Archive for the ‘NH’ category

Funding Roads and Bridges to Perdition

March 25, 2013

Gasoline taxes, road tolls and highway infrastructure spending are issues at the forefront of a lot of heated debates in state legislatures across the country.  I am going to write about the issue a couple of times this week.   Some lawmakers want to raise sales or other taxes to pay for infrastructure and others want to increase gasoline taxes and other “user fees” to pay for it.   The highway infrastructure spending and revenue issue can illustrate classic principles of sound fiscal and economic policy so it is too bad that the debates have generally taken the “low road” by framing the issue almost entirely as either one of “who wants to raise taxes and who doesn’t,” or “who wants to makes roads and bridges safe and who doesn’t”.

User fees are a good thing and it is sound fiscal policy to have the users of roads pay for them via gasoline taxes, road tolls, and other fees that reflect an individual’s usage of roads and bridges.  When general revenues are used to pay for roads and bridges people who don’t necessarily use them wind-up paying for a portion of highways and subsidize the usage of roads of those who travel them a lot.  When you subsidize something you can bet you are going to get more of it than you would have gotten without the subsidy and in this case that means more travel on roads which, of course, means there will be more need for roads and spending on roads and that means more subsidy and that approach is surely a road to perdition.

It was nice to see New Hampshire rank high in a recent report (issue brief) by the Tax Foundation on the percentage of  highway spending that is funded by user fees like gasoline taxes, tolls and other fees.  Unfortunately, in making good points about user fees, the Foundation draws the wrong conclusion about the data it uses to make them.  That happens a lot when you use bivariate analysis to draw conclusions in a multivariate world.  Instead, using multivariate (regression) analysis on the data, it becomes clear that it is less the use of good principles of fiscal policy that results in states paying for a higher percentage of the costs of highways with user fees, than it is a function of the volume of federal government grants they receive.  So a cursory look at the Tax Foundation’s report can give NH a sense of superiority in fiscal policy over many states (while I generally think that is true about NH it is not so much in this case),  and especially over Vermont because that state funds just under 20% of its highway spending with user fees compared to NH’s 42%.  The real reason those percentages are what they are is that Vermont receives about 64% more federal highway funds per capita than does NH ($220 to $134 in 2010). The chart below shows the simple relationship between the percentage of highway spending in a state that is funded by gas taxes and user fees and the amount of federal highway funding per capita in each state.

User fees and Fed funds

States like NH that fund a higher percentage of highway expenditures with user fees do generally receives lower amounts of highway funds from the feds (the data point slope downward to the right).  There are even more intervening variables, like the amount of federal highways (by mile) and as a percentage of all highways that are in a state but still, by far, the amount of federal highway funding per capita is the best predictor of the volume of highway spending per capita in each state. The amount of motor vehicle-related user fees per capita were a distant second but still significantly related to highway spending.

Fed Highway per capita

Almost everyone agrees that NH’s (and every other state’s) roads and bridges are in need but I don’t think the debate is ever going to be about the wisdom of user fees versus general revenues in paying for highway infrastructure.  It is too bad because if it were we just might reduce the need for more spending in the future.

A Hot Topic for a Cold Day

March 18, 2013

Climate change skeptics have to appreciate that there is no better time to talk about the topic and about global warming than during a period of below average temperatures.  I don’t expect anyone to believe anything I say unless I can empirically demonstrate my point so I appreciate those who bring solid empirical evidence to a debate while leaving ideology and polemics out.

In the competition for our time and attention the issue of climate change competes with a lot issues that seem to more directly and immediately impact us.  At least that was the case for me until I heard a presentation on the impacts of climate change on the Piscataqua River Basin/Great Bay region of NH and Maine.  As a guest of a local Rotary Club I heard a presentation by Prof. Cameron Wake of the Institute for Earth, Oceans, and Space at the University of NH.   You can get a copy of the report here.   It is one thing to generically consider an issue like climate change, it is another to consider it in the context of evidence of how it directly impacts those things and those people whom you care deeply about.  I love the Piscataqua and Great Bay and Little Bay region.  I walk with my best friend almost daily there – I took these pictures yesterday.

