Wednesday, June 9th, 2010

Creative Winter

My latest post is online over at The Midwesterner, the blog of Richard Longworth and the Chicago Council on Global Affairs. It’s called “The Midwest’s Creative Winter.” It is co-authored with Carl Wohlt.

Fast Company recently issued its 100 Most Creative People in Business list for 2010. Out of 100, the Midwest only placed six. The South only placed seven. While you can quibble with magazine rankings, the results of this survey are fully consistent with many others done in recent years. The Midwest is a laggard of a region. Our piece briefly explores the implications of this.

One again, I’ll encourage you to check out Longworth’s blog, which is a must read for anyone in the Midwest.

Topics: Economic Development

41 Responses to “Creative Winter”

  1. Eric says:

    Out of the 32 most creative people in the Northeast, 26 of them are in NYC (one of them is in Pittsburgh.) Out of the 100, only three are in all of Texas, North Carolina and Georgia. Not very good for regions that are supposed to be eating our lunch.

    It may be true that the Midwest is perceived a certain way, but to use this list as anything other than a conversation piece is probably a tautology.

  2. John Morris says:

    Probably has more to do with the bubble of the media that’s still based on the coasts than anything else.

  3. David says:

    How many on the top 100 list are from Dubuque, Iowa – where there’s 6.9% unemployment?

    or Topeka, Kansas where there’s 6.3% unemployment?

    Duluth, Minnesota where there’s 7.7% unemployment?

    Omaha where there’s 5.5% unemployment?

    or the creative mecca of Fargo, where there’s 3.9% unemployment?

    but I see Los Angeles – 11.3% unemployment is well-represented, and Portland might be a paradise for creativity, but it isn’t for jobs – also 10%+ unemployment, 2 points higher than Cleveland

    creativity has as much do with economic development as the brand of photocopier used by city government

    Let’s look at some of the Metros with unemployment more than a point below national average.

  4. cdc guy says:

    “Let’s look at some of the Metros with unemployment more than a point below national average.”

    Using unemployment rates in this argument cuts both ways.

    Portland and LA probably have attracted people (talent) who don’t have jobs there yet, and may have attracted those folks FROM some of the cities you cite. That would shrink the labor pool and lower the unemployment rate in the “left behind” places, while raising both in the target cities.

    Low unemployment rates actually make economic development harder: employers see that they’ll have to compete more strenuously for employees, and probably pay higher wages. (My own experience as a business owner: once unemployment dips below 4% or so, job applicants are literally the bottom of the barrel.)

  5. David says:

    “Low unemployment rates actually make economic development harder: employers see that they’ll have to compete more strenuously for employees, and probably pay higher wages”

    but then wouldn’t it cost more to pay someone in Fargo than in LA?

    also, I think some of these creative cities are also “left behind” places, don’t see a lot of domestic migration into LA or San Francisco these days, a lot more people moving out AND they have high unemployment

    Really is enough already with these identity crisis attempts to make middle America more “creative”, especially when you have places like Grand Forks and Sioux City that are doing just fine. Michigan’s already seen the extremely embarrassing “cool cities” campaign thanks to Governor Granholm. Economic development executives would be better off attending meetings in Def Leppard t-shirts and mullets than repeating that disaster.

  6. John Morris says:

    The whole term “unemployment” is an absurd relic. Obviously what most people are asking is if you have income coming in.

    Farmers and people who say they are running a business or “self employed” are just not counted as unemployed even though at any given time they may be losing money or have no significant cash coming in. these are a big part of the economy in farm belt states.

    The dust bowl farmers whouldn’t have been counted as unemployed until they hit the road for California.

  7. John Morris says:

    By the way, If you ain’t got that Do Re Mi, stay out of Kansas and Oklahoma!

  8. Alon Levy says:

    Let’s look at some of the Metros with unemployment more than a point below national average.

    Yes, let’s. We’ll find that those metros are usually those with an agricultural or government-based economy, as those are the most recession-proof industries. Recessions as we know them did not exist before the industrial age, and barely exist in areas that are still pre-industrial; they’re a feature of the urban industrial economy.

    Fargo isn’t doing fine. Check how much federal tax money North Dakota soaks. If you think of the city as the basic unit of macroeconomics and not the country, then those rural centers are the world’s biggest per capita recipients of foreign aid. If farm aid ended tomorrow, they’d crash the next day.

