chance a member may join and become uncom-petitive due to the exchange rate. Much of acountry’s ability to react to economic downturnsis also stripped away in a currency regime, asseen in the EU.It may not really matter. The US is not auniform economy with easy policy measures tospur it to growth. Much lie the South of Europe,the Southern US has struggled to find its legs inrecent years even with Fed policies that are muchmore accommodative than those of the ECB.Indeed the US is not so different from the EUwhen broen into regions and states. Both containareas that struggle with generating growth andreducing unemployment. While the ECB mayhave a difficult time initially, there is hope thatthe EU may eventually coalesce into a single-pseudo economy. The US may be an example of what the EU eventually becomes.
A Booming Recession
Unlie the Euro Area (which seems to always be viewed through the lens of its individual memberstates), the US economy is viewed as a uniformwhole too often. The reality is that, though bothgrew in 2011, the economy of California differssubstantially from Texas in everything from thedrivers of its economic growth to its tax codes.States with exposure to energy, durable goodmanufacturing, and technology have performedwell. States without them have tended to lag.North Daota is a prime example of a state ideallysituated in the recovery. Sitting on the BaenShale, one of the least populous states posted 2percent growth in the depths of the recession.The US unemployment rate is 7.9 percent, butNorth Daota’s rate is 3.1. In 2011, the state grew7.6 percent—by far the fastest in the country.Statistically speaing, the Great Recession nevermade it to North Daota. There is little reason tobelieve North Daota will slow down significantlyin the near future. But it is a very small economy,and it can grow very quicly without maing asignificant impact on overall US GDP.For perspective, 20 US states grew less than1 percent in 2011, with Alabama, Mississippi,New Jersey, Wyoming, Maine, and Hawaii allexperiencing negative growth. These six statesaccount for about 6.2 percent of overall US GDP.This compares with Texas, which grew at a 3.3percent clip, accounting for 8.7 percent of theUS economy. Size matters. Of the 10 states thatposted GDP’s above 2 percent, only four were sig-nificantly higher: West Virginia, boosted by coal;Texas, with broad based gains in oil and gas aswell as manufacturing; North Daota, driven byoil and gas but broad gains as well; and Oregon,accelerated by strong growth in durable goods.And, while California did not have outrageousgrowth, its 2 percent accounted for 17.6 percentof the nation’s growth, second only to Texas at19.4 percent.
The Fed and the Lagging 20
The disparity maes it much more difficult for theFed to create effective policies for the country asa whole. The Fed may accomplish its unemploy-ment and job creation goal in Texas, for example,but the labor marets in Mississippi and Alabamamay continue to lag.Unemployment rates vary spectacularly fromstate to state, but even by region there are varia-tions. The Pacific region (West Coast including Alasa and Hawaii) had an unemployment rateof 11.0 percent in 2011, but the Fed has almostreached its 6.5 percent goal in the West NorthCentral region where unemployment is 6.6 per-cent. Only when we aggregate these sub-regionsto the regional level—West, Midwest, South, andNortheast— do the variations begin to disappear(though the West still has higher unemploymentthan the other regions). The four regions hadinflation rates that differed by only .2 percent in2011 in a range of 1.5-1.7 percent.The Fed can continue to hold down borrowing rates and purchase assets, so long as the broadestmetrics do not exceed its limits. The aim is for theUS as a whole to have a low unemployment rate.Some areas of the country are liely to be a drag,and others are liely to significantly overshoot tothe upside. Even with the diverse and seeminglydisparate economy, the US does tend to have asomewhat coherent growth trajectory.
States of Diffusion
The EU does not really loo lie a single econ-omy—but on further inspection, neither does theUS. The US loos much more lie a diverse set of economies with little in common except proximityand currency. And it wors. Somehow, some way,
“Much like the South of Europe, theSouthern US has struggled to find itslegs in recent years even with Fed policiesthat are much more accommodative thanthose of the ECB.” “The Fed can continue to hold down borrowing rates and purchaseassets, so long as the broadest metrics do not exceed its limits. Theaim is for the US as a whole tohave a low unemployment rate.”