For the first time in over 3 decades, the economy of the USA is growing faster than
the economy of China, casting doubts over the assumption that eventually China will
overtake the current global leader.
This strong growth in what is already the largest and most diverse economy in the world
is particularly remarkable when it is considered that a large share of other
advanced economies around the world have been more or less stagnant for more than a decade.
But zoom in and get a closer look and even within the USA the story is much the same.
A majority, almost two-thirds of US states are not growing as fast as the USA itself.
What this means is that just a handful of areas are doing a lot of the heavy lifting
to prop up the world's biggest economy, and it's not just in outright economic growth figures either,
which is where we get to Florida.
Florida is home to the fourth largest economy within the USA,
having roughly the same economic output as Mexico, Indonesia or Spain.
Impressive considering it's just one of 50 states that make up the union,
but Florida has attracted the attention of a lot of economists for a reason other than just its
sheer 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 it in ways and with industries that haven't
typically been associated with the region's vibrant history. It's also gaining a lot of
attention because that success may or may not be a net benefit to the USA as a whole,
and to find out why we must as always answer a few 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 have done all of that we can put Florida, the fourth largest economy within the USA,
on the economics explained leaderboard to see how it stacks up against other US
states and entire national economies.
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I want to start this video off a little bit differently with something of a personal
anecdote which I promise is highly relevant to the economic situation of Florida.
Back when I was at university doing my undergrad I had a part-time job managing a shop where the
regional boss pushed me and all of the other stores to make as many sales as possible.
Of course that's nothing unusual, but one day for whatever reason my particular shop
was allowed to put on a big storewide discount for everything for one day only.
To make the most of this and to keep our big boss happy we called all of our regular customers to
let them know about this in advance so that we could make as much money as possible on the day.
Unfortunately we, well I actually got into a lot of trouble for doing this because all that
really happened was that people did all of the shopping they were going to do at a discount in
our store instead of shopping like they normally would at all of the 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 retail has mostly passed, but the point is on a much larger scale Florida might be doing
the exact same thing and growing its economy at the expense of other states that make up the USA.
The economy of a state as it exists today really got started as something of a tourist
destination for people to travel to from colder regions on the east coast of the USA.
While technically the region that went on to become the state was home to the first western
city on the north American continent, it developed far slower than regions to the north in large part
because of its terrible geography. Even today the state is full of swamps, mosquitoes, natural storms
and otherwise difficult to navigate terrain, so for most of its early history as its own state
it was just a place where people went on holidays, and even that was limited.
This changed as railroads were built into the area connecting its inland regions directly with
major industrial and population centers in the north, which not only opened up the area to even
more tourism, it started to make things like farming and even light industry possible.
Today these early industries still make up 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, not digging for metals or fossil fuels but one of
the world's largest reserves of phosphorus, which is a naturally occurring chemical which is used
primarily as a fertilizer. The USA has the third largest agricultural industry in the world behind
China and India with their massive populations, and on a per capita basis farming in the US is
far more productive than it is almost anywhere else in the world. The phosphate dug out of the
ground in Florida supplies three quarters of all fertilizer required by farmers in the country,
which beyond just being a great revenue center for Florida, also means that the USA as a whole
is a lot less dependent than most other countries on limited global supplies of this resource for
their food security. Now these are all very interesting, but it's not what has been driving
the recent growth of the state, and those are more the industries causing controversy.
Florida is a strange place, and part of its unique reputation comes down to the economic
factors that attract people into the state from all walks of life. Florida has by far the highest
level of net migration within the USA, and more people are moving to the state than even outliers
like Texas, which has been making headlines in recent years for the wave of people moving there.
Florida has gained almost as many new residents since 2020 as New York has lost,
and unlike a lot of other states that have seen big increases in their number of new residents,
this phenomenon isn't really anything new for Florida.
Now of course a lot of that migration is just old people moving to the state to retire,
which is why despite consistently high levels of internal migration into Florida,
the population is still not growing as fast as a state like Texas,
because well older residents die just as quickly as they move in.
But the population is still growing overall, which compared to other major US economies
like New York which has been stagnant for more than a decade now, and California which is going
backwards, population growth of any form is a positive sign that there is something
attracting more than just retirees to the state. A lot of Florida's new residents are young,
highly skilled workers, and weirdly enough both of these two groups are moving to the
state for the same reasons. Taxes within the USA are charged on a national level
as well as on a state level, which means that even within the same country,
some people pay a higher rate than others because of where they live.
Florida has no state income tax, which means people living 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 get their savings to stretch a little bit further,
but recently it has attracted a lot of people in some of the state's newest booming industries.
Low taxes, nice beaches, and a lower overall 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 the US's most skilled and productive workers unless there were jobs for them to do there.
Fortunately the state has seen a significant increase in finance and technology companies
setting up major centers of operation, if not moving their headquarters there entirely.
The highest concentration of international banks in the USA is not in New York City,
it's in Miami, and likewise a lot of tech companies have set up shop in the state's
biggest city because of its relative ease of doing business.
Of course there have been some high-profile cases of business interests in Florida going
head-to-head with government power, and instances like this can genuinely have
an impact on how desirable a region is to invest, work, or set up a business in,
but overall Florida is still perceived as being much less restrictive than other
major centers like California and New York.
A large part of the reason why average incomes in Florida have been increasing
so rapidly over the last decade is not because the state itself has become more productive,
it's because already productive and highly paid workers have been moving there either
to work remotely or to follow the large companies that have also moved 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 the people of Florida on an individual level.
Now we have covered the issue of capital flight and brain drain many times on this channel before,
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 for better opportunities,
leaving the region they are moving from worse off overall, because it loses its best workers,
taxpayers, and possibly has to face skill shortages.
