Poor Cities And Poorer Economics

Tyler Durden's picture

Authored by Carmen Elena Dorobat via The Mises Institute,

The newest cover story in The Economist deplores the situation of cities in developed countries that are left behind in terms of economic development by the digitized, globalized economy. One such is Scranton, Pennsylvania, where, since 2007, the local government has spent over $6bn on corporate subsidies in an effort to encourage redevelopment and boost local infrastructure. Such places and their disengaged, disgruntled workers are also fueling the rise in anti-globalization rhetoric which has propelled several new faces into the political arena in the US, France, and Britain, and produced unexpected election results. 

The Economist suggests three new avenues for reviving these economically laggard cities, all of which involve heavy-handed government policies: (1) spreading know-how to better help local firms, (2) help colleges train local firms in mastering new technologies, and (3) using tax incentives and subsidies to encourage local investment.

But the premise on which these suggestions are based is entirely flawed: it is not sweeping globalization that has kept these cities behind, but government policies. 

Globalization did indeed remove once thriving industries from these areas and relocate them to better-performing regions. These changes are inevitable in the economy: comparative advantage shifts as consumer preferences shift, quickly and significantly; entire regions may see capital and labor move from a local booming industry to other areas, other industries, or even abroad. This is an inevitable law of economics, and in the nature of the market. 

But there is another law inherent in the market, and in the network of specialization that binds economic communities together: that no individual or region is left without a comparative advantage. Specialization is beneficial because and only if resources are allocated based on relative productivity, and free trade is allowed to take place as a result. 

Thus, other industries are sure to flourish where once coal mining reigned, if only the market is allowed to reallocate resources to the most efficient and productive production processes. Transitional periods may be difficult, and the movement of both capital and labor costly—both financially and personally. But if the change is one toward more efficient production, everyone will be better off: prices will tend to drop and real wages to increase. 

However, none of this can occur if governments divert these resources into corporate subsidies, restrict free trade, and promote their own brand of ‘managed globalization’; if monetary policies destroy the means and incentives to save for future investments; or if new government policies waste these resources on spreading know-how or interfering even more in education. To be sure, tax breaks are always welcome, but if they are geared solely towards dying industries, and the new industries which may revive these laggard areas are more heavily taxed as a result, redevelopment may never take hold. Government policies, however well-intentioned, can never reverse, but only stall an already difficult and inevitable change. 

The anti-globalization “box” thus contains two different types of arguments: one against economic change in general, which is entirely futile, and the other against difficult economic transitions, which are often brought about and prolonged in the first place by government spending and regulations. As long as both arguments survive, so will the anti-globalization rhetoric and the opportunities to capitalize on it in the political sphere.  

It is poor economics that still keeps these regions poor. And it is not in the interest of politics to promote sound economic ideas. Only the market can make economies and economics richer.

 

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AlphaSeraph's picture

Rothschild publication advocating lots of government?

Shocking. /s

toady's picture

Aren't "poor" and "cities" synonyms?

I hear big city and my brain automatically translates it to "inner city shithole".

Keep your eyes open... you never know when a North American Pavement Ape will charge....

Winston Churchill's picture

Cities is just the nice way to say ghetto's.

Escrava Isaura's picture

Mises: Globalization did indeed remove once thriving industries from these areas and relocate them to better-performing regions. These changes are inevitable in the economy:…. 

Say no more.

That’s why I, and many others, keep saying that capitalism is totally unworkable because capital is mobile.

If you want the business to stay in your community and the profits to be spent there, capitalism cannot be the social order of that community.

Now if you/your community add financialization on top of that capitalism your community is finished.

Here’s how:

By Kobe Beef: A modern nation under fiat debt control is akin to a people farm. In the initial part of the cycle, the extension of fiat credit allows for the expansion of the farm, investments in infrastructure, and progresses toward the rearing and shearing of greater numbers of consumer livestock.

The farm grows. Debt grows. Payments received for debt grow. But, due to the laws of diminishing returns and compounding interest, the farm eventually reaches a point where shearing the existing stock no longer pays for the interest demanded by the creditors. The farm, while remaining somewhat productive, is rendered unprofitable.

In this phase of the cycle, the operations of the farm tends toward skinning the livestock, with no attention paid to growing the herd or maintaining its condition. At the final stage in the cycle, the farm and all its flock must be liquidated. The land is cleared, and the cycle can begin again.

The liquidation phase is called war. We are not seeing desperation here, but rather the planned liquidation of a farm by creditors who explicitly profess people to be nothing more than cattle.

Our democratically-elected/creditor-selected managers are complicit in the process. End the credit, end the cycle. Eliminate the creditors, or be slaughtered anew

http://www.zerohedge.com/news/2014-11-27/nato-deploy-tanks-eastern-europe-shortly-after-vp-europarliament-says-ukraine-russia#comment-5495497

 

wee-weed up's picture

Lib-run cities & Lib-run economies

BuddyEffed's picture

I call bullshit on this quip :

These changes are inevitable in the economy: comparative advantage shifts as consumer preferences shift, quickly and significantly; entire regions may see capital and labor move from a local booming industry to other areas, other industries, or even abroad. This is an inevitable law of economics, and in the nature of the market.

