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In Rhode Island, the Government Is Taking Away Our JOI

The RI Center for Freedom & Prosperity today released its Jobs & Opportunity Index (JOI) report covering the month of June, and even with nine of the 13 underlying datapoints being updated, Rhode Island couldn’t budget out of 48th place.  Indeed, if more states than two trailed the Ocean State, we probably would have sunk a bit.

For this post, though, I’ll focus on a finding from within the calculations of the index.  The following charts show the ratio of personal income to local, state, and federal taxes for Rhode Island, New England, and the United States, first from 2005 to the latest-available month and then zooming in with a starting point of 2012.

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The first takeaway from these charts, of course, is how much more Rhode Island takes from its people in taxes.  The Rhode Islanders’ income is around 10 times the total tax take.  For our region and our nation, however, the average is more like 13.5 times.  In the Ocean State, in other words, personal income is about 26% lower than it would be to support the same tax burden in the average state.  From the other direction, the state simply taxes its people too much given their income.

The second takeaway is that Rhode Island moves to increase its tax take as quickly or more quickly than people increase their income.  There’s no reason the government at any level must grow to reflect the income of the people.  Government provides a limited set of services, and they aren’t entirely income dependent.  Indeed, the wealthier a society is, the less it should need or want government to do.

After the income-to-tax ratio grew steadily from 2007/2008 to 2012, it dropped nationwide.  In the first six months of this year, anyway, the United States and, even more, New England have seen an uptick, while Rhode Island remains mired at its 10x.

We hear a great deal about fixing Rhode Island’s economy by giving money to government that it can give away to favored private interests.  The charts above illustrate one reason many of us believe that is exactly the wrong approach.

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Putting Americans in the Business of Manipulating Government

Over the past year, I’ve been describing the concept of a “company state” in which Rhode Island’s economy becomes increasingly premised on the expansion of government services (in part by creating or importing new clients for existing services) as leverage to take money from other industries and other states.  That’s not the full extent of the model, though.  After all, private companies in those other industries have to react to changes in the economic landscape.

Boston University School of Law economist James Bessen has done some research finding that, throughout the country, corporations’ profits are increasingly premised on their ability to manipulate government.  Investment in “regulation and lobbying,” he calculates, accounts for around 1.2% of corporations’ increase in profitability, compared with around 1.4% deriving from investment in new capital assets and around 0.25% attributable to research and development.

This development has potential to be disastrous.  For one thing, it changes the nature of businesses.  Beyond having to devote resources to artificial activities that have nothing to do with their core products or services, they must also become adept at intertwining themselves with the government, making that a core activity common across the economy.  The nation’s major industry, in other words, becomes political manipulation.  As this progresses, less and less other stuff that actually grows the economy and improves lives will get done.

For another thing, this sort of institutional cronyism locks out competition.  Smaller companies that must remain nimble can’t afford to be greasing government palms and dodging fabricated obstacles.  Without that competition both for customers and employees, the average American has less leverage as a consumer and as a worker.  Progressives who think they can use government as the people’s voice in these transaction are delusional.

People don’t need elected and appointed nannies to make sure we don’t treat each other unfairly, and it’s simply too obvious to ignore that pretending we do concentrates a great deal of money and power in the hands of a select class.

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The Party of Trump, Which I Cannot Support

Maggie Gallagher succinctly describes the Trump policy platform, inasmuch as it is possible to discern and predict:

Here is the new Party of Trump that we saw in this convention: liberal in expanding entitlements, pro-business in terms of tax and regulations, non-interventionist in foreign policy, socially center-left (with the possible, but only possible, exception of abortion).

Americans who pay attention to politics and policy tend to err, I think, in allowing themselves to be drawn toward the exchange of discrete, independent policies as a form of compromise.  I give you this social policy; you give me that regulatory reform.  That’s how we end up with a worst-of-all-possibilities mix of policies that, for example, encourages dependency while socializing the losses of major corporations, all to the benefit of the inside players who are well positioned to manipulate the system to serve their interests.

Broadly speaking, policies are components of a machine that have to work together, with a basic operating principle.  As the most-charitable interpretation, the machine that Gallagher describes is designed to drive corporations forward in order to generate enough wealth for government to redistribute as a means of providing comfort and accommodating the consequences of an anything-goes society, with the world blocked out at the borders and not engaged in socio-political terms so as to avoid bleeding of the wealth.  (The only difference between that vision and a fully progressive one is that progressives don’t want the machine to be independent, but to be plugged in as a component of a bigger, international machine.)

Put that way (again, most charitably), Trumpian nationalism doesn’t sound too bad.  Unfortunately, the lesson of the past few decades (at least) is that the machine doesn’t work.  The corporations recalculate to the reality that the politicians’ plan makes them (not the people) the engine of the whole machine, while the value of promising entitlements leads politicians to over-promise and the people to over-demand, particularly in response to the consequences of loose culture, while the world outside the borders erodes the supports of our society and allows implacable enemies to rally.

Now add in the stated intention of Donald Trump to actively agitate against members of his own political party because they show insufficient fealty, and the policy mix points toward disaster.  The aphorism that “success is the best revenge” is apparently not good enough for Trump.  More than that, though, from his late-night tweets about the pope to this planned attack on Ted Cruz, John Kasich, and some unnamed foe, Trump shows no realization that these leaders have supporters.  Trump is free not to respect Pope Francis, but his behavior shows that he has little concern for the vast world of Roman Catholics.  His own supporters Trump loves, and he’s happy to condescend to them; those who aren’t his supporters are either enemies or inconsequential.

