Has Walker Shrunk Wisconsin’s Economy?
Both Barca and Trump blame him. But what does the data show? Second in series.
A recent Data Wonk column asked whether Scott Walker’s policies helped the Wisconsin economy. The data, I found, did not support that conclusion. Nor did other states adopting Walker-like policies enjoy the prosperity that was promised.
Can the question be reversed? If Walker’s policies haven’t helped the Wisconsin economy, does that mean they were harmful? In a recent Urban Milwaukee op-ed, Peter Barca made that very argument. That, of course, is part of his job, as Democratic minority leader in the Wisconsin Assembly.
Barca lists a number of statistics that reflect poorly on the Wisconsin economy (layoff notices, lagging job growth, and a shrinking middle class). He then lists a number of initiatives coming from Walker and his Republican allies (cuts to K-12 education, cuts to the UW system, rejecting money for Medicaid expansion, the attacks on open records). Even if one agrees that many of Walker’s initiatives were unwise—and I do—it’s very hard to demonstrate a causal relationship between the policies and a lagging economy.
Before exploring the question of causality, let’s turn to the question of fairness. Is it “fair” for Barca—or Donald Trump in the Republican debates–to blame Walker for Wisconsin’s mediocre economic performance? By the standards Walker had already set, blaming the lagging economy on him is perfectly fair.
Throughout his campaign for governor, Walker blamed his predecessor, Democratic Gov. Jim Doyle, for Wisconsin’s lagging jobs, ignoring the effects of the Great Recession. In his re-election campaign he blamed Mary Burke for job growth below the national economy while she was Commerce Secretary. When, early in his term a jobs report was released showing Wisconsin leading the nation Walker was quick to take credit. When the preliminary figures turned out to be incorrect, he attacked the US Labor Department and demanded it change its method of counting jobs. And, he promised to create 250,000 new jobs in his first term, about twice the actual number that was achieved.
If the question is not fairness but accuracy, however, the answer becomes more elusive. Traditionally the starting point in establishing causality is developing a hypothesis. Actually, the hypothesis consists of two parts: a “null hypothesis” and an “alternative hypothesis” in case the null hypothesis is rejected. Basically the null hypothesis says that nothing has changed—with a new medicine a cold lasts about as long as without it or students learn math about as well with a new book as they did before. The alternative hypothesis says something is different: the cold is over sooner or the students learns more (or less) math with the new book.
When trying to measure the effects of state policies on the economy, however, there are a number of obstacles in applying the ideal model described above. No legislature is likely to cooperate with any attempt to randomly select states to implement a particular policy. States, moreover, vary in all sorts of ways and it is very difficult to isolate the effect of a single policy. There is no good way to test the “counter-factual”—how would Wisconsin’s economy differ with a Democratic governor?
There is likely bias in any sample. Increasingly Southern states elect Republicans and those on the east and west coasts Democrats. Are differences between their performances an accident of geography and history or due to differing public policies?
In Wisconsin’s case, it is not possible to confidently say that the difference in economic performance between Wisconsin and its neighbors results from government policy and not some other factor. For example, Wisconsin’s neighbors Minnesota and Michigan have both added more jobs than Wisconsin over the past five years. But Minnesota’s performance has been credited to having both the major university and the state capital in its major metropolis and a business community that is more innovative.
Michigan’s superior job growth, on the other hand, is generally credited to the automobile industry’s recovery from the Great Recession. It should be noted that, while credible, the two explanations operate in opposite directions: Minnesota is doing well because it previously did well; Michigan is doing well because it previously did badly.
Comparing states depends heavily on the choice of both states and of time periods. In the previous column I compared the job growth of the eight states whose governors’ policies were most admired by the libertarian Cato Institute, to eight other states that Cato gave grades of “F.” As it turns out, the average job growth since the start of 2011 was substantially greater in states given “F”s by Cato than in states given the best grades and the difference was statistically significant.
This period corresponds to the time Walker has been in office—a time of recovery from the Great Recession. What about the Great Recession itself? The next two charts show the job change over this period, basically the four years before Walker took office. In this case, Cato’s preferred states did slightly better, losing 3.4 percent of jobs versus 4.3 percent for the states it gave an “F.” The difference, however, is not statistically significant.
For the past two decades, Wisconsin’s share of American jobs has pretty steadily declined as shown in the graph below. During the period, four different governors were in office. Is it fair to hold them responsible?
In the graph, the green lines mark the transition between governors of each party. The red lines mark the two periods when employment nationally—and in Wisconsin–was shrinking.
Starting midway through the Tommy Thompson administration Wisconsin’s share of national jobs started shrinking. It paused briefly during the dotcom bust of the early 2000 decade, only to resume dropping again once recovery was well under way. With the start of the Great Recession, the same pattern was repeated: if anything, Wisconsin lost jobs more slowly than the US as a whole, held its own in the first year of the recovery, only to resume the pattern of lagging the national economy as the recovery got under way.
Ignoring who was governor–and when–one possible way to describe the pattern is this: In good times, Wisconsin’s economy grows less rapidly than does the national economy, a fate it shares with most other states in the Midwest and Northeast. When times get tough, however, it appears that Wisconsin employers may be more reluctant to lay off employees than those in other states.
The generally steady decline in the state’s percent of national jobs over the last 20 years is certainly cause for concern. But it is also liberating. It suggests the state’s economic performance is occurring independently of whatever policies the governors have pursued.
So rather than argue about whether policies help or hurt the state economy and job growth, this frees us to look at whether they make Wisconsin a more or less desirable place to live. If states are increasingly competing on the basis of lifestyle perhaps this is also be the best policy for economic health.