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UCA Economist, Dr. Jeremy Horpedahl, Receives Award for COVID-19 Work

(Conway, AR) – Dr. Jeremy Horpedahl, Associate Professor of Economics at the University of Central Arkansas (UCA) College of Business, has been recognized for his work to provide accurate coronavirus information and dispel misinformation during the COVID-19 pandemic. The award comes from the Mercatus Center at George Mason University, which announced on Sunday its ten most recent winners across North America.

Dr. Horpedahl won the prize for his policy and data analysis on pandemic-related economic topics such as coronavirus precautions, tolls and trends, vaccination development and distribution, unemployment, as well as local, national, and worldwide financial impacts.

“Part of what motivated me was simply to understand the pandemic better myself, and I was glad to help others navigate the same questions that I had about the state of the world,” said Dr. Horpedahl.

Horpedahl was also a co-recipient of another award from the Mercatus Center for the blog EconomistWritingEveryDay.com, where he is a weekly contributor.

“Dr. Horpedahl’s efforts to communicate complex topics in a more approachable way has helped inform and educate others about economic policy. This is important work during an already confusing and stressful time, and we are proud of his effort and impact,” added Dr. Michael Hargis, Dean of the UCA College of Business. [Read more…]

The Restaurant Recession

Jeremy Horpedahl, Ph.D., assistant professor of economics

One of the most visible signs of the COVID-19 recession has been the massive harm to restaurants and bars. We see it as we drive around town: Restaurants are closed, doing curbside service only, or have radically altered their layout to make their spaces safer.

We can also see the harm to restaurants in the economic data. Back in the depths of the shutdowns and labor market contraction in April, fully one-third of all job losses in Texas were centered on the “food services and drinking places” industry, as the Bureau of Labor Statistics calls these establishments. Pre-pandemic, this industry accounted for 8.7 percent of all nonfarm jobs in Texas.

In total, over 450,000 restaurant and bar workers were out of work, out of about 1.1 million before the pandemic. Relative to the size of the restaurant and bar industry, workers at these businesses were hit four times as hard as the average worker. While everything is bigger in Texas, these figures are closely comparable to national data, where restaurants and bars accounted for 7.9 percent of employment before the pandemic, and about 28 percent of job losses through April.

Within the restaurant and bar industry, bars and restaurants that depend primarily on dining room service were hit much harder. Fast food restaurants, for example, were already well-equipped to provide drive-thru service.

Read more at Texas CEO Magazine.

UCA College of Business Professors Present Arguments on Arkansas Issue 1

Issue 1 on Arkansas ballots this November considers an amendment to the Arkansas Constitution that would continue a 0.5% sales tax for highways, roads and bridges.

UCA College of Business professors Jeremy Horpedahl, Ph.D., assistant professor of economics, and Doug Voss, Ph.D., professor of logistics and supply chain management, recently presented both sides of the argument in op-eds published in the Arkansas Democrat-Gazette.

To read the argument in favor of Issue 1, presented by Voss, click here. For the argument against Issue 1, presented by Horpedahl, click here. The views expressed in the op-eds are the authors’ own and not an official position of UCA or the College of Business.

Putting the GDP Numbers in Context: What You Need to Know

By Jeremy Horpedahl, Ph.D.

Jeremy Horpedahl, Ph.D.

We all know that we are going through one of the worst economic downturns in US history. But how bad exactly is the downturn? The recently released Gross Domestic Product data for the second quarter of 2020 paint a very grim picture, with the headline number suggesting that the economy contracted by -32.9%.

GDP is a measure of all economic activity that takes place in a quarter or a year. Was there really one-third less activity in the second quarter compared with the first quarter? No there was not. The actual number is about a 7% decline. I’ll explain more how I came up with that number, but let me stress this is still a very bad number. It’s the worst we have on record, possibly the worst in US history, probably even worse than any one quarter of the Great Depression (if we had directly comparable data). Still, a number like -32.9% is not a very helpful number in the current context.

Interpreting economic data is challenging during the current economic crisis. My intent is not to downplay the harm, but to give it proper context. For example, I have previously written that the unemployment rate understates how much pain there is in the labor market right now. In contrast, the recently released GDP data overstate the economic pain.

Read more at Texas CEO Magazine.

Horpedahl also recently appeared on The Cato Institute’s Daily Podcast to give a quick rundown of the numbers. Listen here or anywhere you get podcasts.