Nobody should have any trust that they’ll continue to have Trump’s support starting the moment their interests conflict with his, and that has implications for the instructions he’ll attempt to give the machine.

Yes, one of the very few arguments in favor of a Trump presidency is that he may remind certain sectors of American civic society about the importance of the checks and balances designed into our system.  However, Trump’s behavior has also proven that we should not assume he’ll moderate or react well to the reinstated rules of the game.

This isn’t to say that our electoral alternative is any better.  As I’ve written before, more than any I’ve ever seen, this election hinges on the timing of oscillating disgust with the two major candidates.  The wise move may very well be not to invest much wealth, energy, or emotion in the outcome, devoting personal resources instead to battening down the hatches.

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That Which Is Not Raimondo’s Highest Priority

I simply don’t believe this statement from Progressive Democrat Governor Gina Raimondo in a Kate Bramson article about the ballooning staff and salary total for the state government’s economic development hydra agency:

“Rhode Island’s economy is my top priority,” Raimondo said Monday. “In order to be able to deliver on that for the people of Rhode Island, we need to have the right team on the field.”

Improving our state’s economy obviously ranks lower for our state government, including the governor, than maintaining the status quo and advancing a progressive agenda (not necessarily in that order).  Sure, it would be reasonable to argue that this or that progressive policy is completely independent of the state’s economy and to point out that a politician who didn’t show some respect for the state’s insider elite wouldn’t manage to accomplish much.  But looking at the trends since she took office (and I’m not just talking about the completely stagnant employment results), is it conceivable to claim that Raimondo has much interest in breaking up insiderdom or putting aside progressivism when it comes with an economic cost?

From welfare programs to green programs to government-picks-the-winners economic development, I’d say, “no.”

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The Pension Disaster Will Be Addressed

Springboarding from the woes of California’s public-sector pension problems, The American Interest suggests that it might be too late to avoid some sort of crisis with such pensions across the country:

This long-running failure of governance may be irreversible. All that’s left for state governments to do now is reform pension systems for new employees, phasing out defined-benefit systems for 401(k)-style plans, and, where possible, trim benefits or raise contribution requirements for current workers. In the meantime, federal policymakers should start thinking about a reform-for-relief framework that will enable states and localities to honor their obligations to retirees while getting their finances back under control for the long haul.

We should consider it evidence of the extent of the problem that the generally wise American Interest falls back to the irresponsible cop-out that the federal government ought to step in and make the problem go away — as if the feds aren’t already headed toward dozens of trillions of dollars in debt absorbing every other bad policy decision made throughout the country over the past century.  That is, pensioners relying on the writer’s solution would have to hope that none of the other myriad problems and looming crises comes to a head and absorbs the nation’s very last tolerance for debt before the pension problem.  (My wager is that the multiple crises will cascade into one uber crisis.)

If the idea of the government takething away the pensions that it gavethed is inconceivable, peruse the ruling issued this week by Rhode Island Superior Court Judge Sarah Taft-Carter (internal citations removed):

It was clear that to avert disaster the City had to act. (p. 11)…

Notwithstanding a finding of substantial impairment, a contract modification remains constitutionally valid if the City produces sufficient credible evidence that the modification was done to further a significant and legitimate public purpose and if doing so was reasonable and necessary. (p. 30)…

… the Court is satisfied that the City has produced sufficient credible evidence through the testimony of Mayor Fung, Mr. Strom, and Mr. Sherman that the Great Recession, the decline in state aid, and RIRSA’s requirements created an unprecedented fiscal emergency neither created nor anticipated by the City. (p. 34)

Taft-Carter affirmed that cities cannot be expected to raise taxes indefinitely, and unless I missed it, she didn’t so much as speculate that the state could be forced to intervene.  The same will prove true up the scale, all the way to our giant national blob of debt.  At the state level, one could imagine a judge considering something like my argument about the flight of the “productive class” as evidence that higher taxes would accelerate a death spiral already underway.

For those who think the same couldn’t happen at the federal level, one can only suggest that they not take the risk of finding out.

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Support for Families More Effective than Government Co-parenting

Grover Whitehurst of Brookings has made an attempt to compare research findings concerning the effects of different programs on the test scores of young students, and the findings conflict with the progressive preference for increasingly moving responsibility away from people and toward government:

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Whitehurst suggests:

The results illustrated in the graph suggest that family support in the form of putting more money in the pockets of low-income parents produces substantially larger gains in children’s school achievement per dollar of expenditure than a year of preschool, participation in Head Start, or class size reduction in the early grades. The finding that family financial support enhances academic achievement in the form of test scores is consistent with other research on the impact of the EITC showing impacts on later outcomes such as college enrollment.

The most important takeaway from this is that it reinforces conservatives’ contention that government should not seek to displace parents, relieving them of responsibility for raising their children.  Government policy should seek to strengthen families.

Of course, the fact that this would tend to reduce the influence of government and (therefore) progressives leads me to expect Whitehurst’s research not to have a significant effect on progressive policies.  Indeed, in his subsequent discussion, Whitehurst endeavors to speculate that imposing restrictions on families’ use of the funding would be even more effective than simply improving their financial standing. However, if giving parents money is so much more effective than public funding of pre-school programs, one might question Whitehurst’s belief that letting the public funding stop in the parents’ accounts for a moment would be better than both approaches.

