Working Man’s Blues: Employment Trends in Democrat States Lag

During the past winter of discontent, New Jersey Governor Chris Christie emerged as a model and example of political reform. A young Republican who routed a wealthy Democrat incumbent in a solidly blue state, Christie keeps on surprising. He is making a serious effort to rein in government expenditure, declaring that a "state of fiscal emergency exists in the State of New Jersey" and instituting deep cuts. It brings him into conflict with state workers whose lush packages are at the root of the problem, as well as the Democrat establishment whose patronage system created it. But taxpayers appreciate the governor’s position that they have already been milked dry, and seem willing to give spending discipline a try.

It is a changed day when developments in New Jersey furnish a positive example. In the December 30 2008 edition of the Wall Street Journal there was an arresting article entitled "New Jersey Is the Perfect Bad Example." In it, William McGurn showed that the government sector added 93% of all jobs created in New Jersey from 2000 to 2007.

The BLS data for the full ten years to February 2009 underscore McGurn’s findings and fill in some other unsettling information as well. The government employment growth was entirely at state and municipal employment level, and made for 91% of the increase in total NJ employment, while the federal government, the US Postal Service, and the Department of Defense all shed jobs. The goods producing sector is in a headlong free-fall, losing 138,600 jobs in the decade. One-third of manufacturing jobs disappeared. Now government workers outnumber manufacturing workers five-to-two, making a mockery of the old motto "Trenton Makes, The World Takes." One-third of Garden State workers now work for the government or in health care, which increasingly is much the same thing.

Does anyone imagine it is satisfactory or sustainable that an important state’s economy hardly generates employment outside the government sector?

McGurn’s work invited me to extend the analysis to goods-producing, service, and government employment in all states plus the District of Columbia. There is also the question of party political environment: he blamed New Jersey’s sorry state of affairs on its Democrat-dominated political culture and its high-taxing, heavily-regulating, pro-union, and anti-business ways, but does that bear up to analysis, and if so, does it apply more generally?

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. I assigned a +1 for a Republican in a year, and -1 for a Democrat, so a state that had a Republican governor in a year, with a Senator of each party, majority Democrat state senate and state legislature, and a Congressional delegation split exactly down the middle would +1 +1 -1 -1 -1 0 for a score of -1 for the year. The most solidly Democrat blue state would thus be -6 year after year, the firmest red Republican +6.

Two next door neighbors, Washington and Idaho, bracket the ranking of the 50 states plus 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

The BLS employment data show that government is not just New Jersey's growth industry – it has been a growth industry in most states, blue or red. Only in a handful of places has government employment been static or falling: MA, MI, NY, DC, and RI. Yes, they are blue states. But most of them have another issue: in general, they are losing population. That is the dominant factor, not party in power.

The predominant pattern in the last ten years has been for employment in goods-producing industry to decline, in service-providing business to grow somewhat, and in government to grow fastest of the three. That pattern is seen in no fewer than thirty-seven 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 government declined, but more slowly than other employment). Government grows at the expense of goods production. In the limit, this places fiscal drag on the economy, which reinforces the original destructive trend and makes it worse. That is New Jersey’s experience.

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. These states are mostly unionized, mostly northeastern or midwestern, and mostly Democrat. 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, and ND. Near runners-up were TX, AZ, and OK. These states are mostly right-to-work, mostly western, and mostly Republican. Only in strongly Republican Wyoming is employment growth in goods-producing industry consistently positive and higher than either services or government.

Employment in goods-producing industry need not be the holy grail 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 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 an administration run by Chinese Communists than by Michigan Democrats.

Of course, productivity has improved the most in goods producing industry, meaning fewer workers are needed to do the same or greater work. This is good. But other things being equal, rising productivity itself should incentivize capital to form in a place and employ workers. If it is not enough, then workers are not sharing in the benefit of their productivity and other things are wrong. Politicians then must ask what else is needed to attract and retain industry. Republicans reliably ask that question. Democrats ask instead what other self-defeating social costs and regulations they can impose on job-creating enterprise, with the dismal results that are here to see.

And this is true despite meaningful regional variation: a Democrat is not the same wherever you go, and neither 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.

