A Book Review by Chuck Brackney
The primary draw for citizens of Colorado in this recent book by financial analyst Meredith Whitney is her contention that the future of financial prosperity in the United States has shifted from the coastal areas like the northeast and California to a “central corridor” of states, running from Texas northward to North Dakota, including Colorado.
Whitney, a former senior analyst with Oppenheimer & Company, is credited by a number of financial industry observers with being among the first to predict that trouble in the housing and mortgage markets would lead to problems in the wider economy. She was named by Time magazine as one the 100 most influential people in the world in 2009.
State and local governments in many coastal states experienced the positive effects of the housing boom of the early 2000’s and raised their spending levels accordingly. When the great recession hit in 2008, many of these same states saw housing values fall dramatically. This, in turn, resulted in the decrease of income levels, causing tax revenues to fall, which led to increasing pressure on governments either to raise taxes in a recessionary environment or cut services to taxpayers. Many jurisdictions are still faced with this unpleasant pair of options today.
By contrast, many states in the interior of the nation did not experience the same fast-rising housing prices seen by their coastal colleagues and their governments were constitutionally required to live within their means. This left them in better position to deal with the effects of declining property values. Whitney points out that the states with the best employment growth since 2007 are all non-housing boom states: North Dakota, Texas, Alaska, Oklahoma, and Louisiana. And from 2008 to 2010, Wyoming, North Dakota, Texas, Iowa, Indiana, and Colorado all showed positive income growth, while New Jersey, California, and Florida experienced declines. The so-called “flyover states” increased their share of gross domestic product by over $300 billion from 1999 to 2011.
According to Whitney, a “geographic sea change is occurring in the United States, with economic power shifting away from longtime coastal strongholds — states still hung over from the housing bust — and toward the more “fiscally attractive” central corridor”. Unfortunately, Whitney does not go on to prognosticate as to the likely effect of this power shift. Only time will tell whether Colorado will benefit from the coming economic realignment.
“Fate of the States” is published by PORTFOLIO/PENGUIN.