Hanauer_blog

Building An Ohio Economy That Works

Amy Hanauer Prepared Remarks

City Club of Cleveland, July 25, 2014

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Thanks Paul. I just wanted to start by saying that if you’re ever looking for someone to rehearse your speech on, think before you choose your 13-year old daughter. Mine assured me that none of my jokes were funny and that nobody would know the word “insurmountable”. I also had to pay her $10 to use that last sentence.

I run Policy Matters Ohio, a think tank devoted to creating a more vibrant, equitable, sustainable and inclusive Ohio. We’ve been doing this work for about 14 years and you can find us at policymattersohio.org.

So this is the first time I’ve been invited to speak at a Friday Forum although I’ve spoken on panels here and I’m thrilled to be invited. But since I’m in the business of analyzing numbers I calculate that if takes another 14 years for me to return, the US will have won the World Cup at least once, and Cleveland will have won 14 NBA championships – maybe 12. I also project that we’ll have full employment, a zero emissions energy system, peace in the Middle East and I will have nothing to say.

Actually, Dan let the record state that even if all of the above come to pass, I will still have something to say.

And if I don’t, faithful WCPN listeners will know that my husband Mark Cassell, also known as Mark from Shaker or Mark from Streetsboro or Mark from Kent, depending on where he is on the road between our house and his job teaching political science at KSU – in the highly unlikely event that I don’t have anything to say, Mark will. So keep our family on the list.

But in seriousness, I’m very happy to be here and so excited to see the amazing line-up of speakers that the City Club has been and will be welcoming.

Since I’ve been doing this work at Policy Matters, Ohio has lost jobs, had wages and incomes decline, and seen racial disparities endure and increase. So I’d have to say, in our mission of making the economy work for everyone, we’re not really hitting it out of the park. That’s because, while progressives have had some great victories, the views of the many terrific community organizers, worker representatives, environmentalists and other allies in this state, are not generally prevailing.

So what does it mean to have an economy that works for everyone? I think it includes 3 main things:

  • High productivity
  • High opportunity to contribute to and share in that productivity
  • A way to anticipate and deal with our biggest societal problems, which of course change. To me the current ones are inequality, overincarceration, waste (of both people and resources) and climate chaos.

There may be people in the audience who don’t care about one or more of these goals, but they seem like a reasonable starting place for a society that works not just for the few, but for everyone.

We never did a perfect job with these 3 things, but we used to do a much better job than we are today.

In the thirty years following World War II, we passed a number of major policies to make sure that we were creating decent jobs, that our productivity was growing, that workers were sharing in that growth, and that we were addressing at least SOME of our big societal challenges.

The good news is that I think we – as a country, a state, and even sometimes as communities – can pull it together and address these problems, maybe even better than before. These are not insurmountable.

It’s a matter of public choices

We choose the kind of economy we want to have

In the postwar period we chose to have an economy where prosperity was – with some important limits around race and gender – somewhat broadly shared.

In the past few decades, we are choosing an economy in which most of our strong productivity growth goes to the very wealthiest.

So, we have to decide what we want.

Comprehensively addressing all four of these might take more than half an hour, even for someone from NJ who speaks quickly!

So I’ll just say a little bit about tools to ensure job quality and decent wages, before moving on to how we include everybody. The modern economy has, paradoxically, pushed many more parents into the workplace, while also delivering less secure, more sporadic hours for some workers and more demands to have multiple jobs or work overtime for others. We’ve gone backward on paid sick days and we don’t ensure paid family leave, even as we expect people to juggle home and work responsibilities.

In the past we had a higher and regularly rising minimum wage; a social contract between business and society that many jobs came with retirement, health care, and a reasonable workweek; and a willingness to let workers stick together and bargain collectively through unions. I worry that we are letting all three of these things weaken substantially – the federal minimum wage, which is $7.25, would be over $18 if it had kept pace with productivity growth, and it now hasn’t changed since 2009 ($7.95 Ohio). 

The social contract – with the important exception of access to health care – has substantially eroded. And worst of all, to me, unions are a fraction of their former strength. This is a problem because supportive elected officials come and go, while unions once created an enduring voice for workers. I have yet to see any other mechanism that can deliver an economy where working people really share in the benefits.

