"The Path to Prosperity Is Blue"


AUTHOR: Jacob S. Hacker and Paul Pierson

DATE: July 30, 2016

HOW can America’s leaders foster broad prosperity? For most Republicans — including Donald J. Trump — the main answer is to “cut and extract”: Cut taxes and business regulations, including pesky restrictions on the extraction of natural resources, and the economy will boom.

Mr. Trump and House Speaker Paul Ryan are united by the conviction that cutting taxes — especially on corporations and the wealthy — is what drives growth.

A look at the states, however, suggests that they’re wrong. Red states dominated by Republicans embrace cut and extract. Blue states dominated by Democrats do much more to maintain their investments in education, infrastructure, urban quality of life and human services — investments typically financed through more progressive state and local taxes. And despite what you may have heard, blue states are generally doing better.

We identify blue states as the 18 that supported the Democratic candidate in the last four presidential elections, and red states as the 22 that backed the Republican candidate (alternative definitions yield similar results). If you compare averages, blue states are substantially richer (even adjusting for cost of living) and their residents are better educated. Companies there do more research and development and produce more patents. Students score better on tests of basic science-oriented skills like math.

How can conservative commentators claim that red states dominate? A tactic favored by Mr. Trump’s economic adviser Stephen Moore is to rely on measures goosed by population expansion, like job growth or a state economy’s size.

That’s like portraying India as a beacon of prosperity because it has one of the biggest economies in the world and creates millions of jobs annually. Economic performance is measured in the lives of individuals, not aggregates.

Another favorite approach is to cherry-pick a handful of red states with decent records and contrast them with the most troubled blue states. With Texas now stumbling as oil prices fall, the new conservative favorite is Utah.

Utah’s low poverty rate and long life expectancy are impressive, but spotlighting a single state ignores the more numerous red states that dominate the lowest ranks of state performance — whether for life expectancy, obesity, rates of violent crime and incarceration, or labor force participation of prime-age workers.

Many of these differences are longstanding. Our reddest region, the South, has long been the poorest part, too. The gap between today’s red and blue states was enormous for much of the 20th century. It then narrowed substantially, thanks in part to huge federal transfers to the poorest states to raise them toward the national level.

Yet income differences between red and blue states stopped closing around 1980 and, in some revealing cases, widened. For example, Texas and Massachusetts — often considered exemplars of the red and blue models — had almost converged by 1980. Since then, Texas’ per capita income has fallen significantly relative to Massachusetts’. The same is true of Utah.

Yes, the cost of living is higher in Massachusetts than it is in Texas — by about 11 percent in the last few years, according to recent government calculations by the Bureau of Economic Analysis. But even this significant difference (surely longstanding) can’t close the widened gap.

This red-blue divergence is all the more striking because red states still receive much more in federal spending relative to the federal taxes their residents pay. In other words, blue states are generally outperforming red states even while heavily subsidizing them.

Why are red states no longer consistently gaining ground? An important reason is that modern knowledge economies increase the rewards for education, research and development and urban hubs that promote the exchange of ideas and development of talent. This has made local conditions more important even in this age of globalization. And the places where these effects have been most successfully promoted are overwhelmingly blue.

Yes, there are fast-growing red state economies. But many, like North Dakota, look more like Saudi Arabia than Silicon Valley. Not all states are sitting on huge fossil fuel reserves, and tapping these reserves isn’t costless. It creates pollution and other problems — negative externalities — that go beyond states’ borders, notably the costs associated with carbon emissions.

By contrast, the innovation-driven growth in blue states creates broadpositive externalities. People educated in blue states can move to red states; technologies developed in blue states can be emulated in red states. In other words, blue state investments “leak out.” Yet these states are still producing high levels of prosperity.

Not all blue states are economically successful, of course, and not all red states are struggling. Some red state innovation hubs like Austin, Tex., are thriving (even if these “blue islands” are at odds with state governments over wage rules and public investments). Yet few of the cities that do the most research or advanced manufacturing or that produce the most patents are in red states.

On the other side, blue states have found it difficult to maintain their historic investments in education and infrastructure. In some cases, state policies are to blame. Connecticut, Illinois and Rhode Island are now having to deal with badly underfinanced pension funds.

But blue states have also been affected by cutbacks in federal funding for research, infrastructure and higher education — a reminder that federal policy still matters enormously.

And blue states have higher average inequality than red states do (in part because of their success in promoting high-paying jobs), and their dense urban economies continue to harbor troublingly deep pockets of disadvantage.

Local restrictions that stymie construction of new affordable housing play a big role. These policies not only hurt less affluent residents; they also make these states poorer because the most innovative cities are less dense and hence less productive than they could be.

We should tackle these problems. But we should remember that the key drivers of growth are science, education and innovation, not low taxes, lax regulations or greater exploitation of natural resources.

And we should be worried, whatever our partisan tilt, that leading conservatives promote an economic model so disconnected from the true sources of prosperity.