  9. John Morris says:

    Yes, recessions in a subsistence economy are called famines and they are not that bad unless you eat.

    There was some truth to the farm subsidy argument but these days global demand is still pretty strong. Obviously, the subsidies themselves have distorted the real links between demand what’s produced. a good example is the constant massive glut of Dairy farmers.

    Anyway, I am not an expert on this subject but farmers are really hard to classify by the normal employment stats.

    I was/ am an artist and for a 3 years I had an art gallery (don’t ask, I sucked at business) Every year I of those three I lost money, lots of money but if i was asked I said I was employed. After two years of that I decided, if someone asked, I would have to say I wasn’t no matter how hard I may have worked.

    Obviously with a bad economy as weak as now have lots of folks with businesses are in that boat.

    An honest survey by anyone really interested would ask the question–Are You Making Money? Of course, given the general attitude held by many that all it takes to operate a business is to slap Inc. on a business card (and be really greedy), this ain’t gonna happen.

  10. Alon Levy says:

    Famines and recessions are two completely different things. Famines are a breakdown of governance, and have been eradicated in every democracy in the world, even in areas that have subsistence agriculture. India’s last famine was just before independence, and the Netherlands’ last was centuries before industrialization. Recessions are a breakdown of aggregate demand, and occur everywhere that is connected to the global economy; every time people have trumpeted the end of the business cycle, a major depression hit. They’re so unusual to someone who isn’t used to them that when Britain had its first major recession, it looked to people like industrialization was unraveling, and provided Marx with the impetus for predicting the end of capitalism.

  11. John Morris says:

    Um, we can’t go into that one on here right now but I don’t agree with much of what you just said. This gets us just too far off the subject.

    I really think famines in relatively primitive societies had to with crop failures among people with little in crop or food storage and with limited transportation. Also, taxation and war was a big factor since early armies tended to survive by pillaging the local food supply.

  12. Anon says:

    Among everything we should questioning right now is whether our focus on innovation is reasonable. Certainly, someone who invents something or is first to market will have an advantage and probably become wealthy. That’s why we have patent protection, and it is great to have that motivation for people to discover new things.

    Mature industries should have a lot of competition and zero profit, but is that the same as saying you can’t make a living in those industries? No one can bring home a paycheck making soap, toasters, or insurance because those are old inventions?

  13. John Morris says:

    I actually think it is. From what I can remember, Florida points out that all innovation is not technological although often it involves adapting new technologies to old businesses. Obviously, we also know that all innovation is a process of trial and error in which many ideas fail and it is fact this process that gives us recessions. (Well actually, in a normal economy these failures are constantly rebalanced and mostly cause local economic disruptions as new sucesses offset failed investments. Today, the government manipulation of the money supply and distortion of the investment process has created massive compounding mal investments)

    My dad for example worked in the shipping industry for years where what now seems like the obvious innovation of keeping stuff in a steel container and moving the container around instead of loading and unloading all the contents at every step along the way was a huge transformative innovation. The vast majority of great fortunes came from business process innovation or technological adaptation.

    However, the idea that no level of innovation is happening in the midwest is absurd. Is it enough and could it better are the questions.

    The fact that modern economics is more about incremental adaptation and cross polination of ideas makes the idea of the hyperpecialised city a bad one. It’s also, the best argument for having at least some areas in every area with decent levels of density.

  14. John Morris says:

    To those who want thsi here’s a rap about economics and business cycles.

    I take Hayek’s position but of course Keynes raps first.

  15. The problem with Austrian economists is that they want to “solve” the business cycle by replacing it with a permanent state of recession. Free Silver! :)

  16. cdc guy says:

    “modern economics is more about incremental adaptation and cross pollination of ideas”

    It’s not. You’re confusing the disciplines of “management” and “economics”.

    Economics is still mostly about the study and understanding of markets and money, their flows and relationships, and the various government, corporate, and institutional manipulations thereof.

    Management has been about understanding form, function, and improvement of organizations’ operations since The Wharton School popularized the academic discipline. This is where “incremental adaptation” and “cross-pollination of ideas” comes in. Clearly those things have the potential to change markets, but innovation is first and foremost a managed process. (Didn’t Edison call it “99% perspiration and 1% inspiration”?)

