Paul Krugman is worried enough about Rick Perry that he engages in a bit of preemptive Perry-bashing. Troubling! The last time Krugman messed with Texas the results weren't pretty. So here we go again:
Wrong Way Nation
Gov. Rick Perry of Texas is running for president again. What are his chances? Will he once again become a punch line? I have absolutely no idea. This isn’t a horse-race column.
What I’d like to do, instead, is take advantage of Mr. Perry’s ambitions to talk about one of my favorite subjects: interregional differences in economic and population growth.
Interregional differences is one of his favorite subjects? There is that Nobel Prize thingy, but let's hold that thought.
...[Rick Perry's] national appeal, if any, will have to rest on claims that he knows how to create prosperity. And it’s true that Texas has had faster job growth than the rest of the country. So have other Sunbelt states with conservative governments. The question, however, is why.
The answer from the right is, of course, that it’s all about avoiding regulations that interfere with business and keeping taxes on rich people low, thereby encouraging job creators to do their thing. But it turns out that there are big problems with this story, quite aside from the habit economists pushing this line have of getting their facts wrong.
To see the problems, let’s tell a tale of three cities.
One of these cities is the place those of us who live in its orbit tend to call simply “the city.” And, these days, it’s a place that’s doing pretty well on a number of fronts. But despite the inflow of immigrants and hipsters, enough people are still moving out of greater New York — a metropolitan area that, according to the Census, extends into Pennsylvania on one side and Connecticut on the other — that its overall populationrose less than 5 percent between 2000 and 2012. Over the same period, greater Atlanta’s population grew almost 27 percent, and greater Houston’s grew almost 30 percent. America’s center of gravity is shifting south and west. But why?
Is it, as people like Mr. Perry assert, because pro-business, pro-wealthy policies like those he favors mean opportunity for everyone? If that were the case, we’d expect all those job opportunities to cause rising wages in the Sunbelt, wages that attract ambitious people away from moribund blue states.
We would expect rising wages as people moved to an area? With high and capital labor mobility why wouldn't we expect the reduced supply in New York to prop up wages there and the increased labor supply in the Southeast to keep a lid on wage hikes there?
Pressing on, with my emphasis:
It turns out, however, that wages in the places within the United States attracting the most migrants are typically lower than in the places those migrants come from, suggesting that the places Americans are leaving actually have higher productivity and more job opportunities than the places they’re going. The average job in greater Houston pays 12 percent less than the average job in greater New York; the average job in greater Atlanta pays 22 percent less.
So now we are talking about "average" wages across all sectors? If (purely hypothetically) New York became a haven for high-priced professionals and all the blue collar jobs disappeared to Texas, I for one would expect average wages in New York to *rise* as the proportion of lower-paying jobs in the greater New York area fell. As to Texas, I would expect total employment to rise; whether average wages rose or fell would depend on the change in the job mix.
How I would use those average wages to draw useful inferences about productivity and "job opportunities" is hazy at best. Certainly I would encourage a guy with a high school education to see if Goldman Sachs is hiring on their trading desk, but if a job there doesn't come through I might tell him to check out Texas. Retooling the US economy so that everyone trades mortgage backed securities but no one actually builds those pesky houses would certainly raise average wages and measured productivity but is a longer-term project.
So why are people moving to these relatively low-wage areas? Because living there is cheaper, basically because of housing. According to the Bureau of Economic Analysis, rents (including the equivalent rent involved in buying a house) in metropolitan New York are about 60 percent higher than in Houston, 70 percent higher than in Atlanta.
In other words, what the facts really suggest is that Americans are being pushed out of the Northeast (and, more recently, California) by high housing costs rather than pulled out by superior economic performance in the Sunbelt.
If New York State was so whiz-bang people would be getting pushed to low-rent Utica, Albany, Syracuse, Rochester and Buffalo instead of to Houston and Atlanta. Instead, upstate New York has continued its slow fade from the halcyon days of the Erie Canal.
And if the Northeast was so well-run Krugman could have chosen to write about Hartford, a former financial services center, or Bridgeport, a former hub of light manufacturing. Or more broadly, he could have picked Detroit specifically and Michigan generally as an area with no apparent shortage of land. I think rent and land availabilty is an incomplete explanation.
We do get this brief nod to reality:
But why are housing prices in New York or California so high? Population density and geography are part of the answer. For example, Los Angeles, which pioneered the kind of sprawl now epitomized by Atlanta, has run out of room and become a surprisingly dense metropolis. However, as Harvard’s Edward Glaeser and others have emphasized, high housing prices in slow-growing states also owe a lot to policies that sharply limit construction. Limits on building height in the cities, zoning that blocks denser development in the suburbs and other policies constrict housing on both coasts; meanwhile, looser regulation in the South has kept the supply of housing elastic and the cost of living low.
So conservative complaints about excess regulation and intrusive government aren’t entirely wrong, but the secret of Sunbelt growth isn’t being nice to corporations and the 1 percent; it’s not getting in the way of middle- and working-class housing supply.
Mo mention of the lack of unions in the South? Whatever. Krugman then returns to polemicizing:
And this, in turn, means that the growth of the Sunbelt isn’t the kind of success story conservatives would have us believe. Yes, Americans are moving to places like Texas, but, in a fundamental sense, they’re moving the wrong way, leaving local economies where their productivity is high for destinations where it’s lower.
If doctors are leaving Manhattan to stock Walmart shelves in Atlanta becasue the rent is lower, yes, we have a problem. Otherwise, we await more details on productivity and job growth by comparable sectors.
Krugman closes with a punchline:
So Rick Perry doesn’t know the secrets of job creation, or even of regional growth. It would be great to see the real key — affordable housing — become a national issue. But I don’t think Democrats are willing to nominate Mayor Bill de Blasio for president just yet.
I'm reeling - if working class jobs come back to New York average wages will fall. Will Krugman then declare this to be a success?
He'll be here all week. And be sure to tip your waiter or waitress.