A funny-sad back-and-forth appeared in the pages of the Hartford Courant last month.
It started when one Christopher Edge wrote into the letters section to say he had had it and was moving out in a brief tirade entitled “Farewell, Connecticut.” More positive residents then chimed in with their support for the Nutmeg State. “Running away is not the solution,” chided one Patricia Karwoski.
But what problems could Edge possibly be trying to duck by bailing? Who would run away from Connecticut in the first place? It seems a state not afflicted, a lovely, hilly green hamlet nestled between Boston and New York. It has a low crime rate. It has stellar schools. It has the highest per-capita income of the 50 states. It’s got America’s best pizza, for God’s sake.*
Edge complained primarily about the state’s political incompetency and its “freeloaders.” But there’s a much deeper malaise afflicting Connecticut and its angry letter-writers. While there is great wealth, there is stagnant growth. Along with high incomes has come increasing poverty. Amid those million-dollar mansions, the middle class has eroded.
In short, Connecticut has somehow managed to become both the richest and worst economy in America. And what’s worse, America has started to look more and more like Connecticut.
To understand Connecticut’s funk, it helps to borrow an equation from Thomas Piketty’s Capital in the Twenty-First Century, the dense, thousand-page economic tome that took a surprise spot on the best seller list earlier this year: R > G, or the rate of return on capital beating the general rate of economic growth. In an R > G world, investors tend to do better than rank-and-file laborers. The rich tend to do well even when the middle class and the poor are struggling.
Such is Connecticut, with its trust funds and hedge funds and private-equity funds. Representing the R half of the equation is Fairfield County, home to an extraordinary concentration of money-management businesses and many of Connecticut’s one percenters.
It’s a pretty, Waspy place, Wall Street’s buttoned-up suburb. “There’s a little motto people use out here: ‘The spouting whale gets harpooned,’” said Steve McMenamin of the Greenwich Roundtable, a nonprofit for “investors who allocate capital to alternative investments.” He added: “You don’t know that guy as a hedge-fund manager. You know him as Billy’s dad at Greenwich Country Day.”
Fairfield County took a serious knock during the recession, as asset prices plummeted. Funds shuttered. Multi-million-dollar homes went into foreclosure. But that was but a blip in a fabulous 30-year run, and the local economy has rebounded with the Dow Jones. The top one percent saw their earnings increase 415 percent between 1979 and 2007, whereas the incomes of the bottom 99 percent only increased 26 percent. And the top one percent has captured every last dollar of the state’s income gains since the recession hit.
As such, Connecticut is the country’s most unequal state: The average one percenter earns 41 times what the average 99 percenter does. That same multiplier is 24 in New Jersey, and just 12 in Hawaii.
But all that money has failed to generate very many jobs. Connecticut’s flailing casinos employ about 20,000 mostly low-wage workers. Bridgewater — the mammoth hedge fund, with $150 billion under management — only employs about 1,400 people, if fantastically compensated ones.
Then there’s how the other half — the G part of the equation — lives. “You get past Westport?” said McMenamin of the division between Connecticut’s super-rich southwest corner and the rest of the state. “It’s a desert.” That’s overstating it a tad. The state still supports a number of affluent communities, like West Hartford, where I grew up. And the average middle-class person in Connecticut earns more than in most other states.
Nevertheless the area has a long-simmering problem with jobs and growth. Of late, its economy has expanded more slowly than that of any other state. It has the worst job creation record of any state, too, supporting fewer paying positions in 2010 than it did in 1990. And its median income, if high, has not grown in real terms over the past two decades. It is about a fifth below its 1989 peak.
Get out of Greenwich, in other words, and you encounter lovely but stagnant suburbs — grist for so many ennui-afflicted short stories — studded with the occasional pocket of urban poverty.
“Connecticut had a widespread recession from 1989 until 1992,” said Peter Gioia, an economist at the Connecticut Business and Industry Association. “We did not replace those jobs until early 2000, then the 2001 recession hit. We barely replaced those jobs by 2008, then we went into the same recession that clobbered everyone else.”
The story is in large part sectoral. Defense contractors like Sikorsky and United Technologies provided a huge jobs boost to Connecticut through the 1980s, but that business waned with the end of the Cold War. And technological change prompted the state’s bread-and-butter financial-services firms to downsize and outsource through the 1990s. “Insurance and banks — that’s where the jobs were,” said Gioia. “In the 1980s, people used to talk about ‘Mother Aetna,’ about how you were safer there than a government employee. But that’s not true anymore.”
At the very low end of the wage spectrum, things look even worse. Poverty has intensified, including deep poverty. The number of very poor residents of the state grew 21 percent through the 2000s, to 314,000 people. The disparity between the rich and the poor in the state comes into particularly sharp relief — as well documented by local and national reporters — between hyper-rich, tony Greenwich and blighted Bridgeport, just 30 miles away.
Many of the state’s business owners and wealthy blame the local government and its tax hikes for the malaise — especially the introduction of a state income tax in the 1990s. Christopher Edge, in his rant to the Hartford Courant, agreed with them. (For much more on Connecticut’s tax, regulatory, and business climate, see this article by Jim Powell in Forbes.)
It is true that the state is facing some daunting financial problems. “While state budgets may have been ‘balanced,’ financial statements show the state’s expenditures have exceeded revenues for several years,” warned one report from a University of Connecticut research center. “Connecticut ranks among the highest, and possibly the highest, in total unfunded pensions and retiree health care per taxpayer in the nation.”
Connecticut’s one percenters now worry that the government might end up raising taxes on the rich further to close its budget gaps. “They’re harassing us,” said McMenamin, who said he had started advising entrepreneurs to try the state of New Hampshire rather than Greenwich. “They just got this IV tube into us and are sucking us dry for taxes.”
Such is the malaise afflicting lovely, wealthy Connecticut: Great wealth. Slow growth. Yawning inequality. Inadequate job creation. Incompetent government. Stagnating middle-class incomes.
Sound familiar? To some extent, the state’s problems are the country’s problems, if seen in a fun-house mirror. Connecticut happens to have a tremendous wealth base to go along with its jobs-and-wages crisis, meaning it has developed an exaggerated version of the same R > G dynamics seen throughout the country.
The good news for Connecticut is that its daunting problems might be simpler to fix than the country’s daunting problems. States thrive not just by generating growth and jobs from their existing firms and residents, but also by nabbing businesses and warm bodies from other localities. Changes to Connecticut’s schools, taxes, regulations, and infrastructure — along with that great pizza — might help it steal businesses back from New Hampshire or New Jersey or Florida, in other words.
But in the meantime, Christopher Edge has given up. He’s hardly alone, either. In a Gallup poll conducted this spring, a full half of Connecticut residents admitted that they were thinking of bailing.
* This story incorrectly said that Connecticut was home to Martha Stewart. The longtime resident has moved out of the state.