Note, too, the limits of Whitehurst’s consideration.  The first and irreducible assumption is that government must do something to bring about specific social outcomes.  If supporting families through broad welfare that is largely free of strings is so much more effective than building government programs, one might expect even greater rewards from getting government out of the way of families.  Let people act in the economy without the weight of high taxes and oppressive regulations; allow communities and states to determine their own economic and social policies; allow the society, broadly, to follow cultural traditions that have proven, over time, to be the healthiest for human society (such as the traditional institution of marriage).

Unfortunately, it’s much more difficult to test for and make charts of the effects of progressive redistribution on the whole society.  Researchers can’t know (to simplify) that taking EITC money out of the economy wound up hurting other families, resulting in worse test scores.  Still, taking in all of the evidence, the weight of it suggests that leaving people free is not only the most moral approach, respecting civil rights, but is also likely to prove to be the most effective system by any standard apart from the wealth and power of government.

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Rhode Island… Not the Place to Be for Economics or a Zombie Apocalypse

I’ve long found the notion of a zombie apocalypse to be a useful metaphor when discussing the condition of Rhode Island. In 2013, for example, I suggested the following:

The American economy is not being kept alive by unnatural forces (stimulus and quantitative easing); that’s the talking-point dogma of Obama zealots in whose view the president can never fail because it will always be possible to close their eyes and believe that things would have been worse without him.

Rather, it is being held back by those unnatural forces and others (most notably over regulation). Look to Rhode Island for the test case — with a General Assembly that has now concluded its session proud to have made it more difficult to live and do business in their state. In light of Woodhill’s analogy, I’m inclined to see the Bureau of Labor Statistics’ map showing New England unemployment as a sort of infection map for the zombie apocalypse.

So, of course I clicked on the link when RIPR’s Ian Donnis tweeted out that Rhode Island has been judged the 49th best (i.e., 2nd worst) state in which to live in order to survive a zombie pandemic.  As usual with such rankings, it takes bad performance by most measures to land at the end of the list.

Rhode Islanders are about average when it comes to being physically active, so we’ve got an OK chance of running away from individual zombies when necessary, and we’re out of the bottom quarter when it comes to leaving our dead uncremated, reducing the ranks of the monsters from among the already dead.  But our state is the second most densely populated by the living and has the fourth lowest gun ownership.  We’re also in the bottom 10 when it comes to the preparation of watching zombie movies.

Perhaps the worst news for Rhode Island, though, isn’t captured by this list.  Judging by our apathetic response to the destruction of our state and the impositions on our lives perpetrated regularly by politicians and bureaucrats, one might reasonably expect Rhode Islanders to be slower to react to the obvious signs of a civilization-ending catastrophe.

On the other hand, the number of former Rhode Islanders proves the willingness and ability of our population to flee to healthier environs.

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National Popular Vote and the Company State

Yesterday, Dan Yorke had Providence College Political Science Professor Joseph Cammarano on his 630AM/99.7FM WPRO show, discussing a variety of topics.  When I first tuned in, a caller was growing angry that the professor wouldn’t say for whom he intended to vote, and over the next hour or so of sporadic listening, I came to see how Cammarano might have inspired that response.  His bias came through, most notably in his drive for equivalence with Republicans whenever a caller brought up Democrats’ malfeasance.

One question that came out of nowhere was the professor’s opinion of the electoral college, and he clearly supports the efforts of states, including Rhode Island, to work around the Constitution with the national-popular vote movement.  In not so many words, he that it makes no sense — given our increasingly national culture — to have a system in which we think of states as states, regardless of their population.  That is, he thinks it’s obvious that states don’t have an equal standing of themselves, as political entities, necessitating that the votes of people in low-population states are weighted to give them greater balance against the national votes of people in high-population states.

When this topic came up a few years ago, I mainly thought of it in terms of politics and the calculation for Rhode Island.  After all, Democrats tend to do better in urban areas, so the General Assembly’s signing on to the national popular vote compact was a partisan act, not a representative one (as in advocating for the people whom one actually represents).  The reason Rhode Island gets no attention in national politics isn’t that we’re small; it’s that we’re one-sided.  Republicans have no chance, and Democrats don’t have to work for our electoral votes.  But the reality is that the national popular vote scheme would cut Rhode Islanders’ electoral sway in half.  Why would our representatives agree to do that?

Cammarano’s short statement was the first time I’ve considered this question since stumbling upon the idea of the “company state.”  I’ve been noting that certain cities and the whole state of Rhode Island are moving toward a civic business model in which government becomes the major industry, with incentive to import or create new clients for its services as justification for taking money away from other people in order to finance them.  As Rhode Island has long been learning, the flaw in this model is that the payers can simply leave, and the state is under constant risk that, due to recession or otherwise, people in other states will push back on the federal government’s subsidization of the scheme.

The electoral college, in other words, is one protection against having this “company state” model become truly national, such that municipal and state governments that rely on the compulsory transfer of wealth will be able to reach any wealth from sea to shining sea.

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The Status Quo’s Boasts – And Rhode Islanders’ Complacency?

