Archive for December 2016


Coal jobs were lost to automation, not trade

A commenter named dwb left this comment:

The “technological change” that killed coal jobs is the 1-2-3 punch of cheap natural gas, low electricity demand, and Obama’s war on fossil fuels.

At least he doesn’t blame trade.  Even so, this is basically false—except for very recently, coal jobs have been lost to automation. Here’s employment in the coal industry:


It’s even worse than it looks, as office jobs were added in 1973, creating an artificial surge in the data.  If you just count actual miners, the job losses have been far worse.  But even this graph shows a loss from 870,000 jobs to about 110,000, slightly worse than in steel.

So you might assume that our coal industry is being overwhelmed by imports, right?  No, over the past 5 years we’ve been net exporters of coal, in the range of 7% to 12% of total production.

If it’s not imports, then production must be being hammered by competition from oil and gas, right?  Not really, as the following graph shows, the coal industry has been increasing production in recent decades, until the past few years when competition from oil and gas really did eat into production:


So why have so many coal jobs disappeared?  The answer is simple, automation. We are producing nearly twice as much coal as when I was young, and we are doing so with far fewer workers.

Some commenters think that job loss due to automation is less painful than job loss due to trade.  In fact, they are equally painful.  Jobs lost to automation don’t occur gradually over time, through attrition, they occur in waves, often during recessions. Thus in steel, 1000s of jobs are lost when US Steel or Bethlehem shut down old mills, and Nucor and Chaparral open new more efficient mills in other parts of the country. Lots of steel jobs lost in Pittsburgh are replaced with a smaller number gained in Texas.

Something similar happens in coal.  Big new strip mines in Wyoming use huge shovels that replace 100 workers in a West Virginia mine that shuts down.  Here’s the production of coal by state:


If Wyoming were another country, the West Virginia miners would be screaming at their representatives that they need “protection” from cheap Wyoming imports. But because Wyoming is as American as apple pie, nobody advocates tariffs, even though the economic issues are exactly the same as when Ohio steel is impacted by Chinese imports.

I see an orgy of sanctimonious commentary in the media about how we have to pay more attention to the suffering of Ohio steel workers and West Virginia coal miners.  OK, but how many of those pundits realize that the interests of those two groups are diametrically opposed?  If Trump pursues a protectionist policy to help steel, it will hurt American coal exports.  TPP would be a boom to West Virginia, while threatening Ohio manufacturers.

But at a deeper level, the problems facing coal and steel are exactly the same.  In the US, and indeed almost everywhere in the world, automation is rapidly reducing employment in mining and manufacturing.  That problem is not going to go away, indeed with advances in robotics it will get even worse.  Trump can make a few symbolic moves (Carrier, weaker environmental laws, etc.) which will save a handful of jobs, and cost other jobs that are invisible to the public, but it won’t change anything fundamental. It will just give us a dirtier, hotter planet.  And rust belt workers will still be angry.

It’s always comforting to demagogue the issue by blaming foreigners for our woes; but they are doing the same—blaming other foreigners, including us.


Econ Duel: Gold vs. Fiat Money

There’s a new Econ Duel, with me debating Larry White on the gold standard. Check it out.

Krugman on those lost rust belt jobs

Here’s Paul Krugman:

Donald Trump won the electoral college at least in part by promising to bring coal jobs back to Appalachia and manufacturing jobs back to the Rust Belt. Neither promise can be honored – for the most part we’re talking about jobs lost, not to unfair foreign competition, but to technological change. But a funny thing happens when people like me try to point that out: we get enraged responses from economists who feel an affinity for the working people of the afflicted regions – responses that assume that trying to do the numbers must reflect contempt for regional cultures, or something.

I’ve made this same argument in a half dozen recent posts over at Econlog. And I also get people complaining that I have no empathy for the adversely affected workers.

I promote neoliberal policies precisely because they are good for the working class.

PS.  I believe that readers will find my new Econlog post to be of interest.

My critics in 2012: “See Sumner, housing prices were way too high in 2006”

Real house prices are still well below the peak, but nominal prices hit a record high in September:


The 2006 period may have been a bubble, but as of today is seems far less irrational than it seemed in 2012.  (This recovery also makes Kevin Erdmann’s arguments look even stronger.)

The world’s full of uncertainty and markets are volatile.  Get used to it.

PS.  UK house prices (green) took a dip after 2006, but are now well above 2006 levels (and equal to 2006 prices in real terms).  Australia (blue) and Canada (pink) are much higher in both real and nominal terms.

What goes up must eventually . . . go up even more!


So the US is down in real terms, the UK is even, and Canada and Australia are up in real terms.  Isn’t that sort of consistent with the EMH?

Sure, those prices will dip at some point in the future.  That’s what efficient markets do, they go up and down.


How can the Rust Belt be helped? (Can it be helped?)

Noah Smith has a column at Bloomberg, discussing the economic plight of the Midwest:

When big Midwestern states like Michigan, Pennsylvania, Wisconsin and Ohio voted for Donald Trump, they chose to roll the economic dice. It’s not clear yet whether President-elect Trump will or can follow through on his promises to revamp U.S. trade policy. It’s even more dubious whether that will have any kind of positive effect on the Midwest. But it’s obvious that his promises resonated with a lot of people in that region.

There are a number of economic and political lessons to take away from Trump’s Midwestern conquests, but the first one should be that the Midwest needs help. . . .

I propose four new pillars of a regional revitalization policy for the Midwest.