IMG_20130317_100056IMG_20130317_093300

So when I hear solid empirical evidence of threats to it I listen.  It makes me wish I listened sooner and it also makes me wish similar reports could be written for every region where someone cares about the natural amenities around them that will be affected by climate change.   I regularly work for companies that burn fossil fuels to produce electricity and none of them have been robber-barons unconcerned about the potential impact of carbon on climate change.  They too all have places like the Piscataqua River Basin that they love.

Durham temp proj

I hate anecdotal evidence but it is hard for me not to consider the reduction in cold temperatures and snow during winter months (despite tomorrow’s and this winter’s events) from when I was a youth growing-up along the Canadian border (and successfully defending it against the insufferably polite hordes of the great white north).  The number of extreme rain events and the three or four 100  year floods (just in the past 15 years)  since I arrived in NH (the 1980’s)was not, for me at least,  definitive evidence of climate change until I saw the data in the larger research context presented by the Piscataqua River Basin report. The more dramatic impacts of climate change won’t occur until after I am gone but the forecasts of the change in my region contained in the report and presentation by Professor Wake make clear to me the importance of action now.  If you get a chance, look at the report or better yet, invite Prof. Wake to make a presentation.  The data and information is great but his ability to present it is even better.

extreme precip forecast

Small Business is Not Booming

March 12, 2013

The National Federation of Independent Businesses just released its monthly report on the condition of  small businesses nationally.  The report is based on a national survey and state-level results are not available.  However you feel about NFIB or their advocacy positions their monthly report is a valuable source of  information about the issues and factors affecting small businesses.

Robust economic growth does not occur unless small businesses are confident, healthy, and hiring.  That seems especially true in NH and is one reason NH’s job growth has been slower than the national average.  I especially pay attention to the headline portion of the NFIB’s monthly survey,  it’s “Small Business Optimism Index”,  because it seems to be a pretty good indicator of near-term job growth in the U.S. and NH.  The simple correlation between the NFIB Small Business Optimism Index (lagged 3 months because it takes some time for optimism/confidence to affect hiring plans) and U.S. Job Growth  is about .68, while the correlation between the NFIB Index and NH employment growth is about .74.   Thus the relationship is slightly stronger between the Index and job growth in NH than it is for the U.S. as a whole.  The NFIB Index inched-up in February, but overall it remains relatively low, suggesting that small businesses aren’t yet ready to provide the boost to hiring that typically occurs in a strong recovery from recession.

NFIB Index and Job Growth

 

A more troubling indicator of the health of small businesses (and thus hiring plans) comes from the Experian/Moody’s Analytics Small Business Credit Index.  This quarterly assessment of the financial health of small businesses suggests the balance sheets of small businesses (in the aggregate) deteriorated in the fourth quarter of 2012.   According to the quarterly report:

“Delinquent balances rose, pushing the share of delinquent dollars higher to 9.7 percent from the prior quarter’s 9.4 percent. A slowdown in personal income growth led to sluggish retail sales, hurting small-business revenues. Though small firms have worked to trim their labor costs in recent months, sales have fallen more quickly, forcing many small companies to borrow funds to cover their payroll expenses…..The next six to nine months likely will be lean ones for small businesses as rising taxes strain household budgets  and nervous firms of all sizes postpone hiring, thereby stunting the jobs recovery. Consumer sentiment is likely to remain subdued, and spending will be underwhelming, which will keep pressure on small-business balance sheets.”

Experian Moodys  Credit Conditions

 

Even A Broken Clock is Accurate Twice a Day

March 8, 2013

I am frequently in error but rarely in doubt, so when I am right I have to make sure someone notices.  Good news was reported today  on job growth nationally, as an estimated 236,000 jobs were added across the country in February.   I hate to sound jaded but in each of the prior two years job growth looked to be accelerating early in the year only to experience a significant mid-year  slump.  For now, however,  it is a positive sign.  I have been especially and uncharacteristically gloomy in my characterization of NH’s economy but there was some little reported good news on that front released last week.  The annual benchmark employment revisions showed that NH has 9,600 more jobs than originally estimated.  I won’t get into why the revisions are necessary and can result in some significant changes in the numbers  but in my very first post in this blog back in October I highlighted the disconnect between the volume of  help-wanted advertising in NH and estimates of job growth in the state.