Arkansas’ Alcohol Fight: Bootleggers, Baptists & Ballots

By Jeremy Horpedahl, Ph.D.

What can economics teach us about political coalitions? In a recently accepted paper, I use the example of dry county elections in Arkansas to she some light on a type of coalition first identified by Economist Bruce Yandle in a 1983 article1.

Coalitions are often necessary to ensure passage or defeat of legal or regulatory changes. In some cases, political coalitions are composed of members that have little in common, other than their mutual position on one very specific issue. As Yandle (1983) suggests, coalition members also can play different roles in the political process, such as one member having a financial stake in the outcome and providing the majority of the funding (the “bootlegger” in Yandle’s framework), the other member serves as the moral voice (the “Baptist”).

As the saying goes, politics often makes for strange bedfellows.

In Arkansas, the metaphor has an almost-literal application: legalization of alcohol sales at the county level is opposed both by religious organizations and by liquor sellers in adjacent counties. In this paper, I examine how those two groups often marshal opposition to the legalization of alcohol sales in dry counties, although they rarely unite in formal coalitions. It contributes to literature following Yandle’s theory on the economics of political coalitions and supports many of the features of coalitions that Yandle suggested.

Arkansas’ Local-Option Alcohol Elections

My article first summarizes the history local-option alcohol elections in Arkansas. Here are several excerpts, with more detail in the paper itself.

Prior to statewide (1915) and nationwide (1919) alcohol prohibition, many Arkansas counties already were dry. In that era, local jurisdictions (townships and towns) were required to hold elections on alcohol prohibition every 2 years under an 1879 state law. In other words, elections were automatic: no signature gathering was required. In practice, once a county voted itself dry it never returned to wet status, although reversal legally was possible. When Arkansas went dry statewide after the 1915 Newberry Act, 66 of its 75 counties already were dry2.

After the end of national prohibition, alcohol regulation once again was returned to the states. In 1935, Arkansas passed the Thorn Liquor Law, which made all counties wet by default. Elections could be held to vote a county dry, but signatures of 35% of the registered voters in the county were required to place the issue on the ballot. Elections no longer were automatic; they could not be held more than once every 3 years2. Because of the high signature threshold, no county-wide elections to switch from wet to dry were held.

In 1942, Arkansas’s voters approved a lowering of the signature threshold to 15% of registered voters and allowed elections every 2 years rather than every 3 years3. Over the next 2 years, 21 counties held alcohol elections; 18 of the counties went dry, along with another 32 towns, townships and districts4.

In 1993, Arkansas’s legislature approved an increase in the signature threshold again, to 38% of the registered voters. The sponsor of the 1993 legislation stated that the changes were necessary because frequent local alcohol elections were so contentious that local communities were being polarized2.

In every election for which there is data since 1993, the signature requirement exceeded half of the actual votes cast in the next election.

Local-Option Elections & Petition Drives in Arkansas since 1993

The final section of my paper looks at the dynamics of the bootlegger-Baptist coalitions under the current rules for holding county alcohol elections. Liquor stores usually provide the funding, given that they are businesses with a big stake in the outcome. But what do religious organizations bring to the coalition? To answer this question, I had to go beyond the numbers and look to media sources, newsletters, and the archives of the Arkansas Ethics Commission. Here are a few more excerpts.

Since the 1993 rule changes, at least 21 attempts have been made to legalize alcohol sales in Arkansas counties, including multiple attempts in some counties, and one attempt to return a county to dry status. Of the 21 countywide attempts to legalize alcohol, only ten gathered enough signatures to put the issue on the ballot. In all ten of those cases, legalization was successful.

In the cases at hand, the metaphorical terms Yandle uses come very close to describing reality. The bootleggers primarily are the owners of liquor stores in bordering wet counties and bordering states, while the Baptists are churches and other religious groups (including many denominations, although Baptists are the largest religious group in Arkansas5).

Based only on the spending data, bootleggers appear to have a much higher willingness and ability to pay to stop alcohol sales in currently dry counties. Those differences could be explained by factors other than willingness to pay, such as differences in incomes of the two groups, but the differences are quite large. That gap also makes it important to investigate whether Baptists are contributing in non-monetary ways, which was found in almost every case.