Rhode Island has the worst business climate in the nation. It ranks 48th on both the Family Prosperity Index of the American Conservative Union and the Jobs and Opportunity Index of our Rhode Island Center for Freedom & Prosperity. It has virtually zero population growth, and it has suffered the ignominy of dozens of other near-bottom rankings. Despite all this, our Rhode Island political class appears content not to rock the boat. The question remains why are they satisfied with being in the bottom of the pack?

When we hear boasts that there were no broad-based tax increases in the recently passed state budget, we hear an attitude of complacency that is typical of the political elite, whose main goal is to perpetuate the status quo, as opposed to making the hard decisions that will improve the quality of lives of its residents. The irony, of course, is that our political leaders seem to genuinely believe that they have made major positive reforms. Maybe, relatively speaking, they just don’t understand what major reform looks like.

If Rhode Island’s complacency continues – both by our political class and by voters who re-elect it year after year – we will soon see Rhode Island lose one of its two congressional seats and shamefully slip to last place when it comes to renewing hope and opportunity for our families. Rhode Island needs to dare to disrupt the status quo and boldly evolve itself into a regional outlier so that we can become a magnet – on our own – for businesses, jobs and families.

In this wild and unpredictable year of national politics, the big question is whether or not the tsunami of public discontent will reach our Ocean State shores and compel voters to send a necessary jolt to our political class. Rhode Island politicians will not have the chance to change their act until next year. However, voters can lead the way by acting this year to deliver a clear message at November’s ballot box. I encourage you to continue to speak out against the status quo public policy culture in Rhode Island. Your voice is powerful, and things can change.

[Mike Stenhouse is the CEO of the Rhode Island Center for Freedom and Prosperity.]

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Katz’s Kitchen Sink: But Bountiful Parody Song

As the fiscal year comes to a close for the State of Rhode Island and most municipalities in June, it’s ever more clear that civic life in Rhode Island revolves around government budgets.  For insiders, town, city, and state budgets represent their hopes and dreams — often their livelihoods.  For everybody else, though, they can be a time of dread, as the impossibility of real change is affirmed, cherished programs are threatened (if you’re on that side of the ledger), or more money is confiscated from your bank account (if you’re on the other side of the ledger).

Herewith, a parody song to the tune of “But Beautiful,” inaugurating a somewhat regular new video series, “Katz’s Kitchen Sink,” which will feature whatever sort of content I think might be useful to throw at the problems of the Ocean State — songs, short skits, commentary, or whatever.

Download an mp3 file of this song.

But Bountiful

A budget’s taxes, or it’s pay
Handouts are credits or giveaways
We’re investing, or we save
But bountiful

Bountiful, our industry’s bureaucracies we run
It’s a budget you have no choice but to fund

A budget appropriates, or it steals
Votes are traded in backroom deals
Nobody’s sure just what’s real
But bountiful

And I’m thinking if I had chips, I’d cash them in for gold
And take them to a more bountiful abode

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Reason for RI CNBC Slip Critical

Gary Sasse tweeted an important point the other day:

Lot of chatter on CNBC ranking RI business worst in USA. Reason not @GinaRaimondo spin, but precipitous drops in quality of life& education

Before agreeing more determinedly, I’d point out that Rhode Island did pretty poorly on the economy score, too, dropping from 136 points (39th in the country) last year to 114 points (45th) this year.  But Gary’s right: we did tank by those other measures, too.

In education, Rhode Island fell from 124 points (13th), which was a too-sunny fluke of the methodology, I’d say, to 111 points (20th).  This may be what happens when reforms hit (as I’ve been saying) a political ceiling.

As for quality of life, Rhode Island’s drop from 216 points (12th) to 186 points (24th) does seem to correspond with some of the Family Prosperity Index (FPI) results that I’ve mentioned before.  If my intuition is correct — that Rhode Islanders who haven’t fled the state have responded in two distinct ways to the decline of their state: either unhealthy behavior or a return to basics like family and faith — CNBC’s methodology appears almost entirely to catch changes in the former, not the latter.

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The Minimum Debt Load of Rhode Island: $16 Billion

Just for fun (come on, you know you do it, too), I thought I’d go through the audits for the State of Rhode Island and the cities and towns contained therein to total up the amount of debt.  The exercise wasn’t intended to be comprehensive, so I just grabbed, as well as I was able, the long-term debt or liabilities from each government’s statement of net position (including the current portion for long-term liabilities).  The numbers therefore capture pensions, other post employment benefits (OPEB), bonded debt, and other ways in which a town, city, or state can owe somebody money.

The numbers therefore are extremely conservative.  The incentive, for governments, is to minimize the amount of money that it looks like they’re spending, and truly cutting through the methods for answering that incentive would be a very significant project.  One notes on the audits, for example, that some portion of pension debt is calculated as a “deferred outflow” rather than a liability, and so would not be included; in Cranston, for example, the deferred outflow for pensions is $36.6 million, while the liability is listed as $1.5 million.  (There is typically a deferred inflow, too, but even subtracting in from out tends to produce a greater liability; $1.8 million in Cranston.) Remember, too, that the calculations that government auditors use to figure pension and OPEB liabilities can underestimate a more-realistic assessment of liability by four or five times.  Oh, and none of this includes other government units that might not fall under these specific audits, such as fire and water districts.

Consequently, the $16 billion total that this method produces is pretty much the absolute minimum that governments in Rhode Island have saddled residents with.  Using the latest U.S. Census data provided by the state Dept. of Labor and Training, this comes out to $15,180 for every person in the state, or 27.3% of the total annual income of Rhode Islanders.

