If Bill Gates walked into a room with two unemployed laborers, the average income level of the room would skyrocket, but the unemployed folks still wouldn’t have any jobs. This paradox resembles my frustration with many economic assessments. If it doesn’t threaten a national recession, it often doesn’t register as a problem. Yet in a big, diverse country, it’s axiomatic that certain regions can thrive while others experience hardship. In fact, that’s happening right now.
According to economic indexes tracked by Moody’s Analytics, four states – Alaska, North Dakota, West Virginia and Wyoming – suffered consecutive quarters of economic contraction at the end of 2015. That means those states met the technical definition of a recession. Another three – Louisiana, New Mexico and Oklahoma – saw economic growth decline in the final quarter of the year, and could be headed toward recession themselves.
The four states in recession only contain about 3.9 million citizens, about 1.2 percent of the total population. Those on the cusp would add another 10.6 million, still only another 3.5 percent. But looked at another way, you’re talking about as many as 14.5 million Americans, with hopes and dreams and aspirations, whose lives could be thrown into turmoil by economic forces beyond their control.
These seven states share a common thread: They are the most reliant on energy-related industries. North Dakota in particular enjoyed a years-long boom coincident with shale oil discoveries and more sophisticated drilling techniques to extract it. But the oil price collapse, from $100 a barrel to around $30, has devastated what has become the state’s signature industry. The other at-risk states follow this pattern. While Texas may be known for its oilmen, the state is big enough that one sectoral collapse won’t sink the whole economy. These relatively smaller states made a bigger bet on oil or coal or gas, and their luck has run out.
In addition, most of these states are currently controlled by Republicans. Louisiana and West Virginia do have Democratic governors, and Alaska’s Gov. Bill Walker is an independent. But Republicans control the state legislatures in those three states. In the other four, only New Mexico doesn’t have unified Republican control of both branches of government; Democrats there control the state Senate.
The point is that you should not expect any strategies to widen the safety net for recession-stricken populations. Even if there were ideological sympathies toward that, state balanced budget requirements restrict the ability to spend to counteract a downturn. And the Republican Congress looks fairly unkindly on bailouts for states, even if they’re composed of their own voters.
The early reactions from the states are not encouraging. In Alaska, where 75 percent of state spending derives from oil revenues, the government has been battling a $3.5 billion budget deficit for a couple of years, with deep spending cuts, a proposed income tax for the first time in over three decades, and reductions to oil dividends given to residents each year. Republicans, predictably, want to ditch the income tax and tackle the issue with more cuts, but as Gov. Walker argued, you could fire the entire state payroll and not close the shortfall.
Louisiana’s budget is so dire that the state university may have to close in April. Incoming Gov. John Bel Edwards, elected amid the looming recession, has warned that without new revenues, hundreds of millions would have to be slashed. And with an eye toward getting followers of the state’s true religion to pay attention, he added that school closures would make the LSU football team ineligible for the year ahead.
Across these states, the story is pretty much the same: Republicans pushing austerity to deal with the downturns, with Democrats objecting to the blows to the most vulnerable. Even states with sound budgets and rainy-day funds don’t expect those reserves to satisfy the flood to come.
Wyoming plans to cut $100 million from their budget, out of a $9 billion total. Shortfalls in revenues triggered a mandatory 3 percent budget cut in Oklahoma. West Virginia expects a 6.5 percent budget cut across the board, leading to large layoffs from the state payroll (350 teachers and 87 state troopers, for example). New Mexico’s Legislature might have to return to special session to deal with the imminent budget crisis. North Dakotans are hopeful the downturn won’t be as bad as the oil-induced recession of the 1980s.
Alaska, West Virginia, Louisiana and New Mexico already have some of the worst unemployment rates in the nation, and the other recession-hit regions are seeing unemployment rise. And outside of federal payments to the poor, there aren’t any automatic fiscal stabilizers to funnel help to states that need it, preventing a vicious cycle of economic woes leading to state budget cuts leading to more woes.
This is a problem of our federal system. Some programs ensure that hard-hit states get relief – Medicaid, TANF and other federal benefits for individuals, for example. But those can be hard to access, slow to respond to crisis, and not targeted to larger state budget problems. Conservatives would be appalled at the notion of redistributing wealth to states experiencing trouble. But just yesterday, former White House economist Christina Romer noted in the Economic Report of the President that state fiscal relief was among the most cost-effective components of the 2009 stimulus. Making it a recurring feature would be useful.
In fact, Republicans controlling these recession states may want to propose that themselves. John Bel Edwards beat a flawed opponent in David Vitter in a rare Southern statewide victory in Louisiana last December. But the sick economy could have been a factor in voters seeking a change. In Oklahoma, two Democrats have picked up special election seats for the state Legislature in the past few months, in districts that went for Mitt Romney by 60-70 percent. West Virginia’s presidential polls display a desire to throw out the political establishment, which makes sense given the performance of their leaders in recent history. Fixing our regional recession problem might become a political imperative for incumbents.
Just because the economy may muddle through doesn’t nullify the regional pain. The goal of public policy should be to figure out how to reverse this – either by helping economies reliant on fossil fuels to diversify or providing a helping hand so state budgets don’t deepen the pain. U.S. leaders talk a lot about leaving no child behind – the same should hold for states.