(What’s Left of) Our Economy: De-Industrialization’s Toll in Pennsylvania

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budgets, China, demographics, Jobs, manufacturing, Pennsylvania, Pottstown, taxes, The New York Times, Thomas Edsall, wages, {What's Left of) Our Economy

If you’re having your doubts that the woes of U.S. manufacturing can translate directly into a weaker overall economy, shakier finances, and more hardship for individual Americans and their families, take a look at today’s New York Times feature on the decline of Pottstown, Pennsylvania. Just as important, take a look at the Keystone State overall – whose troubles and closely related de-industrialization mirror those of Pottstown.

As reported by correspondent Thomas Edsall, this once-thriving community in the southeastern corner of the state, has since the 1970s seen the manufacturing that fueled its economy “collapse in the face of foreign competition.” Largely as a result, although its population has remained stable going back to 1950, its employment base has contracted by more than 23 percent during those decades. Nowadays, it suffers from a poverty rate that’s a staggering 27.7 percent.

But don’t get the idea that Pottstown is an island of misery in an otherwise prospering Keystone State. Research cited by Edsall claims that 27 of Pennsylvania’s cities are “financially distressed,” and that they contain 40 percent of the state’s population. Indeed, Pennsylvania is heading towards its second straight state budget crisis, as its leaders grapple with a deficit expected to hit $1.8 billion.

No doubt, Pennsylvania’s woes stem from many sources, but flagging manufacturing looks like it’s taken a big toll – along with misguided trade policies. Let’s see what’s happened since the end of 2001, when China was admitted into the World Trade Organization, thereby essentially became immune from U.S. (and other foreign) actions meant to retaliate against its protectionist practices, and began flooding American markets with job- and growth-killing exports.

Between 2002 and last year, manufacturing shrank slightly as a share of the U.S. economy in real terms from 11.98 percent to 11.93 percent. And especially important for the nation’s tax base and therefore financial health, just over 3.3 million manufacturing jobs – which pay above average wages – were eliminated (though not all because of Chinese competition). That came to 21.18 percent of the January, 2002 national manufacturing workforce.

Moreover, those manufacturing wages have gone practically nowhere when you adjust for inflation. We don’t have figures for white collar manufacturing employees going back to 2002, but the data for production workers and other non-supervisory workers shows that real wages rose less than one percent during that 13-year period!

From 2002 through 2015, Pennsylvania manufacturing fared even worse – shrinking in absolute terms by 13.40 percent, and declining from 16.50 percent of the state economy in constant dollars to 12.14 percent. On the employment front, the state lost 27.36 percent of its manufacturing jobs. I wasn’t able to find a time series for Pennsylvania’s inflation-adjusted manufacturing wages. But in pre-inflation terms, since 2007 (the earliest figures available) they’ve been rising more slowly for all manufacturing workers than manufacturing wages nation-wide, according to the Labor Department. This industrial contraction and its employment fallout certainly hasn’t made it any easier for Pennsylvania to pay for state services in a financially responsible way.  

Pennsylvania is often described as a state with special problems – especially a population that’s both old and aging faster than the nation’s as a whole, and high individual and corporate tax rates.  But there can’t be any doubt that the shrinkage of manufacturing, a source of disproportionate productivity gains and innovation, as well as high wages, has made its challenges far more formidable.  And it’s hard to imagine that the same doesn’t hold for the nation as a whole. 

 

  

(What’s Left of) Our Economy: How Not to Rate the States’ Economies – & Their Prospects

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California, demographics, domestic migrants, entitlement programs, Florida, Forbes, government workers, immigrants, inflation-adjusted growth, innovation, Medicare, Missouri, New York, New York City, Pennsylvania, population, private sector, productivity, retirees, seniors, Social Security, taxes, William Baldwin, {What's Left of) Our Economy

Thanks to Forbes magazine, it’s possible today to teach a useful lesson about the limits of statistics and the studies they’re based on – especially if those studies seem to be intended to prove a point rather than seek the truth.

The post in question, by former Forbes editor William Baldwin, looks like it makes a claim that’s not only important but irrefutable: U.S. states whose numbers of “takers” (government workers plus recipients of government transfer – welfare – and entitlements payments) greatly exceed the “makers” (private sector workers) are in “death spirals.” But states in the opposite situation have promising economic futures. In particular, employers are much likelier to create the private sector jobs crucial to continued healthy growth in the “maker” states.

