Summer 2020 Special Edition NewsLinkA Publication of The Beacon Hill Institute for Public Policy Research The Unmaking of the American City How the Novel Coronavirus Outbreak Will Turn the Young and Talented Away by Benny Magid ies is nothing new. For decades, Los Angeles, New Columbia University York, and Chicago have seen more U.S. residents move out than in. Their growing populations have It’s been four months since I weaved mainly been composed of immigrants moving through Manhattan traffic in a hurried move in. Now though, the overall population in major back to my home in suburban Boston. My rental U.S. cities has begun to decline, and that decline car was crammed floor to ceiling with the dis- is speeding up, according to a Brookings report. membered fixtures The COVID-19 out- of my first-year break will undoubt- dorm room. During edly accelerate this the solitary 4-hour trend in big cities and drive North, I had smaller cities alike. time to seriously Before the nov- weigh the costs and el Coronavirus out- benefits of tuition, break, the stage was once justified by already set for a mass Columbia’s prox- migration of young imity to “the big families away from city” and the end- cities towards more less job opportuni- suburban outskirts. A ties that its location would afford me. 2018 Wall Street Journal report found that millenni- Now, after finishing my first semester - ofon als were leaving crowded, expensive cities like New line courses, I’m thinking critically about where York and Chicago for more spacious suburbs. Pair I see myself geographically after graduation. this trend with the expected explosion of remote It seems standard for a computer science major work options after the pandemic, and cities lose such as myself to graduate and move to a major much of their appeal to young, mobile profession- U.S. city like New York, Los Angeles, San Fran- als. A Global Workplace Analytics report predicts cisco, or Boston, but the once “standard” migra- that by the end of 2021, 25% of the workforce will tion of the young and educated will soon shift be working from home; that’s almost 7 times the towards smaller, cheaper cities and suburbs. 3.6% that worked from home before the outbreak. Americans’ growing distaste for large cit- Continued on page 13

Throughout its history, The Beacon Hill Institute has thrived on the success of its internship pro- gram. The Institute’s research agenda draws student interns from institutions of higher learning across the United States. This summer, the Institute greatly benefited from the enterprising work of more than a dozen interns who researched, compiled and analyzed data that supported studies on the Commonwealth’s response to the COVID-19 pandemic, state fiscal policy, industry regulation, international trade, and interstate competitiveness. The enthusiasm, creative individuality and rig- or from our interns point to a brighter future for all. We thank the 2020 BHI interns for their conten- tious and capable work during this unconventional summer internship program. - The Beacon Hill Institute Staff

SUMMER 2020 Returning to Work After the Pandemic: The Long-term Decline of Commerical Real Estate by Caroline Pitman shifts to remote work and at least in the short Catholic University term, there will continue to be a decline in de- mand for commercial real estate. Moody Analyt- Before the outbreak of COVID-19, the ics[1] predicts rents will fall in Boston by 12.6% Boston real estate market was in a period of rap- in the next year due to the decline in demand. id growth. Rents were skyrocketing before the Michael Klein, a professor of Internation- COVID-19 epi- al Economic demic reached Affairs at the Boston. At the time Fletcher School of the Governor’s of Tufts Uni- stay-at-home or- versity, stated der, there were less “All the jobs than a hundred that were cre- cases in Massachu- ated between setts; however, the 2010 and to- city braced for a day have been rapid spread. This erased within order shuttered a month. The non-essential busi- IMF has said nesses and pushed this is the worst workers home. downturn since Before the Great De- this unpresented pression,”[2] change, the demand for both traditional office In a recent interview with Boston Realty Advi- spaces and other spaces, like co-working spaces, sors. While this downturn is different from the led to rising rents and a high demand for com- 2008 crisis for a number of reasons, the market mercial real estate in Boston’s commercial hubs. will not rebound immediately. A gradual re- In 2019, the asking rate for opening of Massachusetts, commercial real estate in Downtown workspaces as detailed in Governor Boston increased by 4.21% Charlie Baker’s reopen- from Q1 to Q2 according will not go away; how- ing plan, will lead to slow to Nordlund Associates. ever, there is likely to be a growth. As offices reopen, Since March, life has they must comply with rapidly changed within the decline in demand for com- the strict health and safe- city. The emerging market mercial real estate. ty measures. In the gover- of co-working spaces as well nor’s recently launched re- as traditional offices are struggling with the opening plan, during phase one, workplaces short and long-term implications of the massive will have to ensure employees and custom- shift and transition to remote work. While some ers remain six feet apart and require face of these changes may only last until it is safe to shields for all those inside the workplaces. return to a physical office, many companies are For businesses that have already transi- considering permanent changes, including reduc- tioned to remote work, it does not make practical ing the number of physical workplaces, as Mas- sense for every employee to return to the work- sachusetts reopens. That is not to say there will place under these strict measures. Open work- be a large scale exodus of companies out of their spaces and cubicles are not compatible with the workplaces; however, there will be long term continued on page 3

