Writing in the Wall Street Journal, Zachary Karabell argues that there is “no, the economy.” Instead, the economy is a composite of many different industries and sectors that perform at varied levels and even more importantly very different regions. National level statistics, he contends, useful for the old fordist economy, today mask these real and important underlying differences.
The data that we use today is a product of the nation-state,
and was created in order to give government the tools to gauge the
health of the nation … Look at housing, widely regarded as a national
calamity. The regional variations depict something different. In
Stockton, Calif., one in 75 households are in foreclosure; in Nebraska,
the figure is one in every 1,459; and the greater Omaha area is
thriving. Similar contrasts could be made between Houston and Tampa, or
between Las Vegas and Manhattan. Home prices have plunged in certain
regions such as Miami-Dade, and stayed stable in others such as San
Francisco and Silicon Valley. Houston, bolstered by soaring oil prices,
has a 3.9% unemployment rate; the rate in Detroit, depressed by a
collapsing U.S. auto industry, is 6.9%. The notion that these disparate
areas share a common housing malaise or similar employment challenges
is a fiction.We hear continual stories of the subprime economy and
its fallout on Main Street and Wall Street. All true. Yet there is also
an iPhone economy and a Blackberry economy. Ten million iPhones were
sold last year at up to $499 a pop, and estimates are for 20 million
iPhones sold this year, many at $199 each. That’s billions of dollars
worth of iPhones. Add in the sales of millions of Blackberrys, GPS
devices, game consoles and so on, and you get tens of billions more.The economy that supports the purchases of these
electronic devices is by and large not the same economy that is seeing
rampant foreclosures. The economy of the central valley of California
is not the same economy of Silicon Valley, any more than the economy of
Buffalo is the same as the economy of greater New York City …The notion that the U.S. can be viewed as one national
economy makes increasingly less sense. More than half the profits of
the S&P 500 companies last year came from outside the country, yet
in indirect ways those profits did add to the economic growth in the
U.S. None of that was captured in our economic statistics … These issues are not confined to the U.S. Every
country is responsible for its own national data, and every country is
falling victim to a similar fallacy that its national data represent
something meaningful called “the economy.”
Much of the data we need simply do not exist, especially when trying to make meaningful comparisons on a global scale – a pressing need for research and policy.
July 2nd, 2008 at 10:08 am
This is a really interesting post.
Sometimes I question if the ‘new’ economy can truly replace the ‘old’ fordist economy. The blackberry for instance is made by a company which is certainly a success – but it is a 3-billion dollar success – to compare it to Ford today seems a bit much.
Also – Information or Entertainment economies cannot be sustained if the basic needs (food, energy, transportation, shelter) can’t be met.
I think there needs to come an inflection point when the basic needs seem like they can be sustained properly for hundreds of years – when what Jeremy Rifkin calls the “forever fuel” (ie Hydrogen power) or some other such base resource comes into play.
July 2nd, 2008 at 2:52 pm
Well, yes and no. Certainly there are sectors and industries that have very different cycles. And certainly different parts of the country have different local economies, this is part of what Richard’s books are about.
But the nation state, especially one as large and successful as the United States, is a huge advantage. At a time when Europe is trying to consolidate and globalization is breaking down borders, a large economy with no trade barriers is to everyone’s advantage. They’re even buying iPhones in Stockton. So we do need to think about the national economy, but not exclusively.
Where I do think Karabell is right is we need to figure out how to measure and talk about these different sub-economies, and to use their strengths. A rational look at the economy would result in different treatment of cities and maybe mega-regions.
July 2nd, 2008 at 3:23 pm
Karabell has a great article here. Michael, I don’t this Karabell is saying the United States national economy isn’t important, its just that we have trouble measuring it. The reasoning behind Karabell’s argument has more of a psychological basis than anything. Karabell is hitting on the reason someone can read an article on CNN.com say…. about the housing crisis, and believe that it affects the whole country in the same manner. Why some people see a picture on the web that shows a row of “for sale” signs in a suburban neighborhood and then conclude that this affects all suburbs in the same manner will forever remain a mystery, at least to me, especially when that person could conceivably look out of the window of their house in a suburban neighborhood and not see one “for sale” sign. Al Gore addressed this in his book, The Assault on Reason… essentially Gore says that the emotional impact of television, the web, pictures, etc. has a powerful effect on all of us that is not really understood and constantly underestimated. Gore warns that as we read books less and continue to discount the value of face-to-face conversation, that the emotional impact of media will become more unpredictable. And as for the humorous list of topics that Karabell says are “off-limits” at dinner parties…. politics for instance, Karabell and Gore are brushing on the reason why the Democratic Party thinks it has to be completely “unified” to win in November. In perspective, how can a national party be unified when, as Karabell illustrates, the United States so diverse? Being unified sounds good in media, but is impossible in reality. Barack Obama has a niche in the immediate emotional impact of media, but the way he is percieved is a few bricks shy of reality. The power of the myth, not just in politics, never seems to go away.
July 2nd, 2008 at 9:44 pm
This article sounds like spin designed to play down the critical situation America is in and to boost the stock market. Take note that this article is from the Wall Street Journal that benefits from increased readership fees when the stock market is high and people are making money in stocks. Of course housing values are not plummeting everywhere. The reason is that a lot of areas like Nevada did not participate in the housing BOOM where a home went from 200k to 800k in a few years. Thus, there is a lot less room for a bust. Most people in Nevada did not overstretch to purchase a new home. However, Nevada has only about 2.5 million people and California has about 36.5 million people. Thus, housing problems in California would effect more people and damage the American economy a lot more than housing problems in a much smaller state like Nevada. The article does not point this out and tries to “SPIN” it to make the housing collapse less of a problem then it is. Other big international markets like New York and San Francisco benefit from foreign purchases of real estate because of a collapsing dollar not necessarily because of a strong local economy. Don’t forget about the hundreds of thousands of finance related jobs that are disappearing or will disappear in New York City.