“In the first ever Trend Lines blog post I begin by asking a basic question:  Could the most recent job growth picture in NH be distorted by numbers that will later be revised?”

I also suggested that growth trends in reported wages and salaries  in the state were also inconsistent with estimated job growth trends. In that post and in subsequent  posts (here and here) and others as well, I talked about a potential “skills gap” as a contributor to the disconnect between help-wanted ads and NH’s reported job growth.  I think a “skills gap” is a contributing factor  but as I argued in my first and subsequent  posts –  my money is on job growth being revised upward.  It is nice to be right but it really doesn’t change the overall theme of NH’s economy- that it continues to under perform relative to states it typically outperforms.  That was also predictable:

“…that the jobs data is wrong and will be revised upward early next year, is real,  but that doesn’t mean the revisions will show NH is again outperforming its neighbors or the nation.  It just means we will look less bad over the past year or so than we do right now.”

Five months later I think that still  sums-up my feelings about the revisions, its good to know we have more jobs but we are still in a growth mode that is too slow.  With the revised job numbers for NH the relationship between help-wanted advertising and reported job growth looks more appropriate.

NH Revised Emp

The revised job numbers also are more consistent with PolEcon’s NH Leading Index which had been signalling stronger employment growth in NH than was first reported.  The revised job numbers are more consistent with the signals provided by the Leading Index.   That may not mean much to anyone but to me it means I won’t have to spend a lot of time re-calibrating the Index and that means a more enjoyable weekend.  Enjoy yours.

Leading index and revised emp

Betting on Gambling Assumptions

March 5, 2013

The gambling debate in NH is as hot as it has ever been as the NH Senate just passed a casino gambling bill.  Since I have no dog in the fight (or more appropriate to the debate – no pony in the race) I’ll use this blog to add my $.02.   I think the issue will be decided largely on the basis of something other than the impact casino gambling would  have on state revenues, but to the extent that fiscal impacts are a part of  policymaker’s decision process I’d like to see them have access to the best information and tools with which to make their decision.   Public policy analysis is not physics, there aren’t formulas with constants that govern  behaviors today the same way they did one million years ago.   Policy research is mostly social science that relies on a combination of disciplines like economics, sociology, and demography, and others.  The goal of policy analysis isn’t to prove anything or have something published in an academic journal (a fact usually lost on academics)  it is to improve the information in the debate and to marginally improve the decision-making process.  Policy research is best when it not only provides information, but also when it increases policy maker’s understanding of the issue and how even small changes in policy proposals might affect the ultimate impact of a proposal.   A lot of lobbyists want to provide the one “answer” to what will be the impact of this or that proposal or what will be its fiscal costs or benefits.  A lot of lawmakers want a single “point estimate” of impacts as well, when in fact there is always a range of likely impacts (some more likely than others) and usually they depend on a set of assumptions.   I’ve done a lot of policy research and I never assume anyone will agree with any of the assumptions I include in my policy models so I always design them for policy makers to insert their own assumptions in order to calculate the impacts of policy proposals.  That both increases the confidence policy makers have in their decision-making by helping them understand the sensitivities of estimates to different assumptions and the key determinants or levers that produce different impacts, and it reduces concerns that my analyses are using unrealistic assumption or “cooking” the numbers.  But what it really does is provide a ‘tool” for policy makers to use rather than giving them my “answer” to any policy question.  I usually do have my preferred answer but it doesn’t do any good unless lawmakers can see that it isn’t just “my preferred answer” bu the result of some pretty sound empirical analysis, even when it can be interpreted differently.  Invariably I offer to make my models available to policy makers but to date at least, only a few have every taken my up on it.

