Economic Fragmentation
SEARCH BLOG: ECONOMY
Two weeks ago, I wrote about the implications of state unemployment rates. There was the glaring disparity between states like Michigan and California versus Virgina.
The Economist has put that into the larger perspective of all states' unemployment and housing price changes on this map:
Once again Virginia, which is closely aligned with the growth of the federal government, and western states with very small populations have been spared from economic downturn. As the article in the Economist states:
"So far, much of the misery has been concentrated in one sector—housing—and in two distinct sets of states: the industrial Midwest and those states that saw the biggest housing bubble, particularly California, Nevada, Arizona and Florida. These two groups are disproportionately important politically. They include many states that voted early in the primary races. Several of them (such as Michigan and Florida) are traditionally swing states in the general election.
The situation is still grimmest in Michigan, Ohio and other erstwhile manufacturing strongholds, where the subprime bust came on top of the secular loss of factory jobs. But the most dramatic weakening has been in bubble states. Economies that were buoyed by booming construction and soaring house prices are now being dragged down.
California's mighty economy is visibly wobbling. In some cities, house prices are falling at double-digit rates and the unemployment rate has jumped from 4.8% to 6.1% in the past year, an increase twice as steep as the national trend. In Los Angeles, the weak dollar and slower consumer spending have sharply cut import-traffic through the port. This downturn is not as gut-wrenching as those in the early 1990s or 2001, when core industries such as defence and technology suffered badly. But it is steep enough to have thrown the state's budget into disarray and derailed Governor Arnold Schwarzenegger's ambitious plans for health-care reform."
On the brighter side, the free-fall of the dollar [an adjustment to the current account deficit, the Federal Reserve's wildly fluctuating interest rates, unfettered greed and manipulation by the investment and banking sectors, and the massive increase in the federal budget deficit pushed farther by a stimulus package] will eventually lead to more manufacturing and export opportunities and a rebound in the overall economy.
However, there may be a longer road to recovery than usual according to the Economist:
"A downturn centred on housing will have pernicious effects, even on the regions it hits least. That is because it constrains one of the biggest safety valves in America's economy: people's ability to move. Previous downturns spawned sizeable migrations from recessionary states to booming ones. In the early 1990s, for instance, people flocked from New England to southern states. This time, that mobility is hampered by people's inability to sell their homes. Unemployment may go on rising in California, even though Montana cannot get the workers it needs."So how do we avoid this unpleasantness? It appears we don't... unless we can get investors from China and Saudi Arabia to buy all of those unsalable homes. After all, they have all of our manufacturing and energy money and need to spend those dollars somewhere.
Tell me again why outsourcing [here, here, and here] leading to manufacturing collapse (let's blame the Republicans) and a restrictive energy policy leading to energy price inflation (let's blame the Democrats) are so good?..
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