Three myths that will always hold us back

Famous myths, such as Homer’s “Odyssey,” push us forward by inspiring us to be courageous in the face of difficult changes and decisions. But not all myths are created equal. Some myths simply rationalize our situation, and in doing so help us to accept our fate. That is, they tell us that we do not have to face up to challenging situations.

In the short time that I have lived in this beautiful state I have encountered three such myths about economic growth in Maine. These half-truths, or more accurately hundredth-truths, are rationalizations of why Maine’s prosperity has lagged behind the rest of New England and much of the rest of the country. These myths implicitly tell us that there is little that we can do to change our situation; it is due to forces beyond our control. Thus we can avoid difficult decisions that must be made in a changing world. We can feel comforted that our situation is not our fault.

The three rationalizations for lagging economic development that I have heard the most are: Maine’s isolated location hurts its development; Maine’s growth is hindered by its weather which creates high energy and transportation costs; and Maine’s high taxes hinders its growth, and the high taxes are a consequence of having a small tax base. Although there is a grain, but just a grain, of truth in these explanations, these are far from the primary reasons for lagging economic growth.

If geography were particularly important for economic growth, then centrally located states Kentucky, Oklahoma and Arkansas would be among the most prosperous (these states rank 39th, 42nd and 47th in income per person). Maine, California, Washington and Florida wouldn’t have a chance (they are 36th, 8th, 11th and 21st). One could reasonably argue that a comparison of this sort isn’t really fair; it is proximity to the big economic centers that matters. In that case, West Virginia, Indiana and Vermont – states essentially surrounded by prosperous states – would be among the leaders in per capita income (they are 49th, 32th and 30th). Colorado, Texas and Nebraska would be among the stragglers (they are 7th, 24th and 25th). Moreover, this comparison begs the question of why economic centers emerged where they did in the first place. Cities such as Atlanta, Denver and Charlotte have no obvious geographical advantages. Geographic isolation has as much to do with economic performance in Maine as it does in Florida, California, Washington and Texas.

If intemperate weather was important to economic development, then states such as New York, New Hampshire and Minnesota would be relatively backward, while states such as Mississippi, Louisiana, and Alabama would be relatively advanced. In terms of income per capita each of the first three states are in the top ten, while each of the latter three states are in the bottom ten. If this comparison is not sufficiently convincing, then perhaps some additional data will be. In terms of “heating degree days”, Maine is about as cold as Wyoming and Vermont (27th and 30th in per capita income), slightly colder than New Hampshire (6th), and somewhat warmer than Minnesota (9th).

Moreover, each of these states also has more “cooling degree days” than Maine. New Hampshire and Vermont provide particularly good comparisons. In addition to being roughly as cold as Maine, they have essentially the same amount of winter precipitation. New Hampshire and Vermont residents, however, also face energy prices that are about 30 percent higher than in Maine. Thus, in overall comparison to Maine, the weather cards are stacked against these states, yet their per capita incomes are 30 percent and 6 percent higher. Maine’s weather is not nearly intemperate enough to have an appreciable influence its economic development.

If high taxes prevented economic growth, then residents in Connecticut, New York and Massachusetts would be poorer than in the rest of the country. In terms of state and local taxes per resident these states are 1st, 2nd and 6th. In terms of income per resident they are 1st, 4th and 2nd. Alabama, Tennessee, and Montana residents would be relatively richer because they are 50th, 48th and 42th in taxes per resident. In income per resident they are 43rd, 35th and 46th. This comparison is not meant to suggest that taxes do not affect economic growth. Taxes in and of themselves are a drag on growth. The things that taxes buy, however, can promote growth.

The more ridiculous part of this myth is that we do not have much of a choice about having the nation’s third-highest state and local taxes relative to income. Our tax base is small, thus we must have a high tax rate. For some mysterious reason South Dakota, ranked 34th in per capita income and 47th in average tax rate, seems immune to this problem. South Carolina (40th in income and 41th in tax rate) and Missouri (29th in income and 43th in tax rate) evidently are also immune. States such as Washington, Delaware, and Rhode Island (11th, 12th and 17th in income, and 17th, 19th and 11th in tax rate) must have particularly wasteful governments. A closer inspection of states’ data reveals that on average there is a positive relationship between the tax base and the average tax rate. The myth about Maine’s high taxes doesn’t even have a grain of truth.

The harm from these myths is much more difficult, if not impossible, to quantify. The harm is in hiding the truth in our choices, and in doing so making bad decisions more likely. Maine’s economy has lagged behind primarily because of the choices that we have made.

This is not to say that we have made bad choices. It may be the case that we as voters are not willing to bear the costs of a faster rate of prosperity growth. None of us want more congestion, pollution, and environmental damage. It may also be the case that we as voters are not willing to pay the costs of faster change. None of us want job dislocation. Economic change and growth come with significant costs. Moreover, these costs are usually concentrated within a small segment of the population, and often this segment is the least equipped to bear these costs. This fact is what creates much, if not most, of the resistance to economic change.

Resistance to change is the biggest obstacle to economic growth in Maine (and in every other state). If we as a state really do want to stop lagging behind economically, then we need to make choices that reduce resistance to change. Disposing of comforting, but deluding, myths will help us to face up to the challenges of continuing economic change.

Philip Trostel is an associate professor of economics and public policy in the Department of Economics and the Margaret Chase Smith Center for Public Policy at the University of Maine.