We can do better than GDP

In Ruchir Shama’s opinion piece last month, he wrote about recent efforts to move “beyond GDP” and introduce new measures into policymaking circles.

Despite a combative headline and subheader, the article as a whole is thoughtful and overall fairly assesses the state of well-being metrics used by policymakers.

I currently serve as the president of Gross National Happiness USA, a grassroots network of activists, analysts, and advocates across the United States committed to changing the way we measure progress and success in this country. We believe that gross domestic product is an insufficient benchmark for measuring the well-being of a country and advocate for the use of other tools that help policymakers get a broader understanding of the well-being of their citizens.

Here I offer a few considerations that should be added to this conversation about the use of well-being metrics by policymakers.

First, for all the deification and villainization of gross domestic product in policy spheres, in political conversations, and among economists, the actual measure of gross domestic product weighs quite lightly on policymakers’ minds.

I offer you an experiment: if you are at a local candidate’s debate or having a meeting with a state legislator, congressmember, or any other politician, ask them what they think of the recent gross domestic product numbers. Read up on them beforehand or don’t: you can make up numbers. I would wager that at least three out of four times (conservatively), the politician you ask has no idea what the gross domestic product is for the state they represent or the country as a whole and could not guess reliably by how much it grew last quarter.

Does this mean gross domestic product is harmless? Not necessarily. Many who oppose the dominance of gross domestic product in policymaking believe it is the dominance of gross domestic product thinking that causes problems, not the day-to-day use of the metric in policymaking itself.

It is for this reason that I question Shama’s insistence that making per-capita gross domestic product the “main target of policymakers and the key measure of progress” will result in better policy. Policymakers consider a range of quantitative and qualitative information when drafting legislation and casting votes and I’m willing bet dimes to donuts that gross domestic product as a trend and a number is not particularly influential.

The next question is obvious: then why care? If policymaking is dominated by individual philosophies, constituent concerns, party politics, and information from interest groups, then why focus on measurement of progress and success at all?

This is a sticky question. Political Scientist Ron Haskins argues that, anecdotally, research only makes up 1% of the total consideration by policymakers when crafting policy. So are we bickering about an already-neglected slice of the pie?

The promise of evidence-based policymaking is in a sense utopian. We are fighting for facts in an age of convenient falsehoods. But anyone who has worked with policymakers or who knows one knows that, as a whole, they are people who want to know the truth.

While policymakers are often stereotyped as self-interested and political, researchers have found evidence that about a quarter of state legislators in at least one setting were enthusiastic users of research and only one in six are skeptical nonusers of research. Policymakers want information, but they want information that will help them to make better decisions and craft policy that will help the people they serve.

The way I understand good policy analysis is similar to the ancient Indian parable of the blind men and the elephant. In this story, five blind men touch an elephant. The man touching the ear describes the elephant as like a fan. The man touching the tusk describes it as like a spear. The man touching the trunk describes the elephant as like a thick snake. The man touching the leg describes it as a tree trunk. The man touching its side describes it as like a wall. And the man touching its tail describes it as like a rope. Of course each of these men are wrong in their exact assessment, but they are also right together: an elephant is all of these things.

Good public policy analysis acknowledges that good public policy is multifaceted as well. The economic analyst tells us that people as a whole are getting more of what they want. The poverty analyst is telling us how many count among the least well-off among us. The inequality analyst tells us how close or far we are from one another in income. The human development analyst tells us how much rich, educated, and healthy the population is. And the happiness analyst tells us how well people are assessing their own lives.

All of these considerations have a place in policymaking. And it is only through use of better measures that we will come closer to understanding the elephant that is better public policy in the United States and across the world.

This commentary first appeared on the Gross National Happiness USA Website.

Ohio economists tepid on legalized sports betting

In a survey published by Scioto Analysis this morning, surveyed economists presented a range of opinions on the impact of sports betting on the Ohio economy.

Of the 23 respondents, 10 agreed that legalizing sports betting would have benefits that would outweigh the economic costs of the intervention, though many of those who agreed noted the problem of gambling addiction.

Another nine were uncertain about the impact. Among that group was Bluffton University’s Jonathan Andreas, who said legalization “wouldn't be an economic benefit if it just replaces other less-addictive forms of entertainment in the state.” Four economists disagreed with the statement, saying benefits would likely be small and could be swamped by costs borne by people with addiction.

