

Last week, new data was released about just how bad we are and how much worse we’re getting. Then again, a glance at your own electric bill probably told you everything is not fine.

In February, New Hampshire’s electric rates were 68% higher than the national average. This is even worse than a year ago when we were an already too high 54% above average. To add insult to injury, we are least competitive in the area we need to be most competitive: the industrial sector. The grotesque 86% above average rates of a year ago for industrial users have ballooned to 105% above average.

This is not a minor expense. It amounts to hundreds of millions of dollars of costly drag on our economic competitiveness.

Think about it this way: the companies that create the best paying jobs in the high tech and manufacturing sectors — the areas we would give our eye teeth to attract — would see double the electric bill if they had the misfortune to locate here. And your banana friends think that’s fine.

If you believe a banana, life is grand and all those people worried about jobs are just being silly. Actually, if we’re being fair most of them don’t care. Their analysis has only gone as far don’t build it. They presume the juice for their iPhone and electric car will materialize some other way. Exactly how is someone else’s problem.

The someone else is us. It’s our problem. We can read the numbers and realize that New Hampshire is on the verge of becoming a backwater. The dynamic state we once were is now limping along, sore and bedraggled.

Stagnation and electric costs are not two different things. Reducing the cost of electricity requires having more of it. Having more of it requires building things — the infrastructure necessary to create a modern life, to power the machinery and technology that are part of well paying jobs.

No one would suggest we build everything anyone wants but we have a big problem and it will require living in a modern world (I live a few hundred feet from a power line). We are going to have to allow more building and fewer bananas.

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Leadership Sacrificed to the Lionization of Milquetoast

Charlie Arlinghaus

April 15, 2015

As originally published in the New Hampshire Union Leader

If you’re serving in or hope to serve in high office, it would be best for you not to have opinions, show leadership, or otherwise do what might be considered your job. Leaders who lead are considered risky and bold. The political intelligentsia would advise you to be quiet, look ponderous, show grave concern, but avoid expressing too many actual opinions. Leave leadership to those in less responsible positions.

People who are old fashioned enough to believe in ideas are occasionally frustrated because nothing seems to happen. Similarly, politicians — who are rarely if ever confused with people who believe in anything — are sometimes befuddled by their inability to accomplish much. Surrounded by advisors constantly urging caution, too many putative leaders indulge themselves in regular hand-wringing about the dangers of having strong opinions.

We are used to the lionization of milquetoast on the local level and it promises to be on display regularly during the presidential campaign as well.

Anyone who has attended a speech by a would be president has noted a general trend toward platitudes and statements resplendent with bold nothingness. Carefully crafted statements of concern alternate with a call to do something — nothing specific mind you because specifics, we are told by the handlers and the suits, are a death knell. A candidate who resorts to gimmicks such as substance must have serious problems before he or she would consider such risks.

As a case in point, consider Chris Christie, current governor of New Jersey. I hold no brief for Mr. Christie but he was in New Hampshire yesterday and had the unmitigated gall to give a speech about entitlement reform. This is surely a sign, it is suggested, that he’s getting a little desperate.

A man who wants us to consider him to lead the country dares give a policy oriented speech on the single greatest economic problem facing our country. Sure, everyone knows that soon even the jellyfish lurking around Washington will have to do something about the problem they’ve been sweeping under the carpet for thirty years, but why would anyone want to talk about it?

I was mildly annoyed to read stories this week pretending that somehow a specific plan on reforming social security and other federal entitlements is bold or risky or some sort of desperate gamble that suggests a candidacy trying to right itself.

The truth is that we should demand these sorts of detailed policy speeches from candidates. It is a pathetic commentary on the lack of maturity of the American body politic that somehow substance has become a desperate Hail Mary pass.

I have no idea if I would vote for Christie or if I would endorse all the particulars of his plan. Nonetheless he should be praised for putting substance on the table again, for presenting a well thought out and responsible plan to deal with the biggest issue of the day. You needn’t support every particular to thank him for making leadership a compelling part of a campaign.

