How the South Rose Again: Massive Keynesian Stimulus

Over Thanksgiving, I finished Better Off Without ‘Em: A Northern Manifesto for Southern Secession by Chuck Thompson. I might get around to giving it a full review, but one thing struck very true: the Southern argument that the South is rising since it’s growing in population and economic activity while other parts of the country are stable (or shrinking). That point is raised several times, and it’s something I heard a lot of when I would return home, especially a decade or two ago (note: don’t go all ‘the Mad Biologist is a Yankee aggressor’ on me–I grew up in Virginia; I like the place, despite its faults).

But what the population growth argument misses is that the South has undergone a decades-long Keynesian stimulus in the form of deficit spending. At some point, you might have stumbled across a figure like this that gives the ratio of federal spending to federal taxes for each state:

federal-spending-taxes
(from here)

While these data are often used to point out conservative hypocrisy about federal spending–most of the ‘taker’ states are currently Republican, while the ‘maker’ states are primarily Democratic–the regional differences are enormous. You really don’t get the full picture until you compare the South in aggregate to the rest of the country. Using data from the Tax Foundation and the BEA, it becomes clear that the South from 1981 – 2005 experienced a massive amount of deficit spending at the federal level, while the rest of country experienced fiscal contraction in terms of federal spending–that is, austerity (I define the South as AL, AK, FL, GA, KY, LA, MS, NC, SC, TN, VA, and TX).

Here’s the Southern deficit versus the national deficit (including the South), in billions of dollars–a negative value means that region is running a surplus:

southernvstotaldeficitnumbers

In many years, the South possesses much of the deficit, while the rest of the U.S. either has a smaller deficit or is, in fact, running a surplus. We can also look at the national deficit, Southern deficit, and non-Southern deficit as a percentage of GDP (a positive value means that region is running a surplus):

deficitaspercentage

The South almost always experiences a significant federal stimulus, while the rest of the country usually experiences a federal retraction. When the South does go into surplus, the rest of country has a much larger contraction of federal spending.

Finally, we can look at what this federal stimulus (or anti-stimulus) means relative to the size of regional economies. Below is the regional deficit as a percentage of that region’s GDP from 1997 – 2005 (GDP state estimates are from FRED and only start from 1997; a positive value indicates a surplus, a negative value a deficit). To translate this figure into real numbers, if the non-South had the same federal input as the South, the non-South would have received an average additional $197 billion per year ($1.775 trillion over the nine years). For some perspective, the entire NIH budget from 1997 – 2005 was about $225 billion. In 2009, a $75 billion high-speed rail proposal was nixed (and part of that $75 billion would have been spent in the South)–that’s a one time $75 billion expense, not an annual one. For the state of Massachusetts, if had a comparable federal input to the South in 2005, it would have received an additional $19.05 billion–and the state budget that year was $35.1 billion.

In fairness, a lot of these payments are mandated benefits, like Social Security, Medicare, and Medicaid. This isn’t a pot of money the states get to spend as they see fit. But the South has received a massive, ongoing stimulus for at least 25 years.

If you’ve stuck with me this far, I promised this would be in English. The South has grown rapidly because that’s where the federal money is.

The irony of the situation should not be lost on anyone: the Southern congressional delegation (including many nominal Democrats throughout that time period) always argued for fiscal rectitude, even as the South was the beneficiary of massive deficit spending, while the rest of the supposedly profligate U.S. was often running surpluses.

With unemployment hovering around eight percent, we might want to nationalize the Southern experience. Just saying.

Technical point: Because the Tax Foundation is looking at revenue collected, much of which is payroll tax, the deficit numbers will often appear lower (during that period, part of the payroll tax was not spent as they ran surpluses). This actually seems more appropriate for the purposes of this post, as we’re interested in the amount of revenue collected versus immediate spending.

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One Response to How the South Rose Again: Massive Keynesian Stimulus

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