Thursday, December 24, 2009

The Real Brain Drain

With latest round of US Census numbers out, many Sun Belt states are feeling the heat. The bottom line is population. Instead of picking on Florida again, I'll highlight the troubles in Nevada:

Nevada’s self-image has been bound in the notion of being a vital, growing, booming state, historian Michael Green said. Nevada had become a place where the former denizens of the Rust Belt escaped.

Green said the refrain here has resembled, in slightly altered form, the mantra of Gordon Gekko, the character in the movie “Wall Street”: “Growth is good.”

Bo Bernhard, a UNLV sociologist, said Nevadans should not delude themselves with fanciful notions about why people came here in the first place: “The story of growth here has been the story of people chasing jobs. You don’t move because of a mythology” of a city.

The collapse of growth brings certain consequences.

It has had devastating effects on Nevada’s economy and the fiscal health of state and local governments.

Growth had become a self-perpetuating economic engine, as construction workers who moved here to work on Strip resorts bought new houses built by other construction workers, and so on.

This virtuous cycle has stopped and gone in reverse.

State government, meanwhile, had come to rely heavily on rapid growth and development. The tax structure assumed the boom would continue, delivering more and more money from tourists, gaming companies and construction activity.

Now, state government faces a $2.5 billion budget deficit by early 2011.

While the negative effects of population decline are very real, the economic growth due to in-migration is a mirage. It is like Pittsburgh's pension pyramid scheme that worked fine as long as the workforce (residing within city limits) kept expanding. The demographics in the wealthiest countries are undergoing a radical transformation, but we are stuck with out-dated metrics of economic health. And shrinking cities aren't a problem if fiscal policy isn't dependent on population growth.

Vermont Commerce and Community Development Secretary Kevin Dorn echoed Heaps' concerns. The unemployment rate is relatively high now, due to the recession, but Dorn said he has to plan for a decade or more into the future.

He worries that if people, especially younger ones, continue to move out of Vermont, the economy will suffer if employers can't find skilled workers. He said the state must work to make living in Vermont affordable, Dorn said.

Despite the sluggish population growth, Vermont has strengths that would attract employers, such as a highly educated, if small work force, proximity to major markets and research institutions that act as springboards for entrepreneurs.

A state doesn't need boom-like growth to make a strong economic statement. Not many people work on the farm, yet the United States is a global agricultural power. Manufacturing tells a similar story. A shrinking workforce doesn't mean industry is in decline.

The war is for talent, not more people. That point hit home for me while watching the Daily Show interview with Andrew Ross Sorkin. Sorkin explained why banks are so anxious to pay back TARP money. As long as these financial institutions are on the dole, they can't issue big bonuses to their best people. The concern is about a small number of employees, not a mass exodus. That kind of talent is extremely scarce.

Thus, shrinking Pittsburgh can host an expanding Google. Google doesn't care about the population numbers. However, it does obsess the educational attainment of the workforce:

The company, which has offices worldwide, is expanding its Pittsburgh presence because “it’s one of the places in the world where the best computer scientists hang out,” Moore said.

Keep that in mind the next time the Post-Gazette or Tribune-Review sensationalizes the city's population. There is a another story lurking below the stated decline. Las Vegas is just waking up to that reality.


Mark Arsenal said...

Would you agree that economies that are overly-dependent on any one industry are bound to be bubbles that will burst?

To that end, could not LV be explained as an economy that was over-dependent on construction? Not gaming, not 'growth', but specifically construction? Could go for Florida, too?

And to the same end, could not the US as a whole be described as an economy that was over-dependent on construction?

Is there any economy on the planet that is truly diversified? What is a sustainable economy? How do you achieve it?

Jim Russell said...

Once the term "bubble" went viral, the phenomenon appeared to be everywhere one would look. But the boom-bust cycle is an old story and many economies have successfully left that wild ride behind thanks to a more diversified portfolio.

The Denver area is a good example. Formerly a commodity town (energy), the region now sports a variety of economic drivers. The recession of GHWB hit this area hard. The dotcom bust wasn't too bad and the current Great Recession pales in comparison to the one in the early 1990s.

So, that's a lot better than Vegas or Florida. But is it sustainable? Perhaps. I really don't know. I don't think anyone knows. Sustainability is such a fuzzy concept. The term is stamped all over my city's comprehensive plan but no one knows what it means. I prefer "resiliency".

Mark Arsenal said...

Sustainable means "Can I pay off my house and retire and never have to leave my neighborhood again, and be happy that way for a few hundred years without my bloody donut shoppe closing?"

Jim Russell said...

If its donut shoppes you want, then move to Canada.