Bo Garcia invites Dr. Charles Ballard into the studio to talk about the state of Michigan's economy in 2024; where we came from, where we are, and where we're heading. Dr. Ballard has been an MSU professor since 1983. In 2007, he won the Outstanding Teacher Award in MSU’s College of Social Science. From 2007 until 2020, he was Director of the State of the State Survey, in MSU’s Institute for Public Policy and Social Research. He is Immediate Past Chair of the Board of Directors of the Michigan League for Public Policy. He has served as a consultant with the U.S. Departments of Agriculture, Health & Human Services, and Treasury, and with research institutes in Australia, Denmark, and Finland. His books include Michigan at the Millennium and Michigan’s Economic Future.

Greetings and welcome to At Home With Economics. I'm your host, Bo Garcia, Dean of Community Education and Workforce Development at Lansing Community College. At Home with Economics is a space where we explore business, workforce and community development initiatives and how they impact our daily lives.

Today we will be interviewing Dr. Charlie Ballard.

He has served as a consultant with the US Departments of Agriculture, Health and Human Services and Treasury, and with research institutes in Australia, Denmark and Finland. His books include Michigan at the Millennium and Michigan's economic future. Welcome, Dr. Ballard, and thank you for being with us today.

Thanks very much. Glad to be here. Thanks.

Oh, great.

Well, now, Dr. Ballard, when you were a guest on the show a couple years ago, Goldman Sachs had kind of expressed there was at that point about a 38% chance of a recession. What's happened that helped us avert that recession?

You know, there were lots of analysts who thought more than that, you know, that it was better than 50, 50 that we would have a recession. This was the most often predicted recession that at least not yet has, has happened. I think a couple things.

One, I gotta give some credit to the Federal Reserve.

Sure.

They have this mandate to try to maintain stable prices. And so when the inflation developed, they had to take steps to try to SL the economy. But I think they did it in a measured way.

They didn't slam on the brakes, they tapped on the brakes. So that's one thing. The other is that supply kept up. The productive side of the economy grew fast, faster than a lot of us expected.

I think a lot of workers came back.

I think some workers who had been working remotely came back to the office or to the plant, and some who had dropped out of the labor force came back into the labor force.

And that gives you extra room to keep the economy going. But while still moderating prices.

So it was a combination of public, private sector, workforce, supply chain, number of variables that kind of came together.

Yeah, I think the one that was the most pleasant surprise was how rapid productivity and production increased. We didn't know whether that was gonna happen. It did. That really made it a much better situation.

Yeah. Okay. You know, I caught your presentation at the Michigan Business Network and you had a chance to elaborate on that.

And that was one of things that resonated was our productivity in particular in Michigan.

So kind of along those lines, Dr. Baylor, what strengths do you think Michigan has that kind of helps insulate us from economic downturns or conversely, you know, what weaknesses do you think we have that make us a little more vulnerable to economic downturns?

Well, unfortunately, I think I'm going to start with the weaknesses. And this is something that has been a challenge for the Michigan economy going back for a century, really.

We used to have an economy that was extremely heavily dominated by manufacturing. For better or worse, and I think partly for worse, the manufacturing sector has not done as well as a lot of others.

And so we are much less dependent on manufacturing than we used to. Nevertheless, we are still much more into that than the average of the country.

And in particular, durable goods manufacturing and of course, automobiles leads the way.

Well, the thing about durable goods, especially a big ticket item like a car, you can put off buying a new car unless your old car just completely dies. You don't have to get a new one, and you can't put off going to the grocery store.

So there are certain sectors of the economy that are more sensitive to the business cycle. And the auto sector is near the top of the list of sectors that are sensitive.

The Federal Reserve stomped on the brakes. We did get a recession, but we did get out of the inflation.

What helps insulate us? Well, all the other things that aren't so cyclically sensitive help insulate us from downturns.

Yeah, yeah, it's kind of Two sides of the same coin, huh? You know, what we're dependent upon gives us a shape, but at the same time makes us like, yeah, yeah, it's shaky ground there.

Kind of along those lines, what discouraging and encouraging trends do you kind of see emerging in the economy that should give us some confidence or cause concern for us in the future? Here in Michigan, do you think?

Yeah, in Michigan and elsewhere. You know, the trends that I mentioned, strong workforce growth, strong increases in productivity, Those are all good.

And I don't have any reason to believe that they will stop, of course, predicting the future. You're asking me for my predictions? Let me quote one of my favorite quotes from Yogi Berra, the great sage Yogi Berra.

He said, it's tough to make predictions, especially about the future.

I know. Classic. True.

There are so many things going on.

You know, I look at Ukraine, Gaza Strip, Iran and Pakistan bombing each other, the Houthi rebels bombing ships in the Red Sea. I mean, there are a lot of things in the world economy that so far in the world situation that haven't really damage the US Economy.

But there could be spillovers that would be negative for us from all these things, and China's real estate sector imploding. And of course, we have very little control about these things that are beyond our borders.

But, you know, I think if we continue to work hard and businesses continue to innovate and young people continue to get an education, we got a pretty good chance.

Yeah, yeah, yeah, you're right.

