Paul L. Caron
Dean




Wednesday, October 15, 2014

Rich States, Poor States

RSPS_7th_EditionArthur B. Laffer, Stephen Moore & Jonathan Williams, Rich States, Poor States (7th ed. 2014):

In this seventh edition of Rich States, Poor States, Arthur B. Laffer, Stephen Moore, and Jonathan Williams highlight specific policy choices throughout the 50 states that have led some states to economic prosperity and others to lackluster growth. The authors provide the 2014 ALEC-Laffer State Economic Competitiveness Index, based on the economic policies of the states. Through the empirical evidence and analysis contained in this edition of Rich States, Poor States, the policies for economic growth are clear.

In chapter one, the authors provide updates on important policy developments that occurred throughout 2013 and the first half of 2014 in an in-depth, state-of-the-states analysis. ... Chapter two chronicles the movement of both people and income throughout the states. ... In chapter three, the authors provide a detailed explanation of not just which policies are conducive to economic growth and which ones are not, but also why this is the case. ... Finally, chapter four is this year’s comprehensive ALEC-Laffer State Economic Competitiveness Index.

Table 2

  Table 1

https://taxprof.typepad.com/taxprof_blog/2014/10/rich-states-.html

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Comments

Ted Seto said - "Very odd. The standard way economists who purport to be rigorous analyze such things is to specify inputs and outcomes and explore the extent to which inputs predict outcomes. What is the outcome measure reported here? How well Laffer et al predict how each state will do in the future. That's not an outcome."

Well, if you browse through summaries of the individual states you can get an idea of how earlier predictions of states' economic outlooks fared. They didn't fare all that well.

Not that I expect much more than science fiction from anything with Stephen Moore's name attached to it, but I still have a hard time believing that the people drafted this "study" couldn't bring themselves to at least pretend to consider the effect of human capital in the respective states. If taxes were paramount, we'd at least see some technology giants emerge from states like SC, TN, MS, AL, etc .... But somehow, this never happens.

Posted by: Nathan A. | Oct 15, 2014 12:09:16 PM

Very odd. The standard way economists who purport to be rigorous analyze such things is to specify inputs and outcomes and explore the extent to which inputs predict outcomes. What is the outcome measure reported here? How well Laffer et al predict how each state will do in the future. That's not an outcome.

There are at least two problems with Laffer's analysis. One is that he does not control for other obvious variables. I watch North Dakota and other states with recently discovered oil and gas expand economically and am not surprised. Laffer apparently attributes their economic expansion to libertarian governmental philosophies. Oil and gas have nothing to do with it.

The second is that he isn't using real economic results as his output measure. Is it the case that California is experiencing "lackluster growth", as Laffer's chart suggests? Business Insider, hardly a socialist lackey, ranks California as #2 in "how state economies are doing." See http://www.businessinsider.com/state-economic-growth-rankings-2014-8?op=1. New York, which Laffer ranks dead last, is ranked #23 by Business Insider. Alaska, which Laffer ranks #18 (presumably because Alaska agrees with Laffer's political views) is ranked dead last by Business Insider (oil again, but in Alaska it's running out). Mississippi, which Laffer ranks 14th, is ranked #38 by Business Insider, quoting a Wells Fargo report concluding that "recovery has yet to blossom as labor market fundamentals remain relatively weak."

In short, Laffer seems to be finding what he set out to find. In my view, contact with reality is adaptive; ideological capture is not. Whether there's any merit to Laffer's political claims (as to which I express no views), this is not science.

Posted by: Theodore Seto | Oct 15, 2014 10:17:13 AM

Kansas at number 15? What alternative universe does Laffer live in?

Posted by: Publius Novus | Oct 15, 2014 6:11:54 AM