Per-capita Income @ MindSay 
About a week ago, I responded to an article I saw in the Dallas Business Journal that reported on a new study published by the Pacific Research Institute that ranked states in relation to their efforts to engage in tort reform. I posted that reply on 06-12-09 (Think Tanks or Stink Tanks?) and sent a copy of it to the PRI, from which I then received three replies, two of which were substantive.
In my post, I attempted to make two small points—that reports issued by privately funded think tanks need to be viewed with suspicion and that the reported findings did not square with regularly published and readily available data. Consisting of a mere 532 words, it never occurred to me that it could be taken by anyone as an attempted refutation.
The reasons for my view that such reports should be viewed with suspicion are fairly obvious. First, so-called think tanks are privately funded institutions founded to promote specific points of view. So far as I have been able to determine, none makes a claim of being objective, and I have never seen a report issued by any of them that did not support the point of view they were committed to advocating. Second, these think tanks are vanity publishers; they publish their own “studies” without submitting them to any objective peer body for review, so the inexpert reader has no assurance that the studies are not based on cherry-picked data, that his leg isn’t being pulled, or even worse, that the wool isn’t being pulled over his eyes. None of the comments I received from the PRI addressed this aspect of my post.
The second intention of my post was to point out that the findings of the report in question did not square with regularly published and readily available data. That brought what at first appeared to be an onslaught, but which, upon careful consideration, amounted to very little.
In making this point, however, in fewer words than this piece already contains, I was merely raising a question that, unfortunately, the people at the PRI either failed to see or refused to answer.
There is a movement in this country by various business-friendly entities to promote what are called “business- friendly” tax policies and other legislation. This movement can be viewed as merely an attempt by business to use government to promote the its own welfare at the expense of everybody else, which, even if true, is not something the members of this movement will admit. So they attempt to justify support for their goals by claiming that such business-friendly policies promote the general economic welfare. Various arcane and sophisticated arguments are presented to make this case, and an army of statisticians would be required to adequately evaluate them; yet there is a rather simple way of doing so—merely ask are the people in the states that have adopted these business-friendly policies better off than the people in the states that haven’t? If the claims of the people promoting these policies are true, then the people in the states that have adopted them should be rolling in clover. But given the common measures that are available to anyone who has an almanac, they are not.
Of course, this doesn’t prove that the promoters of this view are wrong, but it does prove that they are not obviously right, and I would think that someone who supports this view would attempt to explain the discrepancy. No one has, and frankly, I doubt than anyone can.
Before I received the third comment from the PRI, I had already decided to download and read the full report, even though it was never my intention to get this deeply involved in this matter. Here is what I found.
The report is a poorly organized mishmash of extraneous material that has only a tenuous relationship to the content of the study, it is repetitious, and surprising in what it does not contain.
The first 28 pages are nugatory, consisting of a discussion of civil law. Although some readers might find this discussion interesting, it contributes nothing to the study. However, it reveals a kind of confused thinking that may very well characterize the entire study:
On page 7, I find this: “The function of torts is to provide the injured party with a remedy, not to punish the actor.” When I first read it, I wondered where that was written in stone. The sentence is essentially repeated on page 16 where there is also this: “The common-law goal of tort law is to efficiently deter wrongdoers and fully compensate unjustly injured victims.” So what is the function or goal of torts? These sentences are by no means equivalent, and one can certainly ask whether it is possible to “deter wrongdoers” without some punitive measures. Then there is also this: “The loss is calculated in court, and compensation awarded through economic and non-economic compensatory damages equal to the actual loss incurred by the individual. . . . Increasingly, however, civil law has moved beyond this goal to award punitive damages that are meant to punish, not compensate.”
None of this makes any sense, since a society can define a tort in any way it chooses. No restraint of any kind, earthly or heavenly, limits a tort to being one thing or another. Certainly compensating injured parties has been a feature of tort law, but so has punishment in the form of punitive damages. Of course it’s that punishment part that isn’t very business friendly, and those who advocate business friendly policies would like to see it removed. As such the statement on page 7 amounts to nothing more than a goal that those who advocate business-friendly policies would like to see established. Why it exists in a document purporting to be a study is difficult to discern.
Chapters 3 and 4 are relatively straight forward presentations of the methodology for and the rankings of the states, and if the goal of the study were merely to produce those rankings, these two chapters could have made up the entire report. But, of course, that’s not the goal of the study, so there’s a Chapter 5, and that’s where the trouble starts.
In the comments I received from the reports principal author, Lawrence J. McQuillan, he emphasized the need to look at “marginal effects, or rates of change.” Yet to my chagrin, Chapter 5 contains no such marginal analysis. In fact, it contains no statistics at all. There is not even a clear formulation of a hypothesis. All there is is a summary of other studies that have been done elsewhere. So how can a reader know they haven’t been cherry-picked?
At least some of these studies look highly questionable. The 2005 Rubin and Shepherd study that claims that tort reformed resulted in the saving of 14,222 lives seems highly suspicious; it could easily involve what’s known as the problem of statistical confounding.
And then there is the stated finding: “The message is clear: tort reform increases productivity and employment, boosts state economic performance and innovation, increases national output and personal incomes, and saves lives (p. 76).” But the report summarizes the findings of ten studies: Four of these studies claim to show increases in labor productivity, in employment, in greater innovation in 11 manufacturing industries, in per-capita GSP. One more claims that 1.22% of GDP would be freed up if the U.S. tort system were on par with other industrialized countries, and still another that $152 billion is/would be saved per year. There is also the Rubin and Shepherd study mentioned above.
