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 wonâ€™t happen. Even if the desired number of vehicles doesnâ€™t rise, people will start replacing vehicles that wear out (use), rust away (decay), or just are so much worse than newer models that theyâ€™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.