This piece from today’s NYT comparing outcomes in neighboring states with quite different approaches to economic policy caught my eye for two reasons.
First, some of the best empirical research in economics exploits these sorts of natural experiments. The idea is that neighboring states, in this case Wisconsin and Minnesota, face roughly similar economic forces, so there’s a built in control of sorts. That means we can—again, roughly speaking—consider differences in outcomes a function of their quite different approaches to policy (this pseudo-experimental technique has been used to great effect in minimum wage research).
Second, as I’ve stressed in recent writings, it’s hard to imagine much good in terms of economic policy coming out of Washington for a while, so we should be paying a lot of attention to what states and cities are up to.
The article compares the conservative, anti-union, tax-and-spending-cut strategy in WI against the more progressive policy agenda in MN, where tax increases are paying for more investment in public goods and human capital.
Which side of the experiment — the new right or modern progressivism — has been most effective in increasing jobs and improving business opportunities, not to mention living conditions?
Obviously, firm answers will require more time and more data, but the first round of evidence gives the edge to Minnesota’s model of increased services, higher costs (mostly for the affluent) and reduced payments to entrenched interests like the insurers who cover the Medicaid population.
The lion’s share of Minnesota’s new tax revenue was sunk into human capital. While the state’s Constitution required that half of the new revenue balance the budget in 2013, [Gov.] Dayton invested 71 percent of the remaining funds in K-12 schools and higher education as well as a pair of firsts: all-day kindergarten and wider access to early childhood education. Minnesota was one of the few states that raised education spending under the cloud of the Great Recession.
By contrast, [Gov.] Walker’s strategy limited Wisconsin’s ability to invest in infrastructure that would have catalyzed private-sector expansion, and he cut state funding of K-12 schools by more than 15 percent. Per student, this was the seventh sharpest decline in the country.
MN took the ACA’s Medicaid expansion and set up their own exchanges; WI did not. Though time will tell, early evidence shows, obviously, more coverage in MN.
Speaking of state variation, this part of ACA implementation is particularly important to watch and evaluate. The economics quite clearly points states toward accepting the Medicaid expansion as the Feds pick up all of the costs for the first few years and at least 90% after that. Governors are usually a pragmatic lot; they typically can’t afford to take the ideological positions of their DC contingent. Even Tea Partiers want the snow ploughed. So comparing both coverage and costs in take-up vs. non-take-up states will be increasingly important.
The Times piece documents the usual pushback and squabbling. Some MN businesses are complaining about the policy climate, and I’m sure the governor will have to pay attention to that. Gov. Walker’s supporters predictably blame his predecessor for lousy outcomes on his watch.
Such noise is to be expected. What’s important here is some hard-nosed evaluation of outcomes. My economics brothers and sisters need to follow-up with rigorous tests across states and cities, controlling for any relevant differences between areas. The laboratories are out there–they are where the action is and will be for a good while, I suspect.