Red vs. Blue State Governance
COVID-19 has flashed a glaring spotlight on the differences between red and blue state governance and their general attitudes and approach towards the role of government in business.
How blue state governors have handled the pandemic have highlighted the negative impact of their government-first policies vs. the business-first approach taken by red states.
Blue states who have taken a more aggressive approach in handling the pandemic through restrictive lockdowns have suffered the most in terms of unemployment.
According to the latest figures from the Bureau of Labor Statistics, 9 of the 10 states with the highest unemployment rates are led by Democrats (the exception being Massachusetts, led by Republican Gov. Charlie Baker – an outspoken critic of President Trump).
In contrast, 9 of the 10 states with the lowest unemployment rates are led by Republican governors. Montana, led by Democratic Gov. Steve Bullock was the lone exception but it should be noted Montana just elected a Republican governor.
Red states adopted broader and faster economic reopenings following the initial coronavirus crash – by far outpacing liberal-leaning blue states in terms of putting people back to work. The difference between red states and blue states is stark.
In red states (those voting Republican for president in all four of the last four elections), the combined unemployment rate stood at 6.6%. Among blue states (those that voted Democrat in all four of the last four presidential elections) the figure was 10.5%.
Counterintuitively, the aggressive red state reopenings have not corresponded to higher death rates compared to blue states. Blue states have a higher death rate per million than red states. In other words, aggressive lockdowns seem to be having the opposite effect.
According to data from Worldometer, the death rate among blue states is 668 per million compared to 544 per million for red states. The blue states’ death rate would be the third-highest death rate in the world, excluding countries with fewer than 100,000 residents.
Of the 11 states with the highest death rates, Democrats run eight of them. Washington, D.C., run by a Democrat mayor, would rank eighth on that list.
The Great Migration
Restrictive lockdowns along with nationwide work-from-home initiatives have had an interesting effect in triggering a mass migration of workers and businesses from tax and regulation heavy blue states like California and New York to more business and tax-friendly states like Florida and Texas.
No longer restricted to physical work locations, workers are fleeing high tax blue states for low tax red states. Compare the relative tax burdens of red vs. blue states in the following infographic.
Compare the states with the highest tax burdens vs. the states with the lowest:
Since the beginning of the COVID-19 pandemic in March, many city-dwellers who saw their incomes pinched due to the pandemic started migrating to more tax-friendly red states.
Two high profile media figures, Joe Rogan and Ben Shapiro, recently made news when they moved their media operations from California to Austin and Nashville respectively to escape high taxes and restrictive government regulations.
It’s not just workers fleeing blue states for the greener pasture of red states, it’s businesses as well.
Nowhere is this exodus more pronounced than in California where in just 2018 and 2019 – economic boom years nationally – 765 commercial facilities left California. Charles Schwab recently announced it’s leaving San Francisco next year. Between 2009 and 2016, it’s estimated that 13,000 businesses have left California.
A recent hoover.org article related the story of Erica Douglas, a young tech entrepreneur, who moved her company, Whoosh Traffic, from San Diego to Austin, Texas, a few years ago. Here is what she had to say in an open letter to her state:
I’m leaving you. I’ve struggled with a government that is notoriously business-unfriendly—with everything from high taxes on earning to badgering businesses to work more to comply with bureaucracy. I paid enough in California income tax in one year alone to hire another worker for my business. And you charge me $800 annually as a corporation fee when most states charge just a few dollars.”
Skate to Where the Puck is Going
Wayne Gretzky credited his dad for teaching him to “Skate to where the puck is going. Not where it has been.” Anticipation was the key to Gretzky’s success as a hockey player and it’s a lesson that can be applied to investing.
Fortune favors those who can anticipate trends and get on the ground floor of an exploding opportunity.
If current trends are any indication, the mass exodus of workers and businesses from high tax and government bureaucracy plagued blue states to low tax and business-friendly red states present a tremendous opportunity for those willing to seize upon the expected demand for commercial space, housing, and business services to accommodate this mass migration.
Michael Foley, president and CEO of Humabilt Capital, oversees the entitlement process, funding, and operations for Humabuilt Capital. Mr. Foley has been a full-time real estate investor since 1995 during which time he has developed hundreds of single-family homes, townhomes, condominiums, and apartments. Mr. Foley started his investment ventures in Long Beach, California, and has expanded to Apex and Durham North Carolina. Mr. Foley is a graduate of the University of California at San Diego.