There’s been a lot of chatter in print lately as to whether or not, in the next election cycle or two, West Virginia is going to change from “blue state” to “red state”. Over the weekend this headline appeared in the Pittsburgh Post-Gazette with a dateline posted from Clarksburg, WV: “GOP hopes to end Dems’ hold on W.Va. - The party’s recent policies, including those on the environment, seem to be helping turn blue state red.” It included a quote from Congressman David McKinley who represents West Virginia’s first congressional district, “I don’t think West Virginia is leaving the Democratic Party as much as the Democratic Party is leaving West Virginia”.

I’m not going to make any predictions as to whether or not our state goes red or stays blue. Instead, as West Virginia appears to be at a political crossroads, an interesting article appeared last week in the Wall Street Journal regarding the “red-blue” dynamic - from an economic perspective. The article was co-written by Stephen Moore, chief economist at the Heritage Foundation and Richard Vedder, professor of economics at Ohio University. In it they describe the results of their recent study regarding the income gap on the state level and the headline reads, “The Blue-State Path to Inequality - States that emphasize redistribution above growth have a wider gap between lower and higher incomes”.

The article starts by saying, “For those in Washington obsessed with reducing income inequality, the standard prescription involves raising taxes on the well-to-do, increasing the minimum wage, and generally expanding government benefits”, so-called blue state policies intended to mitigate the wealth gap. However, it goes on to say, “Among the problems with that view, one is particularly surprising: The income gap between rich and poor tends to be wider in blue states than in red states. Our state-by-state analysis finds that the more liberal states whose policies are supposed to promote fairness have a bigger gap between higher and lower incomes than do states that have more conservative, pro-growth policies.”

In the study, Moore and Vedder measured what is called the Gini coefficient of each state. The lower the value (zero would be an indicator of perfect income equality) the smaller the income gap. They found that the top three Gini scores, thus having the greatest income gap, belonged to Washington DC, New York and Connecticut, that according to Moore and Vedder “are dominated by liberal policies and politicians”.

They then go on to make a couple of interesting comparisons. For example, New Hampshire, which they label a red state has the lowest Gini score in the Northeast. It has a low tax burden and no state income tax. Neighboring Massachusetts, which they label a blue state has a significantly higher tax burden and a much wider income gap. In comparing Texas (red) to California (blue), California had a wider income gap and much higher poverty rate. Regarding minimum wage, “States with a super minimum wage like Connecticut ($8.70), California ($8), New York ($8) and Vermont ($8.73) have significantly wider gaps between rich and poor than those states that don’t.”

They also assert that blue states are losing taxpayers and businesses at higher rates than red states, particularly California which just had a high profile loss with Toyota leaving the state for Texas. Here in West Virginia we can relate. In recent years our state experienced a net lost of more than 4000 small businesses and according to census estimates was the state with the biggest loss in population in 2013. It is therefore not surprising that voters could be reconsidering the blue state designation.

These facts may not make sense to those wired to think in terms of “social justice”. Well intentioned attempts by government to socially engineer economic outcomes almost always backfire. In fact, they have a tendency to create the opposite of what was intended. Recently, Steve Hanke, professor of applied economics at Johns Hopkins University in Baltimore referred to Cuba and the former Soviet Union as examples of two tiered societies, with Venezuela in the process of joining them. Of course, all three are examples of so-called “planned economies” with egalitarian distribution of wealth as the goal, but instead became two tiered societies with a small political elite in control at the top. Russia struggles with that legacy today where the business elite are referred to as oligarchs.

According to Moore and Vetter, the national Gini coefficient has gone up in each of the years from 2009 to 2012 and is higher than it was in 2009. “Those at the top have seen gains, while the middle class real incomes have fallen by $1800 since June of 2009.

They come to this conclusion, tinged with a touch of irony, “Our view is that John F. Kennedy had it right that a rising tide lifts all boats. It would be better for low- and middle-income Americans if growth and not equality became the driving policy goal in the states and in Washington, D.C.”