October 27, 2009

The Method Is the Message, in RI Recovery

Justin Katz

Reviewing a recent RIPEC study (PDF), Brian Hull pulls back from the most relevant question:

When we look at the 2007 Per Capita Personal Income for RI, MA and CT we find the following: Rhode Island is $39,829, far less than Massachusetts ($48,995) and Connecticut ($54,981). The per capita personal income of MA is a little more than 23% than that of RI. Likewise, the PCPI of CT is 38% more than RI. With these numbers, it's easy to see why general expenditures per $1,000 of PI is higher in RI than in MA and CT. There are fewer "$1,000s of personal income" here to support the government's expenditures.

Does this make the expenditures more expensive, or even less necessary? No. It just means that, as a society, we earn less money than our neighbors to fund these services. All things being equal, if we raised the per capita personal income in the state, then the spending per $1,000 of personal income would decrease. We should aim for that!

An interesting tidbit of information that I learned from Tom Sgouros, in his book "Ten Things You Don't Know about Rhode Island," is that blue-collar, working-class jobs in the state pay much less than comparable jobs in MA and CT. This is in contrast to the relative equivalent salaries earned by professional, white-collar jobs (even though RI still earns a little less). And this helps explain why RI earns less, but that's a discussion for another day.

His heavy reliance on Tom Sgouros notwithstanding, Hull presumably does not buy into the idea that our problems require the reduction of spending through consolidation and the like. After all, consolidation, of itself, will not prime the job-creation machine, and it will not bring Rhode Island salaries up to the levels of our neighboring state. It is not, in other words, the reason that Rhode Island fares so much more poorly than the states by which we're engulfed. Since the problem is too few $1,000s — not who holds them — the answer cannot be that our tax structure doesn't take enough from the rich (which is nonsense, anyway).

If he asks the right questions, Hull may be dangerously close to agreement with we who believe that Rhode Island's government must get out of the way of its economy. Schemes that allow for continued regulations and mandates and wealth redistribution will fail. Have failed. We cannot mandate that people have more money. We have to allow them to make it.

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A quick google reveals that RI has about a million residents and a $7 billion budget. Massachusetts has about 7 million residents and a $26 billion budget. As has been noted here many, many times RI has a spending problem. Our state spending, per capita, is twice what neighboring Massachusetts is! And they have the highest performing public school system in the country while we have one of the worst.

Posted by: Frank at October 27, 2009 10:23 AM

Frank, while I agree with your point, I disagree with your math. There is an "economy of scale" in there somewhere. There is a point when you're so small that things cost what they cost. Take for example a school with one student. You need to pay for the building, the heat, the teacher and supplies. So now let's double the enrollment. We don't need another teacher, we don't need more heat or another building. So those costs all stay stagnant. I think there is a little bit of that when you compare a 1 million citizen state with a 7 million citizen state. I don't think it's accurate to just claim that on scale, Mass is half the budget, thus they're more efficient.

However after doing a little digging, I'm seeing that MA state budget last year was $46B, not $26B. They got over $19B from the federal gov't, so I doubt the feds were picking up 2/3 of the tab.

Here are some nearby states:

RI: $7B 1M $7,000 per resident
NY: $121B 19.5M $6,205 per resident
NH: $10.2B 1.3M $7,846 per resident
MA: $46B 7M $6,571 per resident

Posted by: Patrick at October 27, 2009 12:58 PM

Umm.... So how and when do Hull and Tom Terrific Sgouros think we're going to add more of those $1,000s to per capita incomes in RI? Did they happen to note the differences in labor force quality? Or how about labor force size a percent of total population (RI has a relatively high population of retirees). Oh, yeah, and that other stuff from the RIPEC "How Does RI Compare?" report -- like our record setting growth in Medicaid (RiteCare) spending -- which now covers 20% of the state's non-elderly (pre-Medicare) population?

Enquiring minds are waiting with baited breath to hear the answer -- from whence will cometh the new goose that lays golden eggs? (since the last one is self-evidently on its last legs)

Posted by: John at October 27, 2009 1:41 PM
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