USA Outgrows China… Because of Florida?

For the first time in more than three decades, the U.S. economy is growing faster than China's economy, casting doubt on the assumption that China will eventually overtake the current world leader. This strong growth in what is already the world's largest and most diverse economy is particularly notable when you consider that a large proportion of the world's other advanced economies have been more or less stagnant for more than a decade. But come closer and look closer and even within the US the story is much the same. Most, almost two-thirds of the US states, are not growing as fast as the United States itself.

What this means is that only a handful of areas are doing much of the heavy lifting to prop up the world's largest economy, and it's not just about absolute numbers of economic growth, which is where we get to Florida. Florida is home to the fourth largest economy in the United States and has approximately the same economic output as Mexico, Indonesia or Spain. Impressive considering it is just one of the 50 states that make up the union, but Florida has attracted the attention of many economists for a reason other than its simple size. Florida is growing much faster than the other major states that round out the top four — California, New York and even Texas — and it's doing so in ways and with industries that haven't typically been associated with the region's vibrant history.

It is also gaining a lot of attention

because

that success may or may not be a net benefit to the US as a whole, and to find out why we must, as always, answer some simple questions. What is driving Florida's rapid growth today? What are the potential problems caused by these growth areas? And finally, is this above-average growth really sustainable? Once we've done all that, we'll be able to place Florida, the fourth-largest economy in the U.S., in the Economy Explained rankings to see how it compares to other U.S. states and entire national economies. For an economy to function well, a lot of communication is required, but this begins to consume a lot of workers' time and if their writing is misinterpreted it can slow down an entire organization or cost a company a lot of money.

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I want to start this video a little differently with a bit of a personal anecdote that I promise is very relevant to Florida's economic situation. When I was in college doing my undergraduate studies, I had a part-time job managing a store where the regional manager pressured me and all the other stores to make as many sales as possible. Of course, that's nothing unusual, but one day, for some reason, my particular store was allowed to offer a huge discount on everything for a single day. To make the most of this and keep our big boss happy, we called all of our regular customers to let them know about this in advance so we could make as much money as possible that day.

Unfortunately, well, I actually got into a lot of trouble for doing this

because

the only thing that really happened was that people made all the purchases they were going to make at a discount at our store instead of shopping like they normally would at all the stores. stores in the area, which made us look good at the expense of the company as a whole. Now, don't feel too bad, my PTSD from working in retail has all but disappeared, but the point is, on a much larger scale, Florida could be doing the exact same thing and growing its economy at the expense of other states that make up the U.S.

The economy of a state as it exists today actually began as a sort of tourist destination to which people traveled from colder regions of the east coast of the U.S. While technically the region that It became a state, home to the first western city on the North American continent, and developed much more slowly than the northern regions, largely due to its terrible geography. Even today, the state is full of swamps, mosquitoes, natural storms, and difficult terrain to navigate, so for most of its early history as a state of its own it was just a place where people went on vacation, and even that It was limited.

This changed when railways were built in the area connecting its hinterland regions directly to major industrial and population centers in the north, which not only opened the area to even more tourism, but began to make things like agriculture possible. and even light industry. Today, these early industries still represent a significant portion of the state's total economic output, but they have been joined by a growing number of more modern economic contributors. The state has a surprisingly large mining sector, looking not for metals or fossil fuels, but for one of the world's largest reserves of phosphorus, which is a natural chemical used primarily as fertilizer.

The United States has the third largest agricultural industry in the world, behind China and India, with their huge populations, and on a per capita basis, agriculture in the United States is far more productive than almost anywhere else in the world. Phosphate extracted from the soil in Florida supplies three-quarters of all the fertilizers the country's farmers need, which, in addition to being a huge revenue center for Florida, also means that the US as a whole is much less dependent than most other countries. of the limited global supplies of this resource for their food security. Now, this is all very interesting, but it is not what has been driving the state's recent growth, and those are rather the industries that are causing controversy.

Florida is a strange place, and part of its unique reputation is due to the economic factors that attract people from all walks of life to the state. Florida has by far the highest level of net migration within the United States, and more people are moving to this state than even outlier states like Texas, which has been making headlines in recent years for the wave of people leaving. They move there. Florida has gained almost as many new residents since 2020 as New York has lost, and unlike many other states that have seen large increases in their number of new residents, this phenomenon is really nothing new for Florida.

