The Economy itself & positioning considerations for Americans (Differential predictions 2018, part 3)
The US banking system is full of smart people. It's even so bold that it publishes all sorts of interesting research most of it is surprisingly insightful and yet it seems almost no one pays attention to it.
So the best thing you can do is go read what the Federal Reserve's Economic research discussion series has to say.
Second best would be to read what I found interesting and my thoughts on it here. What follows is an examination of economics in the U.S. at the county level that concludes that most growth and development in the past 40 years has occurred in high population areas and my conjecture that it will necessarily continue then concludes that cities offer the best possibility of individual financial benefit for those interested in improving their financial position and, conversely, small towns offer the promise of inequality and socioeconomic regression. So it's true for the U.S. and not just emerging markets.
So the best thing you can do is go read what the Federal Reserve's Economic research discussion series has to say.
Second best would be to read what I found interesting and my thoughts on it here. What follows is an examination of economics in the U.S. at the county level that concludes that most growth and development in the past 40 years has occurred in high population areas and my conjecture that it will necessarily continue then concludes that cities offer the best possibility of individual financial benefit for those interested in improving their financial position and, conversely, small towns offer the promise of inequality and socioeconomic regression. So it's true for the U.S. and not just emerging markets.
The Economy itself, Cities are the only futures
The number of new businesses entering the economy and old businesses leaving it has been declining for 40 years. That is there are fewer new businesses being created and fewer old businesses leaving the economy. It's unclear what these local maxima are caused by or exactly what it means, but I'll present some arguments, mix with nuggets of information, and then speculate on that to yield a dozen cookies.
My musings for this section are inspired by Jason P. Brown's "The Widening Divide inBusiness Turnover between Large and Small Urban Areas", the charts are his and I suggest you read the source material at some point (which doesn't bear much resemblance to what I'm presenting here) and remind you that while he's confined by academic precedent, focus, and the confines of a white paper I have no such restrictions; I compiled it comparatively hastily (no doubt) based on my personal knowledge, feelings, and assumptions, and I have no relevant degrees, expertise, or authority - I only hope you believe it's worth thinking about.
Let's start with a chart!
Obviously, this is not exactly what's happening. Rather, manufacturing costs are being reduced through automation and moving production to outside areas where labor is cheaper. So a considerable reduction in the total number of manufacturing jobs, some portion of that substantially diminished workforce is needed to manage & maintain the automation typically with greatly increased pay (though total costs are reduced after the capital investment in the automation). The end cost of the good may or may not be reduced, but typically profit is increased which goes to those who own the means of production: Employers/shareholders. Money to shareholders, in particular, tends to exit the local economy as does some portion of that going to employers.
Historically the income which stabilized local economies against tending toward decline ultimately came from the export of goods as well as services related to export and distribution. However, in the modern economy manufacturing jobs are exiting to less developed areas and automation so humans are not likely to rebound in manufacture. To the extent that manufacturing remains in the U.S. it is only economical to do so with a small number of higher skill employees, the higher skill is required to manage and maintain the automation. So any remaining manufacturing will be fulfilled by a combination of humans and machines, one facilitating the other, as well as the support needed for those human/machine systems. Additional service, in this case, can exist solely to support these higher skilled workers (in work as well as leisure) - however, the total number of jobs will be fewer (excluding new businesses) and the nature of available jobs will pivot to fit the new paradigm.
In this condition, no/few new business & continuation of existing businesses, local maxima will be reached and these areas will likely suffer from economic stagnation, lack of job growth, and declining prospects if population increases. Some portion of the existing population in these situations often transition out of the local area (emigration) to areas of greater opportunity causing small population centers to sublimate.
However, we know that over the past 40 years there are fewer new businesses and less attrition of old businesses and this is where the significance of the widening divide in turnover between large and small urban areas should become apparent. The transition to contemporary gainful economic activity begets churn in the job & business market, and with less turnover occurring in small population centers it can be concluded that there is more stagnation and declining economic value. These declining prospects can only be mitigated with regular external cash infusions which, as detailed here, will not occur outside of: Tourism, a retirement village, or a return to production (technological or otherwise) and contemporary gainful economic activity.
