more Economic Geography
2008-03-27 · Original WordPress address
Recessions spread geographically.
This picture of the effects of the 1985 drop in oil prices is interesting. The light green states in 1985 are oil producing States put into recession by the change in oil price. The sub-national recession spreads out from those States but never becomes national.
Looking at recessions geographically is interesting because it reframes the issue of business cycles as one of distribution rather than efficiency. A reduction in the price of oil was great on average, but crappy for those live just west of the Mississippi.
The great contribution of RBC models was to repair efficiency in cycling economies. Meanwhile, the new Keynesians try to undo this result, but images like the one above suggest economists should spend more time on the distributional aspects of business cycles.
Notice, this is an invitation to discuss distributional issues without the usual normative baggage. Its just a fact that various supply shocks induces recessions in some places and booms in others.