  17. John Morris says:

    Yes, that’s what todays are increasingly about, the top down distortion and manipulation. If fact aside from the Austrians few even look carefully at that actual action and function of actual business owners, managers and investors.
    Mostly what you have is people trying to cram the real world into a chart. (Thats why so many people who actually start businesses or invest consider the so called profession to be a joke.

    The very action of the price system in a free economy is about the constant rebalancing of inputs to constantly changing conditions in which relative values are always changing. The line between management and economics does not exist.

  18. > The line between management and economics does not exist.

    What on earth are you talking about? That’s like the saying that the line between soil science and urban planning does not exist. Not only are they two very different things; they’re not even in the same type of discipline. One aims to be a descriptive discipline informed by experiment and observation–a science, in other words–though given the self-referential nature of the discipline (the subjects studied are humans who have a tendency to react to the development of knowledge in the field), there is some question as to just how “scientific” it can be. (And certainly many practicing economists, from Hayek to Krugman, have strong political biases which may well influence their work–and at minimum, use or have used their stature in the field to promote their political opinions).

    Management, on the other hand, is an applied discipline. (It’s also refers to a wide variety of supervisory processes, ranging from running an entire enterprise, to to overseeing a production process in a factory, to supervising a bunch of hardhats on a work detail).

    Further complicating things, there is also an applied form of economics, which seeks to (uh-oh) manage entire economies on a macro scale; this field is usually called “economics” and not “management”. It is informed by descriptive economists, and economic policymakers and professors often travel in the same professional circles, but there’s a difference between the two. (Neither Krugman nor Hayek won their Nobels for their policy advice; remember; they won it for their research activities).

    Granted, management (of organizations) too ought to be informed by economics, especially at the executive level, but it incorporates numerous other disciplines as well. And competent and skilled managers don’t “try and cram the real world into a chart”. They may prepare simplified PowerPoint slides for presentations and the like, but they don’t try to reduce their entire job function into one. (Poor managers may do this, of course; but it is not the advice of poor managers that ought to be sought).

  19. cdc guy says:

    Rebalancing inputs in a business is solely a management decision. It may be done with economic information and projections (i.e. market history, market pressures, price direction, estimated demand and supply and transaction costs) but it isn’t “economics”.

    Management includes a fair amount of “economics, applied” in the sense you’ve suggested, but that isn’t all of it. There are non-economic factors in management as well (ethics, branding, customer relations, process quality, human resources, government relations, organizational structure, etc.).

    Even though it’s been a few years since I majored in both subjects, I think I still have a pretty good handle on each.

    To put it in terms perhaps more familiar to an artist:

    This is similar to confusing paint and paintings. They’re not the same, even though all paintings are made with paint. Paintings require paint plus the creative exercise of human judgement and skill.

    Management requires economic information plus the creative exercise of human judgement and skill.

    To return to Aaron & Carl’s post…one way in which the management systems of Honda and Toyota drove GM to bankruptcy was the focus on “continuous improvement” in the quality of product instead of continuous reduction in cost. Deming’s principles were a management philosophy that did not necessarily emphasize economic data.

    GM was fixated on cost and economic arguments and managed that way. Mis-managed, I should say. They didn’t realize until too late the need to instill a management philosophy of quality and accountability.

  20. John Morris says:

    No time to do an indepth response other than to say that if hard lines between management and economic busininess thinking are drawn in schools perhaps that’s a big problem.

    Thre really is no line at all. Take the basic judgement to hire or fire people, to outsource projects or production which most managers must make. This is a judgement about costs and alternative uses of time and capital.

    Of course with small businesses, the line is totally blurred because the same person is wearing many hats.

    Even the term “corporation” tells one that it is a voluntary association of people working or investing in one entity.

    Look now at the CDS spread for BP. Once people think it’s too high a risk to continue doing business or investing in or loaning to them, the company could evaporate.

  21. John Morris says:

    Well, not Really cause we know that The British Government cannot allow British Petroleum to fail just like the U.S. could not allow GM or Chrysler or GMAC or Citi or BofA or even Bear Stearns to fail.

    This is in fact our biggest problem right now in that we now have a huge protected class of companies that no longer really face the normal results of bad business decisions so they are getting worse and worse.

