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Michael D. Farren

Articles by Michael D. Farren

Wisconsin Testimony on TEDIs and TIFs

March 16, 2021

Good afternoon Chair Stroebel, Vice-Chair Kapenga, and members of the Wisconsin Senate Committee on Government Operations, Technology and Consumer Protection:
I am grateful for the invitation to discuss Tax Increment Financing (TIF) and the economic effects of using Tax Increment Districts (TIDs) to foster local economic development. The evaluation of government efforts to create economic development is a primary area of inquiry for my research team, and I’m happy to contribute toward the conversation regarding Senate Bill 560.
My testimony today has three main points:
Wisconsin introduced TIF 45 years ago, in an effort to solve a potential problem of underinvestment by municipalities, but the solution created conditions that may have led to a host of additional problems.
The typical

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An Interstate Compact to Phase Out Corporate Giveaways

March 8, 2021

Co-Chairs Fonfara and Scanlon, Representative Elliott, and members of the Finance, Revenue and Bonding Committee:
My name is Michael Farren, and my research at the Mercatus Center at George Mason University focuses on evaluating government efforts to foster economic development. I am grateful for the invitation to discuss the problems associated with economic development subsidies and the possible solutions available for Connecticut.
An estimated $95 billion is spent annually by state and local governments on economic development subsidies. These subsidies remain a tenacious problem, even as support grows for phasing them out. My research suggests that an interstate compact offers an opportunity for a cooperative solution.
Academic research consistently shows that economic development

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An Interstate Compact to Phase Out Corporate Giveaways

March 2, 2021

Chair Abney, Vice Chairs Slater and Marszalkowski, and members of the House Finance Committee:
My name is Michael Farren, and my research at the Mercatus Center at George Mason University focuses on evaluating government efforts to foster economic development. I am grateful for the invitation to discuss the problems associated with economic development subsidies and the possible solutions available for Rhode Island.
Today, I will illustrate why economic development subsidies remain a problem despite growing agreement that they should be phased out and how an interstate compact offers an opportunity for a cooperative solution.
Academic research shows that economic development subsidies generally fail to achieve their stated goals. That is, they do not result in broad improvements in local

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Chaos, Conflict and Coronavirus: How Will the Labor Market Respond?

January 11, 2021

Against the backdrop of a nation in turmoil, the Bureau of Labor Statistics on Jan. 8 reported the first decrease in jobs since the headlong plunge in employment at the beginning of the pandemic. The monthly report estimated that, on net, 140,000 payroll jobs were lost between mid-November and mid-December. While the job losses are discouraging, the news wasn’t unexpected.
By mid-December many potential consumers were already avoiding public places to reduce their exposure to the resurging coronavirus, and states and cities were reimposing business restrictions and stay-at-home orders. These restrictions are being tightened or extended as coronavirus infections continue to trend upward.
Last week’s political tumult overshadowed the news that the U.S. momentarily crossed the threshold of

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The Economic Recovery Is a Slowing Swoosh

October 5, 2020

The September jobs report released by the Bureau of Labor Statistics (BLS) on Oct. 2 shows that the economic recovery continues, but at a steadily decreasing rate. Ordinarily, 661,000 net new payroll jobs added month-over-month would be a cause for jubilation, but that increase is only half the number of long-term jobs added between July and August. Meanwhile, there are 10.7 million fewer payroll jobs than existed in February 2020, before the coronavirus pandemic reached the United States. In other words, although employment continues to increase as the economy adjusts to the new environment, many unemployed workers still face a grueling recovery.
One of the slightly unexpected items from September’s jobs report was another large decrease in the official unemployment rate

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The Economic Bottleneck is Upon Us

September 8, 2020

In biology, abrupt environmental changes can create evolutionary bottlenecks that force species to adapt or die. This dynamic has occurred many times during the history of life on earth, and genetic analysis suggests that humans nearly went extinct in our own bottleneck around 70,000 years ago.
Our economy is now at a similar crossroads. And, as in nature, economic bottlenecks are a regular part of business cycles. They occur each recession as businesses are forced to adjust to rapidly changing demand for goods and services. These shifts in the kind, quantity, and quality of products that customers desire spur businesses to adopt new production technologies (changing their inputs or processes) as they streamline their operations to survive. In general, businesses that are better able to

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The Remote Work Revolution Complicates the Fragile Economic Recovery

