Saturday, June 11, 2011

Why are California and New York state governments so crummy?

Labor theory suggests that public sector worker pay shouldn't get too far out of line with private sector wages because taxpayers are mobile, and if costs rise too much in a particular state thanks to high public employee compensation, residents will simple leave. ... Still a new paper by economists Jan K. Brueckner and David Neumark of the University of California, Irvine, argues that traditional labor theories don't account for the pull that natural amenities have on citizens, making them willing to pay a premium to live in places deemed more desirable. This attraction, the economists find, accounts for the fact that public sector wages are further out of line with private wages in some states than in others. Not surprisingly, California is a big loser.

"The presence of local amenities can grant public sector workers a form of monopoly power that lets them extract more rents," the authors write. "People can only consume the beaches and sunshine of southern California, or benefit from dense urban areas like Manhattan, by living nearby, and public sector workers can therefore extract rents up to the point where those who pay the rents are induced to leave the area."

The authors measure several variables, including types of weather (mild is most preferred), proximity to water, and population density (because of the variety of experiences and opportunities that heavily populated areas provide). Perhaps not surprisingly, their study finds that states with the highest differential between public and private sector wages, including California, New Jersey, New York, and Rhode Island all boast certain key amenities that help boost the public sector wage premium.
--Steve Malenga, Public Sector Inc., on one way to ration access to desirable geographies

Today, according to the statistics people look at, even with California’s bountiful resources, the most equitable climate in the entire continent, and with every blessing that God could bestow upon a land, people are finding a better place to live and work and raise their families out in the desolation of the Arizona and Nevada deserts. No conceivable act of God could ever wreak such devastation upon our state. It takes a government to do that. And it has.
--California U.S. Representative Tom McClintock on squandered blessings

It is worth clarifying that the problem is rent-extraction, not high taxes per se. If Californians were paying high taxes that were then used to deliver really excellent public services delivered at the lowest feasible cost, we’d be dealing with another situation entirely.
--Reihan Salam, National Review, on lack of value for money