The panel was even more split on the question of whether sports betting legalization could reduce inequality in the state, with nine economists saying it could, seven uncertain, and seven in disagreement. Those in agreement said that targeted spending of revenue could reduce inequality.

Those who were uncertain said that they were unsure whether spending could be targeted correctly to make up for the harm caused by sports betting addiction. Economists who disagreed emphasized that new revenue from one source usually means reduction in revenue from another source, causing no new benefit overall.

The Ohio Economic Experts Panel is a panel of over 40 Ohio Economists from over 30 Ohio higher educational institutions conducted by Scioto Analysis. The goal of the Ohio Economic Experts Panel is to promote better policy outcomes by providing policymakers, policy influencers, and the public with the informed opinions of Ohio’s leading economists.

Scioto Analysis Releases Analysis of Antipoverty Proposals

This morning, Scioto Analysis released an analysis of three antipoverty proposals—one to end poverty in Ohio, one to provide guaranteed income for Ohioans, and one to target deep poverty in Ohio.

All three of the proposals would double the income of individuals in deep poverty and would have substantial impacts on other individuals in poverty as well. All three proposals would also have large impacts on racial inequality of income and would sharply reduce poverty rates in urban and Appalachian Ohio.

“With the passage of the expanded Child Tax Credit in the American Rescue Plan Act, cash transfers are front and center in the American political discourse,” said Scioto Analysis Principal Rob Moore, “this analysis shows what the impacts of cash transfers could be on poverty in Ohio.”

While these interventions would be effective and equitable, they would also be costly, with the three proposals estimated at a cost of $10-12 billion per year.

“More work needs to be done on modeling the financing of proposals such as these,” said Moore.

This analysis builds on Scioto Analysis’s past work calculating the most accurate poverty measure in the state to date. The analysts used the dataset, built on the base dataset of the American Community Survey and supplemented with Current Population Survey data, to simulate the impacts of different policies on incomes in the state of Ohio.

This analysis was led by Madeleine Gaw, Mansi Kathuria, and Sky Mihaylo, Master of Public Policy candidates at the University of California, Berkeley’s Goldman School of Public Policy.

Human Rights and Economics: The Non-Tradeoff

In common political conversation, economics and human rights can be pitted against one another. Whether we are talking about the environment, tax policy, public health, or human service provision, we often talk about the growth of the economy as a tradeoff against human rights considerations, such as the rights to health, safety, and education.

In policy after policy area, however, we find that economics and human rights are not truly in tension. As a matter of fact, when we look closer at policy, we find you can often improve human rights by growing the economy or vice-versa.

In the area of long-term care, we see the improvements made in deinstitutionalization over the past decade improving both the fiscal picture for governments as it improves the rights and freedoms for elderly residents. Providing more support for elderly people to age in their homes is cheaper, thus freeing up economic resources for other uses at the same time that it allows for people to live lives that are more free and self-directed. 

We’ve seen a similar dynamic play out in tax and transfer policy. A cost-benefit analysis conducted by Scioto Analysis shows that the earned income tax credit, the most important anti-poverty program in the United States outside of Social Security, both reduces poverty and grows the economy.

Proper considerations of the true economic costs of carbon emissions shows that environmental policy is also punctuated by a positive relationship between human rights and economic growth. Understanding that pollution is a negative externality that levies costs on people not involved in the supply or purchase of energy shows that pollution is a drag on the economy. Thus, measures to reduce pollution can both secure the rights of people who are impacted by pollution and can help grow the economy.

One more example is that of high-quality child care. Child care subsidies are often seen as a subsidy for low-income families to work or for children from low-income families to receive care. High-quality child care and early childhood education also has a strong economic benefit it achieves by helping train tomorrow’s workforce, outfitting children with fundamental socio-emotional skills that increase earnings and educational attainment.

Income is a fundamental indicator in human development. The Human Development Index uses income along with education and health as a cornerstone of understanding how well countries are securing the rights of their citizens. Income is a fundamental tool families use to achieve the goals they wish to achieve.

While it is easy to demonize economics and its influence on the public policy process, at its foundation economics is about getting people more of what they want. And what do families want? They want to be healthy, educated, productive, comfortable, and to contribute. Giving people the resources they need to do so allows them to secure their rights. 

This is the logic behind the historic 2020-2021 expansions of the child tax credit. When a child grows up in poverty, it is harder for her to get access to healthy foods, to secure opportunities for education, to have adequate housing, and to access the plethora of other resources a family can get access to with more income. Thus, transfers that increase the resources of low-income families reduce poverty in the short-term while improving the long-term prospects of their children to contribute to the broader economy.

