This year’s presidential election is fast becoming an ode to diminished expectations. Neither candidate is advancing a reasonable refutation of the conventional wisdom that America is in the grips of a “new normal” — an era of low growth, persistently high unemployment and less upward mobility, particularly for the working class.
Certainly recent economic news of slowing growth and job creation bolster the pessimists’ case. But Americans may face far better prospects than portrayed by our dueling presidential mediocrities. Let’s look at those states that have found their own way out of the “new normal,” in some cases reversing all the losses of the Great Recession and then some.
The states that have added the most jobs since 2007 — Texas, North Dakota, Louisiana, Oklahoma and Alaska – are located in a vast energy and commodities corridor extending from the western Gulf to the northern tip of the Continent. New York and Washington, D.C., prime beneficiaries of monetary easing and a growing federal government, have also clawed back.
But the big winners are in the central energy corridor. Since 2007, Texas has created almost five times as many jobs as New York; California is still down almost 900,000 jobs and Illinois is off close to 300,000.
This should represent what Walter Russell Mead calls “a new geography of power,” the anointing of new places Americans and business go to find opportunity. One example: five of the six best cities for starting over in 2012, according to TheStreet.com, were in the Dakotas, Utah, Iowa and Nebraska.
Why the energy and agriculture states? Since the onset of the new century, much of the sustained growth in the world has taken place not in the financial or information capitals, but in regions that produce basic commodities like energy and food. In the high-income world, the consistently best-performing countries since 2008 have also tended to be resource-rich ones such as Norway, Australia and Canada.Blue social policies work best when financed by petro-dollars and minerals sales.
Domestic and European demand may fall in the next few years, but increasingly global commodity and energy markets are driven by the expanding needs of the major developing countries. This has helped keep energy prices high, particularly for oil. Being good at exploration and drilling has been more profitable than social media. Texas alone has added nearly 200,000 jobs in its oil and gas sector over the past decade and Oklahoma some 45,000. The Lone Star energy sector created twice as many jobs as exist in the software sector in San Jose and San Francisco combined. These jobs have been an outstanding driver of high-wage employment, with an average salary of upwards of $75,000, and located usually in less expensive areas.
Choice plays an important part in the growth. The energy boom has supercharged the economies of the states that have welcomed this growth, including Texas, Oklahoma, Louisiana, North Dakota, Wyoming and Alaska. It has not been much help to New York and California, which are reluctant to crack rocks to extract even relatively cleaner carbon-based fuels like natural gas. In contrast, long-suffering Ohio and Pennsylvania, where there have been significant new finds of shale oil and gas, appear to have decided that Texas, not California, is the model for spurring growth.
The energy-producing states can look forward to a bright future in the long run. U.S. oil and Canadian reserves now stand at over 2 trillion barrels and constitute more than three times the total estimated reserves of the Middle East and North Africa. Observers such as the New America Foundation’s Michael Lind believe that new discoveries, particularly of natural gas, mean that we might actually be living in an era of “peak renewables,” and at the onset of a “very long age of fossil fuels.”
Growth of these sectors — along with construction and manufacturing — could prove critical to our beleaguered working class. There’s not much respect among the university-dominated pundit class for people who work with their hands or have specific tangible skills. Instead they need to lower their expectations and seek, as Slate recently suggested, to find work “in the service sector supporting America’s innovative class.”
In this neo-Victorian society, the “new normal” means a society dominated by “innovative” or “creative” masters and their chosen, lucky servants. Leave your job and family in the Midwest or Nevada to become a toenail painter in Silicon Valley, San Francisco or Boston. Besides losing any sense of one’s independence, it’s hard to see how a barber or gardener can live decently, particularly with a family, in such expensive places.
This bleak reality may not inevitable, though. In many places construction employment is on the rise from its nadir in 2010. This recovery has been a nationwide phenomena but is, not surprisingly, most evident in growth states like Montana, Colorado, Indiana, Iowa, Nebraska, Tennessee and Utah.
At the same time over the last two years the nation has added more than 400,000 manufacturing jobs, led by the industrial states hit hardest by the recession. Though these gains are small compared to the losses earlier in the decade, the growth is encouraging; automakers and other industries already are complaining about severe shortages of skilled labor. Maybe, after all, life as a dog-walker and hostel denizen in Palo Alto is not the best one can hope for if you can make enough to afford a nice suburban house outside Columbus or Detroit.
The pundit class may be ready to write off the American dream but many Midwest states are working to restore it. Over the past two years Michigan and Ohio have experienced the biggest drop in unemployment of any states in the union; Michigan leads the way with a drop of almost five percentage points, while Ohio comes in second with a nearly three-point decline. Other key Great Lakes battlegrounds—Wisconsin, Indiana and arguably Missouri—have also seen two-point drops in their unemployment numbers.
