The Great Relocation or the Great Stagnation?

by on September 19, 2011 at 7:25 am in Economics, History | Permalink

From a very good and thoughtful post by Noah Smith, here is one set of excerpts but do read the whole thing:

The idea, in a nutshell, is that economic activity is relocating from rich Europe, America, and Asia to developing Asia faster than technological progress can replenish it…

Note that although this Great Relocation is an alternative to Tyler Cowen’s Great Stagnation, it does not preclude it. Lower productivity growth could coexist alongside agglomeration effects. Or…they might even go together. As I wrote in an earlier post, some “endogenous growth” theories suggest that the availability of cheap labor can reduce the incentives for innovation. If technological progress has stalled, it might just be because the Great Relocation has taken priority.

…So China “took our jobs.” But this was not due to their exchange rate policy, or their export subsidies, or their willingness to pollute their rivers and abuse their workers, although all these things probably speed the transition. They took our jobs because it made no sense for a farm like the U.S. to be building the world’s cars and fridges in the first place. Forcing China to revalue the yuan might slow the Great Relocation a little, but has zero hope of stopping it.

Arnold Kling has related posts as well, focusing on factor price equalization rather than relocation.  A few points in response:

1. Median income begins to stagnate in 1973, before this trend is significantly underway.

2. I do not see these forces — however strong they may be (and I am not sure) — as separate from a stagnation hypothesis.  If you read the first excerpted sentence, it compares the speed of the relocation to the speed of (American) technological progress.  I am focusing on the latter deficiency, without pretending it is our only problem.

3. I find Smith’s policy suggestions intriguing.  They include more immigration (which suddenly acquires a new urgency), more urban density (ditto), and better roads, to boost nation-wide agglomeration effects.

Mike Kimel September 19, 2011 at 8:40 am

The Great Stagnation began when (private consumption + private investment) / GDP stopped falling and began rising, and when (gov’t consumption + gov’t investment) / GDP stopped rising and began falling at least in the US.

Andrew' September 19, 2011 at 9:03 am

Even if true this just means that returns dropped after it stopped being so easy a caveman could do it, which is what TGS said.

Mike Kimel September 19, 2011 at 10:03 am

“Even if true” sounds suspiciously like “I have no idea what the data looks but the data doesn’t matter anyway.”

“this just means that returns dropped after it stopped being so easy a caveman could do it,” No. It means the way we structured our economy was X at a time when growth was relatively rapid, and when we abandoned X growth slowed significantly. Now, you can argue whether X actually does have anything to do with growth rates, or whether innovation actually became difficult to generate.

But shouldn’t it give you pause that in Cowen’s story, it stopped being so easy a caveman could do it, to use your phrase, precisely when (private consumption + private investment) / GDP stopped falling and began rising? Shouldn’t a shrinkage of the gov’t have had the opposite effect?

Pragmaticon September 19, 2011 at 11:55 am

http://tinyurl.com/3z5vzmq

No.

From 1973 (tyler’s mark for the beginning of TGS) until 1991 or so the trend was very clearly up. It was down throughout the 90s… a period of fairly strong growth, with the tech boom and all that. Then after the tech bubble burst the trend once again began to point upwards, albeit with a few years of remaining constant in the mid 2000s.

Now I think this kind of “lets look at a graph!” analysis, absent a model and absent legitimate econometric data, is a joke. But it’s a joke that points at the opposite of what you seem to think it’s pointing at.

Mike Kimel September 19, 2011 at 4:18 pm

Pragmaticon,

The 1973 date is not carved in stone. If stagnation began in a given year, its causes might have begun a bit before. Using data from NIPA Table 1.1.5 (I have no idea what USgovernmentspending.com is) I find that G/GDP hit 23% in the tail of Johnson’s admin. It had its ups and downs, but has been mostly trending down ever since. 1974 and 1975 happen to be short upward blips.

Similarly, (C+I)/GDP got down to 76% at the tail end of LBJ’s term. Since then, it stopped dropping and started going up. There have been cycles, sure, but the trend is there.