Selling out your fellow countrymens jobs to overseas workers is unpatriotic.

Hollowing out Americas manufacturing and other sectors so the wealthy could become extremely wealthy while risking critical supply chains to foreigners was stupid, stupid, stupid AF

It's not inevitable. That's a self serving generalization that isn't supported by facts. Claiming that any of that crap is a law of economics is laughable.

This is just a feel good piece that tries to provide cover for those who sold their soul and sold out their fellow countrymen.

This clip from Robin Hood applies I thinks.

https://m.youtube.com/watch?v=3_fhfRODOmc

MoreFreedom's picture

"If you want the business to stay in your community and the profits to be spent there, capitalism cannot be the social order of that community. ...
End the credit, end the cycle. Eliminate the creditors, or be slaughtered anew."

While I sympathize with making lending and borrowing illegal, I don't see that and capitalism as so joined at the hip.  Free markets are what make people prosperous.  Governmen taxation is a drag on free markets, and IMHO, "if you want the business to stay in your community" you should strive to minimize government to just protecting people from others who'd harm them.  That way, with a minimum burden of government, businesses in the community have a financial advantage over all others that have a higher goverment burden.   And communities that force existing business to subsidze their competition via government handouts and incentives to relocate there, soon push out the existing businesses. 

One thing more than anything else is correlated to prosperity, and that's more freedom (except the freedom to harm others).   Government control of business, isn't freedom, and that goes for lenders as well.  I'd put more of the blame on governments' ability to print money, rather than living within its means via a gold standard, whereby they have to obtain the gold prior to spending it.  Ending the government's ability to borrow seems like a reasonable idea, but not the capitalist's. 

7thGenMO's picture

The USSA no longer has free market capitalism, but a hybrid of crony corporatism with communism.  This is evident in trade with China where ChiComms take advantage of slave labor to sell to large USSA corporations while the USSA turns a blind eye to the wholesale buyout of real estate by the ChiComms.  Also similar to communism, the USSA throws its own educated people under the bus by allowing H1-B's who, as one Millenial eloquently stated, "will work for a bowl of rice and a ladle of broth."

I agree that something must be done to fix the current system; however, I would argue that it would be better to facilitate organization on a local level rather than more centralization/government power.  This is why I'm encouraged by the nationalism/regionalism developing in Europe where people are generally better educated than in the USSA.

Anyway, +1 for the reference to the people farm.  I made this same comment out here in District 12 when I heard about The Empire's aggressive military recruitment of poor young people.  Those who don't qualify get paid $250/mo in welfare to stay drugged with the cheap heroine floating around. 

 

RightLineBacker's picture

Poor American cities are simply once nice American cities that went to White minority.

RightLineBacker's picture

"What is Mises Wire? Mises Wire offers short, contemporary news and opinion through the lens of Austrian economics and libertarian political economy."

And Ms Carmen Dorob?? Mises the whole point. Big Government IS the problem, not the solution.

RightLineBacker's picture

- Dorob?? -
Our text system does not like Austrian punctuation.

wombats's picture

Was that "Dorob"  or "Doorknob?"

 

serotonindumptruck's picture

The author is typical of many academics who study socio-economic conditions.

They have excellent ideas, that tend to work well on paper, or in theory, but their ideas cannot be applied to society on a broad or practical level due to the inherent nature of humanity.

Human beings are self-serving creatures, and are especially prone to corruption. When human beings rise in social status and achieve the level of "representative" or "leader", regardless of the system of government, then corruption and influence peddling inevitably become manifest.

Communism, Socialism, or Free-Market Capitalism work very well in theory, but the practical application of such theories have historically proven disastrous due to the self-serving corruption of humanity.

Bull Bear Otter's picture

"The anti-globalization “box” thus contains two different types of arguments: one against economic change in general, which is entirely futile, and the other against difficult economic transitions,"

-isn't that the same argument just restated?  Most people I know who are anti-globalization (including myself) don't make either argument.

XBroker1's picture

I grew up in the Scran-toon /Wilkes Berry area. Let's just say pretty much everywhere from there is up. It was a dump when I left in the late 80's.  WB did a reassement in the mid 2000's and Scranton is trying to do another one now. The only reason they do these is to raise taxes even more. I now refer to those who decided to stay as tax prisoners as no one wants to buy their houses.

BeepBeepRichie's picture

Albany, Schenectady, and Troy NY are very similar. Tax slaves

Kidbuck's picture

Don't they have a long history of electing Democrat senators, to include Pastor Cankles, to fix their problems?

Milton Keynes's picture

They are stuck only because there is no willingness to liquidate.  

If you want to leave, sell, or mail the keys to the bank.

rf80412's picture

Globalization did indeed remove once thriving industries from these areas and relocate them to better-performing regions.

