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President Obama 4President Obama’s popularity numbers have soared recently and it ought not to be a surprise. Despite being held back for years by the stubborn refusal of conservatives to fund an adequate stimulus effort and being far short of where it ought to be, the national economic recovery continues to advance. Better times generally produce better numbers for the President.

Here’s the other obvious factor in the President’s rising popularity with voters: he’s stopped trying to play nice with the forces of reaction. Instead of sticking to his doomed efforts to find common ground with the forces on the Right who would never agree to anything, he’s started taking the bull by the horns and giving voice to the kinds of positions that the people who elected him have long hoped for: a direct confrontation of greed and inequality, assertive immigration reform, a foreign policy that eschews serving as the world’s self-appointed police force and a renewed commitment to combating climate change.

Even for folks who may disagree with the President on some issues, his decisiveness and principled, strong leadership on these and other issues are clearly what people want and expect from him. Let’s hope the President is buoyed and emboldened by the positive public reaction to this new, more assertive leadership style and that it becomes one of the defining features of the final two years of his presidency.

NC Budget and Tax Center

The 13th Annual Economic Forecast Forum, sponsored by the North Carolina Chamber of Commerce and North Carolina Bankers Association was held on Monday, January 5th. The event raised a range of issues, but a few are particularly relevant to the upcoming legislative session and the economic prospects of North Carolinians.

More cash for incentives is Governor McCrory’s first legislative priority: In his remarks, Governor McCrory launched an impassioned plea for a new economic development fund to lure large businesses to North Carolina. Saying that he is negotiating with companies that are considering investing in North Carolina, the Governor said that his first legislative priority is creating a new incentive fund. North Carolina already gives away millions of dollars a year in incentives, but being even more generous with large companies is the Governor’s first order of business for the new legislative session.

Regardless of what you think about incentives generally, it is rather odd to see the Governor making the creation of a new fund his top priority. First, incentives often go to companies that locate in parts of the state that already enjoy robust economic growth, so doubling down on this approach to economic development will likely do little to help areas that are struggling the most. Second, the program that the Governor described would only help very large corporations, which would ignore the vital role that small and medium sized companies play in creating new jobs. Third, we are heading into a legislative session where funds are already stretched thin for vital state services, so it is unclear what would have to be cut in order to free up funds to pay out to large mobile companies. If this policy is passed early in the legislative session, as the Governor insists is necessary, the real cost will only become clear when it comes time to produce a balanced budget several months later.

Head of Blue Cross Blue Shield of North Carolina touts Medicaid expansion: Brad Wilson, President and CEO of Blue Cross Blue Shield argued that state leaders should change course and opt to expand Medicaid, a move that would cover hundreds of thousands of people, with the bill being largely paid by the federal government. Wilson pointed out that the failure to expand Medicaid has left more than half a million North Carolinians without health coverage and has cost the state $1.1 billion in federal funding. Not expanding Medicaid results in North Carolina taxpayers subsidizing health care costs in other states with none of those funds returning to serve the residents of our state. Moreover, because people who would otherwise be covered by expanding Medicaid are forced to seek medical care through emergency rooms, and often lack the resources to pay for that care, health insurers are forced to increase premiums on North Carolina rate payers to cover the costs of covering the uninsured. The result is that North Carolinians end of paying twice for not expanding Medicaid, once when we file our federal taxes and again when we pay our health insurance bill.

Mr. Wilson referenced a new economic report showing that all counties would benefit from expanding Medicaid. In contrast to most economic development grants, Medicaid expansion would inject capital and create jobs in virtually every community across North Carolina, while also improving the health and productivity of the workforce in the process.  Wilson’s statements are important in and of themselves, but they are also part of a larger trend. More Republican governors, like Florida’s Rick Scott, who initially wanted nothing to do with anything connected to Obamacare, have come to support expanding Medicaid. Beyond the moral dimension, expanding Medicaid has significant economic upside for the state, and it is telling that this event featured a prominent member of the business community making just that case.

Wells Fargo economist projects robust growth in coming years: Wells Fargo Managing Director and Chief Economist Mark Vitner is bullish about North Carolina’s economic prospects in the next few years. Saying that we have finally hit the “sweet spot” of the current expansion, Vitner expects 3-4% growth per year for 2015 and 2016. Vitner noted that all sectors except government saw employment growth in the last year, and expects to see the same this year. Even the residential housing market is starting to recover, having digested the glut of housing left by the recession, and North Carolina’s growing population creating more long-term demand for homes and apartments.

Current growth does appear to be strengthening but the recovery to date has been too reliant on low-wage jobs, has been largely concentrated in urban areas and frankly employment growth has been insufficient to keep up with the state’s growing population. So while North Carolina is poised to follow the national trend of an improving economy, we need to keep an eye on whether growth translates into decent pay and jobs for everyone in the state who wants to work.  State policy decisions over the next year will influence whether the recovery comes home across North Carolina. Policymakers will have opportunities to address the uneven recovery and ensure that people can find good jobs, affordable healthcare, quality education, and economically vibrant local communities.

