Tuesday, January 25, 2011

Sun Belt Blues

The world is spiky. It is also flat. Economic geography is full of false dichotomies. There is much more value in pulling apart these constructs than there is in mapping them. Deconstruction of dominant economic development paradigms often yields patterns and trends that are lost in the polemic. Joel Kotkin, someone who doesn't shy away from hyperbole, will serve as my muse:

Compared with the U.K. and Australia, the U.S. housing market is more hopeful, with a host of regions — notably Houston, Dallas, Austin, San Antonio, Phoenix and Kansas City — with affordability rates around three and under. Low prices by themselves, of course, are no guarantor of success; in economically challenged places like Detroit and Cleveland, out-migration and high unemployment have driven prices down.

But in many, if not most, cases affordability has promoted economic and demographic growth. Generally speaking, affordable markets tend to draw migrants from overpriced ones, for example to Houston or Austin from Los Angeles or New York.

Nor is this necessarily a case of “smart” people heading to dense, expensive cities while the less cognitively gifted head to the low-cost regions — as news outlets like The Atlantic have claimed. In fact, the American Community Survey reveals that between 2007 and 2009 college graduates generally gravitated toward lower-cost, less dense markets — such as Austin, Houston and Nashville — than to the highly constrained, denser ones. Overall growth in affordable markets — with a ratio of three or four — among college graduates was roughly 5%; in the more expensive places , it was barely 3%.

In short, the world is not spiky. Real estate refugees have been fleeing California for at least two decades. Kotkin isn't writing anything novel. However, he doesn't engage in any meaningful way Richard Florida's thesis about the college educated cramming into high-priced markets such as NYC (e.g. Brooklyn). Yes, the large and the cool cities do spit out a significant number of people seeking cost of living relief. But they also continue to pull them in. How do we explain that?

Those who study migration are familiar with the interplay between source and destination. Flows to a place beget counter-flows with the source region. The zero-sum game presented by Kotkin and Florida paints a deceptive picture, one of picking winners and losers (your city is either Dallas or Detroit). The result is a poor understanding of economic geography, obsessing numbers that don't really matter:

A few years ago, Paul Gottlieb, an economist at Case Western Reserve University in Cleveland, took a look at whether growth without growth was possible. He did so by comparing population growth and growth in real per-capita income in the 100 largest metropolitan areas. Most of the results were not surprising. Many thriving metros — Atlanta, Austin, Dallas, Phoenix — were above the national average in both categories. Many struggling ones, including Cleveland itself and all the metropolitan areas in Upstate New York, were below the average in both categories.

Surprisingly however, Gottlieb found that almost half of the 100 largest metro areas fit neither category. They're either "wealth builders" — places such as Chicago, Detroit, Memphis, Pittsburgh and St. Louis — that saw income go up faster than population, or they're "population magnets" — places such as Daytona Beach, El Paso, Knoxville, Orlando and Portland — that saw the reverse.

The "wealth builders" are of particular interest – places where population has slowed down or stagnated, yet are still adding income and wealth. Pittsburgh, for example, has been losing population for decades. Yet nobody thinks of Pittsburgh these days as an economic failure. It’s reinvented itself, adjusted to a smaller population, and today thrives on a “new economy” that emerged from the old. St. Louis is the same way.

Population growth has become a proxy for economic growth. Given the demography of the richest counties, that makes no sense. Yet here we are singing the praises of Portland because so many young adults are moving there.

Portland is not a model worth emulating. The same goes for the right-to-work, laissez-faire Sun Belt states. A lot of struggling regions are receiving bad advice from so-called experts who are hawking nothing more than population statistics. The world is either spiky or it's flat. Choose your economic development paradigm.


Paul Hertneky said...

Jim -- Your analyses (and your FB postings) this week have been characteristically fascinating and incisive. Please forgive me for failing to add to the discussion or to supply an argument. I'm sure your readers have been lapping up these posts -- and putting them to good use. Keep at it. At the moment, you're peerless. Go Steelers!

Jim Russell said...


I greatly appreciate the compliment. Your encouragement is inspiring.