How should state policymakers approach e-cigarettes?
One of the questions economics teaches you to ask is ‘compared to what?’ Someone might well tell you that a job paying $10 an hour is bad, but, if you’ve…
This op-ed appeared May 21, 2018 in the Milwaukee Journal Sentinel.
There’s an old saying where I’m from: If something seems too good to be true, it probably is. The recent report by the Economic Policy Institute comparing the economic records of Wisconsin and Minnesota since Governors Scott Walker and Mark Dayton took office in January 2011, is a case in point. It was seized upon by people, including a columnist for this news organization, who saw it as vindicating things they already believed.
But just as you should never buy a car without checking under the hood, you should never trumpet an economic report as proving your case until you have checked the numbers for yourself. If the folks who saw proof in the EPI’s report that Governor Dayton’s policies were so much better than Governor Walker’s had done this, they would have found that on some important measures Wisconsin’s economy has actually outperformed Minnesota’s.
The EPI report makes some strange choices on which data to use. For example, it uses annual data from the Bureau of Economic Analysis for 2010 to 2016 when quarterly data is available going into 2017. Using quarterly data is better because it allows us to select a more precise base period for our comparison, Q4: 2010, the three months before the two men took office, rather than an average of all of 2010. It also allows us to add another year to our comparison.
Using the annual series, the EPI reported that “Minnesota’s GDP grew by 12.8% in real (inflation-adjusted) terms, while Wisconsin’s grew by 10.1%.” But when we look at GDP growth using quarterly data covering Q4:2010 to Q4:2017, we find that Wisconsin’s economy has grown by 11.9% and Minnesota’s by 10.9% in real terms.
Wisconsin’s economic growth under Gov. Walker has outpaced Minnesota’s under Gov. Dayton.
As well as strange data selections, there are odd interpretations. The EPI notes that, by December 2017, Wisconsin and Minnesota “have reached effectively the same unemployment rate, at 3% and 3.1%, respectively.” But the EPI goes on to argue that “Minnesota was back at its pre-recession (December 2007) unemployment rate of 4.7% by September 2013, fewer than three years after Governor Dayton took office. In contrast, it took until December of 2014 — 15 months later—for Wisconsin to reach its pre-recession unemployment rate of 4.8%.”
This is horribly misleading. The EPI fail to mention that in the race to these pre-recession levels of unemployment, Governor Walker was starting from a rate of 8.1% and Governor Dayton was starting from a rate of 7.1%. Their comparison takes no account of this handicap. In fact, from December 2010 to March 2018, Wisconsin’s unemployment rate fell by 5.2 percentage points to 2.9%, while Minnesota’s fell by 3.9 percentage points to 3.2%.
The unemployment rate has fallen faster and further in Wisconsin under Walker than it has in Minnesota under Dayton.
Just as Wisconsin beats Minnesota on some measures, Minnesota beats Wisconsin on others. Bureau of Labor Statistics data shows that the Gopher State has added more jobs under Dayton than the Badger State added under Walker. Minnesota’s population also grew faster than Wisconsin’s, at 5.1% from Q1: 2010 to Q4: 2017 while Wisconsin’s has grown by just 1.9% over that period.
But, even here, given Minnesota’s lower rate of GDP growth, Wisconsin’s GDP per capita — what really matters for economic well-being — has risen by 9.8% in real terms compared to 5.5% in Minnesota.
It is interesting to compare Minnesota and Wisconsin, but only up to a point. For each similarity the states have, there are differences too. Neither state — yet — is beating the other hands down over the last seven years. To say otherwise is to go against the data, which is why the EPI had to cherry-pick data to make that argument.
Whether a report supports bigger or smaller government, this or that economic policy, whichever way you lean, pop the hood and check the data for yourself. A bleeding heart is no substitute for an engaged brain.
John Phelan is an economist at the Center of the American Experiment, a think tank based in Minnesota that advocates for free markets and limited government.