Thursday, December 12, 2013

The natural resource lever looks better when there isn't much to move

Matt Yglesias puts up the following chart (original source here - PDF) showing median income changes county-by-county between 2007 and 2012:

He writes:

A little natural resource boom can do wonders for your economy, at least in the short term.

That’s not quite right, and the reason why is important.

Take a look at Pennsylvania. It’s hard to see (again, try the original), but the three counties showing median income growth are Bradford, Fayette and Indiana. In Bradford and Fayette, that’s definitely due to the natural gas boom. (I’m not sure what’s going on in Indiana.)

So, hurrah for those three counties. But Bradford County’s population is 62,792. Fayette County’s is 35,660. Those are drops in a bucket for a state of 12.7 million. It’s not hard for the gas industry to have a disproportionate effect on such small economies, which is also why the Dakotas and a couple counties in Texas are doing so well.

Meanwhile, look at the Philadelphia region. All the way out to Lancaster County, an hour and a half away, you see median income decreases. That’s well over 4 million people right there. The Marcellus has not budged median incomes for the 1.2 million people of Allegheny County (home to Pittsburgh), even though they're smack dab in the heart of the Western Pennsylvania drilling region. The changes there are "not statistically significant." Maybe the county would have been purple without the Marcellus? But if that were the case, then the industry should have had no trouble boosting wages into the green range in Lycoming County, the jumping-off point for drilling in the Northern  Tier, where the population is a mere 117,168. 

A more correct statement, then, would be, “A little natural resource boom can do wonders for your economy, at least in the short term, provided you have a small population and not much other economic activity.” A boom for sparsely populated parts of rural Pennsylvania does not translate into a boom for the state as a whole. (Which is why many people find it alarming that our governor seems to base his economic strategy on the Dakota model.)

Addendum: Here's Paul Krugman saying basically the same thing last year. 

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