The Buckle on the Rust Belt.

From the 1890s to the 1970, you could travel from Rochester to Buffalo to Pittsburgh to Cleveland to Dayton to Gary to Chicago to Milwaukee to Detroit, and see the beating heart of American industrial power.  It helped win two World Wars and helped keep the Cold War cold.  It provided lots of jobs at increasingly good wages to millions of workers.  American manufactured goods dominated world markets.

Then things went sour.[1]  Between 1979 and 1994, the U.S. lost half of its manufacturing jobs.  Improved technology and automation are part of the explanation.  The growth of international competition as foreign industry revived or started fresh after the Second World War offers another part of the explanation.  The domestic competition from new “mini-mills” in steel and other disruptive industries that targeted the low end of the market offers another part of the explanation.  JMO, and I come in peace, but the arthritic nature of much heavy industry offered another part of the explanation.  Bloated industrial bureaucracies and rigid work rules imposed by unions alike made American manufacturing slow to respond to challenges.

Then, in 1994, came the North American Free Trade Agreement (NAFTA); in 2001 China gained admission to the World Trade Organization (WTO).  Between 2000 and 2010, 5 million more manufacturing jobs disappeared.[2]

The human costs of successful business adaptation to changing conditions have been very high.  Old industrial cities and regions have lost jobs and incomes, and many of the businesses once supported by consumers.  Local and state governments have lost the tax revenues from these businesses, so they struggle to provide services to people in crisis.  Lots of people have lost hope.  Many younger people have moved away in search of a future that works.  Many of the displaced shifted into the ballooning service industries of health and education.  Not healing or teaching so much as filling out forms.  In some cases, however, the older people left behind with no future that works have turned to substance abuse.[3]  Much to the distress of the Democrats, the 2016 election demonstrated that these once-reliable voters could not be taken for granted.[4]

For reasons not immediately apparent to me, free trade, an open world economy, and “globalization” became the goat.  Free trade helps many American producers: 40 percent of corporate profits and 30 percent of agricultural revenue comes from foreign sales.  Also, the Gummint projects that 3.5 million jobs will be created in specialized manufacturing by 2025.  This means workers (presumably named Dave) who can run the robots.

There probably is no way of “saving” or “reviving” the “Rust Belt.”  Guys now in their 40s and 50s who walked off the high school graduation stage into a job at the plant aren’t likely to want to/be able to “retrain” as medical coders or McDonald’s imagineers.[5]  They’re close to the end of their working lives.  Soon enough, they’ll be on Social Security and Medicare.  Give them basic medical coverage and beer money.

That doesn’t mean that there isn’t room for improvement in the trade deals around the margins.  After an ugly early spat with Mexico, the NAFTA renegotiation has begun.  China is next, although there is the whole North Korea issue to tilt the scales.

[1] “Rescuing the Rust Belt,” The Week, 24 March 2017, p. 11.

[2] Economists estimate that 85 percent of these jobs were lost to automation of production.   It cuts labor costs: welders in the auto industry earn $25 an hour; spot-welding robots cost $8 an hour.  Take that coolies!

[3] Obviously, this latter issue is a much more complex story than is presented here.

[4] The recent passing of Norman Lear led to much revealing commentary in  the media.

[5] As in “imagine this is real food.”  Except, you know, those sausage biscuits (without egg) with a coffee and hash browns you get early on Sunday morning when you’re headed home?  Whole world feels fresh and new and clean.

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Semi Automated Weapons.

Machines want your job!  Well, they would if they could feel desire.[1]  I guess I really mean that your employer wants your job.  Not for him/her self, or even for some idiot nephew/niece.  S/he wants it for a machine.  Liable to get it too.  Only about 13 percent (1/8-1/7) of job losses are the result of foreign competition.  The rest are the result of automation cutting the need for workers.[2]

Thus, in 1962, about 530,000 people worked in the American steel industry.  In 2005, about 130,000 people worked in the American steel industry.  That’s a 75 percent drop in employment.  However, steel production did not fall.  New technology of steel production just cut the need for workers.  More recently, computer and electronics manufacturing shed jobs thanks to automation.

However, in spite of the headlines in the New York Times, foreign competition really has taken away a lot of jobs from Americans.  China’s accession to the World Trade Organization (WTO) led to the loss of 2-2.4 million American jobs since 2000.  Apparel and textiles—the most basic products of any early-industrializing country—have suffered heavy inroads from foreign competition.

