Wednesday, January 8th, 2014
I was doing some research on the economic history of Rhode Island recently and decided to take a historical look at its per capita income levels vs. Massachusetts. Here’s what I found:
This is per capita income as a percentage of the US average. Both states started out far higher than the US average, peaking at 150% of it in the 1930s. But over the course of a mere decade or so, the both crashed to about the national average. (The stark reality of this collapse is evident in the wartime newsreel “Report From Rhode Island” which shows the Newport mansions in ruins). You can see also that up until the end of the war, the two states were virtually identical, then diverged. Both states had to spend some time wandering the wilderness, though Rhode Island had the worst of it. In fact, Rhode Island has never recovered. Its per capita income has simply oscillated between slightly above and slightly below the US average for close to 70 years. Massachusetts by contrast limped along until around 1977, then embarked on an uptrend and ever wider divergence from Rhode Island. A very telling graph I think.
I got curious and wondered about another state pair I’ve long looked at, Illinois and Indiana. So I ran the same graph and this is what I came up with:
Here we see an opposite pattern and one that surprised me. These two states were very divergent at the end of the Roaring 20s, with Illinois far above the US average and Indiana far below it. Over a similar time frame in which Mass and Rhode Island collapsed, these states converged, with Indiana gaining strongly and Illinois losing. This convergence left a gap to be sure but what I found most surprising is that it has basically remained constant over the decades. Both Indiana and Illinois have remained in parallel downtrends. Given the dominance of Illinois’ economy by metro Chicago, and the incredible divergence in policies between the two states, I wasn’t expecting them to track each other. Though maybe I shouldn’t have since I’ve noticed similar things in recent times before.
We hear a lot about income inequality in the US today. But if you look at those charts, it seems pretty clear that in the early parts of the century, the US was an extremely divergent economy in which some states where massively most prosperous than others. However well Massachusetts may be doing, for example, it hasn’t yet reached its pre-war peak. The Great Depression and World War II seem to have had an enormous leveling effect (looks like a lot of the New Deal was extremely effective over the long term, the TVA, REA, etc).
So I decided to plot the whole country on a map. In the map below, states in blue grew their per capita personal income at a higher rate than the nation as a whole since 1929. The ones in red grew more slowly. The color scaling is proportionate to the percentage change value. The 61.7 is the percentage value of the US average in decimal format, that is, 6,170%. (Keep in mind, this is a nominal value, not inflation adjusted).
This shows that although the traditional centers of prosperity in America may still be doing better than the rest, over the long term there has been a convergence in incomes as areas like the Deep South have modernized. Oklahoma is no longer Grapes of Wrath country.
But even among the traditional wealth centers, we see divergent paths. I plotted California, Illinois, Massachusetts, and New York to see what I would find:
We see big differences. California and Illinois have more or less headed straight downhill since the 40s. That surprised me because I’d always thought California enjoyed a sort of Golden Age in the post-war era. It did have a moment in the sun in the 1970s, but it’s interesting that it hasn’t done better vs. a state that got slammed hard by de-industrialization.
New York and Mass had very different paths, reaching 1970s nadirs then rebounding strongly. New York fell below both California and Illinois in the era when NYC nearly went bankrupt. Today it is far ahead of both. The turnaround in Massachusetts has been even more dramatic. Some of the superior performance of Mass may be due to demographic composition, however. It’s no secret that it’s good to be privileged and white in America. Of the traditional tier one big cities, Greater Boston is overwhelmingly the whitest, while LA and San Francisco are the most diverse. LA in particular has absorbed huge numbers of lower skilled Latino immigrants who, unlike the descendants of the early 20th century Irish and Italians immigrants to Boston, are still in the early stages of their development lifecycle. Down the road this should converge. New York managed to pull off its turnaround while retaining significant diversity and a large immigrant pipeline, which makes it even more impressive.
Note: All data from the Bureau of Economic Analysis, accessed and charted via Telestrian.