Amity Shlaes of Bloomberg News, citing a study by J. Scott Moody of the Maine Heritage Policy Center, holds up Maine as the model for President Obama’s economic policy — a place where ever-growing government intervention has created a bloated public sector, rising taxes, declining private investment and slow income growth.

She contrasts that to “Live Free or Die” New Hampshire by attributing its higher per capita income and now larger-than-Maine’s population to its persistent refusal to enact broad-based income and sales taxes.

Ignoring the fact that well more than 10 percent of New Hampshire’s income is earned by commuters working outside the state, it is still interesting to play out the analogy.

If Maine is the short-term future for America under Obama economics, then rural Maine might well be its long-term future.

Consider for a moment the economic patterns of urban Maine (York, Cumberland and Sagadahoc Counties) compared to those of rural Maine (Oxford, Franklin, Somerset, Piscataquis, Aroostook and Washington Counties) for the relatively prosperous decade of the 1990s (1990 to 2001) and the relatively stagnant decade of the 2000s (2001 to 2008).

Over the cycle between the recessions of 1991 and 2001, employment in urban Maine grew at a rate of approximately 2 percent per year; earnings from this employment grew at more than 6.5 percent per year; and population grew about 1.1 percent per year.

In rural Maine, in contrast, employment grew at 0.5 percent per year, earnings at 3.4 percent and population actually declined by about a half a percent per year.

Clearly, rural Maine was relatively more stagnant and the disparity between the two regions was growing.

Over the most recent business cycle (2001 to 2008), however, the pattern is somewhat different.

The average annual rate of employment growth in urban Maine was cut nearly in half from 2 percent to 1.1 percent, earnings growth slowed to 5.5 percent and population growth fell to 0.6 percent.

In rural Maine, employment growth slowed to a virtual halt, but earnings growth actually accelerated from 3 percent to 4 percent per year and population stabilized. While hardly a model of prosperity, Maine’s rural counties did achieve a level of stability compared to its decline in the 1990s.

Earnings per employee in rural Maine have actually grown more in this decade (at least so far) than in urban Maine.

In relative terms, the economic drop-off during the decade of the 2000s has been greater for urban than for rural Maine.

Is the reason for this apparent paradox simply the fact that rural Maine can’t fall any farther? I don’t think so. The reason is, I think, more ominous and brings us back to questions about the future of the welfare state.

The answers lie in transfer payments and a stable employment base.

In rural Maine in 2008, income received from Social Security, Medicare, Medicaid, unemployment insurance and all other manner of social assistance programs amounted to more than $2.3 billion, amounting to nearly half the $4.7 billion in income that came from earnings from work.

On a per capita basis, rural Maine got $18.07 of its income from earnings and $8.94 from transfer payments. The equivalent figures for urban Maine were $30.91 from earnings and $6.35 from transfer payments.

In the short run, the national social support network has provided rural Maine a degree of stability. Those who have held their jobs in the local service sector or moved into health care provide a relatively steady employment base and, as they remain in those jobs over time, their pay has risen relative to workers in urban Maine.

Those receiving transfer payments — both the retired and the unemployed — serve in the manner of an export industry, that is, they bring in funds from outside the region.

The young move away leaving an unchanging population and the result is an appearance of stability.

In the longer term, however, this stability is unsustainable.

Those holding the remaining “good” jobs in rural Maine will eventually retire, having prepared no one to replace them. The cost of maintaining local governments built for larger and younger populations will continue to rise, thus increasing the tax burden. And the national taxpayers (and Chinese bondholders) who have financed the all-important transfer payments thus far will demand a higher price to continue.

In short, the apparent stability of rural Maine is simply a temporary respite resulting from slow employment growth and the emigration of the young.

In the coming decade, the critical need to restructure government, lower the tax burden and create new jobs will re-emerge and the apparent stability of this decade will be seen for what it has been — the eye of a continuing storm.

 

Charles Lawton is senior economist for Planning Decisions, a public policy research firm. He can be reached at: [email protected]