October 5, 2023

West Virginia is the canary in the coal mine

Unfortunately, West Virginia is very poor.  The reasons are explained in the well made video below. Geography, demographics, politics, but it's mostly due change.  In economics there's a concept related to supply and demand called equilibrium.  The price and quantity of goods and services produced seek their own equilibrium, where supply and demand match.  When disruptions happen, like coal becoming less vital to the national interest, the equilibrium changes.  That causes all sorts of fallout including for example, poverty. West Virginia has experienced something that 

My take on a few of the points raised,  as well as the future of a broader swath of Western economies, follow the video.

The video points to the limitations of geography as a fundamental barrier to a renewal of West Virginia.  It's fundamentally true but it does raise questions. There are places in Switzerland for example that have worse geography than West Virginia with respect to economic prosperity but yet they do not have the same level of poverty. Why is that?  Perhaps they have the benefit of a longer time frame to stabilize their situation. Or maybe it was something else.  The point is geography does not have to result in poverty.

The biggest factor in the case of  West Virginia, clearly was the rise and fall of coal. Coal was a primary source of energy for a long time and is no longer as it has been replaced by oil, gas, nuclear power and more recently solar and wind power.  But coal still has its uses.  For example roughly 1.6 billion tons of coal worldwide were used in the production of steel in 2022, and steel is still a widely used material. The U.S. production of coal in 2022 was approximately 0.54 billion tons or one third of the world coal supply that is used to produce steel.   However it is important to note that only certain types of coal can be used to make steel.

Nevertheless there are other uses for coal.  For example, cement production, carbon fibers and foams, medicines, tars, synthetic petroleum-based fuels.   But the real drivers related to coal were domestic energy and of course military use as mentioned in the video.  These needs declined as alternatives arose.

The video also mentioned mechanization of the coal industry, which means the same or greater levels of production with fewer and fewer people needed to do the job. 

This is where West Virginia has become the canary in the coal mine - the first trial of massive change. Whether it lives or dies provides lessons for America and other Western economies - not relative to coal but relative to people.  The human cost of economic failure is far more important than any other sort of fallout.  West Virginia has experienced a downward cycle of poverty and health as result of not being able to adapt to the change that came upon its predominantly single-sourced economy.  That is the true lesson from the past, and present.  

With the advent of computers, robotics, and AI, fewer and fewer people are needed in more and more jobs.  This trend shows no signs of abating, indeed the equilibrium might be at or nero zero need for human involvement in work.  How do we navigate zero employment and avoid poverty, broad spread malaise in terms of personal motivation and self-worth with nobody working?  This has yet to be solved.  Sure there are some short-term answers for the West; do not rely on single-source economies and instead diversify.  But at best this solution has limited viability if eventually everything evolves to 100% automation.

There is no answer yet.  Universal Basic Income might mitigate the problem, for a time, but it is hardly a solution.  It does not address mental health issues and it certainly will not solve the wealth gap between rich and poor because the wealthy factory owners will still own the means of production and not be subject to the universal basic income.  In fact, it will likely worsen the problem.  A better solution is needed and we need to be working on it today.  

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