Saturday, December 24, 2011

Boehner's Cheap Suit, The State of the States

How to Do Absolutely Everything Wrong
Extending the payroll tax holiday is a poor idea.  I absolutely believe it, just as much as I believe that extending the Bush tax cuts are a mistake.  And for the same reason.  With a treasury leaking close to a trillion dollars this year, we can scarcely afford to be giving away revenues, especially since we lack any sort of coherent plan to get our budget back in balance.

The payroll tax holiday is an example of why "temporary" tax cuts are so insidious.  We saw it with the Bush cuts and we see it again.  The narrative goes something like this - someone (President Obama in this case) argues for a "temporary" tax cut, holiday, relief, you pick the name, based on the idea that returning this money to the economy will spur needed economic growth.  The supporters of this "temporary" tax cut say we should ignore the negative impact on deficits because, after all, this cut is temporary, so it won't effect our structural imbalance of revenues and spending.

So we pass the "temporary" tax cut, time rolls on, it gets close to the date of expiry, and lo and behold, suddenly those who were arguing for it want to extend it because "we can't raise taxes at a time like this".  Never mind that it was sold in as temporary - it's now "in the base".  And the beat goes on.  And so do the trillion dollar deficits.

Having gotten all that off my chest as to the policy associated with the payroll tax cut, the POLITICS of the matter are another thing.  And on this count, the GOP, specifically the House GOP have managed to do absolutely everything wrong in this debate.

First, they didn't communicate their wishes to their Senate colleagues.  As a matter of fact, a few weeks ago, it was John Boehner that refused to negotiate a compromise on the payroll tax cut, demanding instead that the Senate work it out.  Well, they did.  The agreement was a 2 month extension of the cut, paid for by increased fees associated with Fannie Mae and Freddie Mac.  Essentially, higher fees on mortgages to pay for payroll tax relief.

Then, after the Senate deal had passed with massive bipartisan majorities (the Senate vote for the plan of 88-10 reflected the support of 80% of the GOP caucus), the House GOP balked.  I don't think it was Boehner himself who wanted to raise a stink (as a matter of fact, I think he would have been happy to leave town), but regardless, the House was suddenly making it an issue that the tax cut didn't cover a long enough period of time (somehow 2 months creates uncertainty, but 12 months magically creates certainty) and they wanted the Senate to come back to negotiate a full year deal with them.

So, Boehner and the House GOP handed the keys to the Democrats.  They managed to simultaneously portray themselves as holding up tax relief for working Americans while making the Democrats look like the defenders of lower taxes.  And all for a battle that they could not possibly win.  And they did not.  They caved within 72 hours as Harry Reid outright refused to call the Senate back for more discussions until the House passed the plan.  And pass it they did.  Oh, sure, they got token concessions which change nothing about the underlying legislation in an attempt to save face.

But at the end of the day:
(1) The Democrats looked liked the heroes of lower tax rates for working and middle class Americans
(2) The Republicans looked like shills for the rich, defending the Bush tax cuts for upper income Americans at all costs but balking at more modest relief for the lower brackets
(3) The strengthened President Obama's standing in the polls by as much as 5%
(4) They got no substantive policy changes in return

That's a rare perfecta indeed.  I wrote earlier on how the GOP should have some concerns about the House due to its historically low popularity and the best Democratic performance in generic congressional polling since 2006 and apparently they are hell bent on making my writings come true.  John Boehner better get that caucus under control or he might have to try back out the "minority leader" title.

What State is the Best?
While the candidates in Iowa are certainly not taking a break for the holidays, the debates are done until after Iowa and the polling won't really resume until after Christmas, so I thought I'd take a little detour and talk about a subject I've been meaning to write about for some time. 

In this Presidential campaign on the Republican side, the principle of federalism has been raised repeatedly by the GOP candidates.  It is a unique aspect of our form of government that so much of the governing is left to individual states to decide.  Federalism at its best is 50 state laboratories trying out different policy approaches to see what measures up best.

But the 50 laboratories only matter if somebody is measuring the results.  So, I'm pleased to present my ranking of the most and least successful states in the US.

First, let's talk about my methodology.  There are many things that people would like about a state that are subjective.  Measuring a state's cultural achievement or the quality of its food would make for interesting debates on message boards, but would be entirely subjective.  Do you prefer blues music in Mississippi or grunge in Seattle?  Do you like the lobster in Maine or the soft shell crab in Maryland?  Is Texas football better than New York hockey?  These questions are fun, but ultimately can't be measured.