So job quality matters and is not being delivered. But today I’m mostly going to focus on job creation, in both the public and the private sectors and happily, the sectors I focus on will also increase our productivity, reduce waste (of both people and energy), and address some societal problems. So, they are what some might call triple bottom line solutions that do more than one of the things that I talked about at the beginning.

In the US in general and in Ohio even more so, we are not creating the number of jobs or the number of good jobs that we need to. What this means is that people are remaining jobless or trapped in bad jobs for too long. It’s hard to fully capture the long-term harm this does to people, families, communities, and our economy.

Joblessness obviously means people get poorer, exhaust their savings, get evicted, get foreclosed upon, take out payday loans – all of the obvious things associated with not having a paycheck.

But it’s a lot more than that.

People’s skills erode, their health declines, they become less and less likely, with each passing month, to ever get a good job again. Their families can break up and their children can become less likely to thrive in school and in future careers.  Unemployment has permanent, tangible costs to society that too often go unquantified.

Of course it means that these people, their skills, their muscles, their ideas, their drive are not being tapped, which means we’re less productive than we should be.

Ohio is currently still more than 100,000 jobs below the number we had before the most recent recession and more than 330,000 jobs below the number we had before the 2000s recession.

After earlier recessions, within 3 or 3.5 years, we fully recovered jobs lost. In contrast we still haven’t gained back the jobs lost in either of the last two recessions, more than six and 13 long years later.

For those without jobs, the result can be brutal. The share of Ohio children living in deep poverty – at less than 50% of the federal poverty level -- rose from 9 to 12 percent in recent years. These families are living on less than $10,000 a year- I’m told this room holds 250 people – that means if we took two Friday forums with decent crowds, we’d have all spent more on those two lunches than these 3-person families live on in a year.

Even for those who have a job, many earn such low wages that they cannot pay for basics. Of the 12 largest occupational categories in Ohio, just one pays a median annual wage that can meet a basic family budget at full time hours for a family with a single working parent, an infant and a preschooler.  

So, it’s urgent that we address our high levels of joblessness and of bad jobs.

I admit there’s actually a limited amount that states can do to improve the underlying economy. A lot depends on the industrial mix you have, and all the Midwestern states have struggled with our manufacturing concentration. And since states have to balance their budgets, it can be hard to generate demand at the state level.

But there are a few things states CAN control. First, we can invest in education from Pre-K thru retirement, and the states that do more of this do much better.

Second, there is one sector that policy really can control – public jobs. After the 1981 and 1990 recessions, Ohio added public jobs, providing a counter-cyclical boost to the economy, providing more of the services that families need when they are struggling financially, and getting projects done while it was cheaper to do them in a down economy.

Between the start of this recession and last summer the country as a whole had added slightly (.04 percent) while Ohio had cut 6.4 percent of its public jobs, further weakening a poor employment situation. So at a time when there weren’t enough jobs, we took the jobs we had most control over and got rid of 6 out of every 100 of them.

This meant not only that the displaced teachers, firefighters, social workers and bus drivers were unavailable to deliver valuable public services to Ohioans but it also meant that those teachers and drivers didn’t have money to spend, making our overall economy weaker and creating a downward spiral. They didn’t buy new school shoes, they didn’t go to the corner diner, they laid off the babysitter.

In addition to retaining and rehiring existing public workers, we also have many needs in our communities, which currently unemployed or underemployed workers can fill. Filling these needs will employ workers now and position us much better for tomorrow.

So a quick econ lesson. A lot of these ideas come from John Maynard Keynes, the economist whose thinking underscores much of the economics devoted to creating demand for labor. OK, actually, maybe this is a psychology lesson. But in late 2008, when I’d been running an economic policy research institute for nearly 9 years, my father sent me an e-mail asking “did you ever take any economics in college?” and pasting in the Wikipedia definition of Keynesianism.

In fairness my father is proud and supportive of Policy Matters. But, the correct answer to that question is yes, I know who Keynes is and yes I’ve taken econ. So Keynes famously said that you could improve the economy by paying people to dig holes and fill them back in. Fortunately, that isn’t necessary, because we have many things that we can pay people to do that we actually need done.