If a tech worker moved from Silicon Valley in California,
not only would California miss out on their tax revenues,
California based companies may not be able to find the workers they need to continue their
operations and eventually they will have to move to where 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, it's too soon to tell.
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 deal and living conditions.
Without that there is less standing in their way, especially if the receiving
economy is happy to house them, which most normally are to wealthy and productive workers.
It's probably not the most consequential example, but there is a reason why so many people with
online businesses move to Dubai, and it's not because they are a fan of the architecture.
Capital flight is similar to brain drain, but they are two distinct problems.
Capital flight occurs when people pull their capital out of one area and move it to another
Capital in economics really means anything that isn't land or labor and can be used to
increase economic output, so tools, infrastructure, technology, materials,
and of course regular old cash. If people move they tend to bring their stuff with them,
including their spending money, which denies capital from where they are moving from and
provides it to where they are moving to. This has been a major problem for a lot
of national economies in modern history as moving internationally has become more common.
Extreme examples like China and South Africa have even imposed restrictions on how much capital
their people are allowed to take with them if they leave the country because the exodus of
wealthy citizens could otherwise have serious impacts on the economy.
Now within a sovereign nation like the USA, a country which famously values its freedoms,
such restrictions wouldn't be possible, and this is why in certain ways,
capital flight and brain drain can cause even more serious issues.
At this point it's probably important to recognize that while a lot of people are
moving to Florida from places like New York, California, and Illinois,
in the past dozens of other states across the USA had the same problem with skilled workers
moving into the very same states that are now losing workers to Florida.
The USA itself is globally the greatest beneficiary of skilled migration and foreign
capital movements, so there is a level of irony to states like Florida and Texas
now causing the same problems, but that doesn't mean those problems aren't real.
Now before getting into these specifically, it's important to note that the federation
system of states that makes up the USA has a lot of 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 one bad policy,
one bad leader, or even one bad idea to cripple the economy.
It's not just the USA, other federations around the world like Canada, Germany,
Switzerland, Australia, and the Netherlands have all benefited from their system of giving
a level of autonomy to distributed states, but this only works well if that level of autonomy
is just right. Too much oversight and well it just becomes another unitary country with
an added layer of bureaucracy, and too little oversight can cause the states within a country
to start competing with one another, not unlike a certain poor student thinking
they beat the system at their part-time job.
If every state within the USA starts competing with one another to attract the most talented
workers and most valuable industries, then it's just going to end up as a race to the
bottom on regulations, tax revenues, and incentives. In a way this is already happening,
with cities fighting with one another to get companies to set up new headquarters in their
metro area.
Short term this could be a boost to regional economic centres, but it will almost inevitably
come at the expense of overall economic stability. Businesses, policy makers, and even economists
love to hate them, but there are usually reasons why certain policies exist.
What's more is that competition between supposedly united states can cause something
of a feedback loop where poorer states fall further behind richer states because talented
workers move to areas where they can make more money and be surrounded by the lifestyle
that wealthy people enjoy, and in doing so they prop up the wealthy state at the expense
of the poorer state.
The wider that gap gets, the more pressure it will put on highly productive people from
poorer states to move to the richer ones. Extreme regional inequality will need to either
be addressed with cumbersome and realistically politically unpopular interventions, or eventually
it can get so bad that separate states almost need to be treated as two completely different
economies.
Now the USA is a long way from anything that extreme for now, but it's something that
shouldn't be completely ignored as its labour force and industrial centres become increasingly
mobile.
A problem this is causing right now though is that regular people who already live in
states like Florida are finding it harder to keep up financially with the wealthy people
moving in to enjoy the lower taxes, nicer weather, and comparatively cheaper living
expenses.
Governments at all levels should do what is best for the people they represent, and achieving
economic growth and increasing incomes is a major part of delivering those outcomes.
But when headline figures like this are achieved in ways that don't really improve living
standards for anyone apart from perhaps a select group of wealthy internal migrants,
headline economic success doesn't always equate to genuine economic success.
Ok, now it's time to put Florida on the economics explained leaderboard.
Starting as always with size, Florida has a GDP of roughly 1.4 trillion US dollars.
The small disclaimer here is that just like every other state within the USA, the world
bank and international monetary fund, the sources that we usually rely on for macroeconomic
figures do not produce data for states within a sovereign country, so the numbers here don't
use exactly the same methodology.
Even still, Florida's economic output is roughly equivalent to Mexico's and if it
was 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 is very good by global standards, and it's only
improving.
But despite all of its recent success, this number is still behind the average for the
USA as a whole, which has a per capita output of $82,885, although that number is pulled
up by just 17 out of the 50 total states and DC.
Even still, this leaderboard ranks economies internationally where it would get another
8 out of 10.
Stability and confidence is quite strong.
It's a major state in the world's largest economy, that uses the world's reserve
currency, and despite the occasional political maneuver that makes headlines, the state is
incredibly stable, which is in large part why so many major industries have been attracted
there.
It gets a 9 out of 10, only losing a point because of the internal challenges the state
is facing and ongoing geographic issues like tropical storms, which can have a very tangible
impact on the economy's future.
Growth has been one of the strongest within the USA, which has itself been one of the
fastest-growing major economies in the world over the past decade.
The economy has roughly doubled in size in the last 10 years, giving it a 9 out of 10
in this metric, even if that growth has come at the expense of other areas of the economy.
Finally, 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 to say nothing of industries like construction, which are fantastic employers
and have been booming thanks to new people moving into the state.
Overall, the economy gets an 8 out of 10, again only losing two points because a lot
of these industries still rely on the USA as a whole to feed them, rather than creating
independent home-grown industrial bases.
Overall, that gives the economy of Florida 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 in a different and arguably more sustainable
way.
You should be able to click that video on your screen now.
Thanks for watching mate.
Bye.