Friday, June 17, 2011

Tolstoy and recessions

My post from yesterday outlined the data showing that the St. Louis economy was hit harder by the Great Recession than the country as a whole. Naturally, this leads one to wonder why this is so and if there are any policies that might prevent it from happening next time. In other words, although the occurrence of recessions is out of our hands, what can we do to ameliorate their effects when they hit? There’s not a great deal of research on this question and economists have little to say about it. Actually, they have a lot to say if you ask them, but it’s usually not based on actual research.

Three colleagues and I wrote a paper a couple of years ago that tried to explain cross-MSA differences in the effects of recessions. We found that the things that help MSAs grow during good times (such as education) don’t have much to do with how badly MSAs do during recessions. In fact, of the many things that are usually thought to affect growth, only the prevalence of manufacturing seemed to matter, and it didn’t explain very much. We concluded with a “Tolstoy theorem of urban growth: Happy cities are all alike; every unhappy city is unhappy in its own way.”