While explicit coalitions are rare, examples can be found. When citizens attempted to change the status of the dry city of Jacksonville6 (located in wet Pulaski County), a local pastor formed an alliance with nearby liquor stores. After he couldn’t raise funds from local churches, the pastor told a local newspaper that he “utilized who was willing to help fight it. [The liquor stores] were honest with me, and I was honest with them.”

During one unsuccessful petition drive in Craighead County in 2014, officially registered opposition BQCs (“Local Citizens for Safety and Prosperity” and “Craighead Pride”) were funded fully by existing liquor stores in bordering Greene and Poinsett Counties. But the public face of the opposition that a local news station chose to interview was Bobby Hester, the State Director of the Arkansas Family Coalition, who called the signature gatherers “a bunch of greedy carpet baggers”7 and was the sole person quoted a month later in a story about the possibility of the county legalizing alcohol8. The Arkansas Family Coalition is a religious organization based in Jonesboro, the largest city in Craighead County and was organized by the Jonesboro Ministerial Fellowship9.

The Family Coalition also used its newsletter to disseminate “statistical information” it encouraged readers to give to “your minister or pastor” so that “they would then share it with the full congregation in the form of handouts, or however they would see fit to educate their parishioners.”10

One interesting example is from 2014 Newton County. While no BQCs on either side formally were created, a movement on the part of some citizens arose to collect signatures to legalize alcohol sales. A pastor wrote a letter to the editor of the local newspaper telling the community that his church would be posting the names of everyone who had signed the petition and would make the list available for public viewing. His justification for doing so was to allow people to verify that their names weren’t added to the petition fraudulently, but another reason might be to discourage signers because of the public shame it would cause. The pastor informed readers that he had performed the same service in bordering Boone County in 2010, although, unlike Newton County, the petition drive was successful in Boone County11.

Conclusion

In the paper’s conclusion, I said:

Bootleggers and Baptists both have strong, but very different interests in keeping alcohol illegal in some Arkansas counties. The two groups work together explicitly to achieve that goal and point to many other examples of more spontaneously complementary activities. The parochial interests of the individuals joining one of those groups—the Baptists—can be harmed when the other group—the bootleggers—is less active. Without significant funding from liquor stores in adjacent counties, petition drives to legalize alcohol sales almost always succeed. The vocal opposition of religious leaders and spending by churches also explain some of the failed petition drives.

What is most important is the uncovering of an important feature of the bootlegger-Baptist coalitions described by Yandle1. As Smith and Yandle12 put it, the combination of economic interest and moral suasion represents a “winning coalition.” There is evidence in all but two Arkansas counties of the decisiveness a bootlegger–Baptist coalition in blocking an alcohol-legalization proposition from being placed on the ballot. And even for those two counties, local media suggested that religious organizations did provide some opposition, although the reports do not contain any details. Overall, the evidence supplies strong support for Yandle’s theory. Baptists operating alone often fail to prevent legalization of alcohol. Working together with bootleggers, however, the coalition usually is successful in achieving its goal (in the case of Arkansas, by keeping the issue off the ballot). And whenever a bootlegger exists to fund the opposition to alcohol legalization, we can usually find evidence of Baptists spreading the moral message and helping the coalition be successful.

My research gives us more detailed information on how political coalitions function and contributes to a broader research question in economics and political science. It also sheds light on a current public policy question in Arkansas. Opponents of legalizing alcohol sales statewide in 2014 argued that local control was better than the state telling counties what they must do. This shows that it is not the citizens of the county that are rejecting alcohol legalization, but rather a political coalition that receives most of its funding from outside the county, and sometimes outside the state.

Jeremy Horpedahl is an assistant professor of economics at the UCA College of Business and research scholar at the Arkansas Center for Research in EconomicsHis paper “Arkansas’ Alcohol Fight: Bootleggers, Baptists and Ballots” has been accepted for publication in the academic journal Public Choice. Click here to read it in its entirety.

