Eye on the Pie and Opinion

MARCUS: Just ignore ill-conceived rankings

October 16, 2010

Frequently, Forbes or some other self-promoting organization will present a list of the best and worst: the best places to live, to retire or to have a hangnail. We’ve seen dozens of these lists: the best colleges for students with severe acne, churches for chronic sinners, companies for sociopaths.

These imaginative lists are often featured as “news” on the home pages of popular Internet providers. Let me warn you—These listings are for entertainment purposes only. They can be manipulated to make Churubusco the best place to start a new business or the worst place to have a torrid affair.

Even if not manipulated to get desired results, such listings may be short on facts or involve judgments very different from yours. Too frequently, these listings are composites of blunders by list makers with plenty of data but little understanding.

“Best & Worst Run States,” appeared on Comcast.net Oct. 9. This doozy was produced by the website 24/7 Wall St., which promises “insightful analysis and commentary for U.S. and global equity investors.” I hope they know more about stocks and bonds than they seem to know about their own “research.”

24/7 Wall St. asks the question, “How well-run are America’s 50 states?” To answer this complex question, “we chose what we considered to be the 10 most important ranking [sic] of financial and overall government management.”

This study claims “states can control their own destinies.” A state government cannot control the destiny of its people or businesses. Government is the product of decisions made by businesses and households within and outside the state. Government does have a marginal influence on the private sector through tax, spending and regulatory acts.

The idea that government is the dominant force in the economy, strangely, is a denial by business of its own importance. That position would be true in a socialist economy, but this is still a capitalist nation, despite what the hysterics say.

Next, 24/7 Wall St. says, “Well-run states have a great deal in common with well-run corporations. Books are kept balanced. Investment is prudent. Debt is sustainable. Innovation is prized. Workers are well-chosen and well-trained. Executives are picked based on merit and not ‘politics.’”

Yes, we can pause to laugh now. The repeatedly erroneous comparison of government with private business would not be accepted in a sophomore college class. The selection of executives “based on merit and not ‘politics’” would be charmingly naive in an elementary school assembly.

The fundamental flaw in the 24/7 Wall St. report is the selection of factors or indicators that do not reflect how well governments function. Indiana ranks 29th among the 50 states, according to 24/7 Wall St. Is this a statement about functioning today or in the past 30 years?

The percentage of the population over age 25 who have completed high school is one of the factors considered. How can the current administration be held accountable for high school graduation rates of people who were out of high school when it took office? Most of the factors in this study, such as the income of Hoosiers, represent the cumulative successes and failures of businesses and households.  

Low public debt per capita, where Indiana ranks 25th, is interpreted by 24/7 Wall St. as something positive. It might represent, however, long-term failure to invest in the state’s infrastructure. None of the indicators includes any reference to taxes, revenue, expenditures or the performance of government functions. Often, truly inappropriate metrics are used. How can state governments be held accountable for the decline in housing prices?

Americans love rankings, but poorly conceived rankings can do much harm. I cannot believe Wyoming has the nation’s best state government.•

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Marcus taught economics for more than 30 years at Indiana University and is the former director of IU’s Business Research Center. His column appears weekly. He can be reached at mmarcus@ibj.com.
 

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