There’s been a lot of hand-wringing in Rhode Island since the U.S. Census Bureau announced last month that the state was one of only two that lost population last year, with the total number of residents down by about 25,000 since 2004.

But Dean Baker, the liberal economist and co-director of the Washington-based Center for Economic and Policy Research, said Monday he thinks the focus on population loss is somewhat misguided.

“I think it’s misdiagnosing the problem,” Baker told WPRI.com. “The problem is you have a bad economy, and because you have a bad economy people are leaving. But the problem is not that people are leaving; the problem is the bad economy.”

“If the people stayed there it wouldn’t make anything better – just imagine if you had the 25,000 people and they stayed there and they’re all unemployed,” he said. “Obviously they wouldn’t all be unemployed, but assume the bulk of them would be unemployed.”

In Baker’s view, a declining population isn’t a bad thing in and of itself. “There’s always an upside to it,” he said. Housing will be more affordable, infrastructure will be less strained, roads will be less congested, beaches will be less crowded. The real problem is why Rhode Island’s population is declining.

“There will be offsetting factors that would make it a positive, but again, in the context of people leaving because of a weak economy, it’s pretty hard for me to imagine that the net on that would be positive,” he said.

Here’s our 5:30 Q&A on Rhode Island’s population decline:

Matt Yglesias writes for Slate (emphasis added):

There are certainly poor people here in Washington, struggling families in New Jersey, difficult sections of Philadelphia, and even in glitzy New York, many people having a hard time getting by in public housing. But on the whole this is a very prosperous section of the country, and when you combine its wealth and its size, it’s one of the most economically successful regions in the world.

Click over to ye olde Brookings State of Metropolitan American map and you’ll see that Davidson’s journey started in the New York metropolitan statistical area, which has the 13th highest median income out of America’s 100 largest MSAs. …

The Northeast’s laggard area is the Providence, R.I./New Bedford, Mass./Fall River, Mass., MSA that’s only 43rd in median household income with a number that’s only slightly above the national median. The Northeast corridor is so rich and successful, in other words, that Providence’s averageness looks like failure. …

Which is hardly to say that the Northeast is perfect. But I think dwelling on its pockets of industrial decline misses the biggest story here. The real questions to ask are about the linked issues of why the cost of living is so high and the population growth so relatively low in this economically dynamic region.

In the wake of their smashing election victory on Tuesday, Rhode Island liberals may want to ponder Yglesias’s observation and a related point from Michael Mandel: “Progressives cannot achieve their social goals without faster growth.” For more, read David Leonhardt on why growth matters.

• Related: RI ‘used to be about as rich as Mass.,’ then ‘stagnated terribly’ (Sept. 5)

Here at Nesi’s Notes I spend a lot of time writing about how Rhode Island can improve the performance of its economy. The discussion usually takes as a given that the last two centuries of economic history provide a guide to what’s possible in the future.

Yet it’s always worth considering the possibility that our basic assumptions are wrong. A thought-provoking Martin Wolf column in the FT last week argued, citing Northwestern’s Robert Gordon, that unlimited economic growth may be a thing of the past:

For most of history, next to no measurable growth in output per person occurred. What growth did occur came from rising population. Then, in the middle of the 18th century, something began to stir. Output per head in the world’s most productive economies – the UK until around 1900 and the US, thereafter – began to accelerate. Growth in productivity reached a peak in the two and a half decades after World War II. Thereafter growth decelerated again, despite an upward blip between 1996 and 2004. … [Gordon] argues that productivity growth might continue to decelerate over the next century, reaching negligible levels. …

For almost two centuries, today’s high-income countries enjoyed waves of innovation that made them both far more prosperous than before and far more powerful than everybody else. This was the world of the American dream and American exceptionalism. Now innovation is slow and economic catch-up fast. The elites of the high-income countries quite like this new world. The rest of their population like it vastly less. Get used to this. It will not change.

Jared Bernstein was Vice President Biden’s chief economist and economic adviser during the financial crisis, and is now a fellow at the liberal Center on Budget and Policy Priorities in Washington. Matt Bai’s recent New York Times Magazine story examining who deserves credit for the Ohio economy’s rebound got him to thinking about what state and local officials can and can’t do for their economies acting alone.

Bernstein argues total employment growth nationwide is “largely driven by macro and global trends,” but says state and local officials can make a difference in whether their jurisdictions are the beneficiaries – that is, whether their locales get a fair share (at least) of the jobs being created. He says tax breaks and special deals à la 38 Studios aren’t the right approach, instead offering these two ideas:

First, what matters more to thriving businesses is the quality of public goods, including physical infrastructure and the quality of the workforce. Yes, the tax base matters, but the success stories are not the places that offered the most sugar in terms of tax cuts. It’s the ones that offered solid communities with world class infrastructure – the roads, airports, schools, and skilled workforce that businesses need to succeed. …

The second thing I think we know about the role of sub-national politicians in job creation has to do with regional aggregation or clustering effects that are often very important to local job growth. Cities can develop as research hubs with a quality university at the core; a port city can develop transportation infrastructure that creates lots of new opportunities, and so on. These clusters can develop organically, like the old railroad and river-confluence cities, but these days such developments tend to be more strategic.

Read my February interview with Bernstein for more.

• Related: Robitaille: 38 Studios lesson is don’t pick winners and losers (May 15)

Rhode Island’s real gross domestic product (GDP) rose a meager 0.8% in 2011, trailing the 1.5% growth rate nationwide and the 1.8% rate in New England, the U.S. Commerce Department reported Tuesday.

