New Hampshire must avoid another coronavirus crash

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This week, New Hampshire’s initial unemployment claims fell below 2,000 for the first time since March. And the state’s positive PCR coronavirus test rate edged up past 1% for the first time since the state started increasing its testing and calculating the percent-positive rate late this summer. Whether the state can keep the former trend going depends on how the latter is handled. 

It’s hard to overstate the importance of keeping the economy from sliding back into a recession. Contrary to the sentiments of delusional anti-capitalists who blithely assert that the economy can be sacrificed indefinitely for the purpose of crushing the virus, a thriving economy is a tremendous social good and ought to be a top governmental priority. 

When profits evaporate, so do jobs. When jobs evaporate, people suffer, especially those in the most vulnerable financial positions. 

As the National Institutes of Health has documented, people who lose their jobs suffer from higher stress and more medical ailments. As the Urban Institute documented after the last great recession:

“Being out of work for six months or more is associated with lower well-being among the long- term unemployed, their families, and their communities. Each week out of work means more lost income. The long-term unemployed also tend to earn less once they find new jobs. They tend to be in poorer health and have children with worse academic performance than similar workers who avoided unemployment. Communities with a higher share of long-term unemployed workers also tend to have higher rates of crime and violence.” 

Before the coronavirus hit New Hampshire, weekly unemployment claims were consistently below 1,000 per week. The state’s economy was an employment machine, allowing Granite Staters, both blue and white collar, to enjoy the dignity of work and self-sufficiency.

The lockdown caused unemployment claims to spike from 642 to 29,379 in a single week. Claims surpassed 30,000 for the next two weeks before starting to decline in April. As the economy slowly opened, unemployment claims fell and are now just under triple their pre-pandemic level (1,880 this week vs. 642 the week of March 14).

Some economic sectors remain in dire circumstances (think hospitality), but the economy as a whole has clawed its way back throughout the summer and is well positioned to continue growing. Locking down the economy again would be an economic and humanitarian disaster. 

In the second quarter, New Hampshire’s GDP declined by 36.9%. Another economic hit even close to that would devastate not just the state’s employers, but its non-profits, local governments, and the state budget. 

Businesses make the economy run, and the economy includes non-profits and government. Business profits make it possible for people to pay their mortgages and grocery bills, but also to pay their property taxes, donate to non-profits and churches, and generate the revenue that keeps schools open, roads maintained, and social services funded. 

Business taxes make up the largest single source of revenue for the state budget, accounting for $805.6 million of the state’s $2.6 billion in general and education fund revenue in 2019. The next-largest source, excluding property taxes retained locally, is the rooms and meals tax at $350.1 million. And of course strong rooms and meals tax revenue depends on a healthy hospitality industry. 

Other major taxes — the interest and dividends tax, the insurance tax, the communications tax, the tobacco tax — all depend on businesses to be successful and profitable. Even state liquor sales are business-dependent. The state doesn’t make liquor. It sells liquor and wine made by the private sector. 

Keeping the economy from collapsing again is mission critical for New Hampshire’s employers and for state and local governments. That’s why the governor’s order this week requiring restaurants to collect contact information from patrons was an encouraging sign. 

After several COVID-19 clusters associated with restaurants, the governor could have ordered restaurants closed, as some European countries are doing. Instead, at the request of the New Hampshire Restaurant Association, the governor ordered contact tracing. 

The goal of the order is two-fold. One, it reduces, if not ends, the state alerts that ask people who patronized a cluster-associated restaurant to come forward. Those alerts cause alarm and discourage people from going out to eat. They hurt all restaurants, which hurts the entire industry, making it more likely that struggling restaurants will close permanently. They also hurt the state budget by reducing rooms and meals tax revenue. 

Two, the order allows for quicker contact tracing, which can curtail the spread of the virus, helping to avoid other clusters or outbreaks. That, in turn, helps keep the broader economy open. 

COVID-19 infections, hospitalizations and deaths are expected to continue rising this fall and winter. The state’s response must not be a broad economic shutdown. They are devastating, and if Europe is an indication they are likely to be ineffective as people revolt against their restrictions. If another lockdown is to be avoided, the state and the people have to focus on suppressing clusters and outbreaks. 

The state can do only so much if people don’t take responsibility for their own behavior. As with most any other government intrusion in the name of public health, safety or welfare, if individuals decide to do their share, there will be less for the government to do on their behalf.