If you want to darken your financial picture, for some reason, add that amount to the $154,000 or so each of us owes for the federal debt.  Then factor in entitlement programs like Social Security and Medicare… and don’t forget to adjust everything up for accounting gimmicks and understatements, as with pensions.

In short, the $16 billion of acknowledged debt in Rhode Island is just the tiniest tip of an iceberg of hopeless proportions.  Don’t fall for the distractions, either: The bill is going to come due, and somebody is going to get shafted.

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Bad Rankings, Empty Buzzwords

You just can’t spin Rhode Island’s poor performance, particularly in recent years.  The evidence is just too pervasive.

Based on the RI Center for Freedom & Prosperity’s Jobs & Opportunity Index (JOI), the Ocean State has been 48th in the nation since 2012, during the Chafee years.  Looking at employment, the state has been completely stagnant since May 2015, when Democrat Governor Gina Raimondo’s had implemented her own policies.  Now, we’re back to 50th on CNBC’s ranking of states for business.

Again: You just can’t spin these numbers.  The only legitimate response is that our state is clearly, obviously doing something wrong and needs to rethink its approach.

But reality has not been something to stop Rhode Island’s progressive Democrats.  Our Senate president illustrates something I’ve noted before, that elected officials are more interested in gaming the statistics than changing what’s wrong:

“It doesn’t matter whether those surveys are real or unfair – they’re there, and we’re judged on them,” Senate President M. Teresa Paiva Weed said in 2013.

And CNBC writer Scott Cohn notes the familiar ring of rhetoric from our current governor:

To hear the governor tell it, Rhode Island is just a few years away from becoming a little business powerhouse.

These big changes, she contends, “will make it cheaper and more attractive to do business here.”

But Raimondo is not the first Rhode Island governor to claim that the state has turned over a new leaf.

Simply put, the first priority of Rhode Island insiders is to maintain their advantage and protect the policies and special deals that give it to them.  Sure, they wouldn’t mind if the economy improved (if only to get these annoying rankings off their backs), but it has to happen in a way that doesn’t harm their leverage.  Similarly, they wouldn’t mind if educational outcomes improved for Rhode Island students, but that has to happen without harming their friends and allies in the teacher’s unions or limiting their ability to pass feel-good policies concerning (for example) recess and transgender bathrooms from the top down.

Unfortunately for the rest of us, the things that the insiders are protecting are the fundamental reason for our state’s suffering.

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Child Care Workers and Questions Never Asked

There’s that phrase again, in the following Providence Journal article by Linda Borg (emphasis added):

Research has shown that children who attend high-quality early childhood programs are more successful in school, repeat grades less often and have higher graduation rates. Children from low-income families lag 18 months behind their more entitled peers in language development.

What research?  And what specifically did it show? Because I’ve seen research show the opposite. From this unsourced paragraph, I’d say the finding was probably more of a correlation of household income with both preschool and better school results.

The embedded assumptions are much deeper than research findings, though.  Consider:

Rhode Island and Maine are the only states in New England that require preschool teachers to have a bachelor’s degree. A preschool teacher typically works in a school or daycare center and promotes social and emotional learning. A childcare worker provides care rather than early childhood education.

“Currently, a bachelor’s degree in early childhood education occupies the dubious distinction of the college major with the lowest projected lifetime earnings,” according to the study.

Well, maybe some significant portion of the jobs that adults with such degrees take really don’t require the expensive credentials.  Or maybe the pay for the high end of the degree (e.g., public school elementary school teacher) is artificially high, which sends a distorted signal to workers that the market needs more such professionals, who then find that they can’t get the work they want because there aren’t enough jobs and therefore flood the lower-pay end of their profession and drive those wages down even more (making it even more valuable to gain one of the artificially over-paid jobs).

We really, really have to break the pattern of implementing public policy based on feelings and then trying to patch the leaks with subsidies and mandates when our meddling distorts the market.  Prices (including wages) are just signals.  If “childcare workers are among the lowest-paid workers in the country,” we have to figure out what signal that fact is sending us and, if it’s not healthy, figure out how to change that.  Otherwise we’ll harm more people than we help every time.

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Taking the “Predatory” Out of Lending

Although I can’t find the offending essay, just now, some years back, I upset some people by suggesting that the attack on payday loans was taking the wrong direction by using government to shut the practice down.  As I’ve also noted, such approaches tend to address what activists see as a problem without addressing (or even seeking) the underlying incentives.  As a result they can make things worse by, for example, denying opportunity to somebody whose specific interests might actually be served by a short-term loan at very high interest.

I noticed, in particular, that while all of the activists were sure that the terms of such loans were unfair, none of them appeared interested in providing high-risk, short-term loans at better rates, whether as a better business model or by writing off any losses as charity.  If the argument is that lenders are abusing people and charging them unfair rates, given the risk, then it ought to be easy for more moral people to make a healthy profit at the same occupation; otherwise, we can’t really say that the lenders are being abusive.

I was intrigued to see, therefore, a Los Angeles Times article reprinted in the Providence Journal, this weekend, about employers setting up such programs as a benefit:

[Doug] Farry isn’t trying to shame employers into boosting wages. He’s trying to persuade them to sign up with his company, Employee Loan Solutions, a San Diego startup that works with a Minnesota bank to offer short-term loans. They carry a relatively high interest rate but are still cheaper than typical payday loans. …

That there are multiple firms in the market illustrates the size of the opportunity and the dire financial straits many workers experience. An estimated 12 million Americans use payday loans, borrowing tens of billions of dollars annually.

