Monday, August 01, 2005

Peter Fisher is a tool

In Sunday’s DMR David Elbert, in his Down to Business Column, bought into a press release from the lefties out of the Economic Policy Institute announcing the publication of a Peter Fisher classic: “Grading Places: what do business climate ranking really tell us?”. The alternate title you ask? “Safe Job: how can I manipulate data to screw over groups supporting lower taxes and less government spending?”

Peter Fisher is a tenured professor at the U of I taking in $94,687 to provide a world class education to the handful of students running through the Urban and Regional Planning program. He is also a tool. The guy is a fixture on the liberal policy circuit, having produced a significant number of studies coming out of the Iowa Policy Project while also juicing a political habit – a $200 donation to the Kerry campaign in ’04. Although in the article in the DMR he says this:

Since the book came out a few weeks ago, Fisher has been accused of bias himself, because the Economic Policy Group, for whom he wrote his study, is generally viewed as a liberal think tank.

He says politics don't enter into it, because all he did was measure how well the studies do what they claim to do.

In the EPI report, Fisher goes after five groups that routinely dole out state economic rankings. Fisher takes to the shed the following published annual or biannual reports: Small Business Survival Index by the Small Business and Entrepreneurship Council; State Business Tax Climate Index by the Tax Foundation; Metro Area and State Competitiveness Report by the Beacon Hill Institute; Fiscal Policy Report Card on America’s Governors by the Cato Institute, and; Economic Freedom Index by the Pacific Research Institute.

Fisher’s findings are what you would expect; he shreds each and every ranking index by attacking the methodology, and when that doesn’t work he simply notes another scholar’s research or a Nobel Prize winning economist to defend his opinion. For someone so vested in academic rigor, the report is, at best, a hatchet job, and no self respecting peer reviewed journal would ever publish it. Moreover, the serious researchers at the Tax Foundation took Fisher to task making the following observations:

…Fisher says, “These five indexes produce widely different rankings of the states, despite the fact that all of the organizations creating these indexes assert that they are measuring something of critical importance to a state's economic future and its potential for growth.”

How could Fisher think that the Tax Foundation’s index, which depends entirely on state tax laws, would rank the states in the same or similar order as an index that includes crime rates, electricity costs and health care (Small Business and Entrepreneurship Council’s Small Business Survival Index), or infant mortality rates, air passengers per capita and the percentage of adults in the workforce (Beacon Hill’s State Competitiveness Report), or charter schools, tort reform and minimum wages laws (Pacific Research Institute’s Economic Freedom Index)?

The various groups’ missions and expertise are different, and so of course their state rankings are different. However, all the indexes Fisher criticizes have one thing in common: their authors consider a competitive state tax system to be an important precondition for economic growth. Fisher takes the contrarian view, calling the effects of taxes on economic growth “small or nonexistent.”

This is truly a view far out of the mainstream. Consider this from the Democratic National Party’s 2004 platform: “We believe the private sector, not government, is the engine of economic growth and job creation … We want a tax code that rewards work and creates wealth.”

Of course, a tax system can’t “create wealth,” but it can minimize the economic damage of tax collection, and the difficult task of measuring this in each state is exactly what the Tax Foundation has set out to do with its State Business Tax Climate Index.

As for Fisher’s specific criticisms of Tax Foundation calculations, most of them are tainted by his view that taxes are inconsequential. However, we do make improvements to the State Business Tax Climate Index every year, and as we do with every critique of our studies, we will read Fisher carefully and consider his points before publishing the third edition in late 2005.

Fisher is an economist yet he doesn’t seem to buy into the concept that there is something called tax capacity. And I seriously doubt that he spends much time googling around in the National Bureau of Economic Research (NBER) web site, a little too much unvarnished substance, perhaps.

Fisher knows all of this, but it won’t stop him. The guy’s figured out he has a future churning out bent analysis to serve a specific political end. In this case, to make sure policy makers “understand” two things; 1) the rankings are junk so don’t believe that cutting taxes and shrinking government promotes economic growth, and 2) there is no validity to any of the notions contained within supply-side theory.

Ah, explain that one to the hundreds of top notch economists publishing at the NBER and Nobel Laureate, Robert Mundell.

The real problem with the reports that Fisher criticizes is that they are not really used to reduce taxes and regulations across the board. They are used by specific businesses/industries to get targeted tax breaks and regulatory relief.

And those tax breaks don't make the landscape more competitive, they just shovel money from taxpayers to companies.
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