This week, the conservative-leaning American Legislative Exchange Council (ALEC) released its 6th annual Rich States, Poor States: ALEC-Laffer State Economic Competitive Index. According to the report, Ohio’s “competitiveness” ranking went up last year from 37th to 26th. Don’t be surprised to see politicians point to this as evidence that their radical economic policies are working here in Ohio.
The ALEC report is just one of a host of studies released each year that attempt to measure which state economies are the most business-friendly. These reports are nothing more than a platform for these groups anti-tax/anti-government ideologies and use flimsy analysis that would fail any college 101 statistics class. For instance, the report evaluates Ohio against other states in terms of factors such as its minimum hourly wage, average tax rates and how union-unfriendly its laws are. In reality, these reports — and these factors — have proven to be very poor predictors of how states economies will perform in the future.
In 2012, researchers looked at the predictive value of the ALEC index. In , researchers examined whether states that had higher rankings on the ALEC measures out-performed lower-ranking states in four key measures of economic activity.
The results were telling. In three of the four measures (non-farm employment growth, percent change in per capita income, and percent change in state and local government revenue) the report found a negative correlation between a states ALEC ranking and its economic performance from 2007 through 2011. In other words, the more uncompetitive the ALEC report found a states economy, the greater the growth the state saw in employment, income and state and local government revenue. The only positive correlation that the report found was between a states ALEC rating and the percent change in its GDP. The correlation was insignificant though at 0.2 percent, meaning that there is virtually no relationship between GDP growth and a states economic competitiveness ranking.
Policy makers, the media and the public need to understand that the ALEC index is simply a tool to further the anti-tax/anti-government agenda of ALEC and its political allies. Policymakers who insist that Ohio simply needs to implement policies that mirror the high ranking states in the ALEC report are simply misleading the public. It is much less likely that these policies will lead to economic growth and more likely that they will have a negative effect on Ohios middle class and poor.