Annals Of Creative Destruction

At a time when the two sides of the political divide seem to agree on nothing, I can actually name something on which I think they do agree: “The middle class has been devastated.”

Of course, the sides do not agree on the causes of the devastation of the middle class, nor on the fixes. For the Democrat/progressive side (I’ll use quotes from Elizabeth Warren), the causes include that the “system . . . has been rigged by the wealthy and well-connected” and that evil banks have “steer[ed] [you] into overpriced credit products, risky sub-prime mortgages, and misleading insurance plans.” Warren’s proposed fixes consist of an endless collection of centrally-directed “plans”, all to be implemented by a future Warren administration of the federal government, ranging from free health care to free college to wiping out student debt to raising taxes on somebody who is not you to subsidizing “green” manufacturing to providing housing for all to investing in rural America to instituting “accountable capitalism” (whatever that means) and on and on and on.

Over on the Republican side, currently dominated by President Trump, the main cause of middle class devastation is said to be that China and other foreign countries have “stolen our jobs.” And the main fixes put forward are tariffs, trade wars, and the suppression of illegal immigration.

Meanwhile, does the available evidence even support the proposition on which everyone seems to agree, that “the middle class has been devastated”? Looking around you, you can observe some things that would seem to support that proposition. Certainly, the number of shuttered factories that dot the northeastern U.S. would appear to be extraordinary. I have occasion regularly to drive on the east-west route through a town called Torrington, Connecticut. You pass five major factory complexes on that drive. Every one of them is closed, with “For Rent” signs prominently posted. You’ll get a similar display on an even larger scale if you take the Amtrak train through North Philadelphia, where multiple huge former factories sit abandoned. On the ride through Bridgeport, Connecticut, it’s not quite so bad, with at least some of the factories appearing to be active among many others that are not. I have observed similar things, among other places, in eastern Ohio and central Maine. I’m sure that readers can give plenty of other examples.

But let’s look at this with a little perspective. If you’re as old as I am, you have lived long enough to have seen one industry after another get destroyed by technological advancement and economic change. That destruction left behind physical remains of abandoned and crumbling facilities, just like today’s wave of abandoned factories. In many cases the abandoned and crumbling facilities sat there for decades, looking like the harbinger of the decline of civilization. But then one day, new uses arrived to reclaim the land and, in many cases, also the buildings. By now, nobody even remembers the long period of abandonment. And definitely, nobody would even consider replacing the current uses and going back to the old ones.

Let’s consider some readily-available examples:

• The New York garment industry. The area in Manhattan roughly between Penn Station and Times Square — 34th to 42nd Streets between 6th and 8th Avenues — is still known as the “Garment District.” According to this 2017 New York Times piece, in 1950 some 323,669 people worked there making apparel. By 2016 the number had shrunk to 22,626, and I’m sure that it has gone down still further by today. In the interim, particularly the 1960s to 80s, the area struggled, with major vacancies and aging of the buildings. Today, almost all of the buildings have been upgraded for new uses. According to the Times piece, “Block after block of factories and showrooms have disappeared from the renowned garment district in Manhattan, replaced by technology, media and consulting companies that focus on the design and marketing side of the business, if they are even connected to fashion [at all].” Walking through the area at night, you can observe many lighted spaces, indicating residential uses.

• The New York port. The decline of the New York port began as early as the 1930s, and the container revolution of the 1960s really finished things off. By the 1970s, when I moved to New York, all the piers on the Lower West Side of Manhattan (including in Greenwich Village), and on the East River in Brooklyn, had been abandoned. So had the warehouses and other port-serving facilities that had filled the first couple of inland blocks. And the abandoned piers and other facilities sat there unused and crumbling for decades — not unlike the many unused factories scattered around the hinterlands today. It wasn’t until after 2000 that any serious rebuilding got going, and only around 2010 that it really took off. I’ll give you a few before and after pictures to suggest the extent of the renaissance that has occurred:

Charles Street (foreground) and Bethune Street (background) Piers, Greenwich Village waterfront, 1978

Aerial view of Greenwich Village waterfront, approximately 2015

Left, Williamsburg (Brooklyn) waterfront in 2006, near the end of approximately 50 years of abandonment; right, same location in 2009, with new park and The Edge condominium. From thirteen.org.

• Agriculture. No discussion of creative destruction in the United States would be complete without mention of the enormous exit of workers from the agriculture sector — a process that began in the 19th century and may not even be complete today. According to Wikipedia, in 1870 almost 50% of the U.S. population was employed in agriculture. The population in that year was about 38.5 million, so that would mean around 19 million were employed in agriculture. By 2012, there were about 3.2 million employed in agriculture, which was about 2% of total employment, with total population exceeding 300 million. In the rich farming areas of the West and Mid-West, the transformation has generally meant larger farms, with the land remaining in production and many people moving to the cities and towns. In the Northeast, the transformation has led to a massive return of formerly agricultural land to forest.

In each of these examples, you will note that the people re-deployed themselves into new businesses and careers. Would anybody today want to go back to a world of thousands of people hunched over sewing machines in the Garment District earning a much-lower-than-today minimum wage, or cultivating fields with a horse-drawn plow?

Meanwhile, up in Northwest Connecticut, I can tell you that, despite many shuttered factories, “Help Wanted” signs can be seen almost everywhere. The national unemployment rate is a very low 3.7%. Real median household income has finally gotten substantially above its prior peak in the late 90s. Are we really sure that “the middle class is being devastated”? And, even if that were true, does the solution lie with endless new government programs? Even if it takes 50 years for those factory buildings to get re-deployed, why is that so bad?