This is a compact volume that attacks very large issues. Most fundamentally, W. Mark Crain wants to understand why the American states experience vastly different rates of economic growth and have vastly different living standards. He goes beyond looking at average annual growth rates and instead adds an evaluation of the variance, or volatility, of state income. His main insight is that states exhibit dramatic differences in volatility and that high-income states are the most volatile.

The attention to volatility in income and revenue is a welcome addition to the literature on comparative economic development in the American states. State policymakers worry about state economic fluctuations, although the degree of their accountability to the electorate is only beginning to be understood. Concern about volatility in revenue is also a strong element of the policy process in the states. Crain thus draws our attention to vital dimensions of subnational political economy and illustrates how state tax structure and fiscal institutions may impinge on state economic growth.

While I applaud Crain's focus, I was perplexed by the fundamental difference in his findings with those published in a well-known study of cross-national growth rates (Garey Ramey and Valerie A. Ramey, “Cross-Country Evidence on the Link Between Volatility and Growth,” American Economic Review 85 [December 1995]: 1138–52). Where that team found a strong negative relationship between volatility and growth, Crain finds exactly the opposite but provides little explanation.

What accounts for this stark contrast in findings? Could it be that the relationship between growth and volatility essentially reverses itself in the subnational setting where economies are open and labor and capital can migrate freely? Unfortunately, no explanation is provided, but an insight here could be vitally important for understanding the economic future of U.S. states as well as the European Union when capital and labor can move freely.

Because state income and state volatility are positively correlated, Crain believes that this tempers the attractiveness of states to potential workers and investors. Consequently, when factor location decisions take volatility into account, a stable state economy may substitute for a hike in income, just as some investors prefer low-risk, low-return portfolios to high-risk alternatives.

I must confess that I have trouble understanding how this works to explain differentials in state economic growth in the manner that Crain imagines. As I read his thesis, volatility reduces the attractiveness of high-income (and volatile) states to workers and investors. If the flow of labor and capital to these states are reduced, as he seems to expect, would virtually any output equation not predict declining growth in those states? If volatility makes some states less attractive to workers and investors, should the more attractive (less volatile) states not benefit in relative if not absolute terms?

Similarly, while Crain believes that volatility accounts for the pattern of income divergence that has emerged in the American states over the last three decades, would the effect of volatility he offers not retard capital and labor migration and benefit the poorer but less volatile states? If so, would this not work to stabilize, or reverse, rather than accelerate differences between rich and poor states?

Is it possible that the volatility that Crain observed is illusory? The author controls for annual levels of inflation by using a national level index. However, he does not control for variations in costs of living among the states. There are meaningful differences in cost of living among states (William Berry, Richard Fording, and Russell Hanson, “An Annual Cost of Living Index for the American States,” Journal of Politics 62 [May 2000]: 550–67), and they may exaggerate volatility in high-income states and underestimate it in low-income states. Controlling for interstate difference in the value of money might reveal that poorer states are more volatile than richer states, just as the leading study of cross-national volatility indicated. Future studies may wish to examine the effects of inter-state differences in spending power on volatility.

Volatile States is valuable because it puts ideas about state political economy on the table that will stimulate future research. This book draws attention to the multidimensional aspects of economic performance in the American states, and this is most welcome. It should be a welcome addition to the libraries of those interested in state political economy and economic development. Without question, economic performance and its determinants preoccupy many political actors in the states. Elites and their constituents gauge economic performance from many perspectives: national, state, and local, and average growth versus the variance in that growth. 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.