http://www.beyondthemargin.net/2009/09/keynesia...

The point I was trying to make with median age comparisons is that the business-unfriendly climate of the rust belt has chased away much of the generation which would have fueled the normal growth of that region. After the grandchildren of the aging rust belt factory workers grow up in the Sun Belt, they will likely stay in the Sun Belt as adults.

I'm not disagreeing with your points at all, vidyohs. I'm just trying to show how the normal growth you refer to will be very uneven across the nation.

If you agree with the sentence you pulled, then consider that if it is probable, then growth there will inevitably occur for the simple reason that people with steady means of income will most likely began to buy the things they did without while out of work. That will inevitably attract more of all the side services, food, clothing, etc. that will now be in demand again. And, people child bearing years will feel more comfortable about bringing a child into the world.

I can agree that growth might be slower than in the sun belt, it may take longer for the effects to be felt, but it will happen if my thought was accurate.

I think we agree on the main point, and that is it will all work out better if the government can be made to leave things alone, and to clear out all the old foolish rules and regulations that contributed so much to the problem in the first place.

Well, I agree with that. But I don't expect that labor pool in the rust belt to grow. Or at least not grow very fast. As I see it, the business-friendly south and non-coastal west will continue drawing talent away from the rust belt.

How many young Texas and Tulane and Auburn grads do you think are making careers in Ohio and Michigan and Indiana? I've worked and golfed in Texas and Tennessee with many bright kids from the Midwest. I know that's anecdotal evidence, but it's been happening for at least 25 years.

But, my point about growth was not just directed at more kids, but the demand for consumer goods that increasing number will produce, that is the growth that drives the economy, in my rather humble viewpoint. And, having kids in increasing numbers is something the government can just get out of the way of, the demand and increase in the economy will follow, and this will happen across regions if the government stays out of the way. Businesses will take advantage of the labor pool in the rust belt, maybe not large manufacturing but there is more to manufacturing than making steel and autos, again in my rather humble opinion.

It just struck me that the Keynesians would do best by just getting out of the way and letting the natural course of events happen.

First, I think Los Angeles is an outlier due to immigration. I don't have demographic data at hand right now, but I'd bet that Hispanics make up a very large part of the Southern California child-bearing population.

As the rust belt has proven unkind to business, its factories and corporate headquarters have shrunk and disappeared. For the blue collar workforce, it has been the younger workers – the ones without seniority, the ones without home equity to tap, and the ones far from retirement age – who were forced to move.

By contrast, most of the sun belt has remained attractive to business. Younger workers in the South and Southwest stayed at home, and were joined by younger workers from the rustbelt.

So where are the children being born? What climate are tomorrow's entrepreneurs and leaders growing up in? The sun belt, of course.

What strategy has the rust belt turned to in battling the sun belt? Level the playing field: raise national minimum wage; enact national pro-labor laws; force sun belt employers to provide outrageous insurance benefits which have already bankrupt the rust belt.

I don't expect the blue states to win with that strategy.

You were just cryptic enough that I confess that I do not understand a point. I don't understand the reference to regional sins of the past.

And, as the difference between Houston and Los Angeles above is only one point, yet I know that government is more interfereing in LA than in Houston, I do not understand that point either.

You gotta remember that I am not sophisticated, I like it spelled out.

Thanks

I don't know about banking and finance. In the airline industry, I've observed that executives can more easily shrink capacity when they can blame misfortune on economic conditions rather than their own ineptitude.

“there are circumstances like our current crisis and recession in which I think the invisible hand would be crippled.”

Again, my experience in the airline industry leads me to believe that healthier firms wilol take advantage of exactly such an opportunity as this. When passengers return to 2007 levels, it will be the same young companies using their cashflow to gain share, just as they did in 2004-2007.

Why would other industries be different?

The plucking model doesn't seem to deal a blow to austrian economics: http://www.auburn.edu/~garriro/fm1pluck.htm

“What did Hayek and Mises want? Not to interfere with the recession because it would leave its cleansing work undone, despite the fact that millions of workers and machines remain idle.”

Not to interfere with the recession so that the unemployment would be short, instead of 10 year depression as in the 30's.

“The party can stop at NAIRU so that innocent people (The Austrians have no explanation why non-bubble industries and other innocent people, like, say, recent college graduates get screwed over)”

're you sure? I don't think there is any hard-rock science necessary to explain why 'innocent people' have problems, and considering deflation and indebted population…

“Bad investments and decisions can be taken care of at full employment, and recessions are never needed for anything.”

Accidentally the austrians believe roughly the same – the unemployment needn't be too high if you allow * markets to operate *, if you don't have *sticky prices*. Just wonder what has macro to do with all this…

If we could stay at NAIRU all the time, then the resources associated with the subprime mess (finance, real estate, etc.) could become unemployed for a given time and find new positions as there would be no insufficient aggregate demand. That is, their greedy and amatuerish bubble would affect only them, without spillovers to innocent people in other industries and elsewhere in the economy (A recession with cyclical unemployment).

Admittedly, this hypothetical argument, of course, makes an assumption that it doesn't apply to healthy firms and resources in the same industry (unlike, say, unrelated industries) who may experience spillovers associated with massive counterparty risk because, despite not playing in the subprime feeding frenzy, the financial system is, by its very nature, very illiquid.

In the real world, we must settle for second best because we can never everywhere and always be at NAIRU, but I don't think it's such a radical proposition to have a countercyclical policy approach to get us back to NAIRU, and have the necessary resource allocation occur at NAIRU, not in a recessionary Okun gap.

Most of the silly arguments I hear about needing a recession to liquidate the malinvestment is based on a misunderstanding of the nominal veil (which is why explicit inflation targeting is an appropriate monetary policy strategy to those who do) and the belief that the invisible hand is stronger in a recession than at full employment (there is no lengthening of the structure of production), when, I strongly believe that the evidence is just the opposite.

Indeed, there are circumstances like our current crisis and recession in which I think the invisible hand would be crippled.

Who exactly is “We”? The government? Economics professors? Readers of Cafe Hayek? Who?

Agreed. But regions cannot escape sins of their past. Growth will continue to favor Sun Belt cities, which have more population still in child-bearing years:

Metro area ——— median age

Houston ———— 32.4
Dallas ————– 32.7
Phoenix ———— 32.9
Los Angeles ——– 33.4
Atlanta ———— 33.6
Chicago ———– 34.6
New York ———- 35.9
Washington ——– 36.3
Detroit ———— 36.8
St Louis ———– 37.2
Philadelphia ——– 37.5
Boston ———— 38.0
Cleveland ——— 38.5
Pittsburgh ——— 41.4

In which of those cities has government been most active in interfering with commerce and industry the past few decades?