Forbes: Avoid the ‘Death Spiral’ States when You Consider Investing
November 26, 2012 - 12:15 pm
The investments in question could be anything from home ownership (you should buy in Texas, but rent in California) to building a business to buying their bonds. Nothing in the article is very surprising: States with more takers than makers are considered risky, and the worst of those are in economic “death spirals,” and most of those are blue states. California and Illinois are both on the list, though not on the top of it.
It’s easy to see how California got on our list. It has pampered a large army of civil servants while using every imaginable trick to chase private-sector jobs away, the latest being a quixotic scheme to reduce the globe’s atmospheric carbon. A City Journal essay by Victor Davis Hanson notes that the state spends $10 billion a year on entitlements for illegal aliens.
Illinois is especially known for its dishonesty, whether among officeholders (future license plate motto: Land of Corruption) or in the habit of under-accounting for promises to government employees. The Rauh study counted $66 billion in the till to cover pension obligations of $233 billion.
The full list of “death spiral” states includes NM, MS, CA, AL, ME, NY, SC, KY, IL, HI and OH, in order of taker to maker ratio. Ohio may not be as swingy in the future as it has been in the past.
None of these states has a plan to deal with their financial problems. California just passed Prop 30, which amounts to a plunder tax and is likely to chase even more makers out of the Golden State. Illinois will keep on jailing former governors. New York will keep electing Cuomos.