Save the Rust Belt!

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A few heartfelt pleas from native Michiganders who don't want to see their state destroyed.  Several emails and comments complaining that I'm a heartless, effete New York type who doesn't understand that if the Big Three go down, some darn fine folks and a beautiful way of life will be destroyed.

I am a New York type. Heartless, you have to judge.  But I actually have a pretty deep connection to the Rust Belt, because my mother's from deep in the heart of it.

Not the part you've ever heard much about, though.  Michigan and Ohio get a lot of attention from journalists looking to write stories about the sad decline of our nation's industrial stock--Michigan, because the auto industry is so central to the 20th century American mythos, and Ohio because those people often decide who our next president is going to be.

My mother grew up in the Other Rust Belt--the one journalists have no reason to go to.  In a farm town nestled between Syracuse and Rochester, her father's gas station nuzzled right up on the mighty, mighty Erie Canal.  It was one of those small-town childhoods that was probably much more annoying than it sounds, but it sounds idyllic.  The town was so small, clean, and safe that when she was still in single digits my grandfather used to give her the week's take, in cash--maybe $10,000--and have her carry it four blocks down the street to the bank. 

Newark, NY is just about midway between the two cities, a forty five minute drive to either.  Back then, both were the kind of small cities that towns hoped to be when they grew up:  prosperous, bustling, content.  Indeed, Rochester was so self-satisfied that author Curt Gerling dubbed his 1957 book about the city "Smugtown USA". 


The Kodak Building, Rochester, Courtesy of Flickr user sailorbill

Just as the auto industry made (and broke) Detroit, Rochester was the creation of Eastman Kodak.  Kodak bonus day was like Christmas without the tree:  celebratory dinners at the local restaurants, shopping trips at the Midtown Plaza, which locals claim as America's first enclosed mall.

Then in the 1970s, it all began to change.  Smaller companies filed antitrust suits.  Fuji and Polaroid nibbled away at their film business.  In 1997, Fuji started a price war from which Kodak's stock price has never fully recovered.  And the advent of digital cameras has been devastating.  Kodak has made up some of the lost ground by making cameras, but this is a fiercely competitive business much difference from the old core business of selling the cameras cheap and the film dear.  At its peak, Kodak employed 60,000 people in a city of perhaps 300,000.  Now the city's population has dropped to 210,000--but Kodak employment has fallen to less than 15,000.

Syracuse is slightly more fortunate, because it wasn't so heavily dependent on one firm.  Nonetheless, its population now stands at less than 140,000, down from 220,000 in the 1950s.  And the story is replicated in almost any town you can name in upstate New York.  Utica.  Elmira.  Buffalo.  Troy.  These were major industrial towns, once.  Now they are slowly collapsing in on themselves, surrounded by the discarded shells of once prosperous factories.

There are any number of candidates to blame.  Cold weather. The Saint Lawrence Seaway, which destroyed the Erie Canal as a viable economic channel.  New York's business-unfriendly environment, which has gotten worse and worse as power has shifted towards New York City and the financial industry which is not much affected by the various work rules its employees like to vote for.

But it doesn't matter.  These vital towns, where generations of people lived happy lives and raised fat, burbling babies to a middle-class adulthood, are all dying.  Should the government save these places too?  Shall we support Eastman Kodak indefinitely, whether or not it can produce a product anyone wants to buy?  And Xerox, and Carrier, and a thousand companies you've never heard of?  Shall we make it illegal to make a better product than American corporations?  Why not just ban new products that make old ones unprofitable?

To do that, we'll have to take the money from other people, in other cities.  Other businesses will not get the capital that we give to dying firms, so they won't expand.  Some other families, not yours, will lose their homes because their business failed, or have to move away from home in order to get jobs because their area is in the doldrums.  Meanwhile, everyone in the country will be slightly worse off, because we've shifted limited economic resources towards products they demonstrably do not want.

I love western New York, which may be the most beautiful place on earth.  I love the old cities, the Victorian shells that whisper of much happier days, and the broad, rolling hills, and the broad flat accents of the people who live on them.  I love waterfalls softly falling downtown and the Buffalo City Hall.  I love the place as you can only love somewhere that your family has been living for 200 years.  I would save it if I could.

But I can't save it.  Pouring government money in has been tried . . . and tried, and tried, and tried.  It props up the local construction business, or some company, for a few more years, and then slowly drains away.  Western New York has been the lucky recipient of largesse from a generous federal government, a flush state government, and not a few self-made men with happy memories of a childhood there.  And still, it dies.

Moreover, it wouldn't be right to save it by destroying someone else's business, killing someone else's town.  That's the choice we are facing.  At its heart, economics is not about money; it is about resources.  Every dollar sent to Detroit buys a yard of steel, a reel of copper wire, an hour of labor that now cannot be consumed by a business that actually produces a profitable, desireable product.  It's not right to strangle those businesses in order to steal some air for the dying giants of an earlier day.

And while a financial intervention at least holds out the possibility of creating value for all of us, a bailout of Detroit is definitionally guaranteed to destroy value for the rest of us.  Yes, the Big Three and their suppliers will be better off.  But we will have taken a limited store of resources and spent them on something that the rest of us value less than the alternative uses for steel, copper, manpower, credit, and so forth.

I grew up in New York; you could say that our local industry is Wall Street.  Certainly, without Wall Street (and its tax base), New York would be a much less prosperous town, more likely decaying than growing.  Should America give Wall Street cash because some of my family lives there, because my friends work there, and because I love the vibrant city of my childhood?  Or perhaps because the industry's tax dollars prop up the failing cities of western New York?  No, no--a thousand times, no.  America should give Wall Street money if it makes the country as a whole better off.  Maybe the bailout doesn't.  But that was the only argument in favor of it that I, for one, would accept.

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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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