Volatile States

Why do American state economies grow at such vastly different rates and manifest such wide differences in living standards? Volatile States identifies the sources of rising living standards by examining the recent economic and fiscal history of the American states. Delving deeply into the historical data to provide new insights about the factors that contribute to state economic success, the book departs from traditional analyses of economic performance with its emphasis on the role of volatility.

In addition to identifying institutions and policies that are key determinants of economic success, Volatile States illustrates the considerable promise of a two-dimensional or mean-variance criterion for assessing state economic performance. The mean-variance perspective amends applications of growth models that rely on the mobility of productive factors keyed to income levels alone. Just as rates of return by themselves provide an incomplete basis for gauging portfolio performance, the level of growth in state economies reveals an incomplete and perhaps distorted picture of performance. Taking the volatility of state economies explicitly into account refines the whole notion of "economic success."

Few issues in the social sciences are more worthwhile than the sources of rising living standards. Volatile States contributes to the discourse by examining the economic and fiscal history of the American States. It will be of interest to economists, political scientists, policy analysts, and policymakers who routinely confront questions about the consequences of alternative institutional arrangements and economic policy choices.

W. Mark Crain is Professor of Economics and Director of the Center for Study of Public Choice at George Mason University. Dr. Crain has authored more than a hundred articles and books in the fields of economics and politics. Most of these works focus on fiscal policy, government regulation, and the organization of legislatures. In addition to his academics pursuits, Professor Crain has served on eight state and local government boards and commissions during the administrations of four Virginia governors, including the state's Advisory Board of Economists. Dr. Crain has previously been on the faculties at UCLA and Virginia Tech, and he was Assistant to the Director of the U.S. Office of Management and Budget. Dr. Crain holds a Bachelor of Science degree in Economics from the University of Houston, and a Ph.D. in Economics from Texas A&M University.

Praise / Awards

• "Crain's argument is both theoretically novel and logically compelling. The application of valuation theory from financial economics serves as a potent explanation for macroeconomic policymaking and outcomes in the American states. Crain's empirical evidence indicates that states with higher growth rates exhibit greater economic instability, thus challenging the conventional wisdom that more robust economies experience less volatility. The policy implications from this inference are important for scholars and policymakers alike. Fiscal volatility renders state governments planning and provision of goods and services as less efficient. Volatile States is a major work that will play a vital role in shaping future debate on the topics of comparative economic development and the political economy of growth."
  —George A. Krause, University of South Carolina
  
• "Volatile States exploits the rich heterogeneity in state institutions to demonstrate that tax structure and fiscal rules have important effects on state economic growth. Policy-makers as well as scholars in economics and political science will learn a great deal from the careful institutional summary and the insightful econometric analysis."
  —James Poterba, Mitsui Professor of Economics, MIT
  
• "In the vast and vigorous field of economic growth, Volatile States is the greatest of rarities: a book with a genuinely new idea. Crain provides important new perspectives on economic performance and fiscal policy that will be of interest to economists, political scientists, and policymakers."
  —John G. Matsusaka, Marshall School of Business
  
• "This book is a virtual compendium of information and analysis concerning state specific economic and political outcomes in the United States. I recommend it to anyone seriously interested in understanding individual state performance but also for seeing the future of the EU as it moves toward a society where capital and labor movements are unimpeded."
  —Thomas R. Saving, Texas A&M University
  
• "The attention to volatility in income and revenue is a welcome addition to the literature on comparative economic development in the American states. . . . If political scientists ever wish to solve the puzzles of state political economy, we must acknowledge the myriad dimensions of economic performance that inform the public and policymakers. W. Mark Crain has added another dimension for our consideration."
  —Perspectives on Politics