How Can New York and California Do It?

Over at Forbes William Baldwin calculates a “FeedMe index” for each of the 50 states (illustrated above) and deduces from it that New York, California, New Mexico, West Virginia, Mississippi, and Arkansas are circling the drain:

The hazard with overburdened states is that the departure of jobs could someday turn into a rout. Just this is happening in Puerto Rico. Its productive citizens are leaving for the mainland. They are sticking a dwindling population of private-sector workers with the burdens of supporting the government’s clients and paying off the government’s debt.

Sunny, silicon-rich California is a long way from Puerto Rico’s fate, but the costs of keeping the government fed are on an ominous upward trend. A decade ago the top individual income tax bracket decreed by the solons of Sacramento was 9.3%; today, it’s 13.3%. The nice pensions for state and local workers in California are $189 billion short of adequate funding, according to an analysis by Moody’s. That pension debt comes to $13,500 for every private-sector job.

I have a number of issues with Mr. Baldwin’s hypothesis, the gravest is that his formulation assumes that Elon Musk is not a client of the state.

I’ll offer an alternative hypothesis: as long as states can a) attract subsidies from the federal government and b) are destinations, particularly for the wealthy, they can maintain lifestyles that would sink other states. California is a destination in my terms because of its climate and its Silicon Valley remains a mecca for high tech developers. New York is a destination because of the attractions of New York City and because of Wall Street.

As long as those remain the case I think the Golden State and the Empire State have little to fear.

It also explains why Illinois, despite its much lower “FeedMe index” will continue to struggle. Illinois is not a destination for reasons other than work and forcing employers to flee is not a winning strategy for the Prairie State.

19 comments… add one
  • Guarneri Link

    And here I thought all the iron ore boats had sunk or something…….

  • ... Link

    I have a number of issues with Mr. Baldwin’s hypothesis, the gravest is that his formulation assumes that Elon Musk is not a client of the state.

    Are there any billionaires that aren’t ripping off the state?

  • Ellipsis:

    There are degrees. Bill Gates’s fortune is highly dependent on the securing of intellectual property rights by the state. He’s definitely a client of the state. Warren Buffett somewhat less so.

  • michael reynolds Link

    I’m seeing Help Wanted signs all over the place. In-N-Out is up to $12 an hour to start. Retail, restaurants, trucking, all looking for help. Granted the Bay Area is not Bakersfield, and all I’m seeing is what I happen to notice while driving around, so not exactly science.

    But then not sure the Forbes piece is science, either, not even economics. Why is he bitching about our top tax rate? We all know it’s expensive living in California, and yet, here we are, even those of us who actually pay that 13% rate and whose place of employment is just a laptop computer.

    As long as we have beaches and mountains and the sun we’ll be fine here in California. We’re the pretty girl of states, someone will always buy us a drink.

  • We’re the pretty girl of states, someone will always buy us a drink.

    That’s the way I’ve got it figured, Michael.

  • ... Link

    Warren Buffett somewhat less so.

    I might think so too if I didn’t remember how the government made him richer back in 2008 and 2009 with the bailouts of Goldman Sachs and AIG. And Warren’s moves then sure as fuck looked exactly like the moves of someone who knew exactly what was going to happen.

  • ... Link

    Funny, I do know people that live Bakersfield. Family, even, living in Kern County. (Wife’s family, actually, but I rather like them.) They’re seeing conditions continue to erode. But thank God their suffering isn’t in vain, so that the rich can continue to live in comfort while robbing them blind.

  • jan Link

    Michael is correct in saying that the area he lives in shows little to no economic wear and tear, as San Francisco continues to be a fiscally fit area like most beach cities in CA. These coastal havens attract wealthy, successful, primarily liberal people supported by the entertainment or high tech industries. However, it’s a different story when you go into the central valley (like ice was alluding to), or into the more rural areas where residents attest to seeing little to no recovery since the 2008 crash.

    Supposedly there are rumors circulating that the democratically controlled legislature is attempting to circumvent the steady property tax that has been in place for years. Obviously they see the need for more money, and raising property taxes more is a great place to leech it from. Should there be any credence to such rumors it will start to take a toll, IMO, much like what is happening in Illinois, and the golden state may begin to lose some of it’s luster.

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