Search This Blog

Wednesday, February 22, 2017

Structure of the Wyoming Economy, Part 1

In response to a couple of reader requests I am going to spend this blog article, and the next one, on explaining the composition of the Wyoming economy. This may seem to be about as fun as to watch a cactus grow, but it is actually an important piece of information, especially if we are going to have a conversation about the future of our state's tax system - and, most important of all, about what role government should, and should not, play in our state. (Hint: the data examined below shows that our government sector is almost 42 percent larger than the national average.)

This article looks at Wyoming as a state, compared to a couple of other natural-resource rich states, and to the country as a whole. 
The second part of this article will look at individual counties, what industries dominate and what they pay their employees. 

Let us start with a pie chart over the Wyoming economy. It splits our state GDP into pie slices by industry; the numbers attached to the slices are in millions of US dollars as of 2016 (and the percentage represents the industry's share of total state GDP). The industries are listed to the right, following the pies from "noon" clockwise. For example, the large blue chart at "noon to two o'clock" is Minerals, which contributed $6,990 million - or $6.99 billion - to the Wyoming economy in 2016.* As the chart shows, the minerals industry is responsible for 19 percent of the value of all economic activity in our state (please note that the colors are not coded to industries, but to their ranking): 

Figure 1
 

The second largest industry in our state is government, which represents a small federal government, a sizable state government and a large local government sector. 

So what do other resource-heavy states look like? The first, obvious object of comparison is Alaska, where the economy is rumored to depend so heavily on natural resources that 90 percent of the state government's General Fund is paid for with taxes on the state's oil production. 

As Figure 2 reports, the relative size of the largest industries is approximately the same as in Wyoming, the difference being that real estate is no longer the third largest industry - it is transportation and warehousing:

Figure 2

Like Wyoming, Alaska had allowed government to become the second largest industry in the state. Is that true of all resource-heavy states? Let us look at West Virginia, the second-largest coal producer in the United States:

Figure 3

Uh-oh... In West Virginia, government is the largest industry! That is not good. Its share of the total state GDP is marginally smaller than the government share of the Wyoming economy, but that really does not help. 

Sadly for the taxpayers in the Mountain State, government has been their largest industry for a long time; at least for the past ten years, which covers the latest coal boom, minerals has never overtaken government in the West Virginia economy.

Minerals has been and continues to be the largest private industry in their economy. Therefore, with the three state-GDP pie charts we have so far, it is fair to suggest that resource-rich states tend to grow their governments beyond what their economies can sustain over the long haul. 

To see how far this suggestion holds, let us compare these three states to the national average (please note that numbers are now in billions of US dollars):

Figure 4

It is hardly surprising to note that now, all of a sudden, we have a more balanced economy. Three industries are about equally sized: real estate, government and manufacturing. By a sliver, government squeezes in on second place; before the Great Recession, manufacturing was America's second largest industry. 

The structure of the national economy confirms what we already knew from other data, namely that we have a disproportionately large government sector here in Wyoming. Our government sector is almost 42 percent larger than is normal for the country; with a steadily shrinking tax base, this over-sized government is a problem that will not go away without focused, courageous and long-term oriented reforms. 

Tomorrow, we will take a more detailed look at the Wyoming economy, including employment and compensation numbers by industry,  county.
-----
*) These are all annual numbers, though the current data is from the third quarter in 2016. Final numbers for the calendar year of 2016 will not be ready for another couple of months.

No comments:

Post a Comment