Even with this approach, activists are worried that the loans don’t come with enough investigation about borrowers’ ability to pay, to which the entrepreneurs point out that they’re serving customers’ needs for high-risk loans made on short notice at the lowest possible cost.  Paying for reviews of their credit will either take longer than they have to wait or cost more than they can afford to pay.

Whether any of these products is the ideal solution, I don’t know.  But in a recurring theme, of late, solutions have to begin by acknowledging that everybody involved in a transaction is a human being in unique circumstances that can’t be addressed well when activists use government to make judgments for people whom they don’t know.

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The Obvious Math of Minimum Wage

Tom Knighton catches the Boston Globe slipping in an admission that raising the minimum wage costs people their jobs.  In an editorial about a government-subsidized summer jobs program for teens, the editorialists write (emphasis Knighton’s):

The program provides money for YouthWorks, which pays the wages of 4,400 low-income teens in eligible cities who work for nonprofits or local government agencies in the summer. The Senate originally proposed the same funding amount as last year, $11.5 million. Level-funding actually means 600 fewer positions, though, because of the rise in the state’s minimum-wage increase to $10 per hour this year and $11 per hour next year.

The Left’s claims against this obvious reality require one of one of two dubious propositions. The first would be that businesses with minimum-wage employees have some sort of slack that they can pull out of their system.  Either they must (A) have money hidden away or wasted or (B) their prices are artificially low enough that they could raise them without losing customers or clients to competing businesses or products.  The second dubious proposition would be that the increased pay for low-end workers would give them more money to spend, which would increase the need for low-end workers.

Per their usual habits, progressives tend to wave their hands around these possibilities like magicians and assume everything will work out for the best (because, as I suggested this morning, their goals are self enrichment or self valuation), but the details are critical.  One would have to argue that driving up wages in a particular market with a particular mix of industries would not lose low-end jobs to shifts in demand or to automation.

The fact that the most basic calculation, as acknowledged by the Globe, is so clearly on the side of job losses only emphasizes that we shouldn’t let advocates just assume a higher minimum wage doesn’t kill jobs.  As the truism states, the real minimum wage is always zero.

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Rhode Island: Where Even Mediocrity Would Be Revolutionary

To expand upon the less-than-admiring budget review by Republican state Representative Patricia Morgan (Coventry, Warwick, West Warwick) I posted this morning, here’s Pam Gencarella in GoLocalProv, noting one result of the General Assembly’s unwillingness to do what must be done to get Rhode Island out of the bottom of America’s barrel:

Mr. Stergios explained that the deal was sealed with Massachusetts because of a high-quality workforce, the highest quality educational system in the country, and a governor who has made clear that he wants a predictable tax and regulatory environment.  Seems like deja vu for Rhode Islanders.  A couple of years ago, CVS stood in front of the RI General Assembly and spelled out the four areas CVS looks at when deciding where to expand.  They included all of the areas listed above, plus one more – available infrastructure (ie. quality roadways and bridges).

And what has RI’s legislature done in those two years to address the need for a high quality workforce, a high quality educational system and a predictable tax and regulatory environment?  Our elected leaders have severely walked back most of the educational reforms that mirrored Massachusetts reform, they have sent the idea of predictability in taxation into a tailspin with the creation of a new stream of toll revenue, and now they have proposed a RI Big Dig with the 6/10 Connector.  And, in creating one of the highest taxing states, legislative policies have driven much of the high-quality workforce out of state looking for job opportunities elsewhere.  Although it’s really nothing but another government giveaway, in desperation, our governor has resorted to bribery in an attempt to keep RI’s graduates in the state.

Gencarella suggests that Rhode Island’s government officials should set their sights on achieving status at the middle of national rankings, such as for business friendliness.  We all know how likely that is, though.  Even pulling the state out of the bottom 10 would require insiders to relinquish way too much of their power and personal advantages for it even to be considered.

And unfortunately, the state government long ago resorted to bribery, such that a population with a large contingent who are bought off will keep attempting to protect their benefits, no matter how paltry, as the ship goes down.

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Government Runs the Economy in Reverse

Sometimes policies become commonplace to the point that we no longer question their purpose or wisdom until legislators build them up so high as to expose their underlying problems.  Targeted development funds from the state government may have hit that point with S2042, which passed the Rhode Island Senate but died in the House this session.

The legislation would have allowed cities and towns to set up “micro zones,” requiring them to give property tax exemptions or at least stabilization agreements, that would open up access for developers and businesses to exemption from a wide array of state taxes, such as sales tax, income tax, and interest taxes, as well as discounted and expedited fees related to development, all under the famously watchful eye of the Commerce Corp.

Apart from the details, though, two passages catch my eye.  This one’s from from the “legislative findings” section:

That the numerous programs undertaken by the federal government and the state during the past two (2) decades to stop the deterioration and stimulate economic activity in these 14 distressed areas have, in large part, failed…

Even acknowledging that they’ve failed — that their approach simply doesn’t work — legislators think the solution must be to double-down and ramp up the special treatment, which relates to this section:

To the maximum extent possible, the directors of the departments of administration, business regulation, labor and training, environmental management, human services, transportation, and the Rhode Island housing and mortgage finance corporation shall provide special assistance to the zones. This shall include, but not be limited to:

  1. Expedited processing;
  2. Priority funding;
  3. Program set asides; and
  4. Provision of technical assistance in furtherance of the public policy enunciated in 34 §42-64.32-2.

