New Goldwater Institute paper argues that cost of living should be factored into policymaking

Phoenix—Most people would probably say that with its purportedly higher incomes and higher minimum wage, California is a more prosperous state than, say, Mississippi. But as a new paper out today from the Goldwater Institute explains, our understanding of which states truly have the rosiest financial picture is greatly skewed—since the federal government’s analysis of states’ relative prosperity doesn’t take their costs of living into account.

In The Importance of the Cost of Living and Policies to Address It, Byron Schlomach, director of the Oklahoma-based 1889 Institute, illustrates how burdensome government regulations are among the largest—and most overlooked—contributors to the high cost of living, using an econometric analysis that does not depend on pre-packaged models. “It isn’t demand alone that pushes up the cost of living. Instead, one of the biggest drivers of high cost of living is government’s assault on our pocketbooks, as it restricts the choices available to us through overregulation,” Schlomach explains. “Look at California, for example: It’s a costly state due to state and local policies such as stringent land-use regulation, occupational licensing, high minimum wages, family and disability benefit labor regulations, and energy regulation. These policies have the same effect as taking money out of Californians’ wallets and shrinking their economy.”

Policymaking holds a sizable influence over the cost of living, yet the federal government does not consider cost of living into their calculations of statistics used to make interstate comparisons. “Prosperous” states with high costs of living aren’t so prosperous after all, once you account for how little people can afford with their high incomes in those states. Once cost of living is factored into these calculations, California’s personal income per person ranks behind Mississippi—43^rd to Mississippi’s 39^th. “Government leaders in high-cost states have made their states unaffordable for a great many with modest incomes,” Schlomach says. “The heavy government regulations in these states have effectively rolled up the bottom rungs of the rope ladder of success.”

Schlomach argues that cost of living needs to be considered in the course of policymaking, advising policymakers to tune out interstate government spending comparisons and pay greater attention to policies that impact the cost of living. He offers policy suggestions to help bring it down, including Goldwater Institute proposals like the Right to Earn a Living Act to limit occupational licensing and the Property Ownership Fairness Act, which would enable property owners who lose property value thanks to land-use regulations to be compensated for that loss.

Read Schlomach’s paper here.

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About the Goldwater Institute

The Goldwater Institute drives results by working daily in courts, legislatures and communities to defend and strengthen the freedom guaranteed to all Americans in the constitutions of the United States and all 50 states. With the blessing of its namesake, the Goldwater Institute opened in 1988. Its early years focused on defending liberty in Barry Goldwater’s home state of Arizona. Today, the Goldwater Institute is a national leader for constitutionally limited government respected by the left and right for its adherence to principle and real world impact. No less a liberal icon than the New York Times calls the Goldwater Institute a “watchdog for conservative ideals” that plays an “outsize role” in American political life.