With that long preface I’d like to suggest that all sides of the gambling debate make their models and assumptions available and allow policy makers to get a better understanding of the sensitivities of their estimates to different assumptions.  My friend Dennis Delay at the NH Center for Public Policy Studies  is about the best there is at shooting straight and trying to develop the best estimates possible but while he does the analysis I don’t think he does all of the report writing so I would like to see more attention in their analysis of gambling to demonstrating likely impacts under a range of assumptions because it seems that not everyone agrees with theirs.  I haven’t seen any detailed analyses by gambling proponents and think they need to provide their assumptions and models for estimating revenues and impacts as well if they want lawmakers to adopt their proposals (they may have done this I just haven’t seen any analysis).

To demonstrate how important assumptions are in estimating revenues I developed a small model of gambling revenue in NH (not including any social costs).  The model results presented below assume one casino in Southern NH with 5,000 slot machines (or video lottery terminals) but any number of slots can be entered as a variable.  The base for state revenues (on which a state tax would be applied) is estimated using  per slot machine revenue data from Connecticut Casinos for the most recent year (2012).  This seems like the most similar market but again, a different per slot figure can be entered into the model to yield different results.  In addition, different tax rates and different impacts from Massachusetts casinos can be entered into the model.  I’m not trying to estimate revenues here but I am trying to highlight just how important model assumptions can be in determining fiscal impacts and until all sides show how their estimates are affected by their assumptions I think it is hard for lawmakers to make reasoned decisions based on fiscal impacts.  As the chart below shows, estimated state revenues vary greatly when even a few assumptions change.  The “Y” or left, vertical  axis shows estimated state revenues, and the “X”  or bottom, horizontal axis shows increasing tax rates from left to right.  Each colored line on the graph shows estimated state revenue at each tax rate and each  colored line represents a different assumption about the impact on revenues depending on how much casinos in Massachusetts affect casino revenues in NH.

Sensitivity of Revenue Estimates

Finally, I would like someone to articulate and provide some data on how  casinos in NH would perform in a competitive market depending on the type of experience they provide.  That seems to me to be a question best answered by the industry.  I think it is important in understanding the impacts of an increasingly competitive gambling market and the data I have looked at suggest that, at least in Nevada (see below), casinos have derived an increasing share of their revenues from rooms, meals, beverages, retail and shows.  Entertainment seems to play a larger role in the business models of casinos in that state and I wonder if that will be true in NH or in Massachusetts and what are the implications if it isn’t in either, both, or if it is in just one state.

Sources of Casino Revenue

Educational Attainment, Economic Prosperity and Fiscal Reality

March 4, 2013

I write and speak a lot about the importance of demographics to community and regional prosperity.  Over the past several years I have written and spoken about my belief that communities wanting to increase the number and quality of employment opportunities available in their town increasingly need to recognize the importance of being an attractive place for skilled individuals with higher levels of educational attainment.  Employers in emerging and growing industries  locate in areas where the pool of talent (skilled, well-educated individuals) is “deep” or growing.   A community can still see employment growth even if it doesn’t have a lot of skilled, well-educated individuals if it is located in a region that does have enough of them but the impact on and benefits to the community will be very different.

It is hard to empirically test the importance of skill levels and educational attainment to job growth in individual communities but anyone involved with the location and expansion decisions of employers knows how important the availability of a skilled and educated labor force is.  Because the occupational needs of employers in different industries varies greatly, I, and others, often use the percentage of the population age 25+ with at least a bachelor’s degree as a surrogate for trends in the education and skill-level of the workforce in a community or region. It’s a good way to labelled an elitist, at least by those who don’t know anything about you.  I don’t think only college graduates can get good jobs but it is clear to me that trends in the educational attainment of the population of cities and towns is a pretty good indicator of how the economic fortunes of a community are changing. I’ve tested the relationship statistically and found that there is a  relationship between the change in the percentage of individuals age 25+ with at least a BA degree in a community and employment growth over the past decade.  There are a lot of factors that influence employment growth but over past decade communities that have had larger increases in the percentage of individuals with high levels of educational attainment generally have had better job growth (or at least less negative growth).  The relationship narrowly missed statistical significance when tested on NH’s 40 most populated communities.  Since the recession in the early 2000’s, there has been virtually no private sector job growth in NH (primarily because the last “‘great recession” wiped-out gains from the middle of the decade).  The chart below crudely divides NH’s larger communities into quartiles according to the change between 2000 and 2010 in the percentage of their population age 25+ that has at least a BA degree and the mean change in private sector employment between 2003 and 2011.  One caveat, the figures for 2010 used to calculate this is based on the three-year average of American Community Survey values and smaller communities have larger margins of error in the survey results.  It is just one of the challenges in documenting the relationship between demographics and economic performance at the community level.  Nevertheless, I think  the data point to a relationship were towns that are seeing increasing levels of educational attainment among their population are performing better economically than than those that are seeing less of an increase.

