It is election season and the op-ed pages are filled with commentaries on the good and bad features of the Hoosier economy. As an economist, I have a somewhat different perspective.
Today, the Hoosier economy is performing much better than it should be expected to. In nearly every metric, Indiana outperforms the nation as a whole. Job growth is strong, incomes rise, the labor force expands, GDP and investment all grow briskly. Viewed through the short-term prism, Indiana’s growth is the envy of most of the nation.
The credit for much of this unexpected prosperity lies both in significant policy changes of the last decade and serendipity. Quite simply, as the Great Recession began to ebb, Indiana had its fiscal and regulatory policy house in order. This meant the recovery was stronger, and broader than it should have been.
Objectively viewed, growth in Indiana’s economy is much faster than expected. The problem is that we start so far behind.
Indiana incomes continue to be much below the nation as a whole, and cost of living differences don’t get close to making up the difference. The simple reason for lower income is that Indiana continues to suffer low educational achievement. This is due to historically poor educational performance and the inability of the state to attract educated workers to our cities.
A little analysis of the impact of this is helpful. Given Indiana’s educational attainment (the share of adults with a bachelor’s degree) our per capita income should be approximately $1,500 less than it currently is. One interpretation of this is that Hoosiers are $1,500 richer than they should be, in part because of serendipity and a strong business climate. But that’s not the important lesson from these data.
If during the past half century Indiana managed to boost educational attainment from where it is now, to the national average, incomes would be higher by $5,500 per person.
In other words, we are currently doing better than we should be expected to, but are much worse off than we should be.
So the policy debate of the 2016 general election should be about changing this. That is no easy task, for it means boosting the share of adults with a college degree from 22.5 percent to the national average of 28 percent. Along with this, we need to elevate every other metric from high school graduation rates to professional degrees. I will take two broad efforts.
First, we have to continue our educational reforms in ways that deliver results. We need a department of education that cares about both success for all students; in public and private schools, and is focused on something other than preserving the status quo.
Second, we have to make more of our cities into places that people want to live in and move to. We simply cannot raise educational attainment without population growth. The Regional Cities Initiative is a strong first step, but we need to go much further.
Without more vigorous attention to education and population growth, Indiana’s long-term prospects will never match the short-run success we are currently enjoying.