Edward Conard

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Edward Conard

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The Goose that Laid the Golden Egg Isn’t Blue

In Sunday’s NYT, Yale’s Jacob Hacker and Berkeley’s Paul Pierson make a not-very-convincing argument that differences in the prosperity of Red and Blue state show that liberal Blue state policies produce more prosperity than conservative Red state policies. That’s insufficient to establish cause and effect.

Take California for example. The value of the good weather, Pacific ports, and synergistic communities of experts in Silicon Valley and Hollywood continue to draw the best and brightest workers. Lesser-skillful workers have flocked to these tax jurisdictions and together with municipal workers, successfully taxed the value of these assets. As long as the cost of the additional tax burden relative to other lesser-taxed states is less than the value of these assets to taxpayers, taxpayers will accommodate these demands rather than moving elsewhere. Hard-earned compromises will lead naïve voters to assume these lessons apply broadly to the economy. Like Hacker and Pierson, they may not recognize circumstances are different elsewhere.

Is it any surprise that Blue states include California, New York, Massachusetts, Washington, Illinois, Washington DC, and their surrounds?

Meanwhile, voters in less endowed states, like West Virginia, Mississippi, and Idaho, will learn a different lesson: that they must tax skillful workers—many who are eager to move elsewhere—more judiciously in order to retain, attract, and motivate them. Without a deeper understanding of differing circumstances, they will similarly apply these lessons more broadly.

To prove their point, Hacker and Pierson must show that states with higher taxes, like California, produce better outcomes for the beneficiaries of income redistribution—higher academic test scores for student from lower socioeconomic families, for example—and not just richer pay and pensions for municipal workers. In the latter case, Blue state polices merely siphon off the value of the country’s natural endowments at a cost to the rest of the country.

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