job growth and ed attainment change

It also says a lot about how the character of a community might be changing.  I live in city that has seen a significant increase in the percentage of its population with a BA degree or higher over the past two decades.  That change has contributed to changing expectations of the community (the type of services and amenities it offers).  That type of change creates a clash between the old and new that has and continues to characterize many communities.  In many ways I believe local tax cap debates are more about demographic and socioeconomic changes than they are about economics and fiscal policies.  But I digress.

Skilled individuals with higher levels of educational attainment have the most economic opportunities and they are the most mobile.  I think keeping and attracting skilled individuals with higher levels of educational attainment is an increasingly important economic development strategy for communities.  Looking at changes in educational attainment between 2000 and 2010 among NH’s largest communities shows some interesting patterns.  Not surprisingly, some of the communities that have done the most to restrain expenditures have seen the smallest increases in educational attainment levels (some towns like Durham had such high levels – 77%  – they have no way to increase much).

ed attainment change by town

Spending liberally is never a good thing but providing the services and amenities desired by skilled and educated individuals and families at a price (in terms of local taxes) lower than other communities is a good way to accumulate the talented workforce that can increase real prosperity in a community.  Just adding skilled and educated individuals isn’t enough for employment growth, particularly if a community doesn’t want to be a center of employment or is otherwise inhospitable to employment growth.   I don’t think a low tax price alone is enough to attract talent and I don’t think providing amenities and services without regard to price is enough either, but too often never the twain shall meet in striking a balance between prices and  services and amenities and longer-term community development objectives.  I don’t know many local budgets that can’t be cut but unfortunately the cuts usually come at the expense of those services and amenities most likely to help a community attract or retain individuals with the most economic opportunities and choices of where to locate.  When I say or write these things I risk being labeled a big spender or liberal.  In reality I am just documenting trends that seem pretty clear to me.  Nevertheless, my advice to others is never bring data to an ideological fight if you want to escape unscathed.  In an age of austerity, spending decisions need to consider both the current  fiscal reality as well as the longer-term implications for the economic prospects  of  a community.

Where Never is Heard a Discouraging Word

February 27, 2013

Without an accurate assessment of where you are you can’t chart a course to get to where you want to be.   In the context of efforts to strengthen regional and state economies, however,  plotting your coordinates seems especially difficult.   For decades New Hampshire (including me) has become accustomed to hearing that its economy is “doing better than most other states”  and that we can expect to grow faster than a majority of states and all other states in the Northeast.  I have blogged here several times about how that is not currently the case but because about five people read this blog there isn’t much fallout.  But  when someone like me suggests, in a public forum,  that NH is lagging and that superior growth is not currently the case for the state, you can expect some incredulity and push back.

State 12 Month Job Growth

When you speak in a community and present lots of data that suggests it is lagging even more, then you can expect the push back to more likely come with a closed fist.  And when that community is close to where you live, well  it’s probably best to get an unlisted phone number.  I’m no prophet but if I were I  think it would  probably be impossible to be one in your own land.  I like to be the bearer of good news but when the data doesn’t suggest good news is warranted I don’t change the data or the news about it that I bring.  Long ago I learned that being right too early will feel a lot like being wrong.  I don’t know who was more offended by my presentation yesterday at a local chamber of commerce, people who feel I know nothing about their community, the people who think I know nothing about New Hampshire, the people who think I don’t understand the U.S. economy, or the people who think I know nothing about any of these.   An informal tally to-date suggests about an even split.

