Do remote state capitals produce less effective governments?

Albany's pretty far from NYC, but its state capital building is pretty cool.

Albany's pretty far from NYC, but its state capital building is pretty cool.

Last month, the Atlantic Cities reported on a very interesting study by Harvard researchers linking the distance of state capitals from major population centers to corruption. Generally speaking, the more remote the capital, the more corruption there was in that state (as measured by federal convictions). As ever, correlation is not causation and there are plenty of outliers, but the findings are intriguing nonetheless.

They also got me to thinking: beyond its potential role in facilitating the occasional corrupt act by an individual or small group of individuals, could the isolation of state capitals have an impact on the average quality of all bureaucratic talent? Corruption is obviously a big deal, but usually limited in scope; a systemic under-recruitment of talented, ambitious public employees at the state level could have far more devastating effects in the long term.

To see why our remote capitals might be doing a disservice to good governance, we don't even need to look at government employment. To some extent, publicly- and privately-owned businesses are already responding to the heightened attraction of the "major population centers" those Harvard researchers were referring to: Twitter decided to locate in San Francisco, Google put offices in New York City, Amazon is rapidly expanding operations in the core of Seattle. These are expensive markets, and superficially it might seem like a waste of money, but these major corporations have reached the conclusion that they need to be located in dense, walkable, transit-rich cities if they want to attract the talent they need to continue to be successful. Why should it be any different for state employees?

Of course, there are plenty of highly qualified and capable people that actually prefer to live in the smaller-city/suburban atmosphere. That's fine. In cities like Albany or Olympia or Sacramento, though, you're significantly limited in the type of lifestyle you can lead. It's basically suburban car-dependence or bust. And while there are many millions of people who want exactly that, there are as many or more who don't want anything like it, or at least wouldn't rank it highly if they had complete freedom of choice.

Austin's urban capital building in the background. ( source )

Austin's urban capital building in the background. (source)

Large cities, on the other hand, can provide a place for a much larger group of people with a much broader set of interests. The woman who wants to live downtown and spend her leisure time in coffee shops and bars, and seeing live music and poetry readings is free to do so; the man who wants to spend most of his time in his room blogging and reading (ahem) but values the convenience of a grocery store down the road and work within bicycling distance can get what he wants; those that do want the two-car garage, front and back yards, and relative seclusion of the suburbs can always find it without venturing too far. If you can capture a wider swathe of the population (both demographically and in absolute number) in your commute-shed (if that's a word) then you can pick from a larger pool of applicants for your Auditor's office, Liquor Control Board, Department of Health, and on and on. Some of those applicants wouldn't have been interested if the job had been in a remote town, and some of those will be extremely good at their jobs.

The method by which you might study this question is something I'd be interested in hearing from readers about. How do you measure the impact of a more effective workforce? Per-capita income or population-adjusted GDP seems like an obvious choice, but it's likely that if the distance of capitals has any impact it's on the order of a few percentage points of growth and could easily be swamped by other internal or external factors (like a giant recession, for example). And what's the control group? There are also definitely potential benefits like better institutional design that improves responsiveness to constituent concerns or higher quality web sites (read: http://www.altcew.org/), neither of which would necessarily show up in the state's economy but would improve people's lives nonetheless.

One additional note: I just want to make it clear that I'm not saying our current public officials are underqualified or generally doing a poor job--this isn't a critique on existing bureaucratic efficiency or effectiveness at all. In the spirit of this blog's name, it's simply a recognition that things can always be better, and we should be open to considering anything that might fulfill that mission.

Are our programs working? Do we even want them to?

In light of all the talk about limiting and eliminating certain tax deductions I wanted to address them in a bit more general way than I did in my post about the mortgage interest tax deduction. Once a tax expenditure like the MITD is in place we tend to go to great lengths to study its effects and to ensure that it's achieving its goal(s), but rarely do we revisit whether that goal is actually worth pursuing. It's now taken for granted, for example, that the MITD has the effect of increasing homeownership rates to some degree; only recently, however, have we begun to question whether pushing those rates up at the margins is actually an economically or socially beneficial outcome. In the case of the commuter tax benefit, we're still not seeing much discussion outside of transit advocacy blogs and organizations about why we're giving car drivers a more valuable benefit than transit users (currently, $240 vs. $125). It's a policy that's completely contrary to the economic and environmental goals of our country, giving cars an arbitrary financial advantage over transit, and yet it persists.

Employer-based health insurance is probably the most significant example of this. (At $131 billion per year, it's certainly the biggest.) Logically, getting your insurance through your employer makes very little sense. It cedes the decision of what insurance company you use to the business owners and/or HR staff, as well as which programs they'll offer within that insurance company's suite of coverage options. Even more importantly, most businesses are fairly small so their bargaining power is extremely limited--even in the case of a massive corporation like Boeing or Microsoft, their leverage is insignificant compared to that of an entire state, or the federal government. This means higher costs for smaller businesses, and even for the bigger businesses costs can never compare to those of national programs like Medicaid and Medicare. We've enshrined the value of employer-based health insurance despite these and other faults, not because it's superior but because it's simply the way things have always been. We look at the system and see that it generally works okay, but by what standard? Relative to any other country's system of health care provision it fails on nearly every metric.

Nationally we're at record lows in terms of government revenue, and this has many causes. Partly it's been a giveaway over the last decade to the most well-off among us. Everyone though, not just the rich, has had their tax burden reduced, so there's more to it. Businesses are also contributing a smaller and smaller share of GDP to government revenues. I strongly feel that we need policy changes that result in increased revenue, but I'm willing to resist that impulse for some sensible revenue-neutral reform. We spend about $250 billion a year on employer health insurance, mortgage interest, and property tax deductions, and there are many other smaller deductions that make just as little sense from a social engineering perspective (and make no mistake, all tax expenditures are social engineering--and that's okay). We need to do something about them.

I'd like to see these programs reduced and revised in a way that redirects more money toward useful government programs or reduces the deficit, but completely offsetting these deductions with tax rate reductions would be a step forward, at least, and probably more politically palatable. Without raising any new revenue we'd be simplifying the tax system and removing distortions, encouraging people to use their money in rational ways, not just those that are preferred by their government. Some people would pay more, of course, but it would level the playing field such that everyone received some benefit, rather than just those who chose to accept the government's soft coercion. (Or, as is often the case, those who needed no encouragement and are essentially being handed free money in exchange for doing what they were going to do anyway.) This streamlining would also almost certainly increase productivity and encourage economic growth that actually did increase revenues faster than baseline. 

If any of that's ever going to happen, though, we need to stop worshiping at the altar of the familiar and traditional. Until we do we'll continue to be beholden to these wasteful programs whose goals are no longer aligned with our values, and probably never were. There are plenty of worthwhile tax expenditures, we just need the courage to evaluate them on their merits and not their history or constituency. In each case, need to decide whether targeting deductions at special groups (health insurance consumers, homeowners, car drivers) is superior to lowering costs for everyone. Where the answer is no, we need to shed these burdensome expenditures and move on to a more simple, sensible system.

*Note: I changed the title because no one got the reference to the Bushism "Is our children learning?"