And speaking of Massachusetts, in connection with the special election there on January 19, the Bay State was commonly referred to as "the blue t of all blue states." It turns out that this is incorrect, and not just because it put Scott Brown (R) into the Senate – Massachusetts is less blue than Washington DC, Washington state, and West Virginia.

Which way does causation run? Are the growth states of the West Republican because they are growth-oriented, or growth-oriented because they are Republican? I would like to think the effects are mutually reinforcing. It makes sense that employment grows in right-to-work states because it can, without restriction. The great Milton Friedman said, "Capital goes where it is welcome and stays where it is well treated."

This much seems clear: the high taxes, restrictive employment conditions, and regulatory activism of the Democrats are utterly failing the working man. In the Democrat fastness of the post-industrial Northeast and Midwest, workers have little to show for their long-term political investment in the party of Roosevelt and Johnson.

Malevolence? Stop the insanity!

“There has to be a counterweight to the malevolence of the insurance industry.” So says Senator Jay Rockefeller to mop-topped interviewer Al Hunt of Bloomberg.

Malevolence? What's next out of the mouth of the Democratic senator from the state of Tourette's syndrome?

You will wait in vain for the industry to fight back hard against this Alinskyite campaign of vilification. Like all other industries that depend upon the US government to treat them with minimal sanity, the insurance industry deals with Uncle Sam the way you would any other lunatic with a trunkful of loaded guns . . . veeeeeeeeeery caaaaaaarefully, for fear of pissing off the lunatic and having him go berserk.

This is the state of play for all owners of capital in the United States today. They hold their breaths; they hold their tongues; they even contribute to the lunatics' campaign, hoping it will buy them some goodwill! Look how well that has worked for you, health insurers -- you're public enemy number one.

The last trade association leaders who was any damned use at all to his membership was the late Jack Valenti of the Motion Picture Association of America.

Don't Re-Elect Jon Corzine

I get the feeling that Google and its various organs such as Adsense sometimes make sport of their users.

I'm a Republican. I try not to be excessively political, I avoid beating people over the head with it, but you can probably tell from the values I express on this blog and, previously, in my writings for worldlyinvestor.com if you remember the good old days. My values are the values of self-reliance, personal responsibility, equality of opportunity for all, free trade, open markets, strong national defense, and sound public finances.

So it is queer to see an Adsense ad for New Jersey's Democrat Governor Jon Corzine in the right margin. "Re-Elect Jon Corzine", it orders. "Committed to New Jersey Values Working for New Jersey's Success JonCorzine09.com".

Look, by all means click through. I need the money to pay taxes that are among the highest in the nation. But I'm not going to vote for Jon Corzine myself if he pays me hundreds of dollars, which research shows is pretty much how much this Goldman Sachs limousine liberal does pay for every vote he receives. His bad works and those of his Democrat predecessors and co-dependent Democrat legislators are catalogued in a previous article. And if you live here too, I hope you are not going to vote for him either.

Still More Reaction to the HIP

I got a valuable contribution from my best college friend. He writes:


Dave,

. . . First, the biggest problem is selling the idea. It sounds good, but who in the government is going to buy it? Democrats don't trust that people are smart enough to be able to handle their own retirement accounts - isn't that the purpose of Social Security? The cushion that an IRA, et. al., offers is still a piece that is supposedly handled by people that have some idea as to what they're doing - not Joe Bag O'Donuts next door. Republicans don't think that people with small investments are worth supporting in this measure, as they get their support from those money managers who are handling all the IRAs. You're going to take away their revenue stream.

Second, it seems that more people have problems with their existing mortgages. Emptying out their IRAs will have already occurred in some cases, in an attempt to stave off that foreclosure. Others will have to figure out how to draw out that IRA to buy fresh real estate while still being upside down on their existing mortgage. How do you handling buying a $300k home, with your $250k IRA when you already owe $250k on a house now valued at $200k? Insert whatever relevant numbers you want here, the problem is still the same.

Third, how do you convince people that investing in real estate is a good idea. [My city] ranks third among emptying cities. There's a glut of available real estate, and the prices continue to drop, but even those people with money are refusing to part with it - at least not for tickets that pricey. It's the same reason car sales have dropped. You can survive in a house with drafty windows and too small rooms, while you wait for the recovery. You can milk another 20 thousand miles out of that car, squirreling away the finally-relieved car payments, rather than upgrade, just to make sure that HP doesn't decide to downsize your department.