Now, of course, much of that migration is simply due to older people moving to the state to retire, which is why, despite consistently high levels of internal migration to Florida, the population is still not growing as fast like a state like Texas, because older residents die as quickly as they enter. But the population is still growing overall, which compared to other major U.S. economies like New York, which has been stagnant for more than a decade, and California, which is retreating, population growth in any form is a positive sign that there is something attracting more than just retirees to the state.

Many of Florida's new residents are young, highly skilled workers, and interestingly, both groups are moving to the state for the same reasons. Taxes within the US are collected at both the national and state levels, meaning that even within the same country, some people pay a higher rate than others due to where they live. Florida has no state income tax, which means that people who live in other states like New York, and especially California, can save a lot of money by moving there. For retirees, this is a good way to stretch your savings a little further, but it has recently attracted a lot of people in some of the state's newest booming industries.

Low taxes, beautiful beaches, and an overall lower cost of living than centers like New York City, Silicon Valley, and Los Angeles is great, but Florida wouldn't have been able to attract some of America's most skilled and productive workers without there were jobs they could do there. Fortunately, the state has seen a significant increase in the number of financial and technology companies establishing major operations centers, or even moving their headquarters there entirely. The largest concentration of international banks in the US is not in New York City, but in Miami, and likewise many technology companies have set up shop in the state's largest city due to its relative ease of doing business.

Of course, there have been some high-profile cases where business interests in Florida have taken on the power of the government, and cases like this can really have an impact on how desirable a region is to invest, work, or establish a business. . But Florida is still generally perceived to be much less restrictive than other major centers like California and New York. Much of the reason average incomes in Florida have risen so rapidly over the past decade is not because the state itself has become more productive, but because already productive and highly paid workers have moved there, either to work remotely or to follow in your footsteps. the large companies that have also settled there.

While this has been a huge positive trend for the state itself, it hasn't necessarily been good for the economy on a national scale, or even for the people of Florida on an individual level. We've covered the topic of capital flight and brain drain many times on this channel, but we've never really explored it happening within a country, and in many ways this is where it can be most intense. Now, as always, we don't want to repeat too much here, but brain drain is what happens when the most skilled participants in an economic region move from one area to another in search of better opportunities, leaving the region they come from worse off. general situation. because you lose your best workers, taxpayers and possibly face skills shortages.

If a tech worker moved from California's Silicon Valley, not only would California lose its tax revenue, but California-based companies might not be able to find the workers they need to continue operations and would eventually have to relocate. wherever they can. find workers. Now, a quick side note is that a reasonable assumption would be that the rise of remote work could combat this, now that there is no need for certain workers to be physically tied to a particular location, but the unfortunate truth is that it is too soon to say. It has the potential to make the problem worse, because at least things like access to employment opportunities added some friction to productive workers moving to whatever state, city, or country offered them the best tax treatment and living conditions.

Without that, there will be fewer obstacles in their path, especially if the host economy is happy to host them, which is usually the case with wealthy, productive workers. It's probably not the most consequential example, but there's a reason why so many people with online businesses move to Dubai, and it's not because they're architecture fans. Capital flight is similar to brain drain, but they are two different problems. Capital flight occurs when people take their capital out of one area and move it to another. Capital in economics really means anything other than land or labor that can be used to increase economic output, so tools, infrastructure, technology, materials, and of course, cash. old and normal.

If people move, they tend to bring their things with them, including spending money, which denies the capital of the place they are moving from andprovides to the place they move to. This has been a major problem for many national economies in modern history as international movement has become more common. Extreme examples like China and South Africa have even imposed restrictions on the amount of capital their people can take with them if they leave the country because otherwise the exodus of wealthy citizens could have serious impacts on the economy. Now, within a sovereign nation like the United States, a country that values ​​its freedoms, such restrictions would not be possible, and that is why, in some ways, capital flight and brain drain can cause even more serious problems. .

At this point, it's probably important to recognize that while many people are moving to Florida from places like New York, California and Illinois, dozens of other US states have had the same problem with skilled workers in the past. They were moving to the same area. the same states that are now losing workers to Florida. The United States itself is globally the largest beneficiary of skilled migration and foreign capital movements, so it is ironic that states like Florida and Texas are now causing the same problems, but that does not mean those problems are not real. Now, before we get into these specifically, it is important to note that the state federation system that makes up the US has many advantages.