Two graphs: http://www.angrybearblog.com/2011/02/another-look-at-keynesianism-and-great.html

Yancey Ward September 19, 2011 at 4:50 pm

I get it now. You define government spending as federal spending. There is no real rationale for excluding other government entities in the US that you you have presented.

Yancey Ward September 19, 2011 at 11:39 am

Are you saying that the total government spending as a percent of GDP stopped rising in 1973 in the US? If so, you have evidence of this?

kiwi dave September 19, 2011 at 12:30 pm

Rather than just your say so, how about some facts.

Try this: http://www.gpoaccess.gov/usbudget/fy11/pdf/hist.pdf (relevant graph starts on p. 24, p. 28 of the PDF):

Federal spending as a percentage of GDP –

1960: 17.8
1970: 19.3
1980: 21.7
1990: 21.9
2000: 18.2
2010: 25.4 (!)

So the federal government is spening more as a percentage of GPD in 2010 than it was in 1942, when it had some rather big projects going on. And this doesn’t even include state and municipal outlays, which have increased tremendously over the same time.

The only decade in which govt spending/GDP fell was 1990-2000 (mainly under Clinton, and even that was predominantly an artifact of the post-Cold War peace dividend).

kiwi dave September 19, 2011 at 12:31 pm

Sorry, my number series came out badly. Let’s try again:

1960: 17.8

1970: 19.3

1980: 21.7

1990: 21.9

2000: 18.2

2010: 25.4 (!)

Peter Schaeffer September 19, 2011 at 11:23 pm

Did anyone actually read the Noah Smith post? Is their really any reason take it seriously? The author is suggesting that Asia is booming because higher population densities yield lower transportation costs.

Really? Not low wages. Not a low cost, high skilled labor force. Not developed nation levels of productivity (in some sectors) combined with high productivity. Not education rising / before real wages. But lower transportation costs?

What ever happened to the “death of distance”? The containerization revolution? The Internet? Bulk carriers? Unit trains? America is losing out in world trade because our transport costs are too high?

In real life, transportation costs have steadily fallen (even allowing for higher oil prices) enabling “remote” production centers to competitively produce goods for rich country markets..This obvious fact essentially blows up the entire “success via population density” thesis.

If you doubt this, check one paragraph from the Noah post.

“It may be that American manufacturing strength was due to a historical accident. Here is the story I’m thinking of. First, in the late 19th and early 20th centuries, our proximity to Europe – at that time the only agglomerated Core in the world – allowed us to serve as a low-cost manufacturing base. ”

Wow. That’s exactly wrong. In the 19th and early 20th centuries, American industries thrived behind high tariff barriers. Our exports were commodities. Only later did America become a competitive producer of industrial exports.

The truth is that this appeals to TC because it provides a rationale for Open Borders, not because it makes any sense.

Peter Schaeffer September 20, 2011 at 12:21 am

This is what is called a “falsifiable” thesis. In other words it can tested and disproved.

If the NS model was correct, manufacturing would be steadily migrating to the high density coasts (particularly the East coast) and away for lower density states.

The reverse is true.

If the NS model was correct, Europe with its higher density would have higher manufacturing productivity than the U.S.

The reverse is true. See http://economics.sas.upenn.edu/~dkrueger/research/kk-paper.pdf

As it turns out… Low density America has the highest manufacturing productivity in the world. This should mean a global migration of factories to the U.S.

Not happening obviously.

Hence we can conclude that the NS thesis has been falsified.

J Storrs Hall September 19, 2011 at 8:43 am

“And it also seems pretty clear that there has been a stagnation in transportation technology since the mid-century, driven by the plateauing efficiency of our energy sources. ”
So close, and yet still misses it entirely. The 60s and 70s were the flowering of the counterculture and the beginning of the green movement. The social environment became more and more toxic to business, energy, and the technological notion of progress over the period. By the 70s this had translated into hard legal chokes on such new energy technology as nuclear power. The energy crisis was caused more by Nader (not as an individual, but as a symbol for the turned tide of social priorities) than Opec.

