Our Western economy is changing, and it’s for the better

The economy of the Mountain West confounds most observers. On the one hand
some economic statistics indicate that this is one of the nation’s poorest regions:
Judged in terms of average incomes, Idaho, Montana, New Mexico and Utah are
among the poorest 10 states in the nation; Arizona just missed being a part of that
undistinguished group, coming in 14th from the bottom.

by Thomas Michael Power- Writers on the Range

Wyoming, too, was in the poorest half of the states. Only Colorado and Nevada were
in the top half. Obviously the Mountain West’s economies are miserably failing.

At the same time, the region continues to be the fastest growing region in the nation,
a pattern established back in the 1970s. It is generating new jobs and income and
attracting new residents and businesses at a rate that makes most other states
envious. So it must be true that the region’s economies are amazingly successful.

Which is it?

The very fact that people were moving into the Mountain West, despite its low pay
and income, suggests that income statistics do not tell the whole economic story.
Despite the low pay, people, voting with their feet, were, on net, moving into the
Mountain West, not moving out. Just as mysterious, the highest income states in
the nation were losing population during the same period.

Analysis can explain a good deal of this apparently economically irrational behavior.
The smaller the size of place, the lower is the pay. But offsetting this is the fact that
the smaller the size of place, the lower is the cost of living, especially the cost of
housing. As Richard Barrett and I pointed out in our new book, Post-Cowboy
Economics: Pay and Prosperity in the New American West, when variations in cost
of living were accounted for, those living in smaller cities (less than 250,000), rather
than being 30 percent poorer than those living in the largest cities (greater than 2
million), faced only a 9 percent pay gap.

We also found that this small remaining pay gap is wiped out by the value of natural
and social amenities associated with small city and rural living. Residents of the
Mountain West were neither mistaken nor just plain stupid in choosing to live here.
They knew they were better off living here rather than in New York, Chicago, Los
Angeles, or Dallas.

The popular explanation for low incomes in the Mountain West has usually been the
decline in the region’s natural-resource industries. For instance, our home state of
Montana had its highest average income relative to the rest of the nation back when
copper was king in Butte and logging, milling, ranching and farming were kings
elsewhere in the state. In the late 1940s, Montana ranked among the top 10 states
in terms of average income. By the 1990s, Montana fell to the bottom 10 states.

Our book carefully investigated the superficial assumption that simultaneity implies
causality. We found that if we could have magically frozen the industrial structure of
employment in whatever "golden era" someone might imagine, so that jobs in those
natural-resource industries not only did not decline but expanded vigorously with the
rest of the economy, 85 percent to 95 percent of the relative decline in average pay
would have taken place anyway, because pay was falling in all sectors, including,
especially, the high-paid sectors. No empirical evidence exists that the change in
the industrial structure of employment caused the relative declines in pay and
income in Montana or the rest of the Mountain West.

The Mountain West has not been losing its economic base over the last several
decades as the contribution of its natural-resource industries to total employment fell
to just 5 percent. Instead, the region has been successfully evolving from an
unstable frontier economy based on a few extractive exports into a diverse, far more
self-sufficient, economy quite similar to the rest of the national economy. This has
reduced the volume of exports needed to support our habitation of the region. In
addition, new light manufacturing and export-oriented service businesses have
blossomed.

The "base" for this transformation has been the ability of the region to attract and
hold residents and the economic activity that supports them. Our spectacular,
region-defining, natural landscapes and the environmental quality and outdoor
recreation they support are a big part of that economic base. Those concerned about
protecting the economic well being of residents need to incorporate protection of
those natural landscapes into their economic strategies.

Thomas Michael Power is a contributor to Writers on the Range, a service of
High Country News in Paonia, Colorado (hcn.org). He is a professor of
economics at the University of Montana in Missoula.

http://www.hcn.org/wotr/dir/WOTR_020116_Power.html