The rate of economic growth in Rhode Island ranked 32nd among the 50 states last year, the department said. By contrast, Massachusetts and Connecticut were among the 10 fastest-growing states in the country.

Rhode Island’s real GDP totaled $43.7 billion in 2011, up from $43.3 billion in 2010, adjusted for inflation. Real GDP measures each state’s production of goods and services, wherever the products are sold.

Rhode Island’s economy is still considerably smaller than it was before the Great Recession. Adjusted for inflation, the state’s real GDP shrank from a high of nearly $45 billion in 2006 to $42.9 billion in 2009, the Commerce Department said.

The finance and insurance industry contributed the most to Rhode Island’s economic growth last year, adding 0.33 percentage point to the overall 0.8% increase. Real estate, rental and leasing hindered the economy most, subtracting 0.43 percentage point from the state’s growth rate last year.

• Related: Study: RI won’t get back to pre-recession job count before 2018 (June 5)

As President-elect Obama’s team raced to salvage the economy in the winter of 2009, Vice President Joe Biden’s chief economist and economic adviser Jared Bernstein was one of the experts frantically trying to craft a solution.

Bernstein left the administration last year and joined the Center on Budget and Policy Priorities in Washington as a senior fellow. He spoke with WPRI.com on Thursday about the economy, how Rhode Island can position itself for the recovery and whether the White House is like “The West Wing.” The transcript has been lightly edited for clarity.

Let’s start with a parochial question. Have you ever been to Rhode Island?

Oh, yeah! Lots of times. I’ve been there in my professional career as an economist, but I was also there once as a musician on the QE2 – the QE2 once went up to Providence. I played the string bass.

You’re a man of many talents. I wanted to start with the news of the day. The economic recovery has been looking surprisingly solid lately, with new jobless claims down this week and other hopeful data. What’s your current take on how the economy is doing?

Things are definitely improving, but we’re not out of the woods. The job market is finally getting better in a way that could develop into a self-sustaining recovery, but we really haven’t seen that yet.

(more…)

Did you know Providence is one of only three large cities in America that grew faster than its surrounding suburbs over the past decade? And Boston is another?

So reports The New York Times (emphasis mine):

[F]or all the buzzy talk of knowledge industry synergy and urban appeal, census figures show that UBS’s return [to New York City from Stamford, Conn.] would be bucking the demographic trends rather than reflecting them and that the suburbs, however unloved by tastemakers and academics, remain where the growth is. …

Joel Kotkin, a writer who specializes in demographic issues, says that the 2010 census figures show that during the past decade just 8.6 percent of the population growth in metropolitan areas with more than a million people took place in city cores. The rest took place in the suburbs, which are home to more than 6 in 10 Americans.

The 8.6 percent is even lower than in the 1990s when the figure was 15.1 percent. … Of the 51 metropolitan areas with more than 1 million residents, only three — Boston, Providence, and Oklahoma City — saw their core cities grow faster than their suburbs.

Interesting. What’s up with that?

(h/t: Doug Lane)

A number of cheerful correspondents have e-mailed me over the last 24 hours to point out this week’s U.S. Commerce Department report that showed Rhode Island’s economy grew 2.8% in 2010 (after inflation). The growth rate was 18th-fastest among the 50 states and ranked No. 4 out of six in New England.

Call me a Debbie Downer, but I’m not that impressed.

It’s certainly good news that Rhode Island’s economy grew faster than 32 other states’ did last year, especially considering we did so despite having one of the nation’s worst unemployment rates. And it’s a relief that Rhode Island’s economy finally grew in 2010 after shrinking for three straight years.

So 2.8% would be nice if we were in a normal situation. The problem is, we’ve just suffered an economic body blow. We have a 10.9% unemployment rate and at least 62,100 people out of work. What we’d really like to see isn’t standard growth of 2.8% – we want the much faster growth Rhode Island experienced after the deep recessions of the 1970s, ’80s and ’90s.

Think about it this way: Our economy was still smaller in 2010 than it was six years earlier. In constant dollars, Rhode Island’s GDP totaled $44.36 billion back in 2004, peaked at $44.96 billion in 2006, and shrank to $42.84 billion in 2009. Last year it grew to $44.01 billion – still below 2004′s level. Here’s a chart:

If the economy had continued growing at the 1998-2006 average rate of 3% over the last four years, it would have totaled $50.68 billion in 2010 – 15% higher than the actual figure. True, we grew at nearly 3% last year – but that implies that we’ve permanently downsized the size of our economy, meaning we’re not going to make up the growth we missed during the recession.

Rhode Island had a housing bubble during the last decade, and it’s quite plausible that it expanded the size of the economy past where it would have been in its absence. But the state’s high unemployment rate and its many vacant buildings imply a huge amount of slack capacity. At this rate, it’s hard to see what puts them back to use anytime soon – especially since the nation as a whole is doing little better, as Martin Feldstein pointed out in today’s Wall Street Journal.

One of my trusted tutors thinks it won’t happen until the housing market, especially new construction, perks up. There’s good reason to think he’s right. The economic output of Rhode Island’s construction and real estate industries both shrank again in 2010 even as the rest of the economy grew. That means those sectors were still holding back the recovery last year, even as manufacturing, retail and finance all started to rebound.

Got a more optimistic take? I’m all ears; drop me a line.