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N.J. legislators ask to join N.H. tax lawsuit against Massachusetts

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Three days after New Hampshire sued Massachusetts to stop it from taxing the income of remote workers, a New Jersey Senate committee passed a bill requiring their state treasurer to explore joining the suit. If New Jersey joins, New Hampshire will have started a multi-state effort to stop high-tax states from reaching across their borders to tax non-resident commuters. 

Last week, Massachusetts adopted a new administrative rule allowing it to collect income taxes on New Hampshire residents who work remotely for Massachusetts companies. On Monday, New Hampshire sued in federal court, calling the practice unconstitutional. But Massachusetts isn’t the only state to do this, and other states have taken notice of New Hampshire’s suit. 

For decades, New York State has applied its income tax to people who work remotely for New York companies. Hundreds of thousands of New Jersey and Connecticut residents have to pay New York income taxes even if they don’t physically commute into the state.

New Jersey state Sen. Declan O’Scanlon told the Josiah Bartlett Center that the New Hampshire lawsuit could bring justice for New Jersey residents too. 

“The lawsuit between New Hampshire and Massachusetts may very well pave the way to helping make the case,” he said.

O’Scanlon is co-sponsor of a bill that would require New Jersey’s treasurer to study the commuter tax issue and make a report to the state legislature. On Thursday, the N.J. Senate Budget and Appropriations Committee unanimously amended the bill to instruct the treasurer to explore joining New Hampshire’s lawsuit.

The bill then unanimously passed the committee. Its next step would be a vote before the full Senate, O’Scanlon said.

He and the bill’s prime sponsor, Sen. Steven Oroho, had been interested in pursuing a fight against New York for a while, O’Scanlon said.

“I had a couple of people send me stories about the New Hampshire lawsuit, knowing I have an interest in this,” he said. 

“There is no logical explanation of why we wouldn’t pursue our residents paying New Jersey taxes rather than New York taxes.”

A spokesman for the New Jersey treasurer was unavailable for comment, but O’Scanlon said the effort has bipartisan support and the governor’s office has taken notice. 

“I am hearing from within the Murphy administration that there is interest in this,” he said. 

When the bill gets to the full Senate, O’Scanlon said he doesn’t foresee any serious opposition.

“It should be like a hot knife through butter,” he said. “It will help our taxpayers and enhance our revenue. Not often do you have an issue that lines up like that. “

New Jersey allows residents to take a tax credit for income taxes paid to New York. So New York’s taxation of commuters costs New Jersey lots of money. Senators on the Budget and Appropriations Committee speculated that the cost could be in the billions of dollars. 

Edward Zelinsky, who teaches tax law at Benjamin Cardozo School of Law in New York City, told the Josiah Bartlett Center that New Jersey and New Hampshire are in the same position. 

“I believe it’s identical. From a constitutional perspective and a tax policy perspective, the issues are the same,” he said. 

“If the employer is in New York or in Massachusetts and you are at home in Connecticut or in New Hampshire, their position is that you owe income taxes. 

“Now, in fact, New York has gone very aggressively. New York is not just sending tax bills to people in Connecticut. New York has sent tax bills to people in Tennessee, in Arizona. Their position is that they can overstep the boundaries and send tax bills to anyone they want. In Massachusetts, they are technically saying the same thing.”

Zelinsky, who lives in Connecticut and works some days in New York City, sued New York over this issue in 1994 and lost in the New York state courts. The U.S. Supreme Court refused to take up the case.  But he said that legal scholars have come to see his — and New Hampshire’s — position favorably.

“I lost in court; I won in the arena of academic opinion,” he said.

In its lawsuit, New Hampshire states that “Massachusetts has unilaterally imposed an income tax within New Hampshire that New Hampshire, in its sovereign discretion, has deliberately chosen not to impose.”

The suit states that its purpose is “to rectify Massachusetts’ unconstitutional, extraterritorial conduct.”

Zelinsky said the constitution favors New Hampshire, but the big question is whether the Supreme Court will hear the case. That will be up to the discretion of the justices. But he will be among the many commuters and remote workers pulling for the Granite State.

“I’m saying very openly that I’m cheering New Hampshire on.”

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We have a podcast!