Why is this happening? A lot of it has to do with business-friendly state regimes. Unlike Illinois, increasingly the sad sack of the Midwest, these states have cut taxes, worked to increase the availability of skill training and streamlined regulations. This has allowed them to take advantage of new opportunities.
Improving the business climate represents the third critical element for overcoming the new normal. Most rundowns of the states with consistently favorable business and tax climates – as judged by executives — start with Texas, Utah and South Dakota. Many states that are recovering best from the recession, like Louisiana, Wisconsin, Florida, Ohio, Michigan and Arizona, all have been improving their rankings in business surveys over recent years.
But this should not be seen as an exclusively red state phenomenon. Some blue states as well, notably Washington, have worked hard to keep taxes tolerable and have promoted a rapid expansion of their industrial sector. Democratic-leaning Colorado, under the leadership of pragmatic Gov. John Hickenlooper, has also strived to main a good business climate and promote growth.
What works, it appears, is not the mindless embrace of GOP or Democratic ideology, but a model that drives economic growth. It’s not rocket science: sensible regulation, moderate taxes and investments to spur job creation and productivity. “There is no Democratic or Republican way to sweep streets,” legendary New York City Mayor Fiorello LaGuardia once remarked and the same is true of economic growth.
The stories of the successful states tell us the key to success lies in promoting basic industries like energy, agriculture and manufacturing — which then create business service and high-skilled jobs — combined with a broad agenda favorable to entrepreneurs of all kinds. If only one of our presidential candidates would get the message.
For more about how states are defying the "new normal," read the 2012 Enterprising States: Policies that Produce report, authored by Joel Kotkin and Praxis Strategy Group.
Joel Kotkin is executive editor of NewGeography.com and is a distinguished presidential fellow in urban futures at Chapman University, and contributing editor to the City Journal in New York. He is author of The City: A Global History. His newest book is The Next Hundred Million: America in 2050, released in February, 2010.
This piece originally appeared in Forbes.
Comments
69 responses to “The New Geography Of Success In The U.S. And The Trap Of The ‘New Normal’”
It’s not just energy and commodities, it is low regulations, especially regarding land use and resource extraction. This is why New Zealand is not doing well, when it jolly well should be if its voters had any intelligence and stopped insisting that no land or resources actually get used (because that would upset the Gaia Earth Mother and upset the tourists and leave the poor children with a paved-over, grime-filled paradise, never mind that NZ is 4 million people with more room than Japan’s 120 million).
You make some great points and I was particularly glad to see you mention Walter Russell Mead, who I think really has hit the mark with his discussions of The Blue Social Model. There is whole new economy coming, we just need the right person to bring the ideas these states are implementing to the national level.
That’s why I was kind of sad to see you toss Romney and Obama in the same bucket of “mediocrity.” You did all this great research for what states are doing and then apparently did zero on at least one of the candidates. Mitt Romney is the guy who started all this movement in Massachusetts during his term. Look at the record, seriously. He streamlined that state’s budget and restructured its government, and now the likes of Mitch Daniels (my governor), Rick Perry, and Christine Gregoire are following his lead.
You’re absolutely right this is not about parties, and my case really bears this out. I’ve been a lifelong Democrat, but this year I’m voting for Mitt Romney because I want to see these strategies and ideas you’ve talked of so glowingly brought to bear at the national level. He’s a different kind of GOP candidate, judging by his record. I can’t wait to see what he’s going to say at the convention. I think people will be surprised, and electrified.
Dear Mr. Kotkin, How can any Republican candidate get the message when people like you, who think government should be more supportive of energy and business, still vote for the likes of Jerry Brown and Barack Obama?
It’s hard to find anyone to vote for…but I 2008 I voted for Obama in primary but by November chose not to and voted for no one….I supported bill clinton happily in 1992 and 1996 but it’s been downhill from there
Thanks for your interest
Joel
Every dollar wasted paying the so-called “poor” to go on being “poor” is a dollar not available to promote “upward mobility, particularly for the working class.”
You get what you pay for, and if you pay people to be “poor,” you’ll get more “poor” people.
There are things our government does that do more damage than welfare, including the EPA. It is true however that one should never ask “for whom the bell tolls”, because taxes have to come from somewhere, and that somewhere is usually the people who hire the same poor you are trying to help, or those who pay for their services.
“In this neo-Victorian society, the “new normal” means a society dominated by “innovative” or “creative” masters and their chosen, lucky servants.”
Actually the Victorian Era, especially the later part of it, is when the middle class grew, the first suburbs flourished as areas like Croighton (London), Ballard (Seattle) and Reynoldstown (Atlanta) used railroads to carry commuters in to and out of the city for business hours, allowing city people to own houses for the first time, and hard work and good sense got people far. It was a time of open frontiers, from Americas West to Britains Horn of Africa and French Algeria, open for the settlement of ambitious would-be landowners, a time for fanciful new inventions from the skyscraper to the railroad to telegraph lines to electric engines driving mills and the first affordable formal clothes so even the working class could be dressed like fine gentleman for church, and a time for the business class to gradually make all of Europe more democratic as its faced down with the aristocracy. What you’re thinking of is the MIDDLE AGES.
