Guest Contribution: “Red and Blue: One Country or Two?”

Today we are fortunate to have a guest contribution by Helen Popper, professor of economics at Santa Clara University.

Democrats and Republicans differ. Blue and Red states differ. Blue and Red economies differ; but, how different are they? Are they as different as economies from two distinct countries?

That is the question David Parsley and I examine in a recent working paper. We group states based on their voting records in national elections. Then, we use standard methods to determine whether the Blue and Red economies are in sync, and we take a look at how the states share their economic ups and downs.

Out of Sync

We first look at whether the GDPs of Blue and Red states move in step with each other. Figure 1 shows the synchronization of their economic growth rates.

Figure 1: Synchronicity between Blue and Red states. Higher values indicates greater synchronization.

After a slow, modest rise in synchronization at the end of the last century, Blue and Red states’ growth rates diverged markedly as the new century began. They only briefly synched up a decade ago as both Blue and Red states contracted along with the rest of the global economy, then they again diverged. At their current divergence of well over four percent, Blue and Red economies are now more than twice as out of sync as typical international pairs of advanced economies; and they are much more out of sync than they were a generation ago. (For the international numbers, see Kalemli-Ozcan, Papaioannou, and Peydró, 2013).

Along the way (as shown in Figure 2), the economies of Blue states have increasingly moved together, while those of Red states have increasingly moved apart.

Figure 2: Business cycle synchronicity among Red states and among Blue states.

So, … two economies?

Does that mean they are like different countries? Not so fast. The fact that the Blue and Red economies don’t move together is not the whole story. Just as members of a family can share income when they earn it at different points in their lives (as when working adults support children or aging parents), regions of a country can share GDP when they prosper at different points in the business cycle. Being out of sync with other states is not the same as being divorced from other states. Finding that Blue and Red economies are out of sync, we also need to look at whether they share their prosperity and how they share it.

States share in one another’s ups and downs in many ways. Individuals borrow and invest across state lines, they typically pay more into the Federal system in good times than in bad, and a few of them move out of states with slow growth into states with more vibrant economies. Figure 3 shows how Blue and Red states use channels like these to smooth out the idiosyncrasies in individual states’ economic growth.

Figure 3.

As shown in the first pair of bars, the principal way that states share their ups and downs is through the movement of financial capital across state lines: states smooth roughly forty percent of their idiosyncratic changes in GDP through capital markets. The second most important smoothing channel comes from the Federal government, which smooths somewhat more in Red states (26 percent) than in Blue ones (17 percent). While there are some differences in the other channels, what stands out most is the proportion of idiosyncratic growth that is shared, or not shared, overall: The bottom pair of bars shows that Blue states share all but 6 percent, while Red states are left with 15 percent unshared. That is, Blue states share 94 percent of their idiosyncratic changes in GDP, while Red states share 85 percent. While the difference is large and significant, they both share much more than is typically shared across the international borders of distinct countries. Blue states and Red states both share the vast bulk of their idiosyncratic changes in GDP, but even closely tied countries, such as those in the Eurozone, share less than half of theirs. (See Cimadomo, Hauptmeier, Palazzo, and Popov, 2018.)

The Upshot

The details of this work (as well as additional information for swing states and for the United States as a whole) can be found in the working paper, but the upshot is the same as what is presented here: the Blue and Red economies are indicative of a united country, not a divided one. Yes, Blue states and Red states’ economies differ; true, their GDPs are out of sync, and they rely on different channels to smooth them; but, they do smooth them across the states. Blue states and Red states are still part of the same, single United States, and they share their ups and downs, even across the political divide.

This post written by Helen Popper.

28 thoughts on “Guest Contribution: “Red and Blue: One Country or Two?”

  1. pgl

    “Blue states and Red states’ economies differ; true, their GDPs are out of sync, and they rely on different channels to smooth them; but, they do smooth them across the states. Blue states and Red states are still part of the same, single United States, and they share their ups and downs, even across the political divide.”

    Isn’t this what Paul Krugman call being part of a fiscal union? This is a good thing. Alas – we have excluded Puerto Rico from our fiscal union.

