In Praise of Enterprise Zones

Obama speaks about the sequester in Washington

This is from my article published by the Oklahoma Council of Public Affairs in their February Issue of the Perspective Magazine.

Economic distress does not always manifest equally throughout America. Some communities are hit hard economically while others may only feel a small economic hiccup. If the same communities are hit repeatedly then they may slide into a state of permanent decline—Detroit is the current poster child for this kind of economic tragedy.

Of course, this is not a new problem. Policymakers have been attempting to tackle hotspots of economic distress for decades. Perhaps the most popularized attempt was the idea of “enterprise zones” first touted by Jack Kemp while serving as Secretary of Housing and Urban Development under President George H.W. Bush.

Fast forward to today and the idea of enterprise zones is alive and well. In fact, President Obama has even embraced the idea of enterprise zones with his recently launched Promise Zones (PZ) initiative.

PZs are designed to help areas of the country that were hit hard by the recent Great Recession and will initially include areas such as San Antonio, Philadelphia, Los Angeles, Southeastern Kentucky, and right here in the Choctaw Nation of Oklahoma. The PZs are intended to help build infrastructure, increase access to education, reduce crime, and, most importantly, provide incentives for businesses to hire and invest by expanding the existing Empowerment Zone tax credit.

Additionally, Senator Rand Paul (R-KY) recently unveiled his Economic Freedom Zones (EFZs) (pdf) which would reduce taxes, enhance educational opportunities, and reduce regulatory burdens. Sen. Paul’s tax reductions include enacting a 5 percent flat rate for the individual and corporate income tax, a 4 percentage point reduction in the payroll tax, boosting expensing on new investments, eliminating the capital gains tax, and a $5,000 per child educational tax credit to help children attend the school that most meets their needs. Unlike PZs, EFZs will be available to any jurisdiction that meets certain criteria and would receive these benefits for 10 years.

However, it’s not just Uncle Sam that has found the enterprise zone model to be useful. There are currently more than 3,000 enterprise-type zones in the United States. Most of these zones are implemented by the states, but they can also be coupled with local tax relief through a popular vehicle known as Tax Increment Financing, which often provides rebates on property taxes or earmarks money to be used for infrastructure improvements.

These initiatives are noteworthy, especially since a new problem has arrived on the scene which threatens to drag down economic prosperity: demographic winter.  Demographic winter is the situation which arises when, due to declining birthrates, there are not enough young people to sustain the current population level. As a consequence, the area afflicted with demographic winter experiences a slow-moving economic depression as both the labor supply and customer base shrinks.

Recently, Kansas implemented a new twist on the enterprise zone model—the Rural Opportunity Zone (ROZ)—in an effort to fight the growing problem of demographic winter in its rural counties. There are currently 73 counties that qualify for a ROZ. ROZs offer individuals a 5-year abatement on their individual income tax and/or student loan repayments up to $15,000 if they move into one of the qualifying counties from out of state.

Overall, enterprise zones, in their many forms, are a step in the right direction. Yet, there are still flaws that reduce their effectiveness. Among the largest flaws is the degree of difficulty complying with the selective parameters of the program. For example, while a tax credit does reduce one’s tax liability, it does not reduce the complexity and compliance costs associated with tax filing—it could actually make them worse. At the extreme, these problems can cause businesses and individuals to forgo the benefits of these zones.

One proposal in Maine seeks to address the problems associated with such complexity. The Free ME initiative would eliminate Maine’s income tax (individual and corporate) and sales tax completely on a county-by-county basis starting in the most economically distressed county. Free ME would create a clean, level playing field for all participants and would not disappear until tangible economic benefits are seen—specifically, seeing the county move back to the state average on key economic variables such as unemployment and poverty. The Free ME initiative is receiving much-deserved state and national attention. This is worth keeping an eye on.

