Sunglasses are optional for Washington’s economy – but please take off your blinders

August 28, 2012 | Aaron Keating

As long as Arthur Laffer and ALEC give Washington a negative economic outlook, there’s reason for hope

The Washington Policy Center (WPC) says our state’s economic future is none too bright, based on a low “economic outlook” ranking from Arthur Laffer and the American Legislative Exchange Council (ALEC). But if history is any guide, we’ve nothing to fear – that is, unless we actually follow their policy recommendations.

The “Rich States, Poor States” reports authored by Laffer, produced by ALEC, and touted by the WPC are so unreliable you’re better off flipping a coin than using their economic outlook rankings to predict performance. 60% of the time, a given state’s economy actually moves in the opposite direction of Laffer’s outlook – and that’s using Laffer’s own data and methodology, which (as we’ll see) have some serious problems.

Being wrong more than half the time may be the most generous criticism one can make of “Rich States, Poor States”. When you actually crunch the numbers, it turns out a higher ranking on the ALEC/Laffer’s index has no correlation to a state’s economic growth at all. In fact, the only correlation between Laffer’s ranking and performance is negative: the higher a state’s economic outlook ranking, the lower the state’s actual per capita income and median family income, and the higher the poverty rate.

There are other, more fundamental weaknesses. ALEC/Laffer’s choice to rank all states 1 to 50 makes it easy to call half the states “underperformers” compared to the rest. That’s a nice rhetorical device, but has little to do with how well a particular states’ economy actually serves the needs of the people who live there. And that’s where “Rich States, Poor States” really falls apart.

Rather than measuring how well a state is able to deliver on the building blocks of a strong economy – good infrastructure, strong schools, access to higher education, public safety, etc – Laffer’s “only taxes matter” methodology actually downgrades those states best able to support the basic functions that improve people’s lives, promote business growth, and protect our quality of life.

I’m not saying everything is hunky-dory up here in our corner of America, because clearly it isn’t. But as long as Laffer (and the Washington Policy Center) say the outlook is grim, you can color me a little more hopeful.

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Posted in State Economy

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