By Morton Marcus
Did you hear that? It sounded like trumpets from the Statehouse. A call, an inspiration for all Hoosiers in recognition of our Per Capita Personal Income growing by three percent in 2016, the fifth best rate in the nation.
Yes, what a jump we’ve made from 2015, when our growth rate was 36th in the U.S. We’re flying high. Look at the company we’re keeping. Only Maryland, Utah, Hawaii and California are growing faster in this most popular of all measures of economic well-being.
What many people forget is that the per capita personal income is a fraction with personal income on the top and population on the bottom. The rate goes up when income rises and goes down with more people.
But never mind. Never mind that if we didn’t have any population growth, our per capita income would have been the fastest growing of any state in the union. And if we only had some population decline, we could have shot the roof off growth.
Yes, it’s true, even if our leading leaders don’t understand it, population growth is bad for per capita personal income.
Now how can population growth be bad for something this sacred? Doesn’t personal income rise when we have more people? The answer: it depends.
If Mom comes home with new-born triplets and quits work at the Dollar General to tend to the children, family income will decline and now be shared by five instead of two. Unless children cause adults to work more, harder and smarter, per capita personal income will fall.
If more foreign students, from exotic places such as Ohio, attend college in our state, and don’t have high-paying jobs, then the rate will fall. If retired people choose our town for its festivals and sunsets, they will do little for personal income, unless they are wealthy and don’t do much traveling. Pensions and withdrawals from savings are not counted in personal income.
However, if the new folks in town have well-above- average paying jobs, the rate can rise. Statistically, there is no correlation between population growth and per capita personal income, and only a slight suggestion of that growth in personal income is related to population growth.
If a community is wedded to the dogma of per capita personal income, its best policy is to encourage children to move elsewhere until they earn enough to make a significant increase in personal income. How many times have you heard a governor, mayor or economic developer encourage children to leave the parental basement?
The elite of the political class and the drones of the economic development community have sold themselves on increasing per capita personal income and population. They encourage and subsidize entrepreneurial activity when it is clear that only a very few business proprietors earn more than ordinary workers.
Why do we choose the wrong metrics for success? But then why do we enjoy roller coasters and fake wrestling?
Morton Marcus is an economist, formerly with the Indiana University Kelley School of Business. Send comments to [email protected].