Today we mine and deliver to power plants enough thorium to generate all the power we use, without burning an ounce of coal. We then throw it away in the ash — it’s a trace element in the coal. We built one (1) thorium reactor in the 60s and decided not to develop the technology.

We decided not to build supersonic transport or solar powersats. We burned the engineering drawings for the Saturn V’s F1 engines. We cancelled the Orion project.

I could go on ad nauseum, but the simple fact is that as a society we lost the will to produce energy and advance the art of transportation and threw away our leadership position essentially voluntarily. That was the cause of the Great Stagnation. There’s no need to go looking for bunions when you shoot yourself in the foot. (Note that the cost of transportation has a great modulating effect on Economic Geography…)

J Storrs Hall September 19, 2011 at 11:40 am

Another aspect of the cultural and legal paradigm shift that brought on the Great Stagnation can be found in the willingness to destroy industries by litigation:
http://www.econlib.org/library/Enc/Liability.html

Benny Lava September 19, 2011 at 12:11 pm

“The energy crisis was caused more by Nader (not as an individual, but as a symbol for the turned tide of social priorities) than Opec.”

LOLWAT? Are you serious?

J Storrs Hall September 19, 2011 at 2:52 pm

My point is that the “exogenous scientific slowdown” wasn’t exogenous and wasn’t scientific. It wasn’t economic, either: it was social, ultimately reflected in political constraints that choked progress in energy and transportation. If you had clicked to to the Library of Econ article you’d have read: “In 1978, 17,811 new U.S.-manufactured general aviation airplanes were shipped, but by 1994 this amount had plummeted to 928.” This due to liability and lawsuits.

Nader didn’t create this wave, but he surfed on it, helping to create the toxic atmosphere in which technological progress became harder and harder. It was the death of a thousand cuts, from environmental impact statements to regulations of all kinds to mindlessly voluminous licensing requirements, to the fact that the military had a stranglehold on atomic power. (That’s why thorium wasn’t pursued: because the reactors DIDN’T produce plutonium as a by-product!)

One way to estimate how much economic activity and tech progress is being choked is to look at the explosion of activity attendant on a tiny loosening of the FAA regs, such as the light sport aircraft and pilot license classification in 04.

TGS had nothing to do with running out of low-hanging fruit. It was all about a new religion that made such fruit forbidden.

Benny Lava September 19, 2011 at 6:15 pm

US oil production peaked in 1970. How does declining airplane construction change that? Or thorium reactors? The energy crisis was an oil crisis brought about by OPEC, to which the US was vulnerable having become a net oil importer for the first time ever. None of your examples show a constrain on oil production. That is why I have a hard time taking you seriously.

J Storrs Hall September 20, 2011 at 7:18 am

Consider the offshore drilling bans that followed the 1969 Unocal blowout in California. “Peak oil” was a political construct, both in the US and Opec. There was plenty of oil and still is.

There’s also plenty of thorium. If thorium reactors had been developed through the 60s, they would have been able to displace oil and coal for power generation throughout the 70s and ameliorate the energy crisis. Oil and electricity are not completely substitutable but there’s enough overlap to make a significant difference. (Think home heating.)

An effect of the energy crisis in the 70s was the huge push to efficiency as a substitute for energy. Instead of a can-do spirit and new energy sources, we got Jimmy Carter in a sweater, malaise, and an effective ban on new nuclear.

Declining airplane production is one example among many of the effects of the anti-technology culture shift. It’s a good example of how the shift strangled progress in transportation directly, as well as a secondary effect of the strangulation of energy. Making transportation slower and more expensive makes commerce slower and more expensive. Which causes great economic stagnation. Which is the point of my comment on the OP.

Benny Lava September 20, 2011 at 12:28 pm

Ok, so can you prove that our decline in oil production is due to restrictions in offshore drilling? I am definitely willing to give that argument a fair shake, though you haven’t really made it previously. We still do plenty of offshore drilling, the problem as I see it is diminishing returns.

I still don’t see how thorium relates to oil. You can’t run your car on thorium, and electricity in the US is fairly cheap. Coal is working cheaply so far. So again I don’t see how this relates to the energy crisis.

