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Economics of Large Battleground States

Author: Roger M. Kubarych
October 14, 2004
Council on Foreign Relations

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The third debate between the challenger, Senator Kerry, and the incumbent, President Bush, took place Tuesday. The focus was on domestic issues, and social policy dominated. The few questions specifically about economics served to reinforce existing perceptions: Bush is for lower taxes and limited government, Kerry is for higher taxes on the better off and broader government involvement in health care, education, and retirement insurance. Any debate about the burgeoning US trade deficit and the associated weakening in the competitive position of American manufacturing was virtually absent.

In terms of economics, the paradox of the US electorate is simply this: Kerry accuses Bush of favoring the rich through large tax cuts, which have helped to produce a huge swing from budget surplus to budget deficit. Yet, most of the richest states in the country, as measured by real personal income per capita, are solidly in the Kerry camp, while the relatively poorest states are virtually all solidly for Bush. Seven of the ten richest states - Connecticut, New Jersey, Massachusetts, Maryland, New York, Illinois, and California - record sizable majorities for Kerry in the opinion polls. The other three - New Hampshire, Minnesota, and Colorado - are among the so-called “battleground” states, those states which are still too close to call and are considered up for grabs. Eight of the ten poorest states - Mississippi, Arkansas, Utah, Montana, Idaho, Alabama, South Carolina, Louisiana - lean toward Bush. Only two are battleground states— West Virginia, and New Mexico. Two partial explanations come to mind. One is that voters in richer states care more about non-economic issues, for example, Iraq and social policy, than voters in less well off parts of the country, where economic growth is a higher priority. Another is that the relatively poorer states are in the regions where religion plays a larger role in influencing political choices. There may be other factors, as well.

What is clear is that the November 2 election will be determined in the battleground states, particularly the seven largest which together account for 116 electoral votes, about a fifth of the total. They are Florida (27 electoral votes), Pennsylvania (21), Ohio (20), Michigan (17), Missouri (11), Minnesota (11), and Wisconsin (10). How do they differ from the nation as a whole and from each other? And how are they leaning in terms of the presidential vote?

First, all but Florida are Great Lakes states with a relatively high concentration of manufacturing employment. Nationally, employment in manufacturing is a little over 10% of the total. In the large battleground states, excluding Florida, the ratio averages 14.5%. Half of them have experienced further manufacturing job cuts in the past year; half of them enjoyed moderate increases.

MANUFACTURING JOBS AN ISSUE IN LARGE BATTLEGROUND STATES

Manufacturing jobs have fallen by a net of 2.7 million since President Bush was inaugurated in January 2001. This reflects the collapse of the high tech bubble and the associated loss of employment as numerous companies in the sector failed or had to scale back operations drastically. It also reflects the enormous bulge in imports and associated sharp increase in the US trade deficit, reflecting both the rise of Chinese production capabilities and the relatively strong dollar against all of the Asian currencies. Many Great Lakes battleground states have continued to suffer job losses in manufacturing, despite the leveling off of production jobs in the rest of the country.

Overall unemployment rates in a couple of large battleground states are higher than average, but most are at or below the average. The national unemployment rate has gone down to 5.4% in September from 6.1% the year before. The average for the seven largest battleground states is 5.5%.

LARGE BATTLEGROUND STATE UNEMPLOYMENT RATES

Second, the large battleground states are generally toward the middle of the American income distribution. As noted, only Minnesota is in the top ten of per capita real income. Pennsylvania is slightly above the national average. The rest are slightly below.

PER CAPITA INCOMES ARE TOWARD THE MIDDLE

There is statistical evidence that income distributions are narrower in the battleground states than in the country as a whole. As a result, the portrait of the typical middle class American family is probably most valid in the Great Lakes states, although less so in Florida.

Third, wealth distributions are harder to determine because of statistical difficulties in tabulating financial net worth by state. But data on housing values are available. Housing prices have been increasing extremely fast in the United States over the past several years, with a marked acceleration in the past twelve months. Except for Florida and Minnesota, most of the battleground states have been lagging behind during the Bush years. Nationwide, the majority of states that have experienced faster than average house price increases over the past year strongly lean toward Kerry; Bush gets little or no credit for the housing boom, it seems.

HOUSING MARKETS ARE MOSTLY WARM, NOT HOT

Fourth, commercial real estate, including offices, shopping malls, and industrial facilities, shows tremendous regional variations—and even large variations within individual states. Normally high vacancy rates are an indicator of significant economic problems.

Office markets are tabulated by city and by metropolitan areas. Three of the five highest vacancy rates are in large battleground states: the Columbus OH metropolitan area is the second worst office market in the US, with a vacancy rate of 24%. Kansas City MO is the fourth worst, with a vacancy rate of 22.3%. Detroit MI, with a vacancy rate of 21.3%, is fifth worst. The other top-five troubled office markets include Dallas/Fort Worth TX and Atlanta GA, ironically both solidly in the Bush camp. By contrast, the five best office markets in the country are Manhattan NY, Washington DC, San Diego CA, Ventura County CA, and Long Island NY, all solidly for Kerry.

As for industrial facilities, the five markets with the highest availability rates include two in the battleground state of Florida: Palm Beach and Jacksonville. Austin TX, Boston MA, and Wilmington DE are the others. Markets which have registered the most improvement over the past year are Westchester/Mid-Hudson NY (site of extensive IBM operations), Salt Lake City UT, Mid-New Jersey, Columbus OH, and Houston TX.

Fifth, high educational standards are widely agreed to be central to long-term economic growth potential. How do the large battleground states stack up against the national average on this criterion, as measured by the proportion of the population with college degrees? Like income and housing prices, they rank in the middle, except for highly ranked Minnesota.

EDUCATION LEVELS OF LARGE BATTLEGROUND STATES

Finally, two measures of state fiscal positions are worth comparing. One is the reliance of the state on Federal Government grants and other aid to meet their budget needs. The other is level of state taxation. On both of these measures, the large battleground states neither relies very heavily on the Federal Government nor do they rank highly in terms of state taxes per capita. States that are net beneficiaries of Federal aid per capita lean toward Bush, while high tax states are heavily leaning toward Kerry. Battleground states are essentially in the middle.

BUDGETARY RELIANCE ON FEDERAL AID OR STATE TAX REVENUES

To sum up, large battleground states are mainly midwestern and middle class. They often represent composites of a large eastern industrial state combined with a small Mountain or Plains state. As such they are most reflective of the United States as a whole, in contrast to more unique states like California, New York, Massachusetts and Texas, where either Kerry or Bush can amass a big lead in the opinion polls. What do the polls currently say about voter preferences? They show a narrow lead for Bush in Florida, Missouri, and Wisconsin; a narrow lead for Kerry in Pennsylvania, Michigan, and Minnesota; and a tie in Ohio. Polls at the state level change day by day. What’s clear is that Bush needs Ohio to win the election. If Kerry can win Ohio or overcome small deficits in two other battleground states, he will upset the President.

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