The Blue State Exodus Picks Up Steam

We Are Becoming U-Haul Nation

A lot of data was just released that showed migration patterns in the United States. It’s not a surprise to anyone paying attention. I wrote about my move here. My friends at Wirepoints put together a lot of data on the great migration. They have been talking about it for a number of years so they are very familiar with the data and not just a bunch of carnival barkers like the people trying to discredit them.

Wirepoints cited a new national survey that shows the migration isn’t ending. In fact, it’s just starting to pick up steam. What was just a trickle of people moving is now a full-blown river of people that have the ability to move. When it was a trickle, politicians could explain it away by saying it was the weather.

No one is moving for the weather. They are moving due to taxes and politics. To be clear, the more you are taxed and regulated the less freedom and individual liberty you have. That goes for the nation, and it goes for the states.

I will fully admit, if the trading floor was still around I would be on it and living in Chicago no matter what. Even at age 60, I’d be toiling in the pits every day although I might be trading differently today than I did at age 30. However, that doesn’t exist anymore.

One of the unintended consequences of COVID and the way it was politicized by Democrats to get rid of Trump was that people were locked out of their workplaces. Work from home is now enshrined in the workplace for jobs that can do that. Those jobs are generally virtual, which means they are mobile. The embrace of COVID to turn it into a political cudgel might bite Democrats in the ass.

Just an FYI before you do the happy dance that you don’t have to commute to an office you might check out the study Chicago Booth Professor Mike Gibbs ran on tech companies’ work-from-home production.

We study employee productivity (output per hour worked) before and during the working from home [WFH] period of the Covid-19 pandemic, using personnel and analytics data from over 10,000 skilled professionals at a large Asian IT services company. Hours worked increased, including a rise of 18% outside normal business hours. Average output declined slightly and employee productivity fell 8-19%. We then analyze determinants of changes in productivity. An important source is higher communication costs. Time spent on coordination activities and meetings increased, while uninterrupted work hours shrank considerably. Employees networked with fewer individuals and business units, both inside and outside the firm. They received less coaching and 1:1 meetings with supervisors. The findings suggest key issues for firms to address in implementing WFH policies.

Gibbs uncovered some pretty huge issues going forward for all companies if they embrace a fully work-from-home system. There are a lot of costs to working from home that was not apparent in the beginning but there was no other choice so companies had to absorb them.

Now that companies are catching their breath, they ought to take a real look at the costs versus opportunity costs of the work-from-home system. My advice is if you are a newer employee or a younger employee, go to the office. We are in a recession despite what the cognoscenti say and I am predicting that firms will start to lay off more and more people. If you are in the office and present you can form human-to-human physical relationships. It’s a lot harder to lay off people if you have a physical relationship than it is a virtual one. I also think that a lot of mentoring and other non-specific work-related things happen when you are physically present which can be an advantage to your career. The discipline that comes with going to an office is helpful in my opinion.

The Trafalgar data is super interesting because people aren’t moving for the weather. They aren’t moving for the taxes either, although it is a simple fact red states have lower taxes than blue states. It’s not just conservatives but independents as well. They are moving to live among people that have similar political views as them.

If you are an Illinois person, retirees aren’t moving due to income taxes. If you are age 59.5 in Illinois and draw a pension, your tax rate is 0%. Pennsylvania and Mississippi also have 0% taxes for retirees, but both states lost population too.

As Wirepoints cites, if this trend continues at the same pace and doesn’t increase political power in the US will shift in the 2030 US Census. California, New York, Illinois, New Jersey, and other blue states will lose electoral votes which means losing legislative representation. Texas, Florida, and other redder states will gain power. It’s also a reason that the Biden Administration is embracing illegal immigration and doing all it can to turn those people into citizens. Of course, Hispanics are trending more conservative so we will see if that bites Democrats in the ass too. Turns out, no one likes to pay high taxes. Who’d have thunk it?

One of the commenters at Wirepoints said this, and it is enlightening.

The more people move for this reason the greater the pressure on those who have not yet moved. We moved from Illinois to Tennessee when I retired a couple of years ago and find discussions around town or at work that happen to turn political much more comfortable and less confrontational. This is certainly more enjoyable than conversations had become in Illinois for a few years before we left.

My observation is that as right-of-center people move, the marginal costs for right-of-center people to stay increase. Not just financial costs, but personal costs. We are human and we have to have relationships. If we think in terms of microeconomics and producing where marginal costs equal marginal revenue, increasing the costs means that somehow right-of-center people need to figure out how to increase their revenue to stay in blue states. Revenue means “happiness” in this example.

They might stay in the state but move to a town or county that is predominantly right-of-center though that will be increasingly hard to find as right-of-center and independents leave.

I remember when I lived way out west of Chicago in Geneva, IL. There weren’t a lot of Jews there. Diversity was “Are you Catholic or are you Protestant?” We had a couple move into our block and one of them was Jewish. Occasionally, she’d go to the North Shore suburbs of Chicago just to hang around other Jews since those areas have many enclaves of them. I think the same happens with politics these days since the two tribes are so different.

