I got the Fate of States: The New Geography of American Prosperity back in the summer but I only finally got around to reading it while I was away in South America.
The author, Meredith Whitney is a former Wall Street banker and mortgage trader she provides an excellent overview of how the geography of wealth and prosperity is changing within the United States and how this trend is not new. Whitney begins by illustrating past shifts in American industrial capacity and wealth from the cotton plantations of the pre-civil war south; to the power, mechanization and industrial revolution of post civil war northeast; to the manufacturing revolution that had assembly line and the factories humming in Midwest until the 1980. All of these examples lead us to the latest shift, what Whitney calls the Leverage/Housing Revolution which concentrated in the US southwest and southeast.
Most people know the story of the housing boom of the 2000s, the mortgage musical chairs that occurred on Wall Street and the calamitous results that wracked the world economy when the music finally stopped. Whitney examines the impact of the collapse on state and municipal governments in the US. Specifically she looks at how their behavior both prior and during the housing boom have shaped a new economic climate and how this climate almost ensures a new economic boom in the so called “flyover states” of the United States.
Whitney outlines how many state and local governments mismanaged the wealth and prosperity of the housing/leverage boom by over spending on lavish pet projects and offering rich contracts (that featured extensive long term pension burdens) to unionized employees. When the crash came, the tax and fee base that supported this spending dried up seemingly overnight resulting resulting in government debt to balloon out of control. With already high tax rates these government were forced to slash services or attempt to find new sources of income which make them increasing noncompetitive.
Meanwhile Whitney identifies a string of “flyover” states running down the centre of the United States from Canada to Mexico that are primed to take off as the engine of the American economy. These states never experienced the housing boom of the 2000s, and as result their fiscal situations are drastically different. Having never had the funds to spend wildly on unnecessary projects or award large contracts these states managed to keep spending at controllable levels, maintained low tax rates and invest in infrastructure.
Fate of States offers an interesting overview of what the new American economy could look like. Although predicting the future is notoriously difficult (particularly from a political and economic standpoint) Whitney offers a thorough overview of the a potential future for the American economy where the cites of New York, LA, San Francisco and Boston may be replaced by places like Kansas City, Bismarck, Souix Falls and Dallas as the engines that drive the economy forward.