The Group Of Seven: The Central Corridor

I'll come back to finish this later. From Meredith Whitney, over at Yahoo!Finance:

“Illinois and New Jersey are the worst because they've been doing it the longest,” Whitney says, adding Michigan and California to her list of bad state actors.

“They spent as if the good times would never end and made big promises to state and local government employees based on the deliberate bet that they wouldn’t.”

In 2009, for example, state and local government spending was 25.3% of California’s GDP and 25% in New York, which compares unfavorably to just 9.7% in Texas.

And now, these states are being sucked into what Whitney calls “the negative feedback loop from hell.”

Faced with massive deficits and huge pension fund liabilities, these states need to raise taxes even as they’re “running out of money needed to pay for libraries, safe streets, clean drinking water and, yes, schools,” she laments.

And that's the problem. It's not that they are currently fiscally in trouble; it's the fact they are falling behind. If one wants to talk about Red Queens running in place to keep up, this would be a good start. The bad news is that in some cases, perhaps Illinois and New Jersey, the Red Queen has fallen off the treadmill. 

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The lede from the linked article:

“A tale of two Americas is emerging: one weighed down by debt and facing de minimis economic growth and another brimming with opportunity and nimble to invest in the future.”

That’s the thesis of Fate of the States: The New Geography of American Prosperity, a new book by Meredith Whitney, CEO of Meredith Whitney Advisory Group and former senior analyst at Oppenheimer.

Specifically, Whitney says “central corridor” states Texas, Oklahoma, Indiana, Colorado, Utah, North Dakota and Montana are best-positioned for fast economic growth and population migration.

I can't speak for any state in that list of seven other than North Dakota, but something Meredith probably does not understand well. There is not ONE North Dakota, but in fact at least two: the west and the east, with Bismarck, perhaps, a third. Population migration to western North Dakota will be temporary; migration to eastern North Dakota will be a constant, and mostly to Fargo. She does not include South Dakota in her list of seven but Sioux Falls will be the outlier in that state, growing over time. 

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More from Meredith:

What these states have in common are low taxes, pro-business policies, low population density (meaning lower housing costs, shorter commutes and better quality of life) as well as strong and stable balance sheets, especially relative to other states.

“Regardless of whether the fiscal prudence of central corridor states was the result of serendipity of good planning, the reality is these states don’t have the financial burdens now crushing the housing-boom states,” she writes.

As a result, these states are in a position to keep taxes low while also spending on infrastructure and education, all of which will make them more attractive to both U.S. and foreign corporations looking to relocate.