Fate of the States: The New Geography of American Prosperity by Meredith Whitney

Chapter 1
    It Starts at Home
    Forget everything you think you know about the direction of the American economy, about our growing need for foreign oil, about the rise of the service economy and the decline of American manufacturing. The story of the next thirty years will not be a repeat of the last thirty. Growth in America is going to come from making things—and not Big Macs or e-cards but important stuff like fuel and chemicals and cars. We are now close to producing more oil than Saudi Arabia. We are the single greatest natural gas producer in the world. We are the largest agricultural exporter in the world. 1 What’s more, manufacturing is bouncing back in the United States almost as quickly as it once left. Honda, Toyota, BMW, Toshiba, and Airbus are all building new U.S. plants or already are producing goods here. 2 The “all in” cost differential between producing goods in China and the United States has narrowed dramatically. On the global stage, the United States looks competitive relative to other countries and regions. America offers one common language, one common currency, a stable inflation environment, relatively unequaled political and social stability, and developed legal and capital-markets systems.
    Despite these common strengths, the rebound is not occurring everywhere in the United States. It’s happening mainly in central corridor states not bogged down economically by foreclosures and budget chaos. They have the money to retrain workers and offer tax incentives to relocating companies—flexibilities not found in housing-bust country. Economic power in the United States is shifting away from longtime coastal strongholds toward the interior. What’s going on today is tangibly different from any other time in American economic history because shifting geographic fortunes are not being driven by external factors such as new technology or even immigration—things local leaders could never have controlled or anticipated. In the past, cities and towns lived and died with the industries that dominated them. This is familiar. What is unfamiliar is communities being gutted by government ineptitude. Here we are in uncharted territory. Never before have industry and population been more mobile. Americans and global business alike can choose where to produce, where to locate, and where to invest, and they are voting with their feet. Everything is cheaper today. Moving is cheaper. Communication is cheaper. Technology is cheaper. Relocating a business is cheaper.
    The housing industry that drove growth in America for the past thirty years is a perfect example of the new velocity of capital. Banks and home builders do not stay the course. When home prices start dropping, they pick up stakes and search for new markets. There is no loyalty in housing because everybody understands that housing demand is fickle. The market is built entirely on perception—the perceived attraction, for example, of retiring in a warm, sunny climate where you could buy a $300,000 condo today and watch its value double in a few years. The real estate market was never built on need. Home prices in Las Vegas, Arizona, Florida, and California didn’t skyrocket because people
had
to move there. They rose because speculators and second-home buyers
believed
more people
would
move there.
    Of course, changing geographic fortunes are nothing new in U. S. history. New economic winners and losers emerge every couple decades. Technology changes, demography shifts, and consumer tastes evolve. Yes, the cycle is spinning faster this time around—change is occurring over years instead of decades—but it’s important to understand how this process has played out in eras past because the spoils for the winners and penalties for the losers are much the same today as they were a hundred years ago. Drive across the United States and you will encounter your share of abandoned mills, dilapidated housing, overgrown railroad tracks, and other telltale