Saturday, July 6, 2019

No Paul Krugman, Red States Aren’t Moochers and Your Math is Just Awful.

Click here to read the original Cautious Optimism Facebook post with comments

6 MIN READ - The Cautious Optimism Correspondent for Economic Affairs and Other Egghead Stuff dispels Paul Krugman’s recent recycling of the worn-out myth that red states are “deadbeat welfare queens.”

Earlier this week New York Times columnist and economist Paul Krugman wrote a piece echoing an old fable chanted for years by liberal progressives that red states are (in Krugman’s words) “moochers” and “takers."

Or put more bluntly by leftists who unthinkingly parrot the same legend: “red states are welfare queens” or “red states are deadbeats.”

Krugman’s op-ed can be read at the following URL:

(additional examples of “red welfare states” pieces are included at the bottom of this article)

On the surface the claim that red states are bigger moochers or deadbeats than blue states seems counterintuitive given the conventional wisdom that blue state megacities like New York, Los Angeles, Chicago, or even Washington DC have large populations living off of government assistance.

However Krugman and liberal pundits contend that red states are full of the rural poor who take government welfare money too, and blue state cities host more high earners who pay a larger share of federal taxes.

In fact this leads us to the crux of their only evidence: that blue states pay more in federal taxes than they receive back in federal spending. Or in Paul Krugman’s own words “Richer [blue] states subsidize poorer states. And the reasons are clear: Rich states pay much more per person in federal taxes, while actually getting a bit less in federal spending.”

Look up any assertion that red states are the true “welfare queens” and this will be the clincher supporting their position.

However the allegation itself is not true—nearly ALL states receive more in federal outlays than they pay in federal taxes, the difference between red and blue state outlays is explained entirely by non-welfare expenditures like defense and transportation, the elderly who paid into pension programs while working in blue states but receive benefits in their red state retirement homes are not “deadbeats,” and during recessions the imbalance tips towards blue states which much more resemble “moochers” than red states in good times.


First there's receipts and outlays. As a group, all states receive more in federal spending than they pay in federal taxes. In FY17 receipts from the 50 states plus District of Columbia (50 + DC) were approximately $3.1 trillion (excluding miscellaneous non-state specific payments, from overseas for example) and outlays were $3.7 trillion. And when divided into two fiscal groups, both red and blue states received more in federal spending than they paid in federal taxes.

But how can all states collectively receive more than they pay in? The answer is deficit spending. In FY17 the federal government spent $660 billion more than it collected in taxes. The result was a net surplus for nearly all states, a circumstance that will hold just as true in 2019.

There are a handful of exceptions. In FY17 ten states out of the 50 + DC (19.6%) did pay more than they got back, and only two (Nebraska and North Dakota) were solid red states with one swing state (New Hampshire), but when grouping all blue states together the collective result is still more federal money received than taxes paid.


But even the exception states that pay more than they receive aren’t victims being forced to prop up red-state deadbeats. New York, which had by far the largest federal funding shortfall of $35 billion, also ranked 50th out of 50 + DC states in federal defense outlays as a percentage of GDP with another blue state, Oregon, at dead last—the result of being less interested/successful in holding onto its military assets during the post-Cold War base realignment and closures of the 1990’s plus lacking a large military contractor industry.

If New York received defense payments equal to the 2017 national average of 3.6% of GDP (3.1% plus veterans affairs payments equal to 0.5% of GDP), the state would have gained an additional $38 billion in spending from Washington’s $695 billion defense + veterans affairs budget (source: Office of Economic Analysis and Rockefeller Institute of Government) closing all of the gap and putting the state into a surplus.

The same is true for another large deficit blue state, Illinois, which paid $4.6 billion more than it received in federal outlays. Illinois ranked #42 in military spending and had it received the national average in military expenditures would have netted an additional $17.8 billion, eliminating the gap and making it (according to Krugman) a major “moocher” state.

On the whole, red states receive a much larger share of defense outlays than blue states due both to a stronger commitment to keep their military bases and general political friendliness to the military plus some luck in geographical location (Alaska receives a very large share of its relatively small GDP in defense spending due to its proximity to Russia and the Arctic Circle).

Shrink the military benefit of red states down to the blue state level and Alabama, Texas, Georgia, and Utah join the short list of deficit states too. The 7-2-1 blue/red/swing ratio of deficit states reverses to red/blue at 6-5-1.

So when counting military spending, blue states aren’t “subsidizing” red states. In fact if blue states weren’t paying up then they would truly be “moochers” because red states would be subsidizing their protection. A smaller tax surplus simply reflects the bill that blue states rightly fork over for the security that red states disproportionately provide them.

One would think Paul Krugman, a Nobel Prize winning economist, would know all this. But Krugman has been a dishonest political hack for some time and has a long history of misrepresenting the facts to lead readers towards his own political conclusions.


Any remaining difference between red state surpluses and blue state surpluses can be accounted for with federal transportation dollars (again, not welfare). It’s no surprise that large, sparsely populated red states tend to receive a greater share of transportation funds relative to their federal tax payments precisely because they’re so large.

