January 26, 2015

JOEL KOTKIN: U.S. Economy Needs Hardhats Not Nerds.

One consistent theme of blue-state pundits, such as Richard Florida, is that blue states and cities “are pioneering the new economic order that will determine our future.” In this assessment, the red states depend on an economy based on energy extraction, agriculture and suburban sprawl. By this logic, growing food for mass market consumers, building houses for the middle class, making cars, drilling for oil and gas—all things that occur in the red state backwaters—are intrinsically less important than the ideas of nerds of Silicon Valley, the financial engineers of Wall Street, and their scattered offspring around the country.

But here’s a little problem: these industries do not provide anything like the benefits that more traditional industries—manufacturing, energy, housing—give to the middle and working classes. In fact, since 2007, according to the Bureau of Labor Statistics, the information and technology sectors have lost more than 337,000 jobs, in part as traditional media jobs get swallowed by the Internet. Even last year, which may well prove the height of the current boom, the information and technology industry created a net 2,000 jobs. And while social and on-line media may be expanding, having added 5,000 jobs over the last decade, traditional media lost ten times as many positions, according to Pew.

In contrast, energy has been a consistent job-gainer, adding more than 200,000 jobs during the same decade. And while manufacturing lost net jobs since 2007, it has been on a roll, last year adding more than 170,000 new positions. Construction, another sector hard hit in the recession, added 213,000 positions last year. The recovery of these industries has been critical to reducing unemployment and bringing the first glimmer of hope to many, particularly in the long suffering Great Lakes region.

These tangible industries seem to be largely irrelevant to deep blue economies. A prospective decline of energy jobs, for example, does not hurt places like California or New York, which depend heavily on other regions to do the dirty work. Overall, for example, California, despite its massive energy reserves, created merely 15,000 jobs since 2007, barely one-tenth as many as in Texas. Energy employment in key blue cities such as New York and San Francisco has remained stagnant, and actually declined in Boston. . . .

The new ephemera-based economy thrills those who celebrate a brave new world led by intrepid tech oligarchs and Wall Street money-men. The oligarchs in these industries have gotten much, much richer during the current recovery, not only through stocks and IPOs, but also from ultra-inflated real estate in select regional areas, particularly New York City and coastal California. As economist George Stiglitz has noted, such inflation on land costs has been as pervasive an effect of Fed policy as anything else.

Even in Houston, some academics hail the impending “collapse of the oil industrial economy,” even as they urge city leaders to compete with places like San Francisco for the much ballyhooed “creative class.” Yet University of Houston economist Bill Gilmer notes that low energy prices are driving tens of billions of new investment at the port and on the industrial east side of the city. This growth, he suggests, may help offset some of the inevitable losses in the more white collar side of the energy complex.

The emergence of a new ephemera-led economy bodes very poorly for most Americans, and not just Texans or residents of North Dakota. The deindustrialized ephemera-dominated economy of Brooklyn, for example, has made some rich, but overall incomes have dropped over the last decade; roughly one in four Brooklynites, overwhelmingly black and Hispanic, lives in poverty. Similar patterns of increased racial segregation and middle class flight can be found in other post-industrial cities, including one-time powerhouse Chicago, where areas of concentrated poverty have expanded in recent years.

Nowhere is this clearer than in ephemera central: California.

The rich get richer, the poor get poorer, and the middle class gets squeezed. Hope and change!

InstaPundit is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Amazon.com.