The Intellectual Bankruptcy of Arthur Laffer, Stephen Moore and Jonathan Williams, Illustrated

A Dozen years of ALEC’s Rich States, Poor States

The Economic Outlook ranking purports to predict state level economic growth. From the latest edition:

The Economic Outlook Ranking is a forecast based on a state’s current standing in 15 state policy variables. Each of these factors is influenced directly by state lawmakers through the legislative process. Generally speaking, states that spend less—especially on income transfer programs—and states that tax less—particularly on productive activities such as working or investing—experience higher growth rates than states that tax and spend more.

However, the ranking has essentially no predictive power for subsequent growth, as measured by employment (dlempl) or real GDP (dlrgdp). This is shown in the table. The variable rsps is the ranking provided by Rich States, Poor States, with lower values indicating a purportedly better business environment.

ldensity Log population density
wet Precipitation (less precipitation = higher values)
mild Temperature extremes (less extreme = higher values)
distance Proximity to water (closer = higher values)

These variables are from Kolko et al. (2013), as provided by Professor Neumark.

Notice that the RSPS rank is not significant, regardless of specification.

One might argue that the impact should be assessed over a longer horizon; however, using a 3 year horizon, neither employment and GDP growth exhibit a robust relationship with the Rich States, Poor States ranking.

This is part of my assignment for Public Affairs 819 statistics course. Results for other indices are here. You can conduct your own analysis with the data here (Stata .dta file).

7 thoughts on “The Intellectual Bankruptcy of Arthur Laffer, Stephen Moore and Jonathan Williams, Illustrated

    1. Moses Herzog

      Moses Herzog <<—-always takes his hat off in hero-worship respect after any Ed Learner name-drop.

      1. macroduck

        Undergrads should be able to discover that the Economic Outlook (sic) Ranking is unrelated to economic performance through simple spreadsheet ranking exercises. A little creativity in use of common tools is often enough to do basic analysis. Undergrads would benefit from being put through endless practical analysis exercises. I’ve hired a good many of them and they are generally surprised at how easy it is to debunk common claims with a couple of data series and a spreadsheet. They’ve never been asked to do it before.

  1. pgl

    ‘The memorandum may not exceed 3 double-spaced typed pages, plus tables and/or figures that do not count against the page limit. The memo should start with a clear, one-paragraph summary of your findings. Present empirical results in a table or tables. Assume that your reader is familiar the statistical techniques and terminology.’

    I suspect our Usual Suspects would find it difficult to follow these ground rules both in terms of making the memo clear or adhering to the page limitations.

    Now if this was a memo going to the President say in 1965, LBJ refused to read any memo longer than a single page. And we know Trump does not read at all. As far as being “familiar the statistical techniques and terminology” his own economic advisors are not.

    1. Ithaqua

      But… but… they know what a cubic is! (Well at least one of them does…) 🙁

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