While it’s true that giant twelve-lane highway projects in California or New York are more expensive than two lane rural highways in Montana, blue state megaprojects carry far more local residents per mile of road laid. Thus it’s no surprise that the largest recipients of per-capita federal transportation money are large red states like Alaska, North Dakota, and Wyoming and not dense blue states like California, Connecticut, and Massachusetts.

And then there’s giant Social Security and Medicare outlays for the elderly. Social Security (excluding unemployment benefits) and Medicare represented nearly 40% of federal spending in FY17 at over $1.5 trillion (well over double $590 billion for defense plus $105 billion for veterans affairs). In FY2019 the two programs will spend over $1.7 trillion.

Although spending by state data is lacking, there’s little question that red states receive a disproportionate share of pensions for the elderly relative to the taxes they pay since so many workers in blue states relocate (or flee) to red states for retirement in search of A) warmer weather, B) lower cost of living particularly for housing, C) lower taxes—or even zero state income taxes in Florida, Texas, and Tennessee. By contrast fewer workers in warm, low tax red states retire and move to New York, New Jersey, Connecticut, Massachusetts, Michigan, or Minnesota to live out their golden years.

The main destination for retirees is typically considered Florida but other red states like Texas and Arizona also host large numbers of retirees.

The irony of course is this unfavorable migration of seniors for blue states is largely the result of their own high-tax and regulatory policies that make life so expensive that retired workers move out and take their pension benefits with them. They pay taxes while working, and when they retire their payroll tax contributions suddenly dry up in their old blue states while the pension checks arrive just as quickly at their new red state residences—a double blow for blue state finances.

Paul Krugman's accounting considers this "mooching" too, but nearly all of these retirees aren’t “welfare queens.” They worked during their productive years and as Krugman himself would point out “they paid taxes all that time and are now entitled to get some of it back in pension benefits.” The net result by state is a receipts/outlays deficit if you’re a blue state, but not if you're a retiree.

Given the enormous size of these programs and the similarly sized receipts from payroll taxes, any adjustment for retiree finances shifts the real “welfare queen” states solidly in the blue camp.


Krugman also fails to mention that the receipts/outlays benefit tilts as far as possible against blue states during economic expansions, but that during recessions the numbers move in the opposite direction—against red states—which is why he’s bringing up the subject now and not in the half decade after 2008.

A clear example is the 2007-09 recession and tepid recovery when blue state economies like Michigan, California, Illinois, Oregon, and Nevada were particularly hard hit while red states such as Texas, the Dakotas, Oklahoma, Nebraska, and mountain states fared much better. The result was a higher proportion of federal tax revenues coming from red states while blue state unemployment rolls swelled.

See October 2009 unemployment by state here:

Also back in July of 2009 CNBC compiled the “Top 15 Welfare States” from National Conference of State Legislatures surveys on payouts from Temporary Assistance to Needy Families (TANF) programs that are funded through federal grant blocks. Of the 15 states, 13 were solid blue including the District of Columbia and California at #1.

See results here:

Once the numbers are adjusted during recessions, and then defense, transportation and pension outlays are factored on top of it, the calculus changes from a breakeven between red and blue states during good times to blue states becoming the obvious “moochers” during bad ones.


And so long as we’re talking about actual welfare spending and not just the entire federal budget, an analysis of state and local welfare spending as a share of GDP for the 50 + DC states reveals just where the true moocher dollars are spent.

The state rankings are here:

It’s not clear how much of each state’s welfare spending was funded by federal block grants, but of the top half of big welfare spenders (25 states) a full sixteen were solid blue with blue-leaning Maine adding a 17th. Some of the biggest blue spenders were California (#11), Minnesota (#9), Massachusetts (#7), Oregon (#3) and Bernie Sanders’ Vermont topping the list at #1. Of the bottom 26 a full seventeen were solid red with only six states that could be considered reliably blue (Colorado, Delaware, Nevada, Virginia, Washington, Wisconsin).

(Note: This analysis was compiled in 2019 when the link ranked states by fiscal year 2018 budgets. Since then the order of states may have changed.)

So when considering the overall economy the big picture is cyclical. When times are good blue states draw smaller surpluses from Washington, DC which can be viewed as paying back the disproportional welfare and unemployment funds they draw during bad times.

When factoring in differences in federal defense and transportation outlays, the difference in good times disappears and in bad times it causes blue states to slip into the “moocher” category.

When excluding Social Security and Medicare imbalances, where the recipients are overwhelmingly people who had paid in earlier, blue states start to look even more like the net takers even in economic expansions.

And when isolating pure welfare spending, this conclusion is confirmed with blue states topping the list.

That’s a lot of stuff that Krugman missed, or rather deliberately threw in the wastebin along with his reputation.

ps. A few examples of the “red welfare states” accusation from 2009 (but using data from 2005, during an expansion of course):

And two more from AP and the Washington Post written in 2017:

No comments:

Post a Comment

Note: Only a member of this blog may post a comment.