Some Rust Belt Urban Economics

 In this blog post, I want to market my new co-authored book “Unlocking the Potential of Post Industrial Cities” .  I will do this by talking about past research on the Economics of the Rust Belt.   Here is chapter one of my book and here is a recent video where I talk about the book.

The most prominent “Rust Belt” economics paper is the 2005 Glaeser and Gyourko paper on Urban Decline and Durable Housing.   On a slightly deep level, this paper is about gross flows and sunk capital.  In the 1950s, cities such as Detroit and Pittsburgh were doing quite well as their main manufacturing industries and the major firms in those industries were booming.   Local workers were well paid (and African-Americans were an important part of this workforce).  New homes were being built in the 1950s.

We all know that over the last few decades these cities have deindustrialized.  As the manufacturing jobs left, there was also a service sector multiplier effect.  Detroit has less demand for good local restaurants that cater to middle class people if most of the middle class purchasing power (tied to the manufacturing base) vanishes.  This ugly dynamic leads to fewer people moving to these cities and more of the incumbents moving out.  As net population shrinks (Baltimore’s population has shrunk from 900,000 to 600,000 today), there is a surplus of housing in these cities. The durable housing is depreciates but still stands.  The equilibrium market rents fall and these cities become poverty magnets.   If home owners could costlessly (like a turtle) take their home to where they move, then much of this poverty effect would vanish as these cities would have just shrunk in population size.

Another Interesting Rust Belt paper is this Brookings paper.

As older cities such as Chicago,  Pittsburgh, St. Louis, Baltimore and Detroit have deindustrialized, their environmental quality has improved. I explored this point in my 1999 paper and my 2006 Green Cities book.   Siqi and I have explored this same theme in our urban China work.

An important point is that the industrial transition that mitigates an ugly pollution externality has key distributional effects that increase inequality.  Educated people who do not work in the polluting industries (think of Carnegie Mellon professors in Pittsburgh) gain an improvement in air quality as steel jobs vanish.  These college professors do not face higher unemployment risk as middle class people in Pittsburgh lose their steel jobs.

All of this is a setup for our new 2021 book.  For six key cities, we explore these themes and preview how these cities can make a comeback.  Post-COVID and in an emerging Work from Home economy, there will be a demand for livable, affordable cities and there are ways that Baltimore, Cleveland, Detroit, Philly, Pittsburgh and St. Louis can “raise their game” to better compete for the footloose jobs and educated people.

The system of cities provides a powerful framework for studying the competition that plays out for attracting “market share”.  If a city such as Baltimore could attract more skilled people to live in the city, this would boost the tax base and it would increase local service demand and it would mean that more role models live in the city.    Our book studies the urban poverty trap and focuses on both the James Heckman approach for reducing poverty and some urban economics pathways for increasing opportunity and building better cities.