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States of the States
Laboratories of Democracy: Some Results Are In

Some states have been experimenting with ways to jump-start their economies, and they’re starting to see interesting results. In North Carolina, a cut to the unemployment program has reduced unemployment:

A year ago, North Carolina became the first state in the nation to exit the federal government’s extended-benefits program for the unemployed. . . . North Carolina didn’t descend into the Dickensian nightmare critics predicted. For the last six months of 2013, it was the only state where jobless recipients weren’t eligible for extended benefits. Yet during that period North Carolina had one of the nation’s largest improvements in labor-market performance and overall economic growth.

According to the U.S. Bureau of Labor Statistics, the number of payroll jobs in North Carolina rose by 1.5% in the second half of 2013, compared with a 0.8% rise for the nation as a whole. Total unemployment in the state dropped by 17%, compared with the national average drop of 12%. The state’s official unemployment rate fell to 6.9% in December 2013 from 8.3% in June, while the nationwide rate fell by eight-tenths of a point to 6.7%.

It seems, furthermore, that this development is not a statistical oddity, nor the result of labor market atrophy.

But if one right-wing nostrum has been vindicated in the Tarheel State, another is under fire in Kansas, which Paul Krugman took to the woodshed last week:

Two years ago Kansas embarked on a remarkable fiscal experiment: It sharply slashed income taxes without any clear idea of what would replace the lost revenue. Sam Brownback, the governor, proposed the legislation — in percentage terms, the largest tax cut in one year any state has ever enacted — in close consultation with the economist Arthur Laffer. And Mr. Brownback predicted that the cuts would jump-start an economic boom — “Look out, Texas,” he proclaimed.

But Kansas isn’t booming — in fact, its economy is lagging both neighboring states and America as a whole. Meanwhile, the state’s budget has plunged deep into deficit, provoking a Moody’s downgrade of its debt.

Stephen Moore, whom Krugman called out by name, shot back in the Kansas City Star, and it appears that in Krugman’s case, the partisan wish might have been at least partly father to the economic thought. But at the same time, Krugman’s underlying sources are the Wall Street Journal and the Bureau of Labor Statistics, not Talking Points Memo. Brownback’s revolution, which has attracted bipartisan critics for some time, may be discovering its limits.

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  • Andrew Allison

    I’m shocked, SHOCKED to learn that detaching people from the taxpayer teat encourages them to look for work! Perhaps this experiment should be expanded.

    • Pete

      If it was expanded to cut all social benefits to illegal aliens (education, health care, welfare, food stamps, rent subsidies, earned income tax credits, etc.), you’ll see them run back to whence they came.

      Now that I think of it, one welfare benefit should be extended to the illegals — free transportation by bus back to Mexico.

      What’s that you say, not all of the illegals are Mexican. So what? Let the Mexican government sort them out

      • Andrew Allison

        Pete, Pete, where are your humanitarian instincts [/grin]. I agree, of course that proof of right of residency should be a requirement for taxpayer-funded welfare of any kind. That said, we need to face up to the fact that we are taking advantage of illegals to keep the costs of food, clothing, etc., down. Should employers be required to pay minimum wage to all employees, legal or otherwise? Provide some level of benefits? Should we offer some kind of amnesty in lieu of services rendered? I don’t pretend to have the answers, but I think the questions need to be addressed. The endless dole is a completely different question. As an aside, I don’t see any difference between the IRS & HHS not checking whether ACA subsidies are qualified for than throwing money at illegals.

  • Jacksonian_Libertarian

    In a laboratory it is often possible to limit all the variables, so that one change can be examined for its effect on the entire system. This isn’t possible with the States which are affected by State, National, and International regulations, taxation, and economics. So the question to ask in Kansas isn’t “Why didn’t the tax cut help the economy?”, but rather “What would the economy have been like without the tax cut?”, and remember the 1st quarter 2014 GDP came in at a huge -2.9%.

  • FriendlyGoat

    Right wing nostrums are never vindicated except by right wing people. The first half of this article describes correlation but does not prove causation.

  • Ben

    When calculating unemployment, did the North Carolina analysis consider that, as a requirement for getting unemployment benefits, a person must actively seek a job? And that if they’re not getting unemployment benefits or finding work, they may simply give up and identify as “not seeking employment?” Serious question – didn’t see it called out as a factor in the stats.

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