Euros and Dollars

Not so small a point:

The GDPs of Greece and Portugal, according to the World Bank, are each roughly two thirds that of Germany, and about 77% of the European Union taken as a whole. That is to say, Greece and Portugal are poor countries, the weak sisters of that economic bloc. So, perhaps it is understandable that Greece and Portugal should appear constantly, since the Crash, to be circling the drain. They started in last place, and are certainly in no position to compete now, with their 25% unemployment rates and persistent housing crises. Just today, a Greek woman, while the sheriff was ascending the stairs to evict her, exited her apartment via a fourth-floor window; in response to this widely-publicized suicide, Greece has put most foreclosures in abeyance for the foreseeable future, simultaneously with the adoption of stringent new austerity measures. The populace of that sad country, beset with Nazi thugs roaming the streets in search of immigrants, has virtually nowhere to turn; there's just no money to be had, even for the most basic necessities.

The GDP per capita of Mississippi is about half of that of Connecticut, and roughly three-quarters of that of the entire US, on average (link). So Mississippi looks, at least in this respect, like a Greece or a Portugal --in fact, its GDP per capita is almost exactly the same as that of Portugal and a bit less than that of Greece ($26,087 for Mississippi, vs $26,948 for Greece and $25.395 for Portugal). Mississippi is a "poor" state; it brings up the rear, in terms of the US economy, except for Puerto Rico, the Mariana Islands, and similar possessions.

Yet Mississippi's unemployment rate is 9.2%; very bad by US standards, but only about 1.5 percentage points worse than the national average. The Greeks would think they'd died and gone to heaven if they had that rate. And although, like many areas of the US, Mississippi is undoubtedly suffering in the recession, its situation is by no means noteworthy, in terms of national news coverage.

What's the difference? Why isn't Mississippi, which could be called our "Greece," spiraling out of control as that European country appears to be doing? I've pointed out previously that Greece doesn't control its own currency, and that fact puts the country in a straitjacket when it comes to controlling its economic destiny. But Mississippi, of course, doesn't have its own currency, either; so that can't be the difference.

Mississippi, in foregoing the right to have its own currency, and in surrendering the right to control its borders, gained something that Greece, in taking the same steps, did not gain: the state, unlike the country, is part of a single financial system. Unemployment in Mississippi is subsidized by unemployment compensation that originates at the national level; welfare, social security, Medicare coverage, and so forth, are all either federally provided or at least federally controlled and subsidized. And so, when Mississippians lose their jobs, money is transferred into the local economy, from other states, in the form of unemployment compensation. Elderly Mississippians benefit from Medicare, which does not depend on income earned in Mississippi.

In effect, Mississippi benefits from transfers of these kinds from elsewhere in the US. Rich states, mainly in the North and East, subsidize poor states, mainly in the South and West. It's pretty much consistently that way. Mississippi ranks 50th, and Massachusetts 4th, in the per capita amount of federal taxes paid by its residents. In terms of net contribution (all federal taxes) to the federal budget, Massachusetts ranks 11th, at about $2,133 per resident, net contribution; Mississippi ranks 49th, at a negative $6,765 per capita (link and link). So the local economy of Mississippi benefits substantially from the influx of money from outside the state; this keeps the stores open and their employees working.

We have, in other words, what economists call a fiscal union. All the states are part of the same federal budget and are subject to the same federal tax regime. And their residents all participate in the same social safety net. So it doesn't matter, for example, that Mississippi cannot coin its own money. In fact, that state and most of its neighbors benefit substantially from membership in this fiscal union.

It's ironic that, with a few notable exceptions such as Texas, most of the net contributor states are reliably Democratic, while many of the most Republican (not to say anti-federal government --whoops, I just said it) states are those which benefit most by the transfer to their people of taxes paid elsewhere. 

But back to the main point: the creation of the Euro involved a monetary union --a single currency-- without creating a fiscal union --a unified budget, tax regime, and welfare system. And this is at the heart of the problem for the poor countries of the European Union. And it is why Mississippi is not, and will not be, in the sad state of Greece and other poor members of the Euro. 

Unless certain political elements get their wish, and federal programs are devolved to the states.