San Francisco, New York, Boston, Los Angeles, Seattle, and Portland are booming. Such areas offer great opportunities for our best young minds. These progressive cities limit housing supply and this limits population growth, causes suburbanization, and contributes to sky high local real estate prices. Moretti's local multiplier effect hypothesis posits that the booming local economy creates local opportunity for middle class people.
We all know that other places are not doing well. The geography of upward mobility and despair is a major research topic. Raj Chetty claims that "place" is central for determining upward mobility for the next generation. James Heckman makes some brilliant comments on Chetty's "geography hypothesis" in this Princeton video. Case and Deaton quantify the suffering taking place and this suffering has implications for political polarization and voting patterns.
What is the link here to Dr. Krugman's remarks on coal? During his great career, Dr. Krugman has moved from Yale to MIT to Yale to MIT to Stanford to Princeton to CUNY/NY Times. He has shown a willingness to move to new opportunities. Not all people are willing to move. The economics of social networks and endogenous migration costs is quite interesting and Glaeser,Laibson and Sacerdote have written this key paper.
In recent work , Austin, Glaeser and Larry Summers take seriously the importance of investing in place based policies. While most Chicago economist sneer at such policies, in an economy featuring middle aged people who are "stuck in place", they must be reconsidered.
This brings me back to Dr. Krugman. Coal miners are "stuck in place" (West Virginia) and stuck in a declining industry (coal miner). They do not want to substitute from either. President Trump and their local elected officials have offered an enticing vision that they can turn back the clock to a better earlier era when aggregate demand was higher.
Dr. K is stating "the obvious" point that this group must face the facts and adapt to the new realities. What is fascinating is that this statement features correct economics but naive politics. Aggregate demand creates supply. If I am the only bald man in the world, then no drug company makes an anti-baldness drug. The same logic applies in politics. If enough people have the same problem (a desire to remain in an unproductive place with mismatched skills for the new economy), this creates an aggregate demand for politicians who can introduce socially inefficient policies to achieve this desired political equilibrium.
Johnathan Eyer and I explore this in our 2017 NBER Paper.
In recent years, the share of U.S electricity generated by coal has fallen from nearly 50% to 33%. The costs of this transition are spatially concentrated, and mining states have already lost income due to the reduced demand for coal. Coal states have enacted policies to encourage local power plants to purchase from within state mines. We document that power plants in states and counties with substantial mining activity are more likely to be coal fired and to purchase more within political boundary coal. These results are robust to including flexible controls for the distance from power plants to mines. While coal states benefits from local protectionism, these efforts impose social costs because coal mining and coal burning creates significant environmental consequences. We quantify these effects and find that a one-percentage point increase in the proportion of coal plants in a NERC region with an in-state coal mine results in approximately 2.3 million additional annual tons of CO2 emissions.
An important issue that economists must make progress on is the politics of "Dealing with Losers". I strongly recommend this book by Michael Trebilcock.
So, what is the right spatial distribution of the population in 2018? Do we change coastal zoning patterns and build to Hong Kong Density and pack people from West Virginia into NYC? Do we tax the productive coasts to provide a Keynesian package for the small towns featuring many supporters of the President?
Or, do we reject this geographically tilted playing field and focus on Jim Heckman's agenda of promoting early skill formation and good parenting for all? Are these place based policies and person based policies complements or substitutes?