Red over blue

Joel Kotkin and Wendell Cox:

The political and cultural war between red and blue America may not be settled in our lifetimes, but it’s clear which side is gaining ground in economic and demographic terms. In everything from new jobs—including new technology employment—fertility rates, population growth, and migration, it’s the red states that increasingly hold the advantage.

Perhaps the most surprising development is on the economic front. Over the past decade, the national media, and much of academia, have embraced the notion that the future belonged to the high-tax, high-regulation economies clustered on the East and West Coasts. The red states have been widely dismissed, in the words of the New York Times, as the land of the “left behind.”

Yet the left-behind are catching up, as economic momentum shifts away from coastal redoubts toward traditionally GOP-leaning states. Just a few years ago, states like California, Massachusetts, and New York held their own, and then some, in measurements of income growth from the Bureau of Economic Analysis. Now the fastest growth is concentrated in the Sunbelt and Great Plains. Texans’ income in the latest 2019 BEA estimates was up 4.2 percent, well above California’s 3.6 percent and twice New York’s 2.1 percent. The largest jumps—and this may matter a lot in 2020—took place in the Dakotas, Nebraska, and Iowa.

The same pattern is visible in overall job growth. Over the past decade, only two blue states—California and Washington—ranked in the Top Ten. Last year, according to estimates by the economic-analysis firm EMSI, only purplish Colorado made the top tier, which was led by Utah, Nevada, Idaho, Arizona, Texas, and Florida. These top states are now adding jobs at almost twice the rate of California and even more quickly than laggards like New York or New Jersey.

Without exception, the major blue states, even when they are doing well, usually have experienced slow population growth. Now some, notably New York, are actually losing population. California, once the growth beacon, is seeing virtually no growth: a state of almost 40 million gained a measly 50,000 residents last year.

Virtually all the states losing domestic migrants are deep blue. According to Census Bureau estimates, between 2010 and 2019, New York led the losing states, with a net domestic-migration loss of 1.379 million, followed by California (912,000), Illinois (856,000) and New Jersey (491,000). The big gainers were red, led by Florida, which gained 1.29 million, Texas (1.15 million), North Carolina (476,000), and Arizona (454,000). These states are often the destinations for blue-state refugees.

Some blue-state defenders downplay the demographic shift, though it’s real enough: much of the migration is coming as a result of more people, notably millennials, ditching metropolitan areas with large and dense urban cores to more dispersed, and more affordable, urban locations. Data developed by William Frey of the Brookings Institution indicate that all of the ten metropolitan areas with the greatest millennial net migration from 2012 to 2017 were in the South and West, while a reverse youth movement has taken place in New York, Los Angeles, and Chicago. As millennials enter their thirties, many are seeking to nest in states where housing prices are lower. In markets such as Columbus, Atlanta, Dallas–Fort Worth, and Houston, house prices are from one-third to one-half, adjusted for incomes, lower than those in Los Angeles or San Francisco. These migrants often seek out suburban areas with good schools and safe streets. Such areas exist in the blue states, too, but they tend to be more expensive.

Immigration flows, long a source of demographic vitality for coastal metropolitan areas, have been shifting to the interior, as Brookings has noted. From 2010 to 2018, the foreign-born population of Houston, Dallas–Fort Worth, Austin, Columbus, Charlotte, Nashville, and Orlando increased by more than 20 percent, while San Francisco’s foreign-born population grew only 11 percent, and New York’s by 5 percent. Los Angeles suffered a loss of nearly 1 percent. The foreign-born are also headed in increasing numbers to unlikely locations such as North Dakota, which experienced foreign-born growth of 115 percent, and South Dakota (58 percent), while states such as Minnesota and Iowa had more than 25 percent growth.

Many urban politicians act as if talent will continue to cluster in elite places like San Francisco, New York, West Los Angeles, or Seattle, but companies seeking to recruit educated workers increasingly flock to places like Dallas–Fort Worth, Orlando, Nashville, and other affordable red-state metros. The movement of corporate offices has been particularly marked, with an estimated 1,800 firms leaving California for the Lone Star State in just one year. These companies are not just low-wage employers but high-paying firms like Toyota, Nissan, McKesson, Bechtel, Jacobs, Parsons, and Sanford Bernstein. Once a jobs magnet, California has emerged as the largest sender of jobs to Texas. Between 2000 and 2013, the Golden State was the source of more than 51,000 jobs, about one-fifth of all jobs moving to Texas. The most recent survey for Chief Executive Magazine ranks Texas, Florida, Tennessee, North Carolina, and Indiana as more business-friendly, while blue bastions California, New York, New Jersey, Illinois, and Connecticut stood at the bottom.