  22. Alon Levy says:

    John, the Austrians evaporated after the Great Depression. There’s a reason. The people who solved it were not Austrians, who kept warning that if the government engaged in stimulus and went off the gold standard then there would be hyperinflation.

    The bit about famines is completely independent. It was studied by Amartya Sen, who shows that no independent democracy with a free press has ever had a famine. In contrast, countries under colonialism or dictatorship have had famines; for example, India had more under 200 years of British rule than in the 3,000 years that preceded it.

  23. John Morris says:

    “By the spring of 1937, production, profits, and wages had regained their 1929 levels. Unemployment remained high, but it was considerably lower than the 25% rate seen in 1933. In June 1937, some of Roosevelt’s advisors urged spending cuts to balance the budget. WPA rolls were drastically cut and PWA projects were slowed to a standstill.[3] The American economy took a sharp downturn in mid-1937, lasting for 13 months through most of 1938. Industrial production declined almost 30 per cent and production of durable goods fell even faster.

    Unemployment jumped from 14.3% in 1937 to 19.0% in 1938, rising from 5 million to more than 12 million in early 1938.[4] Manufacturing output fell by 37% from the 1937 peak and was back to 1934 levels.[5] Producers reduced their expenditures on durable goods, and inventories declined, but personal income was only 15% lower than it had been at the peak in 1937. In most sectors, hourly earnings continued to rise throughout the recession, which partly compensated for the reduction in the number of hours worked. As unemployment rose, consumers’ expenditures declined, leading to further cutbacks in production.”

    Geez, does this sound like a healthy economy to you?

    In fact, there had never, ever, ever been anything like the kind of horrific extended Deperessions in the U.S. until after the Fed and major government intervention in the economy took off in the 20th Century.

    Yes, there were steep sharp recessions or perhaps one could call them Depressions but non lasted.

    Interestingly, in 1920, there was a sharp recession caused by the debts overhang and shift from the WWI war economy. The government cut spending and pretty rapidly the economy adjusted.

    By the way–Germany had the same problem (a bit worse) but decided it just couldn’t take the pain. Germany did experience a Hyperinflationary Depression.

    Any answer to why almost two decades of stimulus has not helped Japan?

  24. John Morris says:

    Ooops, from the Wikipedia

    So all this spending and help great “help” got the economy down to a 14.3% national unemployment rate and once the cash and make jobs were scaled back things fell backwards.

  25. Alon Levy says:

    John: 1937 is a textbook example of how contractionary policy can create a new recession. The paragraphs you’re quoting point to recovery during the New Deal, followed by a slump when it was scaled back. The rest of the story is that the New Deal resumed in 1938, and then was put into hyperdrive by WW2, which was a huge stimulus program. Another part of the rest of the story is that the New Deal policies increased taxes almost as much as they increased spending, so the net stimulus was small; that’s why it took WW2 to end it in the US. (It ended much more quickly in Britain, which went off the gold standard in 1931, and in Sweden, which not only engaged in a large domestic stimulus beginning 1933 but also instituted regulations increasing wages, which put more purchasing power in the working class’s hands.)

    Germany never experienced a hyperinflationary depression. It had hyperinflation, and then a depression – two separate things. In 1922-3, it had hyperinflation, which was triggered when the Reichsbank resorted to the printing press in order to pay the country’s external debt. Then the government decided to crack down, revalue the Mark, and stop printing money, and all was well again. In the 5/1924 election, the Nazis got 6.5% of the vote. In 1929, Germany had a depression with 40% unemployment, which ended only when Hitler came to power with 33% of the vote, took the country off the gold standard, and began a program of deficit spending.

    Japan points to the opposite of what the Austrians say. The Austrians don’t say stimulus doesn’t help the economy; that’s what the Chicago school says. What the Austrians say is that stimulus causes hyperinflation. Japan has in fact had deflation through persistent monetary and fiscal stimulus. It’s a counterexample to Chicago economics and the Austrian school (these are two completely different animals) as much as it is to New Keynesianism.

  26. John Morris says:

    A new recession? Dude, if unemployment was still over 14% you never left the last one.

    Also, Whatever you want to call it, the hyperinflation Germany experienced wiped out the savings of the middle class and was experienced by most people not speculating in a few stocks or hard currency as a Depression. Did the hyperinflation in Zimbabwe look like an economic boom?

