Is the US Just too Big?

In the wake of one of the most polarising elections in US living memory that showed deep divides across America, it is interesting to consider whether the United States is just too big. Is it beneficial for a country of 320 million people to be governed by a federal authority?

Historically economic integration of markets has largely involved political integration, certainly within the US. Since many industries feature economies of scale access to larger markets is beneficial. If the only way to access a large market is to be part of a large country then integration of large states under one body are an advantage. A central government provides public goods in law and order, enforcing property rights and minimising trade barriers within the market.

However globalisation and technology have allowed for access to markets without requiring political integration. The number of independent countries has substantially increased over the last hundred years. A study by David Hummels in 2007 noted that while global trade volumes have doubled since the 1950's freight costs have plummeted over the same period and are arguably more important than tariff levels. Global trade agreements, low cost shipping, better communications and technology have dramatically increased the accessibility of global markets. The nature of many digital and information goods allows for their sale across global markets without costs of physical freight.

If economic integration exists regardless of political integration then the optimal country size is small, reducing the burden on the nation state.

Perhaps America’s massive internal free trade area doesn’t make as much sense today as it did a hundred years ago.

Historian Colin Woodward in his book American Nations (2012), identified 11 distinct US cultures. The 2016 election showed a deep divide between cities and rural areas. Zerohedge in 2017 discussed a survey where roughly one in three Californians would like to secede from the US which would make it the world’s sixth largest economy (based on 2015 GDP).

As the politics of identity become a growing factor in elections it is interesting to consider the research of Woodward and Hummel and whether the argument for large nation states still holds.

References

Dourado, E.(2016) Maybe America is Simply too Big, elidourado.com, 14 Nov

Durden, T.(2017) Break Up the USA?, Zerohedge, 21 Feb