“Capital is a Coward”

“Capital is a Coward”

A favorite quote of Thomas Friedman (2006) is, “capital is a coward, not loyal and not patriotic.” It’s a favorite of mine because it is a context setter. The quote is from a book Friedman authored titled, “Thank You for Being Late, An Optomist’s Guide for Thriving in the Age of Accelerations.” Why this is an important context setter will be evident in a moment.

From roughly 2000 to 2008 Arizona experienced a boom, like many other states there was an environment of, as Alan Greenspan put it, “irrational exuberance.” Capital was flowing, innovation was flourishing, people were prosperous in the vocations and many thought they had found easy street. Then came the most destructive recession that Arizona, and America had ever experienced. Lam Vo (2013) writing for NPR explained, “American households lost roughly $16 trillion in net worth since the recession started in 2007. According to the latest Fed data, we regained about $14.6 trillion, or roughly 91 percent, of it.”

Over Leveraged…

In the Adam McKay movie, “The Big Short” (2015), America got a glimpse at what the output of bad public policy drives, distortion of markets in this case, was all about creating credit where it could not be paid off. Bank’s were encouraged by the federal government to lend money to people who had no capacity to pay off the loans, builders built to fill demand, and all th while capital investment was being replaced with hard core debt.

As a consequence tax revenue in Arizona dropped by over 30%, and hard austerity moves were implemented to stabilize the state’s budget as well as shore up the bewildered, lethargic economy that was left in the wake of the implosion. State buildings, once owned by the People, were mortgaged just to keep essential services in operation. Education, public safety, the courts, infrastructure and aid to the poor were all impacted.

Sound Public Policy…

In 2014, six years after the height of the recession, and well into the Obama presidency, Arizona set a bold course. The governor and the legislature agreed on a plan to bring structural balance to the state budget. Some did not like the plan and wanted to tax those who had already lost so much, even more in a never ending cycle of taxation expansion. Taxes were not increased, and in fact tax rates were reduced in the Arizona Tax Code. From 2014 to 2018, the state budget was indeed brought into structural balance, and conditions were set in place that fostered an attractive environment for our friend, capital, to come knocking again.

Arizona is now rated at 5th in the nation for Economic Momentum according to Rich States, Poor States, (2018), 14th for Economic Growth, 7th for Net Migration (people coming to Arizona), 3rd in the nation for Job Growth, 6th for Entrepreneurship 19th for Low Tax Burden, 17th for Patent Creation, and 25th for Venture Capital in-flow (U.S. News & World Reports, 2018).

Jobs, Jobs, Jobs…

Arizona is not as nearly dependent on home building for tax revenue generation as it was during the pre-recssion period. Now, the state has a more healthy climate for capital, for job creation and for stability in tax code. Corporations are looking for a safe place to invest capital, with a tax environment that is stable and predictable. That is one reason that Arizona is now considered a tax refugee state. “More and more, Americans are voting with their feet to flee high-taxing states for states with lower taxes. It’s a phenomenon that is tipped to accelerate after Donald Trump’s recently passed tax reform package removed key deductions for those living in high-tax states such as California, New York and New Jersey, making it even more expensive to live there,” (ALEC, 2018).

The public policy is simple, leave more money in the pockets of tax payers and they have the freedom to live their lives as they see fit, reduce regulation to reduce drag on private enterprise and hold the line on stability. The result of such a policy is increased capital investment, and the output is more jobs. Arizona tax revenue is trending to exceed projections, but now is not the time to spend. We still have significant debt obligations to pay off, but we are getting there.


ALEC, (2018). https://www.alec.org/public-affair/high-tax-refugees-flock-to-cheaper-republican-states/

Rich States, Poor States, (2018). 11th Edition. https://www.alec.org/app/uploads/2018/04/2018-RSPS-State-Pages_Final.pdf

U.S. News & World Reports, 2018. https://www.usnews.com/news/best-states/arizona

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