    I am not exactly an expert on Austrian Economics but the examples you state don’t exactly look like a “cure”. Do we need World War III now to get enough stimulus? What is Japan supposed to do now. Bomb somebody?

    Also, the financial position of America today with it’s incredible overhang of debt and off the books obligations, with a high percentage owned by foreign countries is not what it was when Roosevelt took office. It actually is closer to Germany’s position in 1920.

  27. John Morris says:

    You have also made several other mistakes here.

    First of all the Treaty of Versailles explicitly forced Germany to make payments in Foreign Currency or gold so it was not able to make those payments in devalued Marks.

    “It is sometimes argued that Germany had to inflate its currency to pay the war reparations required under the Treaty of Versailles, but this is misleading, because the treaty did not allow payment in German currency. The German currency was relatively stable at about 60 Marks per US Dollar during the first half of 1921.[1] But the “London ultimatum” in May 1921 demanded reparations in gold or foreign currency to be paid in annual installments of 2,000,000,000 (2 billion) goldmarks plus 26 percent of the value of Germany’s exports. The first payment was paid when due in August 1921.[2] That was the beginning of an increasingly rapid devaluation of the Mark which fell to less than one third of a cent by November 1921 (approx. 330 Marks per US Dollar). The total reparations demanded was 132,000,000,000 (132 billion) goldmarks which was far more than the total German gold or foreign exchange. An attempt was made by Germany to buy foreign exchange with Marks backed by treasury bills and commercial debts, but that only increased the speed of devaluation. The monetary policy at this time was highly influenced by the Chartalism, and was notably criticized at the time from economists ranging from John Maynard Keynes to Ludwig von Mises.[3]

    During the first half of 1922 the Mark stabilized at about 320 Marks per Dollar accompanied by international reparations conferences including one in June 1922 organized by U.S. investment banker J. P. Morgan, Jr.[4] When these meetings produced no workable solution, the inflation changed to hyperinflation and the Mark fell to 8000 Marks per Dollar by December 1922. The cost of living index was 41 in June 1922 and 685 in December, an increase of more than 16 times. In January 1923 French and Belgian troops occupied the industrial region of Germany in the Ruhr valley to ensure that the reparations were paid in goods, such as coal from the Ruhr and other industrial zones of Germany, because the Mark was practically worthless. Inflation was exacerbated when workers in the Ruhr went on strike, and the German government printed more money in order to continue paying them for “passively resisting.”[5] Although reparations accounted for about one third of the German deficit from 1920 to 1923,[6] the government found reparations a convenient scapegoat. Other scapegoats included bankers and speculators (particularly foreign). The inflation reached its peak by November 1923, but ended when a new currency (the Rentenmark) was introduced. In order to make way for the new currency, banks “turned the marks over to junk dealers by the ton”[7] to be recycled as paper”

    From what I can tell, the amount of domestic government spending in Germany also increased dramatically as the government handed out money to former soldiers and on a big range of relief programs but I am going to admit that the source of this info is an Austrian Economic website. Even had there been no disastrous, vengeful treaty, these policies would have caused massive deficits beyond what Germany could finance and caused a similar result.

  28. Alon Levy says:

    Recessions are determined by whether economic activity is increasing or decreasing, not by unemployment. Unemployment depends not only on growth, but also on economic and social characteristics. Japan’s unemployment right now is 5%. This is near a multi-decade high; it was about 3% when its lost decade was starting. By an unemployment standard, it’s never been in a recession. By any other standard, it is in one.

    If you start using economic activity as your baseline, then you’ll see a huge contraction followed by expansion – see here, truncated at 1937. (The reason I keep bringing up the gold standard is that it’s central to Austrian thinking. Ron Paul and his ilk still think that hyperinflation is around the corner unless the gold standard is reinstituted.)

    What happened in Germany, according to mainstream historians, is that the Versailles reparations put such a strain in the German budget that the government resorted to the printing press to pay its domestic obligations, instead of raising taxes or issuing bonds. (This, by the way, counters more neo-liberal orthodoxy than you think: the Reichsbank was independent of political pressure, a situation that the Washington Consensus says will guard you from too much inflation). Neither this nor Zimbabwe has anything to do with the situation of a country that’s in a depression and that’s had no inflation despite a massive increase in the quantity of money. Japan’s printed money nonstop without inflation; since the financial crisis, the US has done the same.