The increasing fuel efficiency of the airline industry from 1950-1970 is roughly the same as from 1970-1990 so I would suggest more evidence that a casual correlation between airplane production and peak oil.

I guess if you want to make the case that regulation is strangling oil production, go ahead. But so far the argument looks rather tepid.

J Storrs Hall September 21, 2011 at 10:59 am

Where are you getting fuel efficiency numbers? The 747 (1970) burned only 47% the fuel per seat-mile of the Comet (1960). The 747-400 (1990) brings that down to 32%. Less reduction, even measured proportionately, and twice the time.
See http://www.transportenvironment.org/Publications/prep_hand_out/lid/398 , figs. 1 and 2.

The story isn’t so simple, though. In the 60s, there was a major LOSS of efficiency going from props to jets; the early jets used twice the fuel of props. It’s a complex process, and a one-dimensional measure oversimplifies it.

E. Barandiaran September 19, 2011 at 8:53 am

Noah Smith starts by quoting something that Gore Vidal said in 2007. Well, let me tell you that foreign economists visiting old Shanghai and new Pudong in early 1994 –18 months after Deng Xiaoping opened them to the rest of China and the world– were surprised by their potential and the implications for the world economy. Their people were part of the new 3 billion people that have been integrating into the world market economy in the past 25 years. Indeed, the size of this shock has overshadowed both the effects of whatever has happened with technological change and the effects of the continuous growth of the welfare state in most market economies (a growth that has implied a large change in the composition of government spending, from the provision of services to income redistribution, as well as large deficits).

Advanced economies are still adjusting to that big shock, an adjustment that implies a great relocation of activities and a great reallocation of resources. In Latin America you can also see the effects of the big shock –resources are being reallocated to commodities whose world prices have increased sharply thanks to the large increase in demand caused by that big shock. The effects are so large that even terrible policies make little difference in performance.

Andrew' September 19, 2011 at 9:07 am

What do you think of the idea that we ran out of large coordination problems yielding good returns, and that’s why we ‘had to’ start invading other pissant countries and distract the hoi polloi with the equivalent of fiscal Three-card Monte?

E. Barandiaran September 19, 2011 at 9:56 am

Please give me a couple of examples of large coordination problems that you think were solved long ago. Hope you have some references to these problems.

Noah September 19, 2011 at 9:41 am

One quick note: the early 70s coincided with the reintegration of Japan and Germany into the world economy. My hypothesis was that the very rapid integration of these countries might have temporarily slowed growth in the U.S., Britain, and France, through a miniature version of what’s happening with China today.

question the question September 19, 2011 at 11:35 am

As a kid growing up in the 70s, many labels said “Made in Taiwan.”

dearieme September 19, 2011 at 9:48 am

“it made no sense for a farm like the U.S. ..”: I’m amused to see this – it reminds of my father’s reply to my “Why is America so rich?” “Partly because of all the oil, the ore and the topsoil.”

Benny Lava September 19, 2011 at 12:12 pm

This exactly.

Brett September 19, 2011 at 2:40 pm

Too true. If you look at early American industrialization in the 19th century, a lot of it was built on top of a rich natural resource foundation. We had plentiful domestic petroleum supplies up until the 1960s, rich iron and coal deposits to fuel our early steel and mining industries, and vast tracts of great farmland that were first turned into a commercial crop powerhouse, then mechanized into a simple “agricultural powerhouse” in general.

I suppose there are worse things than having a lot of your industries and export industries built around resource extraction. Canada and Australia seem to do pretty well with it.

D September 19, 2011 at 4:17 pm

Not to mention that our geography made us much less likely to get dragged into foreign wars.

bob September 24, 2011 at 9:37 pm

And yet, you still hear fools claiming that the US’ real advantage isn’t a brutal natural resource advantage over Europe, but the US constitution.

Ted Craig September 19, 2011 at 10:26 am

I’m not buying the urban density argument. Where’s the evidence?