It isn’t likely to stop with manufacturing jobs, nor is it isolated to the United States.  In January 2016, one of those “we’re here to help” groups, the World Economic Forum, predicted that 5 million jobs in the top 15 economies world-wide will be lost to computer systems and robots by the end of 2020.  Two-thirds of the lost jobs will be in “office and administrative jobs.”  Already existing technologies could allow machines to do 45 percent of current work activities.  [NB: I don’t think that means 45 percent of jobs, just 45 percent of the work that many people do.  It wouldn’t be difficult to sell this as an improvement for anyone whose work includes a lot of drudgery that prevents them from doing higher-order work.]  “Work that requires creativity, management of people, and caregiving is least at risk.”

What are some of the implications of these changes?  They are both social and political.

Workers cast aside as a result of Chinese competition have had a difficult time adjusting.  As a group, they have a higher unemployment rate and reduced real income for the rest of their lives.  Also, apparently, they feel an impulse to vote for Donald Trump so as to send a wake-up call to the two mainstream political parties.  Trump and others have pandered to this by blaming immigration, and out-sourcing, and foreign competition for huge job losses.

In the past, workers flowed from declining sectors to growing sectors.  This didn’t go seamlessly: new workers who saw their parents displaced chose other lines of work, but the displaced parents had a hard time getting jobs in the “new” economy of that era.  In the past, economic change created new forms of manual labor for those without a lot of education.  This time, however, new jobs for men without college degrees have not arrived to help those displaced by change.

Perhaps more importantly, it isn’t clear that displaced workers want to adapt to new conditions and there is a policy interest in some quarters that wants to facilitate not adapting.  Thus, a story in the NYT says of one displaced worker that      “Many of the new jobs at factories require technical skills, but he doesn’t own a computer and doesn’t want to.”  [NB: That is, he doesn’t want to adapt.]  The policy proposals of many labor economists would accommodate this resistance to adaptation: strengthen unions (so that they can obstruct employer efforts to modernize production until foreign competition does what automation was not allowed to do); create more public-sector jobs (regardless of need); raise the minimum-wage (although this seems to contribute to the search for more automation); and increase the earned-income tax credit (essentially a form of welfare for the unadaptive).  Basically pay people to be unadaptive.  That is, create a market for people who resist change.  “If you build it, they will come.”

[1] “The bottom line,” The Week, 29 January 2016, p. 32.

[2] Claire Cain Miller, “What’s Really Killing Jobs?  It’s Automation, Not China,” NYT, 22 December 2016.

The New Economy.

Once upon a time, most American workers were essentially independent contractors: small farmers selling to the local market or craftsmen with their own shops. Then came the Industrial Revolution and massive immigration. Armies of semi-skilled employees replaced the independent contractors and petty entrepreneurs. Giant corporations arose to manage the mass-production industries. Much hand-wringing and teeth gnashing followed. Unions and government both stepped in to regulate the working time, working conditions, and pay of the industrial armies. Much hand-wringing and teeth gnashing followed. This economy flourished through the 1970s.

Then began the great disruption of the American economy. Foreign competition returned to the global market long dominated by Americans (1945-1975). The “oil shocks” (1973, 1979) set off a grave inflation and pushed foreign car-makers toward fuel efficiency. American labor unions not only refused to adapt: they went on the offensive by launching a tidal wave of strikes intended to defend and expand their existing benefits. Companies responded by moving jobs to “right-to-work” states and overseas. Much hand-wringing and teeth gnashing followed.

Then, by 1991, Communism and the centrally-planned economy had been defeated. China, and other socialist countries began a rapid shift toward open markets. Many American jobs disappeared over-seas (although Americans were—short-sightedly—prone to blame NAFTA. Much hand-wringing and teeth gnashing followed. Thereafter, Americans struggled to find some new way of making an adequate living.

Then came the “Great Recession.” Today, about one-third of American workers work part-time, or as temp workers, or day by day. This, in my mind, has been one of the great economic and political preoccupations of the last twenty years.[1]

Uber, the ride-sharing service, and Airbnb, the home-sharing service, are often cited as the fore-runners of a new “sharing” economy. One element of Uber’s business plan has been to define Uber drivers as “independent contractors,” rather than as employees. The upside of this is the great efficiencies and flexibility for both Uber and for its drivers, not to mention the savings on labor costs like benefits. For Uber, the drivers are doing piece-work; for the drivers, they get to structure work around other aspects of their lives by working when and how much they work.

