State by State, Year by Year, Employment by Sector & by Blue-Red Political Alignment [bumped]

This preliminary study started with a blog post I did several months ago entitled "New Jersey, the Sorry State", a deep dive into Bureau of Labor Statistics data showing that my state is hardly generating employment outside the government sector.

The blame for this sorry state of affairs I heaped on NJ's political culture, which is high-taxing, heavily-regulating, pro-union, anti-business, and Democrat-dominated. As the power of Democrats, the self-proclaimed friends of the working man, has risen in this state, fewer working men have actually had work.

One of my readers suggested extending the work to all states. A daunting prospect, but I have made a start. It's back to the BLS data for 51 deep dives. This time I'm looking longer term, with data from 1990 to the present.

To try to get to grips with party politics in all states through time, I researched affiliations of the governor and two senators and the plurality of the House of Representatives delegations and the state senate and legislatures for each year since 1990, using wikipedia and such other sources as I could find. No doubt there are some errors at this stage, particularly in identifying the leanings of state legislatures 15 or more years ago. These errors are minor; it's unlikely that I could mistake Idaho for a blue state or Washington for a red state, for example.

Those two next door neighbors bracket my best ranking of the 50 states + DC by political complexion, from most Democrat to most Republican:

>> bluest: WA DC WV MA AR NJ CA MD IL HI DE
>> next: NY VT IA WI RI MI OR CT ME NC
>> middle: NM MN MT LA COPA NH ND IN TN
>> next: SD VA MS NV AL MO NE KS OK FL
>> reddest: KY OH AZ SC WY AK GA UT TX ID

Let me point out a few things by way of caveats and highlight a few preliminary conclusions.

Conclusion 1: Government is not just New Jersey's growth industry -- it's a growth industry in most states, Democrat or Republican. In fact, it is only in a handful of blue states and territories that government employment has been static or falling: MA, MI, NY, DC, and RI.

Conclusion 2: The predominant pattern in the last ten years has been for employment in goods-producing industry to be declining, in service-providing business to be growing somewhat, and in government to be growing fastest of the three. That pattern is seen in no fewer than 37 states: AL, AK, AZ, AR, CA, CO, CT, DE, FL, GA, IL, IN, IA, KS, KY, MD, MS, MO, NE, NV, NH, NJ, NC, OH, OK, OR, PA, SD, TN, TX, UT, VT, VA, WA, WV, and WI; in MI it was declining but less than other employment. Government is growing at the expense of goods production. In the limit, this places fiscal drag on the economy, which reinforces the original trend and makes it worse. That is our New Jersey experience.

Conclusion 3: The states that have experienced the greatest declines in employment in goods-producing industry are (worst first): RI, MI, NJ, CT, NY, NC, OH, ME, MA, and PA. Mostly northeastern/midwestern, mostly unionized, and mostly Democrat.

Conclusion 4: The states that have done best in growing employment in goods-producing industry are (worst first): NE, CO, NM, SD, ID, MT, UT, WY, NV, ND. Near runners-up were TX, AZ, and OK. Mostly western, mostly right-to-work, and mostly Republican.

Conclusion 5: Only in Wyoming is employment growth in goods-producing industry consistently positive and higher than either services or government.

Caveat: A Democrat is not the same wherever you go, nor is a Republican. A Maine Republican is a very different animal than a Texas or Wyoming Republican; in fact, some say it is a RINO. A Mississippi Democrat in 2009 is not ever the same as a Massachusetts Democrat, nor does he necessarily resemble a Mississippi Democrat of twenty years ago.

Caveat, speaking of Massachusetts: In connection with the special election there on 1/19/2010, I and many others have taken to calling the Bay State "the bluest of all blue states." This is incorrect. Massachusetts yields to the blueness of the Washingtons (state & district) and West Virginia.

Caveat: Employment in goods-producing industry is not a holy grail and need not be the object of all economic policy. If someone leaves a job in the declining textile industry in North Carolina, retrains as a radiological technician and gets a better job in that field, no one argues that either that person or the state of North Carolina are worse off. The problem is when employment in the goods-producing sector as a whole is in total headlong decline. That means industry is giving up on a place. That means industry prefers to take its chances with the Chinese Communists than the Michigan Democrats.

Caveat: Productivity has improved in goods producing industry, meaning fewer workers are needed to do the same or greater work. I know that, of course. It's wonderful. But rising productivity itself should incentivize capital to come into a place and employ workers who have worked themselves out of their previous jobs. If it's not enough, other things are wrong, and the benefit of workers' productivity is not for workers to share. Politicians must ask the question, what else is needed to attract and retain industry? Republicans always ask that question. Democrats ask instead what other self-defeating social costs and regulations they can impose on job-creating enterprise, and the dismal results are there to see.

Here's one final caveat, and it is important. I don't know which way the causation runs. I am not sure whether the growth states of the West are Republican because they are prosperous, or prosperous because they are Republican. I am more certain that employment grows in right-to-work states because it can, without restriction; that's just economic common sense. "Capital goes where it is welcome and stays where it is well treated," as the great Milton Friedman said.

This much is clear. The employment restrictions and the class struggle nonsense offered by those friends of the working man, the Democrats, are utterly failing him. In the the Democrat fastness of the post-industrial Northeast and Midwest, there's little tangible economic return from workers' long-term political investment.

I say if you want to work, go R. If you want to stand on the unemployment line complaining about the Man, go D.

_______________________

Notes:

1 My original post was inspired by William McGurn's article in the December 30 2008 edition of the Wall Street Journal, "New Jersey Is the Perfect Bad Example".