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Commerical Real Estate, continued from page 2 Looking forward, companies may choose current health and safety guidelines. It is costly for to stagger their employees’ workdays in the phys- companies to provide adequate sanitation measures ical space or only have certain employees return to and unnecessary when work can be done remotely. the space. In the long term, some companies will It is unlikely for companies to completely permanently shift to a hybrid of in-person and forgo workspaces; however, there is likely to be remote work. In the short term, it appears compa- a decline in demand for commercial real estate. nies will be required to maintain social distancing Since March, Morgan Stanley transitioned 90% of guidelines. With all of this, the need for commer- its 80,000 employees to remote work. Company cial real estate will not by any means disappear CEO, James Gorman, emphasized the role of the but the demand will decrease and fundamental- physical workplace in cultivating office culture and ly change the commercial real estate market. f community. “But could I see a future where, part of every week, certainly part of every month for a Reference works lot of our employees to be at home? Absolutely,” . [1]https://www.moodysanalytics.com/-/media/whitepa- With this model, large companies would per/2020/ma-reis_covid-19_will_force_the_office_sector_ require less space. Since companies have al- to_evolve_further_2020-05-04.pdf [2] https://www.bisnow.com/boston/news/economy/ ready been forced to build the infrastructure re- odds-favor-a-diverse-economy-like-bostons-in-the-pain- quired to operate remotely, the need for phys- ful-recovery-103985\ ical workplaces will be fundamentally altered.

The Global Economy in a Pandemic The Coronavirus Economy Offers Little Certainity By Donny Tou have to keep one critical thing in mind: a glob- Newton South High School al response against a global economic crisis. Unlike during the 2008-09 financial crisis, As countries around the world have turned unfortunately, the current “coronavirus econo- to lockdowns in order to “flatten the curve” of the my” has no global plan, nor leader, to combat coronavirus pandemic, their respective economies economic slowdown. China’s leadership, for have been halted as well. The International Mone- example, seems “less inclined” to spearhead a tary Fund (IMF) projects that the global economy global economic recovery this time than it did is expected to contract following the Great by 4.9% in 2020, a con- Recession. The traction much worse United States and than the 2008-09 finan- China continue to cial crisis and the steep- compete for pow- est slowdown since er, and are taking the Great Depression. jabs at one anoth- In response, er. Moreover, unity policymakers around within the Europe- the world have begun an Union itself is preparing massive being tested. These fiscal stimulus pack- are just some exam- ages for their own Photograph by Frank Conte ples of a fracturing countries as frontline defenses against these vi- global unity at a time when we need it the most. ral economic downturns. Although such recov- ery policies aimed towards domestic stimulus are rightly needed, an international response is a next step we need to take in order to maximize recovery on the global scale. Thus, policymakers continued on page 4

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Global Economy, continued from page 3 are critical to tackling both health and econom- When the world faced its previous economic crisis ic crises for the world’s most poorest countries. in 2008, major powers banded together to rehabil- Moreover, trade, which represents 60% itate the global economy. At the time, the Group of global GDP, is economically productive and of Twenty (G20), or the world’s richest countries should not be used as a weapon like it is being used comprising 80% of the international economy, or- in today’s world. As the virus ultimately slows ganized a series of economic stimuli that totaled down, countries around the world should embrace trillions of dollars of capital to prevent worldwide global commerce as a method for long term eco- economic meltdown and enable global recovery. nomic growth. The collapse of international trade During this current crisis, G20 countries during the Great Recession exacerbated that fi- have already provided $6.3 trillion in fiscal sup- nancial crisis; we should not let this happen again. port. However, the spending Finally, it is important to was a “cumulative total” of As the virus ultimately slows note that today’s economic what each individual coun- crisis and the 2008-09 finan- down, countries around the cial crisis are not exactly the try would domestically spend world should embrace global on its own respective econo- same. Today’s crisis may be my, not spending aimed to- commerce as a method for larger, and a supply shock wards international recovery. long- term economic growth. could be massive. Howev- In 2008, the IMF also is- er, a key trait that both large sued a modest SDR 189 billion crises share is the presence that would help economically vulnerable devel- of modern, global economic interconnectivity, oping countries. And though the IMF is currently which plays a critical role in how the internation- ready to lend support (at a much higher level than al economy can collapse, but also in how it can in 2008) to today’s hard-hit emerging markets, recover and grow once again. Let’s work together there is still much more to be done at the interna- to utilize this interconnectivity to its full potential f tional level to help these countries steer through and bring back growth to the world’s economy. this new crisis and emerge more resilient. The World Bank has also pledged $160 billion to the developing world, but this capital (along with the IMF money) will have to be borrowed, something that capital-restricted emerging markets will be burdened with (especially with recent capital out- flows) in the long term. There needs to be more than just concessional financing; with the volatile status of the coronavirus, cooperative fiscal outlays NEWSLINK SUMMER 2020 NewsLink is a special publication of The Beacon Hill Institute for Public Policy Research. The In- SPECIAL EDITION stitute focuses on federal, state and local econom- ic policies as they affect ctiizens and businesses, EDITOR particularly in Massachusetts. The Institute uses Nicholas Sammarco, Research Assistant state-of-the-art statistical, mathematical and econometric methods to provide timely and read- ASSISTANT EDITOR able analyses that help voters, policy makers and Frank Conte, Director of External Relations opinion leaders understand today’s issues.