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On Oct 19, the Josiah Bartlett Center for Public Policy in partnership with New Hampshire Journal launched a new podcast focused on New Hampshire politics and policy.

The podcast provides daily insights and analysis on topics directly related to the 2020 election so Granite Staters can have a better understanding of the issues facing the state this fall. Each episode features a free-market perspective on the top issues plus a guest to provide additional insight and context.

The podcast is available online here and on Spotify here. We’ll be up on more apps very soon, so check back here later in the week to see an updated list.

And if you don’t already subscribe to the Bartlett Center’s weekly email newsletter, The Broadside, do that here right now.

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N.H. is running out of places for our families, friends & coworkers to live

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The No. 1 reason people move to or stay in New Hampshire is not jobs or low taxes or the environment. It’s family, according to University of New Hampshire Granite State Poll results summarized in the New Hampshire Housing Finance Authority’s October Housing Market Report. 

New Hampshire’s strong economy gives our extended family members plenty of options for employment should they decide to stay or return home. Maintaining a vibrant economy is a way of keeping our families connected and close. But the other essential part of this equation is missing — where are they going to live? 

The coronavirus pandemic has made New Hampshire’s acute housing shortage even worse, data from the New Hampshire Housing Finance Authority (NHFA) show. 

Multiple news organizations have documented the run on houses in New Hampshire, Vermont and Maine as people flee cities for the safety of rural and suburban spaces with low infection rates. That surge in purchasers has spiked New Hampshire’s already high demand, driving prices to record levels. 

New Hampshire’s median home price reached a new peak of $335,000 in August, a 14% increase since last August, NHFA tracking shows. Sales are down 6% since January. Those numbers “reflect extremely low inventory levels, not a lack of demand,” the NHFA concludes.

“September 2020 listings in total have dropped 27% when compared to September 2019. As prices continue to rise, listings under $300,000 become scarcer; the number of homes below this price have decreased 37% from last year,” the authority’s October report details.

In September, there was less than a month’s supply of homes priced under $300,000 in the entire state. 

To put it another way, your child who wants to move home from Boston or Raleigh or Silicon Valley might have to keep that big-city salary just to afford a house in New Hampshire. 

The housing shortage is tighter this fall even though building permits for single-family homes rose by 24% from January through August. New Hampshire’s housing stock is so low that it will be years before we come close to building enough homes to satisfy demand. 

For rentals, the picture is even worse. Building permits for multi-family homes fell by 61% from January through August. As demand has surged, communities have clamped down on new apartment construction (or builders have given up even applying). 

For example, Bedford’s planning board in September rejected a proposal to build 200 market-rate luxury apartments in the town’s commercial zone on South River Road. Though the apartments would have brought more tax revenue and less traffic than a commercial development previously approved for the same lot, and would have made the town a profit after school and public safety costs were deducted, the board rejected it. Board members didn’t want more apartments, even though the data showed that apartments would have left the town financially better off than commercial development.  

Because local regulators continue to artificially restrict the supply of rental housing, rents keep rising. The median monthly rent for a two-bedroom apartment in New Hampshire rose 4.9% in the past year, to $1,413, NHFA data show. The state’s rental vacancy rate has risen a bit but remains below 2%. 

All of this means that if your children and parents want to move back to town, they will struggle to find a home. 

The NHFA’s report shows that almost three-fourths (73%) of New Hampshire home buyers are Granite Staters moving to another home within the state. High prices inflated by a severe shortage of new construction do not primarily hurt out-of-staters who want to move here for jobs. They primarily hurt Granite Staters. 

They also hurt New Hampshire employers. Fidelity and Sig Sauer this week announced expansions that would create more than 700 new jobs in the state. The shortage of housing in Southern New Hampshire will make it harder for those companies to fill those positions.  

New Hampshire’s families, workers and employers are in desperate need of new home construction, both owner-occupied and rentals. The situation has been worsening for years. At what point do all three go to their local boards and demand that they get out of the way and let builders build?

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Massachusetts banned the sale of flavored tobacco in June. What happened next was… totally predictable

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Massachusetts’ June 1 ban on the sale of flavored cigarettes is driving higher sales, and higher tax revenue, in New Hampshire, state and retailer data show. 

In Massachusetts, cigarette tax stamp sales fell vs. the same month in 2019 by 17.2% in June, 23.7% in July and 29.9% in August, the New England Convenience Store and Energy Marketers Association (NECSEMA) announced this week. 

