Economics, U.S. Economy

4 reasons that ‘Rich States, Poor States’ matters

Art Laffer, Steve Moore, and Jonathan Williams have released the fifth anniversary edition of their Rich States, Poor States ranking of state fiscal and economic policies. Once again, Utah was this year’s “winner,” based an unweighted ranking of 15 policy variables ranging from highest marginal personal income tax rate to the size of the public sector workforce relative to the private sector. New York is at the bottom of the league table, to the surprise of nobody. (It also comes in last in the Mercatus Center’s Freedom in the Fifty States index.)

Four thoughts about Rich States, Poor States and why it matters:

1. Policy still matters on the state level. In a presidential election year, all eyes are focused on Washington and the top-of-the-ticket horse races. But a lot of the policy that touches our lives closely happens on the state level, including important tax and regulatory policies.

2. State competition remains robust. America is still a very geographically mobile nation. In the last decade, a net 1.5 million people moved out of California–this is about one in 25 Californians. (Bear in mind this is a net figure, so even more people who lived in California in 2001 didn’t by the end of the decade.) In 2010, 6.7 million Americans moved to a different state, and of those who moved more than 500 miles, it was usually for economic reasons.

3. The alternative hypotheses don’t hold much water. One of the most common rebuttals to suggestions that state policy influences population is that other factors like weather or natural resource endowments are much more important. Rich States, Poor States blows a hole in this. New Mexico is 23rd in net domestic migration; the states that surround it rank 2nd, 3rd, and 10th. Indiana is at 32, while its surrounding states are all in the bottom half-dozen. New York and Massachusetts are 50 and 43, respectively; between Vermont, New Hampshire, and Maine, none rank below 28. Washington state’s weather is so awful it gave us grunge music–but the state was fifth in net domestic migration.

4. This is because jobs matter, and policy matter for jobs. Intelligent people can argue about which taxes matter and the incidence of those taxes. And likewise, we can discuss the best ways (and right amount) to invest in infrastructure, education, and public goods. But on the margin, better policies bring capital and employees, and poor policies cause capital and worker flight.

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