GDP overachievers

Yesterday Karl Fisch and I were e-mailed a link to a video from Shocking Economics. Although I'm neither a demographer nor an economist, the video got me thinking... (bear with me here; there's a point at the end of all of this!)

As you can see in the spreadheet I made [.xls or .pdf], there is an extremely strong positive correlation (cell E2) between a state's overall population rank (column D) and its overall GDP rank (column F). In other words, the more people in the state, the bigger GDP it has. California has the most people and it has the biggest GDP. This makes sense.

However, some states seem to be more GDP-efficient than others. For example, Connecticut is ranked 29th in overall population and 23rd in overall GDP, but is the 4th-ranked state when it comes to GDP per capita (column G). In contrast, Alabama is ranked 23rd in overall population and 25th in overall GDP, but is the 45th-ranked state in terms of GDP per capita. Connecticut's GDP over/under (column H) is +19 (23 minus 4). Alabama's is -20 (25 minus 45). Connecticut appears to be a GDP overachiever, while Alabama seems to be an underachiever. Dollar for dollar, person for person, Connecticuters are contributing more to the overall national economy than Alabamans.

As the spreadsheet shows (cells K26:K29), states in the Northeast and Pacific regions (as defined by the U.S. Census) are, on average, more GDP-efficient than states in the Midwest or South. There are moderately strong correlations between states' over/under ratio and their overall population rank (cell E4), overall GDP rank (cell H5), and GDP per capita rank (cell H6). States with smaller populations are moderately more likely to have a higher GDP per capita rank and a better GDP over/under ratio.

So here are 10 select states [click on image for larger version or download the PDF]:

While some of the states (Montana, Maine, New Jersey, and Maryland) have overall GDP ranks and GDP per capita ranks that are congruent, you can see that there are large discrepancies in GDP over/under between the lowest states (Florida, Michigan, Ohio, and Arizona) and the highest states (Wyoming, Alaska, Delaware, and Rhode Island). Florida is #4 in overall GDP but #34 in GDP per capita. Wyoming is #48 in overall GDP but #5 in GDP per capita. The lower states seem to be under-contributing to the national economy.

So how does a state like Michigan or Arizona increase its GDP per capita? Well, in today's day and age, I think these states need to follow the lead of West Virginia (over/under of -9). West Virginia is making strategic, long-term investments in 21st century skills initiatives for its schools. To its credit, it sees that a focus on digital technologies and preparation of a globally-competitive workforce is the best solution for an anemic state economy. It's probably no coincidence that five of the first six states to join up with the Partnership for 21st Century Skills (in red on the spreadsheet) have neutral or negative GDP over/under ratios.

I don't know if all of this would make sense to an economist, much less a 'shocking' one, but it sits well intuitively with me. Although the video points out that our system has worked well for us to date, it also is true that our world is transforming itself in revolutionary ways. Don't we want our state educational systems to be proactive rather than resting on their laurels and one day waking up to find that their economic models no longer work?

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