It could be any one single significant event or a combination of multiple small events that just tips that scale in the direction that, you know, could set off a chain event of who knows what, who knows where.

Yeah, yeah. I mean, hard to predict. But the good news is that in the last year, especially.

I mean, if you had asked me a Year and a half ago for my prediction, I would have made some predictions and I thought there was a better than 50, 50 chance that we would have a recession or at least that we would come closer to a recession than we have.

Sure.

But so far it hasn't happened.

Now the economy has slowed down, but that that had to happen because some of it was just the rapid growth that you would expect on a rebound coming out of the COVID recession. And now that so many workers have come off the sidelines, there isn't as large a pool of new workers to fill the gap.

Yeah, yeah. Fascinating. I mean, what you said about productivity going back to that recently.

Actually, what do you think the state of Michigan can do to kind of continue to be appealing and attractive to industry that is looking for new locations to grow their companies or open new facilities and plants? I mean, it's highly competitive out there. We compete in South Carolina, Texas, Tennessee. So everybody's just slugging it out out there.

We have a tremendous asset here with the medc and Quint Messner and his team been a guest on the show as well. You know, what can we do? And what do you think is like Michigan's competitive edge to kind of help attract, retain.

Yeah, I think that one, at least potential competitive edge for Michigan is one that we need to just keep emphasizing again and again and again to ourselves and to the rest of the world. And that is that this is a great place to live.

Right.

We got one fifth of the world's fresh water. We have a variety of seasons.

I grew up in Texas, so I'm not a huge fan of winter, but when I talk to my sister in Austin in the summer and it's 107 there, I'm glad that I'm here in Michigan. And in fact, it hasn't happened on a large scale, but anecdotally there are stories.

I have a college classmate who spent most of her life in Texas, and she and her husband retired to Traverse City area because they couldn't take the heat in Dallas. So that, you know, quality of life. Remember Businesses are interested in their bottom line, right?

But the executive wants to be able to go to the theater. They want to go to a nice restaurant. They want to have parks and recreation. They want their children to have good educational opportunities.

And so one thing that I really emphasize that I think we need to do a lot more of is in the sector that you and I are involved in higher education. You know, the archetype of the successful Michigan worker of 50 years ago was somebody who fastened the same four bolts 107 times an hour.

Simple, repetitive tasks. Now, the archetype is somebody who programs the computer that runs the robots that fasten those bolts. It's a more highly skilled.

And in a lot of cases, it takes at least an associate's degree, maybe a bachelor's degree, some kind of training certificate, an apprenticeship or something. It takes beyond high school.

Right?

So I think educating our young people now, of course, the fruits of those investments won't be born next week, they'll be born next decade. But I think we need to continue along those lines. And you mentioned the medc. You know, honestly, I. I wish we didn't need an medc. I wish we did.

I wish that the world knew about all the good things in Michigan without somebody to make that phone call to put together. But I guess we do, because.

And so, you know, we have to continue to have people who put together the package, who know who to call, who can talk with the people in Arizona who are thinking of an investment, or in Germany who are thinking of investment, but also know the local economy. We need those people to put things together. So it's a bunch of factors. I'm cautiously optimistic.

I mean, I've lived two thirds of my life in Michigan and I'm glad I have. It's a great place to live. I think we need to blow our horn more than we do.

I'm a big fan of the Pure Michigan campaign, reminding us of the quality of life, because that's a big deal.

That's what a value proposition. You're so right.

Because at the end of the day, you know, we're more than our jobs and people need a life that they can enjoy, you know, before 8:00am and after 5:00pm and, you know, Michigan and the Mid Michigan region in particular, it's beautiful. You know, we have a Michigan State University down the Road, LCC, State Capitol. I couldn't agree with you more.

And I'm delighted that, you know, it is a team, you know, it's education and government and private sector and other, you know, organizations, nonprofits, excited to improve the quality, quality of life and standard of living as so many in our community. So thank you for that. And here's where I asked you to break out your crystal ball.

My crystal ball. That's just as foggy as what I drove through to come here to the studio this morning.

Yeah, it's like London outside right now.

Yeah.

So in relation to inflation and interest rates, what are your thoughts? I mean, like I said, I know that is way out there.

I mean, again, lots of things can happen, but with a little luck, I think that inflation will continue to moderate.

The core rate of inflation for the inflation measure that the Federal Reserve pays the most attention to, Consumer Price Index, is very well known, but it's viewed by economists as not being as reliable as some other indexes. The one that they pay attention to is for the last six months, it's at 2%. Well, that's their target. That's the upper end of their target.

Their target is between zero inflation and 2%. When you look at we were in the high single digits not much more than a year ago, bring it down to two is really good.

And I don't see any reason, barring something unforeseen, some calamity, who knows, another. I hope we don't have another pandemic, but I can't guarantee that it won't happen. So barring bad luck, I think inflation will continue to moderate.

And that would mean that interest rates would also drift downward. Now, historically, when interest rates go up, they go up a lot faster than they come down.

That's because lenders, for obvious reasons, they don't want to get stuck. And if there's been an inflationary episode, that means that they've lost money on some of their outstanding loans.

