Ohio's Leaders Need to Think Long-Term

In the last gubernatorial debate, Governor Strickland informed the viewers that “I’m happy to let the people of Ohio know tonight that according to the Federal Reserve out of Philadelphia, that Ohio now has the sixth fastest growing economy over the second quarter certainly.”

I am not sure if many people are assuaged by an uptick in an economic index that few people understand (for the record it is basically a complicated average of four labor market indicators), and the statement begs two further questions. First, is this recent performance just the Ohio economy temporarily reviving from a terrible starting point, or what is known in market parlance as a “dead cat bounce”? Second, do governors have any control over, and can they take credit for, month-to-month economic developments?

We will have to wait to answer the first question, but the answer to the second question is a resounding no. What control the governor does have over the Ohio economy comes from his ability to influence the general economic climate–the tax, spending, and education policies, primarily, which don’t lend themselves well to short-term manipulation of the economy.

It makes much more sense to judge an executive’s economic policies by considering their results over a broader period of time–such as a four year term of office. Here, the news is not so good. Rather than construct a complicated index, let’s just look at two important indicators that citizens really care about – the growth in personal income and the change in the unemployment rate. The table below shows that Ohio’s economy has struggled over the past four years.

Ohio Economic Performance Since January 2007
	Growth in Personal Income*		Increase in Unemployment Rate
	Rank Among the States	Actual % Change over the Period	Rank Among the States	Actual Percentage Point Increase
Ohio	44	-0.50	30	4.7
Indiana	40	0.67	41	5.6
Kentucky	21	4.72	24	4.3
Michigan	49	-4.85	47	6.3
Pennsylvania	22	4.32	35	5.0
West Virginia	12	7.71	28	4.6

*excluding Transfer Payments. Sources: Department of Commerce Bureau of Economic Analysis and Department of Labor Bureau of Labor Statistics.

Over this time period, the policies put in place by the Governor should impact the state’s economy to some degree, although clearly national forces will also be at work. To help control for these national changes, the table shows how Ohio ranks relative to the other states over the same time period (a higher number means performance was worse, the best performing state gets a rank of 1). The table includes how Ohio’s neighboring states to mitigate for economic forces that impacted the Midwest .

Ohio’s long-run performance leaves much to be desired. Our incomes are actually shrinking and we are doing relatively worse than most states and almost all of our neighbors. We fare scarcely better when it comes to unemployment, where the state remains below the average state performance and behind several of our Midwestern neighbors. On the bright side, we do lead Michigan on both counts, Go Bucks!

The data make clear that our political leaders should spend their time worrying about the long-run economic climate rather than attempting to take credit for short-run economic developments over which they have little control. The rooster crows loudly when the sun rises, but we all know that the rooster doesn’t deserve any credit for the sun’s appearance. Our next governor should be doing everything in his power to lower tax rates and broaden the tax base to help balance our budget rather than trying to pick winners in Third Frontier boondoggles. He should draft legislation to truly reform Ohio’s educational system rather than preserve the jobs and salaries of unionized teachers. He should not champion expensive, low-speed rail systems that will serve few at great expense to many. He should address the unfunded liabilities in the state employee’s pension plan. If he gets the long-term policies and incentives right, the month-to-month changes will take care of themselves.

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i We do not present per capita personal income because we do not have quarterly population estimates and because there is little change in state populations over this four year period. Finally, we exclude transfer payments from personal income because we want to measure earned income as opposed to dollars Ohio citizens receive from programs like Social Security and Temporary Assistance for Needy Families.