But where is the study that shows that tort reform increases personal incomes? The only thing I can find is that the Council of Economic Advisers reports that 76% of direct tort costs are excessive, which translates into $198 billion or $2,654 per year for a family of four. But what does that mean? Does it mean that if the 76% of direct tort costs were eliminated that each family of four in America would receive a $2,654 increase in income? Hardly! There is no reason to believe that any family would receive even one cent of it. So the authors of this report claim something in their finding that has not an iota of support in any of the cited studies. My, my!
So what does this study amount to? Mr. McQuillan says that the numbers I provided in my post prove nothing. Well perhaps not, but proving something was never my intention. Yet so far as I can see, unless one grants the authors a great deal of unearned credence, this 90 page report not only proves nothing, it contains a bit of prevarication.
Mr. McQuillan attempts to confute my numbers by saying, “the BEA reports that from 1969 to 2004, the average annual rate of increase of per capita income in Texas (marginalism) has been 8.7 percent. . . . Per capita income in Texas has increased consistently and is now 93 percent of the national average. So Texas is actually about average, certainly not poor.”
Well, I didn’t look at 35 years of data to be sure, but look at this little bit of information, also culled from the BEA’s web site:
In 1995, Texas, the state with the number 1 rank in the tort index, ranked 32nd in the list of states and had a PCPI of $21,003, which was 91% of the national average. And in 2004, Texas ranked 30th in the list of states and had a PCPI of $30,761, which was 93% of the national average. So in the ten years that the Texas legislature has been promoting business-friendly tort reform, Texas improved its position a mere two places in the ranking of states and a mere 2% in relation to the average per-capita national income.
But look at Vermont, the state that ranks last in the tort index. In 1995, Vermont ranked 33rd in the list of states and had a PCPI of $21.002, which was 91% of the national average. So in 1995, Texas and Vermont held virtually identical positions in terms of PCPI. But in 2004, Vermont ranked 23rd in the list of states and had a PCPI of $31,780, which was 96% of the national average. So in the same ten years, Vermont improved its position ten places in the ranking of states and 5% in relation to the average per-capita national income. So although per-capita income in Texas has increased over the past ten years (marginalism), per-capita income in Vermont, that not so business-friendly state, increased even more.
Mr. McQuillan wrote that I was entitled to my own opinion but not my own facts, and he’s right about that. But I don’t make up facts; my facts come from the BEA just as Mr. McQuillan claims his do.
When I replied to the first comment I received from Mr. McQuillan, I’m sorry to admit that I did so testily, not something I usually do, but his insults angered me. Yet I said something in that reply that now looks truer than ever: “All of you stink tankers are the same (doesn't matter if you're politically right or left). Deny the obvious and hope that no one will notice is the only tactic you employ.”
The states that rank high in these business-friendly indexes such as this tort index or the Tax Foundation’s State Business Tax Climate Index invariably are found at or near the bottom of any list of states by per-capita income. They are by no means the most prosperous American states. That is too obvious for anyone to deny. All one needs to do to prove it is look in any Almanac. So how anyone can claim to make a case for business-friendly policies on the basis of economic well being is difficult to see. But if the authors of this report think they can, I suggest that they pack their bags, journey to Vermont, and on the basis of the outstanding results experienced by the state of Texas, convince the Vermont legislature to mend its wayward ways. Just perhaps they can come up with some wizardry that shows how two percent is better than five.
©2006 John Kozy, Jr.
Journalists need to be careful when reporting on studies carried out by so called “Think Tanks” which are privately funded in order to grind axes. When these groups come across evidence that counters their beliefs, they merely ignore it. In this way these Think Tanks become mere Propaganda Purveyors whose intent is to mislead the people.
The Tax Foundation, for instance, regularly publishes its State Business Tax Climate Index. Texas always scores high on this index and the index is widely reported in Texas as though this ranking were a feather to be placed on our coonskin cap. However, if anyone takes the trouble to compare the index’s rankings to the rankings of states by per capita income, not only do the data not support the view that business-friendly tax policies improve the economic well-being of the citizens of the states that adopt such policies, it contradicts that view. Generally speaking, the states with the least friendly business tax policies enjoyed the highest per-capita incomes and those with the most friendly business tax policies had the lowest per-capita incomes.
Now the DBJ has reported on another Think Tank study—Texas nabs top spot in national tort liability study (12/8-14, 2006). This study, done by the Pacific Research Institute, lists Texas, Colorado, North Dakota, Ohio, and Michigan as the top five states and Maryland, Pennsylvania, New York, Rhode Island, and Vermont as the bottom five. A look into my latest 2007 Time Almanac reveals that the average per capita income in the five top states is $33,479.40 while that of the bottom five is $37,328.80, and four of the bottom five states have higher per capita incomes than all but one of the top five states. Furthermore Texas’ poverty rate, averaged over the past three years, is 16.4 which is almost twice as high as the poverty rates in either Maryland (8.6) and Vermont (8.8). So although Texas may have policies that are favorable to business, it is clear that business does not have policies that are favorable to Texas. And Texans may want to ask, When will these friendly policies benefit them?
The piece also states that the study’s authors claim that this “allowed Texas to make great strides in ‘growing its economy and providing jobs and accessible health care to its citizens.’”
Well, that’s not true either, especially the last part about health care where Texas ranks last with almost 25% of its citizens uninsured while Vermont ranks fourth with a rate of 10.3% behind Minnesota, Hawaii, and Maine, none of which are on any list of business friendly states either.
Texas is a poor state by any standard. That’s why the state’s unofficial motto is, Thank God for Mississippi. Yet there in nothing physical in Texas that can be looked upon as an affliction that causes this condition. So the affliction must be mental. The majority of us holds beliefs that we refuse to test with evidence even though the evidence that proves those beliefs to be false lies right before our eyes. As long as that refusal persists, Texas will be remain at the bottom of America’s economic barrel.
©2006 John Kozy, Jr.