Michigan's Urban Depression

Michigan's economic downturn is well known, but in the state's aging industrial cities, the crisis has reached a level comparable with the Great Depression. According to Michigan's Department of Labor & Economic Growth, twelve cities had seasonally-unadjusted unemployment rates above 20 percent in June. The two worst-off, Highland Park and Pontiac, had unemployment rates above 30 percent.

Even during the most recent economic boom, times were tough in Michigan's big cities. As the rest of the nation experienced an economic expansion this decade, Detroit's unemployment barely budged, hovering near 14% from 2003 to 2007.

Now that the nation has plunged into recession, the local crisis has deepened dramatically. Unemployment is not only rising but accelerating across the state of Michigan, especially in older cities like Detroit.

I think these statistics underscore the fact (yet again) that we need a comprehensive strategy -- at the local, state, and national level -- to stabilize Rust Belt cities. No city in the United States, however troubled or corrupt its institutions, should have to contend with thirty-percent unemployment.

Tax suburbs more than cities

Harvard economist Ed Glaeser (whose previous work I criticized) argues that the suburbs should be paying higher taxes for two reasons: 1) suburbanites pollute more and 2) don't contribute as much as city-dwellers to the welfare of the poor.

His point about urban poverty is worth noting. Some urban poverty is cyclical, denying opportunities to generation after generation, and society is to blame for not working to prevent this cycle from continuing. But urban poverty also results from urban success:

Urban poverty does not reflect urban failure, but rather the enduring appeal of cities to the less fortunate. Poor people come to cities because urban areas offer economic opportunity, better social services, and the chance to get by without an automobile.

Cities shouldn't be punished for this by paying higher taxes to care for the poor. Providing social services is a universal responsibility and the suburbs should share the burden.

Hat tip: Greg Mankiw.

Tightening the belt

According to the New York Times, the age of easy credit may be passing:

With the number of jobs shrinking, housing prices falling and debt levels swelling, the same nation that pioneered the no-money-down mortgage suddenly confronts an unfamiliar imperative: more Americans must live within their means.

Increased saving should be good news: Americans are finally being responsible. But our economy is so consumer driven -- GDP is 70% consumer spending -- that this cutback could easily cause or deepen a recession. We'll be better off in the long run, but saving more will cost jobs in the present -- an ironic result made possible by our dependence on frivolous spending for our longterm prosperity.

Can rust belt cities revitalize?

Edward Glaeser, a prominent Harvard economist, argues no. His article, "Can Buffalo Ever Come Back?", outlines the rise and fall of Buffalo, a declining city that holds much in common with Detroit. In his view, Buffalo will never regain its past glory, and federal policies aimed at saving the city as a geographic place are destined to fail. "The best scenario," he concludes, "would be for Buffalo to become a much smaller but more vibrant community—shrinking to greatness, in effect. Far better that outcome than wasting yet more effort and resources on the foolish project of restoring the City of Light’s past glory."

His assessment is the same with regard to Detroit. He speaks of the city in a New York Times Magazine profile:

"I believe very strongly that our obligation is to people, not places, and I think we certainly have an obligation — ethical, economic, what have you — to the residents of Detroit," he told me. But he sees no economic or geographic reason to have a large city there anymore, and he views the prospects for any rebound as dim. (Detroit ranks last among cities with more than 500,000 residents in percentage of college graduates.) The city produced the cars that produced the sprawl that helped destroy the city; such tragedy might have been lessened had it produced more universities too. "There are no reasons why it can't, and shouldn't, decline," Glaeser says. "And I would say that for many other cities. There's no reason not to let decline go forward." The greatness of America is dependent in part upon regional evolutions and migrations, he adds. "Places decline and places grow. We shouldn't stand in the way of that."

His insensitivity is shocking: "There's no reason not to let decline go forward." The decline of Midwestern cities is not benign. That decline has meant suffering, poverty, and environmental degradation. While I agree with him that people matter more than places, places matter too. We cannot build cities today only to abandon them tomorrow. The costs, human and environmental, are too great.

Control the boom-and-bust cycle

The New Yorker has a wise editorial on the current economic instability. The conclusion:

"Rather than waging old debates about tax cuts versus spending increases, policymakers ought to be discussing how to reform the financial system so that it serves the rest of the economy, instead of feeding off it and destabilizing it."

Will the Fed save the day?

The New York Times Magazine profiles Ben Bernanke, the chairman of the Federal Reserve, who is trying to contain inflation without letting the economy sink into recession. Today he advocated immediate government intervention to boost the national economy.

Meanwhile, the News reminds us that Michigan's unemployment continues to rise.

Recession: Now a national trend

According to the Free Press, Michigan's economy may finally recover in 2010, but then again maybe not. The New York Times reports that the national economy may already be in recession, which should keep us just where we are economically. Hoorah.

Creative destruction

David Brooks, conservative columnist for The New York Times, lists the best magazine essays of the year here and here.

One of his selections discusses the economist Joseph Schumpeter and his concept of creative destruction:

The essence of capitalist economies was, as Marx had recognized before him, the entrepreneur and the innovator: the risk taker who sets in motion new and more-efficient ways of making old or new products, and so produces an economy in constant change. Marx saw that the coming of capitalist economies destroyed all feudal, traditional, and patriarchal relationships and orders. Schumpeter saw farther: that market capitalism destroys its own earlier generations. There is, he wrote, a constant "process of industrial mutation — if I may use that biological term — that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism. It is what capitalism consists in, and what every capitalist concern has got to live in."

Capitalism is in constant flux. New innovations create wealth and propel the economy forward, but at the same time they render old industries obsolete. Economic loss is the necessary consequence of economic gain. Detroit, once at the forefront of technology, is now suffering the destructive consequences of capitalist innovation itself.

Also worth noting: a New Yorker article from April on the psychology and economics of long-distance commuting and an article from the New York Review of Books on the immigration debate. I haven't read either yet, but they look good.