August 10, 2020

The labor market is poised, as if on a knife’s edge, between recovery and an even deeper hole. The recent jobs report showed that temporarily furloughed workers are returning to their jobs as businesses attempt to reopen. The recovery is fragile, however, with 9.2 million more workers still facing the possibility that their furloughs may become permanent.
The increasing embrace of remote work complicates matters, since it carries with it changes in office workers’ spending patterns. These changes will affect the demand for—and employment associated with—products and services ranging from office supplies, business lunches, and janitorial services to dry cleaning, vehicle repairs, and childcare.
The continued recovery is indeed good news, but many commentators seem to be missing the economic

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Employment Bounces Back in a Big Way

July 3, 2020

The labor market once again outperformed economists’ best expectations, with the Bureau of Labor Statistics (BLS) reporting on July 2 that payroll employment rose by 4.8 million jobs from May to June. Meanwhile, recent data classification problems, which have artificially lowered the unemployment rate by counting some furloughed workers as employed rather than unemployed, have been reduced, but there’s still more to the story:
After adjustments to account for the data misclassification problem, the unemployment rate dropped from 16.4 percent in May to 12.3 percent in June. It’s now only about 1 percentage point higher than the official rate (11.1 percent).
But the gap with the “pre-pandemic comparable unemployment rate” remains wider. This rate also fell, from 19.5 percent in May to 14.8

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Mercatus Scholars’ Most Influential Books: Michael D. Farren

June 15, 2020

In commemoration of the 40th anniversary of the Mercatus Center at George Mason University, we’ve asked some of our scholars to share the books that have been most influential or formative in the development of their analytical approach and worldview.
From existential engineering to the Salem witch trials to Argentine magical realism, our scholars have drawn inspiration from diverse and dramatic wellsprings of intellectual thought.
Read on for more about why and how the books we will discuss have influenced our scholars’ approaches to policy and philosophy, and what lessons other readers may draw from these works.

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Is the Economy Rebounding or Is the Unemployment Rate Wrong?

June 10, 2020

The news that unemployment fell in May surprised everyone, including most economists. Before the release of the latest jobs report on June 5, economists had anticipated that 8 million additional jobs would be lost between April and May. Instead, payroll employment rose by 2.5 million jobs—the largest monthly increase ever recorded—and unemployment fell by 1.7 percentage points.
But the good news is tempered by the fact that the true unemployment rate is higher than the 13.3 percent reported by the Bureau of Labor Statistics (BLS). The BLS estimates that because of a data misclassification the unemployment rate could actually be over 16 percent. Indeed, according to my calculations, the rate is likely even higher, at around 19.5 percent.
While the record-breaking increase in jobs is

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The Real Unemployment Rate Is Probably Higher Than Anyone Realizes

May 18, 2020

The official unemployment rate announced on May 8, 14.7 percent, was the highest level since the Great Depression. The truth, however, may be even worse: the Bureau of Labor Statistics (BLS) missed counting 15.5 million people who probably should be regarded as unemployed. This would mean that, in effect, the pre-coronavirus equivalent unemployment rate might actually be around 23.5 percent.
And yet, despite the deeper-than-expected economic hole we find ourselves in, there’s reason to be hopeful. It’s not far-fetched to believe that the recovery from this recession will be swifter than expected. Most of those who are unemployed are temporarily furloughed rather than permanently laid off. Combining that with effective policies, public health solutions, and entrepreneurial problem-solving,

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What’s the REAL Unemployment Rate? Introducing the “Pandemic Furlough Rate”

May 8, 2020

The US unemployment rate soared to 14.7 percent in April, the highest since the Great Depression, as the full impact of the coronavirus started to become clear.
However, the unemployment rate alone isn’t sufficient to understand the coronavirus’s effect on the labor market. A statistic that measures the changes in employment (e.g. job losses and furloughs, as well as reductions in working hours) since early February would provide greater clarity. But no single metric is capable of telling the whole story because the economic effects are too complex.
For that reason I’m suggesting a new metric, which I’ll call the “pandemic furlough rate.” The name highlights the fact that much of the increase in unemployment is through furloughs—temporary layoffs or reduced hours—rather than permanent job

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Unemployment Rate May Exceed the Great Depression’s Peak

April 10, 2020

At this point it seems quite possible that the US unemployment rate will eclipse the Great Depression’s jobless rate of 24.9 percent as a result of nationwide shutdowns in response to the coronavirus. Despite the astonishing turn in the economy, however, we should take FDR’s advice and realize that fear itself is the greatest threat to our future—the economy is not facing the deep structural imbalances that led to the Great Depression. And despite the scale of the bad news we’re getting on a daily basis, the recovery will likely be swift; it won’t take a decade to climb out of this economic hole.
Last week’s initial unemployment insurance claims came close to setting a new record for the third week in a row. While not surprising, given that the previous week saw 6.9 million people file for

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