We should demand substance from pseudo-leaders at every level of government. In the process we may also be doing them a favor. Too often, people working on an issue will try to avoid talking in any detail. We are asked to appreciate the compromises and difficult decisions made with, say, a state budget without being told the details of what went into those decisions. Often we are fed vague headlines and asked to make our decision on that basis.

When details do come they run into a list of features, big and small, without any attempt to siphon through the big picture and explain why things look as they do. We are not thought of as adults who can be trusted with real information. Instead they hope we might latch on to one small thing that captures our imagination and ignore the rest.

I don’t expect to agree with political leaders. Neither I nor my fellow citizens, voters, and taxpayers will be horribly put off by some detail or another in a plan we didn’t craft. We expect to take the wheat with the chaff and decide what we think of a proposal on balance.

More than that, in a substance free political world filled with drivel-dribbling talking heads in nice ties, real leadership is remarkably unusual and unexpected. It has the effect of stunning our senses and breaking through the boredom and cynicism that numb us to political discourse.

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Stagnation Will be Permanent Unless We think Long Term

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Charlie Arlinghaus

March 18, 2014

As originally published in the New Hampshire Union Leader

All too often for politicians the big picture can get lost by paying too much attention to details. The state’s budget season is a poster child for not being able to see the forest for the trees. The difficulty for politicians is that we expect them to simultaneously focus on the big picture and to pay strict attention to the details that threaten to obscure the big picture. However, our future as a state depends less on the particular lines of a spreadsheet and more on long term changes that will affect our future.

The problems New Hampshire faces are well known though sometimes we don’t like to mention them. Once a thriving economy, New Hampshire has degenerated into stagnation. Our job growth has been flat not just since the recession but for the last fifteen years. Competitive states are thriving and adding lots of jobs. We are not.

One sign of our problem is migration. People have moved to New Hampshire for work for centuries. The large French-Canadian population of any mill town is a good example of this. We’ve reached the point where a majority of us are from away. New Hampshire is one of only eight states with a majority of its population born elsewhere and the only one in the Northeast.

For decades we had a significant migration of people coming here for jobs. That dried up and more people are leaving the state than coming here. We’ve seen people fleeing the state in six of the last seven years.

Our job market is and remains quite mediocre. According to the census, more than 106,000 New Hampshire workers commute out of state to their jobs. The lion’s share of them would much rather work in the same state in which they live but our stagnant economy offers them no such opportunity.

None of these trends are things that can be changed overnight. Nor does any one of them have an immediate effect on the budget. One tweak in law won’t reverse the floodgates and immediately create $23 million of budget breathing room.

Any long term change runs into naysayers who are focused only on the items right in front of them. The far-sighted politician wants to do more than just managed to get past the current budget discussion. He or she needs to ignore short term political gratification gains and focus on creating a competitive environment that brings back the jobs that will keep our children in state, change us from out-migration to in-migration, and give more residents the opportunity to work here rather than cross the border.

No politician can pick one item or make just one change to reverse a trend that has been building for more than a decade. There are at least a half dozen areas that hurt us. But let’s discuss the two most important to illustrate the trend.

Our business taxes are among the two or three highest in the country. When the corporate tax rate is 30% higher here than in the median state (Tennessee, which also has no income tax for those scoring at home), we struggle to convince relocating companies that we are a good, low tax state. Yet any tax change is castigated by the short-sighted.

A proposed change that would direct the natural economic increase into rate reductions finds objectors bemoaning the supposedly lost revenue. They would gladly sacrifice jobs in the long term for one or two percent more money in the short term. That’s precisely backwards. If we forsake competitiveness, no amount of money can stop us from degenerating into an economic backwater.