The impacts on higher-wage-sector growth are evident. In the category of business and professional employment, the largest source of high-wage jobs, the biggest gains over the decade were in Utah, the Carolinas, and Texas; only blue Oregon and purple Colorado were in the top 10, which also included some surprising Midwestern states such as Missouri, Michigan, and North Dakota. Last year, the red-blue gap strengthened further, with Utah and Idaho growing almost 50 percent faster than California, and almost five times as quickly as New York or New Jersey. Even the high-tech sector, long clustered in a handful of places, gradually is moving toward red America. Over the past decade, three prominent blue states—California, New York, and Washington—ranked in the top ten, with North Carolina, Utah, and South Dakota in the lead. Last year, however, New York dropped toward the middle, while Idaho, Utah, and Tennessee took the top spots.

The process of geographic change is more like a slow, steady drip than a torrent. Such long-term trends in employment and demographics will take years, even decades to overturn. New York, California, Connecticut, and Massachusetts have been building their intellectual capital for generations, and they likely will remain preeminent in certain core industries—tech and entertainment in California, finance and media in New York and Connecticut—for the foreseeable future.

But these shifts will have consequences. New York and California depend heavily on high-income earners to fund their massive budgets, with the very rich accounting for roughly half of all income-tax revenues. When these affluent individuals saw their state and local deductions drop in 2017, they were more tempted to decamp to low-tax states like Florida. But even before the change in federal tax policy on local deductions, a Bloomberg study found Florida and South Carolina reaping multi-billion dollar gains from migration, much of it from states like Connecticut, New York, and New Jersey. Just in 2017 and 2018, Illinois lost over $12 billion in income due to out-migration. This year, perhaps not surprisingly, Governor Cuomo blamed New York’s fiscal challenges in part to the migration of wealthy people from the state.

California’s losses are less extreme, perhaps a testament to the power of the tech economy and the state’s beauty and mild climate. Yet rather than the rich arriving “in droves,” as the Los Angeles Times insists, more people making over $200,000 left than came, by a small margin, from 2014 to 2016, according to IRS data, even as the middle orders were leaving in large numbers. In California and other blue states, a legacy of high spending, a slowing economy, and burdensome taxes is taking its toll, particularly on the state and local budgets. Overall, despite its still-strong economy, California suffers from a significant pension burden; U.S. News places California 42nd in fiscal health among the states.

Then there are political consequences. Power has been shifting out of the Northeast for decades, and the area, which in 1950 had 115 members of the House, now has 78, down one-third. California, waxing for well over a century, is now growing below the national average, and is likely to lose a seat. Meantime, red states will probably gain seats. Texas is expected to pick up three seats; Florida two seats; and Arizona, Colorado, Montana, and North Carolina one each.

Of course, changes in Washington could alter this trajectory. Widespread endorsement by Democratic candidates to ban fracking in places like Texas, North Dakota, Ohio, West Virginia, and Pennsylvania could drive these states into recession. In Texas alone, by some estimates, 1 million jobs would vaporize, while nationwide, according to a Chamber of Commerce report, a full ban would cost 14 million jobs—far more than the 8 million lost in the Great Recession.

Policies that will raise energy prices and regulate manufacturing could harm states like Utah, Nevada, and Michigan, where industrial workforces have expanded during the past decade. By contrast, such policies will have little direct effect on states like New York, New Jersey, Connecticut, or California, where manufacturing employment has either declined or stagnated.

But if the current stalemate in Washington continues, we can expect the economic, demographic, and political shift from blue to red states to continue—and even accelerate. It can only be reversed, or slowed, when the political and business leadership in blue states finally recognize that their current policies are, economically and demographically, unsustainable.

Notice that Wisconsin is not listed in this piece. Too much blue.

 

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