ALEC Report on "Rich States Poor States": The Longest Wall Street Journal Editorial of All Time

A new report from the American Legislative Exchange Council (ALEC) purports to construct a "State Economic Competitiveness Index" with which you can rank your state on how well it "foster[s] economic growth and prosperity."

No one seems to have taken a crack at debunking its findings yet; this could be because everyone's busy during the holidays, or it could just be because no one is taking the report's "findings" at all seriously.

Here's just one quick thought: the ALEC competitiveness index is made up of 16 equally-weighted variables. But none of the variables have anything to do with the quality of state services, like, say, education or transportation infrastructure.

From a fiscal policy perspective, in fact, the ALEC index basically asks "how bad are the bad things" and ignores the general question "how good are the good things." So, for example, a state that has higher than average taxes but also has better than average schools will score absymally on the ALEC ranking, because taxes count as a bad thing but quality public education doesn't count as a good thing. Put another way, if you have two states that have exactly the same overall tax levels, one of which has excellent schools and the other of which has terrible schools, the ALEC index won't see a difference between them.

So if you construct an index of competitiveness that says taxes hurt your economic climate but public investments don't help, it's neither surprising nor useful to solemnly present a finding (as ALEC does in this report) that low-tax states have better economic climates. Sometimes the answer you get is entirely determined by the way you ask the question, and that's the case here.

The report deserves a thorough debunking, just in case anyone ever does mistakenly treat it as a meaningful study. But for the moment, all you really need to know is that the ALEC report is really little more than the longest Wall Street Journal editorial of all time (one of its two authors is actually on the WSJ's editorial board).

To drive this point home, here's an excerpt from a January 2007 WSJ editorial discussing a proposal to repeal Georgia's state income tax:

Georgia may beat Mr. Sanford to the punch. House Republicans in Atlanta have announced that one of their top priorities is to use the half-billion-dollar budget surplus as a downpayment to "dismantle the current tax code." House Republican Majority Leader Jerry Keen tells us the debate in Atlanta is between a flat-rate income tax and a plan that would "do away with the personal income tax but broaden the sales tax by eliminating 107 exemptions. We're committed to a pro-growth tax plan that announces to the country that Georgia is open for business."

A nearly identical paragraph shows up in the December 2007 ALEC report:

Georgia may beat Gov. Sanford to the punch. House Republicans in Atlanta have announced that one of their top priorities is to use the half billion dollar budget surplus this year as a down payment to “dismantle the current tax code.” House Republican Majority Leader Jerry Keen tells us the debate in Atlanta is between a flat rate income tax and a plan that would “broaden the sales tax by eliminating 107 exemptions and then do away with either the personal income tax or all property taxes. We’re committed to a pro-growth tax plan that announces to the country that Georgia is open for business,” he said.

Cutting and pasting is an author's privilege, I suppose. But the "cut and paste" approach shouldn't be confused for well-designed economic policy research.