In conclusion, it is not every day that two people from opposite ends of the ideological spectrum like President Obama and Senator Paul agree that changing incentives do in fact make a difference in the lives of families across America. This targeted approach embedded in the idea of enterprise zones can help pave the way to broader reforms as the EMZs show progress in tackling some of the most difficult economic challenges of our time, such as stubborn pockets of poverty and demographic winter. The recipe may need tweaking, but at least policymakers are in the right kitchen.

The Negative Impact of Multi-Generational Welfare

Table 1 Percent of Births on Medicaid by StateThis is from my article published by the Oklahoma Council of Public Affairs in their February Issue of the Perspective Magazine.

Government welfare programs were originally designed to be temporary to help people get back on their financial feet. Today, that is no longer true. For instance, SoonerCare, Oklahoma’s Medicaid system, imposes no time limits on the recipients as long as they meet various income-eligibility requirements. As we have discussed in these pages previously (“Oklahoma Growing Increasingly Dependent on Medicaid,” April 2013), Oklahoma already has an unhealthy dependency on SoonerCare.

As a consequence, it is very easy for families to become trapped in multi-generational welfare, which robs them of personal responsibility and self-reliance. There is a multitude of anecdotal evidence that multi-generational welfare in fact exists. Now, new academic research by economists Gordon Dahl, Andreas Kostol, and Magne Mogstad verifies this reality.

In a new study (“Family Welfare Cultures (pdf),” National Bureau of Economic Research, Working Paper No. 19237, July 2013), the authors examine family welfare cultures by looking at Norway’s disability insurance system. Norway’s homogeneous demographic makeup helps to keep the focus on welfare policies. The authors found “strong evidence that welfare use in one generation causes welfare use in the next generation.”

What really makes this study remarkable is that the authors firmly trust they have found more than a simple correlation. Instead, they believe they have found a causal link between parents dependent on welfare and their children following in their footsteps.

The causal link they found can be summed up succinctly: children learn from their parents. The authors “find suggestive evidence … in favor of children learning from a parent’s experience” with government welfare. In other words, children are conditioned by their parents’ welfare experience that significantly increases the chances that they too will end up dependent on welfare.

More troubling, the study also found that “consistent with this increase in adult children’s welfare dependency, we find that parental DI (disability insurance) receipt decreases the probability that a child will work or pursue higher education.” Therefore, income-based welfare, like Medicaid, becomes a self-fulfilling, multi-generational prophecy—low-income parents on welfare hamper the ability of their children to achieve a better life for themselves.

Of course, the question remains, how big of a problem is this for Oklahoma? To better answer that question, let’s examine a relatively new data series that shows the number of births on Medicaid as a percent of all births for each state.

As shown in Table 1, this percentage ranges from a whopping 71 percent in Louisiana to a low of 27 percent in Virginia, with a median value of 45 percent. (The data come from the National Governors Association (pdf) as reported by the Henry J. Kaiser Family Foundation. The table is an amalgam of several years because not all states report the number of births on Medicaid every year. To fill the gap, we used the highest percentage reported between 2003 and 2009, the latest year of available data. Note: we used the median Montana value because the maximum value appears to have been misreported.)

Unfortunately, Oklahoma is in the very high range, with 62 percent of all births on SoonerCare, the fourth highest in the country. In absolute numbers, that represents, on average, approximately 30,000 babies that are born right into Oklahoma’s welfare system each and every year. These data strongly suggest that Oklahoma has a very significant multi-generational problem in the Medicaid system.

In conclusion, this analysis should give Oklahoma’s policymakers yet another reason to stop expanding the Medicaid rolls. (For starters, how about a moratorium on advertising for SoonerCare?) Oklahoma’s very high number of births on Medicaid strongly suggests that multi-generational welfare is a very real problem with dire outcomes for the parents and especially the children. Breaking this cycle will not be easy, and compounding it by increasing Medicaid rolls would be a step in the wrong direction.

Ending Demographic Winter: Go Back to Church?

