State Economies: Insanity

The US is a service economy. That means people do things for each other rather than sell things to each other. We pay for that which, in many cases, we could easily do for ourselves. We pay others because we can.

Will the Feds be there for the Next One? Or will Florida, Louisiana or another state be the next Puerto Rico?

However, some areas of the country take that to an extreme. 24/7 Wall Street has identified nine states in which the top industries are government, real estate and insurance. Two of the three industries are highly dependent on fragile markets. The third, government, is highly dependent on revenues generated by insurance and real estate. That’s one recipe for a mess.

Who are the “lucky” nine?(1)

  • Illinois (5%)
  • Ohio (4%)
  • Connecticut (8%)
  • Wisconsin (6%)
  • Iowa (Insurance is 10% of state GDP)
  • Delaware (Insurance is 14% of state GDP)
  • Kansas (4%)
  • New Hampshire (5%)
  • Rhode Island (5%)

Source: https://insurance-forums.com/life-insurance/9-states-where-insurance-is-the-largest-industry/

One scenario to consider is a natural disaster that could trigger extensive property damage and loss of life, causing massive losses to insurers. It could be an extreme heat wave, a massive snow storm, a lengthy power outage, tornado outbreak, hurricane, earthquake or something else. (Not a terrorist attack. Insurers generally exclude that from coverage. Nor has anyone as yet found a target in places like Kansas or Iowa that they would want to attack.) People who push around spreadsheets generally don’t convert readily to carpentry or plumbing. So you have layoffs, business closings and sharp drops in tax revenues. States aren’t allowed to run deficits. And the Trump administration announced today that it was taking money from FEMA to fund “the wall” and immigrant detention centers.(2)

Illinois is already losing population. Iowa is at risk; the farming sector already is being harmed by current Federal policy. Putting a second major sector underwater couldn’t help. If you choose to live in one of these states, you need to understand the risks.

Property value is an elevator, not an escalator. It runs both ways. If a state economy crashes and people are forced to move for jobs, you may lose money on a home you buy.

Sources:

  1. https://insurance-forums.com/life-insurance/9-states-where-insurance-is-the-largest-industry/
  2. https://www.usatoday.com/story/news/politics/2018/09/11/femas-budget-cut-10-million-support-ice-documents-show/1274723002/

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