  2. Moses Herzog

    Just found this after 3am in the morning, taking a break from watching “I, Tonya”. I haven’t read all of this, haphazardly reading this about 3/4 down and I got the strange sense this post is going to draw A LOT of comments. There might even be some, eh, “bickering” somewhere along down this thread. I’m picking for “blue team” squad and I got dibs on pgl and 2slugbaits

    “Red team”, don’t make PeakIgnorance last pick for this basketball game just because he can’t dribble. He’s a great cheerleader, and if you place PeakIgnorance’s hands adjacent to Donald Trump’s hands Peak really looks like Wilt Chamberlain.

    Of course Menzie only gets to play ref. It’s not fair to let Kevin Durant like economic modeling skills into a neighborhood pick-up game.

    1. pgl

      Hey – the World Cup is about to begin. So I just got a question whether I’m cheering for Brazil. Well – not at first as I cheer for Mexico after the Americans and the Irish are eliminated (which both were before this even began).

      1. Moses Herzog

        When I was in China, I found that about 98% of my female students pulled for Italy or Spain. Go figure…..

        I’m a bit of a fair weather fan. Find myself pulling for Argentina or Germany most of the time. But I get into soccer more than most Americans do. My Chinese friends’ enthusiasm rubbed off on me a little.

  3. Moses Herzog

    Here is a very frightening article:

    They are making strong connections between Corey Stewart and white supremacy “fringe” and also tying him together with a Wisconsin cat named Paul Nehlen:

    For whatever it’s worth coming from me, I don’t think Trump is tipping that many votes, but it’s one of those deals where “perception becomes reality”. At one time people thought Sarah Palin had this kind of power by putting her name behind candidates—that was shown very quickly to be shallow analysis of what was actually occurring—often times Palin throwing her voice in when the election was largely already a foregone conclusion. Could it be people just didn’t vote for Sanford because he disappeared from planet Earth for multiple days to go screw around on his wife?? Or am I giving southern Evangelicals too much credit there for voting accordingly to how they flap their lips on “morals”??

  4. Moses Herzog

    Interesting. I got suspended from Twitter for criticizing a TV sports journalist for openly complaining about apposing fans chanting against the Baylor football players’ criminal attacks on women. I asked her, in semi-blunt terms, why THAT bothered her, but priorly she had NOTHING to say about Kenneth Starr and the Baylor board of regents inaction on those crimes. My account was then basically locked. But if you sympathize with Nazis, Twitter gives you a blue checkmark and becomes your personal fluffer:

  5. steve

    While “Blue states and Red states are still part of the same, single United States, and they share their ups and downs,” to what extent is this sharing due to the Federal government transferring funds obtained from the Blue states to the Red states?

  6. Zi Zi

    Another issue is the Information and Media. Whilst it’s firmly state-controlled in some parts of the world, the Western media has largely become opinion-writing instead of news writing. The only one a bit neural may be National Public Radio. Isn’t that precarious?

    1. ilsm

      No need for state media in US, if a media source don’t carry the approved narrative it is for Putin and Kim. Even NPR fears diverging from the narrative.

  7. PeakTrader

    The paper may not be of much help for Eurozone countries, since they seem mostly solid blue, and none are likely to change much.

    So, Eurozone countries will likely move in sync, for good and bad, although greater automatic stabilizers should help smooth-out business cycles, at least till they end up like Greece, Italy, or Spain.

    However, the E.U. economy is much less diversified and dynamic than the U.S. economy. The U.S. leads the rest of the world combined in the Information Revolution (in both revenue and profit), although the E.U. is our closest competitor. And, the U.S. has even a greater lead in the Biotech Revolution, while the U.S. Agricultural and Industrial Revolutions continue to become more efficient.

    1. pgl

      Since you decided to go European – you should have mentioned that most international economists know that the way Germany runs this zone violates about every premise of being a decent fiscal union. But then – this involves actually reading economics which we know is against your religious beliefs.

      1. PeakTrader

        Pgl, obviously, you didn’t even read this paper and said really nothing about the German economy.

        1. pgl

          WTF? You were the one who mentioned the Eurozone. I did read their paper but I thought I would humor your latest irrelevant rant.

        2. pgl

          Of course knowing you – you thought Germany is an Asian nation. So the World Cup has 3 Asian nations – Korea, Japan, and Germany.

          Sorry Peaky but Brazil is winning it all this year. And when they do – all these foreigners will sit in on your lawn just to make your nervous!