PRODUCTION EDITOR ©2020. Beacon Hill Institute for Public Policy Re- search, 165 Main Street, Suite 306, Medway, MA Caroline Pitman, Summer Intern 02053 Phone: 855-BHI-4550 (855-244-4550). Catholic University www.beaconhill.org. [email protected]. BEACON HILL INSTITUTE NEWSLINK / SPECIAL EDITION 4

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The American Trade War Continues: How the Pandemic Will Alter American Tariffs by Henry Fernandez strictions of their own. This resulted in imports be- Tufts University coming unaffordable. Faced with an economic cri- sis on the scale of the Great Depression, President As his frustrations grow with Beijing over Trump’s and President’s Hoover’s priorities are their handling of the COVID-19 pandemic, Pres- similar: to protect and promote domestic manu- ident Trump’s rhetoric on reigniting a trade war facturing. The sentiment to help the U.S. business- with China has steadily become sharper. Despite es is positive from the President, but his decisions tweeting that “100 trade deals” could never com- in doing so must be evaluated very cautiously. pensate for the damage Covid-19 has inflicted on That is the long term. The short term effects of a the U.S. economy, his administration has threat- trade war could be extremely damaging as well ened new tariffs on China as an act of retaliation. when considering the medical costs. As it stands, This is a threat that, if followed through on, could be there is a 7.5% tariff on roughly $3.3 billion worth disastrous for the United States. of imports of critical health care Despite escaping last By removing the tariffs equipment necessary in combat- year’s trade war relatively un- currently in place, the U.S ing Covid-19 according to the Pe- scathed, the U.S. may very well stands a better chance of terson Institute of International be too weak to handle anoth- Economics. Trump’s current trade er one this time around. The receiving the necessary policies are forcing China to export coronavirus has made an enor- supplies to minimize the its essential medical supplies to mous dent in the economy, and spread and death toll. other countries. By removing these while paths forward do exist tariffs, the U.S. would put itself in in helping American businesses recover amidst a far better position to receive these supplies as the this crisis, there are lessons to be learned in tak- rest of the world desperately scrambles to import ing a protectionist stance during a recession. them. Since China began boosting production in Considering the effects of the Smoot-Haw- January, they have a surplus of personal protective ley Tariff Act — signed into law in June 1930 by equipment, equipment that the U.S. desperately President Hoover — the Trump administra- needs but is struggling to get its hands on. Addi- tion would be ill-advised to pursue new tariff tionally, imposing new tariffs would likely dam- regimes. Smoot-Hawley was largely responsi- age any efforts to coordinate a swift international ble for exacerbating and prolonging the crisis. response to the pandemic. Yanzhong Huang, se- In the time between its enactment and nior fellow for global health at the Council on For- 1932, the U.S. saw its imports decrease from $4.4 eign Relations notes that “Our ultimate success in billion to $1.5 billion (-66%) and its exports fall containing the spread of Covid-19 is to a large ex- from $5.4 billion to $2.1 billion (-61%). All the tent dependent upon how effective other countries while, the country’s gross national product fell are dealing with the outbreak. We cannot claim from $103.1 billion down to $55.6 billion. The victory unless other countries are virus-free”. Smoot–Hawley Act also failed in combating job- The first step in recovering from this glob- lessness as the unemployment rate jumped from al pandemic is containing the spread. By remov- 8% at its enactment to 25% by the start of 1933. ing the tariffs currently in place, the United States While the tariff hikes are not solely responsi- stands a better chance of receiving the necessary ble for these figures, there is little dispute that supplies to minimize the spread and death toll. Be- they aggravated the situation and that a differ- yond this, opting not to continue with a trade war ent course of action should have been pursued. on China gives the U.S. the best odds of dampen- As can also be seen in the present day, other coun- ing the magnitude of this recession and hopefully tries responded negatively to the United States seeing a stronger recovery than that of the 1930s.f Tariff Act of 1930 by raising international trade re- BEACON HILL INSTITUTE NEWSLINK / SPECIAL EDITION 5

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The Pandemic’s Shock on Higher Education by George Yeghyayan and vibrance that is hard to replace, and so Suffolk University local schools pride themselves (and mar- ket) the fact that their students would have a In the spring, Boston schools such as Har- world of opportunity at the tip of their fingers. vard, MIT, and many others announced that in But how do Boston schools introduce compliance with quarantine measures, they their students to these opportunities? At the cost would switch to virtual learning for the remain- of constantly-rising tuition rates, they hire pro- der of the spring semester. Schools such as Suf- fessors, department heads, and other staff that folk University later decided provide some of the best that summer courses would also Although the universities of education in the world. make the switch to online class- Boston have chosen a more grad- Two of the most renowned es, and now the various learning schools in the world, Har- hubs of the city contemplate the ual return to normal activity, vard and MIT, are located continuation of these measures positive developments in both a train ride away from the into the following academic year. COVID-19 research and cases city center. BC, BU, North- Though better than no education may incentivize them to loosen eastern, and Suffolk all at all, what would the thousands have prestigious degrees of young people aspiring for an their tight strategy. to offer, and that very education in Boston be missing? prestige is a massive con- Perhaps the most consequential sacrifice that tributing factor to the appeal of choosing Boston was made with the introduction of online class- over other places. The overall appeal for coming es was the sheer opportunity provided to the to study in Boston, under normal circumstances, students who are currently receiving their edu- is worth the high rates and accommodations. The cation in a Boston-based academic mandated quarantine set by lo- center. Students pursuing medical cal and state governments, as degrees have hospitals which give well as by the federal govern- them straight paths into their future ment, were put in place with careers, sometimes right across the the purposes of stopping the street. Aspiring lawyers have firms, spread of the coronavirus, or courthouses, and the offices of leg- COVID-19, as much as possible. islators who are always looking for After months of implement- interns; the perfect place to build ex- ing policy centered around perience and establish connections. social distancing, Boston has The same goes for students in business particularly seen a drop in and science-related programs, who cases and easier circumstanc- rely on co-ops and credited careers es to open up the city; if the that form a fundamental part of their city administration and pop- education. Extra-curricular appeal ulace stay on track, then the provided by Boston’s schools do not only real way to maintain end at apprenticeships and internships, however. a healthy level of interest in local schools is to There is an appeal to university/college student open the state back up fully. Although the uni- involvement and life that is very unique to the versities of Boston have chosen a more gradu- institutions in Boston. Clubs, student organiza- al return to normal activity, positive develop- tions, and on-campus departments have options ments in both COVID-19 research and cases to offer and people in other places could not ex- may incentivize them to loosen their tight strat- perience. Boston is a city full of history, culture, egy and bring back their physical student life. f