The energy sector is similar. Our electric rates are among the five highest in the country ensuring large electric users pay 40% more here for electricity than in an average state. This would be less of a problem if we didn’t want to attract the manufacturing and high tech companies that use a lot of electricity and pay their workers so well.

Yet the debate on electricity rarely focuses on how to lower rates or how to add more lower cost capacity into the market to put pressure on rates. Instead, most of the debate focus on objection after objection to building anything anywhere. If you want to live in a state with no jobs because no one wants to build anything, we have neighbor states who would welcome you. But for those of us who prefer employment, building things is necessary.

It’s easier to oppose change in the short term but that requires accepting stagnation. I’m not ready to give up yet.

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Price Controls are Still Bad

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Charlie Arlinghaus

March 4, 2014

As originally published in the New Hampshire Union Leader

Among politicians, price controls are a bad idea unless they’re your idea. In truth, the government setting prices is never the right solution to a problem.

Those who would have the state government set and control prices in the workers’ compensation part of health care should remind themselves that they were opposed to government price controls five years ago when it was then-Sen. Maggie Hassan’s idea for a hospital price fixing commission. They were right then. They should listen to their old selves now.

Employers looking for ways to reduce the cost of doing business in New Hampshire have looked to possible reforms in the workers’ compensation system. Workers’ compensation is the successor to Otto von Bismarck’s sickness and accident laws. It is a mandatory system of employer paid insurance to cover workers’ temporary and permanent disabilities.

Compensation costs are divided between a medical benefit and cash benefits for lost work time, known as indemnity. Many states looking to lower costs have merely dictated that medical benefits be reduced according to government price controls. In essence, a fee schedule for at least some costs is adopted at a lower rate than had been paid. New Hampshire is considering having the government set prices.

According to data compiled by the state of Oregon, New Hampshire’s costs are the 12th highest in the country (a slight improvement from ninth highest two years ago). The bad news may be that our costs are above average, but the good news is that we’re improving rapidly.

According to the National Academy for Social Insurance, which does an annual report on costs, from 2008-2012 (the latest data) New Hampshire saw workers’ compensation costs decline by 8.5 percent when the country as a whole increased by 5 percent. At a minimum, we’re doing something right.

What we’re doing right is not having price controls and having a robust system that allows timely access to care and dramatically reduces indemnity costs by getting people back to work faster. Nationally, benefits are half medical, half indemnity ($30.8 billion, $31 billion). In New Hampshire, indemnity or cash benefits are only 34 percent of total benefits ($77 million) with medical benefits making up $152 million, or 66 percent.Imposing government price controls on the medical side of benefits will increase indemnity costs. The University of Washington School of Public Health studied California’s expensive system and found that “access barriers increased the duration of compensated lost time by approximately 60 percent.”

We know that price controls will reduce access. In fact, the New Hampshire Medical Society found in an online survey that 96 percent of its responding members will opt out of workers’ compensation if price controls are adopted. The real number will be smaller, but access will be affected and indemnity costs will rise. We’ve seen this before in New Hampshire.

A plan 25 years ago to place artificial caps on prescription drugs in mental health led to a small decrease in drug costs and a huge increase in hospitalization. The drugs were reducing the need for more expensive hospitalization. I suspect that in workers’ compensation, access and competition are reducing indemnity costs.What can we do? We want to preserve what’s working well. New Hampshire was one of only 16 states to see costs decrease from 2010-2012. And as noted before, we’re down 8.5 percent when the country is up 5 percent. Those are good trends.

There are some medical outliers, though. The way to eliminate the high-cost outlier is through transparency. If we don’t know what providers charge, we can’t know who’s high and low. A database with all payers, including the self-insured and privately insured, will help insurers decide where to go. This again is something New Hampshire has experience with.

The state’s health care plan includes a tool called “Compass” that allows members to save themselves out-of-pocket costs and find more competitive providers for the same procedure. In the last four years, this program has saved millions of dollars and directly and indirectly forced other providers to become more competitive.