Economics is not in essential tension with the concept of human rights. Ultimately, economics is the study of how we can get more benefit out of the resources we have. What better tool is there for the sincere activist for human rights?

Proposed trucking reforms offload costs on public

In April of 2020, the world saw the largest immediate contraction of consumer spending in recorded history. The fits and starts in the bounce back from this contraction is largely a function of the speed at which the world shut down and opened back up again. While 2020 was the year of hundreds of thousands of onions rotting in the soil, 2021 is the year of longer pizza delivery times and longer times on hold with customer support.

In light of the issues of supply chain readjustment in 2021, Gov. Mike DeWine has called for lifting regulations on the trucking industry to increase the flow of goods in the state. Will these efforts at deregulation have a substantial impact on supply chain inefficiencies in Ohio?

One change DeWine calls for permanently increasing the number of pounds a truck can carry without a permit from 80,000 to 90,000, a 13% increase. While ODOT spokesman Matt Burning says that this change could save drivers up to an hour per load, he minimizes the cost borne to communities in the form of higher maintenance costs on roads due to more wear and tear on them.

Permitting is a market-friendly approach to dealing with this problem. A trucking company must pay a fee that reflects the cost it exacts on the public by damaging roads. Making the extra damage caused by higher weight limits free for trucking companies transfers the cost of hauling from the trucking company to the public. This increase in allowance for unpermitted hauling is in effect a proposed subsidy for the trucking industry from the state, not a particularly market-friendly reform.

Another proposal from DeWine is to lift the federal COVID-19 vaccine mandate for truckers. This is a strange proposal from a governor who has been as supportive of vaccination as to put forth one of the most innovative public relations programs in the country to promote vaccination. Industry groups have decried vaccine mandates, claiming that over two-thirds of the current trucking workforce will quit their jobs over the vaccine mandate, a figure 14 times higher than credible public health polling has found among the unvaccinated.

While some are likely to quit their jobs over vaccine mandates, the widespread evidence of the effectiveness of the vaccine suggests building public health policies around their desires is playing with viral fire. The loss in economic value from people switching to new jobs is unlikely to outweigh the potential loss of life by further spread of a dangerous virus.

Other proposals the governor is pushing for is to lower the age for commercial driver’s licensing and letting drivers stay on the road longer. While the governor maintains reducing regulations on age of drivers and hours drivers should spend on the road would have minimal public health impacts, crash rates for 18 and 19-year-olds are 28% higher than those for 20 to 24-year-olds and it has long been established that more time driving leads to higher crash rates.

Some approaches to deregulation like reduced requirements for licensing could be beneficial to improving industry prospects. Increased loads, less vaccinations, and younger drivers working longer hours, however, are likely to unload costs of the industry on third parties. While some of these changes could have some benefits for the industry, they will come at substantial cost to the public.

This commentary first appeared in the Ohio Capital Journal.

$300 million for nursing homes is a head scratcher

Late last month, Republican state Rep. Sara Carruthers of Hamilton introduced House Bill 461, a bill designed to appropriate $300 million in federal American Rescue Plan funds as a one-time payment to Ohio nursing facilities.

We all know that as people age, they need extra support. Nursing facilities are a key piece of the puzzle for providing people with support as they enter a phase of their life when independent living becomes more and more difficult.

Traditionally, Ohio has leaned heavily on nursing facilities to provide long-term care support to its aging residents. For instance, in 1993, 91% of Ohioans receiving state Medicaid dollars to pay for their long-term care services were in nursing homes.

Over time, this reliance on nursing facilities for long-term care has come under scrutiny by policymakers. There is strong evidence that nursing facilities represent diseconomies of scale, where the services required for a nursing facility end up being much more expensive on a per-patient basis than smaller, community-based models for providing long-term care services.

On top of this, many worry about the quality of care associated with use of nursing facilities. People who stay in nursing facilities usually have less control over their day-to-day activities and less friendships than people in community care settings, two key aspects of quality of life in old age.

These twin problems of costs and quality have driven policymakers to shift public dollars to supporting seniors’ ability to stay in the community rather than moving into nursing homes. By 2015, a majority of people receiving Medicaid were in community settings rather than in nursing facilities.

Nursing facilities became a flashpoint during the COVID-19 pandemic. About one in three deaths statewide have been among long-term care facility residents according to Ohio Department of Health data. 