In terms of IPhones, Blackberries, and other consumer electronics most of them are being manufactured overseas and the wages from their production do not come to American workers. However, a lot of the profits from the sales of these items come back to American investors which are just a handful of the American population. These investors generally don’t take this money and invest in product development in America. For example, based on what I have read most of the startups in Silicon Valley use offshore labor for the actual engineering and product development and only retain a Silicon Valley headquarters for marketing and upper management. Thus, few jobs in America are created. If anyone has information to the contrary and that enormous numbers of engineering jobs are being created in Silicon Valley then please post it! As the statement that “The economy that supports the purchases of these electronic devices is by and large not the same economy that is seeing rampant foreclosures. ” is another example of spin and disinformation. In terms of consumer electronics like iphones, camcorders, ipods, plasma screen tvs, etc. the purchase of these items was driven by consumer debt such as home equity loans, stock market gains, and credit card debt among a large number of American consumers not just those in a Silicon Valley type economy. Now that consumers are having these credit lines terminated or restricted is a key reason the economy will go into a depression. A good book to read is The Second Great Depression : Starting in 2007 and ending in 2020 by Warren Brussee that was published in 2005. Brussee calculated the starting date of the depression by finding out when home mortgages were going to start resetting and realizing that it was increasing consumer debt that was keeping America out of negative economic growth for many years. Two of Bear Stearn’s hedge funds defaulted and become worthless in 2007 which could be considered the very start of the depression. Brussee is also a retired GE engineer (core member of the creative class)
As for the article assertion that:
“The notion that the U.S. can be viewed as one national economy makes increasingly less sense.”
is another example of spin and disinformation. The national economy is connected through the value of the American dollar which is on the verge of a collapse in value. The dollar is about 72 on the dollar index and will go much lower. The dollar is collapsing in value because large parts of the American economy are declining. Unless you have regional currencies and sovereign regional governments that are independent from the dollar and the American government then areas that are doing well ARE fundamentally connected to areas that are collapsing economically.
July 3rd, 2008 at 12:50 am
I would like to posit that there is an inverse relationship between the number of non-ironic all-caps words in a comment and the probability of that comment containing true statements.
July 3rd, 2008 at 1:21 am
Whitney,
You’re right, it’s about the problems of measuring the econom(ies). Once again, Jane Jacobs got there first in “Cities and The Wealth of Nations” where she says economies revolve around cities, great cities especially, and their areas of influence. Perhaps Richard’s mega-regions are a means of defining their areas of influence. But even within megas there are sub-economies. California’s Central Valley is suffering while the SF Bay Area is coasting, and they’re less than 100 miles apart.
July 3rd, 2008 at 8:25 am
GU,
I assume you are referring to my post when I say the article is “SPIN” and that local economies ARE connected to the rest of the national economy through the American dollar. Of course an individual can own gold and silver to help isolate himself from the larger national economy but generally businesses do business in dollars so companies in Silicon Valley would be effected by the larger national economic problems in other areas.
If you have any evidence that my post is inaccurate then post it.
July 3rd, 2008 at 8:43 am
Regardless of whether we agree or disagree with Roberts’ description of the WSJ article as “spin”, he beat me to the punch in expressing my greatest concern regarding different regions and sectors of the American economy: they are all connected by a falling dollar. And the problem is that there is no end in sight – a low dollar at a stable level might have some benefits (e.g., exports) but a continually falling one is too unstable for investors to be comfortable to keep forking over money.
July 5th, 2008 at 4:26 pm
Well, to say there is no end in sight to the falling dollar may be a little over-dramatic. To say that is it not the greatest thing in the world is more accurate. Ron Raul raised a fuss by saying we should “bring back the gold standard!” but I just don’t think it is feasible. After the election, we’ll find out if the principles of “buy low, sell high” apply to the dollar. A weak dollar doesn’t mean the end of the United States economy as we know it, but I do think it will lead to the rich getting richer and the poor getting poorer…. higher gas prices, high property values, and less valuable middle class income. Oh…. and to say Karabell’s story is “spin” designed to sell more issues of the Wall Street Journal is basically yesterday’s news. What paper is going to print a story that will lead to less readership? Karabell’s story is interesting because in my opinion, it cuts through the spin in much of today’s internet media. Like it or not, that’s rare…. and not the result of a conspiracy. Also, it sounds like Robert is still living in the United States. A few months ago, he threatened to move to China.
July 6th, 2008 at 12:33 am
Whitney, actually I may be able to get rich here in America based on the falling dollar. All one needs to do is hold on to non-dollar denominated assets like gold, silver, swiss francs, and possibly Euros. If one can hold onto a key asset like gold one may be able to buy entire blocks of real estate very cheaply if there is a depression and destruction of the currency. Eventually things would turn around and the real estate would appreciate in value. It has been done before in past depressions and hyperinflations.
Check out the Special Report on American hyperinflation at http://www.shadowstats.com/ by John Williams.
Also, you need to always be suspicious of these analysts you hear on television. Recall that a lot of these analysts recommended stocks during the dot com boom that they themselves thought were pieces of junk. They were basically paid promoters. Somewhat like a “pump and dump” scheme in stocks where people would go on the internet and promote a stock through lies and misinformation then they would “dump” the stock either by selling it short or selling the shares they bought before they started to pump it up once the price is run up by other people buying the shares.
As for buying the dollar low and selling high after the election, the only way the dollar would go up any significant amount would be if there is a massive intervention by the worlds central banks including the Chinese central bank and European Central Bank. Both of which don’t look likely right now.