On the other hand, it drives Democrats and their clients in the “old” industries crazy. Independent contractors have no right to unionize; they have no right to benefits; they aren’t subject to government regulation; they don’t get compensated for wait-time; they can work for two different companies; they are all profit-oriented, rather than submissive to the moral strictures of Democratic voters; and they’re entrepreneurial, rather than locked into a known and established institution.[2]

Probably, the goal should be to prevent the exploitation of independent contract labor, rather than to stifle economic change an innovation. This would require treating these workers as some sort of middle ground. Social Security and Medicare with-holding should apply and they should be part of pools for health insurance. The “gig economy” should have to succeed on the strength of its business model, rather than by “screwing labor down to the lowest peg,” as was so often the case in early industrialization. At the same time, Washington shouldn’t try to create a Greek economy.

[1] Greg Ip, ”New Rules for the Gig Economy,” WSJ, 10 December 2015.

[2] Alas, this litany of differences suggests that the “normal” American working conditions are unsustainable in a competitive global economy.

White Flight from Baltimore.

Racism is widely deprecated. People of virtually all political stripes decry racism. Some Democrats deploy accusations of racism against their opponents in the sort of public shaming campaigns that other Democrats deplore when applied to other cases. However, one truth not much acknowledged in politics, the media, or scholarship is that—under most circumstances—racism isn’t illegal.[1]

The city of Baltimore offers an example of this inconvenient truth. After the Second World War, the other City by the Bay lost population, jobs, and the economic base needed to make the place run effectively. One important part of the problem arose from accelerating “white flight” from the city to the suburbs. Between 1950 and 1960, Baltimore’s population fell from 950,000 people to 939,000 people. From 1960 to 1970, Baltimore’s population fell from 939,000 people to 906,000 people. So, from 1950 to 1970 Baltimore lost 4.6 percent of its population.

Then came the riots of April 1968. Over a thousand businesses were looted, damaged, or burned down. The damage totaled about $79 million in today’s dollars. Virtually all of the businesses were owned by whites. One activist later reflected that “the riots really weren’t personal: They were against the system, not individual white people. There was only property loss.” However, property belongs to individuals. White flight accelerated, businessmen took their insurance money and moved to suburban locations, and landlords backed even farther off from maintaining property in a city where two-thirds of African-Americans rent their homes.

To make matters worse, Baltimore’s economic base declined. The Bethlehem Steel Company’s Sparrows Point complex of steel mill and shipyard provided high-wage jobs to a huge number of people in the area. During the 1970s and 1980s, Bethlehem Steel encountered all sorts of problems that it failed to master. Repeated rounds of retrenchment led to huge losses of jobs. Moreover, both the steel mill and the shipyard formed the center of networks of local suppliers of goods and services. Job losses at Sparrows Point rippled outward through the community. The decline of Sparrows Point and the attendant job loss cost the city an ever-growing amount of revenue.[2] From 1970 to 1980, Baltimore’s population fell from 906,000 people to 787,000 people. Decline continued until it reached 651,000 people in 2000. All told, Baltimore’s population fell by 28 percent between 1970 and 2000. Most the emigrants were whites. As a result, the “non-white” population in Baltimore rose from 24 percent in 1950 to 44 percent in 1970 to 65 percent by 2000.[3]

If 76 percent of the Baltimore’s population was white in 1950, that would mean that about 725,000 white people lived in the city. By 2000, whites constituted 35 percent of the population. That would amount to about 228,000 people. Almost half a million whites left the city. Property taxes pay for schools; business and operations taxes and licensing fees pay for city government functions like police and fire departments, and trash collection.

If the population was 950,000 in 1950 and half a million people left, then the city’s population should be about 450,000 people. However, the city’s 2000 population was actually 651,000 people. In all likelihood, the extra 200,000 people were African-Americans from farther South who moved North in hopes of finding greater opportunity. Need grew as resources shrank. Bitter must be their tears.

[1] Some racist actions are illegal. Racist belief, however, is not illegal and many racist actions are not illegal.

[2] See Mark Reutter, Making Steel: Sparrows Point and the Rise and Ruin of American Industrial Might (2005).

[3] http://www.baltimoremagazine.net/2007/5/1/100-years-the-riots-of-1968?p=2007/5/100-years-the-riots-of-1968