I want to focus on two things that we’ve underinvested in and that can save us money in the long run.

The first is human capital.

America created one of the world’s first K-12 education systems, and with the GI bill we catapulted ourselves to being, in many ways, the most educated country on the planet, and it was terrific for our growth in the 50s, 60s and 70s. But we are no longer making the new investments needed so that young Ohioans can be ready to thrive and excel in our new, more demanding economy. And other states, not to mention other countries, are passing us by.

Now, to be clear, Ohioans HAVE become much more educated. Our increasing education, Ohio and nationally, has made us more productive. Increasing productivity on its own does NOT guarantee that workers share in that growth, as I mentioned at the outset. That’s why we need more unions and better workplace norms. But it’s a good employment strategy that improves lives, and states that do more of it do better.

So it starts with high quality early childcare for infants and toddlers. Quality care gets kids off on the right foot and for poor parents, it helps them keep jobs that don’t pay enough to cover this expensive necessity. But Ohio has gone backwards and now has one of the lowest eligibility rates in the nation for state childcare assistance: eligibility was reduced from 150 to 125 percent of poverty in the last budget. So if you earn $25,000, you won’t become eligible for help with childcare, but about HALF your income would get sucked up by childcare costs, before you even get to paying for rent, food, transportation and diapers.

Next comes Pre-K – I was happy last Friday when Governor Kasich and Columbus Mayor Coleman announced a small initiative to expand preschool for kids in Columbus. The City and school district of Cleveland and Cuyahoga County have also taken leadership. But let’s not deceive ourselves. We are not keeping pace with countries and states that are putting in place universal high quality pre-k for all three and four year olds. We were once a leader, under Governor Voinovich, on state funded head start. But recently, Ohio ranked 37th for enrolling 4-year olds in state pre-K in 2012.

Investing in early education is a way to create demand for workers and reduce unemployment now, while permanently improving lives and reducing future costs. Kids who get pre-K are more likely to thrive in elementary school, less likely to need remedial education, more likely to graduate, less likely to be incarcerated, more likely to attend college, less likely to have a baby before they can care for her, more likely to get a job and less likely to need public assistance. Ohio is taking some nice baby steps, but Oklahoma and other states (Illinois, Iowa, Georgia, West Virginia and Wisconsin and cities) are passing us by. And we’re dooming ourselves to lower future tax revenue and higher future costs for remedial education, incarceration, and public assistance.

K-12 – make no mistake – you can get a great, free, public education in this country. I did in NJ, my husband did in CA, and my kids are in Shaker Heights, OH. But not every district is Shaker Heights. In Ohio, state funding for K-12 education in this budget is more than $600 million dollars lower than it was in 2010-2011. When we surveyed districts about this last year, 70% said they were cutting their budgets, doing things like laying off teachers, getting rid of aides, raising class sizes, eliminating course offerings.

Higher education – this is also a daunting, and damning story in Ohio. Ohio has slashed aid for college students by a third over the past 10 years. We invest less in need-based aid per full-time undergraduate than any Midwestern. Ohio devotes LESS than it used to funding higher ed, and less than other states. We now rank 41st in the share of our income that we spend funding higher ed. Tuition has soared. We have the 6th highest share of graduates leaving with debt and the 9th highest average debt load. Appalling.

So we should be doing deep investments in all of these areas. It would mean rehiring a bunch of teachers and other school personnel we’ve laid off. It would also mean hiring many ambitious new young people struggling to find a foothold in our economy. And it would mean that many people in Ohio would be better positioned for their own educational and eventual job success.

OK, enough depressing education facts about how Ohio is failing the next generation. My other favorite area for investment is in conservation and green energy. This can be done with a mix of creating public jobs, and creating better policy that generates more private jobs.

I wish I could give a better analysis of Ohio’s approach in this area. But, alas, we spend a lot on energy in Ohio (about 10% of our gross state product). We waste a lot of energy in our inefficient electrical grid, fuel-guzzling cars, and leaky buildings. And we pollute a lot.