So, I stuck to 4 very clear objective measures:
(1) Median Income
Standard of living is determined, in large measure, by how much money the average person makes.  Median income demonstrates the strength of a state's economy probably better than any single metric.

(2) Educational Attainment
The percentage of adults who are college graduates is an easily accessible "end state" metric on education that allows for easy comparison.  You could argue that this measure under weights the impact of primary and secondary education in a state, but I would argue that the primary purpose of primary and secondary education is to prepare students for college.  Besides, rating metrics for those things get increasingly subjective.

(3) Crime
We all want to live in safe neighborhoods and crime is a clear indicator of a social problem.  Violent crimes per 100 residents normalizes for population and shows how safe states are.

(4) Population Growth

An excellent measure of the quality of a state is whether people are coming there or leaving there.  Granted, this metric biases positively to those states that see a lot of illegal immigration, but over time, even illegals will go to where the opportunity is, so I used 10-year population growth as the metric.

For each metric, the state with the BEST score (highest income, highest education attainment, lowest crime, highest population growth) received 50 points, the second best 49 points and so on.  The total of all 4 scores were added together to give a state its total score.

Using this methodology, an AVERAGE score would be 102 points.

The states ranked as follows:
1. Utah - 162 points
2. Virginia - 161 points
3. Colorado - 159 points
4. New Hampshire - 158 points
5. Vermont - 143 points
6 (tie). Washington - 142 points
6 (tie). Massachusetts - 142 points
8 (tie). California - 141 points
8 (tie). Connecticut - 141 points
10. Hawaii - 138 points
11. Maryland - 133 points
12. Wyoming - 132 points
13. Arizona - 129 points
14. Oregon - 128 points
15. New Jersey - 125 points
16. Alaska - 123 points
17. Minnesota - 120 points
18. South Dakota - 119 points
19 (tie). Georgia - 118 points
19 (tie). North Dakota - 118 points
21. Rhode Island - 114 points
22. Delaware - 109 points
23. Idaho - 106 points
24. Texas - 105 points
25. Pennsylvania - 104 points
26 (tie). Maine - 103 points
26 (tie). New York - 103 points
28. Wisconsin - 101 points
29 (tie). Nebraska - 100 points
29 (tie). Kansas -100 points
31. Illinois - 97 points
32. Nevada - 91 points
33. Montana - 90 points
34. North Carolina - 85 points
35. Iowa - 79 points
36. New Mexico - 77 points
37. Ohio - 76 points
38 (tie). South Carolina - 72 points
38 (tie). Missouri - 72 points
40. Florida - 68 points
41 (tie). Kentucky - 66 points
41 (tie). Oklahoma - 66 points
43. Indiana - 63 points
44. Alabama - 58 points
45. Tennessee - 55 points
46. Arkansas - 45 points
47. West Virginia - 44 points
48. Michigan - 43 points
49. Mississippi - 40 points
50. Louisiana - 36 points

Let's examine the top and the bottom five in a little more detail.  First, the top 5.

Utah doesn't lead the pack in any single category, but is solid in them all.  It is 6th best in crime, 11th best in educational attainment and population growth and 14th best in income.  Utah has been a real boom town as Salt Lake City has grown and diversified.  Far from being the stereotype of shows about plural marriages and backward ways, it is a thriving state with a broad economic base.  Maybe Jon Huntsman was on to something.

Virginia is similarly strong across the board, ranking 8th in income and education attainment, 10th in population growth and 17th in crime.  Once a tale of two states, with poor Richmond at one end and the DC suburbs at the other, both completely dependent on the government (Richmond for welfare, Northern Virginia for government jobs), Virginia has diversified greatly into high tech industries and boasts arguably the best university system in the country (UVA, Virginia Tech, James Madison and George Mason are all Virginia states schools and all top flight.)

Colorado is the 2nd most educated state in the union and the 4th fastest growing, but lags somewhat in the other categories, coming in at 13th in income and a middling 26th in crime.  Colorado's strength are the core of large media and communication companies centered in Denver.  It is also a regional transit hub and supports a lot of smaller manufacturing industry.  Similar to many fast-growing states in the Southwest, the source of some of its population growth is also a drag on its crime and income scores - high levels of illegal immigration.

New Hampshire
New Hampshire would be number 1 if I'd stopped at 3 categories - it ranks 3rd in educational attainment, 4th in crime and 7th in income.  But New Hampshire, like much of the Northeast, isn't growing much - it ranks a weak 32nd in population growth.  New Hampshire's libertarianism makes it a shopping haven for New Englanders as well as a bedroom community for many commuters into Boston.  It also sports a strong tourism industry...especially around this time in an election cycle.