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SUMMER 2020 As Immigration and Travel Slows, U.S. Economy Falters by Alice Nguyen Suffolk University The travel ban is already hurting the Immigration has had an enormous and US economy as well as Europe’s econ- wide-ranging influence on America’s open econ- omy. It has contributed to America’s unique sta- omy, with billions of dollars in losses. tus in the world. Along with the limits on interna- ists is diminishing economic opportunity. The tional travel, immigration poses serioius challeges travel ban, imposed by President Trump on 26 as the nation copes with the COVID19 crisis. For European countries, came into effect as a part of example, the segment of undocumented workers the emergency response to the coronavirus cri- who comprise a part of overall immigration has sis. It’s already hurting the US economy as well sparked controversy For generations, American as Europe’s economy, with billions of dollars in leaders still have struggled to find a rational poli- losses predicted. “The U.S. travel and tourism cy for immigration, which most economists agree industry could lose at least $24 billion in for- contributes to a nation’s wealth overall. For a va- eign spending this year as more visitors are lost riety of reasons, the number of undocumented than even in the aftermath of the 9/11 terrorist immigration increased rapidly in the last decades. attacks.” Airlines and hotels had already taken This has divided policy makers between restric- a big hit as well. For exam- tionists and open bor- ple, “Delta announced that der advocates. The it is cutting its flight sched- onset of the COVID19 ule by 40%. It’s parking crisis isn’t helpful. some 300 airplanes because The number of of diminished demand for people who test pos- travel.” So far, travel from itive for this virus is the US to other countries increasing, and likely at this moment has not be- to be far higher. The gun to fully return. And virus doesn’t distin- the European Union has guish between citi- placed its own restrictions zen and non-citizen. on American s travelling. Meanwhile, tens of The international capaci- thousands of asylum ty of Americans is about seekers from Central 20% lower, and other ca- America and Africa have been stranded in Mex- pacities are still expected to be low. “Ultimate- ican border cities. They have to wait until their ly, airlines that have built their business mod- cases are solved in the US courts but now post- els around international travel will continue poned due to this pandemic. Even though a few to struggle, even as domestic travel returns.”f have been showing symptoms, and they have no access to the coronavirus test kits there. Peo- ple don’t have the ventilators, beds to deal with Reference Works in this situation, their lives have suffered so much https://www.jurist.org/commentary/2020/04/allys- sa-scheyer-covid19-undocumented-immigrants/ even before this pandemic. Moreover, it reduces https://www.cfr.org/backgrounder/us-immigration-de- their ability to provide the needs of the family, bate-0. because many family members are being affect- https://www.investopedia.com/the-economic-impact-of- ed by the COVID-19 financially and medically. the-u-s-travel-ban-on-europe-4799571. Along with the lack of a rational immigra- https://www.npr.org/2020/03/14/815916431/u-s-economic- tion policy, the movement of people including tour-

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COVID19 Could Change Labor Force by Calvin Sonalia either by foot, vehicle or public transportation, Florida State University there will be a smaller number of vehicles on the road resulting in fewer motor vehicle acci- The visible economic effeccts of thenovel dents. Less commuting also allows for more coronavirus are clear. Yet there are some econom- disposable income in the pockets of individu- ic effects aren’t as obvious. One of these long-term als, making room for more investment potential. effects is the shape of the labor force. The coronavi- With the newfound ways to cut costs in rus has forced many employees to work remotely. several areas, businesses and universities could If the productivity of these workers remains con- look dramatically different post-COVID. Univer- stant when compared to the office, business own- sities have also adapted to the COVID-19 pan- ers may be encouraged to contin- demic. The majority of univer- ue to allow employees to work If the productivity of re- sities have shifted to remote from home. This, in turn, would online classes to accommodate reduce the need for current office mote workers remains for the coronavirus outbreak. spaces and render many office constant when compared Dorms are empty, as they are construction projects obsolete. to the office, business own- an environment prime for According to an MIT survey of rapid spread of a pathogen over 25,000 American workers, ers may be encouraged to like COVID-19. Online classes roughly 15 percent of the work- continue to allow employ- are a convenient way to con- force worked remotely before the ees to work from home. tinue education while away coronavirus outbreak. Figures in- from the physical campus. dicate that upwards Universities of 50 percent of the may take note of workforce is cur- this trend and con- rently working re- tinue to adminis- motely. Many busi- ter online classes nesses plan to adapt for a portion of the current changes their students af- for the long-term. ter the pandemic For example, Jack has ended. Small- Dorsey, the CEO er universities of Twitter recently could cut spend- announced that if ing on dormito- Twitter employees ry construction wish to work from and classroom home post-pan- building con- demic, they may on struction by al- a permanent basis. lowing most, if A new wave of not all of their stu- at-home workers dents to take re- Photograph by Stephanie Davis could potentially re- mote classes. There is some upside. Giving duce capital investment by businesses and harm students the option to take online classes the GDP, but this could be offset by an increase could allow the students to save more mon- in the number of homes purchased, as employ- ey and potentially expand their long-term ees would no longer need to live near their offices wealth, instead of being saddled with debt. f in cities.Without the need to commute to offices,

