The United States Is One Big Farm, And It Is Stifling

The United States got lucky in the last century.

Noah Smith has some insight on something we don’t really talk about all that much:

Core and Periphery

But the problem is especially acute for America, and here’s why. Let’s think about Cores and Peripheries. Take a look at this population density map of the world:

World Population Density

World Population Density

Suppose all of those people had the same purchasing power. If you were a factory owner, and you wanted to minimize transport costs, where would you put your factories? The answer is a no-brainer: China and India. Some others in Europe, Japan, and Indonesia. Perhaps a couple on the U.S. East Coast. But for the most part, you’d laugh in the face of any consultant who told you to put a factory in the U.S. The place looks like one giant farm!

It may be that American manufacturing strength was due to a historical accident. Here is the story I’m thinking of. First, in the late 19th and early 20th centuries, our proximity to Europe – at that time the only agglomerated Core in the world – allowed us to serve as a low-cost manufacturing base. Then, after World War 2, the U.S. was the only rich capitalist economy not in ruins, so we became the new Core. But as Europe and Japan recovered, our lack of population density made our manufacturing dominance short-lived.

Now, with China finally free of its communist constraints, economic activity is reverting to where it ought to be. More and more, you hear about companies relocating to China not for the cheap labor, but because of the huge domestic market. This is exactly the New Economic Geography in action.

We’re in decline because the rest of the world has caught up with us and has a much stronger labor force. We may not be in decline relative to ourselves, but if you look at growth rates (remember, “decline” has everything to do with growth rates and trends, not absolute values), we are definitely declining when compared to the rest of the world.

GDP per Capita Growth By Country

GDP per Capita Growth By Country

Europe is too, but their problem is mostly because of a really stupid currency decision (European Union).

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