The Corner

Economy & Business

States Show Value of Conservative Policies

(Jim Young/REUTERS)

Washington looms large in our political debates — as well it should. The federal government is bigger, costlier, more intrusive, and frankly more irresponsibly run, in most cases, than state governments are. Every hour of every day, members of the executive, legislative, or judicial branches of the federal government say or do something, usually something dumb, that drives the news cycle and dominates the political chatter.

Still, the modern conservative movement in America extends far beyond Washington. Indeed, it is much more decentralized than it was when I first arrived in the nation’s capital as a young conservative in the 1980s. Politically, its practitioners in the Republican party remain the dominant force in most state capitals across the country, despite giving up some ground to Democrats in 2018. Institutionally, conservatives populate dozens of think tanks, grassroots groups, litigation shops, academic centers, and civic organizations located outside of the nation’s political (and financial) capitals. While these political and issue activists don’t always operate in lockstep, and disagreements on policy details are common, they do represent a large, growing, and increasingly influential investment in the future of freedom, virtue, and constitutional government in America.

One good argument for focusing more conservative attention on state policy is that the old “laboratories of democracy” idea isn’t just a rhetorical trope. States differ in important ways, even as they sit within a shared environment of economic, cultural, and federal influences. It’s often easier to demonstrate (or disprove) the merits of conservative governance by looking at states than by attempting international comparisons, because nations have fewer common denominators, including unobserved but potential important differences for which it may be challenging to devise sufficient statistical controls.

Some years ago, I started compiling databases of academic research on the subject of state economic growth. To make it into the count, a paper had to be published in a scholarly journal (or a book subject to a comparable level of peer review). I don’t think studies are worthless if they aren’t peer-reviewed, by the way, and I know that the review process is far from pristine. But I wanted to preempt the usual arguments against conservative policy ideas.

So far, I count some 950 scholarly studies published since 1990 on some aspect of state or local public policy and economic growth. The results are generally favorable to fiscal and regulatory restraint. Most studies find a negative relationship between state tax burdens and economic growth, with more than two-thirds linking corporate and personal income taxes, in particular, to weaker growth. Higher regulatory burdens (68 percent) and energy costs (59 percent) are also associated with lower growth, while the Left’s preferred strategy of “investing” more in government programs typically shows no positive association with growth. This is true for spending on education (only 34 percent of studies show a positive correlation), on infrastructure (42 percent), and most clearly on transfers (7 percent). In only one area of state and local expenditure do most of the (relatively few) studies find public expenditure to boost economic growth: public safety.

Advocates of limited government are obviously on solid empirical ground here. Just to be clear, these findings do not suggest that government expenditures have no net benefits, or that the ideal state would be no state at all. They simply show that at modern levels of state taxation, expenditure, and regulation, residents get less in benefit than they bear in costs, on average. Making our governments smaller, while setting better priorities for every dollar spent — by government or by private parties complying with regulation — would make us better off.

For example, a recent paper by Joshua Hall and Donald Lacombe of West Virginia University and Timothy Shaughnessy of Louisiana State University looked at the relationship between the Fraser Institute’s popular Economic Freedom Index for U.S. states and relative economic performance. Just published in Contemporary Economic Policy, the study found that a 10 percent increase in economic freedom was associated with a 5 percent rise in gross state product, ceteris paribus.

The past two years have brought significant policy successes in Washington, such as tax cuts and regulatory reform, as well as some disappointments (burgeoning budget deficits and tariff hikes). The next two years may well deliver more of the latter than the former. As we ride that seesaw, conservatives will be properly frustrated. But federal policy isn’t the whole story. In states and localities, the conservative movement still has plenty of room for policy improvement — and the resources to make it happen.

John Hood is a syndicated columnist and the president of the John William Pope Foundation, a North Carolina–based grantmaker.

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