By Michael Hicks | Ball State University
Over the past year, I’ve had a friendly disagreement with a couple colleagues. Together we’ve authored several studies about economic development. Our work focuses on the role quality of life plays in population and job growth. This work uses statistical models to tease out how families and businesses rank every county in the U.S. on quality of life. The way this works is fairly intuitive, but it benefits from an economic thought experiment.
Suppose every home in America were identical, with the same construction, color scheme, size and appliances. In that case, the difference in home prices would tell us how much residents valued the community containing the home. Higher prices mean nicer communities, and lower prices mean less attractive communities.
Now suppose every worker in America were identical, with the same education and experience, and only one occupation were available. In that case, any wage difference would reflect how desirable the location was. Workers would demand a wage premium to live in an unpleasant place, and take a lower wage to locate somewhere nice.
These dynamics are known to every realtor and human resource professional in America.
Of course we don’t have identical homes or workers, but we can create statistically identical homes and workers by controlling for those things we know affect the price of a home or worker wages. Using that statistical model of home prices and wages, we can predict fairly well what the home price and wage will be in almost every county. But, the part we cannot predict – the unexplained home price and wage – tells us how American families and businesses value each county in the nation.
This modest little measurement isn’t perfect, but it explains a large proportion of population growth and an even larger share of employment growth among U.S. counties. In fact, it explains more job growth than differences in tax rates, tax incentives, economic development spending, highways or infrastructure spending combined.
This measure is much like a stock market price for every county. By itself, this measure doesn’t explain why families and businesses are choosing these places. To why they chose each place, we correlated our measure of quality of life against roughly 500 different measures of amenities and local conditions. This was the interesting part that causes the friendly disagreement among the research team.
Some of the results made sense, such as a slightly warmer January temperature or cooler July, along with mountains. There’s not much for a policymaker to change here. We found higher quality of life in places that had more arts and recreation establishments, more grocery stores and more recreational establishments. These are the big things that Mother Nature and the private sector provide. However, none of these things really explained much of the difference between quality of life in the United States.
The most significant factor was the share of the county GDP spent on K-12 education. Number two was a low crime rate and our third largest effect was a healthy environment as measured in resident average health. These findings weren’t surprising. Economists have known for half a century that school quality alone accounts for about 30% of the price differences in homes. We’ve also known that crime reduces the value of a home, while places with more recreational opportunities affect home prices.
What surprised us was how large these effects were, and the best example was school spending and hilliness. Our model suggests that a 10% increase in school spending has a larger effect on quality of life than moving Pike’s Peak into your county.
These results are not the source of our friendly disagreement. We agree on the math, which remains relatively immune to political disagreement. We also believe the results are not precisely measuring school spending, crime or local health. The spending is really a symptom of something more fundamental in local government. The reason for this is that places with good schools also have low crime and healthier people. Also, nicer places spend more money on their schools, and better-funded schools are nicer places to live.
Again, that isn’t my feeble opinion; it is the result of a statistical model that revealed household and employer preferences in more than 3,100 U.S. counties. Of course, some readers will doubt the value of statistical models, and we acknowledge their imperfections. Looking at the results, the least desirable county in the nation, which has lost 85% of its population, is found in strip-mined West Virginia; the nation’s most desirable county includes a Hawaiian beach.
More impressively, our model identified several outliers. These were places that did hugely better or worse than expected. We did this as a way to identify which places to visit to learn what our data might be missing. The big outlier we found was initially a big puzzle. It has mountains, a nice lake and airport, a local college and decent schools. After some digging we found that it is the national headquarters of the KKK. That’s pretty good work for a statistical model of unexplained variation in home prices and wages.
The friendly disagreement among coauthors comes in how to interpret these results in a political context. My coauthors are progressive, and passionate about progressive ideas. I am a conservative, and value limited government and free markets. Our friendly debate centers on their belief that the quality-of-life issues we identify result in progressive policy options. On this, they are mistaken.
To be sure, higher government spending on schools, hiking trails or blight removal are popular among progressives. But, fundamentally, quality-of-life policies are classically conservative, rather than progressive.
Traditional conservatism in the United States always cherished local governance, local institutions and the sovereignty of the individual. This is the conservatism of James Madison’s vision of government, Edmund Burke’s description of civic life, and Adam Smith’s description of free markets.
The ideas about quality of life aren’t just conservative political theory, they are conservative in practice. For example, the State of Indiana calls for “knowledge and learning . . . essential to the preservation of a free government” and calls upon the legislature to fund and encourage education. This is hardly the cry of progressivism, and with crime rates ranking as the second most important factor, there are no calls to “defund the police” in our statistical model.
Moreover, about half of Indiana’s counties have higher quality of life measures than San Francisco. That should surprise no one familiar with the deep failings of San Francisco’s local government. Still, we Hoosier conservatives must admit, to ourselves at least, that we are focusing too few resources on the most important parts of quality of life. That is why most of our state bleeds people. One thing my progressive colleagues and I agree upon is that if we don’t do better, we should expect a smaller, poorer state in the years to come.
Michael J. Hicks, PhD, is the director of the Center for Business and Economic Research and the George and Frances Ball distinguished professor of economics in the Miller College of Business at Ball State University.