What ISN’T Wrong with Georgia

Back in January, a friend drew my attention to an article making the rounds on  blogs and social media with the mischievous hope of inciting a debate between me and a left-leaning mutual friend of ours. As I was on vacation and busy having political debates of a different kind over tea and nargila in the former Ottoman Empire, I declined to debate it at the time. However, drawn by its topic, I could not help but return to it these few months later to see what I really thought. Ultimately, it was all that I secretly hoped: engaging and thoroughly wrong—perfect for a response. Published by The Atlantic on January 2nd, it was titled, “What’s Wrong with Georgia?” As a native and current resident of the state, I hold a certain personal attachment to its politics and am always concerned with the article’s main subject: Georgia’s continued challenges in recovering from the recession. Unfortunately, the article is just one more in a recent trend of journalistic analyses of state-level recoveries that fail to grasp the underlying economic dynamics at work. As this is simply a matter of careful versus reckless economics and not an ideological issue per se, I will forego the usual backgrounding and jump right in:

 

As the article notes, Georgia has been variously ranked by business publications as the top state or one of the top states in which to do business in the US. It has, however, continued to suffer from continued high unemployment, sporting the highest jobless rate in the nation in the third and fourth quarters of 2014.

 

That being said, I’m unsure as to where the article’s author, Alana Semuels, is finding her data. She claims, for instance, that Georgia’s unemployment rate in November 2014 was 7.2%, whereas seasonally adjusted civilian unemployment in that month was, according to the Bureau of Labor Statistics, 6.7%—placing it tied with Michigan for eighth in unemployment behind DC (7.4%), Mississippi (7.3%), California (7.2%), Rhode Island (7.1%), Oregon (7.0%), Nevada (6.9%), and Tennessee (6.8%). Even the unadjusted rate for Georgia in that month was 6.6%. Perhaps it was a typographical error, mistaking it for November 2013’s rate of 7.2%. Whatever the cause, it casts some doubt on her numbers—a rather important element when discussing unemployment.

 

It does, however, feed nicely into her thesis: that Georgia has a problem and that current policies are driving (or at least abetting) it. Semuels quotes a former BLS economist, Michael Wald, who claims “This is what happens when you have a hands off, laissez faire approach to the economy…Georgia is basically a low-wage, low-tax, low-service state.”

 

As a site that advocates laissez-faire wherever and whenever we get the chance, and with two of our writers having worked in the Georgia legislature and seen firsthand both its policies and its culture, we would venture that to characterize Georgia as laissez-faire is to admit that you don’t have a firm grasp of laissez-faire or you are so inimical to limited government of any kind that you see any right-of-center state as equivalent to John Galt’s Atlantis. Conversations in Georgia politics usually center more on how to offset one tax cut with another tax raise and how best to never rock the boat than they do on achieving any dramatic decrease in the size or influence of government.

 

True: one of the great driving forces behind Georgia’s economy has been the pursuit of lower taxes in various categories. Many businesses–notably in the entertainment and manufacturing industries, which have both benefited heavily from its low-tax policies—have been drawn to headquarter themselves and develop new projects in Georgia in the last five years and continue to do so precisely because of its tax and legal environment. Though this may go against the leftist rationalization that higher taxes will somehow lead to greater prosperity, common sense seems to be prevailing thus far and Georgia continues to grow to the extent that it upholds free market policies. If only its leaders would pursue this task even further, Georgia might surpass its major competition, Texas, in attracting new businesses.

 

It is likewise true that Georgia is a low(er)-wage state. The BLS estimate of an average annual wage in Georgia for 2013 was $44,040, somewhere between the BLS’s estimate of the US average annual wage at $46,440 and the US Census Bureau’s estimate of $43,041. Meanwhile, according to the Census Bureau, Georgia’s median income for the same year was $47,439, somewhat below the $51,939 US median income. Regardless, Georgia’s wages are admittedly somewhere just below average. Wages only paint half a picture, however. Georgia also has a healthy, low cost of living. The 2014 Missouri Economic Research and Information Center (MERIC) ranks Georgia as having only the thirty-sixth highest cost of living in the US, sitting roughly seven percent below the national average. Particularly outstanding in that study is Georgia’s low cost of housing—nearly 20% below the national average.