I am not a twitter user or follower, I am only marginally able to follow my own thoughts and activities throughout the day, but if I were and if I were able to expand the size of a tweet, this is how it would summarize my remarks at the chamber forum:

Economic growth is increasingly associated with concentrations of skilled, well-educated individuals and any state’s, region’s, or community’s longer-term prosperity is likely to be correlated with its ability to attract and retain these individuals.  The ability to keep and attract this demographic is as much a requisite for job growth as it is a result so any region’s development strategy should attend to its capacity to appeal to this  demographic and look to leverage the associated economic benefits .  Understanding the direction of these trends in your community or region, likely tells a lot about recent and future economic performance.

If you happen to discover oil or shale gas under your state or community that tweet applies a lot less.  In addition, small communities can see strong growth from just one or two businesses, but with some exceptions and over the longer-term,  I think the summary holds true.   I am a first generation college graduate and my beginning, and likely my ending, doesn’t warrant even a whiff of elitism of any sort.  But making an association between educational attainment and economic growth apparently implies a disparaging of those who are not college graduates, just as the notion that NH’s economy is growing more slowly than some of the states that we are accustomed to regularly outperforming apparently implies an indictment of “the NH way” compared to to other states.

One or two years of weaker economic growth is not a signal of apocalypse, but its not a bad idea to wonder if it is and to consider ways to avoid it.   For me, the apocalyptic story  for NH would be that, over the longer-term, we become a slow employment growth state that is also a higher cost-of-living state.

State Cost of Living

High costs and slow employment growth have characterized too many states in the Northeast as well as California and they have all suffered as a result.  But at least in California you still have nice weather.

PureHost is “PureHell” and a Reprise of a Cautionary Column

January 15, 2013

Unless I send-out email notifications about posts on this blog I don’t get a lot of readers. Either I don’t have much of anything interesting to post or people have more than enough to look at without needing another nerdy economic and policy blog to read.  I’d put-up a poll to determine which is more responsible if I weren’t afraid of the results.   Thanks to my web host (PureHost or “PureHell” as I have come to know it) any email that contains a link to my or another WordPress blog is filtered from outgoing or incoming email – thus no email notices to eager readers who just need a little prompting about the “can’t live without” information in this blog.

So while I spend another day with poor tech support trying to resolve the email foible, Ive decided to reprise a column (slightly shortened) that I wrote for Business New Hampshire Magazine after the November 2010 elections.   It is a cautionary opine about the election results and in retrospect holds-up pretty well.  I liked it in 2010 and I like it as much now –  Business New Hampshire Magazine liked it so much that they stopped asking me to write a policy column shortly thereafter.

(From a January 2011 Column I Wrote for Business NH Magazine)

The  Double-Edged Sword of Populism

“Mass movements can rise and spread without belief in a God, but never without belief in a devil.”

      Eric Hoffer “The True Believer: Thoughts on the Nature of Mass Movements” (1951)

The tsunami that swept conservative Republicans into elective office this past November is due, in large part, to a mass movement called the Tea Party that shook the political ground and released seismic levels of populist energy in New Hampshire and across the country.

It’s a businesses community’s dream if the November election produces a public policy agenda of smaller government, lower taxes, and fewer regulations.  The big government, more regulation, higher spending, and bailout policies of recent years are the “devil” that unified the Tea Party movement in New Hampshire and the nation and what makes the movement’s agenda attractive to many business leaders.  But neither seismic nor populist energy is predictable, and neither has yet been effectively harnessed.

From its inception in 2009 through the November elections, what the Tea Party was against was more important to the business community than what the movement was for.  As long as the business community and Tea Party populism share as their common “devil,” big government, more regulations and more spending, then their interests are generally aligned.    But many, if not a majority in the loosely defined Tea Party movement have no love for much of the business world – big business, finance, insurance,  and multi-national companies to name a few – they just happen to dislike President Obama and most Democrats more.

