Yesterday's Wall Street
Journal carried a commentary
by economists Arthur
Laffer (he of the curve) and WSJ
editorial board member Stephen Moore. (Hat
tip: Jason Mercier. Jason's comments are here.)
They take a look at domestic migration, why folks move from one place to
another.
Here's the crux:
Migration patterns ... reveal which states have the most dynamic and desirable economies, and which are "has-been" states. The winners in this contest for the most valuable resource on the globe -- human capital -- are generally the states with the lowest tax, spending and regulatory burdens. The biggest losers are almost all congregated in the Northeast and Midwest. Liberals contend that tax rates, regulations, forced union laws and runaway government spending don't matter when it comes to creating jobs, high incomes and a higher quality of life. People tell us otherwise by voting with their feet.
Their commentary is based on
their
study for the American Legislative Exchange
Council. I tend to agree that taxes and regulation matter. In this
Washington Business column,
I write about how they affect business location, drawing on some excellent research
done for Kansas Inc.
The KI research uses a variety of statistical techniques to analyze how well the various business climax indexes explained economic growth from the 1970s through 2002. A good index would be one that properly weights those factors that influence business success, measured by employment and wage growth. Most fall short. What makes a dynamic, competitive economy is simply too complex to capture in a quick and dirty ranking.
In the end, after all the sophisticated data analysis, the KI study concludes: "The most important elements of business climate appear to be tax and regulatory burdens imposed on firms." In other words, the bottom line is still the bottom line.
But as we've
noted before, there are a lot of variables, and different business climate
studies weight things differently. While everyone looks for shorthand ways to assess
the reasons business locate or expand where they do, the decisions are often
more complicated than that.
Where you locate depends to
a large extent on what you do. Cheap land and energy matter more to
manufacturers than they do to biotech firms. Good transportation infrastructure
matters relatively more to some industries than others, although increasingly
it matters to everyone. In addition to lower taxes and regulations (including
right-to-work laws), the southeastern states have more land availability, low
energy costs (TVA states in particular), a decent labor supply, lower housing
costs, and – at least where I’ve been – good roads and highways.
Costs matter a great deal,
but typically come into play in choosing among several otherwise acceptable sites.
That is, after a number of locations have been
selected that fit the top tier criteria (land, labor, access to markets and
suppliers) costs - taxes and regulation - will generally make the difference.
That's true whether the choice is made within the region (Portland-Vancouver or
Spokane-Coeur d'Alene) or between regions that match up well on other criteria
(e.g., Seattle-Minneapolis, Seattle-Dublin).
The ALEC study
is worth putting up there along with all the others. But, as with all the
others, the authors' policy preferences help determine the outcome.