    Krugman points out that it’s really hard for a country perceived as responsible to create inflation. This is not necessarily good – committing to higher inflation rates, say 4% instead of 2%, could work together with loose monetary policy to cure recessions. The issue is that Weimar Germany and Mugabe’s Zimbabwe were both perceived as irresponsible, printing money to avoid dealing with serious budget questions, so people figured the extra money injected would stay in the economy, and increased prices accordingly. This is not true for the US and Japan, whose bond yields are low and haven’t budged: the business community views those countries are basically responsible, and believes that once the recession ends, the central banks will withdraw all the extra money they printed from circulation.

  29. John Morris says:

    Our government is responsible? You are correct that many people still percieve it that way–just like they once did boh Germany and Zimbabwe. When they wake up a mighty crash will come. (By the way, did you just say that Zimbabwe did not just go through hyperinflation?)

    You really are twisting yourself into a pretzel here.

    Whatever, the official (and very self serving definition of a economic growth–a healthy economy does not go into shock once massive stimulus stops. What this indicates is that no real healing took place (or very little) and that Roosevelt’s policies created nothing self supporting and really just prolonged the pain and economic damage. The same is very true with Japan.

    As to counting on “mainsteam historians”, these are the same people who never thought the Soviet Union could collapse even though Von Mises accurately predicted the exact problems it would face in 1920.

  30. David says:

    “Fargo isn’t doing fine. Check how much federal tax money North Dakota soaks.”

    Look how much Michigan takes! In addition to auto bailouts, governments now employ more people in that state than car manufacturers.

    The reason Midwestern cities west of Chicago are doing much better than those east of Chicago is they depend on industries where the U.S. runs a trade surplus. Foreign competition does far more to kill a regional economy than automation, which most places experience fairly equally.

    Either way, hard data shows that food processing, livestock feed, and jet engines are far more important to regional economic development than creativity. Outside of Madison, the Midwest has never been that great at creating slacker cities, better to develop exporting industries than to worry about silly lists of who’s creative.

    I swear at times it feels like the Economic Development industry is being run by 15 year old girls. OMG Portland is so cool! but Omaha is so lame!

  31. JG says:

    Proof positive why economics is not science. Terrible discussion.

  32. Matt Petryni says:

    David, your post is mostly repetition at this point — a repeat of an argument which was debunked significantly earlier by CDC. I think you should take the time to read that. You straight-up ignore the question of Fargo’s federal subsidies by referring to Michigan’s, instead of arguing why that would have nothing to do with it. Michigan’s subsidies, however misguided, have nothing to do with Fargo’s. They are dramatically different economies, though they are both Midwestern.

    But unemployment is high in Portland for the exact same reason it’s low in Fargo: in this recession, Portland is sucking out Fargo’s more talented unemployed. (Talent is highly mobile.)

    The unemployed, though, won’t remain unemployed forever. And then some interesting stuff will happen. For instance, do you think food processing, livestock feed and jet engines exist a priori? Or are they the products of creativity? They’re clearly the products of creativity. Barring creativity, none of these industries would even exist. High unemployment is the price we sometimes pay for innovation: it allows for a more diverse and more dynamic talent pool that offers many choices to picky, high-paying employers.

    If your unemployment is too low, employers won’t have enough to choose from. (Everyone who’s owned a business knows what this problem looks like.) This creates a serious problem for growing a future economic base: employers seeking talent to help expand their operations will have to either move elsewhere to find it or will stay away altogether. This is a much longer-term problem.

  33. the urban politician says:

    Matt, I think Aaron himself long ago established (in a post a few months back) that even though Portland is “sucking out people’s unemployed” as the talent magnet that it is, the key is to ask whether it is providing these people with actual jobs? He nicely compared Indianapolis to Portland and came to the conclusion that Portland was a great magnet but has often failed to deliver on its promise to many newcomers.

    I’m generally in agreement with David here (before we spent about 10 posts talking about pre-WWII Germany). The alarm bells were sounded too early on a floo-floo Fast Company article (interestingly, Fast Company is owned by a midwesterner!) that had absolutely NO objective basis whatsoever. How do you gauge creativity? You can’t.

