Krugman’s blog, 7/29/15

There was one post yesterday, “State Growth Versus National Growth:”

Bureau of Economic Analysis

It still seems kind of incredible that Jeb Bush is running in large part on claims that Florida’s growth during his governorship shows that he knows how to bring prosperity. In effect, he’s saying “Trust me — I presided over a giant bubble!” I’ve been pointing this out for a while; Jim Tankersley at the WaPo chimes in with pretty much the same point.

But it occurs to me that people may not be taking on board a broader point: even when they aren’t driven by bubbles, state growth rates tell us very little about what kinds of policies might work at a national level. This should be obvious, but it may not be to many people.

Why do I say this? Within the United States, we have extremely high mobility of labor and population in general. A state that becomes an attractive destination, either because it offers job opportunities or for other reasons (like cheap housing, a big factor in Texas) can experience rapid population and labor force growth, and hence a high growth rate even if productivity growth is nothing special. At a national level, however, immigration is fairly minor and not that responsive to economic developments — in part because of restrictions — so that any major acceleration in growth would have to come via higher productivity growth and faster growth in GDP per capita.

The chart shows what I think might be a useful comparison of overall US performance and the performance of the four largest states; I show growth in real GDP and real GDP per capita over the period 1997-2014, which is the longest period the BEA data let me do an instant comparison for this morning. What you see is the familiar proposition that Texas grew a lot faster than the rest of the country — but most of that extra growth was in the form of population growth, with real GDP per capita growing only slightly faster than the nation as a whole. California and New York grew more slowly overall, but per capita growth almost exactly matched growth in Texas — that is, the two big blue states were precisely as successful as the big red state in achieving the kind of growth we need for the nation as a whole.

What about Florida? Over the long haul, it turns out to have grown basically at the same rate as the nation; there was a bubble, it burst, and in the end it was a wash. Per capita GDP has grown very slowly, but don’t make too much of that: we’re looking at a state with a growing percentage of retirees and a falling percentage of working-age adults, so something like that is to be expected.

So Jeb really has nothing to boast about, but even genuinely fast-growing states tell us very little about national policy.



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