Part of the reason nursing homes have been so deadly is because COVID-19 has been much more deadly for elderly Ohioans: nearly 3 in 4 COVID-19 deaths in Ohio have been among people age 70 and older. Part of the reason nursing homes have been so deadly is because of the congregate care nature of nursing facilities. Just as Ohio’s densely-populated prison settings made them early flashpoints for massive COVID outbreaks, the dense settings of nursing homes and close contact between workers and residents made them especially dangerous places for spread of the deadly disease.

The American Rescue Plan Act provides $250 million nationwide for “strike teams” to fight COVID-19 outbreaks in nursing homes. It also provides an additional $200 million nationwide for quality improvement around infection control and vaccination uptake at nursing homes.

In light of these allocations, the suggested unrestricted funding for nursing homes in House Bill 461 of $300 million, over a third of what Ohio has remaining to spend from the American Rescue Act, seems very high. Additionally, much has been made in the media about the fact that the bill does not direct funding toward specific programs to combat COVID-19 or provide additional specific health supports for residents.

In a world where we are moving more toward cheaper, higher-quality options for seniors to spend more of their lives in their homes rather than facilities, a large, lump-sum grant of unrestricted funding to facilities that do the opposite of this seems like a strange choice. Policy should be built on what provides the most benefit beneficiaries at the least cost to the public, and nursing homes have not traditionally done this.

This commentary first appeared in the Ohio Capital Journal.

Ohio economists skeptical of stadium subsidies

In a survey published by Scioto Analysis this morning, only two of 23 Ohio economist respondents agreed that subsidies for sports stadiums create local economic benefits that outweigh their economic costs.

Among the 18 economists who disagreed with the statement, a number noted that money spent at stadiums would usually be spent elsewhere, so new economic activity is often not being generated by a new stadium. Those who agreed also tended to mention that other uses of public dollars could have larger social returns, offering the examples of education, infrastructure, parks, housing improvements, environmental interventions, youth and re-entry programs, and addition and recovery services as alternate uses of funds.

Among those uncertain about the economic value of stadium subsidies, their comments focused on the details of a given subsidy. These economists mentioned considerations such as the multiplier effects of subsidies, the timing of subsidies, and the magnitude of subsidies as all playing into the size of the benefit.

Of the two economists who agreed subsidies had net benefits, one noted that stadiums can provide national advertising for a city and promote social cohesion.

The Ohio Economic Experts Panel is a panel of over 40 Ohio Economists from over 30 Ohio higher educational institutions conducted by Scioto Analysis. The goal of the Ohio Economic Experts Panel is to promote better policy outcomes by providing policymakers, policy influencers, and the public with the informed opinions of Ohio’s leading economists.

How can we improve Ohio’s commercial activity tax?

Last month, the Ohio House’s Ways and Means Committee held a hearing on House Bill 234, a bill that would repeal Ohio’s commercial activity tax. 

The commercial activity tax raises about $2 billion a year by taxing revenues of businesses in the state. Lawmakers worry, though, that the focus on gross receipts hurt businesses with tighter profit margins to the benefit of those that enjoy healthier profit margins.

While the criteria policymakers champion here for this reform is fairness, there is also an economic efficiency consideration for this reform. If an investor is trying to decide whether to put her money into a low-margin new restaurant or a high-margin new jewelry retailer, a tax on gross receipts will encourage her to put her money toward the jeweler. This has nothing to do with the viability of the business or the economic fundamentals of the investment, specifically the value it will generate for consumers, suppliers, and investors. It is only based on the structure of profits within the company.

So there is both a fairness and economic justification for reform of the tax. Does this mean outright repeal is the right answer to this problem? Most of our largest taxes such as state income taxes and sales taxes are distortionary in some way, but we don’t jump straight to repeal as the policy solution. Inefficient taxes can actually have net economic benefits if they are used to fund investments like education which build human capital and grow our state economy in the long run.

Imagining that an inefficient or unfair tax requires a dichotomous choice structure between preservation and repeal is an oversimplification. Ideally, a state tax structure works to balance ideals of equity, efficiency, and fairness with the need to raise revenue for public projects that do the same. Do we have better tools to do this than the commercial activity tax?

A popular solution for this problem in Europe is the value added tax, a tax on sales that is levied at every level of production of goods and services, thus spreading the tax across the economy and making it much less distortionary than other taxes. European countries use this tax to fund safety net features that make up for its regressive nature, thus ending up with more equitable outcomes while distorting the economy less than an income tax or a simple sales tax.

