Saturday, January 17, 2015

Florida Rising and New York Fading

Gaining Ground

Falling Behind

The U.S. Census Bureau has announced that Florida has surpassed New York in population to become the nation's third largest state.  Here are the top ten states in population as of July 1, 2014, according to the announcement:

1.  California          38.8
2.  Texas                27.0
3.  Florida              19.9
4.  New York           19.7
5.  Illinois               12.9
6.  Pennsylvania      12.8
7.  Ohio                  11.6
8.  Georgia             10.1
9.  North Carolina    9.9
10. Michigan            9.9

The same announcement also includes a list of the ten fastest growing states, which also includes Florida:

1.   North Dakota
2.   Nevada
3.   Texas
4.   Colorado
5.   District of Columbia
6.   Florida
7.   Arizona
8.   Utah
9.   Idaho
10. South Carolina

In 1970, New York's population of 18.25 million dwarfed Florida's 6.8 million figure. (See here for these and other figures.) Since that time, the nation's population has risen more than 50 percent. Florida's population has nearly tripled, while New York's has risen a mere 8 percent.  Moreover, in 1970, New York's GDP accounted for 10.8 percent of the nation's GDP, while Florida accounted for 3 percent.  (See here).  By 2010, the Empire State accounted for a mere 8 percent of national GDP, while Florida accounted for 5 percent.  (See here).  If this trend continues (and there is no reason to think it will not), New York's GDP will account for 5.9 percent of the nation's by 2050, while Florida's will account for more than 8 percent.  This trend will have political consequences as well, as states such as Florida gain additional clout in the House of Representatives and Electoral College at the expense of states such as New York.

It should be no surprise that Florida has surpassed the Empire State in population and is closing the gap in economic output.  The disparate fortunes of these states are a case study in the operation of competitive federalism and the concomitant protection for economic liberty.  The constitutional framework of competitive federalism allows states to vie with one another for capital and labor by adopting policies that reward individual initiative and encourage entrepreneurial activity.  As previously explained on this blog, New York has adopted various policies inhospitable to economic freedom, thereby deterring individual initiative and resulting economic opportunity.    The state's top marginal tax rate on income, 8.82 percent, is one of the highest in the nation, whereas Florida has no income tax whatsoever.  Indeed, according to this source, New York residents pay 12.8 percent of their income in various state and local taxes, the highest percentage in the nation. (Another source reports that the figure is even higher --- 14 percent.)  The Empire State's corporate tax rate of 7.1 for all corporations, large and small, is also significantly higher than Florida's. (See here)  New York also encourages labor cartels known as unions.  For instance, the state is one of a diminishing number of jurisdictions that authorize labor unions and businesses to negotiate collective bargaining agreements requiring a firm's employees to subsidize unions as a condition of working for the firm subject to the agreement, even if the employee declines to join such a union.  By contrast, Florida's constitution protects its citizens' "right to work" for the firm of their choice, free of requirements to provide financial support to organizations they oppose.

These are just a few of ways in which, compared to Florida, New York thwarts economic liberty and discourages wealth creation.  This is not to say that Florida's economic policy is optimal in all respects.  The state fixes a floor on wages that is higher than the "minimum wage" imposed by the National Government.  Moreover, the state's corporate income tax, while lower than New York's, is higher than that of many other states.

All in all, however, Florida appears to be a far more hospitable climate for free enterprise than New York. Indeed, according to a recent study by the Mercatus Center at George Mason University, New York ranks dead last among the states in "Overall Freedom," (see here), 50th in "Economic Freedom" (see here), and 47th in "Regulatory Freedom."  (see here).  By contrast, the same study ranks Florida 17th in Economic Freedom (see here), 23rd in "Overall Freedom" (see here), and 32nd in "Regulatory Freedom." (See here)  The study also reports that, on net, 9 percent of New York's population left the state between 2000 and 2011, while Florida experienced a net inflow of 7.4 percent during the same period.

In sum, economic policies have consequences.  States like New York have chosen policies that deter business formation and expansion, while Florida has opted for a different approach.  While the national government has adopted policies that subsidize and protect high tax states such as New York, such policies cannot prevent the inevitable results of competition between the states for labor and capital.  Unless New York reverses course, the "Empire State" will slowly fade into political and economic insignificance.