Chart Showing Correlation Between Church Attendance and the Birth Rate

As I’ve pointed out previously, Demographic Winter appears to be here to stay in America. The most recent “components of population change” for 2013 from the U.S. Census Bureau shows that the natural change in population (births minus deaths) continues its decline:

2011 — 1,481,360

2012 — 1,425,019

2013 — 1,412,009

The decline in natural change is due to both a decrease in births and an increase in deaths. As the boomers age, there is not much we can do about the ever increasing rise in the death rate–barring some major technological breakthrough that extends our life-spans.

Theoretically, the easiest and best way to tackle a declining natural change is to boost the birth rate. Yet, the persistent decline in the birth rate suggests this may be easier said than done.

One interesting correlation that has been much discussed is the connection between religion and the birth rate. So, I put together the chart above which reinforces this notion by looking at the relationship for the 50 states (minus Alaska and Hawaii). More specifically, it looks at the relationship between weekly church attendance and the birth rate.

As you can see in the chart, Utah, not surprisingly, anchors one end with both the highest birth rate and weekly church attendance. On the other hand, the three Northern New England states (Vermont, New Hampshire, and Maine) have the lowest birth rate and weekly church attendance.

On a personal level, I see this in my small town in New Hampshire. Inside my Catholic church are several families with four or more children (including my own of course). Yet, when I go into the local Walmart, I rarely see families with more than 2 children.

From an economic perspective, this relationship does make sense. Religion essentially extends one’s time-horizon to include multiple generations–children, grandchildren, etc. However, from a secular viewpoint, children are a burden that detracts from “living life to the fullest”–after all, your short time on Earth is all you have. Therefore, children are more likely to be valued in a religious household and less valued in a secular household.

Assuming this correlation is real and not a proxy for something else, what has to happen to get Americans back into a pew? My guess is that it would take a major Christian revival that have often occurred from time-to-time in America’s past. Some thought the 9/11 terrorist attacks would spark the next revival, but it did not.

I don’t claim to know what will start the next Christian revival. All I can do is raise my own children in the Catholic Christian faith and hope that maybe one of them will help find the answer. They will need to since we apparently live at ground zero for Demographic Winter.

The War on Children

Picture of Crowd of Children in Keene New Hampshire

The last few decades in America have not been good ones for children. As a nation we have declared a “war on children” where the needs, wants, and desires of adults take precedence over those of children. Let’s take a brief tour of the battlefield.

First, in 1969, California became the first state to enact”no-fault” divorce into legislation and no-fault quickly spread to other states (pdf). Whether the old system of divorce was optimal or not, its dissolution had the effect of elevating the wants of adults over the needs of children. Even to this day, children generally have no legal voice in divorce proceedings–except as pawns to be fought over by the “adults.”

The story on the negative impact of divorce on children is being told in a new documentary called “Split.” This preview opens with some stunning statistics–over half of all children under the age of 16 will experience a divorce of their parents at a rate of 1 million children per year.

Second, the introduction of oral contraceptives, or “the pill,” in the 1960′s had two impacts on children–one direct and one indirect. The direct impact was that now children were no longer safe in the womb since the pill is an arbortificant–meaning that it doesn’t prevent the fertilization of an egg, it only prevents it from attaching to the mother. As such, the pill is really a chemical abortion.

The indirect impact of the pill was that casual sex was now possible on an unprecedented scale. Along with casual sex comes adultery and, consequently, divorce. The pill and divorce have proven to be a toxic pairing to American families.

Third, the war on children got even deadlier with the infamous Roe v Wade Supreme Court decision that legalized abortion throughout America. Now if chemical abortion wasn’t good enough, now you could legally hire a doctor to go in with the heavy artillery. This is the ultimate expression of putting the needs of adults over that of the children with the outright killing of the child. And, you thought government was suppose to help protect the innocent?!

Now we have moved into the nuclear age on the war on children with the arrival of same-sex marriage where children will be purposely created to serve the whims of adults. By definition, children can’t be born into a same-sex pairing, they have to “acquired” through adoption or a surrogate (be it a male sperm donor or female baby incubator).