In New Hampshire, cigarette tax stamp sales rose vs. the same month in 2019 by 55.8% in June, 27.3% in July and 17.2% in August, the association reported.

That’s a tax revenue gain of $16.48 million for New Hampshire and a loss of $31.88 million for Massachusetts. 

Those figures are for cigarette sales only and do not include other tobacco products or electronic cigarettes. 

Looking at all tobacco tax revenue, New Hampshire has seen large gains since the flavored cigarette ban took effect. 

Tobacco tax revenue in May was identical to the year before. Then in June it shot up by 43.3% over the prior year. Compared to the same month the year before, tobacco tax revenue was up by 12.1% in July,18.6% in August and a tremendous 56.8% in September. 

From June through September, New Hampshire tobacco tax revenue was up by $22.2 million over the same four months in 2019. The state’s new tax on electronic cigarettes does not account for this increase. The state collected a little more than $300,000 a month in e-cigarette taxes from June through September. 

State Department of Revenue Administration staff attribute significant tobacco tax spikes in March and April (24.8% and 30.6%, respectively) to smokers stocking up for the coronavirus lockdowns this spring. They believe the surge starting in June is driven by the Massachusetts ban.

“We think it has to be related to the menthol ban in Massachusetts, although we don’t have the data to affirmatively prove that,” Carollynn Lear, assistant commissioner of revenue, said.

The state Department of Revenue Administration doesn’t break down cigarette tax stamp revenue by type of cigarette. But convenience stores do, and their data tell the story. 

Among NECSEMA members, total cigarette sales in Massachusetts were down 24% in August but up 65% in New Hampshire and 17% in Rhode Island, the association reported this week. But flavored cigarette sales were up 91% in New Hampshire and 40% in Rhode Island in August. Flavored smokeless tobacco sales were up 175% in New Hampshire and 54% in Rhode Island in August, NECSEMA reported.

Predictably, the ban increased both cross-border sales and in-state crime. Convenience store owners in Boston said this week that street sales of now-illegal flavored cigarettes have become a nuisance.

Free-market organizations were not the only ones to predict that this would happen. Massachusetts officials predicted it too. 

The Massachusetts Multi-Agency Illegal Tobacco Task Force noted in its 2020 annual report, published in February, that it was considering the need for increased enforcement this year because “the Task Force expects there will be an increase in smuggling activity and black market sales” after the flavored tobacco ban begins. 

Exactly as expected, Massachusetts’ ban has ended the legal sale, but not the consumption, of flavored tobacco products in the state. As tobacco retailers and the state’s own Illegal Tobacco Task Force predicted, the ban has sent legal sales over the border and increased the criminal, black-market sale of flavored tobacco products in Massachusetts. 

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N.H. COVID deaths fall by 96% through September, hitting lowest level since March

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New Hampshire recorded only seven COVID-19 deaths in September, a 96% decline from May’s total of 176, and a 59% from August, state data show.

It was the third month in a row that deaths have fallen by more than 50%.

For the first time since March, when the state recorded three COVID-19 fatalities, deaths for the month stayed in the single digits. All deaths in September were of people over age 60.

New hospitalizations were almost flat, going from 21 in August to 24 in September. That is a 19% increase from month to month but represents an 81% decline since June’s peak of 121. 

Positive test results rose from 692 in August to 991 in September, a 43% increase that is largely an artifact of increased testing. Without expanded testing, almost all of those infections likely would have gone undetected.

Excluding tests done at the University of New Hampshire, the state tested an average of 3,8242 people per day in September, a 27% increase from August. 

But when UNH tests are included for the last week of September, the daily average jumps to 7,750, a roughly 156% increase from August.

Getting a precise daily average is challenging because the state only began including UNH’s numbers in its daily totals on Sept. 23. UNH reports that it has given 128,230 tests since July 29. Most of those came since late August when students returned to school, but the daily results are not listed with the state’s daily results to allow for precise calculation.

To illustrate the scale of UNH’s testing, the state recorded 90,208 tests in August and 115,280 in September, according to its published data. UNH’s 128,230 tests cover just three campuses, Durham, Manchester and UNH Law in Concord.

