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the virtues of federalism
High-Earners Flee Blue States

A recent argument produced by blue model partisans to demonstrate the alleged superiority of high-tax, high-regulation policy is that states that practice it, like New York and California, tend to have a higher proportion of affluent people. As we’ve noted, this argument is questionable for a number of reasons, chief among them that it doesn’t distinguish correlation and causation. It may be that these states favor Democrats because they are wealthy and unequal, while Republicans thrive in more egalitarian environments.

But a detailed new analysis by Joel Kotkin and Wendell Cox in New Geography points to yet another flaw in this dubious defense of the blue model: High-earners are leaving blue states in droves:

Some analysts have claimed that the people leaving California are mostly poor while the more affluent are still coming. The 2014 IRS data shows something quite different. To be sure the Golden State, with its deindustrializing economy and high costs, is losing many people making under $50,000 a year, but it is also losing people earning over $75,000, with the lowest attractiveness ratios among those making between $100,000 and $200,000 annually, slightly less than those with incomes of $10,000 to $25,000.

Overall, many of the most affluent states are the ones hemorrhaging high-income earners the most rapidly. As in overall migration, New York sets the standard, with the highest outmigration of high income earners (defined as annual income over $200,000) relative to in-migrants (attraction ratio: 53). New York is followed closely by Illinois, the District of Columbia and New Jersey, which are all losing the over-$200,000-a-year crowd at a faster pace than California.

To be sure, there will always be some wealthy people who aren’t bothered by sky-high tax rates and soaring housing costs, and are willing to trade that for a hip cultural scene and a panoramic view of Central Park or the San Francisco Bay. But on the evidence of the past several years, the broad upper-middle class—including small business-owners, professionals, and other high-skilled workers—does not find blue-state governance particularly enticing. One of the biggest drivers of this trend, in addition to higher income tax rates and regulatory red tape, is housing policy: Blue states enact more building restrictions, which have put family-friendly housing out of reach for broad swathes of the population.

The Kotkin and Cox data points to a dispersion of high-earners—and the investment capital they bring with them—away from the coasts, and toward less dense, less costly, and more conservative parts of the country. This ought to puncture the widespread illusions about the inherent superiority of the blue coastal model, and exert far-reaching effects on the geography of U.S. economic growth over the next several decades.

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  • Dale Fayda

    Well, look who pulled their heads out of their butts to announce the spring!

    People prefer lower taxes, less regulation and more economic and personal freedom. Yes, even liberals.

    • JR

      Um, disagree with you there. FG is still in favor of higher taxes and your silly fact-based arguments won’t change his mind.

      • Dale Fayda

        FG marches to the beat of a VERY different drum.

    • Andrew Allison

      A bit simplistic. Smart people prefer lower taxes, less regulation and more economic and personal freedom. The drones prefer welfare.

      • Dale Fayda

        There are exceptions to every rule… And while drones are a part of the overall migration patterns, it’s mostly what you would call “smart people” who make up the trends.

        • Andrew Allison

          Well, no. The drones are not migrating — they know a good thing when they see it. Of course, when all the productive people have fled, the drones will starve, but that’s the survival of the fittest for you! [grin]

          • LarryD

            Always, in socialism, the powerful become rich, everyone else become poor, and eventually the economy crashes.

            Venezuela is the most recent example. The speed of the crash depends on how completely and how fast the economy is forced into socialism.

    • Boritz

      For themselves. Not for you.

      • Dale Fayda

        Goes without saying.

  • Dave

    Worth noting also is that there are different causes for affluence.

    Many people become affluent in blue state models by relying on licensing schemes (lawyers, stock brokers, doctors) or through legalist protectionist schemes (like so much of the entertainment industry, which are built on (often) protectionist copyright law). And of course these affluent groups often feed each other, as lawyers amass great wealth defending creative industry copyright laws. Los Angeles, New York, and Lord Knows Washington, DC are all examples of affluent areas where much (most?) of the wealth is created through protectionist means.

    So while technically these groups are rich, they are not necessarily value producing on net. The blue state model is not just protectionist towards unions. It is protective of members of the upper class who have thrived based on high level protectionism, credentialism, and special licensing privileges.

    Small business owners and other entrepreneurs are the kinds of affluent people who are blue state phobic, as the rules and value draining protections are like quicksand for their value generating enterprises.

    Of course the one shining exception to this rule is Silicon Valley. That’s a hard one to explain, but I think there is just something in the culture of abstract innovation there, where so much of the wealth and investment (i.e. sky high valuations) are based on “funny money,” that allows people to be blissfully unaware of the scarcity aspect that underlies all of economic theory.

    Anyway. . .it would be interesting to see which rich people are fleeing blue states. The ones who are benefitting from blue model protectionism (and, on balance, adding to the wealth and value drain) or the ones who are creating value through genuine unencumbered entrepreneurship. I’d be willing to bet heavy on the latter.

    • LarryD

      Silicon Valley rich want to “raise the drawbridge”, i.e., “we’ve got ours, the rest of you can go hang”. Also, most of the workforce was young when SV made it. The blue state model appeals to the connected, who can use the power of government to enrich and protect them. At everyone else’s expense. Hence, the high inequality of blue states.

  • Anthony

    Some speculators have argued that a better measure of a state’s (city’s) prosperity is population changes – or how people vote with their feet (are they moving into a state [city] or are they moving away). What does the data foreshadow and does it hold throughout continental U.S. as representative of a blue/red governance model?

  • I’d love to see these data segmented by age group, and by people’s incomes the year after their move (as opposed to the year in which they move). I suspect that young people with little or no income (yet) are moving to Wall Street or Silicon Valley to make their fortunes, and eventually leaving when they have amassed enough to semi-retire comfortably.

    • Jim__L

      Or simply leaving when they want to have a better life for their families. Or when they want to actually have families — Silicon Valley is an awful place to have kids.

      • I have lived in Silicon Valley since before most people called it that. Not only do I have kids, but many people on my block have them. All ages. And I see few families moving out.

        • Jim__L

          How long have you owned a house in Silicon Valley?

          • Since 1997. But some of my neighbours moved in much more recently. They, too, have stayed.

  • Hillarys wet Depends

    Im a medical recruiter, my bread and butter is moving MD’s out of California , NY and Michigan.
    Maryland , NJ and Minnesota are not far behind

  • rpcallahan

    Wait a sec … if the premise of the article is that those people who assert the benefits of a state’s affluence relative to other states haven’t proven a correlation and causation effect for their claims … then the obverse is also true here … this article provides no context on which to argue against that claim.
    People move for a myriad of reasons … job change, retirement, health, family, a job that allows for telecommuting etc. etc.
    Just saying that high income earners are moving neither proves nor disproves anything.

  • FullAmericanPatriot

    Ahhhh, this line of talk that’s been said for 40 years now.
    Nothing’s changed yet

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