Andrew Montgomery September 19, 2011 at 11:27 am

It’s worth re-reading Richard Florida’s 2005 short essay “The World Is Spiky”, in which he described some of the same patterns. The great relocation, in so far as it exists, is also a story of rural-to-urban migration within countries.
http://www.creativeclass.com/rfcgdb/articles/other-2005-The%20World%20is%20Spiky.pdf

KLO September 19, 2011 at 12:22 pm

More urban density and better roads do not seem to go well together as solutions. Also, I remain unconvinced that better roads (whatever that means) would decrease the cost of goods transit enough to revive American manufacturing in areas where it is no longer competitive. How much do transit costs actually add to the cost of goods?

More immigration is always the solution. Is U.S. immigration really all that restrictive? Are their really legions of geniuses who choose Australia, the U.K. or Canada instead of the U.S., because those countries have more lax immigration policies for the intelligent. As an aside, many –dare I say most — of the extremely successful immigrants who supposedly demonstrate the great innovative potential of immigrants came to the U.S. before the age of 22. Most Among those mentioned in various Tom Friedman columns are: Andy Grove (age 21), Sergei Brin (age 6), Pierre Omidyar (age 6), Andy Bechtolsheim (age 20), Vinon Khosla (age 21), Alfred Lin (age 7), Jerry Yang (age 10), Jeong Kim (age 14) and Charles Wang (age 8). Recruiting immigrants is, at best, an indirect means of increasing the population of entrepreneurs. It is not a short or medium term solution, because very few immigrants, even bright and talented ones, have the ability to become entrepreneurial job creators in a country that they did not grow up in.

Sbard September 19, 2011 at 1:00 pm

The one part of our immigration policy that’s probably too restrictive is how for all employment based visas, no more than 7% of the quota for each category can go to nationals of any one country, which at the moment affects Chinese (EB2 and EB5) and Indians (EB2). We bring a lot of Chinese and Indian nationals over here for grad school, educate them on our dime with federal research grants and then send them home because of this.

Peter Schaeffer September 20, 2011 at 12:00 am

Sbard,

“We bring a lot of Chinese and Indian nationals over here for grad school, educate them on our dime with federal research grants and then send them home because of this.”

Nice theory. But is it true?

See http://cis.org/no-shortage-of-skilled-workers

“To what extent are we holding on to foreign talent under our current set of laws and regulations? Fortunately one man has been studying that question for decades using a solid database14 and strong institutional support. He is Michael Finn of Oak Ridge Laboratories, a federal institution.

The population he follows consists of aliens receiving PhDs in the United States. His most recent report,15 in 2010, showed that 67 percent of foreign PhDs graduating in 2005 were still in the United States two years later. Interestingly, we tend to keep the ones that Silicon Valley is most interested in and lose most of those in other fields. Finn found that, five years after graduation, 72 percent of the computer science graduates were still here, but only 42 percent of the economists remained.”

Adam September 19, 2011 at 12:38 pm

I’m embarrassed to say that I have still not read Tyler book, but have been recently pondering a question that seems related to the topic of this post. That is, I’m curious to what extent population growth in developed economies correlates with economic growth rates. That is, it seems to be common wisdom that Europe has experienced slower growth rates over the long term due to more progressive policy and higher taxes. But I think it’s also had slower population growth (and periods of population decline) over the long term as well. Is there any literature on the extent to which for a developed economy (obviously catch-up growth is different) marginal increases in population growth might have a “multiplier” of sorts?

Relating that notion to the Great Stagnation, how has U.S. population growth changed since 1973?

KLO September 19, 2011 at 1:05 pm

U.S. population in 1970: 203.3 million
Foreign born population in 1970: 9.7 million
Percent foreign born in 1970: 4.8% (the lowest level in U.S. history)

U.S. population 2008: 304.1 million
Foreign born population in 2008: 38 million
Percent foreign born in 2008: 12.5% (highest level since 1920).

During the Great Stagnation, U.S. population increased by about 50%. U.S. foreign born population increased by 300%. U.S. wages dropped by 9%. Clearly, the solution to the Great Stagnation is higher levels of immigration.

The Anti-Gnostic September 19, 2011 at 2:03 pm

Clearly. We need 1) more magic immigrants who never get old or sick and always pay taxes; 2) denser cities, so we’re all as smart and rich as the residents of Mumbai; and 3) more roads for more cars and more tractor-trailers. To boost nation-wide agglomeration effects.