The following chart was created using county-level level data, the population divisions are significant but somewhat arbitrary and were decided by Jason P. Brown - author of the inspiring work.
micro: fewer than 220,000 people
small metro: 220k to <1 million people
medium metro: 1m to <4 million people
large metro: 4m+
While churn may not be valued by the individual worker, he demands it by proxy through the prosperity engine and (what I presume is) the general desire not to return to feudalism. The ready solution for the worker, ironically, has been developed and implemented in Europe - a topic for another time.
While there are many factors we can use to evaluate the rise and decline of a town, my only consideration here is the town's own economic engine and that it will invariably (on a long enough timeline) lack opportunity for those who do not enter it with means.
Further, I'd submit that a fundamental force in a competitive economy is merely an increase in bodies allowing larger populations to adapt to changing economic conditions. Historically, specialization has been an important economic driver, apart from technological advancement, and requires support disciplines both of which a large population allows (even if not excluded in advanced pockets of smaller population centers). Notably large population centers with the existing prerequisites for relevancy: production, improved infrastructure, higher education centers, existing skilled workers; remain relevant and signal opportunity, even if that opportunity is illusionary, that when realized drives less relevant competition under and begets churn.
Cities can also represent a diversified basket of production and service businesses, thus less prone to the decline of those supporting a single industry or worse company. A key distinction to advanced self-sustaining pockets in smaller population centers where there is less chance that the succeeding pocket is relevant. Cities also have a lower proportion of classic service jobs (which are merely an interesting way to distribute capital locally) thus are more resilient to the shock of removing a source of cash flow.
Underdeveloped areas frequently see themselves as ripe for development which, while true, is actually uninteresting as it applies to nearly all areas as most areas of the earth are underdeveloped (by this working definition). The warning sign here is "We're going to be the next . . ." while the key to determining the actual opportunity is to find those underdeveloped areas that are missing the fewest key economic foundations with the most funding from outside the area, a ready plan, and preferably a history of success.
We can extrapolate this to your local start-up whose best hope is to be acquired by its successful city-based counterpart, with the notable difference that the local startup that succeeds will be acquired while the one that fails will not where invested capital will be lost. When determining if a start-up will be successful an important factor will be its presence in a high population county, a condition that is neither necessary nor sufficient but remains significant.
This observation of county-level populations can be applied to everything in economics that is tangible: from determining a location for a new headquarters, business, or home to evaluating the probability of success for an existing or new business in those areas. Obviously, nothing here is conclusive but it's a convenient and reasonable heuristic for determining the difficulty or ease as well as prospects of a particular local with essentially no data other than the county level population. A simple metric to give you a gestalt expectation as a base layer to all future layers. And my conjectures about what creates a relevant economy could be used to speculate about areas missing a portion and the use of remedying that on a broad and basic level.
It's important also to note that these inferences are the why of something that can't be directly concluded from the data, which is merely a specific what. It could similarly be argued that starting a new business in a small or micropolitian area is most likely to be sustainable should it succeed. Undoubtedly that is true, but less interesting as it would imply that the workforce and infrastructure available was sufficient for the business without consideration for the march of time which has demonstrated the need for higher skill, automation, etc. meaning the business might succeed at a small scale or in the short term but would careen into problems if attempting to scale in some measure as most businesses are wont to do.
Similarly, certain aspects of relevancy can be ignored (or become emphasized) if telecommuting can have a significant effect - particularly important for the highly skilled involved in automation.
This concludes the reaffirmation of everything you probably already knew, broken down, examined, and reassembled. Hopefully, it wasn't a pointless exercise.
My musings for this section are inspired by Jason P. Brown's "The Widening Divide inBusiness Turnover between Large and Small Urban Areas", the charts are his and I suggest you read the source material at some point (which doesn't bear much resemblance to what I'm presenting here) and remind you that while he's confined by academic precedent, focus, and the confines of a white paper I have no such restrictions; I compiled it comparatively hastily (no doubt) based on my personal knowledge, feelings, and assumptions, and I have no relevant degrees, expertise, or authority - I only hope you believe it's worth thinking about.
