The Federal Reserve Board Hates North Dakota

A Benjamin Cole post

North Dakota is a teeny-weeny American state, with a total population of 723,000 and counting. It is also a big boom-state, thanks to shale oil. Well, that and federal spending, though the latter is much less mentioned.

In state capital Fargo, near the oil boom, the unemployment rate is 2.8 percent. In Williston, the shale boomtown, the unemployment rate is 0.90 percent.

The number of people with jobs in Fargo has increased by 4.9 percent in the last 12 months. Fat City, baby. But Williston is even better, up 6.6 percent. The place is on fire.

If the United States mirrored even Fargo’s employment growth, the nation would have generated nearly 7 million jobs in the last 12 months, or about 580,000 net new jobs a month. Instead, the United States has been limping at about 200,000 new jobs a month nationally.

Inflation in ND

So, inflation (and icy winters) must be a dreary fact of life in Fargo and North Dakota, no? Red-hot demand-pull runaway inflation!

Well, house prices are up an average of 7.7 percent in Fargo, in the last 12 months, to $169,100 according to real estate service Zillow.

Aha—proof that too-heavy demand leads straight-away to galloping inflation! Right?

Well, except house prices are up 11 percent in the last year in…the City of Los Angeles. To $519,700. According to Zillow.

The U.S. government does not exactly keep close tabs on Fargo, and does not create an inflation index for that city, or indeed even the whole state of North Dakota. So it is tough to prove, or disprove, that inflation is worse in North Dakota than the United States.

But a web-outfit named Area Vibes purports to calculate the cost of living in different parts of the US, with 100 as an average. North Dakota rates a 99, and Williston, the famed very epicenter of the shale oil boom rates an…85.

Turns out that buying a house is still cheap in Williston, and utilities are a bargain. Renting can be tough. Seems a lot of workers may not plan to stay, and so only rent. And Williston city fathers have cracked down on temporary housing, such as trailers, creating a shortage.

To be sure, Williston business owners complain that the tightest labor market in the nation is creating wage hikes. Some have told reporters they must pay fast-food workers $11 an hour. Yes, $11 an hour!

Like I said, it is Fat City in shale town. Those guys flipping hamburgers 40 hours week are making $22,000 a year.

One guy blogged about taking a temp job moving 60-lb concrete blocks and making $14 an hour in Williston.

But are salaries really that high? According to an outfit named, the average salary in Williston $61,000. Nice, right? Versus say, $72,000 in Atlanta, Georgia. Huh?

According to a recent issue of Governing magazine, in Williams County, where Williston is the seat, there are nine job openings for every resident looking for work.

You know, generating old-fashioned demand-pull inflation may be harder than we think. I mean, you got nine openings in Williston for every potential employee and they are paying $11 per hour?

The Bureau of Labor Statistics most recent figures for the third quarter of 2013, indicate “average weekly wages” rose 5 percent in North Dakota, year over year. But even that likely overstates the case, notes the BLS. The wage rate can be affected by a change in the job mix (like more high-paid oil-field workers), or “such other factors as hours of work.”

Oh, you mean people are putting in more hours and getting more money?

Sure is hard to get inflation going.

Why North Dakota Should Not Secede from the Union

Okay, let’s say North Dakota decides with oil riches, it is better off joining OPEC, not the USA. What then should it central bank policy be?

North Dakotans may not know it, but they are living in a refuge safe from the depredations of central bankers, who surely would look askance at the boom-times and mild inflation of North Dakota. If the Dakotans had their own central bank, that monetary authority would likely try to asphyxiate the shale-economy through an ultra-tight money supply.

After all, Fed Governor Charles Plosser says deflation is a nice goal. And how would Plosser get deflation in Williston? Money would have to be very, very, very tight.

But poor Charles Plosser. The U.S. Federal Reserve, and Plosser, has to set a policy for the entire United States. It cannot squeeze the life out of North Dakota, without first embalming and then entombing the U.S. economy, which it nearly did anyway back in 2008. So Plosser and the Federal Reserve can only bear witness to Fat City, North Dakota, and clamp teeth in impotent rage.

It Gets Worse!

As of fiscal 2010, the U.S. government spent $20,668 per capita net in North Dakota—that is federal outlays swamped federal taxes collected in the state. Well, farmers alone collected $1 billion in subsidies, but this federal tax-small-and-spend-big pattern is typical of U.S. rural states, which have lower incomes and thus pay smaller taxes under the progressive tax code, but still have two Senators seeking federal outlays. So, in 2010 at least, the feds unloaded about $14.9 billion net into North Dakota. Is this monetary policy in fiscal drag? Maybe.

Fat City

No wonder Fat City is found in North Dakota.

Wouldn’t be nice if the economy of the whole United States looked like North Dakota?

Not if you are a central banker.


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