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SUMMER 2020 The Massachusetts Revenue Shortfall and Public Sector Unions COVID-19 Creates Uncertainity for Public Sector Unions by Will Silverman Cornell University Massachusetts.[3] Nationally, sources indicate that unemployment could hit 25 percent. Union mem- As the number of COVID-19 cases nears bership for Massachusetts has remained relatively 3.2 million in the United States, the effects of the stable over the decades, ranging from roughly 23 pandemic are leading to major budgetary and to 39 percent between 1973 to 2019.[4] But new leg- economic consequences. Essential businesses islation could undermine such historical stability. can remain open, yet most Americans are forced With the Supreme Court’s ruling in Janus v. AFSC- to work remotely and follow stay at home or- ME, public employees not in a union are no longer ders. In order to alleviate stress these drastic required to pay union dues. Prior to this decision, changes have had on many workers, the dead- 22 states had a “fair share” provision in their la- line for income taxes has been extended until bor laws, which required people represented by July 15. For states like Massachusetts, the tax -- but were not members of -- unions to pay fees revenue shortfall represents not only a paraly- to cover the cost of the unions’ collective bargain- zation of the Bay State’s economy, but potential- ing activities. This decision has served as a major ly major consequences for public sector unions. victory for “right-to-work” states, but the Mas- Many conditions outline the possibility of sachusetts Legislature overwhelmingly overrode unions remaining competitive in any labor mar- Governor Charlie Baker’s veto of a union-friendly ket. Challenging their competitiveness, scale and law on September 19th, 2019; the Massachusetts substitution effects are always at play as tech- bill allows unions to charge non-members cer- nological inputs and globalization circumscribe tain fees, relieves unions of some of their obliga- union power. As such conditions determine the tions to those non-union employees, and expands benefits union workers are unions’ access to public awarded (or limited to) in la- For states like Massachusetts, the tax employees. Regardless bor-management bargaining revenue shortfall represents not only a of the efforts of legisla- negotiations, it is often con- paralyzation of the Bay State’s econo- tors in Massachusetts, sidered that the busi ness cy- according to the Na- cle affects these conditions. my, but potentially major consequenc- tional League of Cities, According to Ruth Milkman es for public sector unions. new budget cuts due to and Stephanie Luce, au- COVID-19 could be pro- thors of “Labor Unions and found: between 300,000 the Great Recession,” the downward trend in and 1 million public-sector workers could private sector unionization from the early 1980s soon be laid off or sent home without pay.[5] does not show an apparent relationship to the The Boston Herald reports that “unemploy- business cycle.[1] Furthering this view, Richard ment claims among government workers Freeman and James Medoff explained in their have jumped 9% since the coronavirus swept book, What Do Unions Do?, that wages of union across Massachusetts.”[6] Without increases workers tended to be less sensitive to business cy- in taxes or a reduction in government spend- cle ups and downs due to three-year contracts.[2] ing, budget cuts could heavily impact pub- Though labor unions have been insulated lic sector unions at the local and state levels from many fluctuations to the business cycle in the Beyond such findings, a reorganization of work past, our current crisis may pose a unique chal- across all spectrums is possible. Will a fear of inter- lenge to wage rates and membership. Researchers active, service-based employment be replaced by from the Center for State Policy Analysis at Tufts technological processes to limit future infections? University estimate a tax revenue shortfall of $1.8 Are public sector unions too large of a relative cost billion to $3 billion over the next 15 months for Continued on page 10

