Rust Belt Heuristics

A common demographic heuristic is loss aversion. Better to stop one resident from leaving than attract one newcomer. Rust Belt shame is all about loss aversion. If anyone leaves, whether for the suburbs or another state, then something is wrong with a place. A recent article in the Washington Post rekindles the dying cities geographic stereotype:

In America’s Rust Belt and parts of the Northeast, millennials and young professionals are leaving rather than moving in, and populations there are dwindling. Among those who remain, both the residents and the houses are aging.

The journalist (unwittingly) creates a new type of human, the net migrant. Negative migration indicates an exodus, not a lack of people moving into the city. The percentage (or absolute number) of the population actually leaving might be much lower than those exiting cool coastal cities. All that matters is whether or not there is a - or a +. Our loss aversion tendency compels us to fix the neighborhood and seduce the net migrant to stay.

Loss aversion at the regional or municipal scale turns a blind eye to strong neighborhoods in cities with lousy (i.e. Rust Belt) reputations. Quoting research from the St. Louis Fed, "Even in the most distressed older industrial cities some neighborhoods are doing quite well."

Rust Belt St. Louis is the case study. 35 tracts out of 218 total qualify as rebound neighborhoods (see Figure 1 above). With the 1970s (the nadir of urban America) as the baseline, Rust Belt cities have substantial areas of improvement as well as deepening distress. But the latter receives all the coverage and whitewashes a huge part of the United States with one broad brush stroke.

Indeed, in unpacking monolithic Rust Belt St. Louis, the Fed finds use for affordable housing efforts, "Subsidized housing also plays an important role in the continued economic diversity of rebound neighborhoods." Near anchor institutions reside young adults with enough earning power to drive up real estate prices beyond the means of the lowest wages. Regardless, the population drop defines the city. Loss aversion wins again, data be damned.

Trends of Regional Divergence and Convergence

All hail economic divergence. Amazon, the iconic company of the cloud computing era, staked its second headquarters flag in the US twin towers of domestic hegemony. Adding another jewel to the NYC-DC crown, economists and policy analysts warily eyed the deepening divide of two Americas. What to do with the "left-behind places"?

The hand-wringing concerning Flyover Country misunderstands the impact of globalization. The shocks to the world system during the 1970s and 1980s signaled an end to economic divergence. The declining manufacturing advantage informed the emerging trend of regional divergence in the United States. Fortune favored those areas transitioning out of the production of goods towards the export of knowledge. Today's observed divergence was and is but a time lag in the course of economic restructuring.

As more US regions deleverage from global divergence in this era of global economic convergence, the domestic trends of convergence will become apparent. The pressing problem will be, as already the case in Silicon Valley, divergence within regions. In fact, that labor market bifurcation is a strong indicator of globalization penetrating a left-behind place. Those who toil in legacy tradable industries or non-tradable services will look across a gaping chasm of economic restructuring at knowledge workers spending big city wages in markets well down the urban hierarchy.

The same forces reshuffling America are at work in China. The power of artificial intelligence rests on the low-paid efforts of humans, signalling a shift from divergence to convergence:

The data factories are popping up in areas far from the biggest cities, often in relatively remote areas where both labor and office space are cheap. Many of the data factory workers are the kinds of people who once worked on assembly lines and construction sites in those big cities. But work is drying up, wage growth has slowed and many Chinese people prefer to live closer to home.

China is deleveraging from global economic convergence. The age of rural-to-urban migration is at an end. Mechanical Turks can reside wherever one can access the cloud, teaching machines how to produce knowledge. Only the highly skilled need to move, which is already the case in the United States.