 

Finally, the criticism of being low-service is highly dependent upon one’s normative idea of what the number or degree of government services should be at a state level. Admittedly, Georgia does not strive to be the welfare state that many in left-leaning states such as California, New York, Hawaii, or Massachusetts do. That being said, I don’t believe that Georgians would jump to trade places with any of those states—now or during the depths of the recession. California’s rampant use of ballot initiatives has led to out-of-control spending; New York, the worldwide symbol of business and capitalism, is now having to advertise nationwide and offer massive tax incentives to attract businesses back to its borders; and Hawaii, DC, and the entirety of New England are well above the national cost of living despite state and district politicians’ claims of success in offering a plethora of benefits to their residents. If you love bureaucracy and dependence on the state government, these are the places to go; if you want personal prosperity and to start a business, it is best to look elsewhere.

 

However, a straightforward look at the real list of high-unemployment states already casts doubt on Semuels’ and Wald’s explanation for Georgia’s troubles. If free market policies are to blame for Georgia’s hardship, why aren’t Texas or South Dakota among the highest unemployed states? What about North Dakota, Virginia, or New Hampshire? Louisiana? Nebraska? Delaware? Out of the Fraser Institute’s rankings of economic freedom in the 50 US states, only the ninth–Tennessee–shows up in our shortlist of high-unemployment states above. Thus, the causal relationship Semuels and Wald imply between low taxes, wage competition, and limited government on the one hand and unemployment on the other is cast into a considerable measure of doubt.

 

Taking a step back for a look at the bigger picture, Georgia in the lead-up to the recession was pursuing a development path driven primarily by housing and the service industry. It takes little imagination to see why a state economy that was so centrally dependent upon the real estate market was devastated by a housing bubble and might show more lasting effects of the recession than states less dependent upon that industry. The service industry was undoubtedly hard-hit by this recession—a fact that would alone account for some of Georgia’s initial hardship; housing, however, is in some senses orders of magnitude greater in its potential threat to an economy—national or state. As economists Steven Gjerstad and Vernon L. Smith have so impressively detailed in their research, housing is a unique asset that can be seen at the root of some—if not all—of our more pervasive contemporary crises.

 

Just look at the comparative recoveries after the equities-driven dot-com bust in 2000 versus this recession. Housing is the biggest investment taken on by individuals en masse. It is a large, highly illiquid good acquired primarily through the assumption of debt. For the non-economists among us: it is the hardest kind of crisis to get out of. In the meantime, it is unsurprising that states like Georgia might continue to suffer from somewhat higher unemployment as inventories continue to clear and housing industry insiders are just beginning to feel a sense of normalcy. Along the way, there are so many jobs that depend upon housing market growth–mortgage lending, insurance, construction, development, contracting, construction supply, home goods retail, furniture retail, etc.–that the effects resonate more broadly than they might in other sectors, resulting in more widespread unemployment that can take longer to subside.

 

Word in the industry as of this writing is that, barring the unforeseen, 2015 will be the first year since the recession began in 2007 that things are expected to return to something like the pre-crisis norm. So maybe—maybe—fundamental dislocations such as this have more to do with any continuing hardship in Georgia than some arbitrary and unfounded characterization of the state as a capitalist paradise.

 

Granted: looking at second-order causes and talking about sticky labor markets full of building contractors getting back on their feet isn’t as exciting for some people as the dramatic, “Capitalists did it(!)” finger-pointing, and discussing the illiquidity of large physical capital probably won’t motivate anyone to revolt like it’s 1848 all over again, but if we say we’re dealing in economics we have to contend with the possibility that the answer won’t be quite as romantic as all of that. Sometimes—particularly in today’s uncertain regulatory and monetary environment—the answer to recovery is just to ride the slow, steady wave back to shore. And sometimes in writing about recovery journalists should take care that they are on solid ground before they go planting the victory flag, else they might find it washed away before they know it.

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