    I’ll go so far to say this–the fact that so many of the people in this article were in New York City speaks volumes about the focus of this study. Is New York really known as the center for the “most creative business”, or is it known as the place where most of the money & media are based? I’m leaning towards the latter. Ultimately, I chalk most of this up to plain old coastal media bias–the midwest’s favorite old enemy.

    By dwelling on the implications of a silly “study” like this instead of cold, hard data, we are at risk of derailing genuine efforts to improve the midwest’s economic climate for the 21st century.

  34. John Morris says:

    David’s point has some truth but it’s likely partial.

    Yes, dynamic attractive areas with lots opportunities often have slightly higher rates because they attract so many people and lots of people shift jobs. That could well be the difference between a 3% to say a 6% or even 7% rate.

    However, unemployment rates, of the type much of California is showing really imply something toxic going on. Michigan is off the charts and at this point seems to have almost no economy at all.

    As I said before these numbers are insanely inaccurate and likely suffer from cultural distortion. As far as I know, just saying you work a few hours a week puts out of the widely reported U3 number. In a place with a very strong work ethic like North Dakota, there are also just fewer people who want to admit to being unemployed.

    As I said, small business owners and freelancers who are not making money are just not counted as unemployed.

    It’s a pretty big leap to say that North Dakota would have no economy without farm subsidies. However, distorted so much of the market has been, these states produce things in big demand and are leaders at it.

    The self evident killer ap is to combine creative people with a sound business climate.

  35. Matt Petryni says:

    John, I’ll definitely give you that you do a much better job of advancing this point than David does. But I think where your argument has the most value is in diagnosing the inaccuracy or irrelevance of unemployment data. I also think that “traditional unemployment” (the insanely distorted number we’re talking about) favors an economy like North Dakota over an economy like San Francisco’s, which I sort of wanted to suggest. It’s also temporary, and attributable to macroeconomic factors at the global level: so dynamic economies could account for the difference between 3% and 6%, and the recession could account for the difference between 6% and 10%. But we really don’t know, and here’s maybe why:

    There’s also a problem (especially here in Portland, that Urban Politician is wise to mention) of “underemployment,” that I’d agree actually deflates our unemployment rate: having attracted the talented unemployed, we don’t (yet) have “real” jobs for them, and (maybe for the time being, maybe forever, we don’t know yet) we’ve got plenty of college graduates taking jobs whose daily tasks really demand high school education. It’s basically a college-educated workforce in a high school economy. (And then high schoolers are not counted as unemployed, lending to further distortion.) We have no idea whether that will change in the future.

    Here’s how it might: As the economy recovers, rehiring employers notice the densely-concentrated but vastly underutilized talent pool, realize they can get good talent for crazy cheap, and locate/launch here. This shrinks the underemployment rate, and leads gradually to a deficit of workers at the “barista” level. Jobs now available, the unemployed take those jobs. We’ll see. It could all just be a bunch of high-skilled advertising, nursing, and civil engineering majors working coffee stand jobs forever too. Or leaving when work doesn’t show up. We just don’t know yet, and it’s crazy to think we do.

    Making matters worse, Portland’s banking on the long-term very loudly, so evaluating this problem of “delivering on the promise” across the 5- or 10-year time scale is almost intentionally rendered meaningless. No one seems to be bothered that most places’ collateral risk analysts are this town’s pizza deliverers. I am.

    Moving on…

    There’s also the issue of third-sector stipend employment, which is technically not employment at all, but glorified volunteer service. Nonetheless, it does create economic wealth for the city, and is usually compensated. It also strengthens the city’s talent assets, which too is completely ignored by traditional urban economics.

    So it’s real complicated. And we’re not even done yet. There’s still another issue. Traditional unemployment might not be a good measurement at all for a city’s vitality, as you and CDC mention. Creativity, innovation, and even a healthy business environment might actually be associated with higher rates of unemployment due to the turnover and experimentation that generates long-term growth.

