Hicks
Any occasional reader of this column will know that I write often about the importance of quality of life in a region’s economy. Much of my technical research in academic journals and writing with think tanks, like Brookings, also involves the role quality of life plays in regional prosperity. Today, nearly most governors and mayors acknowledge the key role of quality of life in their state or city. So, I am heartened that the work of so many economists, sociologists and urban planners is finally getting the attention of policymakers.
Still, there are some frustrating hurdles to overcome in explaining quality of life. Just to be clear, I’m no longer very worried about convincing folks that quality of life is important. Most elected leaders understand it is important. If you lead a state, city or county that is not prioritizing quality of life, you face a difficult economic future, and you serve as a valuable example to those who are addressing their shortfalls. I would not wish to interfere with that important public service.
What frustrates me about the quality-of-life debate is its immaturity. When policymakers talk about quality of life, it seems they immediately mention something like, “we don’t have mountains; we don’t have ocean beaches.” Or, I hear, “we need to get better downtowns or restaurants or bars.”
To be sure, plenty of folks like mountains, oceans, nice downtowns, good restaurants, and bars. People also like warm Januarys and cool July days, walking trails, dog parks and gyms. However, running through a hypothetical list of amenities is the worst way to think about improving quality of life. There’s a better approach.
Measuring quality of life is conceptually straightforward. The best way is to simply calculate how much more or less people are willing to pay for an identical house located in different locations. Whichever one is higher, is a better place. Then of course, you can extend that process to every county in the country. The ‘unexplained’ home value in each place is a measure of local quality of life. Of course, to do this you must create the ‘identical’ home using a statistical model that counts square feet, year built, number of rooms and the like. Economists have been doing that for half a century; it’s just easier now with faster computers.
The other half of the equation is to measure how much more or less an identical worker would accept in wages to work in a place. Workers demand a wage premium to live in undesirable places. Of course, this metric means creating statistically identical workers, by accounting for education, occupation, job tenure and the like. Again, we’ve been doing that successfully for half a century as well.
By combining the unexplained home value and wage premium, we get a pretty good measure of quality of life in a county. What’s superb about this approach is that it measures what people actually do, not what they say they like. This process also considers those who live in a community, as well as the preferences of those who choose to live elsewhere, which is something survey work almost never does.
This process requires no assumptions about what people like or dislike. That’s a critical element because we are such a wonderfully heterogenous species. If we uniformly only liked mountains or ocean beaches, there’d be no one residing in the area from central Ohio to the Rockies, or South Alabama to the Arctic Ocean. Alas, people do live in these areas, and the interests and desires of these people need to be considered.
This, of course, does not mean that amenities don’t matter. But, instead of assuming what folks might like, we can go back to our measure of quality of life for sophisticated insights. You see, we have detailed data on every American county. I have perhaps 500 or 600 amenities for each place. These range from the average January temperature from 1945 to today, to the miles of shoreline, to the quality of schools, daily average particulate pollution, violent crime rate, the share of residents who belong to congregations, and the number of gyms and golf courses. We have these and 500 more amenities.
These data allow us to ask, “what amenities most predict a high quality of life?” We can do so for the whole nation, and for multi-state regions, such as the Great Lakes states. Something like that ought to guide our policy choices. The insights are important because Indiana does very well on some measures of quality of life, and on some amenities. However, the state does very poorly on many others.
Across several studies, we report the most predictive amenities for quality of life, and put them into three buckets; natural amenities, public amenities, and private amenities. Many, many other economists have done the same thing. One consistent result is that state and local government play a very big role in all three of these, but in ways that may not be immediately obvious.
Government cannot reasonably affect mountains, oceans, or weather. What government can do is provide cleaner air and water, and to turn more places into parks and locations that people can enjoy. Indiana does well in some of these areas. Our state parks are fabulous, and we have significant natural amenities. But, like other Great Lakes states, there are untapped opportunities in our natural environment.
In terms of private amenities, the role of government is critical, but narrow. You don’t need to attract the ‘right’ shops or stores. Rather, simply get out of the way of private businesses. Indiana does this extraordinarily well. Starting a new business, entering a new occupation, or investing in someone else is easy here. We have very few restrictive occupational licenses, and an accommodative approach to a new business. So, if consumers demand a new restaurant or gym, the free market of entrepreneurs has few constraints on meeting that demand.
Indiana’s problem is that in the areas that are the strongest predictor of quality of life, we do poorly. Our challenge is that the largest predictors of quality of life are those affected by good local public services. These are firstly school quality, then crime, then the health of residents. These are all things in which state and local government plays a critical role.
The only place Indiana rises close to the national average in any of these metrics is in our crime rate. So, in the areas that matters most, and are most sensitive to public policy, we lag the nation substantially. These facts cannot be wished away by one-off local investments, large business incentives or begging college students to remain in the state. It won’t be that cheap.
Michael J. Hicks is the director of the Center for Business and Economic Research and the George and Frances Ball Distinguished Professor of Economics in the Miller College of Business at Ball State University. Send comments to [email protected].