The bottom line is that through September the state has continued to have a very small number of COVID-19 hospitalizations and a pronounced drop in deaths despite the reopening of schools, colleges and businesses. The increase in positive test results has picked up some small clusters of cases, most notably at UNH, but has been driven largely by the substantial increase in testing.

Below is the state’s own chart tracking tests and positives, showing the rise in tests and the drop in the percent positive rate.

 

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Reopening is putting N.H. back to work

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In May, some politicians and activists warned that reopening the state’s economy would be a public health disaster. Instead, it’s been an economic savior. 

New Hampshire employment fell by more than 151,000 from March to April as the economic shutdown tanked the economy, according to the federal Bureau of Labor Statistics. As of this week, the state has recovered approximately 61% of those lost jobs (more than 93,000). 

An estimated 689,750 Granite Staters were employed in August, the state Department of Employment Security reported this week. That’s an additional 14,270 people from the month before.   

The state’s unemployment rate fell to 6.5%, down from 8% in July. It remains below the national rate of 8.4%.

As this economic restoration has taken place, the state’s coronavirus infections have plummeted. The state recorded 692 new coronavirus infections in August, down from its monthly high of 2,505 in May.

New hospitalizations fell from a peak of 213 in April to 21 in August. Deaths fell from a peak of 176 in May to 17 in August.

As the Josiah Bartlett Center pointed out in our reopening guidelines published in April, the state would do best to apply the minimum intervention necessary and to focus on behaviors. Encouraging individuals to practice safe behaviors, such as mask wearing, would slow the spread of the disease while letting the economy open back up.

The state shifted from a prescriptive lockdown in April to more of a behavior-focused guidance model in May and June. As a result, the economy has undergone a recovery while reducing the spread of the virus.

 

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A September surge in coronavirus testing in N.H. finds no surge in the disease

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There was big coronavirus news for New Hampshire this week, and most of the media missed it. 

At his Thursday press conference, Gov. Chris Sununu displayed a graphic (pictured below) showing that the average number of coronavirus tests per day has more than doubled since mid-August. 

Fewer than 3,000 people per day, on average, were being tested in the middle of last month. This month the daily average has hovered around 7,000, peaking at nearly 8,000 last week before falling this week. 

What some last week portrayed as a worrisome increase in infections is largely explained by expanded testing, mostly at colleges. 

The University of New Hampshire has been testing students twice a week since the start of school in late August, but only the positive test results had been reported in the state’s official numbers. 

Without those thousand of negative test results, the state’s reported numbers appeared to show an increase in the positive test rate. 

In fact, the positive rate has been falling. Instead of ticking up to around 1.5%, it has dropped to around 0.5%. 

State epidemiologist Dr. Benjamin Chan said Thursday that the increase in positive tests does not represent a surge or an acceleration in the infection rate.  

“We believe some of the increases we are seeing to a large part is because of the increased testing we are seeing,” Chan said. “We are seeing the numbers of people with COVID-19 go up in the younger age groups, and that is directly attributable to the testing strategies that are out there at colleges and universities.”

There have been a few small clusters, two at UNH, but they’ve been isolated. Some infections might not have happened without colleges reopening, but the reopenings have not caused a case surge. 

As of mid-September, the reopening of businesses and schools has not caused worrisome levels of community transmission or triggered any indicator that would lead to a reversal of the state’s reopening plans. 

Media coverage of the state coronavirus briefings continues to focus on daily and total numbers, often missing the larger context. The best news coverage of Thursday’s news came from Patch’s Tony Schinella, who understood the story. 

We would also point out that on Tuesday the Josiah Bartlett Center was the first to note the signfiicant increase in testing in September. We pointed out that some of the rise in infections could be attributed to the additional testing. The state would not include UNH numbers for two more days, so we caught only the uptick in the state’s reported numbers. 

UNH has conducted more than 86,000 tests, Dr. Chan said on Thursday. Its daily average from Sept. 2-Sept. 8 was 3,300. (UNH keeps its own COVID dashboard.) In September, the state has averaged 3,575 tests per day, excluding the UNH tests. 

As these tests have uncovered new infections, the state’s COVID-19 hospitalization rate has fallen from 10% at the end of August to 9% just over two weeks later. As of Thursday, the state has recorded only six COVID-19 deaths this month. It recorded 17 in August, down from 44 in July. 

