Adverse selection collides with the rise of the creative class

Matt K. Lewis Senior Contributor
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The New York Times has an interesting look at the divergent political paths being taken by Wisconsin and Minnesota.

An excerpt:

“In 2013, Wisconsin’s lawmakers cut income taxes. They approved an expansion of school vouchers. They passed a requirement, portions of which are now being contested in court, that abortion providers have admitting privileges at local hospitals and that women seeking abortions get ultrasounds. They rewrote iron mining rules to ease construction of an open pit in Northern Wisconsin.

“In Minnesota, lawmakers sent more money to public schools, raised income taxes on the highest earners, increased the tax on cigarettes and voted to add new business taxes. They allowed some undocumented immigrants to get in-state tuition for public universities. They legalized same-sex marriage.

“’It’s staggering, really, like night and day,’ said Lawrence R. Jacobs, a political scientist at the University of Minnesota. ‘You’ve got two states with the same history, the same culture, the same people — it’s kind of like they’re cousins. And now they’re looking across the border and seeing one world, then seeing something else entirely on the other side.’”

This huge dichotomy seems to reinforce the notion that a small group of dedicated activists (albeit, activists often funded by out-of-state money) can have a significant influence on the politics of a state. (Might this help explain efforts to discredit and dismantle the conservative infrastructure in Wisconsin?)

But that’s not the only thing interesting here. Assuming these political trends continue in the respective states (which is not a foregone conclusion), one could expect that eventually citizens will vote with their feet. And that’s where things could get interesting.

From a conservative perspective, it stands to reason that high earners — people who like the region, but might want to avoid higher taxes — would be more attracted to the Badger State. Meanwhile, folks who prefer a bigger government — and a sturdier social safety net — might naturally be attracted to the Gopher State.

Should this happen, over time, Wisconsin would presumably increase its tax base, while Minnesota would incentivize more state government spending.

For those following the ObamaCare story, this is called adverse selection. And it could result in a situation where the makers and the takers gravitate to different states.

On the other hand, one could argue that Minnesota — tapping into the “Rise of the Creative Class” theory — will prosper by attracting more creative people, investing in infrastructure, etc.

Political scientists should be all over this. We often compare states in an apples and oranges manner (yes, Texas is doing better than California, but there are so many variables). But in Wisconsin and Minnesota — for reasons previously discussed — we may find a rare opportunity to actually test the impact of a conservative economic philosophy versus a progressive one.

Matt K. Lewis