Uncomfortable futures, like the bankruptcy ordeal in Birmingham, Ala., could be the future for more and more cities — especially those in the sand states like California, Nevada and Florida. These areas have been hit by the housing collapse — sapping tax revenue, and with it spending on public infrastructure, services and schools. That’s the argument Meredith Whitney makes in her new book, “Fate of the States: The New Geography of American Prosperity.”
One of the main points in Whitney’s book is that we will see a shift in economic power from the coasts to the central part of the nation.
“The center part of the country, sometimes known as the flyover states, have deep roots in farming and the agriculture sector and commodities and what not. So inherently those are highly cyclical, boom-bust type of industries. Because of that, their governments are run extremely conservatively. So they don’t have big swings in their revenue, they don’t operate with big swings with expenses,” says Whitney. “Why that’s a big deal is they didn’t get themselves into trouble. So no housing boom happened there, no housing bust happened there. Nothing really got out of whack, so they start with much drier powder.”
These states include Texas, Coloardo, Utah, Indiana, Wisconsin and North Dakota. Many of these states have big industry sectors, low tax burdens, affordable housing, and many are right-to-work states (so companies feel they have more control of hiring and firing).
“Those states have unemployment rates that are half those of the coasts, but also where job creation is coming from and where people are moving to for a myriad of reasons,” says Whitney.
If you can’t move to another part of the country or move your business there, one way to get in on the action is to buy municipal bonds. But there have been a lot of high-profile bankruptcies recently. Could municipal financing be a troublesome spot for the economy and investors’ portfolios?
“I hope not. I think what happens is that people are unwilling to make changes, people are unwilling to make concessions unless there’s some type of crisis,” says Whitney. “I don’t know if it’s a broad and deep crisis where it happens all at once, but I think it’s happening community by community. As you have more people deciding to live in areas that suit them better and are cheaper and have a higher standard of living, it’s only going to exacerbate things.”
We’re here to help you navigate this changed world and economy.
Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.
In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.
Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.