As of September 17, there are only eight current hospitalizations for COVID-19 in New Hampshire. No county has even 90 known active cases, and four counties (Cheshire, Coos, Grafton and Sullivan) have fewer than 10. Only three municipalities have more than 20 known active cases: Durham (23), Nashua (23) and Manchester (32). 

So halfway into September, the news continues to be positive. Increased testing has uncovered some new infections, including several small clusters, but there is no surge. Hospitalizations and deaths continue to trend downward. 

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The wrong policies could bring California’s rolling blackouts to New Hampshire

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Energy policy is often described in moral terms, with “green energy” representing the forces of good and fossil fuels representing the forces of darkness. But really it’s about math. California politicians have spent decades fighting a losing battle against math. In August, math finally won. 

The rolling blackouts that cut off power during an August heat wave were the entirely predictable — and often predicted — result of a series of energy policy decisions designed to impose politicians’ energy preferences on a market that wasn’t ready for them. 

Renewable energy advocates were quick to claim that green energy policy wasn’t to blame because wind and solar power did not fail. But that’s not accurate. 

The first outages in August were caused in the evening when the state needed to switch from solar to natural gas. One 470 megawatt gas plant tripped offline and 1,000 megawatts of wind power were lost when winds died down, the state’s electricity grid operator reported. 

“All available resources are needed to meet the growing demand,” the California Independent System Operator explained when describing the situation. 

There’s a reason for that — a political one. 

California energy policy has created an artificial shortage of reliable base load energy. 

And those same policies are being pursued by activists in New Hampshire and throughout New England. 

Since at least the late 1990s, California has sought to force the energy market away from fossil fuels and toward renewables. The policy has “worked,” if its stated goal is the only metric. California set a goal to have a third of its electricity generated by renewable sources by 2020, and it reached that goal in 2018. 

But the cost was huge. The state didn’t just encourage electricity producers to hit the politicians’ arbitrarily chosen target. It rigged the market to prevent producers from providing consumers the most reliable energy at the cheapest price. 

As early as 2002, the U.S. Energy Information Agency pointed out that California had not built enough power plants. “Investment in new power generation capacity has not kept pace with the increasing demand for electricity,” concluded an EIA report on the causes of California’s energy crisis. “California’s generation capability decreased 2 percent from 1990 through 1999, while retail sales increased by 11 percent. Further, no new generation capacity has been constructed in California for over a decade.”

California politicians made it extremely hard to build anything but renewable power generation facilities. As wholesale electricity prices rose, the state capped retail prices and even, amazingly, prohibited utility companies from signing long-term contracts for the purchase of electricity. 

The cumulative effect of these and other green energy policies, including net metering, was to create an unnecessarily limited supply of extremely expensive energy. 

California utilities have been left with no choice but to buy base load power on the spot market from out-of-state providers. Instead of having an abundance of reliable natural gas plants in-state, California relies on out-of-state generators whose transmission lines run for hundreds of miles. 

California has among the nation’s highest electricity prices (close to those in New England), despite having huge fossil fuel reserves, because politicians wouldn’t let the market work. An economist who recently moved to California wrote that his monthly electricity bill of $1,000 would be just $250 in neighboring Texas. 

By 2020, the state was meeting its renewable energy targets and setting even more ambitious ones. But the supply of reliable base load power that could be tapped when the sun wasn’t shining and the wind wasn’t blowing had become dangerously low. 

When a regional heat wave spiked demand thought the West and fewer than 1,500 mw of power went offline one evening, suddenly there wasn’t enough available electricity to meet the state’s needs. 

This can happen in New Hampshire, which already has high electricity rates, some market-distorting energy policies, and vocal activists who insist that math can be ignored if the state’s motives are pure enough. 

The lesson from California is not that states shouldn’t find ways to move toward more renewable energy. It’s that deliberately preventing the market from working has the result of… preventing the market from working. When the market doesn’t work, supply doesn’t rise to meet demand. In energy markets, that can lead to rolling blackouts. 

ISO New England has warned about this possibility for years. New Hampshire lawmakers ignore the warnings at their — and our — peril. 

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Without innovation, labor can’t generate progress

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The weekend has arrived when Americans play for three days while politicians give speeches and issue press releases recognizing the economic contributions of the American labor movement. 