What “devil” will unify and sustain the populist movement after it has vanquished Democrats and/or big government?  For businesses in New Hampshire, especially larger corporations, the stakes are large.   The anti-immigration sympathies of Tea Party populists will clash with New Hampshire businesses increasing need to hire technology workers.  The average educational attainment of foreign-born workers in New Hampshire is higher than that of its native-born population.  About 45 percent of New Hampshire’s foreign-born residents have a bachelor’s degree or higher (the second highest of any state in the nation) compared to about one-third of native-born residents. Foreign born residents in New Hampshire make up an especially large percentage (32%) of al PhD’s and young workers age 25 to 34 with graduate degrees (24%).  Thirty (30) percent of computer programmers in New Hampshire are foreign born as are 25 percent of the software engineers in the state.

Populist calls for protectionism and anti-globalization sentiments can also threaten what will be about $4 billion in exports by New Hampshire manufacturers in 2010, as well as the jobs that those sales support, up about 60 percent from $2.5 billion just since 2005,.  In addition, the New Hampshire economy relies more on foreign direct investment than all but three states.  In 2008, almost seven percent of workers in New Hampshire were employed by foreign-owned firms.

New Hampshire’s economic successes over the past several decades are the result of a transition to an innovation-dependent, technology-rich, economy that increasingly relies on workers with higher levels of educational attainment, across virtually all industries.   Research and development, strong universities, high performing schools, attracting and retaining talented employees, and a reputation for being “ahead of the curve,” all support innovation.  There are different ways policy makers can support or facilitate innovation but it is critical that they recognize its importance.

The recent election is sure to produce many spending, revenue, and regulatory policies in New Hampshire that will please most businesses.  But at least a portion of the business community should be wary of becoming a unifying “devil” of the populist movement.   Small business is off- the-hook and it is easy to see why.  Most small businesses receive no loans, subsidies or other support from the government, and relatively few sell goods and services outside of the U.S. or hire any foreign-born workers.  Moreover, most of the high-profile public policies that energize the populist movement have their greatest impacts and generate the largest costs for small businesses.  Not all Americans love businesses or even capitalism, but they increasingly worship small business, according to one public opinion poll, small business is viewed more favorably by the public than are churches.

Big government is at the top of a short list of unifying ‘devils’ needed to sustain today’s populist movement, but “big” business isn’t far behind.  While occasionally justified, in New Hampshire it would be unfortunate.  New Hampshire is home to world-class, innovative businesses whose connections throughout the world benefit the state’s economy.  Financial institutions in the state have avoided the practices that evoked populist outrage and their lending has been a key to the milder recession and stronger recovery of our state’s economy.  Only about 100 New Hampshire businesses have more than 500 employees and only 260 have more than 250 employees, but combined they employ one-third of all workers in the state.  That is far from a majority, but if a movement targets businesses employing one-third of New Hampshire’s workers, it is best described as something other than populist.

We Need Better Incentives for Households to Reduce Electricty Consumption

January 14, 2013

Just like the NH and US economies are producing more goods and services with less and less energy content (as measured in BTUs per dollar of gross domestic product), so too is the NH economy producing more goods and services with the same or less electricity content.  As the chart below shows,  over the previous decade the total electricity consumed in NH (in kwhs) increased by just over 7%  while real gross state product increased over 36%.  The result is that electricity content (in terms of khws) per dollar of real NH GDP declined during the decade.

