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Four new additions to our libraries
In The Spirit of the Laws Montesquieu posited that the invention of The Letter of Exchange was politically transforming because capital could now travel. In his view it has always been true that:
Commerce is sometimes destroyed by conquerors, sometimes cramped by monarchs; it traverses the earth, flies from the places where it is oppressed, and stays where it has liberty to breathe.
The latest addition to The Library in St. Pete offers excruciatingly detailed data (and interactive map) in support of Montesquieu’s notion, applied to the migration of economic clout within the United States. Author Travis H. Brown uses data mapping of IRS taxpayer records over the past two decades to show the movement of millions of Americans and over $2 trillion in adjusted gross income among the states. Or, as he puts it, “Money walks because opportunity talks.”
Our regular readers will not be surprised to learn that the migration of working wealth is primarily to the Southeastern growth corridors; nor will they be surprised to learn the money is walking to states with the best climate for entrepreneurs. While this migration has been more subtle than the California Gold Rush or Irish Potato Famine, Mr. Brown argues it is just as significant:
If you are losing your working wealth to other states, you are losing your most precious cargo. These are your earners, your workers, your entrepreneurs; this is your tax base. This great movement of working wealth into and out of states is staggering and has serious economic ramifications.
Kevin D. Williamson agrees with that assessment, and in Suicide Pact takes a look at Brown’s data and devises five easy steps to “cripple” your state:
1. Make work expensive.
2. Attack lifetime savings.
3. Run up your state’s long-term liabilities.
4. Tax fanciful things.
5. Don’t just be crazy — be California crazy.
Williamson thinks the trends will only get worse for those states surviving on legacy industries:
There was a time — and it really wasn’t that long ago — when if you were a financial firm, you had to have an office in Lower Manhattan, when film studios had to have offices in Los Angeles, and high-tech firms really needed to be in Silicon Valley. If Travis Brown’s big data set shows us anything it is that those days are done. You can build very fine automobiles in the United States, but if you aren’t already in Detroit, you’d be a fool to set up shop there.
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A second recently-added book makes essentially the same point in a global/historical context. Our popular 4-part series based on Professor Geoffrey Jones’s book concluded that since 1850 those countries with the most friendly environments for entrepreneurs have innovated and prospered.
Why, after the Industrial Revolution began in the West, did the Rest struggle to catch up? Entrepreneurs are the missing gap in the analysis of what creates a prosperous modern economy. Institutions and human capital are treated as the first order causes of economic growth. The assumption is that if a society evolves or adopts the right institutions, or else has good human capital investment, firms and entrepreneurs will more or less appear spontaneously and create economic growth. The business history literature suggests that this is a considerable over-simplification… To have entrepreneurship, there must be entrepreneurial opportunities.
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In conjunction with these additions to The Library in St. Pete, we’ve updated the library of resources for entrepreneurs at our website as well. “Worry less about the idea, more about the execution” explains why investors are often reluctant to sign NDAs, and “Growth Equity is All Grown Up” describes how growth equity has matured as an asset class and incorporates the best characteristics of both venture capital and private equity.
We hope you will find these four additions interesting and enjoyable.