Labor’s contributions are worth recognition. But have any politicians ever acknowledged that laboring in isolation produces nothing beyond basic subsistence? For labor to generate human progress, it has to be mixed with innovation. Yet we have no holiday for the innovators.

Our prehistoric ancestors labored for thousands of years with no economic advancement. The discovery of agriculture produced some wealth, but humans then labored on farms for millennia with only periodic and temporary spurts of economic growth. Technological innovations would sometimes lead to bursts of productivity that would improve living conditions, but those would fade relatively quickly. 

Not until the Enlightenment and the Industrial Revolution did humans suddenly begin to generate huge and sustained gains in living standards. This chart from Our World In Data shows how everything suddenly changed in the late 18th and early 19th centuries. 

Scholars debate what caused this explosion of economic progress. But economist Deirdre McCloskey makes a compelling case that it was a change in human thought that gave birth to the miracle of modern growth. 

A change in how people honored markets and innovation caused the Industrial Revolution, and then the modern world. The old conventional wisdom, by contrast, has no place for attitudes about trade and innovation, and no place for liberal thought. The old materialist story says that the Industrial Revolution came from material causes, from investment or theft, from higher saving rates or from imperialism. You’ve heard it: “Europe is rich because of its empires”; “The United States was built on the backs of slaves”; “China is getting rich because of trade.”

But what if the Industrial Revolution was sparked instead by changes in the way people thought, and especially by how they thought about each other?

She goes on…

Economists and historians are starting to realize that it took much, much more than theft or capital accumulation to ignite the Industrial Revolution—it took a big shift in how Westerners thought about commerce and innovation. People had to start liking “creative destruction,” the new idea that replaces the old. It’s like music. A new band gets a new idea in rock music, and replaces the old if enough people freely adopt the new. If the old music is thought to be worse, it is “destroyed” by the creativity. In the same way, electric lights “destroyed” kerosene lamps, and computers “destroyed” typewriters. To our good.

McCloskey has documented how the Enlightenment changed the way people think about work, creativity, invention, innovation, commerce and markets. Work and self-sufficiency were elevated in status, but so too were trade and commerce, finance and innovation. 

In short, market capitalism was slowly recognized as a way for ordinary individuals to improve their station in life. And that changed humanity, unleashing an unprecedented era of sustained economic and cultural progress.

People began to realize that there were ways to advance from one social rank to the next, and those ways involved not working harder, but working smarter. 

Enlightened American gentlemen in the late 18th century did not content themselves with continuing to work as their fathers had. They became obsessed with experimenting, tinkering and inventing. This was not confined to geniuses like Ben Franklin and Thomas Jefferson. 

George Washington experimented with new agricultural methods, invented a new type of threshing barn, and helped develop the American Foxhound. 

The spirit of the age sparked a wildfire of imagination, leading to inventions from ordinary people who sought to improve their own lives and the lives of others.

In 1764, an illiterate weaver and carpenter named James Hargraves invented the Spinning Jenny, helping to spark the Industrial Revolution. He was a nobody, but he’s the one who turned his town into a boomtown. 

Pennsylvania farmer Jacob Yoder invented the flat-bottomed boat in 1782. About 1785, uneducated Delaware businessman Oliver Evans invented the automatic flour mill.

The examples go on and on. A common theme is that the people who created the devices that allowed humanity to lift itself up from subsistence farming tended to be lowly tinkerers with little or no social status.  

These tinkerers, inventors and innovators created the factories and machines that created the labor movement, which Americans are supposed to celebrate this weekend. Yet we have no holiday for the innovators. Their contributions are mostly forgotten, their achievements taken for granted. 

Our culture assumes that prosperity and progress are humanity’s baseline. We have grown up in an advanced civilization with plentiful food, clothing and shelter, and with luxury goods so abundant that even people we consider poor have flat-screen TVs, smartphones and automobiles. We assume this is the way things always have been.

It was not. This is a recent human creation. Yes, labor made the factories, the railroads, the highways possible. But the innovators gave labor the tools with which they built our modern world. If we want to preserve the progress we’ve made, we should recognize and celebrate the innovators too. 

Innovation, not labor, was the foundation of the Industrial Revolution. Labor, a critical component, came after. And it came because industrial life promised greater economic progress than life on the old family farm.

We can stimulate more progress by encouraging more innovation. If we forget its foundational contribution, we will only make additional progress harder. 

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