Even in milder forms, it’s objectionable that the state government would distort market signals by subsidizing development in certain areas, but this legislation truly brings into relief the degree to which the prioritization comes at the expense of others, who have to get in line behind the super-favored developers.  Of particular note is that the state government is making the healthy parts of the state’s economy wait behind parts that have failed… and without any assurance (or even hope) that the underlying factors that have made those parts failures have been fixed.

It’s not as if Rhode Island, overall, is going so gangbusters that its economy is throwing off wealth for the state government to apply in this way, and if it were, the state probably wouldn’t have to do anything to make it happen.  The market would take care of it.

This proposed program is all too emblematic of Rhode Island’s approach.  A corrupt government would be reinforcing an admittedly failed strategy to invest the state’s limited resources in the areas of least opportunity.  How could that scheme possibly work?

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Hurdles Enabling a Pick-and-Choose Culture

Although it leaves me feeling as if there might be more to the story, a Kate Nagle article on GoLocalProv has the strong smell of Rhode Island to it.  The Peregrine Group (no strangers to our insider culture) is prepared to build a large waterfront mixed-use development in Pawtucket, but Rhode Island’s additional costs for building make government subsidies a necessity, and the Commerce Corp. appears to be dragging its feet:

“We have a profound live for the site and the city, and we’ve made a “Rebuild RI” application [with Commerce]. We’ve had preliminary conversations, but right now, the current iteration doesn’t work,” said Kane. “It’s just the economics of new construction. In Boston, I can do projects without the city and state’s help. I’m doing 80 more units in Rumford [Center] with no help. Pawtucket is hard.” …

The Commerce Corporation recently awarded RebuildRI tax credits to Ocean State Job Lot (who had threatened to leave the state if truck tolls were approved), and AT Cross (whose former CEO began serving as a consultant at the Commerce Corporation).

Now, I don’t know whether this particular development is a net positive or negative, but state government’s handing out taxpayer-funded subsidies shouldn’t be the mechanism for making such decisions.  Even if we were to assume that government functionaries are qualified to pick and choose the best projects for Rhode Island, the incentives of politics and government are inefficient, in part because of one unavoidable question:  “the best projects” for whose interests?

If one believes in the importance of government involvement, maintaining the governor’s programs becomes a critical objective.  So, when an iconic company ramps up opposition to a new toll program that government agents think they need, the value of handing that company subsidies far exceeds whatever direct economic development is involved, to the government agents.

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Happy 240th Birthday To America!

Happy Independence Day from everyone at the Rhode Island Center for Freedom & Prosperity! As we celebrate the Fourth with our family and friends, it is important to reflect the principles that led to the American revolution. On this anniversary of the original Brexit, we must remember that “US-Away” happened because free people stood up to an imperial power and demand that their rights be respected. In our own time, people are standing up against the elites here in Rhode Island that want to micromanage our lives.

We should all be proud of our fellow citizens working to advance freedom here in the Ocean State. The recent opposition to the Brookings agenda is a good example. Because Rhode Islanders spoke out against RhodeMap RI and central planning, many of the crony corporate welfare deals were squashed before they could begin. The stadium deal and the superman building are two more examples of stopping corporate welfare in Rhode Island. There are reasons to hope. However, we must remain vigilant and continue to speak out. The political elites will continue to try to give special deals to their cronies.

When will the insiders learn? We are warning the status quo against seeking to devolve Rhode Island into a dependent appendage to the Boston economy, or to some other form of regional governance. The citizens of our state demand local control. Centralized plans are not the answer for the Ocean State. We urge lawmakers to reject the concept of a centrally controlled, regional bureaucracy that will infringe on the authority of locally elected officials. Rhode Islanders do not want intrusions into their own lives.

There are better solutions than the central planning of economies and the loss of local control. It is time to end the insider culture where the little guy suffers. As we saw in the recent Brexit vote, citizens are demanding more from their leaders. How many of us would say that the status quo public policy culture in Rhode Island is making anything easier on the average family? For too long, the political elites have thought they’ve known how to better run your life than you do. I encourage you to speak out against the status quo and remember that things can change here in the Ocean State.

And once again, Happy Fourth of July.

[Mike Stenhouse is CEO of the Rhode Island Center for Freedom and Prosperity.]

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Government Contracts to Infringe on Rights

Here’s an interesting bill — H7736 — on the Freedom Index (having passed both chambers) that raises some interesting political questions.  Basically, it forbids state and local government agencies from contracting with any company that is engaged in a boycott, unless the contract is very small or the company is much cheaper than competing bids.

Inasmuch as boycotting is more a thing for progressives than conservatives, particularly corporate boycotting, my gut reaction isn’t entirely negative.  I mean, boycotting Israel or North Carolina for political reasons doesn’t tend to endear a company to me and, in fact, tends to encourage me to direct my business elsewhere.

Even if every corporate boycott were a creature of the Left, though, such legislation gets dangerously close to using government’s economic clout to infringe on the speech and association rights of the individuals who band together for corporate purposes.  As government expands into more and more activities, increasing its role in our society, it approaches the point at which being blocked from government contracts would be a killer in more and more industries.

