Who’s to blame for the financial mess, red states or blue states?  If you trust a recent column in the AP, it was the Sun Belt model of “fictitious housing wealth” that led us to ruin.  If you listen to demographer Joel Kotkin, it’s the blue state system of regulation that is outdated and broken.  Times columnist Ross Douthat believes that red states like Texas – which has a balanced budget – are the proper model, and not troubled blue states like California. But liberals like Ezra Klein or Ed Kilgore argue that states like Texas are cesspools of illiteracy, obesity and poverty.

So where’s the truth?  Somewhere in between. It’s clear the regulation, taxes and the public sector albatrosses of states like New York and California certainly don’t lend themselves to growth.  At the same time, “growth for the sake of growth” economies of states like Florida and Arizona contributed to the collapse, and the poor living conditions in states like Mississippi don’t encourage recovery.  States that can strike the right balance – ones that can keep taxes low, lure business and encourage free enterprise, but also take care of roads, schools and other important public sector functions – will prosper.

Before I get into who’s doing it right, the theme of the aforementioned authors seems to be outlining who’s doing it wrong.  I’ll start with the Empire State, once the beacon of America, but today smaller in population than swampy Florida. New York City gets nearly half of its tax revenue from one percent of the population, which may be an unreliable source as Barney Frank Democrats call for the guillotining of Wall Street bonuses.  Meanwhile, the public sector workforce drains an increasingly large share of the budget.  Writing in City Journal, Myron Magnet argues, “Our public services, even vital ones like the subway, work badly, because they operate less for the convenience of their users than for the sake of their unionized, overpaid employees, now not so much public servants as the public’s masters, through the vast political might they wield over so powerful a government.”

And then there’s the insolvent California, which spends billions on public employee pensions and gives over 5,000 retirees in excess of $100,000 per year.  Revenue isn’t what it used to be either, as Los Angeles has routinely been ranked as the most expensive place to do business.  It’s no wonder that a Denver pro-business group has been flying planes with banners over L.A. luring financial refugees to Colorado.   “In California, everything has priority over the economy,” economic analyst Bill Watkins told Kotkin recently. If you ask farmers in Fresno – “California’s Detroit” as one L.A. Times columnist put it – it was fish in the northern delta that prompted the state to turn off the tap on 2 million acre-feet of water this year, leaving the Central Valley economy parched.

At the same time, red state critics like the AP’s Todd Lewan and Atlantic’s Richard Florida got it right when they blamed the economic model of the so-called “Miracle Gro states.”  The problem is especially bad in Republican-controlled Florida and Arizona.  Richard Florida notes: “Cities grew, tax coffers filled, spending continued, more people arrived. Yet the boom itself neither followed nor resulted in the development of sustainable, scalable, highly productive industries or services. It was fueled and funded by housing, and housing was its primary product. Whole cities and metro regions became giant Ponzi schemes.”

As these economies crumbled, state governments have also failed.  Jefferson County, Alabama is now officially shut down. “People have been waiting in line for hours for driver’s licenses and car tags,” Marketplace reported from Alabama’s largest county last week. “There aren’t enough building inspectors to approve new construction.”  That’s hardly an encouraging climate for development. The standard of living is also rough in many red states. Mississippi has a “human development index” lower than Bosnia or Mauritius, according to the American Human Development Report, which measures categories like life expectancy and literacy.  I’m not advocating a welfare state, but “the South’s high ratio of private affluence to public squalor,” as Kilgore put it, is troublesome.

So who finds the healthy equilibrium between suffocating Blue State regulations and the dangerously freewheeling Red State economies?  I’d point to Virginia, ranked by TIME magazine as the best-managed state in the nation and by CNBC as the best place to do business.  “Virginia takes a sound, long-term approach to money management but has scrambled to balance revenues, expenditures in today’s uncertain economic climate,” stated a 2008 Pew Center on the States report.  The Old Dominion also has kept its corporate tax at six percent since 1972, is a right-to-work state and has never had a bond rating lower than AAA.  The commonwealth is also smart about how it spends revenue (mostly) and has some of the best public schools and finest universities in the world (roads are a different story).

I’d give an honorable mention to Colorado and a “worth-considering” to North Carolina.  Colorado has entrepreneurialism in its DNA and has long been a bastion of venture capital.  It also helps that it’s a fine place to live and taxes are some of the lowest in the nation.  North Carolina has slightly higher taxes and unemployment, but the leaders there have taken a long-term approach by consistently investing a top-tier university system and founding the Research Triangle Park in 1959.  Wake County, N.C. looks remarkably similar to Loudoun County, Va., which looks similar to Douglas County, Colo. All are fast-growing, tech-heavy and business-friendly.  All are also purple states governed by moderates, which in the end might tell you more about their success than anything else.