(What’s Left of) Our Economy: Big Geographic Holes in America’s Weakfish Recovery

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automotive, energy, Eric Morath, federal government, housing, recovery, states, The Wall Street Journal, {What's Left of) Our Economy

The Wall Street Journal‘s Eric Morath deserves lots of credit for deciding to write up new U.S. government state-by-state economic growth figures and identifying one of the most important stories they tell – about how geographically concentrated such growth was last year. So I decided to see whether concentration had increased or decreased during the recovery, and there’s no doubt that more and more of (what’s left of) the nation’s economic vigor has been concentrated in fewer and fewer states during this period.

As Morath noted, in 2014, just 16 states registered inflation-adjusted growth as fast or faster than that of the economy as a whole (a hardly scintillating 2.2 percent). And in fact, only 15 truly outperformed, as South Carolina matched that national figure. As I discovered, using the Commerce Department’s on-line database, that’s a big change from the pre-recession era.

Between 2008 and 2009, when the U.S. economy shrank in real terms by 2.7 percent, 28 states recorded better performances. During the first year of recovery, that number dwindled to 21 out of 50 (with Pennsylvania and South Carolina matching the economy-wide after inflation-expansion rate of 2.2 percent). From 2010 to 2011, nation-wide growth slowed to 1.4 percent – and 21 out of 50 states bettered these results. (Georgia grew by the same rate.) But the following year, when growth sped up to 2.1 percent, only 11 of 50 states beat that rate, with Colorado matching it.

Overall U.S. growth fell back to 1.9 percent in real terms between 2012 and 2013 (see a pattern here?), and 16 states bettered that. (Arkansas and Rhode Island kept pace.) And as Morath pointed out, last year, 15 states qualified as above-average growers – just a little more than half the number in 2008-2009.

These state-by-state figures are also valuable for confirming some of this sorely inadequate recovery’s main characteristics. For example, the list of its fastest growers is dominated by energy states (like North Dakota, Texas, Louisiana , Oklahoma, and Alaska), and automotive states (like Michigan and Indiana, which suffered from the sector’s dizzying downward spiral during the recession). The laggards, however, also often belong in these categories, attesting to the highly cyclical nature of these businesses.

No one will be surprised to learn that states with the biggest housing bubbles (chiefly Arizona, Florida, and Nevada) took some of the biggest growth hits. But perhaps more surprising is how they’ve continued to struggle. For the six years studied, Florida was among the five slowest-growing states in 2008-2009, 2009-2010, and 2010-2011. It never appeared among the fastest growers. Nevada was another three-time loser, and so far hasn’t even enjoyed a dead-cat bounce.

A final – for now – surprise: Maryland, Virginia, and the District of Columbia (which I didn’t include in the state totals) are thought to have been major beneficiaries of the federal spending growth that has slowed in the second half of the recovery, but has clearly remained at historically lofty levels. Although their location in the national capital area surely insulated these jurisdictions from recession, they’ve been anything but economic dynamos.

Even Virginia, which is widely considered a business-friendly, high tech state, has only managed real annual growth of more than one percent once – in 2009-2010 (2.4 percent). Last year, when national growth was 2.2 percent after inflation, Virginia didn’t grow at all. To my surprise, my (current) home state of Maryland actually fared better, but its annual growth topped one percent only twice (with a 2.5 percent expansion in 2009-2010, followed by a 1.3 percent gain in 2010-2011).

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Im-Politic: Likely Hillary Challenger Should First Understand His Own State

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2016 elections, Democrats, federal government, federal spending, free markets, Hillary Clinton, Im-Politic, Martin O'Malley, Maryland, private sector, recession, recovery

I’m all in favor of more competition for the upcoming Democratic presidential nomination, but I’m afraid that at this point, former Maryland Governor Martin O’Malley just doesn’t pass the laugh test. It’s not because O’Malley’s name recognition hasn’t yet moved even the smallest needle, though that’s clearly a big obstacle. Nor is it because I’m a Maryland resident, and am unable to list any O’Malley accomplishments other than non-stop tax increases. It’s mainly because O’Malley seems clueless about his own state economy’s heavy dependence on federal largesse – which doesn’t justify much confidence that he can address the nation’s main economic problems effectively.

O’Malley’s apparent delusions were on full display this morning on CBS News’ Face the Nation. Asked by host Bob Schieffer why he “would be a better president than Hillary Clinton,” O’Malley responded that while in office in Annapolis, “I guided our state through this recession and I did so with results that actually mattered. The highest median income in the country, a middle class that is upwardly mobile….”

Here, however, is what O’Malley didn’t mention: Like Virginia, Maryland weathered the recessionary storm relatively well because its location right next to the District of Columbia means that it benefits disproportionately from federal spending and employment levels. These of course are entirely different from the free market forces that have always been the main determinants of the nation’s economic performance and prospects.

In 2007, the year the last recession started (officially at its very end), combined federal government civilian and military spending as a share of Maryland’s economy was 11.50 percent. For the nation as a whole, the figure was 3.63 percent. (All figures are in current dollars.) The downturn ended in mid-2009, and it’s well known that ramped up federal spending moderated the slump. Its share of national gross domestic product rose to four percent from full-year 2007 to full-year 2009 – a 10.19 percent increase, even as the economy shrank by 0.51 percent.

Maryland’s economy fared much better in these years – growing by 4.49 percent. But that’s largely because its government-heavy economy became even more government heavy, with the federal share rising to 12.18 percent.

Once the recession ended, however, Maryland’s reliance on Washington kept growing, as federal spending as a share of its economy hit 12.79 percent by 2013 (the latest available data). Its economy expanded by 12.47 percent. Interestingly, the national economy grew much faster – by 16.56 percent, even as the federal spending share declined to 3.77 percent.

Campaign 2016 is still young, and O’Malley may indeed have brilliant ideas to restore the national economy (and especially its private sector) to genuine health, as opposed to its current easy money-induced buzz. But if he’s going to get any deserved traction, that’s a case he still needs credibly to make.