So for instance, we had this big inflation in the late 70s. By the middle 80s, the inflation had moderated to very low levels.

Wow.

Right.

And I believe they're likely, if we're lucky, to continue drifting downward. But I don't think they're Going to fall like a rock. They're going to. Up like a rocket, down like a feather here.

That's, that's my predict for the inches. And, you know, I could be wrong,.

You know, but then that sounds about right. I love that analogy. Up like a rocket, down like a feather. Yeah, yeah.

And it's careful, it's measured, it allows for anything that could possibly uncontrollable. So it might drift into the economy, you know, so. So then having to spike the rates again. So. Yeah, that makes perfect sense. Last question.

You know, Dr. Bailad, could you share your thoughts? And as you said, kind of, we're both in education, so, you know, this is near and dear to us.

The thoughts on the causes and potential solutions of the increasing gap between the richest and poorest in the US over the past 40, 50, 60 years.

Okay. You know, I hope you'll have me back again because this is a topic that we could devote an entire episode.

In fact, this is the central topic of Economics495@ Michigan State University. Economics of politics, poverty and income distribution, which I taught 10 times, including each of the last five years of my career.

Okay.

I think the phenomenal increase in inequality of income and wealth, it's arguably the biggest story of the US economy in my lifetime. There are other big stories, phenomenal growth of digital electronics and so on, but it's certainly a huge story.

And I want to Contrast the last 40 years with the 60 years or so that came before that, because earlier in the 20th century, there was a phenomenal decrease in inequality.

Most Americans, I don't think, are aware that there was an equally large decrease in inequality before that.

I had no idea.

Well, there's a book that's on my list for retirement and look for it on your shelves in about five or seven years. I hope. I hope.

All right, looking forward to it.

Called the Fall and Rise of Inequality. That' that's my byline, the Fall and Rise. Because it was a dramatic fall. How did it happen?

Well, some of it was global phenomena that were not associated with any law passed by Congress and signed by a president.

Some of it, but an awful lot of it was just policies in the Progressive Era and even before, especially in the New Deal, policies were aimed at helping the bottom 99% more than the top 1%. And in the last 40 years, a lot of those policies were either slowed down or reversed.

And policies have been tilted very much toward the top 1% with predictable consequences. You change your laws to help the super rich, the super rich are going to do well.

And you look at the parts of the country that were settled with the Homestead Act, Iowa, Nebraska, those are places that don't have concentrations of poverty, is that right? The concentrations of poverty are in other parts of the country where we didn't have that kind of solid middle class.

Then the, the antitrust laws and regulation of big business to try to control the, the excesses of big businesses.

Then progressive taxation, the, the progressive income tax, the corporation tax, the estate tax, those were all passed in an eight year period around the time of the first World War. Then you got in the Roosevelt administration. Better regulation of financial services. The Fair Labor Standards act established a minimum wage.

You have the National Labor Relations act, which made it a lot easier for unions to organize successfully. And union membership skyrocketed in the late 30s and into the 40s. Then there was a pullback.

Oh.

Explosion of educational opportunity in the early 20th century and all the way into the middle of the 20th century. Since then, educational attainment has continued to increase, but not as rapidly. So we had very progressive taxations through the 40s and 50s.

Right.

And then in the last much of my lifetime, income tax rates on the, the most affluent have come down. The estate tax rate has come way down. The corporate tax rate has come way down.

And so all of those were aimed at having the more affluent pay relatively more of the taxes. And that trend has been reversed with predictable consequences of a wider gap between rich and poor. Wow.

Wow. Econ495. We'll have to put that one on the list.

A lot more to say, Joe.

That was fascinating. I learned more in the last five minutes than I did in my econ classes. I can't tell you how much I Appreciate. That was super insightful.

And I'm sure our guests are going to appreciate that because that really does speak to kind of how we got to where we are and perhaps a roadmap for how we kind of find our way out of this.

And you can tell, I think, from my tone of voice, I like the income distribution that we had 50 years ago more than the unequal one that we have now. And if it were up to me, I would, well, go back to some of the policies of Franklin Roosevelt. Honestly, I would raise the minimum wage.

I would strengthen labor unions. I would put more resources into educational opportunity. I would have more progressive taxes and so on. Now, I know there are a lot of people who are.

Who are probably listening, and they're saying, string that guy up. Heresy. That's awful. But that's. People can disagree, but that's my view.

And those kind of policies, I think, would move in the direction of lessening the phenomenal income inequality and wealth inequality that we have now.

Right on. I could not agree with you more. I'm looking forward to your book, the.

Full the Fallen Rise. Fallen Rise of Inequality.

Absolutely. Seven years. Okay, I'm gonna set the clock.

Pencil it in for 20, 30 or sometime around there.

Oh, my gosh. Well, Charlie, what a pleasure to speak with you today.

And thanks for sharing this great information, how we can work together to improve our state and regional economy. I can't thank you enough.

Well, you're welcome. And thank you for inviting me.

At Home with Economics is a space where we explore business, workforce and community throughout development initiatives and how they impact our daily lives. This has been your host, Bo Garcia. Have a tremendous day.