The Great Experiment
By Martin Harris

Old-timers in Vermont’s Addison County will recall Pete Horton, “founding father” of the Addison County Chamber of Commerce. He’s not around here any more, having fled about a decade ago to Tennessee where temperatures are higher and taxes are lower, but his legacy lives on (my opinion, as is appropriate for an opinion column) in the form of an economic theory being converted to practice.

Neither Pete nor I are highly-skilled professional and credentialed economists, but we both had and still have distinctly different ideas on economics and used to debate them at length. It was my argument, based on early exposure to a number of the standard economics texts, that a national or state economy starts with a primary, wealth-creating sector, like agriculture or minerals, feeding a number of secondary, tertiary, and so on sectors which then survive and even prosper by selling their services or products for a piece of the wealth first created by the guy growing corn with sunlight or pulling fish out of the sea. Not to get into too much historical detail on this subject, but if you look up “physiocrats” in the dictionary or on the web you’ll get the full flavor of this economic construct. Pete’s business background wasn’t in corn-growing or cod-fishing, but rather in the tourism-hospitality industry, and, understandably, it was his argument that, particularly at the state level, secondary and tertiary industries like recreation and tourism were just as good economic bases as raising beef or quarrying marble. He wasn’t impressed by my argument that a state economy, which depends over-much on money previously earned elsewhere and then spent locally while the visiting earner-spender is on vacation isn’t the equal of one which actually generates new wealth locally. 

Now, it seems to me, based on general observation and anecdotal information  (I’ve requested data on passive versus active income in Vermont from the State Tax Department, to no avail, but was able to get the 1992 through 2004 breakdown from the Census Bureau) that an ever-increasing percentage of disposable income here comes not from dairying or manufacturing but from retirement checks and trust funds. I seem to see more and more instances of folks operating farms and shops who apparently don’t need to make a profit from them, more and more instances of full-time free-time younger and older adults able to devote full effort to unpaid political activism, more and more resident objection to any form of new housing or commerce or business or industry or infra-structure up-grade anywhere near to or even remote from their own little piece of Vermont. They subscribe to Vermont Life for its frequent photos of 20-cow wooden barns and horse-drawn hayrakes, but come out in droves to oppose modern dairying or apple-growing. The observation that there’s now a potent anti-development, anti-growth, anti-modernization mindset held by a majority of the modern Vermont electorate isn’t a new one first stated here. Here are the statistics. 

From 1992 through 2004, earned income in Vermont increased from $5.6 to $9.3 billion, or about 66 percent.  Business income increased from $454 million to $656 million, or 44 percent. In contrast, taxable IRA income increased from $51 million to $194 million, or 280 percent;  taxable pension income increased from $328 million to $710 million, more than doubling at 116 percent; and taxable Social Security income increased from 445 million to $226 million, quintupling for a growth of 402 percent. Farm income, in a State which glibly professes to be solicitous of its farmers, was $17 million in 1992 and still $17 million in 2004, for an inflation-adjusted loss of 35 percent (It required $1.35 in 2004 to match the purchasing power of $1 in 1992.) 

Income earned the old-fashioned way  --by working for it--  is still the major element of the income base of the Vermont economy, but it’s shrinking in relative importance as unearned passive income, everything from trust funds to pensions, grows at a much faster rate. Because people who don’t have to work at a day job have more time and energy to be politically active in every area from the regulation of development to the level of taxation, they exert far more impact on the socio-economic and governmental framework of the State than their earned-income less-than-peers, who can’t even attend a daytime hearing without forfeiting work accomplished or pay received or both.      

University of Vermont professor Frank Bryan describes these highly politically-active folks, almost entirely recent in-migrants from the megalopolis to the south of New England,  as “third-wave” post-industrial newcomers, having escaped from a “second-wave” urban-suburban environment, determined to use their political clout to keep themselves surrounded by a “first-wave” (pre-industrial) countryside --  but I would describe it as a great experiment: can a state economy be built primarily on transfer payments from elsewhere in the form of monthly mailbox checks for retirement or investments coming to a majority population which is largely non-productive in the traditional sense of that word? In other words, can transfer payments substitute for a primary sector economic foundation? Will the economy work when most of the voters and taxpayers don’t, and the rest of us try to peddle our products and services to them?

Pete Horton would have said yes: if tourism and recreation can be a primary sector substituting for real, local wealth-generation by drawing in wealth originally generated elsewhere, so can the transfer payments in the form of a  steady flow of passive income to an increasingly large percentage of Vermont mailboxes. I won’t say no; I will say that I’m not convinced.