In workers’ compensation, this same level of transparency doesn’t exist. Because it is illegal to compare prices (collusion is an anti-trust violation), high-cost providers don’t know if they are particularly high. If a transparency site shows you that you’re an outlier and you know that customers can easily find out too, you will lower your costs to be competitive.

New Hampshire is one of the few states moving in the right direction. Instead of hurting that progress with government-mandated price controls, let’s try and improve competition.

– See more at: http://www.unionleader.com/article/20150304/OPINION02/150309679/0/SEARCH#sthash.ITgy4g06.dpuf

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New Hampshire Must Stop Living in the Past

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Charlie Arlinghaus

January 25, 2014

As originally published in the New Hampshire Union Leader

What you think of New Hampshire is almost certainly wrong. Most of us are living in the past and think of this as a vibrant and competitive state. It isn’t. The truth is that, economically speaking, we are increasingly a mediocre backwater stuck with a stagnant economy and lacking the political will or self-awareness to do anything much to make ourselves more competitive. The future belongs to the bold and we live in the land of the timid.

Too many people in New Hampshire live in the past. Many of us remember the huge economic booms of the 1970s and 1980s and think reality is unchanged from then. For a long time, New Hampshire boomed as Massachusetts stagnated. But that was then, this is now. Our economy is not growing, it’s stagnant. We’re not competitive, we’re mediocre.

As recently as fifteen years ago, economists described New Hampshire as “the envy of its neighbors.” It was a common truism to say that New Hampshire led the region out of the recession. Jobs lost elsewhere were reopened here. But that dynamic is now true in Texas not New Hampshire.

Prof. Mark Perry writes my favorite economic blog, Carpe Diem (doesn’t everyone have a favorite economic blog?). He published a startling chart I now steal for all my presentations. In the last seven years, the state of Texas has seen 13% employment growth or 1.4 million jobs. The rest of the country combined is still 275,000 jobs short of their pre-recession peak.

New Hampshire used to be as vibrant as Texas. Our growth in the 1970s, 1980s, and even 1990s was faster or equal to Texas. But our graph lines have diverged. They’ve grown 1.4 million jobs, we’re still down from pre-recession levels. They’re vibrant, we’re pathetic.

The last fourteen years, the new century, we’ve deteriorated into a flat line – not even a pale imitation of our former selves. In the 1980s jobs grew 27%. In the 1990s they grew 18%. In the decade and a half since 2000, we’ve grown by just 5% — not enough to keep up with the population or to keep people in state.

Even Massachusetts has left us behind. They aren’t exactly thriving but while we have yet to get back to our pre-recession jobs, they’ve grown by almost 4% in the last seven years. That’s better than our zero in the same period but pales by comparison to Texas’s 13% boom.

No wonder 106,000 people commute from New Hampshire every day to their out of state jobs. In a distressing signal, this is a 12% increase from 20 years ago.

The problem is that most politicians live in the past. They speak nonsensically about some vague and ill-defined “New Hampshire Advantage” – a term coined for political campaigns of the 1990s – and apply it to every aspect of political debate.

To be sure, the Tax Foundation still ranks us in the top 10 in overall tax burden but largely on the basis of having neither a sales nor income tax. Those advantages attract and keep some businesses here but by themselves they aren’t enough to keep us from being left behind in the fight for jobs.

The total cost of doing business in New Hampshire is too high. There is not one thing to change but rather everything. Anything that increases costs helps us lose.

To change, we need to do something or resign ourselves to a future where we look like Vermont and Maine and encourage our kids to all move to Texas where they might actually find a job.

Uncompetitive business taxes are something we can start addressing immediately. Massachusetts cut

Its highest marginal rate to 8% while ours languishes at 8.5%. I believe it should be unconstitutional for our tax rate to be higher than Taxachusetts in anything. The median state (Tennessee which also has no income tax) is 6.5. To be in the top 10 we’d need to be at 5. It’s time to start moving in that direction or give up. By the way Texas has no business profits tax.