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Public Sector Unions, continued from page 9 to the state budget and are consequently driving Reference Works up the deficit? To answer these questions, we [1] Ruth Milkman, and Stephanie Luce. “Labor Unions and also need to determine whether union or non- the Great Recession.” RSF: The Russell Sage Foundation union public sector workers would be more Journal of the Social Sciences 3, no. 3 (2017): 145-65. Ac- cessed May 14, 2020. doi:10.7758/rsf.2017.3.3.07, 146. greatly affected by such transformations. Based [2] David Blanchflower and Alex Bryson, “What Effect Do on all these factors, the consequences of the Unions Have on Wages Now and Would ‘What Do Unions state’s tax revenue shortfall will largely depend Do?’ Be Surprised?,” NBER Working Paper Series, Septem- on the long term implementation of COVID-19 ber 2003, https://www.nber.org/papers/w9973.pdf, 4. relief being directed towards public sector work- [3] Katie Lannan, “Projected Tax Revenue Shortfall In Mass. Sets Up Tough Budget Math, Tufts Researchers Say,” ers. In Minnesota, union officials are arguing Bostonomix, March 31, 2020, https://www.wbur.org/bos- that an infusion of potentially millions of dollars tonomix/2020/03/31/dramatic-revenue-drop-billions-coro- is needed to avoid cutbacks or layoffs due to the navirus. Coronavirus Aid, Relief and Economic Security [4] Hirsch, Barry T., and David A. Macpherson. “Union Mem- (CARES) Act not covering the expenses that fire bership, Coverage, Density and Employment, 1973-2019,” n.d. [5] https://www.washingtonpost.com/business/2020/04/29/ and police departments are forced to bear.[7] cities-states-layoffs-furloughs-coronavirus/ In Massachusetts, Governor Baker has [6] https://www.bostonherald.com/2020/05/14/perfect- authorized a supplemental budget for the 2020 storm-of-economic-unrest-threatens-city-town-budgets/ fiscal year to pay the wages of state workers on [7] Jany, Libor. “Union Officials: Minneapolis Cops, Fire- the front lines and other expenses. While mem- fighters Deserve ‘Significant’ Cut of Federal COVID-19 Funding.” Star Tribune. May 13, 2020. https://www.startri- bership layoffs will inevitably rise in - Massa bune.com/union-mpls-cops-firefighters-deserve-significant-cut- chusetts as union officials predict in Minnesota, of-federal-covid-19-aid/570444262/?refresh=true. the hope of preventing such losses will depend DONATE TODAY! on the adoption of expanded relief funding, a transformation of future work redefining pub- To donate to the The Beacon Hill Institute lic sector union versus non-union employment, for Public Policy please send your check to: and collective argaining agreements being upheld and contractually capable of support- The Beacon Hill Institute ing union workers through this pandemic. f 165 Main Street, Suite 306 Medway, MA 02053 E-mail: [email protected]

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Opinion: A Critique of Modern Monetary Theory es with making mud pies. by Luke Eldridge This short anecdote gets at one of the main Grove City College issues with MMT, that because of the infinite money supply and spending, it is impossible for Within the past decade a relatively new the government to determine where to allocate school of economics has come to the forefront of resources. If this lemonade stand could simply the subject and to public policy. This new school invest an infinite amount of money into both of thought within economics is named Modern their lemonade and mud products, then a $100 Monetary Theory (MMT). Stephanie Kelton, a loss would be completely insignificant. With well renowned representative of this school of finite resources the lemonade stand owner is thought, writes in her book, The Deficit Myth, that subject to going bankrupt and is forced to supply MMT changes how we view our politics and eco- a service that meets the demand of consumers. nomics by showing that in almost all instances Investing all his resources into mud pies would federal deficits are good for the economy. They be asinine because he are necessary. And the would go bankrupt; way we have thought While Modern Monetary Theory has however, a stand about them and treated with infinite resourc- them is often incomplete altruistic motives, it denies es could provide or inaccurate.[1] Kelton basic, proven economic principles. whatever worthless highlights the main vision service because they that MMT advocates have, can not determine people’s preferences. that infinite federal spending ìin almost all in- Another massive issue with allowing the fed- stances [is] good for the economy.[2] It is here that eral government to engage in an infinite amount my issue with Modern Monetary Theory arises. of spending is that it creates many moral hazard Adopting a federal system based on (perverse incentive) issues throughout the market. MMT will distort economic calculation, induce When entrepreneurs fail to have superior fore- a massive increase in moral hazard, and obscure sight than their competitors, or wrongfully invest the real purchasing power of money. in an unwanted area of the market, they would Allowing the federal reserve to print and should go bankrupt. With its infinitely open money ex nihilo, while the government is con- wallet, government would be capable of bailing tinuously racking up a massive deficit will un- out companies as they are going out of business. doubtedly lead to a “profit and lossî issue.” The This action of saving an entrepreneur from going idea of economic calculation or profit and loss bankrupt sets up perverse incentives. If there is is a system in which companies can determine no punishment for investing and producing un- where to allocate their resources. For example, a wanted services, then there is no accountability simple childhood lemonade stand that sells both for entrepreneurs. With a government constantly lemonade and mud engaging in bailouts, pies will inevitably entrepreneurs will figure out that their gamble that their faulty cups of lemonade are actions will not lead selling vastly more to their destruction. than their mud pies. Finally, with a gov- This lemonade stand ernment engaging in is making profit constant printing of through their lem- onade but is taking a loss because of their Continued on page 14 misallocated resourc-

