Milwaukee Biz Blog: Measuring our state’s economy

Wisconsin needs to build on its assets to improve economic outputs

Tom Still
Tom Still

 

MADISON – The American Legislative Exchange Council is a group liberals love to hate, mainly because its core goals – limited government, free markets and supply-side economics – appeal primarily to political conservatives.

So it didn’t go unnoticed when representatives of ALEC showed up recently in Madison, seldom perceived as a hub of conservatism, to announce the results of a 50-state index that put Wisconsin in a positive light for selected economic inputs.

The economic output picture painted by ALEC, however, was a bit more restrained.

The 2016 ALEC-Laffer State Competiveness Index, named in part for supply-side economist Arthur Laffer, is a two-part ranking that measures each state’s economic outlook as well as its economic performance. Laffer is best known for the “Laffer Curve,” a theory about tax-rate efficiency that heavily influenced President Reagan’s economic policies in the 1980s.

On the outlook side, ALEC ranked Wisconsin 9th best among the 50 states based on 15 factors that included personal income, corporate, inheritance and sales taxes and debt service as a share of tax revenue, all of which are measures that can be easily quantified – agree or disagree with the policy.

Those 15 factors also included conservative agenda items such as public employees per 10,000 population; an overview of the state liability system; the state minimum wage; average Workers’ Compensation costs; Right-to-Work laws and tax expenditure limits baked into state law or the constitution.

The index ranked Wisconsin among the top 12 states for passing a Right-to-Work law, for keeping its minimum wage low, for not levying an inheritance tax, for passing tax expenditure limits and (perhaps surprising to some in-state critics) its low ratio of public employees per capita. While it wasn’t directly measured, ALEC spokesmen also praised Gov. Scott Walker and the Wisconsin Legislature for passage of the 2011 “Act 10” legislation that crippled many public employee unions.

Those are all economic “inputs,” selected and judged through the eyes of ALEC’s analysts, which make conservative hearts flutter and liberal stomachs turn.

When it came to measuring economic performance, however, ALEC looked at “outputs” that placed Wisconsin where other rankings often do – toward the bottom of the 50-state class.

Wisconsin’s overall economic performance rank of 41st included a ranking of 35th for growth in state domestic product for the 10 years ending in 2014; 40th for non-farm payroll employment during the same cycle; and 38th in absolute domestic migration.

The latter category may be the most important because it measures how many people are leaving or entering the state, the so-called “brain drain” phenomenon. It showed a net loss of nearly 67,000 people over 10 years, with the peak coming in the recession year of 2010.

Economists on the political right and left may not agree about much, but they generally believe there is a correlation between migration and economic prosperity. When people “vote with their feet,” it’s a sign they are not finding the jobs, wages and opportunities they want.

Wisconsin’s demographic challenges are dictating much of what drives its economy. Too many of the people who are being lost to Wisconsin are college-educated and earning higher incomes, which hurts the state’s ability to retain talented workers and to re-invest in itself.

Most of the top-ranked performance states in the 2016 ALEC-Laffer index are states where people are moving, with Texas, Washington, Utah, Colorado, North Carolina and Oregon being prominent examples. The reasons may have more to do with how people perceive opportunity than specific policy initiatives.

How can Wisconsin make itself more attractive to outsiders and natives alike? By building on existing assets; telling a compelling story about its people, companies and culture; and celebrating what’s right about the state – not fixating on partisan divides and what’s wrong.

By focusing on economic outputs, Wisconsin can better judge what inputs can make a difference. Keeping the best and brightest home while attracting others like them from around the country and the world is one such measure.

Tom Still is president of the Wisconsin Technology Council.

 

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