Glad to see @pkrugman.bsky.social paying renewed attention to distressed places. He makes some useful points about the economic challenges of distressed places. However, I would add some other points that are crucial for better place-based policies. - ThreadSky

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timbartik.bsky.social • 2 days ago

Glad to see @pkrugman.bsky.social paying renewed attention to distressed places. He makes some useful points about the economic challenges of distressed places. However, I would add some other points that are crucial for better place-based policies.

Reposted from Paul Krugman

I'll write about Ukraine tomorrow, but today another primer on an important economic issue paulkrugman.substack.com/p/the-econom...

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timbartik.bsky.social•2 days ago

Useful points in Krugman post include: (1) the process of equalization across places is by no means inevitable — the attraction of under-employed labor and land and their lower prices is often insufficient for place equalization of well-being.

timbartik.bsky.social•2 days ago

(2) Just telling people to move out of distressed places is not a “solution” for most people, not just because of NIMBY policies in booming places but also because those left behind may become worse off.

timbartik.bsky.social•2 days ago

What would I add? On the economics of why place equalization often does not occur, I would go beyond agglomeration economies, which is what Krugman stresses. A successful place can beget more success for reasons beyond agglomeration economies. In particular there are various hysteresis effects.

timbartik.bsky.social•2 days ago

Hysteresis: Hard to theoretically model, but an empirical reality. Place success begets success and place problems beget problems for a variety of reasons, not just agglomeration spillovers or lack theorof.

timbartik.bsky.social•2 days ago

For ex, if place declines, as Krugman mentions, one key problem is that this leads to lower employment rates, which cause further problems: lower “skills”, broadly defined, reducing long-run employment rates and wages; substance abuse; crime; family breakups.

timbartik.bsky.social•2 days ago

All of this means that for at least lengthy periods, a place that in past has had negative demand shocks will have trouble competing for capital and jobs, even with lower prices and wages.

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