At least five interesting things for the middle of your week (#8)

The geography of Bidenomics, the quiet VC bust, meritocracy hypocrisy, frying-pan graphs, and why mergers fail

I wanted to write about the room temperature superconductor thing, but I decided not to do so until we know a lot more than we currently do; most of what’s flying around is some combination of misunderstanding, misinfo, and fun internet hype. But there’s plenty of other interesting stuff going on in the world! I’ll probably have another roundup very soon, as I’m falling behind on all the stuff I wanted to write about.

Before I get to the list, here are some podcasts I’ve been on recently! First, episode 4 of my new Econ 102 podcast is a crossover with the Moment of Zen podcast, so Dan Romero is added as an extra host. Here’s a Spotify link:

Here are links to Apple Podcasts and YouTube, and here’s a link where you can subscribe to Econ 102 if you like!

I also recently appeared on the Curiosity Podcast, hosted by Immad Akhund and Rajat Suri. Here’s Spotify:

And here’s Apple Podcasts and YouTube.

Anyway, on to this week’s roundup!

1. The new geography of Bidenomics jobs

“Papa got a job with the TVA/ We bought a washing machine, and then a Chevrolet” — Alabama

People are starting to pay attention to the geographic aspect of the investment boom that’s resulting from the U.S.’ new industrial policy. Given all the hoopla about the Midwest after Trump’s breakthrough victory there in 2016, you’d think the investment would be concentrated there. But in fact, the South and West are getting more, and the South is getting an outsized share relative to GDP:

Source: Brookings

If you look at a map, very little of the investment is on the West Coast; what’s happening in the West is mostly in the interior states like Arizona, Idaho and Utah. The investment in the Northeast is mostly in upstate New York, with almost nothing in New England. Meanwhile the investments in the Midwest and South are spread out among a larger number of smaller towns:

Source: Brookings

Some progressive pundits are claiming this as a smart electoral strategy, because Arizona and Georgia are important swing states for 2024. Others are worried that the concentration of investment in states where labor unions are weaker will reduce the degree to which industrial policy supports union power. But to be honest, I think this map mostly just reflects costs rather than politics.

Remember that the biggest piece of what the CHIPS Act and the IRA do is to provide huge subsidies to private investors. Real government investment has ticked up, but isn’t booming yet:

The subsidies provided by these policies aren’t region-specific. So what we’re really seeing is where private companies would prefer to put factories. That’s going to be determined by a whole bunch of things like land acquisition costs, the availability of cheap housing, weather, the education level of the workforce, labor regulation, and so on. It’s also going to depend on local clustering effects — California has Silicon Valley, so it’s probably hard to pull top tech workers away from their lofty tech salaries to go work in a chip fab.

As for the South, I wouldn’t leap to assume that it’s union-unfriendly policies that are driving the disproportionate share of investment there compared to the Midwest. The South doesn’t have much of a wage advantage at all here — average annual pay in Georgia and Tennessee is about the same as in Wisconsin and Michigan. Instead, my intuition is that the South’s advantage is probably due to some combination of weather and the ease of building new buildings — which is why Americans are also moving there in general.

But the real message here is that we shouldn’t just look at a map of investment and assume that it reflects a place-based regional development strategy or electoral politicking by the Biden administration. States in the West and New England need to think about why it’s hard to build factories there.

2. The “frying pan charts” are just charts of inflation

On Twitter, economist Alex Williams has caused quite a stir by showing a bunch of “frying pan” graphs. After the financial crisis and Great Recession of 2008, a lot of economic indicators — GDP, consumption, and so on — seemed to take a permanent step down. They resumed growth after the bust, but they didn’t make up the ground they had lost; the long-term trend seemed to shift downward. But after the pandemic, many of these indicators seem to have returned to their previous trends. For example, here are GDP and consumption:

Source: Alex Williams

To some, the implication of these charts is that the recent expansion has in some sense finally healed the wounds of 2008. The narrative here is that we didn’t do enough fiscal stimulus in the Great Recession, and this caused permanent harm to our economy, which we finally made up for by spending a ton of money in and after the pandemic.

But while I do think we should have done more stimulus in the Great Recession, the notion that pandemic spending has healed our economy seems highly suspect. As economist Arpit Gupta and others pointed out, the frying pan graphs only look like frying pans when you forget to account for inflation. Mike Konczal redid the graphs in real terms, and found out that they don’t look like frying pans at all:

Source: Mike Konczal

In other words, the Great Recession seemed to either cause or herald a long-term slowdown in the U.S. economy. The recent massive burst of pandemic-related government spending helped push up prices, but it did not return real production or consumption to their pre-2008 trends. In fact, slower productivity growth since around 2005 or so is probably a big reason why government spending pushed up prices — we didn’t have the capacity to stimulate.

We should probably focus on boosting productivity rather than assuming that the economy’s long-term trajectory is a result of short-term fiscal policy.

3. The quiet tech bust

The massive wave of hype around AI has concealed a deeper, longer-term bust in the tech sector. The wave of layoffs at big tech companies has slowed, but in the world of venture capital and startups, there are reasons to think the pain is just beginning.