It’s easy to understand Baldwin’s reasoning. The private sector undeniably is more innovative and productive than the public sector – two of the main ingredients of that healthy growth. And states with big populations of entitlements recipients (e.g., Medicare and Social Security) are almost by definition states with older populations – raising the question of who’s going to pay for all those benefits for non-working or even only semi-retired seniors. Case closed? Not exactly.

Interestingly, doubts start arising as soon as you eyeball the author’s chart. For example, he places California in the “death spiral” category. Since the Golden State represented 13.40 percent of the entire national economy as of 2014, it’s clearly a crucial example. But U.S. government figures also make clear that California enjoyed inflation-adjusted growth last year (2.80 percent) that was considerably faster than the national average (2.20 percent). That doesn’t sound like much of a death spiral to me. And in case you’re wondering whether 2014 was an outlier, California also out-grew the nation as a whole from 2011 to 2014 – by 7.81 percent to 6.26 percent.

Demographics don’t support Baldwin’s portrait of California, either. According to the U.S. Census Bureau (click here for the various relevant spreadsheets), between mid-2010 and mid-2015, the United States population as a whole as a whole grew by 12.661 million. Nearly 58 percent of the increase came from more babies being born than legal residents passing away, and the rest came from net migration from abroad.

California was responsible for nearly 15 percent of this increase – which means that the state punched above its weight demographically. In 2010, its share of the national population was only 12.07 percent. So it looks like there will be plenty of new Californians to pay for public services and retirement costs. And although many of the nearly 835,000 immigrants to come to the state during this period were illegals, many obviously were not.

The situation in another one of Baldwin’s death spiral states – New York – doesn’t look nearly so dire, either, on closer inspection. New York’s after-inflation economic growth between 2011 and 2014 wasn’t as fast as California’s. But at 6.79 percent, it still beat the national average.

New York also lost a little population from 2010 to 2015 (22,308 residents moved away). But births outnumbered deaths by 1.59 to 1, which is a bit better than the national average. And although just over 653,000 New Yorkers moved out of the state during that period, nearly 631,000 immigrants arrived. Of course, many have been illegal and low-wage. But many others have been foreign oligarchs who have rocketed the New York City real estate market into the stratosphere. In fact, the city’s property and income tax receipts for the fiscal year ending June 30 are so immense that its budget surplus is likely to approach $1 billion. So there’s no revenue shortage there.

Now let’s move to one of Baldwin’s more promising states: Florida. The Sunshine State has handily beaten the national average on 2011-2014 growth (7.07 percent) – although its performance has been affected by the depth of its housing-bust-fueled recession. On the surface, its population trends look good, too – as has historically been the case. In 2010, Floridians represented 6.09 percent of all Americans, but over the next give years, the state’s increase came to 11.58 percent of the national total.

Less good, however, were the internals – especially for Baldwin’s “death spiral” thesis. Florida’s population growth has been powered by immigrants and Americans from other states to a roughly equal extent. Surely wealthy foreigners have been well represented in immigrant ranks along with poorly paid illegals. But anyone who knows Florida knows that many of the domestic migrants have been retirees. That can’t bode well for the tax base.

Florida’s neighbor, Georgia, is another odd Baldwin success story. Its 2011-2014 growth trailed the U.S. average (at 5.32 percent). Yet its population growth (4.16 percent of the nation’s total) was greater than its 2010 share of the overall population (3.14 percent). It’s true that Georgia’s subpar population increase may eventually translate into stronger-than-average growth. But should that be considered a solid bet? Stranger still is the author’s positive assessments of Missouri and Pennsylvania, which have been under-performing both in terms of economic and population growth.

Of course, Baldwin has pegged many states right. But misses that are this big, especially for places like New York and California, make clear that the sources of healthy growth and bright economic futures are much more varied than entitlement spending, government workforce sizes, and even generational demographics. Lifestyle clearly plays a major role – what else explains California consistently defying predictions of economic doom triggered by alarm over high taxes, burdensome regulations, and the like? Along with New York and Washington state (another one of Baldwin’s losers, despite the attractions of Seattle), it’s long likely to remain a magnet for talent, as well as wealth (whether ill-gotten or not).

Although I’ve never met Baldwin, I do know that Forbes has long been one of the media world’s strongest champions of Darwinian free market thinking – and of course an equally ardent opponent to Big Government. So it looks reasonable to me that this ideology overwhelmed a more holistic view of economics and business – which his successors at Forbes might have realized just by looking out the windows of their Manhattan offices.