Let's start with a chart!
Fewer Manufacturing jobs
The U.S. economy is transitioning from primarily goods/manufacturing to services. Considering manufacturing itself, from the late '70s to 2010 the goods-producing share of employment declined from 34% to 16% (Bureau of Labor Statistics). Outside of other consideration (increased productivity, efficiency, etc) but including the decline in new business and persistence of old businesses, this would lead to economic stagnation, a lack of job growth, and increased unemployment in populations with population growth. Scion/dynastical businesses would return in an almost feudal manner.Obviously, this is not exactly what's happening. Rather, manufacturing costs are being reduced through automation and moving production to outside areas where labor is cheaper. So a considerable reduction in the total number of manufacturing jobs, some portion of that substantially diminished workforce is needed to manage & maintain the automation typically with greatly increased pay (though total costs are reduced after the capital investment in the automation). The end cost of the good may or may not be reduced, but typically profit is increased which goes to those who own the means of production: Employers/shareholders. Money to shareholders, in particular, tends to exit the local economy as does some portion of that going to employers.
Classical service jobs aren't relevant without production
Classical service jobs are an interesting way to distribute money locally. Nothing durable is created for export in classical service jobs, labor is merely exchanged for money (we will look at the export of service itself later). Those with money can exchange it for labor, but locally the reverse isn't always true. If more labor can be supplied than is necessary then labor's oversupply decreases the local value and price of that labor. While an equilibrium could be reached in a stable population, various natural incentives and a lack of family planning will tend to cause populations to increase (excluding emigration) which leads a service-based economy toward decline. That is: Classical service jobs offer no chance of growth and tend toward decline without some form of income to the system from outside.Historically the income which stabilized local economies against tending toward decline ultimately came from the export of goods as well as services related to export and distribution. However, in the modern economy manufacturing jobs are exiting to less developed areas and automation so humans are not likely to rebound in manufacture. To the extent that manufacturing remains in the U.S. it is only economical to do so with a small number of higher skill employees, the higher skill is required to manage and maintain the automation. So any remaining manufacturing will be fulfilled by a combination of humans and machines, one facilitating the other, as well as the support needed for those human/machine systems. Additional service, in this case, can exist solely to support these higher skilled workers (in work as well as leisure) - however, the total number of jobs will be fewer (excluding new businesses) and the nature of available jobs will pivot to fit the new paradigm.
In this condition, no/few new business & continuation of existing businesses, local maxima will be reached and these areas will likely suffer from economic stagnation, lack of job growth, and declining prospects if population increases. Some portion of the existing population in these situations often transition out of the local area (emigration) to areas of greater opportunity causing small population centers to sublimate.
High skill is the new manufacturing. #No free rides
Fortunately, information and technological services can also be exported in a comparable manner to classical manufactured goods, the level and skill of support varies. Higher skill jobs typically require some combination of: improved infrastructure, local institutions creating higher skilled workers, and a higher skilled population - as a source of skilled labor. Downstream jobs typically decline in number and increase in skill potentiating the previously discussed effects, so all new jobs are different in nature than previous downstream jobs creating churn in the job marketplace.However, we know that over the past 40 years there are fewer new businesses and less attrition of old businesses and this is where the significance of the widening divide in turnover between large and small urban areas should become apparent. The transition to contemporary gainful economic activity begets churn in the job & business market, and with less turnover occurring in small population centers it can be concluded that there is more stagnation and declining economic value. These declining prospects can only be mitigated with regular external cash infusions which, as detailed here, will not occur outside of: Tourism, a retirement village, or a return to production (technological or otherwise) and contemporary gainful economic activity.