All that being said, I do think that your idea seems worthwhile. The problem has always been what the Dutch discovered hundreds of years ago - it's all just a bunch of tulips. Speculation leads to false value leads to soaring investment, finally to gossamer worth. When you discover all it ever was is a flower, then it all falls down on itself. Real estate has a quantifiable value. While it may not always be monetary, it is always concrete in its being. (Picture bad pun here.)

Hope that helps.



I replied as follows:


Hey there, I really appreciate you looking at it and giving me this well-considered feedback.

I'm a strong free market guy, so my best hope of sponsorship is not in either of the parties as you say, but in think tanks like Cato, Hudson, AEI. If they get behind something like it, the Republicans may pick it up in their role as opposition.

There is nothing for Republicans from Wall Street anymore, and no risk in attacking the franchise of the investment companies, banks and financial advisors.

You allude to a major problem that bothers me too: the fact that people are struggling when they have money that could help them, or are being subjected to penalties when they go into that money. I think it would be best to get rid of these penalties for the duration of the crisis. (Or forever.)

The candidates for buying condos in Florida and Phoenix are not the people who are upside down in their principal residence. They are the ones who could take $75k out of their accounts and finance $25-50k . . . in other words, buyers who would buy with a low loan-to-value ratio, if not a zero LTV.

I would be the last guy to try to convince anybody that they should do this or that with their money. Some people would make this choice freely if it were open to them. I sure would. That said, I believe the loss of confidence in financial assets will last for many years, while there is some baseline real-life demand for real estate. As you say, it is concrete and you can live in it.

If governments gets things wrong now and print money to paper over the cracks in the system, we will get to where you need bushel baskets of dollar bills to buy a Big Mac. The gold price is telling you there is real concern about this outcome. Real estate prices are indexed for inflation, but financial asset prices generally are not.

Beat up trade partners over exchange rates? No!

American trading experience with Japan shows there’s much more to trade balances than just the exchange rate, and beating up trading partners over exchange rates is useless. In 1985, the Japanese yen traded at 250 to the dollar, and Japan ran a $46 billion surplus with America. In spite of billions wasted by the Bank of Japan in costly and ineffectual currency market intervention between 1985 and 2005, the value of the yen more than doubled to 109 per dollar. During the same two decades, Japanese industry suffered barriers against its motorcycles, semiconductors, and steel in the U.S. market, accepted voluntary export restraints on cars, and localized production in America through its investments of over $100 billion. Neither the huge currency appreciation, nor the restraints on trade, nor the transplanting of Japanese industry stateside prevented Japan’s trade surplus with the U.S. from rising to $75 billion by 2004.




(Source: US Dept. of Commerce, DH Smith)

Consider America’s trade deficit with China – it certainly is growing, having quadrupled between 1996 and 2004. Note that this was a period during which the dollar/renminbi exchange rate was stable to within 1.1%. During the exact same period, the Mexican peso declined by about one-third against the dollar. If the exchange rate were the principal factor in relative competitiveness, we might expect Mexico’s export performance in the United States market to be better than China’s. In fact, Mexico did increase its surplus by a factor of three — a strong performance, but not as strong as China’s.

Saul Alinsky, Rules for Radicals

The local Barnes and Noble had a big display of Saul Alinsky's Rules for Radicals on a table.

It took a lot of effort to resist the urge to liberate some copies.

(DISCLAIMER: We do not recommend shoplifting or other crimes.)

Will Exxon Apologize? Who will be first to denounce XOM?

AP Headline: "Exxon Mobil shatters US record for annual profit". Published Friday January 30, 8:32 am ET. See it here.

"Where is the outrage?"

If you take their money you will take their direction

President Obama took another shot at Wall Street today. "I saw an article today that indicated Wall Street bankers had given themselves $20 billion worth of bonuses. That is the height of irresponsibility. It is shameful."

We are uneasy about the anti-business tone being taken by the new administration and Congress. There's a ready market for this kind of populism, but after the bankers are burned alive on pyres of corporate jets and commodes, the economy catches no rise thereby.

American businesspeople are facing a world in which all their contracts and undertakings are examined line-by-line by government officials, second-guessed by PIRGs, NGOS, and the media (which is doing such a bang-up job managing its own affairs after all), and subjected to subpoena or prosecution by career-making politicians.

