Wednesday, September 26, 2012

Per capita income, not government deficit, is how to judge politicians

It's easy to lose sight of the obvious sometimes.

Lots of Republicans often argue that they should be elected because they will balance the budget of the government they want to help run. That implies the measure of success of a politician is whether the budget is running a surplus or a deficit. If a state like Indiana can run a balanced budget, that must be better than a state like Illinois which runs a deficit.

That message is repeated so often it is hard to see how it is wrong.

While it is certainly better to have a government run a surplus instead of a deficit, the real thing we care about is personal income. If our income is rising and our government is running a deficit, that's better than if our income is falling or stagnant and our government is running a slight surplus (runaway debt notwithstanding).

And in Indiana, while the government budget is balanced, per capita income has plummeted under Republican policies of Mitch Daniels.

This insightful piece by Richard Longworth in his blog the Global Midwest lays out the case quite nicely, inspired by this piece by Aaron Renn of the Urbanophile:

Mitch Daniels will soon be leaving the Indiana governor's office to become president of Purdue University. He'll leave Indianapolis with praise from budget-balancers in other states, the admiration of pundits and a wistful regard from the Republican Party, which hoped that he could have been their presidential nominee this year. (He refused, for personal reasons.)
It's an odd chorus of huzzahs for a governor who, if he hasn't impoverished his state, has helped impoverish its residents. All statistics, including those from Daniels' own government, show that per capita income in Indiana has steadily declined during his eight years as governor. When he took over, Indiana ranked 33rd among the 50 states in per capita income: the latest figures, from 2010, rank it 42nd, with no reason to think things have improved since then.

We don't focus enough on per capita income of state residents as a way to measure progress by politicians. We tend to focus on the size of a state deficit or surplus. That's a mistake. Somehow, Indiana is generally considered to be in better shape than Illinois, even though per capita income is falling in that state relative to Illinois. I think it's largely because the dominant story on how to measure political success is based on the size of the government deficit and not what really matters: growth in per capita income.

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