Freeman

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U.S. by the Numbers: Figuring What's Left, Right, and Wrong with America State by State by Raymond J. Keating and Thomas N. Edmonds

An Invaluable Reference Book

JUNE 01, 2001 by WILLIAM H. PETERSON

Capital Books • 2000 • 960 pages • $35.00

An Entrepreneurial Revolution. This is the watchword-guidepost here of Mr. Keating, chief economist of the Washington D.C.-based Small Business Survival Committee, and Mr. Edmonds, a political media consultant and coauthor with Mr. Keating of their successful 1995 book, D.C. by the Numbers: A State of Failure.

To be sure, the Entrepreneurial Revolution sought by the authors has not been exactly dormant in America over the years, with the United States enjoying the world’s highest gross domestic product per capita. But entrepreneurship is certainly in a beleaguered state today as the country continues to grapple with the inner contradictions of the welfare state. It is those contradictions—a power struggle between the public and private sectors—that are confronted and tracked numerically by the Keating-Edmonds team both for the nation (in 71 pages) and for each of the 50 states and the District of Columbia (in 865 pages).

Nationally, the authors note a trend of government-spending increases that far outpace population growth. In other words, they see the public sector—the coercive government sector—swelling, while the voluntary sector of society shrinks, at least relatively. To wit:

From 1960 to 1997, total real government revenues—federal, state, and local—increased by 289 percent, so that government in the United States eats up today more than 31 percent of the GDP.

From 1960 to 1999, real federal payroll tax revenues increased by an estimated 614 percent.

From 1960 to 1999, real federal revenues increased by an estimated 236 percent, accounting for about two-thirds of the total government take, including some $250 billion in annual federal grants to state and localities.

Those grants are usually on a 50-50 cost-sharing basis for projects favored by Washington, a trend that does not bode well for federalism or whatever is left of states’ rights.

For example, the authors observe that in America’s welfare state (and because of welfare-state support of unwed mothers?) the portion of live births to unmarried mothers climbed from 3.5 percent in 1940 to 5.3 percent in 1960 to 18.4 percent in 1980 and to 32.4 percent in 1997. Rising illegitimacy of course adversely affects crime, health, housing, work, education, and other social and economic trends in America.

To get from here to there, to a reinvigorated Entrepreneurial Revolution, our authors suggest that federal policy abandon Keynesian-Phillips Curve inflation-employment tradeoff thinking, as well as talk of macroeconomic “aggregate demand.” “Coming from a Randian/Austrian economics background,” they write, “[Fed Chairman Alan] Greenspan should know better.”

On fiscal and regulatory policy, they call for sharply lower government spending and taxation. Keating and Edmonds argue that the best capital gains tax policy is not to tax capital gains at all. They also advocate the repeal of death taxes and do not take kindly to the minimum wage, holding that it deflects hiring and on-the-job training from those who need it most.

The authors’ data on the states (including D.C.) demonstrate the acuity of their pro-market vision.

California, for example, imposes a capital gains tax rate of 9.3 percent, the highest in the country; its personal income tax rate, also 9.3 percent, is the third highest; and its corporate income tax rate of 8.84 percent is the 12th highest, an “antigrowth tax system,” charge the authors. Still, California boasts of Silicon Valley employing a million people, a healthy inflow of immigrants, and good trade access to the Pacific Rim. All in all, California is rated as having a so-so investment environment—and that’s before its current electricity imbroglio.

The book is a gold mine of data, charts, and trends that lay out a comparative competitive analysis of the United States in a global economy and of each state struggling for investment dollars and economic growth. It should prove to be an invaluable reference work for bankers, entrepreneurs, newspaper and TV-radio editors, academic and business economists, land developers, and legislators.

Contributing editor William Peterson is an adjunct scholar at the Heritage Foundation.

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June 2001

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