        3. pgl

          “Households, firms and the public sector may therefore benefit from insuring themselves against such shocks via “private” and “public” mechanisms which operate at the inter-jurisdictional level, i.e. between states or regions in a federation (such as the United States or Germany) or the international level, i.e. across different countries (for example in the euro area). ”

          Peaky says this paper never mentioned Germany? Seriously?

          1. pgl

            The conclusion of the paper by Jacopo Cimadomo, Sebastian Hauptmeier, Alessandra Anna Palazzo and Alexander Popov:

            “A consensus has emerged from the experience with the Great Recession that the euro area’s institutional architecture is in need of reform to enhance its capacity to deal with large economic shocks. In this context, the publication of the Five Presidents’ Report on Completing Europe’s Economic and Monetary Union triggered an ongoing debate in the policy domain as well as in academia on ways to improve EMU’s economic resilience. This debate has been influenced by findings of the empirical literature that identify and quantify risk sharing channels within federations and the euro area. This literature typically finds a more limited degree of risk sharing in the euro area than in the United States.”

            That is what I said. But PeakStupidity says I did not read the paper on the Eurozone comparison as he thinks it never addressed the Germany economy?

            I think PeakStupidity has hit a new low.

    2. baffling

      peak, your bragging of the US lead in information and biotech will be seriously challenged by china over the next decade. they are making huge strides in these areas, and their investment in people and resources will begin to pay off in the very near term i would imagine. in the past, chinese scholars who came to the us to study in those areas stayed in the us (if they were exceptional candidates). today, that is not true, as many starts are returning to china with knowledge gained here and significant scientific startup resources at their chinese universities. china is closing the gap in biotech and information at a tremendous rate.

      1. PeakTrader

        Baffling, what makes you think Communist China will do any better than Socialist Europe?

        They’ve made “huge strides” in “investment” in IP coercion and theft.

        Keep rooting for the commies.

        I’m rooting for the Asian Tigers: Taiwan, Singapore, South Korea, and Hong Kong.

        1. PeakTrader

          With the Lewis turning point, reduction of trade barriers, and a greater rebellion by the masses, foreign firms may shift production from Communist China to Bangladesh, the Philippines, Vietnam, etc..

          1. pgl

            “The Lewis turning point is a situation in economic development where surplus rural labor reaches a financial zero. This typically causes a labor shortage which leads to rising agricultural and unskilled industrial real wages until a labor surplus is reached again. The term is named after economist W. Arthur Lewis.”

            I bet no one knew what you meant by this so I provided the definition. Of course you had no clue what this term meant either.

        2. pgl

          C’mon Peaky – the U.S. will be “stealing” Chinese IP pretty soon. And that’s a good thing. Unless you want to spend 90% of your meager income on health care costs.

          But I’m glad you are cheering for Hong Kong and Singapore – Asians tax havens. It would not be prudent for you to actually pay your fair share of taxes.

          Of course only South Korea is in the World Cup along with Japan. Wait – Japan has a high corporate tax rate and VAT! But I’m sure they don’t want your business anyway!

        3. baffling

          i’m not sure why you would say “Keep rooting for the commies.”?
          i can only imagine you are an old crank and political hack. i simply pointed out what appears to be your lacking knowledge on the rest of the world. as you said, you are rooting for the asian tigers. i am actually rooting for the united states. why not root for the home team as well? cranky old unemployed banker.

  8. ilsm

    In the past few days seems the blue states’ congress critters are all against the commander in chief deciding the US don’t need to occupy the frontline of the empire’s encirclement of Kim Jung Un. They will want more war spending in the blue states as well.

    1. The Rage

      lol, Kim is a bore and there is nothing going on that wasn’t preplanned by east asia. Russia and “parts” of the Chinese system are bringing even more supplies over the last 6 months. Same ole same ole while Zionist Don pumps up war with Shia.

  9. Moses Herzog

    @ Professor Popper
    Haven’t read all of it yet, but I think Miss Helen Popper’s paper looks quite edifying and I hope to read more carefully through it in the near future as well as some of her other papers.

    I think Miss Popper is trying to give across a positive and uplifting message that “we’re all in this together” and “what benefits my neighbor benefits me”. And I commend her for this outlook. However, I would also say it’s a little easier to say those things when you’re located in one of the better states, in both California’s per capita economic stats and California’s more friendly attitude to the poor and minorities. If you’re located in a redneck state—it’s not so easy to feel like opportunity and/or economic advancement is an equitably available commodity:

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