Paul Krugman is brilliant. There’s no denying it. So why did he make a scatterplot that maps state and local revenue against unemployment and call it a scatterplot of state and local taxes against unemployment? Simple question: do you really believe that state and local taxes in Alaska are twice as high as California’s? I’ve made this point before, but had to make it again.
Ed Kilgore, also an impressive guy in his own way, offers a data-free post attacking Ross Douthat’s column for … lacking data. He uses a number of progressive buzzwords, including “low-road” economic strategy — as opposed to the “high-road” approach of using tax-and-spend policies to create high-wage green jobs, etc. The premise is that northern Europe follows the high-road and the southern U.S. follows the low-road. It’s a breezy view that requires ignorance of the reality of Europe’s “high-road” economies: in Sweden, women are overconcentrated in low-wage, low-status work; youth unemployment rates are extremely high throughout continental Europe; there is a tier of workers with generous social protections and a “precarious generation” that lacks them. There is much to admire in the northern European social models, e.g., relatively high rates of labor force participation, low rates of incarceration, family stability than translates in good educational outcomes and low rates of child poverty. But “high-road” vs. “low-road” tells us very little.
Kilgore also seems to be unaware of or indifferent to Texas’s success in educating K-12 students, which you’d think would be deemed a fairly important component of a state’s long-term economic strategy. Given that Texas children suffer from extremely high rates of family disruption and poverty, this is pretty impressive, not least because Texas spends far less than California, where Proposition 13 hasn’t prevented a raft of other initiatives that, as Joe Matthews has long argued, make the California teachers’ unions effectively a fourth branch of government. I’m greatly amused by how Proposition 13 — which I oppose — gets all of the abuse while equally consequential initiatives that involve massive transfers of wealth to public sector workers are consistently ignored. Amused, but not surprised.
I worry that the size of these transfers, and the need to defend these transfers, is having a corrosive effect on the analytical skills of a number of distinguished commentators.
Then there is the small fact that no-regulation Texas has strong banking regulations. “But that proves my point!,” I can imagine my interlocutors saying. But does it? Heavy regulation is appropriatein some areas, like consumer banking, and inappropriate in others. It happens that Texas has struck a pretty decent balance.
The truth is that state policies have little or no effect on short-term economic trends affecting their populations. Texas and California exist in national and global economies. Unemployment rates in Fresno or El Paso are largely controlled by forces affecting manufacturing exports and imports; prices for housing, oil and gas; and credit availability that have almost nothing to do with the policies of Arnold Schwarzenneger or Rick Perry. Republican-governed Florida is getting hammered, and Democratic-governed Iowa is doing well.
The same can be said of the federal government, of course. But Douthat was pointing to long-term trends. In the long-term, California’s approach has been wrongheaded. It is absolutely true that California is starved of revenue relative to expenditures. In a similar vein, the explosion is debt-financed spending at the federal level is definitely a partial product of the Bush tax cuts.* But the projected Obama deficits dwarf the Bush deficits because spending will increase and taxes will, as the White House reminded us yesterday, only increase on those making $250,000 or more a year. Note that this has been California’s approach. That, of course, was the point — the perhaps too-subtle point, for some — of Douthat’s column. Who thinks that this will end well?
Meanwhile, Texas’s long-term economic strategy has involved sharply improving educational outcomes for the African American and Mexican American Texans who will, in a few years time, constitute a majority of the state’s workforce. Another component of its long-term strategy could have lifted from William Julius Wilson — who, by the way, would undoubtedly object to this characterization given his political commitments: the best social program is a job, including a low-wage job. Policies that make job creation less likely are socially destructive.
This doesn’t strike me as an extremely difficult idea to understand. The Dutch get it. The French are getting it, as Edmund Phelps has explained. For whatever reason at least some American progressives are lagging well behind their role models.
*I’ll discuss my favorite tax reform this week.