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Economist Richard Vedder Tells Kentucky How To Improve Its Economy

By Theresa Fritz Camoriano

On election day, Richard Vedder, an economics professor at Ohio University, spoke in Louisville about Kentucky can improve its economy.  Vedder noted that Kentucky is a poor state, having a per capita income 16% below the national average and below all its neighbors except West Virginia.  In 1970, Kentucky was ahead of Tennessee, but, by 1990 Kentucky was $1255 below Tennessee in per capita income.  By 2003, it was $2213  behind Tennessee. 

Vedder noted that a big difference between Kentucky and Tennessee is that Kentucky has an income tax, while Tennessee does not.  An income tax punishes people who help produce goods and services, thereby driving down the per capita income.  Kentucky’s marginal tax rate is about 8%, which means that Kentucky businesses have to pay substantially more to attract good workers than do Tennessee businesses. 

Vedder pointed out that, between 1990 and 2003, there was a migration of three million people from the 41 states that have an income tax to the states that do not.  This is a huge migration that has been ignored by the press, probably because it has occurred one family at a time over a period of time.  However, it shows the correlation between a state’s having an income tax and its ability to attract people. 

According to Vedder, another step Kentucky could take to improve its per capita income would be to pass a “right to work” or “paycheck protection” law.  There are 22 “right to work” states, including Virginia and Tennessee.  A “right to work” law gives workers the freedom to choose whether or not to belong to a union.  Between 1990 and 2003, the “right to work” states had a personal income growth of 125%, while the non- right to work states had a growth of only 73%.  Vedder said there is a similar pattern in job growth and productivity as related to “right to work”.   Oklahoma, which has a political profile similar to that of Kentucky, recently passed a right to work law. 

In response to a question about education, Vedder said the reason Kentucky is not seeing an improvement in education, despite huge increases in taxpayer funding for education, is that it has not changed the system by which education is provided.  There still is no market discipline in the public sector. 

Vedder has written many books, his most recent being Going Broke By Degree, Why College Costs Too Much.

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