This movement is why you see so much chatter on the left for eliminating the Electoral College. It’s why the Democrats are actively trying to change election laws and codify cheating. They see the same trends and numbers as plain as day. They know that people are leaving their states because of their policies but because their number one desire is power and domination, they don’t care. So, they have to deflect to keep the con alive.

In Nevada where I moved, the general costs of living are pretty low compared to the rest of the country. We have a high gas tax and sales tax but property taxes are low and capped and income tax is 0%. The Democrats gerrymandered the state in the last election to keep it blue. Without active Democratic ballot harvesting operations, Republicans would have done better in the last election. Republicans won the Governor and Lt. Governor offices. For sure, the Republican Party in Nevada needs real leadership but a lot of the election laws combined with gerrymandering are stacked against them. But, if Nevada stays hard blue and they do the things that blue states do, people will leave. I told my contractor I was out of there if the state stayed blue.

The other thing we are seeing nationwide is that red states are getting rid of income tax and deregulating businesses. Mississippi went from 5% to 4% income tax. They should go to 0% tax if they want to get people to move there. Many states like Iowa are pushing to get rid of income taxes and fund their governments via other means, cutting the size and scope of their governments. Hence the attractiveness to right-of-center and independent-minded people. Why would you live in Moline, IL when you could live in Davenport, IA?

I think that everyone should also bear in mind that the red states in the South were Democratic-dominated from the 1840s until the mid-1970s. Democratic Jim Crow governments in the South passed all kinds of laws and taxes that are still not repealed. Slowly, those laws and taxes are being changed but it is also important to remember that there are lobbies and political favoritism systems that sprung up around those rules and taxes. They are hard to undo.

I recall a lot of my Democratic acquaintances joking that they’d never move to Florida because of the hurricanes. Of course, they aren’t joking about the recent polar vortex that enveloped the blue nation!

Before my blue state pals interject that all red states are racist or something, when you look at migration patterns of Black or Hispanic people they mimic White people. It’s been happening for a while. This isn’t confined to race. Turns out, everyone likes economic opportunity and freedom too. Imagine that!

One other macro trend to consider is companies are rethinking their supply chains in the wake of Covid. Most if not all of them are looking at pulling a lot of production out of China and re-establishing it in the Western hemisphere. When they consider re-establishing supply chain production in the United States, they aren’t locating facilities in blue states. That trend will take at least a decade to work itself out because moving big facilities isn’t done with a snap of the finger.

In the map I put at the top, check out New Mexico and the states that border it. New Mexico has been a blue state for as long as I have been alive and people are leaving, not moving to it. We will have to see if the trend for Nevada, Colorado, and Arizona stays the same since those states seem to be trending blue.

You might ask why Louisiana is losing people. I think there are a few things afoot. First, New Orleans is pretty violent. They have a crime problem there similar to other big Democratically run cities. Second, the political system there is corrupt just like it is in Illinois. Why live on the gulf in Louisiana when I can move to Texas?

States like Mississippi are losing people too. I think that is due to the fact there just isn’t a lot of economic opportunity there compared to other states. States that don’t have economic opportunities are losing people. Blue states have tougher labor laws and more restrictions for businesses than red states for normal jobs. It is true that traditionally, high-paying consulting, legal, accounting, tech, and financial jobs aggregated themselves in big cities inside blue states, but due to Covid that is changing quickly.

People will move for an economic opportunity no matter what their age is in this environment. Inflation is taking giant bites out of their paycheck. They will trade off lower fixed costs of living with economic opportunity. That’s why people are moving to Tulsa. What is interesting about Tulsa is that 90% of the people that move there and take advantage of the Tulsa move-in program are staying. Because many of them are in “virtual jobs” there is a network building of similar professionals. That network ought to create opportunities for them.

Sometimes in the particular industry you have chosen for your career, the best economic opportunity exists only in high-tax areas and you don’t have a choice. For example, I lived in Chicago my entire career because the trading floor was there. I had the most opportunity for myself there and the fixed costs of living there didn’t matter. How quickly will that calculus change due to the overall migration of people? New York City was always the center of the universe when it came to Finance so you wanted to be there to network there. As NYC finance people leave, does it become Miami? If so, how fast does it change? Or, does the Corporate HQ remain in NYC organizing and accounting for all the activity while the real money and opportunities are made in a red state city somewhere else?

The other thing to remember is that baby boomers are starting to retire en masse. One of the things you desire as a retiree is “budget certainty”. Here is what a $1MM retirement nest egg and a $2MM retirement nest egg look like according to the Wall Street Journal. If you are in a state like Illinois or New Jersey with high property tax rates, you cannot afford to stay because random property tax hikes could potentially crush your budget. This is also why a state like Texas needs to fix its property tax problems. Baby boomers no matter what their political proclivity will move to lower-tax states when they retire.

Again, I would not listen to the bluster of politicians from any political party when it comes to interpreting data on migration. I might not even listen to what people around me say their reasons for moving are, because they might not actually tell you the real reasons. I’d just watch where my friends and acquaintances are moving.

As we say in Nevada, California Governor Gavin Newsome is a tremendous realtor. With every edict he passes and every sentence he utters, home values in bordering states go up.