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SUMMER 2020 Opinion: TCl Will Hurt the Recovering Economy by Jose Manuel Rivero Suffolk University The proposed cap and invest sys- tem would restrict the flow of mo- More than 8,000 Massachusetts residents have died tor fuel into Massahusetts result- as a result of COVID. The disruption of everyday ing in an increase of 42 cents per activities has had a severe impact on the economy of the Bay State and will continue to do so as long gallon in the price of diesel. as the Commonwealth’s economy remains large- setts households would be $585. By 2026, business ly closed. Since Governor Baker issued a state- investment would be reduced by $243 million, wide stay at home advisory that forced all nones- disposable income by $1,643 million, and private sential businesses to close, there have been more employment by 6,900 jobs. The cost to Massachu- than 900,000 people who filed for unemployment setts households would increase to $631. insurance. Predictions suggest that Massachu- Furthermore, the total loss of output, mea- setts unemployment levels could remain higher sured in real GDP, as a result of the TCI would be than thoseof the U.S. The Massachusetts TaxPay- $788 million in 2022. As governor Baker plans to ers Foundation (MTF) projected economic recov- reopen the economy, demand for motor fuel will ery to begin in July, and according to foundation increase as people once again start carrying out president Eileen McAnneny, “Total employment everyday activities such as driving. The proposed will not return to pre-crisis levels until 2022.” cap and invest system would restrict the flow of As the state looks to stimulate the economy motor fuel into Massachusetts which would also and allow some work places to reopen, unnecessary cause an increase of 42 cents per gallon in the spending should price of on-road be avoided and re- diesel. For many sources should be low income used in a thought- households, ful way. Ambi- transportation tious plans and costs consume projects such as a significant the Transportation amount of in- Climate Initiative come and a rise (TCI) should be, at in gasoline pric- least for the mo- es would only ment, postponed. cause further TCI is a re- harm to families that are already going through gional collaboration of 12 states and the District financial turmoil because of COVID-19. of Columbia that seeks to reduce emissions while Massachusetts state tax revenues cultivating a clean energy economy. A method in April fell by 54% (compared to 2019) which is called “cap and invest” would be used with a pro- equal to $53 billion. As the state goes through the gram administrator setting a cap on how much current pandemic and the economic impacts of emissions can be released by fuel distributors. the COVID-19, legislators and lawmakers should Earlier this year, The Beacon Hill Institute published avoid joining initiatives that could potential- a report in which the short-term costs and benefits ly cause further financial harm, such as the TCI. to the state economy of participating in the TCI are With full economic recovery being unlikely to estimated. According to the report, after the first happen until people feel safe enough to carry out year of the initiative (2022), business investment everyday activities such as riding the T, the costs would fall by $229 million, disposable income by of joining the TCI should be carefully tak- $1,524 million and private employment would fall en into consideration by authorities. f by 7,629 jobs. Also, the average cost for Massachu-

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SUMMER 2020 Opinion: TCl Will Hurt the Recovering Economy

Help the Institute train the SUMMER 2020 free market economists of INTERSHIP PROGRAM ROSTER tomorrow by donating today! Luke Eldridge, Grove City College Henry Fernandez, Tufts University Send your check to: Benjamin Magid, Columbia University Thu Alice Nguyen, Suffolk University The Beacon Hill Institute Caroline Pitman, Catholic University Jose Manuel Rivero, Suffolk University 165 Main Street, Suite 306 Vanessa Robinson, Bay State College Medway, MA 02053 Richard Shi, Texas Christian University E-mail: [email protected] Will Silverman, Cornell University Calvin Sonalia, Florida State University or online at Donny Tou, Newton South High School http://beaconhill.org/donate-to-bhi/. Katherine Wang, Harvard University George Yeghyayan, Suffolk University

American City, continued from page 1 rate has been kept positive only because of in- Connecticut Governor, Ned Lamont, ternational migration. Boston is primed to lose summed up the new relationship between cities many of its young visionaries as college grad- and remote work telling Bloomberg Law, “The uates look for more affordable housing from old idea of the commuter going into New York high-profile jobs that pay enough to live there. City five days a week may be an idea that’s be- We need look no further than the meteoric rise hind us. of Boston’s Seaport District to see this locally. Maybe you have a great Increasingly unaffordable job that seems to be geographi- U.S. cities have lost what was cally located in New York City, left of their appeal during you can do it two-thirds of the the COVID-19 pandemic as time from your home in Stam- restaurants, museums, and ford.” theatres are forcibly emp- What does this all mean tied. It will be a long time be- for Boston, though? With rents fore any of these attractions on the rise and already nega- come back in any recogniz- tive population growth in the able form. With millions of region, Boston’s future looks Americans unemployed, city as bleak as that of the larg- dwellers will not have the pa- er U.S. cities. According to Boston Magazine, tience to wait for their apartments to be worth the median price for a single-family home in their luxury price tag (if that day ever comes). Somerville has increased 99% from 2008 to 2018, Young people returning to the labor market 85% for Cambridge in the same time, and 76% will find a new normal of remote work, and for the City of Boston. A review by the Boston they too will question the value of their cur- Foundation found that the Northeast region of rent, convenient, city center location. Devel- the U.S. had the lowest population growth be- opers must heed the warning signs sent to tween 2010 and 2018 at -0.8%. The report also large U.S. cities if they wish to keep Boston states that Massachusetts’ population growth an attractive housing option for the young and educated after the COVID-19 outbreak. f BEACON HILL INSTITUTE NEWSLINK / SPECIAL EDITION 13