Thriving industries were relocated to regions with cheaper labor costs and weak or nonexistent health, safety, and environmental regulations - all largely thanks to weak civil society and apathetic or corrupt governments.  If you control for technological advances that don't leave the factory floor, I'd question how much more productive Third World peasants (and Third World education and infrastructure) really are.

No individual or region is left without a comparative advantage.

What do you do when a region's comparative advantage is based on low standards?  What do you do when an individual's comparative advantage is based on being uncompetitive and has to take whatever they can get?

Thus, other industries are sure to flourish where once coal mining reigned, if only the market is allowed to reallocate resources to the most efficient and productive production processes.

The only thing that coal country has to offer is coal, because other regions are already far ahead of them in terms of their ability to provide goods and services other than coal.  Part of this is the legacy of a form of Dutch disease, because for a century or more you'd have been a fool to invest in coal country but invest in things other than coal.

Kidbuck's picture

You do what my grand father from Poland did when he came to America and what I have done 5 times in my life, pull up stakes and move to where the work is.

ultraticum's picture

Remove the (government) protection racket, and their taxes, and their jack-boots, and any municipality - anywhere - will flourish.

rf80412's picture

Municipalities sell themselves to big business as cheaply as the feds do - endless tax breaks, land giveaways, legislation written just for them, etc. - and with no more guarantee that anything will come of it.

markitect's picture

Since when did comparative advantage mean ignoring all health, safety, pollution, intellectual property laws?  The people of the rust belt should have marched to DC back in the 80s and hung their fucking "representatives".  

gilhgvc's picture

the real problem is that human are, by and large lazy shits who have to be forced to do anything...even if it's good for them. you will NEVER be able to help a LARGE percentage...they are nothing more than human livestock. 

Miss Informed's picture

Someone was paying attention at synogague this week.

Megaton Jim's picture

"We'll have those niggers voting Democrat for the next 200 years!" -LBJ (At the beginning of the "Great Society" programs of the 1960's.)

Kidbuck's picture

Couple LBJ's grest society with Ted Kennedy's importing millions of third world peons that willingly work for third world wages or vote Democrat for a living and you can really trash the middle class.

Maryjane's picture

Seriously, what are you idiots still arguing about? You think expressing your opinion here has anything to do with freedom?

gilhgvc's picture

any of you that think ANY kind of govt is inherently good are delusional. BTW, YOU may think you are intelligent and things would be different with more like you in charge....but HISTORY is nothing more than a record of all the idiots who have come before you WHO THOUGHT THE SAME THING. Govt of ANY KIND is incapable of doing good. the only thing any govt can do is DO LESS BAD. if you start from that premise you MAY accomplish something. BTW, GOVERNMENT is who protects and allows crimes against the environment, people, animals etc etc. who the hell do you think collects the payoffs? who do you think ALLOWED the pollution? and some MYTHICAL GOVT  is going to ride to the rescue of humanity? what a joke. humans are INCAPABLE of a higher path. we are all STILL ANIMALS and will remain so for as far into the future as you can imagine....and yes that includes YOU, the reader. Each of us is only a step or two away from returning to an animal state, no matter how smart you think you are

dickizinya's picture

scranton is less than 80 thousand people.  it would take them 1,500 years to have a gdp of $6 billion, much less

Kidbuck's picture

Don't say that too loud. You'll spook the bond holders.

D503's picture

The single greatest barrier to depressed economies is restrictive legislation. Remove building codes, licencing for construction for private properties (no tenants) and watch these dead cities thrive.

moorewasthebestbond's picture

The permit nazis will hang first when the shit hits the fan.

rf80412's picture

As an architect, let me point out that in my corner of the woods, the most expensive neighborhoods tend to be the most heavily regulated.  And that regulation is performed by discretionary entities that, unlike a building department, don't have to let you do anything.

are we there yet's picture

America used to be greater because of better genetics and work ethic. All else is irrelevant.

moorewasthebestbond's picture

I like hillbillies and bitter clingers.

 

They built this nation, not the free shit army.

MaxDemon's picture

How does a small city come up with $6B?  And even worse, how the hell did they spend it and have nothing to show for it?  That takes real skill at corruption or idiocy.

Andre's picture

"it is not sweeping globalization that has kept these cities behind, but government policies. "

... including the government policies that support sweeping globalization.

Apeon's picture

Get the GOV out of the EON

Drop-Hammer's picture

No, it is poor genetics.  Only white is right and only whites can create and innovate wealth.

Aireannpure's picture

US education is a JOKE. Fix this and many issues fall to the wayside. How can the US go to STEM with a STUPID school system!

Scornd's picture

blah blah blah- this all goes back to rothschild publication, rothschild education, rothschild regulation, rothschild transportation, rothschild immigration. they are densifying and importing cheap labor just like the Crown Colonies and locals dont get to keep any of the wealth. give the devil his due.