    Yet one more factor might be that the economy of some of these places is changing away from a traditional, 9-to-5 career workforce economy whose health is tied, somewhat, to unemployment measures. While unemployment might certainly be appropriate for traditional manufacturing, as David wisely points out, this is no longer an area where we have a trade surplus. (Not that one won’t return… but that’s another conversation.) So suggestions that base economic health on unemployment alone could be a little out-of-date. And then if you throw in anything even remotely “out of the ordinary”–freelancers, non-profits, double-shift-part-timers, the underemployed, small business owners, venture capitalists, volunteers, communes, immigrants, whatever–the measurement’s remaining value is suddenly out of whack.

    We do have a huge trade surplus in cultural “creative” product — our music and movies seep into economies all over the world, uproot totalitarian regimes, and are worth trillions of dollars. But this sort of economy lends itself to something a little less compartmentalized and easy to measure than the traditional industrial economy. With the advent of the internet, this issue is becoming even more apparent.

    This is all a lot to think about, so it’s easier to just go “Fargo’s better off than Portland because its unemployment is lower!” and be done with it. But as tempting as that is, it really tells us little about sustainable economic development. It really doesn’t tell us anything at all.

  36. Alon Levy says:

    In the years for which data is available, 1980-2005, Michigan actually ran a negative tax balance: it paid substantially more in federal taxes than it got back in spending. In 2005, it got 82 cents on the dollar. The amount of money it paid to subsidize Alabama and Montana over the years is much more than the value of the auto bailout. (And, likewise, the amount of money New York paid over the years is much more than the value of TARP).

    As for von Mises, he predicted so many things, most of which didn’t come true. He said going off the gold standard would cause tyranny; it didn’t. He and Hayek both said the welfare state would cause tyranny; Sweden and Norway routinely top the civil liberties rankings of the world. That he predicted the Soviet Union would fall, generations before it actually happened, is trite, since every empire eventually falls.

    No, I didn’t say Zimbabwe didn’t have hyperinflation. Reread my comment, John. I compared it and 1920s’ Germany to today’s Japan and the US. You can actually check what the market thinks in terms of bond yields; the market thinks the US and Japan are not going to default, and is willing to take low yields for their debt.

    The self-supporting bit about Roosevelt’s works programs is cruel. The New Deal cut unemployment from 25% in 1933 to 14% in 1937. People were put to work, and the increase in GDP was so great that the debt-to-GDP ratio remained constant. This is the very definition of self-sustaining. (By the way, it’s weird you keep harping on unemployment rates. Standard Austrian theory is that unemployment is irrelevant; Schumpeter said of the Depression that it was good, like a cold shower. The Austrians are obsessed about price stability.)

  37. John Morris says:

    This has just gotten too off topic.

    Austrians in no way think Depressions are good, What they say is that when one has a massive series of mal investments they have to be cleaned out, The loses must be taken and savings built up for new good investments.

    Austrians see the problem in the bubble itself when all these bad investments were made and they think that you can’t solve one bad investment by making two new ones.

    I really think it’s clear that Roosevelt’s schemes did not create a healthy economy and that’s why they couldn’t be rolled back. It’s like a doctor saying the patient is cured but needs to stay on life support.

    Whatever the chance were of continuing that kind of thing back then, America and Europe today with their massive debt overhang are in no position to do this.

  38. Alon Levy says:

    Well, Schumpeter did in fact say the Depression was good. I can get you a link if you want. He said it was good like “a cold douche.” (He did, in fact, use the word “douche,” in English.) Nor did any of the Austrians say much about the bubble. This decade’s Austrians were more concerned with trying to make the inflation rate look higher than it is than with talking about liquidity traps.

    It’s not “clear that Roosevelt’s schemes did not create a healthy economy.” It’s clear that they reduced unemployment a lot, but did not create full employment. Given that those reforms were so incremental, what we have is evidence that partial Keynesianism leads to partial recovery, plus evidence from Sweden and Germany that full Keynesianism leads to full recovery.

  39. John Morris says:

    Germany. Are you refering to Nazi Germany as an example we should follow?

    Interestingly enough that was actually strongly hinted at by a New York Times, columnist.

The Urban State of Mind: Meditations on the City is the first Urbanophile e-book, featuring provocative essays on the key issues facing our cities, including innovation, talent attraction and brain drain, global soft power, sustainability, economic development, and localism. Included are 28 carefully curated essays out of nearly 1,200 posts in the first seven years of the Urbanophile, plus 9 original pieces. It's great for anyone who cares about our cities.

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