Having multiple levels of government adds a level of control and redundancy to the national economy as a whole, making it more difficult for a bad policy, a bad leader, or even a bad idea to cripple the economy. It's not just the United States, other federations around the world such as Canada, Germany, Switzerland, Australia and the Netherlands have benefited from their system of granting a level of autonomy to distributed states, but this only works well if that level of autonomy is the appropriate. Too much oversight and well, it just becomes another unitary country with an extra layer of bureaucracy, and too little oversight can cause states within a country to start competing with each other, similar to a certain poor student who thinks they beat him. to the system for its part. -Working time.

If all US states start competing with each other to attract the most talented workers and the most valuable industries, then this will end up being a race to the bottom in regulations, tax revenues and incentives. In some ways, this is already happening: cities are fighting each other to get companies to establish new headquarters in their metropolitan area. In the short term, this could provide a boost to regional economic centres, but it will almost inevitably come at the expense of overall economic stability. Companies, policymakers, and even economists love to hate them, but there are usually reasons why certain policies exist.

What's more, competition between supposedly united states can cause a kind of feedback loop in which poorer states fall even further behind richer ones because talented workers move to areas where they can earn more money and be surrounded of the lifestyle enjoyed by the rich, and in doing so they prop up the rich state at the expense of the poorer state. The wider that gap, the more pressure it will put on highly productive people in poorer states to move to richer ones. Extreme regional inequality will realistically have to be addressed with cumbersome and politically unpopular interventions, or it may eventually get so bad that the separate states almost have to be treated as two entirely different economies.

Now the United States is a long way from anything that extreme for now, but it's something that shouldn't be completely ignored as its workforce and industrial centers become increasingly mobile. However, one problem this is causing right now is that regular people already living in states like Florida are finding it harder to keep up financially with the rich people moving there for lower taxes, a more pleasant climate and comparatively cheaper living expenses. Governments at all levels must do what is best for the people they represent, and achieving economic growth and increasing incomes is an important part of achieving those results.

But when big numbers like this are achieved in ways that don't actually improve the living standards of anyone, except perhaps a select group of wealthy internal migrants, headline economic success doesn't always equate to genuine economic success. Well, now it's time to put Florida on the economics explained rankings. Starting, as always, with size, Florida has a GDP of approximately 1.4 trillion US dollars. The little disclaimer here is that, like every other US state, the world bank and the international monetary fund, the sources we normally rely on for macroeconomic figures do not produce data for the states within a sovereign country, so the figures here do not use exactly the same methodology.

Still, Florida's economic output is roughly equivalent to Mexico's and if it were its own independent country, it would be the 14th largest in the world, so it gets an 8 out of 10. GDP per capita is $70,557, which It's very good by global standards, and it's only getting better. But for all its recent success, this figure is still below the average for the United States as a whole, which has a per capita output of $82,885, although that figure is higher in only 17 of the 50 total states and DC. Still, this ranking ranks economies internationally where they would get another 8 out of 10.

Stability and confidence are quite strong. It is a major state in the world's largest economy, using the world's reserve currency, and despite the occasional political maneuvering that makes headlines, the state is incredibly stable, which largely explains why so many industries important people have been attracted there. It scores a 9 out of 10, losing only one point due to the internal challenges facing the state and current geographic issues, such as tropical storms, that can have a very tangible impact on the future of the economy. Growth has been some of the strongest in the United States, which itself has been one of the world's fastest-growing major economies over the past decade.

The economy has roughly doubled in size over the past 10 years, giving it a 9 out of 10 on this metric, even if that growth has come at the expense of other areas of the economy. Finally, the industry. Florida, even for such a large economy, has a well-diversified economic base of agriculture, mining, tourism, and now financial services and technology. This is not to mention industries like construction, which are fantastic employers and have been booming thanks to the arrival of new people to the state. Overall, the economy scores an 8 out of 10, again losing just two points because many of these industries still rely on the United States as a whole to feed themselves, rather than creating independent, local industrial bases.

Overall, that gives Florida's economy an 8.4 out of 10, which is exactly the same as the state of Texas, which despite having many of the same demographic characteristics as Florida, arrived at this particular score from a different and possibly more sustainable way. . You should be able to click on that video on your screen now. Thanks for watching friend. Bye bye.