The Many Economies of America

The Many Economies of America

06/26/14

Samuel Rines

Economics, United States

The US is not economically homogeneous, and it is too often treated as if it were. It sounds reasonable to say the US economy is rebounding from the recession. But in reality it is far more complex. The US is comprised of regions that have economic spirits idiosyncrasies all their own. It is unreasonable to say “The US economy is...” anything, because there is no “US” economy.

According to recently released 2013 data, states grew anywhere from -2.5 percent (Alaska) to +9.7 percent (North Dakota). To be fair, North Dakota sits on the Bakken formation and is growing from a very low base. Regardless, it had 2 percent growth in the depths of the most recent recession, and its unemployment rate is now 2.6 percent. Interestingly, lower oil production on the North Slope was the cause of the decline in Alaska’s output. Even regionally, growth rates differ substantially. In 2013, the Rocky Mountain region grew at a 4.1 percent clip, while the Mideast grew at only 0.7 percent.

The coasts of the US have long dominated economic activity, but increasingly, the middle matters. The “middle”—regions that include the Southwest (3.3 percent growth), the Plains (2.5 percent growth), and the Rocky Mountains (4.1 percent growth)—grew far more quickly than either coast. Together, the 3 regions contributed 38 percent of total economic growth; up from 36 percent in 2012. With the exception of Texas, most of the rapid growth in the middle came from smaller economies such as Wyoming, North Dakota, Oklahoma, and Idaho.

This regional economic disparity makes it difficult for the Federal Reserve to create effective policies for the country as a whole. By default, the Fed is forced to set policy based on the economies of the larger states: the ones that do have an effect on the aggregate statistics “US GDP” and “unemployment”. These would be New York, Texas, and California which represent about 30 percent of US GDP, but are not necessarily representative of the US economy as a whole. This creates the potential for economic overheating in some parts of the country, while other locales require continued Fed support.

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