In this column a few weeks ago, I called attention to a slowing U.S. economy, using as evidence the Federal Reserve Bank of Philadelphia’s “leading indicators” maps of the 50 states. The maps showed how a slowdown reflected progressively across the nation’s landscape. Indirectly, they also suggested that U.S. trade wars were penalizing growth for manufacturing states that export, as well as farming regions that had been, pre-trade wars, heavy sellers of grain and soy beans to China.
The latest maps, which came in a bit behind schedule, help illustrate one of the key lessons of economic policymaking: When you play favorites, one state’s prosperity comes at the expense of another state’s losses.
As readers know, December proved to be an especially tough month: Trade wars and tariffs, interest rate increases, and the government shutdown made for a serious economic downdraft. Itself caught in the shutdown, the Philadelphia Fed delayed its map-making until government data were again in hand.
Better late than never, here are the 2018 leading indicator maps for June, September, and December 2018. Future prosperity is colored green; the darker, the better. States that are bogged down are colored gray, and those that are expected to lose ground are flesh-colored.
A quick glance confirms the weakening trend I noted earlier. There were a lot more dark-green states in June than in December. Western grain-producing states and eastern manufacturing states were getting progressively weaker. U.S. trade wars seem to have taken a heavy toll. Michigan’s unhappy color tells us that propping up steel-producing states with tariff-induced higher prices may have placed a heavy burden on auto producers.
Yet there are other signs of local prosperity suggesting some White House initiatives are working as planned. West Virginia, Kentucky, and Ohio may be prospering from the Trump administration’s efforts to prop up coal and steel production.
In a way, each map is like a canvas that has been altered by painting politicians. In doing their artwork, the painter-politicians can choose which states get a heavier shot of green, and which, as a result, become paler. They consciously and deliberately choose policy actions that make some states better off while — often just as deliberately, or sometimes through shortsightedness — letting those flesh-colored states suffer.
But why would our elected leaders do that? Why not use more dark green paint when working on the next canvas?
The answer, of course, is part and parcel to the political process. First off, there is only so much politically available green paint. To get elected, politicians have to make promises to enough interest groups to cobble together a large enough coalition to push them across the finish line. Public choice economics tells us that successful politicians know a winning strategy involves providing goodies to concentrated interest groups by spreading the costs across diverse, unorganized and less vocal citizens. The swing states in steel country gain; the less influential grain states suffer.
Trump made promises to discouraged blue-collar workers in older industrial and coal-mining states such as Ohio, Pennsylvania, and West Virginia. He made no special promises to farmers in grain-producing states, and he indicated little sympathy for South Carolina workers employed in South Korea-owned washing machine factories and German auto assembly plants when their employers were hit with tariffs. He has delivered. Some states have become a bit greener; others have turned pale.
But there’s still more to this story about political canvas painting. Overall, the entire canvas is losing its previous healthy, green hue. Age-old lessons learned about freedom and free trade tell us why: When people are free to specialize and trade, wealth overall tends to rise. When freedom is denied, and trade becomes limited or planned by politically appointed trade czars, overall prosperity falls.
This could be a good time for the politician-painters to put away their brushes and let the economy recover.
Bruce Yandle is a distinguished adjunct fellow with the Mercatus Center at George Mason University and dean emeritus of the Clemson University College of Business and Behavioral Science. He’s the author of the new policy brief, “The Economic Situation, March 2019.”
