The Great Relocation or the Great Stagnation?

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.


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