The following chart was created using county-level level data, the population divisions are significant but somewhat arbitrary and were decided by Jason P. Brown - author of the inspiring work.
micro: fewer than 220,000 people
small metro: 220k to <1 million people
medium metro: 1m to <4 million people
large metro: 4m+
While churn may not be valued by the individual worker, he demands it by proxy through the prosperity engine and (what I presume is) the general desire not to return to feudalism. The ready solution for the worker, ironically, has been developed and implemented in Europe - a topic for another time.
Further, I'd submit that a fundamental force in a competitive economy is merely an increase in bodies allowing larger populations to adapt to changing economic conditions. Historically, specialization has been an important economic driver, apart from technological advancement, and requires support disciplines both of which a large population allows (even if not excluded in advanced pockets of smaller population centers). Notably large population centers with the existing prerequisites for relevancy: production, improved infrastructure, higher education centers, existing skilled workers; remain relevant and signal opportunity, even if that opportunity is illusionary, that when realized drives less relevant competition under and begets churn.
Cities can also represent a diversified basket of production and service businesses, thus less prone to the decline of those supporting a single industry or worse company. A key distinction to advanced self-sustaining pockets in smaller population centers where there is less chance that the succeeding pocket is relevant. Cities also have a lower proportion of classic service jobs (which are merely an interesting way to distribute capital locally) thus are more resilient to the shock of removing a source of cash flow.
Implications
If you are considering the United States and wish to work, invest, or live where you can enjoy the benefits of the modern economy then choose a county with more than 1 million people. Likely between 1-4 million could be the most desirable while more than 4 million may actually be less desirable depending motive, means, and objective. While a small metropolitan area might appeal to some, as a hard and fast rule only those who already own the means of production in situ, or have external income/ample capital can benefit from that situation. Exceptions for areas with relevant production, improved contemporary infrastructure, higher education centers with relevant programs, and existing skilled workers can be made, however, the barrier is not insignificant as each requires the others merely to maintain a steady state much less progress. The cost of creating these supporting systems is beyond the means of areas without them, creating an interesting funding dynamic.Underdeveloped areas frequently see themselves as ripe for development which, while true, is actually uninteresting as it applies to nearly all areas as most areas of the earth are underdeveloped (by this working definition). The warning sign here is "We're going to be the next . . ." while the key to determining the actual opportunity is to find those underdeveloped areas that are missing the fewest key economic foundations with the most funding from outside the area, a ready plan, and preferably a history of success.
We can extrapolate this to your local start-up whose best hope is to be acquired by its successful city-based counterpart, with the notable difference that the local startup that succeeds will be acquired while the one that fails will not where invested capital will be lost. When determining if a start-up will be successful an important factor will be its presence in a high population county, a condition that is neither necessary nor sufficient but remains significant.
This observation of county-level populations can be applied to everything in economics that is tangible: from determining a location for a new headquarters, business, or home to evaluating the probability of success for an existing or new business in those areas. Obviously, nothing here is conclusive but it's a convenient and reasonable heuristic for determining the difficulty or ease as well as prospects of a particular local with essentially no data other than the county level population. A simple metric to give you a gestalt expectation as a base layer to all future layers. And my conjectures about what creates a relevant economy could be used to speculate about areas missing a portion and the use of remedying that on a broad and basic level.
It's important also to note that these inferences are the why of something that can't be directly concluded from the data, which is merely a specific what. It could similarly be argued that starting a new business in a small or micropolitian area is most likely to be sustainable should it succeed. Undoubtedly that is true, but less interesting as it would imply that the workforce and infrastructure available was sufficient for the business without consideration for the march of time which has demonstrated the need for higher skill, automation, etc. meaning the business might succeed at a small scale or in the short term but would careen into problems if attempting to scale in some measure as most businesses are wont to do.
Similarly, certain aspects of relevancy can be ignored (or become emphasized) if telecommuting can have a significant effect - particularly important for the highly skilled involved in automation.
This concludes the reaffirmation of everything you probably already knew, broken down, examined, and reassembled. Hopefully, it wasn't a pointless exercise.
A good companion video to this might be "Why cities exist" from Wendover productions
ReplyDeletehttps://youtu.be/IvAvHjYoLUU