Migratory Stimulus

The recession has the potential to alter the economic geography of the country, perhaps significantly. For one thing, the pain of the downturn is not spread evenly around the nation. While all cities are hurting, Rust Belt manufacturing hubs and housing crash hotspots like Phoenix and inland California are getting the worst of things. Recovery for the hardest hit places will be slower and shallower (and for some areas of the midwest, missing entirely). There will also be differences resulting from the use of stimulus money and shifts in the nature of the economy. Areas that use their stimulus wisely will end the recession in a stronger position relative to others. There will also be sectoral shifts in the economy that will influence growth. Metropolitan economies heavily dependent on housing will struggle to grow again, while those with an edge in manufacturing efficient technologies may boom quickly.

It would be interesting, then, to know what migration patterns look like right now, and how they’ve shifted since the onset of recession. I’ve been thinking about this post from Paul Krugman, in which he writes:

Instead, recovery comes because low investment eventually produces a backlog of desired capital stock, through use, delay, and obsolescence. And eventually this leads to an investment recovery, which is self-reinforcing.

And what do we mean by use, delay, etc.? Calculated Risk had a nice piece on auto sales, which I find helps me to think about this concretely. As CR pointed out, at current rates of sale it would take 23.9 years to replace the existing vehicle stock. Obviously, that won’t happen. Even if the desired number of vehicles doesn’t rise, people will start replacing vehicles that wear out (use), rust away (decay), or just are so much worse than newer models that they’re worth replacing to get the spiffy new features (obsolescence).

As autos go, so goes the capital stock. In the long run, we will have a spontaneous economic recovery, even if all current policy initiatives fail.

Forced to invest, economies eventually pull themselves out of recovery. But we could generate such investment pressure right away if there were a general population shift toward a handful of metropolitan areas. If targeted investments in a few select areas generated job growth, that would lead to population growth. The need to accomodate that population growth would generate new investments in housing, in retail, and in all the locally produced goods and services the new arrivals would demand. That would create a profitable investment environment, which would encourage banks to begin lending again, and so the self-reinforcing spiral would continue.

Basically, when everyone stays where they are, there’s lots of slack everywhere. But if we moved some people to new markets, such that those markets had no slack, then the local economies would get moving, leading to national recovery. Of course, the hard question is how to produce the migrations. It could be the case, however, that a very narrowly targeted stimulus, geographically speaking, could do the job.

This is just me thinking out loud, by the way. I’d love to see some research on migration and the business cycle, though, if any readers are aware of some.

Comments

  1. Micah K says:

    My initial response is that the distributive effects of that kind of policy might be pretty brutal. Aiming investments at the best-off regions (or metropoli) in order to stimulate in-migration would benefit the people who can afford to move. Sure, it would stimulate jobs in construction and such, but I think you’d see the wages of the local labor market bid up, rather than a serious in-migration of new construction workers. Meanwhile, declining areas would see their decline hasten, leaving them poorer and thus again reinforcing the decline. Those that haven’t yet moved will find it even more difficult to do so at the same time it becomes more imperative than ever. (Lower incomes, harder to sell a house if they own one, etc.)

    I guess you could couple those place-based investments with some people-based incentives for moving, which could be distributed more progressively to ameliorate the impact.

    That’s not to say you’re not describing an efficiency-promoting policy, just that the benefits and costs might be quite regressive in their distribution. But like you, I’m just thinking out loud and would like to see some research here.

  2. AC says:

    Micah touched on this, but high ownership rates certainly discourage migration. Particularly when home prices are falling. Perhaps the government should encourage/subsidize owners to switch to renting. Instead, it’s trying to help owners remain owners.

  3. How would you go about choosing who wins and who loses?

  4. AC says:

    The economic interpretation of The Grapes of Wrath: a depiction of an efficiency-enhancing, inter-regional migration.

  5. BruceMcF says:

    Generate a boom by selecting a few urban centers and adopt strategies that ensure that those urban centers experience a housing and construction boom while the majority of the urban areas in the nation are allowed to languish.

    Hmmm, there’s an idea. Not necessarily a good idea, but certainly an idea.

    To what extent, though, is this a rerun of the Naughties recovery after the Dot Com bubble burst?

  6. Ben Ross says:

    A better way to generate recovery would be to encourage migration within metropolitan areas rather than among them. More effective, and much less disruptive of personal life and family relationships.

    The surplus of exurban McMansions will be with us for a very long time. But supply and demand for housing in walkable urban neighborhoods are still in balance, except in a few cities with especially weak manufacturing sectors.

    Investing in rail transit will make urban living more pleasant and convenient, and thus raise the demand further. It will also increase the supply of land where this kind of housing can be built. This is important because the supply of buildable land in such neighborhoods is limited. Shortage of land drives up prices and blocks investment in new construction.

    It seems almost certain that any revival of housing construction will be led by urban infill. Investing in transit can make the revival faster and stronger.