Concerns about a “barbell economy”: A morning panel on the role of technology in North Carolina’s economic future repeatedly addressed the disappearance of mid-wage jobs. The term “barbell economy” was used to describe the rapid growth in low-wage and high-wage jobs in recent years, coupled with meager job opportunities in the middle of the wage scale. Panelists expressed concern that as technology replaces human labor in many industries, we could be looking at a long-term decline in the number of middle-income jobs. This may be the most troubling long-term trend facing North Carolina. The hollowing-out of the labor market, with more and more of the wealth generated by the economy going to a smaller and smaller group of people, makes it more difficult to sustain the middle class economic activities—buying goods and services, purchasing homes, sending kids to college– that support robust growth.

The forecast presented at the Chamber forum was generally sunny, with solid growth over the next few years across most industries, but there are deeper questions about the long-term structure of the labor market, and whether solid growth will continue to create enough medium-wage jobs to support a middle-class. This is not just a North Carolina story, but it is something that we can do something about, and it was heartening to see this issue highlighted at this event.

NC Budget and Tax Center

While swinging from one crisis to the next for the last several years, we have often lost sight of some long-term trends that we can’t ignore forever. For the last several decades, the United States has been growing apart, not together. The middle class has been contracting, rising out of poverty remains difficult, and parents doubt whether they can provide a better life for their children than they had. The American Dream, an organizing article of faith that helped to build the most diverse and wealthy nation in human history, is in trouble.

2014 End of Year Charts_wage growth

Over the last 35 years, median wages have hardly moved while people at the top of the income distribution have enjoyed significant income growth. As can be seen in the chart above, after adjusting for inflation the top 20% of wage earners have seen their income grow by more than $5 per hour since 1980, while folks at the median have seen less than half of that growth. This means that less and less of the prosperity generated by the North Carolina economy is going to the middle class. It has been a slow process, and one with many causes, but the trend is clear, increasingly present, and dangerous. If the middle class slowly disappears, the American Dream will go with it.

The long-term trends do not just spell trouble for the middle class. As can be seen below, the last decade has seen an explosion in the number of North Carolina counties that are home to high levels of inequality and poverty. The share of counties with this troubling paring of high-inequality and high-poverty has doubled since 2000, going from roughly 30% to over 60%. This means that in more than half of the counties in our state, income growth is doing little to lift people out of poverty. Again, the sort of trend that saps energy out of the American Dream.

2014 End of Year Charts_inequality and poverty

The potency of the American Dream relies on hard work being rewarded, talent being recognized, and people sharing in the wealth they create. If poor and working North Carolinians’ piece of the pie created keeps getting smaller, we will lose the source of our greatest competitive advantage in the modern economy, the American dream.

Looking back a year end and ahead into the future, the Budget and Tax Center compiled a 2014 Chartbook, which looks at a range of critical economic issues facing North Carolina. The bottom line is that we still have a long way to go and the growth that we are seeing is not exceptional but rather in line with the improving national picture.  The recovery has been built on low-wage jobs resulting in the persistence of elevated poverty levels despite improvements overall. State policy choices, namely the decision to cut taxes for the wealthy few and profitable corporations, have made it impossible to strengthen the infrastructure of opportunity in the state.  The result is that the recovery is bypassing many North Carolinians and communities and contributing to the growing divide in experience of opportunity and prosperity.

Commentary

The good people at Too Much Online - a newsletter put out by the group Inequality.org have an interesting and provocative idea that would seem guaranteed to improve the image of  America’s nonprofit community (which has been suffering from depressed contributions of late) and help combat the nation’s runaway inequality: cap nonprofit CEO salaries.

“Jack Gerard, the CEO of the American Petroleum Institute, pulled down $13.3 million in compensation last year. Yet his Institute operates as a ‘nonprofit’ — and reaps a variety of tax benefits from that status. In effect, average Americans are subsidizing this lobbying giant for the fossil fuels industry. Back in 1998, a member of Congress from New Jersey, Robert Menendez, introduced legislation to cap the salary that nonprofit executives could grab at no more than the salaries of U.S. cabinet secretaries, currently just under $200,000. That legislation never moved. But economist Dean Baker recently resurrected the notion of limiting the executive pay nonprofits could dish out and still qualify for nonprofit status. That limit could be tied to the ratio between a nonprofit’s CEO and typical worker pay. The 2010 Dodd-Frank Act requires for-profit corporations to disclose this ratio. Menendez introduced this disclosure mandate provision.”

Sounds like a good idea to us. As economist Dean Baker notes in the column cited above (which discusses the idea of capping the pay of university presidents):

“The universities will also complain that they cannot get qualified people for $400,000 a year. This one should invite a healthy dose of ridicule. If we can get qualified people to run the Defense Department and Department of Health and Human Services for half this amount, perhaps their school is not the sort of institution that deserves taxpayer support if it can’t find anyone willing to make the sacrifice of running the place for twice the pay of a cabinet secretary.

Free market economics is so much fun!”

Commentary

The maddening data on wealth inequality in America have now gotten so ridiculously out of hand that the headline for this post really does sum up what ought to be the single, defining issue in today’s election. For confirmation, check out the following amazing graphic from the good people at Inequality.org.

Wealth inequality