Similarly as we increasingly fret about building any energy infrastructure anywhere, our electric rates are shockingly high. Our average rate of 18.08 cents is 43% higher than the national average and 74% higher than our no-income-tax friends in Tennessee. We’re also 50% higher than Texas.

None of this is a problem unless we want to attract jobs that use electricity like manufacturers or high tech companies.

It’s time for us to get over ourselves and stop living in the past. There is no question that we are becoming a stagnant backwater. The only question is whether or not we want to do something about it.

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Politicians in Concord Could Learn a Lot From Saturn

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Charlie Arlinghaus

January 21, 2014

As originally published in the New Hampshire Union Leader

Politicians often seem like they are from another planet but today I think a few people in Concord could learn a lot from Saturn. Politicians on both sides of the political spectrum are easily tempted to come up with pretend solutions that aren’t focused on the real problem but serve their own political purposes. The more complex a problem is, the greater the political temptation can be.

It is no secret that the greatest challenge facing New Hampshire’s future is economic development. A once proud and thriving state now languishes in the doldrums of economic stagnation. Oddly, politicians familiar with the problem nonetheless can’t see how it might affect other issues they fret over.

Politicians wonder why young people don’t stay here yet have trouble figuring out that the lack of jobs might have anything to do with it. It shouldn’t be that hard to figure that the very mobile younger adults of today might be more likely to locate where they can find work.

Similarly, the statewide angst over declining in-migration ought to be less of a mystery. There is no chicken-or-the-egg riddle here. People don’t move here and then figure out how to create jobs, quite the reverse. When we had one of the fastest growing economies in the country a lot of people moved here. When we declined into employment mediocrity people stopped moving here. Correlation is not the same thing as causation but this isn’t a mystery of human nature.

At this point, virtually everyone agrees that jobs are our first priority. The disagreement is about how to get there.

We can learn a lot from Saturn – not the planet with the icy rings but the General Motors project started in the 1980s and closed by the federal government in the bankruptcy/bailout recently.

GM went on a nationwide search in the mid-1980s for a location for a new plant for the just created Saturn division. It ruled out Detroit from the start although finalists included some old line auto hotbeds like Kalamazoo. New York offered huge subsidies to lure them but ultimately wasn’t close.

Ultimately a location near Nashville beat out Kalamazoo and Lexington. Prof. Timothy Bartik did a number of academic studies on the subject. His findings are interesting and worth more detail than I can get into here. But they support the conclusion that economic competition is not ruled by any one item.

To be sure, the three finalists had the three lowest tax costs of any location under consideration. But taxes as component of the cost per car were not the only consideration affecting the economic competitiveness of a particular location. The eventual winner had the lowest variable costs overall and the second lowest tax cost.

The costs of energy, housing, and general cost of living that determine wages made a big difference in Nashville’s favor. In addition the responsiveness and low key competence of Tennessee’s government made a big difference. The study also found that if New York – offering incentives greater than a billion dollars — had eliminated all taxes whatsoever they would still not have attracted Saturn.

The suggestion is, not surprisingly, that tax differentials matter but they aren’t the only thing that matter. States are and should be attracted to tax reductions to improve their economic climate because of their immediacy. Many measures, like location and access to railheads, can’t be changed. Other cost-of-living and cost of labor measures change slowly over time. Electric rates, for example, are quite uncompetitive but can’t be lowered in one fell swoop. Home and rental prices which drive cost of living and therefore labor costs can be changed but only slowly.

On the other hand non-competitive taxes can be changed right away. A tax cut, however, is not like a spigot turning on. Rather, it is a strong signal of business sensitivity and one immediate change to our climate. In that sense it affects both the competitiveness spreadsheet and also is a marketing message.

