Free+Clear: Looking finer in Carolina

 In February 2016, Free+Clear

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Although they might well spurn it, I have some sympathy for North Carolinians whose political leanings lie somewhere left of center. Over the last five years, they’ve witnessed dramatic change in the state they call home — so much change, in fact, that some liberals say they scarcely recognize the place.

North Carolinians once voted reliably Democratic for most state and local offices, even as they sometimes chose Republicans for president. No more. The GOP now controls the executive, legislative and judicial branches of state government, along with most county commissions. While there may be some truth to the “not a dime’s worth of difference” rap on the two parties when it comes to running up deficits in Washington, the same can’t be said of public policy in North Carolina. Republicans have pursued a markedly different course than their Democratic predecessors on matters ranging from taxes and spending to education policy and social issues.

Change is a constant in human affairs. That doesn’t make it any easier to handle. We can know intellectually that nothing is permanent, that new ideas and experiences may be good for us in the long run even as — or perhaps because — they make us uncomfortable in the short run. Yet change still can be unnerving.

In the case of nervous North Carolinians who disdain the recent turn to the right, many have responded by clinging ever tighter to a cherished myth. I call it North Carolina Exceptionalism. Developed over decades of political rhetoric, partisan journalism and historiography by liberal academics, the myth depicts North Carolina as a progressive oasis in a desert of ignorance, bigotry and economic stagnation known as the American South.

What made North Carolina better, the mythmakers posited, was relatively high spending on the University of North Carolina system and, to a lesser extent, other state programs. Instead of competing for businesses, jobs and people on the basis of lower costs — as pursued by lessening taxes and regulations to encourage private investment — our state competed successfully by focusing on public investment. We let the likes of South Carolina attract lower-skill, lower-wage industries. We had Charlotte banking, Triad logistics and Research Triangle Park. In addition, Exceptionalists argued that North Carolina’s legacy of investment in higher education had enriched our culture and helped us rise more quickly than our neighbors from the muck of Southern backwardness.

Not coincidentally, the myth of North Carolina Exceptionalism makes heroes of the very people — politicians, journalists and liberal academics — who continue to propagate it. Today, it functions as a sort
of secular cult, complete with sacred texts and hopeful prophecies about
a future leader who will come to restore the progressive North Carolina of the past. Unfortunately, the myth doesn’t work very well as a model for explaining economic change in the real world. While roads, schools, universities and other public assets clearly have economic value, spending large amounts of tax money on them doesn’t seem to make a large amount of difference in their quality, or in determining which state economies prosper.

That’s the finding of the preponderance of academic research conducted over the last 25 years. Before that time, there wasn’t much empirical data on the subject one way or the other. That gets the original myth makers who concocted North Carolina Exceptionalism off the hook. But it means that those who keep the faith today really ought to know better.

In reality, North Carolina’s economic growth has varied only modestly from that of other Southeastern states during most of the last century. The two Carolinas, in fact, have tended to track closely over time — to the puzzlement and annoyance of snooty braggarts in both places. From 1930 to 2012, for example, North Carolina’s average annual increase in per-capita income was 6.2%. South Carolina’s was 6.3%. During some decades, we outpaced them. During others, the roles reversed.

Right now, the Old North State is on the upswing. If you take the top third of states in recent performance on three standard measures — job creation, income growth and gross domestic product expansion — only eight states make all three lists. Only one, North Carolina, can be found in the Southeast. Four are along or adjacent to the West Coast: Oregon, Washington, California and Nevada. The other three are Massachusetts, Indiana and Utah.

Of these eight top-performing states, only California has higher-than-average tax and regulatory burdens. (It turns out the Golden State’s endowment of natural and human resources is so vast that it’s hard for its government to foul things up too much, although its current politicians are trying their best.) Wyoming, South Dakota and Alaska lead the Tax Foundation’s State Business Tax Climate Index, which also includes North Carolina (15) and neighbors Tennessee (16), Virginia (30) and South Carolina (36). 

No one is discounting the value of government services, including higher education. But private investment is the key to economic growth, and it can indeed be discouraged by excessive state taxes and regulations, as dozens of econometric studies have confirmed.

In recent months, as North Carolina has continued to outperform regional and national averages on most economic measures, news about the state’s economy has been downplayed, pushed off the front pages and the top of newscasts, or simply ignored. The myth must endure. The messiah must soon return.

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