  1. Yandle, B. (1983). Bootleggers and Baptists: The education of a regulatory economist. Regulation,7(3), 12–16.
  2. Johnson, B., III. (2005). John Barleycorn must die: The war against drink in Arkansas. Fayetteville, AR: University of Arkansas Press.
  3. Harper, J. W. (2016). A spirited revolution: Local option elections and the impending death of prohibition in Arkansas. University of Arkansas at Little Rock Law Review,38(3), 527–557.
  4. Knoll, J. L. (1951). A partial fruition: A history of the Woman’s Christian Temperance Union of Arkansas. Little Rock, AR: Women’s Christian Temperance Union of Arkansas.
  5. Pew Research Center (2014) reports that 39% of Arkansans are Baptist (combining evangelicals, mainline, and historically black Baptist denominations). That’s about half of the 79% of Arkansans affiliated with any Christian denomination. https://www.pewforum.org/religious-landscape-study/state/arkansas/.
  6. Hogan, L. (2014). Reports shed light on backers of wet, dry groups in Arkansas. Arkansas Business, June 19.
  7. KAIT. (2014b). Signatures being gathered for Craighead County to go wet. May 3. Retrieved August 16, 2019, from https://www.kait8.com/story/25418526/committee-poses-wetdry/.
  8. KAIT. (2014a). Crime rate: Wet vs. dry counties. June 12. Retrieved August 16, 2019, from https://www.kait8.com/story/25752589/crime-rate-wet-vs-dry-counties/.
  9. Arkansas Family Coalition. (2019). Who we are. Retrieved August 6, 2019, from https://www.arfamilycoalition.org/who-we-are.html.
  10. Arkansas Family Coalition. (2014). July/August/September 2014 newsletter. Retrieved August 6, 2019, from https://www.arfamilycoalition.org/uploads/5/8/5/5/5855148/2014_july_august_september_neswletter.pdf.
  11. Fraught, D. (2014). Baptist church to display liquor petition signatures. Newton County Times. May 8.
  12. Smith, A., & Yandle, B. (2014). Bootleggers and Baptists: How economic forces and moral persuasion interact to shape regulatory policy. Washington, DC: Cato Institute.

Understanding Economic Data in the COVID-19 Crisis

By Jeremy Horpedahl, Ph.D.

As the country continues to deal with the COVID-19 crisis, accurate data is one of our most important tools for understanding what is happening in our country and the world. In particular, economic data can tell us a lot about how the virus and public policy response is playing out. Accurately interpreting the data is crucial so that we understand what it means.

Last year, I co-authored a book designed to help Arkansans better understand economic data. In this blog post, I will highlight a few data sources you can follow to better understanding what is happening in our country and economy.

Unlike most economic downturns, the current crisis is a largely planned economic slowdown used to encourage people to reduce contact with others. We have not seen an economic downturn like this. Even so, our conventional economic data provides a way of seeing what is happening in the world, as long as we understand what the data is telling us.

What does the stock market crash tell us?

Since Jan. 1, the S&P 500 is down about 21% through March 27. The S&P 500 is a good, broad gauge of the 500 largest publicly traded companies, and much better than the Dow Jones Industrial Average, which only covers 30 companies and is calculated strangely.

The stock market crash tells us investors are worried about the future profitability of U.S. companies. Stock prices are based on the perception of how profitable a company will be in the long run. Stock prices provide us a real-time snapshot of how the economy is doing, updated not only every day but every minute. As opposed to some of the other economic data I’ll be describing, which can take weeks or months to collect and report, the stock market gives us some information in real-time.

But stock markets can also overreact, especially in a time of great uncertainty like the present. For example, earlier in the week of March 23, the stock market was down 30%, rather than the 21% it closed out at March 27. That’s a big change in a week. Expect more big changes over the coming weeks and months. This means you can’t always depend on the stock market to tell you what is happening in the economy. It’s a noisy measurement.

And not all companies have seen their stocks decline. Zoom, a video conferencing company that many are using to stay in touch while we practice social distancing, is up 120% this year. Blue Apron, a company that delivers fresh food to be prepared at home, is up about 80% this year. Investors expect these companies to be much more profitable than they expected before the crisis hit.

It is also worth noting that stock markets are declining across the world. The U.S. is not an outlier. Stocks in Europe are down about 27% this year. Even in Japan and South Korea, which have handled the crisis relatively well, stocks are down 18% and 22% this year (all figures are through March 27). We are not alone, and not noticeably worse than any other democratic, market-based economies.

Your retirement portfolio probably looks a lot worse than it did on Jan. 1. That’s a difficult thing to see. But the overall stock market is roughly where it was in 2017, so we have not gone back to the dark ages. I recommend following the stock market as a way of seeing what is happening in the economy, but I don’t recommend checking your 401(k) balance daily.