2 Next best alternative ranking is so similar to the first. Different methodology; of course the data set and workings are available:

>> bluest: DC WA WV MA AR MD CA HI NJ DE VT
>> next: IL RI NY MI OR CT IA WI LA NM
>> middle: NC ME MN ND MT IN PA VA NV CO
>> next: TN AL SD GA NH KY MS MO FL NE
>> reddest: AZ KS OH TX OK AK SC WY UT ID

3 It was Ted Kavadas, proprietor of the Economic Greenfield blog, who suggested doing the study nationally.

American Disease, 2010

Ann Elk: Where? Oh, what is my theory? This is it. My theory that belongs to me is as follows. This is how it goes. The next thing I'm going to say is my theory. Ready?

TV Interviewer: Yes.

Ann Elk: … This theory goes as follows and begins now. All brontosauruses are thin at one end; much, much thicker in the middle; and then thin again at the far end.

(From Monty Python’s Flying Circus)

I too have a theory, which is to say it is a theory and it is mine. I hope it’s a bit less silly than Ann Elk’s theory, but in any case let’s try it on. The next thing I’m going to say is actually not my theory, but another theory, which is someone else’s and got me to thinking about my theory.

This other theory is something called Dutch Disease, which is an economic diagnosis of the Netherlands’s loss of competitiveness in goods producing industries following a 1959 discovery of natural gas off its North Sea coast. In the simplest terms, this led to inflows of investment, which pumped up the exchange rate and altered terms of trade in such a way that exports became uncompetitive. In this perverse fashion, Dutch Disease describes how a lucky strike in natural resources creates not employment and growth but unemployment and stagnation.

America, my theory proposes, has a version of that, only the resource is money. I want to name the problem “American Disease,” but I read in an article by Bryan Caplan that that's the name of a syndrome of Americans living beyond their means. Actually the problem I pose is closely related, just as H1N1 influenza is closely related to other strains of the flu. Perhaps I can say “American Disease, 2010” to differentiate it from old established strains, or should I call it “California Disease” to reflect the fact that the disease has advanced furthest in the Golden State?

America is a country with real natural resources, of course, but the high costs of extraction and environmental compliance and restrictions on land use places them increasingly out of reach. In the days when the country did produce resources and processed them into manufactured goods which foreigners bought, the U.S. generated a vast amount of wealth, much of which was invested in buildings and infrastructure. These remain visible in the present day, residual wealth as monuments to our peak of economic power.

(Exactly the same is true of Argentina, by the way, which was the wealthiest country in the world 100 years ago and still has the buildings and boulevards to prove it, even though Mr. Juan Peron and the generals set the country on an unusual course from first world to third world status.)

Now, even after the financial crisis, America’s most important industry is finance, broadly defined. The financial industry differs from the auto industry and the chemicals industry in one interesting respect. The auto industry inputs steel, glass, and plastic and outputs autos; the chemicals industry inputs primary and intermediate materials and outputs finished chemical products – in other words, they work on raw and intermediate goods and change them into something else. Most industries do this. But the finance industry has money both as input and output – it changes money’s form but not its nature in its processes. Money is both the input and the output, the resource base and the finished product.

The American finance industry is competitive, one of the nation’s success stories in terms of services exports. Our political class, which increasingly impedes us from taking coal out of our mountains, irrigating our farmlands, and manufacturing products with processes that are not squeaky clean, has long promoted clean, non-polluting financial services, and it has prospered as the industry prospered.

However, I believe that too much money in an economy based on financial services has given us a condition akin to Dutch Disease. It could probably be shown that the maintenance of the U.S. as a financial center has made the American dollar stronger than it would otherwise have been, reducing our competitiveness in global markets for tradeable goods and services. Moreover, the high level of compensation in the financial industry and supporting services has probably driven up wages and benefits right across the U.S. labor economy, another blow to the competitiveness of any entrepreneur bold enough to defy the odds and manufacture a product for sale in America.

While the American political class stands in the way of development of our (real) natural resources and domestic manufacturing, it does see the residual financial wealth of the nation as a resource that it can cut and drill and strip mine – endlessly, in fact, as it recognizes no restraint on the size of resource, but treats it as effectively infinite. The people entrusted to run the country give no thought to the necessary diminution of the resource as taxes, penalties, and compliance costs leave less and less to reinvest, even as the potential returns on investment are inevitably being reduced. They use static models that fail to capture the fact that producers will not produce – or innovate, or hire – out of sheer altruism and public spirit while the returns on their capital and labor are collapsing.

The impoverishment of the United States by the Argentine model is thus well under way.

Oh, and why do I say California has the most advanced case of the “American Disease, 2010?” Well, just look at the Golden State. There is oil offshore, but its development is not permitted. Manufacturing is being driven out. And the Central Valley is experiencing 40% unemployment in agriculture in order to protect mudfish habitat; but California's fiscal position continues to deteriorate as its political class absolutely will not live within its means, as dictated by the state’s reduced economic circumstances.

As California is the United States only more so, California’s political class is America’s in microcosm, with all its pathologies subjected to magnification.

The mindlessness with which the American money resource is to be run down puts me in mind of a passage from Atlas Shrugged:

As they proclaim their right to consume the unearned, and blank out the question of who's to produce it—so they proclaim that there is no law of identity, that nothing exists but change, and blank out the fact that change presupposes the concepts of what changes, from what and to what, that, without the law of identity no such concept as 'change' is possible. As they rob an industrialist while denying his value, so they seek to seize power over all of existence while denying that existence exists.