June 30, 2016

Why ‘cure’ Vermont’s economy if it isn’t sick?

By Jon Margolis, VTDigger.org

(Editor’s note: Jon Margolis is VTDigger’s political columnist.)

Last week the federal government came out with some new state-by-state economic data, and guess which state looks to be in pretty good shape.

Yep, little ol’ Vermont.

Not that its economy is booming. But now that the prices of oil and gas are down, hardly any state’s economy is booming. Only in one state (Indiana) and in the District of Columbia did the gross domestic product grow by 3 percent from the third to the fourth quarter of last year, as reported by the Commerce Department’s Bureau of Economic Analysis.

Vermont’s grew by 1.4 percent, putting it right about in the middle. Twenty-five states plus D.C. grew faster, 24 grew more slowly.

Vermont had a higher GDP growth rate in the last quarter of last year than its neighbors to the east and west. New Hampshire’s economy grew 1.2 percent, and New York’s neither grew nor shrank. Vermont’s growth rate was slightly better than Maine’s (1.3 percent) but a bit lower than the rate in Connecticut and Rhode Island (both 1.7 percent), and substantially lower than Massachusetts’ 2.6 percent growth rate, the highest in the Northeast.

As almost any economist will warn, it’s a mistake to draw much significance from the results of one quarter of one year. A state with a comparatively healthy economy in one quarter can fall down (or rise up) the scale three or six months later.

But those GDP figures were not the only ones released last week that indicated Vermont has a healthy economy relative to other states. The Bureau of Labor Statistics reported that Vermont’s already low unemployment rate had fallen to 3.1 percent in May.

That’s down only a tenth of a percentage point from April. But it’s down what the bureau considers a statistically significant 0.6 percentage point from May 2015. And it fell even as the state’s labor force increased.

Not by much. The civilian labor force went from 343,200 people to 345,800. But it didn’t have that far to go. Vermont’s percentage of the population age 18 to 64 in the labor force (meaning working or actively seeking work) is the ninth highest in the country, according to a Bureau of Labor Statistics report at the end of 2014.

With the labor force up and unemployment down, there have to be more jobs in the state than at the beginning of the year — about 1.6 percent more, according to an April report by Wells-Fargo Securities.

Again, that puts Vermont near the middle of the pack, far behind the 3.4 percent job growth in Oregon, but much better than the 3 percent job loss in Wyoming, where coal production has declined as power plant operators switch to natural gas. Wyoming is the only state with fewer people than Vermont, and it may be about to have fewer yet.

All these are short-term data, but there is at least one long-term statistic indicating that Vermont’s economy is basically healthy. From 2000 to 2015, only eight states recorded a faster growth in inflation-adjusted per-capita GDP than Vermont. Among the state’s neighbors, only New York had a higher rate, and it was barely higher.

Thanks to the (now-departed, or at least interrupted) oil and gas boom, states like North Dakota, South Dakota, Oklahoma and Montana had much higher rates of growth. But Vermont had a higher per-capita GDP growth rate than Texas.

None of this means Vermont is an economic paradise, or that it has no problems. It isn’t and it does. But these data do make two points. One is that most of Vermont’s economic woes are the ones it shares with most other states and with the nation as a whole. Most of America is dealing with sluggish growth and stagnant wages, and in many states the growth is more sluggish, the wages more stagnant than in Vermont.

Take what might be the most troubling statistic for Vermont’s economy. It’s not even an economic statistic. It’s a demographic statistic: Vermont’s demos isn’t getting any bigger. According to the latest Census Bureau estimate, Vermont had 520 fewer people in July 2015 than a year earlier, and the population has barely grown since 2010.

A sign of economic weakness?

Perhaps. But take a look at the details. Chittenden County is growing at a healthy clip. It’s the rural counties and some of their towns that are losing population. As they are all over the country, usually at a much faster rate than in Vermont. People are pouring out of many rural counties in the South, the Midwest and the Great Plains. They’re just seeping out of Vermont’s.

The second valid lesson to be drawn from these economic statistics is to justify more than a bit of skepticism about all the gloom and doom description and predictions about Vermont’s economy. Sometimes it seems there’s a cottage industry that pays people more the more pessimistic they can be about the economy here, even if some of their anguish contradicts itself.

For example, one complaint is that there are hardly any jobs in Vermont. Another is that businesses can’t find qualified applicants for all the jobs they are trying to fill.

There are, in fact, thousands of jobs open in Vermont. The website Indeed.com lists 6,562. No doubt most of them pay poorly. So do most jobs open in the other 49 states. But the site also lists some pretty good jobs in finance, health care and public service.

The common theme among the Vermont economy sourpusses is that taxes are too high and regulations too stringent, discouraging business expansion. The Tax Foundation, which ranks Vermont at No. 46 in its 2015 State Business Tax Climate Index, said the state has “complex, non-neutral taxes with comparatively high rates.” Another recent report prepared by the conservative American Legislative Exchange Council concluded that “Vermont is the second worst state in the nation when it comes to tax and regulatory policies that foster economic growth.”

These assessments are somewhat oversimplified but not entirely inaccurate. Lower-income Vermonters actually pay a smaller percentage of their incomes in state and local taxes than their counterparts in most other states, according to data compiled by the Institute on Taxation and Economic Policy. But middle-income and wealthy taxpayers pay a higher percentage than they would in most other states.

The weakness in the argument is that the evidence supporting the assumption that lower taxes and weaker regulations “foster economic growth” is … well, basically, it isn’t.

Otherwise, the U.S. economy would have sunk after the tax increases of 1993 and boomed after the tax cuts of 2001 and 2003. The opposite occurred. And Kansas, which has precipitously cut taxes and has relatively weak regulations, would be growing faster than California, which has strong regulations and increased taxes in 2012. But California’s economy is healthy and growing (GDP up 2.7 percent in the last quarter of 2015), while the economy in Kansas (a decrease of 0.7 percent) is not healthy.

Lower taxes in Vermont might be a good idea. But the claim that they will cure what ails the state’s economy is snake oil. So, perhaps, is the claim that the state’s economy is all that sick.

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