Rockford, Sterling, and Freeport vs. China

I had the good fortune to drive out to Rockford, Il last week. God, it’s a total disaster zone. Here is wikipedia:

“Since the end of the 1980s, Rockford has had the dubious honor of being listed at times as one of America’s worst cities by the Rand McNally corporation and Money magazine, sometimes being ranked among the ten worst cities.[22]This may have been due to the lack of jobs and high number of outdated or closed factories. Crime on the west side of town was endemic, with huge areas of old established neighborhoods in extreme blight. The homicide rate in these areas was quite high. Many houses were vacant with no one wishing to buy them. Rockford was also ranked #3 onForbes‘ 2013 America’s Most Miserable Cities list, mainly due to its excessive tax rate for the city’s size as well as its high unemployment rate.[23] “

I’ve traveled around a decent amount of the country, and by god, I agree with Rockford being on the most miserable cities list. Sterling and Freeport aren’t far behind. I think Freeport and Sterling are even sadder in someways, because they are pretty large towns, with insanely nice buildings sitting abandoned, and just about nobody even knows they exist. At least Rockford is big enough to show up on the most miserable cities list. These poor saps aren’t even big enough for people to care.

It’s impossible to appreciate just how bad these city has been hammered over the last 40 years until you spend time driving around it. There are literally dozens of huge factories which are now closed. It’s easy to see this was once a thriving place, but jobs almost all went away. Not only did nearly all the jobs go away, the jobs that remain have low, low pay.

I’d been meaning to write a post about how we allowed our manufacturing base and the associated jobs to be decimated. Basically, we allowed Japan to keep their prices artificially low for several decades. Then, we allowed China to keep their prices artificially low for several decades. This allowed these countries to climb up the development ladder far more quickly than they could have on their own.

Brad DeLong thinks pulling China out of poverty is an unqualified good:

“There is a good chance that China is now on the same path to world preeminence that America walked 130 years ago. Come 2047 and again in 2071 and in the years after 2075, America is going to need China. There is nothing more dangerous for America’s future national security and nothing more destructive to America’s future prosperity than for Chinese schoolchildren to be taught in 2047 and 2071 and 2075 that America tried to keep the Chinese as poor as possible for as long as possible.”

Brad writes this from Berkley California, which is a really nice place that has not been decimated by cheap Chinese goods. Berkley is an area which has benefited from cheap Chinese goods and cheap United States labor.

I am less certain allowing entire states to be destroyed is an unqualified good. We took nearly 2 generations of normal men and made them almost worthless to us. Yes, we improved standards of living in Japan and China. But did we have to do it at such a high cost to ourselves?

What if we had let median wages grow at 1% per year, instead of 0% per year? Would China and Japan be that much poorer? Would they have experienced the same amount of growth anyway?

I suspect if we had done this, the actual growth for China and Japan would not have been much less. Remember, higher middle income growth in the U.S. would have probably resulted in higher GDP growth for the U.S. too – in short there would be more pie for the rest of the world too. They would probably be within a few percent of where they are today – which is about 18 months of growth for China, and Japans problems over the last 20 years have swamped any possible problems from a bit less growth.




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3 years 5 months ago

Henry george had resolved this more than a century ago. You can have free trade and high wages. Base your polity on a land value tax instead of income tax.

3 years 4 months ago

Henry George was an interesting fellow but for constitutional and political reasons, a federal land value tax is pretty much impossible in the US (at the state level it’d be great, but the next state that adopts it will be the first).

3 years 5 months ago

I don’t think prosperity in China and Japan (or anywhere else) need come at the expense of poverty for the least well off Americans. Potentially having all of the world being prosperous means more demand and more jobs for everyone.

Norway manages to keep prosperity for even low skilled Norwegian citizens. If Norway had a different attitude and policy, their oil revenue would have resulted in most Norwegians being priced out of work. If the USA provided more heavily subsidized pensions, health care, transportation, childcare, education etc etc to US workers, then US companies could employ people in the US at competitive rates. It works for Norway, Finland etc.

Perhaps there is much more scope for making Rockford thrive by changing things in the USA rather than by blaming China and Japan? (the same applies to our problems in the UK).

3 years 5 months ago

Globalization will likely involve one of three scenarios.

First, the present course is toward a great leveling in which the living standard for workers in the emerging world is rising and falling in the developed world before the general standard of living rises again. However, this looks like it is going to complicated by climate change.

The second option, and the the one that is preferable, is to raise the living standard of the emerging world without dropping that of the developed world. This is doable but climate change will likely require great agility of adjustment to avoid severe distortions and disruptions.

The third option, which is least desirable, is emergence of conflict of national interest leading to economic and then military conflict. Climate change will likely exacerbate this tendency.

3 years 5 months ago

This is a complex issue; however, I will make a simple comment (and understand its limitations). Real manufacturing GDP in the US peaked last quarter. That’s right, last quarter. Manufacturing employment peaked decades ago. This is similar to agricultural GDP which also peaked last quarter (subject to seasonal adjustments). I believe that agricultural employment peaked a century ago.

High wages lead to high productivity leads to fewer jobs and lots of output. It’s why we’re a rich country.