Rounding out our top 5 is New Hampshire's much more liberal brother Vermont which, similar to New Hampshire, ranks 3rd in crime and 7th in education but a somewhat weaker 20th in income and 31st in population growth.  A popular tourist spot and organic farming hotbed, Vermont has continued to foster a stable economy, despite conservative protestations about its very liberal economic policies.

On the bottom end:
Hurricane Katrina could get some of the blame, but Louisiana has been in decline for a very long time, with one of the worst permanent underclasses in America.  It's best ranking is in population growth, at 37th.  It ranks 41st in income, 44th in educational attainment and 46th in crime.  Louisiana, like many states in the deep south, lacks much of a middle class and has a very large underclass, which is mostly black.  Systemically bad schools and poor social institutions carry this problem from generation to generation.

Mississippi scores surprisingly well on crime, 20th best in the country, which keeps it out of the basement of the ratings, but other than that, the news is abysmal.  46th in population growth, 48th in education and 50th in income.  A poor, uneducated population that is leaving.  I lived in Mississippi and can personally attest that there is poverty in the Delta in a way I never would have thought possible in the United States.  My apologies to Haley Barbour, but this is a state failing on virtually all fronts.

The dismal state of Detroit and the contraction of the auto industry over the past decade have not been kind to Michigan.  It is 34th in income, 36th in educational attainment, 41st in crime and 50th in population growth.  In other words, people are leaving in mass and the ones leaving are largely the educated ones.  And who can blame them?  Have you seen Detroit lately?  Interestingly, it is a world away from Mississippi, but the fundamental problem is the same - lower skilled jobs (in Mississippi in agriculture, in Michigan in manufacturing) that have either moved elsewhere or gone away and a working class ill-equipped to do something else.

West Virginia
Appalachia has long been a location of heart-wrenching poverty.  Only a relatively low crime rate in this low population-density state keeps it out of the cellar - it's crime rate is 12th best in the nation.  Other than that, things are horrible - 49th in income, 49th in population growth and 50th in educational attainment.  It's a vicious cycle - lack of education keeps industry away and lack of jobs keeps people in disbelief that an education will benefit them.  The permanent underclass here is white and rural, rather than black and urban, but the problem is the same.

You could argue that Arkansas at least "wins the region" by ranking ahead of Mississippi and Louisiana, but things are still not great.  It is 22nd in population growth, buoyed by the continued strong growth around Wal-Mart in Bentonville and industrial growth in places like Fort Smith, but 40th in crime, 48th in income and 49th in education.  Bentonville is like a metropolis - Little Rock looks worse than Detroit.

So what can we learn about policy from all of this?
Using the imprecise metric of a "red" state being a state John McCain won in 2008, a "blue" state being a state Barack Obama won by more than his national average and a "purple" state being a state that Obama won but by less than his national average,

Of the 10 best states, 8 are blue, 1 is purple and 1 is red, but the red 1 is in the top spot.
Of the 10 worst states, 8 are red, 1 is purple and 1 is blue

The average ranking for a BLUE state is 17th
The average ranking of a RED state is 31st
The average ranking of a PURPLE state is 32nd

While there are certainly inherent socioeconomic differences from state to state, in my mind, this fairly well disproves the notion that conservative states are more business-friendly and drive greater growth.  By and large, liberal states are better places to live by the objective metrics.  Perhaps we should be paying more attention to what Mitt Romney did in Massachusetts rather than poo-pooing that experience.  And maybe, just maybe, Haley Barbour should stop lecturing Governors in New England and start listening to what they are doing.

The other thing interesting is to look at the exceptions.  Michigan is a rare underperforming blue state.  Why?  It made itself into a banana republic in the 70s by tethering its entire fate to the auto industry - an industry that has become more automated (requiring less workers), more diversified (foreign manufacturers and new entrants locating outside Michigan) and more cyclical (car sales crashed in the late 2000s.)

Utah, on the other hand, leads all states but is the only red state in the Top 10.  What are they doing right?  They've done tourism right, with winter sports growing in the United States and Utah being a very affordable location.  They've grown the options for nightlife well beyond anything imaginable 20 years ago.  And they've mined their inherent natural resources at a time when commodities are rising.

I'm a big believer that data rather than dogma tells you interesting things.  Have a different take?  I welcome your thoughts. 

Merry Christmas and Happy Holidays, everyone.

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