Policymakers in the United States are not ignorant of value added taxation. A value added tax was in the original version of the Tax Cut and Jobs Act during the Trump administration. Our neighbor to the north Michigan had a state version of a value added tax for decades. Ohio could look to models overseas and proposed in the United States for inspiration.

In today’s polarized environment, it’s easy to talk about taxes like they are all good or all bad, but a more sober analysis reveals a more complex truth: taxes are simply tools. Taxes can destructively push people into poverty if designed poorly and can cause minimal economic damage while reducing inequality and funding vital public services if designed well. More thoughtful analysis will lead to a tax structure that is more efficient, fair, equitable, and robust than the one we have now.

This commentary first appeared in the Ohio Capital Journal.

Ohio House legislation could make Ohio’s bad water problems worse

For the past few years, my firm Scioto Analysis has published a series of studies of Ohio’s Genuine Progress Indicator, a “GDP+” measure that monetizes the impact of environmental damage and external social benefits and costs of nonmarket activity in the state.

One of the biggest takeaways we’ve found year after year from doing this study and comparing Ohio’s results to those in other states is how poorly Ohio stacks up when it comes to water quality. Lower water quality means less opportunities for residents to fish, boat, and swim and can lead to negative health impacts and loss of biodiversity, all of which exact costs on the residents of a state.

While the average state had a typical resident bearing about $139 in costs in 2011 (the most recent year we have state-by-state Genuine Progress Indicator data for), the average Ohioan bore $219 in costs, a rate more than 50% higher than that in other states.

Ohio tends to be pretty middle-of-the-road with most indicators, so this sort of exceptionally large problem should be an area of concern for policymakers, especially those who care about environmental protection and those who have districts that benefit from lake and river tourism.

Top policymakers in the state including the governor and legislative leaders have identified harmful algae blooms as a policy priority and have passed some legislation to reduce fertilizer runoff. At the same time they have shied away from a fertilizer tax that leading state economists endorse as a solution for reducing fertilizer runoff and thus algae blooms.

Most recently, the legislature has been considering a bill that could exacerbate Ohio’s problems with water quality. House Bill 175, passed by the Ohio House last month, would exclude streams and pools that appear during rainstorms from water pollution control programs, specifically eliminating their requirement to undergo water quality certification review in order to reduce the cost of development associated with building around these streams and pools.

It is easy to see why this sort of legislation is attractive to policymakers. Those worried about the cost of development see this as a tool the public sector can wield to reduce a cost for development. Those who are interested in development of more affordable housing should see reason to reduce barriers to development that can increase the supply of housing and thus stabilize increases in the cost of housing.

That being said, the $5 water quality certification review fee per linear foot of stream to be impacted is not likely to have a massive impact on whether a development can happen or not. Also, though the magnitude of the problem is hard to ascertain, the reduction in water quality review will likely have some negative impacts on water quality. If these “ephemeral features” run fertilizer or chemicals into the water supply, they could contribute to the further degradation of a natural asset that Ohio already struggles to maintain.

Keeping costs of development low can be a worthy cause, but what do we lose in the process of doing it? Possible environmental damage needs to be balanced against the supposed benefits of such a policy.

This commentary first appeared in the Ohio Capital Journal.

Ohio's economists agree coal subsidies are not good for Ohio's economy

In a survey published by Scioto Analysis this morning, all 22 Ohio economists who responded were skeptical of the ability of coal subsidies to improve Ohio’s economy.

Of the 22 economists who responded, 21 disagreed with the statement that subsidies for coal plants would grow the economy, with 13 disagreeing strongly. The remaining economist was uncertain about the impact. Among those who disagreed with the statement, the problem of the negative external cost of coal pollution was raised in comments multiple times.

Economists who disagreed with the statement also talked about the way subsidies distort the market in the absence of positive externalities, with the public sector picking certain projects over others that do not provide a net benefit to society. Multiple economists also talked about how renewable energy sources that have positive social benefits would be a better target for subsidies than nonrenewable resources with net negative social benefits.

The Ohio Economic Experts Panel is a panel of over 40 Ohio Economists from over 30 Ohio higher educational institutions conducted by Scioto Analysis. The goal of the Ohio Economic Experts Panel is to promote better policy outcomes by providing policymakers, policy influencers, and the public with the informed opinions of Ohio’s leading economists.