Lockdown-Led Big City Exodus: An Economic Boost to Small Towns?

Smaller cities and bigger towns in the heart of America are seeing a considerable influx of new residents, and with this, we should soon expect to see a boost in their economies as well. But while there is enough data to support the notion that Americans in large cities like New York City and San Francisco are moving to smaller metros, legacy media is resisting it, choosing to, instead, deny that the government-led interventions prompted by covid-19 have hurt Americans enough to force them to flee. 

But despite their attempt to ignore the economic reality of a large portion of the urban population, the economic downturn brought by the lockdowns forced some people to rethink their living arrangements. 

With an ongoing difficulty for many to find jobs in large metros despite the slow reopening of the economy, the moving trend could continue well into the future, helping to reshape Small Town U.S.A. And believe it or not, what will continue to drive urbanites out of the big cities isn’t a virus but government itself.

Taxpayer Cash Won’t Last Forever

In the height of the pandemic, the federal government passed more than $5 trillion in fiscal stimulus, sending direct payments to countless households and expanding unemployment benefits to millions of others. To many struggling with student loan debt, a freeze in payments meant some relief, while a Centers for Disease Control and Prevention (CDC)-led eviction moratorium helped many to remain in place and avoid immediate economic ruin. However, Americans are still indebted.

According to Business Insider, roughly  9% of subprime auto borrowers were more than 60 days delinquent in 2020’s fourth quarter. Because this class of borrowers often has a more vulnerable financial situation, finance experts fear that fewer of those with subprime auto loans will keep up with their payments. 

Despite the modest economic recovery we’ve seen in the past month, America is still down 8.4 million jobs since the pandemic began. With the risk of an increased share of delinquent subprime auto borrowers looming on the horizon, more people will find themselves at risk of losing it all. While the Joe Biden Administration promises to continue to provide additional cash benefits through 2021, elected officials are pointing out that U.S. debt is growing at an unsustainable rate. While it might be hard for Congress to say no to any additional pandemic-related spending, anyone can plainly see that not even Washington, D.C., can continue sending out checks indiscriminately for the unforeseeable future. So what happens when people who rely on taxpayer-backed aid can no longer do so?

Without a home, a car, or a job, living in the big city might not seem so appealing after all. 

Smaller Metros Take the Cake

Before the beginning of the pandemic, millennials were ahead of the curve, choosing smaller towns in search for more affordable housing and schooling. With the rolling out of the lockdowns, the increase in unemployment pushed yet more people to relocate.

Smaller metros, with more affordable housing and enough cultural and economic opportunities became the perfect spot for those who simply were not making it work in the big city. While the number of people who fled between the early months of the pandemic and early 2021 is still small in comparison to the population of large metros such as San Francisco, Los Angeles, Seattle, or New York, the small growth smaller cities are registering will have a lasting impact in their overall economic health. 

As noted by consultants Remington Tonar and Ellis Talton, the considerable influx of new residents can positively impact smaller metros in a series of ways. 

The most obvious is the relationship between the population growth and the increased demand for a series of goods and services, which will then drive the demand for the creation or expansion of businesses, increasing employment numbers and helping drive the GDP up. But that isn’t the only way smaller cities benefit. 

The increased growth may also help retain the residents who would have otherwise left. In other words, when longtime residents see their towns flourish, they think twice before selling everything and moving to what the duo called “highly romanticized cities.”

Whether or not smaller cities will continue to reap the benefits of being less heavily regulated than their larger neighbors for many years to come, one thing is for sure: the prohibiting costs of living in large urban areas has only become worse during the pandemic. 

With growing government interference in the real estate market, the only people who can truly afford new homes in desired neighborhoods in 2021 are the rich. