View From Australia: Moving out!

By Jonathan Bradley

I don't quite remember how I first developed my interest in the United States. Somewhere between my last year in high school, when I vaguely thought that New York seemed a pretty happening sort of town, and my first year of university, when a pretty American girl persuaded me that my tertiary education would be incomplete without a semester spent abroad at her college in Iowa, I decided that the the United States was the most fascinating subject known to man. (I eventually did study abroad, but at the University of Western Washington.) 

One of the things I remember noticing about the US from the earliest days of my interest, was the country's ever-present, restless sense of mobility. The idea that something better lies over the horizon, and if you can't make it where you are, then you might as well move on to somewhere new, has been a part of the country since the first Europeans sought to build new lives for themselves in the new world. It's the notion that provided the impulse for the creed of Manifest Destiny and urged East Coasters to push out into the heartland during the Western Expansion. I looked at stories about America and saw Sal Paradise and Dean Moriarty heading out on the open road, a North Dakota kid called James Gatz reinventing himself as Jay Gatsby and heading to New York (as chronicled by fellow Midwestern transplant Nick Carraway), and Tom Joad picking up his family and heading for California to escape the Oklahoma dustbowl.

As an avowed urbanist, I saw my schoolmates go to university in the same town in which we grew up and plan to spend their entire lives living huddled along the thin, boomerang-shaped strip of coastal land that contained Australia's major cities, and I unfavourably compared that fate to American kids who would go away to college in distant new communities, and perhaps grow up to live in any number of the diverse array of cities dotted across their country. Choosing between Sydney and Melbourne seemed dull when compared to the options of a young American, who could pick among New York and San Francisco,  Miami and Phoenix, Seattle and Chicago. 

These first thoughts of mine on the United States were a touch naïve, and imbued with the romanticism of someone newly in love — though, in my case, the object of affection was a nation — but they weren't entirely incorrect. America's success throughout its history has been driven by its people's ambition and entrepreneurial spirit, and that has often come in the form of being prepared to physically uproot their lives and start over somewhere new. Of late, that's involved heading south and southwest, to states like Georgia and North Carolina, Nevada and Arizona. Unsuprisingly, some of those states were the ones to benefit most from the housing boom of the last decade, and are among those who have suffered most from the bust. (Rick Perry's Texas Miracle resulted from this strong internal migration, but his state was protected by unusually good mortgage regulations.) 

All of which is why, though I disagree with the headline of this Felix Salmon article, I have a lot of sympathy for its argument. First, the headline: "There's No Shortage of Work. There's a Shortage of Workers." In some limited ways this is true, and it isn't inconsistent with the argument about global migration Salmon is making, but it would be wrong to mistake it for a diagnosis of the immediate problems ailing the American economy. The downturn is driven by a lack of demand — that is, a shortage of work — not by the sort of supply side issues implied by a diagnosis of a "shortage of workers." We know this because wages remain depressed across the economy, whereas if the country was suffering from a large quantity of insufficiently skilled labour, the people who did have the skills in demand would be able to attract unusually high wages. We saw that situation in Australia during the last few years of the Howard government and our economy then bears no resemblance to America's now.

But not all demand shortages are equal, and unemployment is not uniform across the United States.


Varying unemployment levels across the US

Graphic by Approved Funding, h/t Brad Plumer

As the above graphic shows, some parts of the country aren't doing too badly. That blue strip of plains states, with economies driven by the oil and natural gas industries, are at or above full employment. Folks looking for work in North Dakota have reported problems not with finding jobs, but finding housing after they've been offered a job. So, assuming North Dakota can throw up some new houses for these job-seekers — and there sure isn't a lack of land — why aren't people from the hardest hit states like Michigan and California venturing out to the prairie to find work?

Here's where I agree with Salmon:

The lack of mobility of the skilled global elite is a microcosm of a much larger problem—namely, the lack of labor mobility more generally, both between and also within countries. Detroit, for instance, has painfully high levels of unemployment just because there aren’t nearly enough jobs in the city, any more, to support its population. The solution should be obvious: People in Detroit should move to where jobs are more plentiful. In fact, our single national currency is premised on the idea that that sort of labor mobility between states will be relatively easy, and that geographic imbalances won’t remain permanent. Of course, one of the reasons people don’t just pick up and move is that changing one’s surroundings is an inherently difficult and painful process, especially for families.

But we should recognize that this is a problem compounded the prevalence in the United States of homeownership. Selling a house is difficult, expensive, and time-consuming—all the more so in today’s depressed market, when millions of homeowners are underwater on their mortgages. In the short term, the government should be doing everything it can to bring liquidity back to the real-estate market—and that means forcing banks to do principal reductions on underwater mortgages. In the long term, it should phase out the mortgage-interest tax deduction, which artificially increases homeownership and decreases labor mobility.

Americans are a people who, when times get tough, pack up their things and look for something better. Tyler Cowen notes that labour mobility peaked in the 1980s, and suggests that in modern times it's more comfortable being poor, removing some of the incentive to look elsewhere for work. He may not be entirely incorrect, but I suspect that not too much has changed about the American people. It's just that an awful lot of them are tied down to houses they can't sell in cities where there are too many people looking for work. Government action to free Americans from the oppressive debt tying them to their houses would do much to get America moving again — figuratively and literally. 

25 August 2011