We put in place clean energy standards in 2008 that required electric companies to reduce energy use by 22% by the year 2025 and to generate 12.5 percent of energy from renewable sources, again, slowly phased in by 2025. It was a carefully-crafted bipartisan compromise. And the policy works. Utilities were investing in clean energy, creating jobs, creating a market for renewables, and reducing our consumption of polluting, largely imported fossil fuels. Utilities were producing and buying more wind and solar, and putting in place programs to help manufacturers, businesses and households reduce consumption and upgrade their buildings.

We just became the first state ever to freeze clean energy standards. We essentially hung up a big sign on our interstate telling wind turbine manufacturers that this is not a place to invest. And telling people who care about the future of our planet, particularly young people, that we don’t share that concern. It’s, frankly, mortifying.

We committed to continued inefficient use of energy. Currently we lose nearly 70 percent of energy during generation and transmission – basically throwing out two out of every three lumps of coal we use. This is a tremendous waste of money – nearly $20 billion a year. Imagine what we could do with that money! In case it hasn’t come through, I have some ideas.

Studies have found that every million dollars we spend upgrading homes and business creates 17 jobs. Instead of going backward, we should be insulating every public building in Ohio, doing it with union labor, and working with the building trades to create opportunities for a more diverse building trades workforce as we do so.

We should weatherize the home of every low-income family who struggle with their high energy costs.

We should also encourage utilities to let private building owners retrofit and finance it off of the savings on their energy bills. This brings lower prices for owners and job creation for insulators, solar panel producers, and construction workers. We can bring in the same pro-worker, pro diverse workforce standards on these private jobs. Utilities in at least 23 states are doing or getting ready to do some form of this.

Transit is another crucial way to green the economy while delivering other benefits. In 2010, Ohio tied with South Dakota for the eighth lowest investment of state-source funds among the 46 states that put money into transit. Ohio. South Dakota. Do these seem like states at similar levels of density to you? We have big urban populations, and growing numbers of young people who would love to ride transit to work. Hell I even know a few middle-aged people who would love to ride transit to work. Promoting transit increases vibrancy, reduces use of polluting fossil fuels, employs people, encourages biking (I had to get that in somehow) and makes it easier for poor families, who can’t afford a car, to keep a job.

So investments in the green infrastructure, like the human capital investments, would employ people now, reduce unemployment and poverty, and stimulate our still-too-slow economy. We have a phenomenal automobile parts-making infrastructure in Ohio and I think I have friends in the audience today who both produce those parts as workers and who own companies that supply this industry. Because of that, we make parts for wind turbines, solar panels and building retrofits so this investment would create both construction and manufacturing jobs here. We’d end up with lower energy bills, preserving resources for other smart investments. We’d emit less carbon and pollution, leaving our air cleaner and our planet less prone to crazy weather.

I tend to focus on the things that I think will lower emissions and reduce energy use but there are other needed job-creating infrastructure improvements. Come hear Jim Rokakis in a few weeks, talking about how demolishing blighted properties can create jobs and improve neighborhoods – he’s a national leader.

What all of these ideas share is that they reduce future public costs, they reduce waste (either waste of people or waste of resources), they employ people now and they make our lives better – our kids higher achieving, our prisons less full, our air less polluted, our asthma rates lower and our planet’s climate less chaotic.

All of these constitute what many people are now calling a middle-out approach. They grow the economy from the middle out. But that’s not really the approach we’ve been taking in Ohio. We’ve instead taken a discredited trickle-down approach. We’ve decided, over and over, that we’d rather have larger class sizes, fewer language offerings, higher college tuitions, lower student aid, fewer bus routes, more wasteful buildings and fewer pre-K slots, because we’d rather give enormous tax breaks to the wealthiest and corporations in Ohio.

Nine years ago, in 2005, the Ohio General Assembly passed an extraordinary set of tax cuts, justified on the promise that they would create jobs. It has not worked. We’ve actually lost jobs since these cuts were put in place.

It’s not just because the national economy was weak. Since the cuts were implemented, Ohio has had the fourth worst job growth rate among states. When we last counted, Ohio had lost more than 109,000 jobs since the phase-in began

Over that time, not a single sector in the Ohio economy has outpaced national performance. Ohio’s gains were smaller or our losses were bigger than the nation’s in every industry.