What is the best overall measure of how the economy is doing?

Gross Domestic Product is widely viewed as the best measure of the overall economy. It is a measure of the market value of all the goods and services produced in our economy. Knowing what is happening with GDP can tell us a lot about how the economy is doing and how bad the partial shutdown of the economy has been. It’s also sometimes used to determine whether the economy is in a recession or not.

But there’s a major problem with GDP: It is only reported quarterly and takes time to compile. While the first-quarter of 2020 will be ending in a few days, we won’t have the first GDP estimate until April 29. And that is only considered an “advance” estimate, with the final estimate coming June 25. Plus, only one month of the first quarter, March, was seriously hit by the economic slowdown in the U.S.

The second-quarter is expected to be the hardest hit, but right now, we can only speculate. I’ve seen lots of estimates of how bad it will be, including the president of the St. Louis Federal Reserve saying that GDP could decline by 50%. That would be bad. The worst quarterly decline on record was in 1958, when GDP fell by 10%, also during a flu pandemic. Quarterly estimates don’t cover the Great Depression, which was much worse.

We won’t have an estimate of second-quarter GDP until July. It’s not helpful for watching what is happening in real-time.

There are economic indicators that provide some glimpse of the economy faster than GDP, and might even tell us what will happen with GDP. For example, the Conference Board produces an index that uses 10 “leading” economic indicators, such as the stock market performance and unemployment claims, to give a picture of how the economy is performing. The Conference Board releases its index monthly, and the March report is scheduled to be released on April 17.

The Federal Reserve Board’s Industrial Production Index is also released monthly and tells us how many goods the industrial sector is producing. It is narrower than GDP, since it does not include services, but it will still give us some idea of the extent of the economic downturn. The March report is scheduled for release on April 15.

How bad has the labor market been hit?

One of the most immediate impacts of the economic slowdown is that many individuals have been laid off or had their hours significantly cut back. The unemployment rate is one of the best measures of how the labor market is performing. It is released as part of the monthly Employment Situation Report from the Bureau of Labor Statistics. The unemployment rate is not a perfect measure since it only counts those looking for work as unemployed, but along with the other information in the employment report, it provides a good picture of the health of the labor market. Currently, the unemployment rate is near record lows at 3.5%, but, of course, this will be changing soon. The question is how much.

We will get a report for March on April 3. However, BLS uses a “reference week” to conduct the survey, and that reference week was March 8-14. As you may recall, that was the week before most of the U.S. began shutting down businesses and practicing social distancing. We won’t have a report for April until May 8.

How bad the unemployment rate will get is anyone’s guess. The same St. Louis Fed president that predicted GDP will decline by 50% also guessed that unemployment would hit 30%. Economists at the St. Louis Fed have produced estimates that 46% of US workers are at “high-risk” for becoming unemployed in the current crisis. These are some of the highest guesses I have seen, but remember, they are just that — guesses. We’ll have to wait for the real data to see how bad it truly is.

One measure of the labor market that is available more frequently is the new filings for unemployment insurance claims. National data are released every week, a timely measure. While this measure is not perfect, since not everyone unemployed qualifies, and not everyone eligible applies, it is useful due to how often that data is released.

On March 26, we had the release of this data for March 15-21, the first week significantly impacted by the slowdown. And it was record-breaking bad news: around 3 million Americans applied for unemployment insurance. For reference, there were fewer than 6 million total unemployed Americans before the crisis started.

The prior week, fewer than 300,000 had applied for unemployment insurance, so we had 10 times as many new unemployment claims in one week. During previous recessions, such as 1982 and 2008-2009, the weekly number never got above 700,000. Three million in one week is historic and historically bad. The next weekly report is scheduled to be released on April 2 and could be just as bad.

One of the major parts of the economic stabilization bill just passed by Congress provides support to the newly unemployed. Unemployed workers would get $600 per week from the federal government in addition to the state benefits they already qualify for, which can be as much as $451 per week in Arkansas. In a future blog post, I’ll discuss this economic stabilization bill in more detail and what it could mean for the labor market and economy.

Jeremy Horpedahl is an Assistant Professor of Economics at the University of Central Arkansas College of Business and Research Scholar at the Arkansas Center for Research in Economics. Read The Citizen’s Guide to Understanding Arkansas Economic Data here .