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Turning nutshells into power

Video Transcript:

We were interested in studying business climate indexes for a couple of main reasons.  First of all business climate indexes are very prominent and in policy debate.  And they're really different.  So the tax and cost ones for example will rate California very poorly, very much near the bottom of all states. Groups that want more spending in education can find indexes that focus on education and the like and they rank California very much near the top.

So, we really wanted to understand, are these things valid, right?  And what sense can we make of the fact that if you look at one index California is third or fourth best state.  If you look at some other index, California is the forty-eighth or forty-ninth worst state.  So, we were out to understand which of these business climate indexes actually help predict economic growth over the last 15 or so years.

There are indexes that really focus on taxes and cost.  There are indexes that really focus on education, social welfare, infrastructure and it's not a surprise then that some indexes rank a state like California very high and some indexes rank a state like California very low because they're measuring very different things. We also found though that it's really the indexes that focus on taxes and cost that have the most predictive power for economic growth. We looked at about 10 or 11 indexes largely driven by where we could actually get the data. 

The ones that actually do matter for predicting economic growth are the ones that focus on taxes and cost of doing business. That in some sense sharpens the puzzle, right?  Because then you look at California in particular.  On those indexes, California does really, really poorly, near the bottom.  Yet, as I said their performance is above average.

What the research says is that the business climate does matter. But in some sense what matters as much or even more is some of the other advantages that -- or disadvantages that states have in California's case, it's generally advantages and those are climate issues, which probably matter because they make a place more attractive to businesses, more attractive to workers as well.

One of the things I try and do in my research is talk about public policy concerns.  So, this research of course is very much at the center of a policy debate; in particular the debate about the business climate and how good or bad it is and what we ought to do about it. So one thing we're doing at UC Irvine to try to bring together research and policy is creating a new center, which is starting this year called the Center for Economics and Public Policy.  It's intended to bring together economists and others who are doing research that ties together economics and public policy.  It covers topics like the business climate that I've been talking about.  It covers labor market policy.  We have people who study transportation policy, environmental policy, law and economics.  The list is quite long.