The new geography of American prosperity
In my new book, "Fate of the States," I address the demographic transformation of the United States happening right before our eyes. I see clearly how opportunities are being shifted to some states from others, largely because of higher relative business investment spending and thus job creation, but also because of individual decisions based on basic affordability and quality of life.
Surely, if all things were equal, many Americans would choose to live in warm climates with stunning coastal views over harsher conditions with less scenic vistas. But the reality of today's situation in the U.S. is that all things are not equal among states, and the deviation in standards of living is growing greater by the day.
Not only is high structural unemployment endemic in certain once highly prosperous states, but those states are in such dire fiscal situations that they don't have the money to spend on necessary jobs retraining and other critical supplemental education programs. This doesn't get better over time. Rather, the math suggests it will only get worse.
Fewer people working means a lower tax base and higher drains on the very social services that these states cannot afford. Conversely, opportunity begets more opportunity in states where strong job growth is creating bulging tax receipt coffers, thereby enabling broad expansion of education programs, infrastructure investment and other critical social services investments.
Some critics have contorted my message to say that I believe everyone will move to North Dakota from California, an asinine oversimplification of my thesis. What I believe will happen over the next several decades is exactly what happened for centuries inside the United States. Americans ultimately migrate toward job growth, and job growth in some parts of the country is undeniably outpacing job growth in others.
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Just think about previous population shifts built around economic revolutions. Remember the rise and fall (and now rise again) of Pennsylvania before, during and after the power revolution of the late-19th century and early-20th century? Think of Detroit today, 50 years after the prime days of the manufacturing revolution.
The unthinkable is now reality. After over 150 years of uninterrupted population growth, California faces population declines. Why? Primarily as a result of the lack of job opportunity. To make matters worse, California has been forced both to raise taxes and cut key social service programs such as public safety and education, placing the state in a tricky situation of lower relative competitiveness to other states.
Not missing a beat, other states are seizing upon California's new-found vulnerability and going after its best domiciled businesses and desirable taxpayers. Texas will be eating out for years on the tab of California's fiscal woes. Note, don't be misled by California's most recent budget "surplus." The "surplus" came from tax hikes, front-end loading of capital gains and budget cuts to local governments and social services, and underfunding pensions, as well as other unsustainable actions.
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What's next? More of the same. The states that are strong today will continue to get stronger, and the most vulnerable states will continue to get weaker. Is this set in stone? No, it doesn't have to be. But the only thing that could reverse the most negative trends requires political will that simply does not appear abundant.
Case in point, Gov. Rick Scott of Florida has made some of the most progressive advancements of any governor to change the course of his state, so badly afflicted by the housing bust. His measures are working. He is turning Florida's economy and finances around, and he should be applauded. Instead, unfortunately, he suffers from one of the lowest approval ratings in the country. Will other elected officials take the same gamble on long-term good at the expense of short-term pain? Sadly, it is unlikely.
For investors, knowing where job creation and economic opportunity will be over the next several decades will be critical to portfolio construction. Just imagine if you had known 50 years ago that an entire generation of economic growth would come from housing in the Sunbelt. What decisions would you have made?
—By Meredith Whitney
Whitney is the CEO of Meredith Whitney Advisory Group, a macro and strategy-driven investment research firm. Fate of the States: The New Geography of American Prosperity, was published in June by Penguin Group.