According to the Family Prosperity Index, using a metric that the RI Center for Freedom & Prosperity also uses for its competitiveness report card, Rhode Island ranks near the back of the pack when it comes to the private sector’s portion of the economy.  That means companies can be locked out of a disproportionately large part of our local economy if they don’t wrap themselves in these sorts of strings, just like the federal government’s increasing role in funding the states has given it power in direct contravention of our Constitution.

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Two Paths When Things Go Bad

As the scarcity of posts in this space illustrates, I’ve been extremely busy, this week.  Things have slowed, but I’m still getting back on track.

One thing I’ve been doing has been to sift through the data available from the Family Prosperity Initiative (FPI).  In summary, the conclusion seems to be inevitable that Rhode Islanders are good people who are just relatively unhappy, with something having happened around 2012 to reinforce that feeling, as suggested by adverse changes in things like new business establishments after that year.  Notably, that was the year that Rhode Island first sank to 48th in the country by the RI Center for Freedom & Prosperity’s Jobs & Opportunity Index (JOI), where it has remained since.

But the broad data from the FPI has some interesting contrast.  Rhode Island does poorly on almost all markers, whether economic or having to do with healthy behavior, with an up-tick around that year in, for example, obesity.  Yet other positive markers also jumped that year, or soon thereafter, including an increase in marriages, a decrease in divorces, an increase in weekly church attendance, and an increase in the percentage of children living in married households.

I wonder if some of these results are an indicator of two distinct paths’ that Rhode Islanders follow.  I’ve long been saying that Rhode Island has been driving out its “productive class“; that is, people at a point in life during which they want to make progress and be productive tend to account for a disproportionate share of the Rhode Islanders parting for elsewhere.  I’ve also been describing the “company state” mentality, whereby the state government pursues policies that increase the number of clients who give it justification for taking money from other people (the producers), in the state and elsewhere.

Maybe what the data shows is that, when a community gets in a funk, some people turn toward things that have traditionally led to stability, meaning, and success (religiosity and family), and other people turn to unhealthy behaviors, like drug use.  This is speculation, at this point, but I’d wager that there’s a strong correlation between these two paths and the other options of leaving the state, on the one hand, or falling into government dependence, on the other.

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The Backbone That Jumps from Body to Body

Let’s question a bit of common wisdom in big-government circles, shall we?  This is from an article in the Worcester Telegram about Woonsocket Glass Fabricators — a Woonsocket, Rhode Island, company that Northbridge, Massachusetts, lured away from the city whose name it bears:

Small businesses are the backbone of the economy as well as communities.

That was the message conveyed on Thursday during a celebration marking Woonsocket Glass Fabricators’ new 33,000-square-foot production center and showroom at 369 Douglas Road in Whitinsville.

Founded in 1946, the company outgrew its space in Rhode Island and, after an extensive search, decided to relocate in Massachusetts, according to president and chief executive officer Chip Rogers. He said he received nothing but support from Northbridge officials and the Blackstone Valley Chamber of Commerce.

Massachusetts provided a $5 million taxpayer-backed bond and $375,000 in additional tax credits, which makes one wonder: What sort of “backbone” can be lured out of its body with easy money?  Once again, the point of this worldview seems to be that government is the backbone of the economy and the community.

Supporters of this sort of government-picks-the-winners crony capitalism would take this story as an opportunity to say, “See, this is why Rhode Island has to be able to compete in handing out taxpayer dollars.”  How Rhode Island could possibly compete with nearby states that have more people, more money, and stronger economies is never explained.

The alternative, of course, would be to reduce taxes and eliminate regulatory burdens to make the Ocean State more attractive on its own merits, without the handouts.  But that wouldn’t leave as much room for politicians’ ego trips and corruption.

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Corruption as Central to Rhode Island’s Economy

There’s something frustratingly telling about James Bessette’s Independent article on one project that former Democrat Representative Donald Lally undertook when he was working his revolving-door-skirting job within the administration of Democrat Governor Gina Raimondo.

Taking the politics out of it, the story is about Harvey Cataldo’s ridiculous difficulty trying to clear all of the bureaucratic obstacles to open an oyster business.  “I’m good at looking at this stuff on the internet and I could not find a place that said ‘OK, I have to get this, this and this, and then do this, go back and I can have my license,'” he said.

Enter Lally, whose hiring attracted a great deal of attention in September because of its tinge of patronage and with whose political campaigns Cataldo has been involved since the 1980s.

In a Sept. 2 email to Rhode Island Commerce Corp. executives, including Commerce Secretary Stefan Pryor, DBR Director Macky McCleary said Lally was “doing yeoman’s work” helping Cataldo, owner of Bluff Hill Cove Oyster Company, “through the complicated permitting process across several agencies.”

“Just want to give kudos,” McCleary wrote.

What we see, here, is a progressive bureaucratic system that has become so out of whack that a business owner has to rely, for legitimate activity, on his connection to a politician who was given a government job under the shadow of corruption.  It’s the perfect melding of ordinary economic activity with crony corruption, and even though it’s obviously a peculiar case, it ought to open eyes around the state.

The story won’t open many eyes, though, because most people won’t ever come across it and among those who do, a sizable percentage like things just the way they are because the status quo advantages them through either knowing a guy or being the guy to know.