Electricity Consumption and Expenditures in NHl

Conservation and a changing industry mix have gone a long way toward restraining electricity consumption but a steep recession also contributed.  High electricity prices play a role in creating incentives for conservation but as the chart also shows, despite only a 7% increase in electricity consumption during the decade, total expenditures on electricity in NH increased by over 40% while expenditures by residential customers increased by over 50% during the decade.  Unfortunately, in a regulated market that guarantees a rate of return for some producers of electricity and which depends on variable  fuel costs, consumption of electricity and expenditures on electricity do not (for long) show the negative relationship that they do in many markets.  I think this tends to discourages household conservation efforts because they see less evidence of the payback from their efforts, even less so than say in oil and gasoline markets.  With gasoline or heating oil markets an individual or household can take steps to reduce consumption that yield tangible results in terms of reducing energy expenditures.  Reducing oil or gasoline consumption won’t always reduce absolute expenditures, as in the case of very dramatic price spikes seen in the recent past, but consumers at least see (and feel) a direct impact on their cash outlays as a result of their conservation or consumption behaviors.  But how do financial incentives for conservation affect  consumers of electricity when guaranteed rates of return allow for electricity prices that offset the impact on expenditures of their conservation efforts?   I think they produce what appears to be happening now in NH, the conservation efforts transform into just a  quest for lower prices.   Electricity consumers seek lower-cost providers of electricity who may not offer ceilings on future prices but who also don’t set a floor on prices because of guaranteed returns or because a shrinking base of customers requires guaranteed returns be paid for by fewer customers.  I am all for lower electricity prices but I get to call myself an environmentalist when I support incentives for conservation.  Such incentives will work best when they don’t yield only intermittent or temporary benefits

I don’t know whether the proposed Northern Pass Transmission Project (NPT) will actually result in lower prices for wholesale electricity or not.  I’ve seen conflicting studies from proponents and opponents (by way of disclosure I conducted a study of the NPT employment impacts for competitors of the companies planning NPT but I did not examine impacts on electricity prices nor do I have any contracts or agreements with anyone opposing or competing with NPT).  I do know that NH spent an estimated $1.616 billion on electricity in 2010 (the last year for which data is available from the U.S. Energy Information Agency).

NH Electricity Expenditures

That means if proponents of NPT are correct, and wholesale electricity prices in NH are reduced by about $25 million, and that wholesale price results in a similar reduction in retail electricity prices (?), then electricity expenditures in NH would be about 1.5% lower then they otherwise would be.  Whether illusory or not, given the consumption and expenditure trends lines above, it is hard to see that this impact on wholesale electricity prices will have much of an impact on the high cost of electricity in NH.

It Seems You Can’t Turn White Collars Blue

January 8, 2013

Two contradictory trends are occurring in NH’s labor market and as Ricky Ricardo would say “somebody’s got some splaining to do”.   I see no other hands up in the room so I will take a brief stab at it.  The chart below shows that help wanted ads in NH rose modestly this year but the rate of employment growth in the state has been declining.

Help wanted and Emp Growth iin NH

It is easy to rest things on, and to take things off, the top of a flat head so here are a few off the top of mine that could be influencing these trends: 1) It could be that more jobs are being advertised in NH but are for companies with multiple locations – including NH and nearby states (I think this is not likely to be having much affect), 2) advertised jobs are not being filled because there are not enough applicants companies want to hire – “the skills gap” again (I think this is significant based on conversations I’ve had with companies), 3) the job growth numbers in NH could be revised upward with the upcoming benchmark revisions (I think this is likely but it may not be as significant as I thought a few months ago).

Regular readers know I write too often about the skills gap.  I like the issue because it gets at so many issues of fundamental importance to the future of NH’s and the nation’s economy – education and training, k-12 and post-secondary education, young people and their guidance and direction etc.  The skills gap is most often associated with very skilled scientific and technical occupations but in NH at least, any skills gap may be more pronounced in production and skilled “blue collar” occupations.  Based on the volume of  help wanted advertising in the state since the recession, the demand for those occupations has increased significantly compared to management, financial, business, technical and scientific occupations.

Help Wanted by Occup Since Recession

Despite the large percentage increase in help wanted ads in production and skilled blue collar occupations, employment in industries that employ those occupations has grown little.  It may be that there is a lot of ‘churning” in those industries (some businesses hiring and some contracting) resulting in little net employment gain but the anecdotal evidence (I am reluctant to rely on such evidence but it is the best we have at the moment) is that many businesses who would hire production and skilled, blue collar workers are unable to find individuals to fill their positions.

It has been a relatively recent (over the last several decades) transition for NH to a more technology intensive economy that relies less on production and skilled, blue collar labor.  Once the core of the NH economy it has been a long while since NH was seen a a land of opportunity for those who worked with machines and tools (other than just  computers) and once you have moved on  it can be very hard to go back – even when there is a reward for doing so.


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