The wrong top ten

As we have written frequently being highly ranked in business climate rankings seems increasingly to be the goal/measuring stick of economic policy makers and too many pundits. Rather than having a good economy.

Problem is Michiganders can’t pay their bills or save for their kids education or their retirement with business climate rankings. What matters to them is do they have a job and how much does it pays.

Crain’s Detroit Business, reporting on an interview they conducted with Governor Snyder, reports: “While statewide rankings tend to lag, Snyder said it is hard to see why Michigan should not be in the top 10 in the country for best business climate. “We have done a tremendous amount to create a much better environment,” Snyder said.”

What is it that Michigan has done to create a better environment? Crain’s writes: “On the “done” side of the ledger, Snyder points to the elimination of the Michigan Business Tax and creation of the Corporate Income Tax, his signage of right-to-work legislation, the pending Personal Property Tax repeal, worker’s compensation reform, regulatory reform, the elimination of more than 880 net business rules and the Michigan Finance Authority’s bond deal to allow the state to repay its $3.2 billion unemployment trust fund balance  …”

No question those actions to reduce business cost can and should improve Michigan’s business climate rankings. Most of those rankings have as their underlying assumption that low costs places have the best economies.

Lets look at one of the most respected business climate rankings to see if doing well in the ranking translates into a better economy for a state’s residents. Below are states ranked from 1-10 in the Tax Foundation’s 2013 State Business Tax Climate Index and their ranking in per capita income in 2010. Per capita income being the best measure of the standard of living of a state’s residents. (Governor Snyder agrees the Tax Foundation’s rankings matter. They are featured in an op ed he recently wrote for Forbes.)
  • Wyoming, 6th
  • South Dakota, 22nd
  • Nevada, 29th
  • Alaska, 8th
  • Florida, 25th
  • Washington,12th
  • New Hampshire, 9th
  • Montana, 35th
  • Texas, 27th
  • Utah, 45th
Below are the states ranked 41-50 (those judged to have the worse business climate) in the Tax Foundation’s 2013 State Business Tax Climate Index and their ranking in per capita income in 2010.
  • Maryland, 4th
  • Iowa, 26th
  • Wisconsin, 24th
  • North Carolina, 36th
  • Minnesota, 11th
  • Rhode Island, 16th
  • Vermont, 19th
  • California,  13th
  • New Jersey, 3rd
  • New York, 5th
The average ranking in per capita income for the ten states with the best business climate ranking is 21.8 for the ten worse 15.7. Given that the ten worse business climate states on average are slightly more likely to have a higher standard of living than the best ten, it  is real hard to make a case that being ranked a top ten business climate state is a reliable path to a higher standard of living for Michiganders. And, at the very least, it calls into question whether the lowering business cost agenda––that has been the almost exclusive priority of Lansing policy makers the past two years––is the right agenda for returning Michigan to a high prosperity state.
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