Economists speak a language very few of us can comprehend at first glance. They study math equations, statistical analysis, trends, and apply their specific theories, concepts, and conclusions on a variety of subjects—from broad-based social studies to downright infuriating minutiae of a specific discipline. The very intelligent and highly educated economists—those who hold a Ph.D. in economics and have publishing street creds—are always in demand to poke holes in other economists stated conclusions about whatever is the hot topic du jour.
One such economist, Ryan McMaken, of the Mises Institute, recently published an attempt to narrow down which state receives the most money from the federal government and linking those states to who supported Trump. What this mises.org analysis shows, is that most states that voted for Trump, and have proclaimed the loudest for less government oversight and control, are those who receive the most funding. This leads one to believe that Trump states are simply a bunch of moochers.
This analysis is what would be called a broad-brush stroke, i.e., a basic formula of federal spending per dollar paid in public taxes. Liberals have this information and will probably organize a paid protest march when an opportune moment arises. Look out Norma Rae, Soros angels are prepared to show your grandiose stand against oppression just how it’s done. According to Mises analysis:
For the charge of hypocrisy to stick against the Trump voters in these states, however, we’d have to show that the people who complain about too much federal government are the same people who receive lots of federal largesse. That’s surely true some of the time — as in the case of many conservative seniors on Social Security and military personnel who live off the taxpayer dime. But, there are also surely many residents of net tax receiver states — such as Mississippi — who also are net taxpayers who do not receive a net benefit from federal spending.
Mississippi and New Mexico, take heart. Your Moocher status is not solid. There is more to McMaken’s report. He digs deeper to explain why some states are more prone to a higher federal influx of resources.
McMaken, called on fellow economist, Antonio Cheves at American Thinker, to add his expertise. Cheves put another methodology into play:
The most straightforward methodology for measuring “federal dependency” of states was presented by Ryan McMaken in the Mises Institute blog. Based on “federal spending per dollar paid,” business-friendly states like Texas and Utah among the net recipients of federal funds. McMaken attributes the federal budgetary shortfall in states like these to differences in urbanization and federal land ownership.
Regression analysis supports McMaken’s assertion that federal land ownership and urbanization play a large role in determining federal spending per dollar paid. He rightly points out that urban economies generate more revenue than agriculture and federal monetary policies (such as low interest rates) favor urban investors at the expense of the “main street” households that predominate in rural states. Census data indicates that demographic differences (particularly differences in formal education) may also contribute to this disparity between urban and rural states.
We have heard all the reports from the media that the uneducated voted for Trump–which is partly true. Rural communities, in the ranching and farming industries, have lower percentages of college graduates. The urban areas have a higher percentage of higher education.
McMaken does not rest on his laurels or his own analysis. He sought out yet another analysis method to compare–which draw different conclusions:
This method claims that, when federal revenues are large compared to state revenues, the state is “dependent” on federal funds. This method can be contrasted with the mises.org analysis in which we compare federal spending to state GDP or to federal taxes paid in that state.
The method of comparing federal spending to state revenues has been used in the often-cited analysis conducted by Wallethub and the Tax Foundation. The Wallethub analysis was used by The Atlantic to make the point that Texans are a bunch of moochers compared to the Californians. Although, as our own analysis shows, Texas ranks slightly better than California in this regard.
There is all manner of factors not considered in these two reports: federal monies allocated to federal land management, parks, monuments, government offices such as the Federal Bureau of Investigations, Immigration Customs Enforcement, Alcohol Tobacco and Firearms and our military bases. Essentially many states have no control over federal spending.
So if a state has a very high tax burden (take a wild guess), then federal aid will represent a smaller share of the total amount of money. By contrast, a very libertarian-oriented state with a very low tax burden might look like a moocher state simply because its tax collections are small relative to formulaic transfers from Uncle Sam.
Indeed, this is a reason why the state with best tax policy, South Dakota, looks like one of the top-10 moocher states on the map.
So, to break it down, both the Wallethub and Tax Foundation analyses advise states to increase spending in response to the federal government’s spending to distort their own state’s economy. What the heck?
McMaken has a better solution:
A more even-handed analysis, it would seem, would compare federal spending to the overall size of the economy and to federal tax revenues. Moreover, there are other factors which complicate the comparisons, such as the fact that California exports its poor to Texas and other low-cost states.
Somehow, and in some way, Moocher States analysis will be used by the liberals to make a point against conservatives and libertarians and the hypocrisy of less-government ideological leaners, leaning on the most in federal dollars.
Team Moocher, suit up and pay attention—the rules of the game keep changing.