The New Hampshire Poverty Phenomenon… Adjusted

Some good, good friends of mine are moving from Israel to Manchester, New Hampshire. Yep, New Hampshire. Among their factors for choosing this rather eyebrow-raising destination is NH's economic freedom. My friends are libertarians, so in their world view not only is economic freedom good – a lot of people would agree with that to no small extent – but in fact there's practically no limit. The more the merrier. And New Hampshire is economically America's freest state¹. So New Hampshire it is, -11ºC (12ºF) winters and all.

Libertarians have been pouring a lot of love on this otherwise oft-overlooked state (though some gripes remain). New Hampshire's economic freedom has made it home base for the Free State Project, a libertarian movement calling for 20,000 like-minded folks from around the world to up stakes and move there (if you're interested, the site explains why). You can kind of get the gist of the sentiment from the state's official motto: "Live free or die".

Of particular interest to this blog is the sometimes proud pointing out that the freest state also has the lowest poverty level in the US (although some say this might be changing). Writing on this very issue, Michael Nystrom of the Daily Paul (tagline, "inspired by Ron Paul"), wrote: "Does anyone see a connection?"

On the face of it, this is one hell of a coup for libertarians – seemingly a death-blow to progressive (or other) notions that the lower classes are invariably victims of freer economies. It almost speaks for itself – "See? Free up the economy and it'll help the poor!"

Well, maybe – but these numbers don't show it. We have a list of the freest states, as well as one for poverty levels². Here's the thing – the next freest state, South Dakota, is #26 on the poverty level list, nowhere near NH. But maybe that's a fluke. Let's keep going – the 3rd freest state, Indiana, does even worse – #32 on the poverty list. The next freest, Idaho, does better at #12, but then comes Missouri, into the 20's again at #25. Keep going down the list and, of the top 30 freest states, only 3 crack the top 10 lowest poverty rates (besides NH, none of these make the top 5). When Nystrom asked his presumably rhetorical question – implying that NH's very low poverty levels must be as the result of its economic freedom – He might have checked if this connection holds with the other states before asking it. A simple statistical test across states shows that the correlation is effectively zero³ (and if anything just the tiniest bit negative).

Does this mean economic policy has no effect on poverty? Of course not. Only that deriving any meaning from these two sets of figures is invalid. If you're going to parade around two statistics that look really nice, intellectual rigor requires you put your numbers where your mouth is, and in this case the link just doesn't hold.

So where does all this leave NH? Well, besides a huge dollop of freedom, there's something else New Hampshire has a lot of – Caucasians. In fact, New Hampshire is the 4th "whitest" state, with only 7.7% of all minorities combined, placing it in the 6th percentile. Just to give you an idea of how low that is, 40 states have more than double – and 30 more than triple – that percentage. in fact, the national state average is nearly four times the New Hampshire percentage of minorities. Things aren't much better when it comes specifically to African-Americans: at 1.7%, NH has the 6th fewest of the states, placing it in the 12th percentile. Once again, 40 states have more than double their percentage, and fully half the states have more than 6 times that percentage. You don't even want to know how many times that the national average is (8). (If I may brag, I didn't get all this from any article, etc., but rather sat down and calculated everything using data from the 2010 US census.)

But do minorities and/or specifically African-American percentages correlate with poverty rates? Well, whole volumes have been written on this topic, but even from a cursory analysis of these three datasets, the answer for both is clearly in the affirmative⁴. This means that when it comes to poverty rates, simply having minority populations will, all else being equal, skew the numbers upwards. It's important to say – lest I be misunderstood – that this in no way means minority populations are necessarily a cause of poverty (remember that old adage "correlation doesn't imply causation"). All it means is that in order to gauge whether economic policy affects the poverty levels across states, you have to adjust for factors that correlate with poverty but don't in themselves stem from such policies – and minority makeup is such a factor.

So the question now becomes, how does NH perform compared to its expected poverty rate when adjusted for minority size? The short answer is: subject to an important caveat (specified below, for the statistically minded) NH's performance falls to #13. Not bad, but combined with the poor predictive powers of the economic freedom rankings, not enough to serve as rigorous proof that economic freedom alone brings low poverty levels.

[The caveat: First, one can't factor separately for "minorities" and "AAs", since one includes the other. So I ran the numbers, and found quite an impressive correlation between both African-American and Hispanic populations, and poverty, in states that have any minorities to speak of. The states that have very few lose this statistical connection, presumably because when you're down to the 1-3% levels of minorities, there's only so much they can mathematically still "explain"). So one can't make a perfect adjustment. However, in comparing NH to other states, adjusted for the relationship seen in the top 20 states by combined AA and hispanic population, it was #13 in poverty levels.]

[Thanks, Liz, for giving me the idea to pursue this thread.]

¹ according to the libertarian George Mason University.
² freedom and poverty rankings are both current. Ideally, to check a causal connection one would have to check for freedom a few years back, to see their effect on poverty today. However, 1) I didn't have the time to start carrying out more complex causal chain models, 2) this isn't a professional analysis, and so I just assumed ad-hoc today's freedom level correlates closely enough with those of a few years ago, and 3) those referenced above haven't taken this into account either.
³ Spearman rank correlation coefficient -0.057. There are different schools on interpreting when the Spearman coefficient means there's a correlation, but the most permissive start considering a "moderate correlation" from +/- 0.3 (others only from +/- 0.5). Either way, this isn't even close.
⁴ Pearson coefficient +0.34 and  +0.44 for minorities and for African-Americans, respectively. Why are you reading this? Nerds…