Digest: The $100 Billion Wealth Migration to the U.S. South

Plus, How Banks Caused Britain’s “Lost Decade.”

Welcome to the Sunday digest… my breakdown of the things we’re thinking about and talking about in the Global Intelligence world. 

First up this week, the $100 billion migration of wealth to the southern and southeastern United States… 

How has the American South traditionally been viewed since the Civil War? Not as an industrial powerhouse—that would be the Northeast. Not as a place of wealth, glitz, glamor, and prosperity—that was reserved for cities like Los Angeles and New York City. And certainly not as a place of technological innovation—there’s Silicon Valley for that.  

Rather, for more than a century, much of the South was characterized as an economic afterthought.  

But now, quietly, a new South is emerging… one marked by a boom in economic activity and population growth, as companies and people are lured by the warmer weather, lower taxes, looser regulation, and cheaper housing.  

In just 2020 and 2021, some 2.2 million people—roughly the population of Houston—migrated to Florida and other areas across the southeastern U.S., bringing with them $100 billion in wealth. 

Many of them came from the Northeast, which saw an outpouring of $60 billion in wealth. 

This economic migration toward to the South actually began around a decade ago. But the pandemic in 2020 added a potent dose of nitrous oxide to this flight. And it shows no signs of abating… 

Electric vehicle factories, battery plants, medical facilities, and world-class financial firms are popping up in cities and places that they would never have been seen before. Perhaps the most prominent examples of this are Elon Musk’s companies: Tesla, SpaceX, and The Boring Company… all of which have facilities in Texas.  

Musk is even planning to build a new town for his employees along Texas’ Gulf Coast. 

For the first time in several generations, the U.S. economy’s center of gravity is shifting… and it’s moving South. 

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Next up… the computer chip war between the U.S. and China is heating up. 

The Biden administration is considering new economic restrictions on China aimed at reducing its military power on the world stage. The target of these restrictions: computer chips for artificial intelligence.  

AI is the new frontier in military technology. Military experts are predicting that artificial intelligence could significantly increase the accuracy of conventional weapons systems. And AI tools could even be used to create chemical weapons or produce malicious computer code that could take down critical infrastructure.  

But since AI requires huge processing power, you need a steady supply of advanced computer chips to build these capabilities into your military. 

With this in mind, the Biden administration is considering new export curbs on high-end AI computer chips to China, which does not have the ability to produce them domestically.  

The U.S. already requires that exporters get a special license before selling high-end AI chips to China. Now, it plans to add new chips to the list… specifically a lower-bandwidth variety of chips that was designed to circumvent existing sanctions. 

This “chip war” requires a careful balancing act.  

The U.S. wants to restrict China’s rise, but at the same time, it needs to allow some exports to China or risk damaging the profitability and development of major U.S. chipmakers like Nvidia, which earlier this year achieved a trillion-dollar market capitalization on the back of growing AI chip sales. 

Nvidia saw a 4% drop in its share price when the administration revealed it was considering new export restrictions. 

My take: Despite the impact on U.S. companies, this chip war will expand, not contract. Indeed, fears over the impacts of AI are going to be shaping government policymaking, in all sorts of areas, for a generation. 

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Finally this week, banks in the U.K. are killing the nation’s productivity… 

The U.K. economy has been in the doldrums of late… experiencing the slowest recovery from the pandemic among any of the G7 nations.  

A few things are fueling this trend: an aging population, a strict regulatory environment, and the country’s disastrous exit from the European Union. 

But there’s another factor that’s causing growing concern among economists: U.K. banks’ obsession with residential mortgages.  

From February 2013 to February 2023, the value of home loans offered by U.K. banks grew by £400 billion (around $500 billion), according to Bank of England data. But the amount loaned to businesses rose by only £40 billion.  

In essence, over the past decade U.K. banks became addicted to real estate. After all, why concentrate capital in something speculative like a startup when you can take the less risky option and loan out into a rising real estate market? 

This has left many small business owners in the U.K. with an inability to scale… diminishing their productivity and hampering the overall economy’s performance. 

U.K. productivity growth has halved since the global financial crisis, leading some policymakers to call this era Britain’s “lost decade.” Among the world’s seven largest developed economies, only Italy has fared worse during this period. 

In view of this, economists are now calling on the U.K. government to introduce new rules to encourage lending to the business sector. If the British government can’t resolve this mess, its economy could stagnate even further.  

That brings us to the end of this week’s digest. Many thanks for being a subscriber. And if you have any feedback or questions, reach out through the contact form on the Global Intelligence website. 

Enjoy the rest of your Sunday.