No. 1 Infrastructure

Sick economies and shrinking population have left Rust Belt states and cities unable to pay for infrastructure improvements. As a result, many cities look like disaster areas. The federal government should allocate funds to repair and improve the Midwest’s roads, bridges and trains, and to upgrade its broadband. Sen’s pension bailout idea could also be instrumental in helping states buff up their infrastructure. Better transportation makes it easier for people and goods to flow between cities in a region, and for the region to export products to other places. Infrastructure is doubly important in a region like the Midwest, where winter weather can quickly make travel difficult.

No. 2 Universities

Universities are helpful for regional economic growth. The Midwest has a number of good schools (I went to one of them for my Ph.D.), but more could be built, and existing universities could be expanded. Perhaps even more importantly, local and state governments in the Midwest could work with universities and local companies to create more academic-private partnerships and to boost knowledge industries in places like Ann Arbor, Michigan, and Columbus, Ohio. As things stand, Midwesterners tend to move away as soon as they graduate from college. Creating more industries specifically for these graduates would keep talent in the region.

No. 3 Business Development

Some cities in Colorado have embraced a development policy it calls economic gardening. The program helps provide resources for locals to start their own businesses. It furnishes them with market research and connects them with needed resources. Small businesses provide more employment than large ones, and offer a ticket to the middle class. They also have a chance of growing into large businesses. The Midwest should consider emulating Colorado’s plan, which seems to be getting results.

No. 4 Urbanism

Tech hubs like San Francisco and Austin, Texas, are using development restrictions to keep their population densities in check. That gives Midwestern cities an opening to attract refugees from the high-rent metropolises of the two coasts. Cities like Detroit and Cleveland can work on creating neighborhoods that are attractive to the creative class, while allowing housing development to keep rents cheap. College towns like Ann Arbor can reduce their own development restrictions and allow themselves to become industrial hubs. And cities can copy the crime-fighting techniques of cities like New York and Los Angeles that have become much safer during the past few decades.

Let me take these points one at a time.  There is no single Midwest, as it’s a mix of different economies.  Trump did unusually well in Iowa, which is not a rust belt state at all, but is a state that would be hurt significantly if he pursues a protectionist trade policy regime. (I doubt he will, given that his nominees generally supported the TPP treaty.)

1.  Since I grew up in Wisconsin, and visit there occasionally, let me focus on that state.  I really don’t see how better infrastructure would help.  The Madison and Milwaukee airports seem fine, much better than Boston’s.  The roads in Madison are better than in affluent Newton MA (where I live now.)  Wisconsin doesn’t have a big problem with traffic jams, compared to America’s two coasts.

2.  Wisconsin certainly doesn’t need either more universities or better universities. The University of Wisconsin system has many campuses with more than 180,000 students in all, in a state of only about 5 million people.  And there are also some fine smaller private colleges.  The Madison campus is easily an above average quality university, better than the best state university in many larger and more prosperous states.  Whatever ails Wisconsin, it’s not a lack of good universities.  At best they might want to spend a bit more on the Madison campus, as they seem to have slipped a bit in the rankings.  (They were around #10 when I was young, now they are probably around #15 or #20 for US universities.)  On the other hand, it’s hard to get Wisconsin taxpayers to pay more when the graduates often end up leaving the state (as I did).

3.  There’s always been an emphasis on business development, and Madison has lots of companies that are spin-offs from the University.  The Wisconsin Alumni Research Foundation (WARF) invented the drug that saved my father’s life (Warfarin). The problem is that metro Madison is only about 10% of the state.  It’s the rest of the state that is struggling.

4.  Milwaukee is the largest city, but has not been able to reinvent itself for the post-industrial economy that way Minneapolis, Pittsburgh and lakefront Chicago have. Unfortunately, there is only a market for a limited number of those cities in the Midwest, and Wisconsin’s only realistic prospect is small (Madison.)

So what’s my solution?  I don’t really have any good ideas.  In fact, I’d guess that Wisconsin is doing about as well as it can, given the headwinds it faces.  And what are the headwinds?  I see two big ones.  Wisconsin is second only to Indiana as a manufacturing state (per capita).  If that surprises you, recall that Wisconsin is heavily German.  Unfortunately, the entire world is switching from manufacturing to services.  The 4.4% unemployment rate in Wisconsin is actually pretty good, given that the state concentrates in the “wrong” sectors.

The other big headwind is weather.  Today’s forecast calls for a high of minus one in Madison.  (For you international readers, that’s more like 18 below zero centigrade–as a high temp!)  And it’s technically still fall, winter starts in a few days.  So far the state has been held together by a strong civic culture.  The college and professional football teams have unusually rabid support.  The culture is a bit “tougher” than on the coast, composed of Northern Europeans used to cold weather and snow, although I’m told it’s softer than when I lived there.  Unfortunately, some aspects of the culture are a turnoff to certain highly educated millennials (deer hunting, meat eating, heavy drinking, etc.)  When I lived in Wisconsin the educational levels in the state were well above the national average.  Today I’d guess they are only slightly above average.  (This site has them #10, but I’d guess it would be lower if you controlled for ethnicity.)

I don’t mean to suggest that literally nothing can be done.  I’m sure if you took a close look you could find 100 things the state government could be doing better. But I doubt any of them would be a game changer.  On the plus side, it’s possible to have a perfectly enjoyable life in Wisconsin.  There are many fewer hassles than in cities like Boston, and the cost of living is much lower.

And we aren’t West Virginia!  (Even when I was young, in the 1960s, “hillbillies” were regarded as a sort of degenerate group off in the mountains of Kentucky and West Virginia.  We all saw Deliverance, and vowed to stay the hell out of there.)

My mom got married in 1948, and the same year Life magazine named Madison the best place to live in America: