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George Will on Entrepreneurial Federalism

April 23, 2010

A good column on Governor Chris Christie’s efforts to help New Jersey retain wealthy residents and entice businesses. He writes:

The bridge spanning the Delaware River connects New Jersey’s capital with this town where the nation’s most interesting governor occasionally eats lunch at Cafe Antonio. It also connects New Jersey’s government with reality.

The bridge is a tutorial on a subject this government has flunked — economics, which is mostly about incentives. At the Pennsylvania end of the bridge, cigarette shops cluster: New Jersey’s per-pack tax is double Pennsylvania’s. In late afternoon, Gov. Chris Christie says, the bridge is congested with New Jersey government employees heading home to Pennsylvania, where the income tax rate is 3 percent, compared with New Jersey’s top rate of 9 percent…

He inherited a $2.2 billion deficit, and next year’s projected deficit of $10.7 billion is, relative to the state’s $29.3 billion budget, the nation’s worst. Democrats, with the verbal tic — “Tax the rich!” — that passes for progressive thinking, demanded that he reinstate the “millionaire’s tax,” which hit “millionaires” earning $400,000 until it expired Dec. 31. Instead, Christie noted that between 2004 and 2008 there was a net outflow of $70 billion in wealth as “the rich,” including small businesses, fled. And he said previous administrations had “raised taxes 115 times in the last eight years alone.”

I have a theory, completely unsupported by any legitimate research, that New York City is the wealthiest U.S. city (as measured by GDP) and most populated, not only because of its location (where the Atlantic and Hudson meet), nor only because of historical path dependencies and agglomeration effects, but also because it’s located 35 miles from Connecticut and less than half a mile by bridge to New Jersey. If New York City had less competitive forces disciplining its governance–it would be even more like Los Angeles and San Francisco and far more in debt. (It’s early 19th century rivalry with New Jersey may have helped it gain an edge against cities like Boston and Philly, whose automobile-less citizens were much more stationary then.) So my totally unsupported theory would go. Among other prominent U.S. cities today, I see Chicago and Philadelphia fitting roughly similar profiles, Boston too, but less so.  Cars and trains help. It’s hard to imagine these city halls being more corrupt than they are, but I’ll have to bite the bullet and accept that. Kansas City also sticks out as an outlier for me–it ought to have better governance sitting on that state line–but I haven’t really thought this out. If anyone can point me to some research on this topic, I’d appreciate it.


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  3. Heisenberg permalink
    April 23, 2010 10:35 pm

    I strongly disagree with your assessment on the affect the transportation exposing cities to competitive pressure. But the cities are not operated by a single mind and it is highly unlikely that a corrupt official will link his petty theft to any exodus, nor are his peers likely to interrupt him, as his screw ups will be to their benefit down the line.

    The press are the ones most likely to recored a public officials violation of the public trust, but if the public doesn’t care, reporters are unlikely to pursue it.

    An individual in the Midwest, whose only option is the city in which he currently resides has no choice but to fight when he witnesses graft. There is no sidestepping the problem – only endurance and confrontation. And it is precisely because of this situation in which everyone is handcuffed together that the public is more interested in corruption and the press is more likely to follow it.

    • Mike Gibson permalink*
      April 23, 2010 10:58 pm

      Sorry, I hope it was clear that the most important point was the state border, not transportation. What the invention of rail and cars did was to make it cheaper and more accessible to live in another state. For instance, up until about 1991 or 92, the big appeal of living in Connecticut and commuting to NYC was that you didn’t have to pay state income tax. You might still have had to pay some to the City and maybe even to Albany, I’m not sure, but it was much cheaper than living in state.

      Similar incentives are still at work in the property taxes paid in the Tri-state area.

      I wonder how this dynamic works in the DC area. Given the quality of DC governance, I’d have to say the benefits are quite small.

  4. Mike Gibson permalink*
    April 23, 2010 9:12 pm

    Great question, and it’s exactly what I was thinking when Tyler proposed revising the CA constitution in a Marginal Revolution post. Two states might be good, three might be better. I happen to live in LA and I can assure you this state is awful and terribly governed. That said, I would predict an increase in the number of policies based on traditionally liberal social issues. Gay marriage, being the obvious. While I would also predict tamer budgets and taxes.

    Given the mixed results elsewhere, I’d have to admit that I might not get the full results I’d like to see, but it’d be better than the status quo.

    I’m not convinced that creating “mega-regions” would achieve higher returns to scale. I can’t remember who, but there’s a paper out there supporting the notion of turning the N.E. corridor into a mega-region or rather, just NYC’s tristate area.

  5. April 23, 2010 8:37 pm

    Based on your theory, what would predict would happen if California were to divide into two states, Northern and Southern?

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