Congresswoman Marjorie Taylor Greene received plenty of consideration over the weekend when she said that the USA wants a “nationwide divorce”:

I attempt to stay as goal as potential when I’m writing right here so I’m going to apologize prematurely if this publish sounds political, however secession is a reasonably political matter so let’s dig into the economics of the matter as a result of I don’t assume MTG has thought this one by means of.

First, I ought to begin by making it clear that MTG’s feedback are extremely extremist and much more unlikely to come back to fruition. Whereas it’s a cute sound chew that will get plenty of media consideration the economics of a divorce are disastrous. Let me clarify.

The previous joke is that divorce is dear as a result of it’s price it. However the issue with this pondering is that the divorce could be disproportionately costly…for Republican states.

The essential economics of the intranational commerce balances within the USA is that the wealthiest states are usually blue states. This chart reveals the home stability of funds transfers inside the USA. The crimson states on this chart are web givers to the federal authorities and the greener states are web recipients from the federal authorities. ¹

Briefly, the crimson coloured states pay extra into the federalist system than they get as a result of they’re those that produce probably the most relative to their tax construction. California, Illinois, Minnesota, New York, New Jersey and Massachusetts are the one states that ship more cash to Washington than they get.

That is attention-grabbing within the context of MTG’s pondering as a result of all of those rich states would stay unified within the former USA if there was to be a divorce. The states on the backside, so as, are New Mexico, Mississippi, West Virginia, Alabama and Kentucky. So the strongest and wealthiest states would all stay within the present Union and the poorest states would all go away.

The analogy I’ve at all times discovered helpful right here is the European Financial Union. A state like Mississippi is the Greece of the USA. New York is the Germany. Greece is considerably higher off inside the EMU as a result of they successfully inherit plenty of advantages from Germany and different extra productive nations. They get a way more steady foreign money, decrease rates of interest, switch funds, higher phrases of commerce, and so on. In the event that they go away the Euro they are going to deliver again a notoriously hyperinflated foreign money which can expose them to way more financial turmoil in comparison with their present scenario. That is additionally unhealthy for Germany and Greece’s neighbors as a result of it creates extra turmoil than they might in any other case have. This similar factor would occur inside the USA if lots of the poorer states had been to depart.

After all, the wealthy nations additionally profit. Whereas they pay extra into the system additionally they profit from having comparatively extra steady neighbors. If Mississippi had been to secede and create its personal foreign money they might doubtless expertise elevated rates of interest, a really weak foreign money and bouts of excessive inflation. All of this may impression demand for items in neighboring states. Stated otherwise, the factor that makes the USA an particularly distinctive financial powerhouse is that it’s a gaggle of united financial areas with completely different strengths which are all leveraged collectively to create a union that’s higher on common than it could be if it was 50 separate nations.

And none of this even will get into the precise dynamics of the divorce. For example, if the Republican states all go away the union then what occurs to the fee system? What occurs to the foreign money? They must go away the Greenback system and I presume they might every create their very own foreign money as a result of every state would wish to management its personal foreign money phrases as an alternative of getting some centralized financial authority just like the Federal Reserve working the whole factor. So that you’d find yourself with 30+ new currencies and a extremely disjointed fee system. A few of these currencies could be comparatively sturdy. Texas, for example, would in all probability be a really strong foreign money. It might be far much less strong than the USD, however it could be very sturdy in comparison with its neighbors. However a few of these currencies would have bother competing with rest room paper.²

This might primarily unwind the whole fee system that grew interconnected particularly as a result of the neighboring states wanted a extra cohesive fee system. Unwinding this wouldn’t simply be messy. It might create all kinds of pointless turmoil and commerce points that will lead to much more crimson tape than we have already got throughout the nation.

However that is the place this thought experiment would get actually attention-grabbing as a result of states like Mississippi would create their very own foreign money, their very own Central Financial institution and it could doubtless be the weakest foreign money in the whole continent. I don’t imply to choose on MS, however Mississippi is vastly higher off inside the Union due to this truth. Their web fiscal transfers from the federal authorities assist them preserve reasonably priced municipal bonds and fund public goal that they won’t in any other case be capable of afford. The choice could be a lot larger rates of interest, poor phrases of commerce and in all probability bouts with excessive inflation sometimes.

Once more, I don’t imply to sound like I’m demeaning Conservative states. I lived most of my life in Conservative states and I agree with lots of the gripes that we’re all voicing concerning the dimension of the federal authorities at current. However I’m additionally making an attempt to have a look at this from an goal stance and this, my buddies, is an egg that has lengthy since been scrambled.

Briefly, the USA works effectively largely due to the best way it takes from its richest states and redistributes that wealth to its poorest states. This enables the poorer states to be wealthier than they in any other case would which contributes to combination demand and helps stabilize the whole financial area excess of if it had been 50 unbiased nations. We don’t have to fret about our poorest states having municipal bond panics each few many years particularly as a result of we’re united in guaranteeing that doesn’t occur. This can be a good factor and all of us profit from this elevated stability by means of the financial union.

I’m not a wedding counselor, however this can be a divorce that will be exorbitantly costly for all of us. So I might suggest marriage counseling as an alternative of rash selections that will truly make us all worse off, although some excess of others.

1- NY’s Steadiness of Funds with the Federal Authorities

2 – This isn’t the perfect analogy contemplating that the demand for bathroom paper could be very excessive. Particularly so in my home the place we’re potty coaching a 2 yr previous who thinks that she must wipe with a complete roll of bathroom paper after peeing.