A Tiebout Solution?

March 29th, 2012 at 8:12 am

Via Paul K, here’s an interesting piece of analysis by Konczal and Covert on how job losses among public sector workers in states and cities have disproportionately occurred in places where state legislatures turned red in 2010.

K&C make important connections between state tax cuts and these employment outcomes, linking the losses to the sluggish national job market recovery.  And it is very much the case that private and public sector job growth have been trending in opposite directions of late.

But I found myself wondering if this isn’t some sort of Tiebout solution?  That’s a political economy model where people locate their families in places that match their political and personal preferences.  Were someone like me to end up in one of these red places, he/she might well bemoan the lack of public services, but the citizens themselves would be perfectly happy with that arrangement.  Other low tax types—say, parents devoted to home schooling who didn’t want to support public education—might locate to such places, as Tiebout predicted, while those who valued public services and didn’t mind paying for them would increasingly inhabit other places.

What’s wrong with that?  I mean, at one level, it sounds pretty harmonious.

Well, for one, you’d have negative spillovers where the blues would end up supporting the reds, which apparently already occurs.  But I’m thinking about more global externalities.  This is a recipe for sub-optimal public good provision from the perspective of society as a whole.  Children who grow up in areas with too few public goods will later make smaller contributions to society than would otherwise be the case—they’d be less productive inputs relative to places that invested in their kids—and that affects all of us.  Interstate commerce would suffer from the lousy infrastructure in states seeking this “solution” and that would raise prices for all of us–this post about climate change, sea level, and roads in Louisiana provides an excellent real-life example.

Obviously, such outcomes are extremely common already, both here and in developing economies.  Apartheid was a horribly inefficient economic relationship, but its purpose was to serve the racist preferences of white South Africans.  The risk of this Tiebout solution is that while it may meet the preferences of those who oppose taxation and public services, it ultimately hurts the rest of us.

 

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4 comments in reply to "A Tiebout Solution?"

  1. J says:

    Mr. Bernstein,

    My comment/question isn’t relevant to this particular post, but about estimates of initial unemployment claims. Recently (as in the last few months), it seems as if the first estimate of initial unemployment claims is understated compared to the revised figure that is reported the next week. For instance, last week it was reported that there were about 348k IUCs. Today that figure was revised upward to 364k. Do you know why this is? Is it a quirk with the seasonal adjustment factor? Thanks!

    J


  2. Michael says:

    Yeah, the problem is that blue transfers to red states are masking the real cost of these policies, which creates a brutal moral hazard. Plus, the blue states are being punished for pursuing good policy by having the parasitic red states extracting their resources.


  3. Tyler says:

    President Obama needs to get America back to full employment. “Full employment” means a jobless rate of four percent at most.

    It makes perfect sense to further cut taxes on lower- and middle-income Americans – because they’re likely to spend their windfall.

    Thinking you’re going to be reelected when 12 million Americans are unemployed is nonsensical. Mitt Romney will simply run as the man who understands the economy, win, and then serve as a vessel for right-wing policies. The only way this can be prevented is if President Obama forces the Republicans into a corner by demanding a tax cut for the middle class. Ron Paul would support this. He has never not voted for a tax cut.


  4. Mike says:

    This seems like another one of those philosophical economic theories that look real good on paper but have virtually no practical benefit. Aside from the blue state to red state transfers that Michael points out, there’s the practical problem of all those people relocating. Simply moving your entire family to a new state is rarely a simple matter. It’s further complicated with an unemployment rate over 8%, and that doesn’t even take into account the underemployment issue.

    Then you’ve got the problem of making sure there’s infrastructure available to accommodate the new arrivals. Not many of the new red state citizens are going to be content with finding their own wells and digging their own latrines.


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