Jonathan Small, J. Scott Moody & Wendy Warcholik, Ph.D. | December 22, 2015
Oklahoma’s Private-Sector Rebound?
Jonathan Small, J. Scott Moody & Wendy Warcholik, Ph.D.
The following excerpt is from an article published in the December issue of Perspective titled Oklahoma's Shrinking Private Sector. – Editor
Chart 5 shows that, nationally, private-sector income has shrunk to its lowest levels ever. In fact, during the “Great Recession,” private-sector income hit an all-time low of 67.7 percent in 2010. Over the entire 1929 to 2014 time period, private-sector income has fallen by nearly 24 percent—to 70.7 percent in 2014 from 92.4 percent in 1929.
Additionally, Chart 5 shows that Oklahoma’s private-sector income and, consequently, per-household personal income have trailed the national average for nearly the entire time period, despite starting above the national average in 1929. Since then, only on one occasion (during the oil boom between 1981 and 1982) did private-sector income and per-household personal income exceed the national average.
Fortunately, Oklahoma has recently seen another oil and gas boom, thanks in part to the new technique of hydraulic fracturing, and private-sector income has nearly reached parity with the national average. Per-household personal income is also getting closer to parity with the national average.
Relative to the other 49 states, Oklahoma has generally been ranked in the bottom third of states. In 2010, Oklahoma had only the 38th largest private sector in the country with a private sector share of 64.1 percent. Thankfully, the recent oil and gas boom has boosted the private sector share to 69.4 percent and moved Oklahoma up 11 spots to the 29th largest in 2014. But given the sharp declines in oil and gas commodity prices in 2015, and the resultant retraction in private-sector activity in Oklahoma, bold leadership is needed in Oklahoma.
Chart 6 illustrates why Oklahoma’s policymakers should be very concerned. This chart illustrates the positive correlation between per capita personal income and the private-sector share of personal income. In other words, the bigger the private-sector share, the bigger the per capita personal income. This should come as no surprise since the private sector is the proverbial “goose that lays the golden eggs.”
States with larger private sectors will grow faster over time than states with smaller private sectors. For instance, the state with the largest private-sector share (Connecticut, 77.9 percent) has per-household personal income of $166,790. The state with the smallest private-sector share (New Mexico, 59.2 percent) has a per-household personal income of $92,488. To put it another way, Connecticut’s per capita personal income is 80 percent larger than New Mexico’s.
Overall, our analysis shows the alarming trend that, nationally and in Oklahoma, the composition of personal income has significantly shifted away from the private sector and toward the public sector. More disturbingly, the long-term trend line points toward an ever smaller private-sector share of personal income, especially with the aging of America and consequent rise in entitlement spending.
Unfortunately, there will be an economic price paid as the private-sector share continues to shrink. The transfer of resources from the private sector to the public sector, via taxes and/or regulations, will stifle future entrepreneurial growth. Since only the private sector can create new income, the future may well bring a declining standard of living.
However, the future is not written in stone. Oklahoma’s own entrepreneurial spirit has helped to reinvent the state’s economy many times over the years. Proper public policy that embraces secure property rights, low taxes, and fewer regulations will lead to an environment where entrepreneurship can thrive. Business and policy leaders must work together to ensure that the entrepreneurial spirit lives on so that Oklahomans can rely on the private sector, not the public sector, for their livelihood. If we truly care about empowering the most vulnerable Oklahomans, we will work to build a strong and diverse economy. This provides the best opportunity for all to achieve their full potential.
Read the entire article here.
Jonathan Small, C.P.A., serves as President and joined the staff in December of 2010. Previously, Jonathan served as a budget analyst for the Oklahoma Office of State Finance, as a fiscal policy analyst and research analyst for the Oklahoma House of Representatives, and as director of government affairs for the Oklahoma Insurance Department. Small’s work includes co-authoring “Economics 101” with Dr. Arthur Laffer and Dr. Wayne Winegarden, and his policy expertise has been referenced by The Oklahoman, the Tulsa World, National Review, the L.A. Times, The Hill, the Wall Street Journal and the Huffington Post. His weekly column “Free Market Friday” is published by the Journal Record and syndicated in 27 markets. A recipient of the American Legislative Exchange Council’s prestigious Private Sector Member of the Year award, Small is nationally recognized for his work to promote free markets, limited government and innovative public policy reforms. Jonathan holds a B.A. in Accounting from the University of Central Oklahoma and is a Certified Public Accountant.
J. Scott Moody
OCPA Research Fellow
OCPA research fellow J. Scott Moody (M.A., George Mason University) serves as chief executive officer of State Budget Solutions. Formerly a senior economist at the Tax Foundation and a senior economist at the Heritage Foundation, he has twice testified before the Ways and Means Committee of the U.S. House of Representatives. Moody is the co-creator of the Tax Foundation’s popular “State Business Tax Climate Index.” His work has appeared in Forbes, CNN Money, State Tax Notes, The Oklahoman, and several other publications. This article is an updated version of an analysis published in 2008.
Wendy Warcholik, Ph.D.
OCPA Research Fellow
Wendy P. Warcholik (Ph.D., George Mason University) is an OCPA research fellow. She formerly served as an economist at the U.S. Department of Commerce’s Bureau of Economic Analysis, and was the chief forecasting economist for the Commonwealth of Virginia’s Department of Medical Assistance Services. She is a co-creator (with J. Scott Moody) of the Tax Foundation’s popular “State Business Tax Climate Index.”