Thursday, June 14, 2012

Goldwater Institute: Learning from Arizona’s Personal Income Statistics

by Byron Schlomach, Ph.D.
First the bad news: Arizona’s per capita personal income is eleventh lowest among the states and is 14 percent lower than the national average. But there’s also good news: In the past, Arizona’s per capita income has been closer to the national average and there is no reason it cannot be again.
The chart below compares Arizona’s per capita income to the national average. Arizona’s relatively modest-sized population explains much of the big fluctuations that occur right into the 1990s since any change in large employers could be significantly reflected in the statistics. Another likely explanation is national defense spending. The big blip in 1941 coincides with the buildup to World War II. The next peak in 1952 coincides with Korea. The big rise in the 1960s coincides with Vietnam. During wars, both hot and cold, Arizona’s per capita personal income performed relatively well because we have a decent base of defense industry jobs. The last big drop in Arizona’s personal income occurred with the end of the Reagan defense buildup and the end of the Cold War. Arizona’s personal income then stabilized and we did not see another spike in personal income until the housing bubble.
There are a couple of lessons that can be learned from this chart. One is that Arizona must look to itself for increased prosperity, not uncertain federal defense spending or money from big banks taking advantage of federal housing programs, or any other government program at any level – federal, state, or local. Another lesson is that Arizonans cannot presently afford the expansive government programs and projects some other states can afford because our incomes won’t support them.
Arizona need not be doomed to always lag the nation in per capita personal income. If we get the basics right – good roads, sound property rights, little red tape, lean and efficient government – Arizonans’ creativity, willingness to take risks, and hard work will make our state the best that it can possibly be.
Dr. Byron Schlomach is the director of the Goldwater Institute’s Center for Economic Prosperity.
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