SUMMER 2020 Updated BHI tax revenue estimate shows rebound in FY 2021 by Beacon Hill Institute Staff who co-authored the Institute’s estimate. “Also putting pressure on revenues are consum- As the Massachusetts economy turns the cor- er worries about their economic well-being.” ner amidst the COVID-19 pandemic, The Beacon Hill In FY 2021, personal income taxes Institute (BHI) projects that state tax revenues will will increase by 9.5 percent and corporate total $27.731 billion in FY 2020, 6.6% below FY 2019, income taxes will rise by 8.7 percent. Sales and $28.562 billion in FY 2021, 3.0% above FY 2020. tax revenues will fall by 1.3 percent. Alco- The shutdown clearly imposed costs on the hol taxes will fall by 4.9 percent. Motor fuels state economy. In January, The Beacon Hill Insti- taxes will increase by 2.1 percent, and ciga- tute estimated that Massachusetts state tax - rev rette taxes will increase by 1.0 percent. Other enues would total $30.242 billion in Fiscal Year tax revenues will fall by 12.6 percent. Even 2020, 1.9% above FY 2019. At that time the Insti- with the rebound in FY21, state revenues will tute, FY 2021, revenues would total $30.476, a mere lag the FY19 highpoint of $29.7 billion. f .8% above FY 2020. The latest revisions do show some improvement for the current fiscal year. BHI in the Media William F. Burke, BHI Director of Research, States to extend fuel emissions talks into the fall released the estimate today which will also be pre- Gloucester Daily Times, May 16, 2020 sented to the administration and the Joint Com- Economists debate taxes mittee on Ways and Means. Each year, the legis- Commonwealth Magazine, May 31, 2020 lature uses the BHI estimate, along with estimates provided by other groups, to help determine the State budget writers wait for federal bailout revenues needed for the upcoming state budgets. Lawrence Eagle Tribune, July 15, 2020 Legislators have yet to pass a FY 2021 budget, as the state faces a potential $6 billion budget deficit. Lawmakers may stretch Beacon Hill’s calendar “The major indicators for the state econo- The Daily News of Newburyport, July 25, 2020 my— like recent measures of state Gross Domestic Product and the unemployment rate —have trans- Healey’s climate lawsuit about headlines, not lated into lower state revenues, “says Frank Conte, solutions Boston Herald, August 11, 2020 MMT, continued from page 11 of money and utilizing this with purchasing as- Reference Works sets will set off an an increase in the Cantillon [1]Stephanie Kelton, The Deficit Myth, Public Affairs effect. The Cantillon effect refers to the change (2020). in relative prices resulting from the change in [2] IBID. the money supply. Under a MMT system, the [3] Nicolas Cachanosky, “Cantillon Effects and Money Neutrality”, American Institute for Economic Research Federal Reserve would constantly be producing (June 27, 2017). https://tinyurl.com/y643llqv. new money. With an injection of new money [4] Jim Cox, “Explaining the Economic Calculation into the economy, the purchasing power of the Problem in a Principles Class,” Mises Institute (March 14, dollar would decrease. The people who receive 2018). this newly-printed money first would have an advantage over those who receive it later. Those who can spend the new money before inevitable price increase have a clear competitive advantage. While MMT has altruistic motives, it denies basic economic principles. While under a MMT system would allow for the government to pur- chase anything, it would be lost in trying to dis- cover just what the best output would be. f BEACON HILL INSTITUTE NEWSLINK / SPECIAL EDITION 14

SUMMER 2020 BHI Releases 18th Edition of its State Competitiveness Index Massachusetts still on top, but Texas is catching up

Massachusetts once as which has shown a mostly steady rise from again secured the top 9th place in 2014 to 3rd place in the most recent spot on the Beacon measure based on strengths that close in on the Hill Institute’s State Bay State’s advantages such as technology, busi- Competitiveness In- ness incubation and openness,” observes Conte. dex (SCI). The index, The lowest rated states are New Mexico, Okla- in its 18th edition, homa, West Virginia, Louisiana and New Jersey measures the abili- Policymakers often compare a state’s per- ty of states to grow formance with that of “leading technology states their economies and (LTS).” However, these states do not always prove increase personal to be competitive according to the SCI. Massachu- income. Massachu- setts (1) Minnesota (7) Texas (3) Colorado (10) and setts has retained Virginia (9) are the only LTSs to finish in the top 10. the number one position each year since 2011. Other LTS states ranked as follows: Connecticut The BHI competitiveness index is based on (33), North Carolina (11), New York (25), Califor- more than 40 indicators divided into eight subin- nia (20), Pennsylvania (36), and New Jersey (50) f dexes – government and fiscal policy, security, infra- structure, human resources, technology, business The managers of this latest edition of the SCI would incubation, openness, and environmental policy. like to thank interns, Vanessa Robinson, Benny Known in the field as a “productivity index”, the Magid, Caroline Pitman and Will Silverman for their BHI ranking distinguishes it from more narrow- contributions. ly-focused measures that target only taxes, high technology, quality of life, or economic freedom. “Massachusetts continues to do well in our index because its workforce is attractive to the innovation industries drawn here,” says Vanessa Robinson, Assistant Project Manag- er for this most recent report. “Strengths in hu- man capital and openness allow us to overcome the perennial soft spots in our economy: the cost of labor, high housing and utility costs.” The most recent index is based on data col- lected for 2018 and does not reflect the current eco- nomic downturn prompted by the COVID-19 crisis where Massachusetts currently suffers one of the highest unemployment rates in the nation. “The good news is the Competitiveness Index captures long-term influences in the economy,” remarks Frank Conte, Manager of the Project. “Should Massachusetts turn the corner, the fundamentals —or what is known as the “micro-foundations”— outlined in this report will be basis of a rebound.” Massachusetts was followed by Iowa, Tex- as, South Dakota, Idaho, Nebraska, Minneso- ta, Utah, Virginia and Colorado fill out the top 10. “One state that has moved up quickly Tex-

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SUMMER 2020

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