To advance themselves, they will not scruple to destroy you.

If you take their money, you will have to take their direction. Simple as that.

Dangerous New Phase of Financial Crisis (3)

Let me just send you to the account in The Independent newspaper of the UK: "America Goes Green" The title tells you a lot, but there is much more. As the article says, "Tilting at Mr Bush has become a hallmark of the Obama presidency," and today's windmill is the Bush admininstration's approach to environmental regulation of the motor industry, CAFE standards and so on.

The light touch is going away. At a time when the US auto industry is fighting for survival, this administration wants to lay whole new environmental regulatory and compliance burdens on them. I really don't believe they can bear up.

Dangerous New Phase of Financial Crisis (2)

In the inaugural address and on every subsequent working day of the new administration, the president has made remarks related to the economy and the financial situation. I already commented on the political theater aspects of the inaugural address; these were fully understandable, and even necessary.

But in the following days, the president has kept up the same line of discourse -- hammer the previous administration, talk down the economy. This is not uniting the public or restoring confidence, but rather the opposite. If there is very much more of this kind of talk, it will reinforce the lack of confidence in the economy and deepen the recession.

On Friday the president lowered himself to comment disparagingly on the office renovations of John Thain, late of Merrill Lynch; hours later he told congressional Republicans, "You can't just listen to Rush Limbaugh and get things done."

Both Thain and Limbaugh are private citizens engaged in legitimate business, just like the other bankers and business-people that the administration appears to want to use regularly as foils in their play.

I expected this to be a less business-friendly administration, but I admit I did not expect it to be outright anti-business, or that there would be personal attacks on individual private citizens engaged in legitimate business. There is just something not right about an American president going in for this stuff . . . is "unseemly" the word for it?

Dangerous New Phase of Financial Crisis (1)

For no particularly good reason, Tim Geithner on Friday in his confirmation hearing set off after China, declaring it a currency manipulator in decidedly undiplomatic language.

China is a major trading partner and a principal creditor of the United States. At a time of financial stress maybe a little more delicacy is called for in this key relationship. Or if not, then batten down for capital flight and a dollar crisis.

FT reports China hits back in kind, says of Geithner: "This is a sign of his immaturity and his inability to do such an important job."

Not a good start. Not change I can believe in.

Just sayin'.

Note the political theater aspect of some of the economic discourse

In this trading week, the DJIA has been down 300+, up 200+, and as I write this note, down another 200+.

A significant part of Tuesday's drop occurred during and after Barack Obama's inaugural address. Whether you were wowed by the address or not, you have to admit there was a lot less gaseous uplift than we have come to expect from his speeches, and a bracing amount of sober description of the economic problems we now face.

There was also considerable weakness during our up 200+ Wednesday, as Treasury Secretary nominee Tim Geithner was telling the Senate Finance Committee confirmation how gravely serious these problems are.

Unquestionably, there are real difficulties now, but it is necessary to bear one thing firmly in mind when the new president and his administration talk down the US economy. This is necessary and effective political theater. Now that they have taken ownership of the situation:

1) The new administration has to blame everything on the old administration.
2) They have to accentuate the old administration's responsiblity for all problems, so that they can take full credit for their remediation.
3) They have to set low expectations that they can expect to exceed.
4) And they have to enhance the crisis atmosphere, because that is the environment most receptive to their proposals for radical action.

I recall dark days during the Asian Financial Crisis, one of the several hundred-year floods I have experienced in an 18-year financial career. It was Christmas week, 1997. In Korea, Kim Dae-Jung won the election to succeed Kim Young-Sam, and the next day he made his inaugural speech. In so many words, this what he said: "Wow. Holy $h|t. Things are way more screwed up than even we thought. I don't know whether we are going to go bust tomorrow or the day after tomorrow."

The KOSPI did another belly-flop off the 10-meter board. But recognizing the speech as just great political theater rather than pure reasoned analysis, I thought that market break was buyable. And that buy turned out very well indeed.

If the theatrical elements follow the same script, this market break may also turn out very well, or so I may, ahem, hope.

The administration has a fine line to walk, however. They want to pursue the script only far enough to meet their political objectives, but not so far that everyone takes an even greater fright than they already have, killing confidence and tipping the economy into a depression from which it can't be pulled out.