The windfall from almost all of this tax cutting was the wealthiest Ohioans and corporations. We estimate that the wealthiest taxpayers, on average, have gotten more than $20,000[1] in tax cuts each as a result of these and other changes, while taxes for the poorest have actually increased.

These and other tax cuts since have reduced state revenue by $3 billion a year.

And that’s just at the state level. At the federal level, we’ve also slashed taxes tremendously over the long run (from a top bracket of 70% in 1979 to 39.6%).

So there is plenty of room for restoring a more balanced approach.

The irony is that the wealthiest are already getting a much larger share of our economic pie even before we take an extra $20,000 a year out of Ohio schools and communities and hand it to them.

In Ohio, inflation-adjusted incomes of the top 1 percent grew 70 percent between 1979 and 2011, but the average real income for the entire bottom 99% fell 7.7 percent. I have to make sure you got that – income for the bottom 99% as a whole FELL, while we gave the top 1 percent an additional $70 for every $100 they already had!

In 2011, the average income of the top 1 percent in Ohio was 18.1 times as great as the average for the bottom 99 percent – that’s actually not quite as bad as the rest of the country, but obviously, it’s an insanely lopsided situation.

There’s more money because we’re more productive than we were. In Ohio, between 1979 and 2013 productivity increased by 67%, while median compensation actually fell.[2] Let me say that differently – workers were producing more than 1.6 times as much per hour, and they were making less!

So, we have the resources. We’re more productive than ever. The wealthy are wealthier than ever.

Here’s the thing: when you think about the challenges that we’ve taken on as a nation, at times when we were collectively much poorer than today, it’s pretty clear that this is all very surmountable.

We took an entirely agrarian uneducated society and transformed it into an educated industrial society in a few short decades

In 1940, only about one in four Americans had even a HS degree, now it’s well over 80%. Only 10% of American adults had any college at all, today it’s more than half. And less than 5% of adults had a bachelor’s degree in 1940, while close to one in three did by 2009.

We went from a society in the late 1930s when nearly 80% of senior citizens were in poverty, and transformed it to a society where less than 10% are.

We took a country that was viciously, violently divided along racial lines. We got rid of slavery and Jim Crow and we passed the civil rights act and the voting rights act so that – while we still have a way to go – you can find integrated classrooms and families and board rooms and communities all over America.

We watched our own river catch on fire, and we passed the clean water act, so that in that very river, last numbers I saw, more than 40 species of fish were thriving.

We eradicated polio and smallpox, dramatically reduced tooth decay with fluoridated water, drastically reduced the scourge of lead poisoning in kids by better regulating paint and gasoline.

I think, given the incredible accomplishments above, that we can figure out how to employ more Ohioans, how to deliver high quality pre-K, how to install some more wind turbines, how to reduce our use of polluting fossil fuels and how to create new markets for transit, renewables and conservation products.

And I don’t just think we can. I think we have to.

I wanted to close with a quote from one of my favorite new leaders, Heather McGhee, the 34-year old woman who now runs the national think tank Demos, on whose board I serve.

We are on the verge of something new and wonderful in America. Ours is a country where the ancestral lines of all the world’s communities have met and been offered the audacious promise that out of many, we could become one people. Of course we’ve never met that promise.

And in fact we too often forget that that IS the promise.

But I believe that our generation,” (Heather is a little younger than I am),  “the largest, most diverse, most progressive and most communitarian generation in America’s history

Will be the one to see that promise fulfilled.”

That’s the challenge I leave you with. Will we meet that promise and create a truly inclusive economy with opportunity for everyone? Or will we leave it for our kids’ and grandkids’ generation?

Thank you.


[1] This is from a forthcoming analysis conducted by the Institute on Taxation and Economic Policy for Policy Matters Ohio. The analysis was conducted in July 2014 and we expect to publish it before December 2014.

 

[2] This is from a forthcoming analysis conducted by the Economic Policy Institute for Policy Matters Ohio. The analysis was conducted in July 2014 and will be published in September 2014.

 

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