ElamBend September 19, 2011 at 10:10 pm

Better roads, maybe, but unlike any other country( save maybe Canada) the majority of our goods are shipped via rail

Adam September 20, 2011 at 2:32 pm

So over 38 years, the U.S. population increased about 50% and population growth in the U.S. averaged about 1.07% per year.

Meanwhile in 1932, the U.S. population was 124.8 million, meaning that in the prior 38 years (including much of the Depression and the post war boom), population increased by roughly 63%, or roughly 1.29% a year.

In other words, nothing to see here and my question stands.

MC September 19, 2011 at 2:30 pm

This is a serious question, Mr. Cowen. Is there any set of facts that would cause you to believe that LESS immigration would be the correct course of action?

Ted Craig September 19, 2011 at 4:46 pm

Or the darker question, getting rid of people. Remember, while America grew in the 19th Century, so did many countries from which we were receiving immigrants.

Lord September 19, 2011 at 2:42 pm

Globalization may have been in its infancy in 73 but the larger cohort of boomers was coming on to the scene with similar effects. Oil was less a problem of technical regress than consumption hitting exploitable production capacity, since as Hamilton points out, oil has never been driven by technical progress but expansion of new reserves, geography not technology.

How can the solution be more immigration and denser cities when the competition is China and India? That’s unwinnable. We might as well discuss the pleasures of lower standards of living.

Peter Schaeffer September 19, 2011 at 11:51 pm

“Hamilton points out, oil has never been driven by technical progress but expansion of new reserves, geography not technology.”

Wow. Rotary drilling? Supertankers? LNG? Horizontal drilling? Offshore drilling? Seismic? FCC cracking? Hydro-cracking? Coking? Continuous distillation?

Overall, I would agree that since 1920 oil has been more by geography than technology. However, the technical component has been substantial.

The reverse might be true for natural gas. Note that the first long-distance gas pipeline was built in the 1920s.

Lord September 20, 2011 at 12:59 pm

Technology has only provided more expensive oil in real terms and greater efficiency of use which has also supported higher real oil prices. Only geography has lowered the real cost, and that is running out.

Peter Schaeffer September 20, 2011 at 2:00 pm

Lord,

You are assuming that technology allows higher cost reserves to be exploited. This is a fair comment with respect to horizontal drilling. However, technology (rotary drilling, supertankers, pipelines, etc.) made it possible to exploit low cost remote reserves. In other words, many or the world’s great low cost oil fields could never have been exploited without technological advances.

Steve September 19, 2011 at 6:06 pm

Shipping costs as a percent of total costs are now very low due to brilliant advances in technology and organization (e.g., containerization). Thus, this entire thesis seems pretty inane.

Peter Schaeffer September 19, 2011 at 11:51 pm

Indeed.

Dan King September 19, 2011 at 9:03 pm

Looking for some new farmland? How about a homestead in Detroit?

That’s a better example of Mr. Smith’s thesis than New Orleans.

I’m strongly in favor of increased immigration. The Republican in me wonders about the trains; what’s wrong with Megabus. Traffic has been declining – do we really need lots of new highways right now?

Peter Schaeffer September 20, 2011 at 1:25 am

“I’m strongly in favor of increased immigration”

Why? Seriously. Are America’s schools too good? Housing too affordable? Inequality too low? Wages too high? Crime too low? Taxes too low? Welfare dependency too low? Too little traffic? Too many natural resources?

Seriously.

Peter Schaeffer September 20, 2011 at 1:41 am

DK,

Since you mention “The Republican in me”…

Does America have too few people inclined to vote Democratic? Do we need to import more? Why?

Barnley B September 19, 2011 at 10:10 pm

I see Noah is suffering from Light rail disease.