Similarly, the silliest thing we can do immediately is to raise taxes. One nonsensical proposal going nowhere this year would create a capital gains tax and send a signal to investors willing to risk capital that we would prefer they not do so here. Rather than seeking investment, we want to make it more difficult for you to invest in our state. I’m not sure that “please don’t invest in us” is an effective economic development slogan.

Over the next decade New Hampshire has to do short term and long term things to move us up the list in any economic development spreadsheet. It’s not one thing. It’s everything.

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For Better Policy, Check Your Confirmation Bias

Charlie Arlinghaus

January 7, 2014

As originally published in the New Hampshire Union Leader

Don’t believe everything you read. Present company excepted, of course. There are many things we think we know but don’t. All too often someone posts a pointed anecdote or tidbit on Facebook or Twitter. The stories often aren’t quite true, but no one bothers fact checking when it sounds true and it’s what we want to believe.

Confirmation bias is the tendency to accept, with little skepticism, things that confirm what you already believe. It’s something we all suffer from and have trouble correcting for. It is particularly endemic in the public policy process. The things I think are a good idea have no negative consequences. Statistics that show otherwise are misleading or overstate the magnitude of the problem.

Sometimes the problem comes from general perception. One good example is immigration. We know, or think we do, that Republicans are mean and want to deport everyone. Or perhaps we think that President Obama just doesn’t care about immigration laws and wants lots of immigrants, legal or illegal.Alex Nowrasteh at the Cato Institute has studied actual data. He separates deportations into interior and border deportations to measure intensity of immigration enforcement. He found that border deportations are up under President Obama compared to President Bush, and interior deportations are up a great deal. It is important to note that this is both in numbers and as a percentage of the estimated illegal or unauthorized population.For example, President Bush averaged 276,000 total deportations annually while President Obama has averaged 405,000. What this means for your worldview, I’m not sure. You can use it to attack or support the current or former President, depending to some extent on your view of immigration. Regardless of how you feel about those two people or that issue, I suspect the data are not precisely as your Facebook friends might have predicted.

In our world today, we tend to find an anecdote that supports our worldview and cease any further investigation. Anecdotes are fun and not generally used as a jumping off point for further investigation, but rather as an end in and of themselves.

I was in a meeting at the end of last year when someone decided to make a point by comparing New Hampshire to Detroit — Detroit in this case being a stand-in for the anarchical state of nature that returns when civilization collapses. I am, I’m sure, oversensitive to attacks on Detroit. I grew up and went to school in and around Detroit, still root for the Lions during their inevitable playoff losses, and like to read the Detroit News.

Nonetheless, Detroit is a useful whipping boy. We know, or think we know, that the city is a shell, a bankrupt shell, and the economy has collapsed. The city did become the largest of the 600 municipalities that have declared bankruptcy in the last 75 years. But the city restructured (that’s what bankruptcy is), eliminated $7 billion in unfunded liabilities it had no hope of ever paying, went through two years of emergency management, and has ended bankruptcy and restored normal government. The downtown is seeing billions in new investment, and visitors are impressed with the economic changes, at least downtown.

The moribund auto industry? Statistics from the Union Leader this week show that GM, the largest automaker in the world (and the lynchpin of the Detroit economy as well), had a 19 percent increase in sales, for its biggest December in seven years. Domestic auto sales are now back to pre-recession levels and 60 percent higher than the 2009 low — good for Detroit the city, great for “Detroit” the industry.

Understanding and accounting for confirmation bias in data analysis can improve the public policy debates in New Hampshire. There is broad agreement that our economy is stagnant. Job growth isn’t what it was in the 1970s, ’80s and ’90s. However, in a recent gathering of business and policy leaders, I noticed a general consensus but disagreements over specifics.

Everyone in the room agreed with about half of what everyone else said. Even businesses disagree about what businesses want; some care more about tax rates, some are obsessed with energy costs, some relocate easily, others can’t realistically move.

Controlling for your own bias will be important in solving the state’s problems. But human perception being what it is, you probably think confirmation bias is something everyone else has.

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