“What works, it appears, is not the mindless embrace of GOP or Democratic ideology, but a model that drives economic growth.”
I appreciate that you are trying to be evenhanded, but the Democrats have shown that they will embrace ideology at the expense of economic growth, especially through their policies on the environment, unions, taxes, health care, regulation in general, etc. President Obama exemplified this when he said he would raise tax rates on higher income earners even if it brought in less tax revenue because of his ideology regarding “fairness”. We are experiencing ideology at the expense of growth due to the Democrat dominated first two years of this presidency.
Can you point to any Republican policies or ideology that is harmful economic growth?
Arbitrary fear- and ego-driven “austerity” measures at the wrong time, just for starters. The GOP had plenty of chances to balance the budget and pay down the nation’s debt after the Clinton Administration (aided by Robert Rubin, but his price was deregulation that almost brought the house down…) provided budget surpluses (importantly, with tax increases).
But, nooooo, the GOP instead gave away the store to the wealthy, twice. First with outrageously irresponsible tax cuts, and second with a kleptocracy-feeding “war” in Irag (incited largely because the complex saw Afghanistan wasn’t going to be a big enough profit center).
Care to notice the economy and the markets did great after the Clinton budget successes and have basically been in the outhouse ever since it became clear that W was going to win the White House? And really got worse after the effects of Clinton dereg, the Bush tax cuts and the finance casino orgy got hold? Ever notice that?
Strange that these “free market” types don’t see what the market tells them (and complain about zero-sum perspectives but act with one). The market likes sane policy. The market likes the stability of rational and reliability-inducing financial regulation. The market likes a PRODUCTIVE tax structure. The market doesn’t like wingnut mullahs and irrational destructive ideologues acting out their infantile tantrums…
This issue should be updated to reflect the new geography of being on fire, literally and/or figuratively…
There may not be a Democrat or Republican way to sweep the streets but the gradual transformation of the United States into a social democracy à l’Europe is certainly one reason for its woes.
What is bizarre is that Washington and some U.S. states are buying into wholesale social democracy just as the movement is declining into terminal sclerosis in Europe. The pursuit of ‘fairness’ at the expense of growth is a contradiction.
The philosophy of social democracy is not yet dead in Europe, far from it; but the economic impossibility of financing ever-expanding welfare and redistribution through borrowing is on its last legs.
Sooner rather than later, markets are going to force Europeans, if they want to keep them, to pay the full cost of their welfare and entitlements through taxation and they will discover that they cannot afford to do it.
France’s new socialist government has just pre-empted Obamanomics by imposing huge new taxes on the rich. Since France, along with some other European countries, has wealth taxes (on capital and assets), this means that some people will pay more in tax than they earn. If they remain in France, that is.
The European and American left seem to regard the economy primarily as a means of generating tax revenues for the redistribution of wealth by an ever-bigger government and ever-increasing regulation.
It’s essentially Marx by drip-feed rather than the Soviet big bang but no one ever got rich by stifling opportunity, innovation and enterprise as socialism prescribes.
The next political big idea must be a social democracy.2 that successfully blends social compassion and economic dynamism and the politician who imagines it will be a real messiah rather than the ersatz model elected in 2008.
There are recent templates; think Thatcher and Reagan.
A few years ago, Virginia Postrel authored THIS excellent essay on housing market variance between cities, and its effects in the USA:
http://www.theatlantic.com/magazine/archive/2007/11/a-tale-of-two-town-houses/6334/?single_page=true
It was stimulated by Gyourko, Mayer and Sinai’s 2006 paper “Superstar Cities”.
Now, another good new paper has stimulated her to the following, another very good article:
http://www.bloomberg.com/news/2012-07-19/how-the-elites-built-america-s-economic-wall.html
I am very pleased to see these wider economic disparity ramifications getting clarified.
Isn’t it ironic that “liberals” in the USA, and in fact left-of-centre political parties everywhere who claim to represent “the worker” and “the poor”, ALL subscribe to “urban planning” ideology that hurts the lowest income people and the best sources of employment for the lower skilled?
“What works, it appears, is not the mindless embrace of GOP or Democratic ideology, but a model that drives economic growth.”
Really? If California, with probably the greatest raw material reserves of any of the 50, even extraordinary by world-wide standards, is an example of “mindless embrace of Democratic ideology”, and Texas of “mindless embrace of GOP ideology”, then it would appear that Kotkin’s “but” ignores the QED that all the rest of us can see.
Nice article, Joel, but you just can’t pull the trigger, can you?
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