Americans’ Shocking Prosperity

by Don Boudreaux on February 17, 2020

in Myths and Fallacies, Trade

In my latest column for AIER I return again to the theme of the extraordinary material wealth of ordinary Americans, with a specific application near the end to the so-called “China shock.” A slice:

Consider, for example, the much-noted reduction over recent decades in Americans’ geographic mobility. This reduced mobility is said to be a major reason why increased trade with China inflicted on Americans what is now known as the “China shock” – namely, a slower than expected adjustment of American workers to increased imports of goods from China. (There is, by the way, some confusion about exactly what the “China shock” finding is. Some people interpret this finding in the manner in which I describe it in the previous sentence. Yet other people interpret it to be a finding that increased trade with China caused a permanent reduction in net American employment. The “China shock” researchers themselves are unclear on this matter. For purposes of my essay here, however, nothing much turns on which interpretation is correct.)

While Americans’ reduced geographic mobility might reflect real problems – such as housing costs in booming cities made artificially high by land-use restrictions – it might also, at least in part, reflect increased prosperity.

Most people prefer to live in some locations over other locations, but to satisfy such ‘locational preferences’ is costly. And so just as when we become richer we are more likely to satisfy our preferences for nicer automobiles and larger homes, as we become richer we also are more likely to satisfy our preferences for living in our favorite locations.

A blue-collar resident 50 years ago of Allentown, PA, might have had a strong attachment to that locale but, having lost his job, couldn’t afford to keep living there. His best economic option was to move. But suppose that today we see a blue-collar worker remain in Allentown despite being unemployed. What should we conclude? The conclusion leapt to by many pundits is that today’s unemployed worker is so much less likely than was the typical worker in the past of finding a new job elsewhere that today’s unemployed worker sees no point in moving. Out of despair, today’s unemployed worker simply stays put.

Perhaps. But given that there’s been no long-term uptick in the national rate of unemployment, this pessimistic conclusion is likely mistaken. A more plausible conclusion is that unemployed Americans today can better afford to stay put in their preferred locales and wait for new jobs to come to them rather than them move to different locales in search of new jobs.

This increased affordability of staying put might come in the form of greater purchasing power of workers’ savings, or in the form of more generous family, private, and public assistance for unemployed workers. Regardless of the source of this increased affordability of locational preferences, such increased satisfaction of locational preferences is evidence that ordinary Americans are today richer than were ordinary Americans in the past.


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