Pro-Business Policies Don’t Help Economy

Menzie ChinnMenzie Chinn has been doing some amazing work over at Econbrowser about the effects of “pro-business” policies on economic growth in the states. In two articles, he compares payroll levels with the ALEC-Laffer Economic Outlook Rankings. He finds that states that don’t have the supposedly pro-business policies actually do better than those that do.

Of course, the truth is that the ALEC-Laffer rankings have pretty much nothing to do with economic growth. Chinn explains, “The ALEC-Laffer methodology equally weights 15 measures: Top Marginal Personal Income Tax Rate, Top Marginal Corporate Income Tax Rate, Personal Income Tax Progressivity, Property Tax Burden, Sales Tax Burden, Remaining Tax Burden, Estate/Inheritance Tax Levied, Recently Legislated Tax Changes, Debt Service as a Share of Tax Revenue, Public Employees Per 10,000 of Population (full-time equivalent), State Liability System Survey (tort litigation treatment, judicial impartiality, etc), State Minimum Wage, Average Workers’ Compensation Costs (per $100 of payroll), Right-to-Work State (option to join or support a union), and Number of Tax Expenditure Limits.” In other words, it’s just a conservative wish list. It’s a bunch of stuff meant to enrich and rich, and through the use of the job creator myth, they claim it is good for the economy.

Chinn’s first paper was, State Employment Trends: Does a Low Tax/Right-to-Work/Low Minimum Wage Regime Correlate to Growth? In it, he looks at four states that all got new governors in 2010: California, Minnesota, Kansas, and Wisconsin. The first two with Democratic governors got ALEC-Laffer ratings of 47 and 46—at the bottom of the list. The last two with Republican governors got ratings of 15 and 17. Yet over the last four years, the states with the supposedly bad economic policies have seen their economies grow more than the nation as a whole and those with the supposedly good economic policies have seen their economies grow less than the nation as a whole.

Of course, this raises the obvious question, “What about the other states?” So Chinn wrote, State Employment Trends: Does a Low Tax/Right-to-Work/Low Minimum Wage Regime Correlate to Growth—An Econometric Addendum. What he found was that there really isn’t any correlation, but as much as there is one it is that the “pro-business” policies actually hurt the economy.

Let’s think about that for a moment. If we had a really equitable economy, allowing people to keep more of what they make might actually improve economic growth. But our economy is already so out of kilter that we aren’t going to see improvements from policies that allow the rich to keep yet more of their money. In fact, the opposite case makes more sense: funneling more money to the poorer classes is going to be a better way to stimulate the economy.

I find myself being very frustrated with most political issues these days. In this case, it is clear what ALEC and Art Laffer are doing: they are lobbying for the rich. No one should take them seriously. The economics of this stuff is very clear. But this kind of determined ignorance seems to be all that the conservative movement is these days. Today, Jonathan Chait takes George Will and Charles Krauthammer to task over their comments about global warming. In addition to everything else, these guys push the idea that the scientific community has a vested interest in global warming being true. But they make absolutely no mention of the fact that the the rich people Will and Krauthammer represent have far greater interests in denying global warming.

This is why our civilization is dying. Hopefully another civilization will rise up after us. And if it does, books will be written about the rise and fall of the American Empire. And they will conclude that what went wrong was that we turned into an oligarchy that was focused on protecting the interests of the rich. As a result, the society ossified and slowly died. And people like ALEC and Laffer and Will and Krauthammer will be a big part of the story. Thanks guys!


H/T: Michael Hiltzik

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About Frank Moraes

Frank Moraes is a freelance writer and editor online and in print. He is educated as a scientist with a PhD in Atmospheric Physics. He has worked in climate science, remote sensing, throughout the computer industry, and as a college physics instructor. Find out more at About Frank Moraes.

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