ElamBend September 19, 2011 at 10:35 pm

Keep in mind his advice is for the long run: the goal is to achieve some matching of population density of those Asian countries (in the east, at least) in order to create the proper conditions to need factories there. It’s not too outrageous when you think about it. The US is already growing denser by great degrees. Too often we see suburbs and think it’s the opposite, but all those relatively high density suburbs hide the fact that the rural areas (like where I grew up) are being abandoned and turned into that giant farm. There is MORE available land int he US today than fifty years ago and that is the trend. To keep it up, we need more people, better urban roads (think commuter roads) and then better inter-urban roads. The density stuff is happening on its own, though I would argue that cities should adjust their zoning to allow more of it.

Our life is getting better, more density doesn’t mean we turn into rural India, it’s likely that we turn into Europe. This place is young (since the great death of 500 years ago) and has a high carrying capacity, we have a ways to go.

Peter Schaeffer September 20, 2011 at 12:04 am

EB,

Do have any actual evidence that manufacturing success is driven by population density vs. wages, productivity, education, etc.? Note that any number of posters have demolished transportation costs as rationale for density.

Peter Schaeffer September 20, 2011 at 1:45 am

Two points come to mind. First, the low standards of Ph.D programs of late. I would be embarrassed if my kids came up with an argument so poorly thought through. Second, this is yet another example of the intellectual contortions the Open Borders crowd is capable of.

Steve September 20, 2011 at 4:36 am

Contemporary businesses mostly want green field sites where they have enough room to impose their most efficient floor plan, which typically means way out on the exurban fringe. You don’t have to look at factories, just look at retailers. For example, Ikea wants to install the exact same floor plan everywhere, which means they need to find large amounts of available land. Thus, in the built-up Boston area, the Ikea is way, way out on the southwest fringe.

Jim September 20, 2011 at 7:42 pm

“Median income is stagnating…”

There a great many variables to consider if one is making the case that income has stagnated. One might argue that health care, education and other government services, unlike everything else which is declining, is eating up any growth in gross wages before benefits, but that is a different argument. Non taxable benefits alone have exploded in order to avoid the taxman.

Are all these costs included in wages when claims like this are made?

J Storrs Hall September 21, 2011 at 1:29 pm

Benny Lava, above, wonders about what cheap energy, e.g. the thorium reactors we didn’t build in the 60s, 70s, 80s, 90s, 00s, and so far the 10s, relates to oil, because you can’t run your car on thorium.

Choking progress in one field of energy, thorium reactors for example, raises the price of other forms of energy and ultimately of everything. We can understand the effect best by taking an imaginary case in the other direction: lets assume that some new technology has been invented that reduces the cost of electricity — but only electricity — to, let’s say, a tenth of a cent per kilowatt-hour.

Now what happens? First of all, there are plenty of applications where electricity and other forms of energy are substitutes. You can heat your home with electricity or gas or oil. Those applications would obviously be shifted to electricity relatively quickly. This reduces the demand for oil, and the price of oil falls.

Then consider all the industries where such a substitution can take place. It costs them less to make their products, so the prices of those products can fall. This means the demand for those products will rise, weakening the demand for substitute products for which oil is a major production factor. (For a totally made-up example, suppose that lots of electric-powered woodworking equipment is used in wood furniture making, whereas plastic furniture uses lots of oil as a chemical feedstock. Wood gets cheaper relative to plastic; more people get wood than before, and fewer get plastic than before.) So, indirectly, this also reduces the demand for oil.

Now remember, electricity is very cheap. This means you can use much less efficient motors and still save money on the power. You can use less insulation in buildings, refrigerators, dishwashers. You can use cheap incandescent bulbs instead of expensive CFLs. In other words, everything that uses electricity gets cheaper to build, maintain, and replace. Engineers can spend less effort squeezing every ounce of efficiency out of electricity and spend more squeezing it out of oil.

Now suppose there are applications where electricity simply wasn’t competitive at all before but at the new price it becomes so. This might be a substitution for oil, or it might be something that simply wasn’t economical before from any fuel source. Example: direct electrolysis of water to produce hydrogen for fuel or, say, for coal gasification. All sorts of fuel-producing processes become possible with a virtually unlimited energy input.

You can’t run your car on thorium but cheap electricity would make gasoline, not to mention the car itself, cheaper.

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