View: America's economy: Recoveries and lost decades | The Economist

America's economy: Recoveries and lost decades | The Economist

Jun 7th 2012, 19:18 by R.A. | WASHINGTON

EARLIER this week, the Bureau of Economic Analysis released its advance estimate for state-level GDP growth in 2011. For most of the country, 2011 brought decent though not outstanding growth. GDP expanded less than in 2010 in most regions of the country, as it did for the country as a whole, with the exception of the West Coast, where prolonged housing bust gave way to tech boom. Growth was fastest in North Dakota, which continues to benefit from an energy-industry frenzy. Six states—Maine, New Jersey, Alabama, Mississippi, Wyoming, and Hawaii—experienced contraction for the year.

With the new data in hand, I thought it might be interesting to take a look at best and worst state economic performances since the beginning of the recession and over the past decade. Many thanks to our graphics and research teams for their assistance with these charts. Here is real GDP:

On the left side, we have the top and bottom ten performers over the past decade, and the right the top and bottom ten since 2007. Beginning with the left side, you see at the bottom the difference in a structural and a cyclical decline. The industrial Midwest, centred in Michigan and Ohio, faced the former over the past decade—an experience not replicated in any other state. The dismal Michigan and Ohio figures are especially noteworthy given that both states enjoyed rapid growth from 2009 to 2011—of 7.3% in Michigan's case.

One trend that shows up here but becomes clearer when you look at the full data is that the period from 2001-11 was very good for the Plains, the West, and the Mid-Atlantic and not very good for the Midwest, the South, and the Northeast. The view changes a bit if you adjust the numbers to look at real GDP per capita. It then becomes clear that population shifts have a lot to do with these trends. On a per capita basis, the West and the Northern Plains still look strong, but the performance in the Southern Plains and the Mid-Atlantic look less impressive. In per capita terms, the South and Midwest look really awful (which suggests, for the latter anyway, that the wealthier residents may be comparatively mobile and more likely to leave). The Northeast, on the other hand, had a solid decade on a per person basis.

Focusing in on the more recent period, notice a few things. Oregon's growth is a bit anomalous; it's associated with a huge burst in durable-goods manufacturing that appears to be due to a handful of Intel operations outside Portland. Apart from that, rapid growth over the past four years, and especially on a per capita basis, is almost exclusively associated with extraction industries, oil in particular.

Lastly, just take a moment to consider the hugely divergent fortunes at the high and low end of the American economy. Nevada, Florida, and Arizona, in particular, remind me an awful lot of Spain: places that boomed on the back of capital inflows and housing bubbles, and which then crashed hard. Just as important, their struggles since the crash have primarily been due to problems of private rather than public indebtedness. Looking at these grim figures suggests to me that fiscal transfers are not the main source of stability in the American currency union. We'd expect such transfers to work primarily by minimising output losses, but output has fallen more in those three American states than in Spain since the recession began. Better mobility no doubt has something to do with the difference. But it's hard to see these figures and not conclude that it is the federalisation of the banking system, including the clear federal responsibility for standing behind large banks and insuring deposits, that keeps the American system functioning smoothly.

And indeed, there have been times in the past where it didn't function smoothly, and it was at those times that crisis spurred federalisation of the banking system. Of course, the states in crisis had long since become first and foremost American at those junctures.

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