The end result is the exploding of the legal system once designed to protect a child’s right to know their biological mother and father. Already, we are seeing bizarre cases such as three parents families. In essence, we have moved into the post-divorce world where a child can be born right into a step-parent situation. Historically, children involved in a step-parent situation received special care and attention.  Now, with same sex marriage, we have decided to impose it on them simply to cater to the perverse desires of adults.

Adding insult to injury, the war on children was greatly accelerated by an activist federal judge who recently ruled that the Constitutional Amendment defining marriage as between one man and one woman in Utah is unconstitutional at the federal level. This act of Judicial Tyranny will have far-reaching consequences and as Jennifer Roback-Morse succinctly put it in her “77 Non-Religious Reasons to Support Man/Woman Marriage” (pdf): “Same-sex marriage amounts to a hostile takeover of civil society by the state.”

Now, decades since the war on children began, the socioeconomic consequences are coming home to roost in the form of Demographic Winter. More specifically, lets look at some demographic data in Maine. Why Maine? Maine is a very interesting case study since it is demographically-neutral over time.  In other words, since it is overwhelmingly white and has been since the founding of the state then changes in variables are more easily identifiable without the worry of a shifting base.

As shown in the chart below, Maine saw robust natural population growth in the 1950′s adding approximately 12,000 Mainers every year as births easily outnumbered deaths. But starting in 1960, something ominous began to take hold. As noted above, the introduction of the pill appears to have played a major role in the decline of births which cut the yearly natural population growth in half.

Roe v Wade and no-fault divorce arrived in Maine together in 1973 although the immediate impact was muted by the largest in-migration into Maine in recent history with net migration of 68,922 people that decade. Many of these people “from away” in the 1970s were young, back-to-the-earth types who eventually went on to have families in the 1980s helping create the echo-boom generation.

Chart Showing Maine Births vs Deaths 1950 to 2012

Maine Births vs Deaths 1950 to 2012

Despite continued in-migration, Roe v Wade and no-fault divorce eventually caught up creating another prolonged slump in the birth rate that continues today. In fact, the drop in the birth rate has fallen so low that in 2012 Maine became the second state to record more deaths than births (West Virginia being the first). This dubious distinction puts Maine firmly in the grip of Demographic Winter.

Yet, it doesn’t have to be this way. In Maine, according to the Guttmacher Institute, approximately 2,800 babies are aborted each and every year. If those babies were born instead, Demographic Winter would not yet exist as this would generate a net natural population growth of about 2,600. This would not put Maine back to the 1950s, but it would certainly buy some much needed time to put the other genies back in their respective bottles–the pill, no-fault divorce and same-sex marriage.

Unfortunately, the war on children rages on in Maine and in states throughout America. Until very recently, it appeared that the war might be reaching a turning point with 30 states having Constitutional protections on traditional man and woman marriage (not including the potential overturning of the Utah Amendment). The recent federal ruling in Utah now casts doubt on that.

America has been barreling down one of the largest social experiments in history on the most innocent of victims–children. If you are among the lucky to survive the trip down the birth canal and have an intact traditional family, you are now the exception. What are the consequences of this monumental frontal assault? No one knows, but we are all about to find out, ready or not . . .

An Economic Defense of Pope Francis’s Apostolic Exhortation Evangelii Gaudium

Pope-Francis-Evangelii-Gaudium_medium

Thank you to Crisis Magazine for publishing my article “Some Economic Applications of Evangelii Gaudium.”

Many free market, libertarian leaning economists have criticized the Pope’s understanding of the economy as discussed in Evangelii Gaudium.  I explain why I take issue with these economists who think that any monetary generating activity is of equal value to society. To illustrate their mistake, let’s consider my expenditure of $1,000 on an abortion or $1,000 on a life-saving procedure.  Clearly, the two activities are not of the same value as one activity ends life while the other saves life?  Yet, according to Gross Domestic Product (GDP), America’s income goes up.  Overall, I can’t help but think that Pope Francis really isn’t criticizing America’s free-market so much as he is criticizing America’s waning Christian faith and diminished moral compass.  You can read more of my economic defense of Evangelii Gaudium at the Crisis Magazine website.