Behind the Headlines Video
They've been called business unfriendly. Financial hellholes. Death spiral states. Without drastic action, they're the first states that will likely collapse.
By one measure, a death spiral state is one in which there are more takers than makers. "A taker is someone who draws money from the government, as an employee, pensioner or welfare recipient." ["Taker" definition from Forbes magazine]. A maker is someone who works in the private sector.
Figured into the taker category is the number of Medicaid recipients. And the amount of the state's unfunded pension liabilities. [Another consideration is a state's credit worthiness according to analysis by Conning & Co.] A taker-to-maker ratio greater than 1.0 is bad news. Created by Forbes magazine, this formula yields 11 death spiral states.
[Death Spiral States
New Mexico 1.53
New York 1.07
South Carolina 1.06
Then, there's the U-Haul Index. It's the wide disparity in the cost for a one-way U-Haul rental between two cities. It costs nearly twice as much for a rental from San Francisco to San Antonio [$1,693] than to go the other way [San Antonio to San Francisco $983]. It's supply and demand. People are fleeing California for business and consumer friendly Texas.
In the 1980s and 90s it was business and the middle class who fled cities - leaving a dwindling number of makers who are paying for the takers. The likely collapse of Detroit is a prime example.
Now, it's not just cities that will decay but entire states. Middle class, businesses and other job creators are fleeing to better states.
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