Why The US Does Work: Case Of Florida

You hear a lot of negative things about income redistribution. Complaints about redistributing earnings of hard-working Americans to lazy ones. What you don't hear much about, but is more significant, is redistribution from wealthy states and regions to regions that would otherwise remain persistent pockets of poverty.

Take Florida, for example. When I first saw Florida in 1940, north Florida was about as poor as Mississippi. But federal funds have changed that. And even in bad economic times, federal programs have kept the state out of the kind of economic death spiral that happened in the early 30's.

Between 2007 and 2010, the collapse of the housing boom in Florida was about as bad as the collapse in Spain. But Florida's unemployment rate, which topped out at about 12%, is now at about 9%. Spain's is approaching 24%, with youth unemployment at 50%. So why the difference? Federal transfers (not loans). Paul Krugman has done a back of the envelope calculation and estimates that between 2007 and 2010, the federal government transferred to Florida the equivalent of 4% of Florida's gross domestic product.

I think Krugman's figures are way too low. He leaves off Medicaid, for example. But he also omits the impact of the Army, Navy and Air Force and their associated defense contractors in Florida. If you travel along the coast of Florida from Mayport at the mouth of the St John's River south past Canaveral and Lauderdale to Key West and back up the west coast past McDill and Panama City to Pensacola, you are almost never out of sight of a military installation. It wouldn't surprise me if that doubles the federal contribution to Florida's GDP.

Florida is by no means unique, and in fact is not among the top recipients of federal transfers in terms of percentage. Back  in April, economist Uwe Reinhardt explained in detail how rich states subsidize poor ones and why that's a good thing.

"The table below, based on data regularly assembled by the nonpartisan Tax Foundation, convey a feel for the direction of these transfers. The data clearly identify donor and recipient states.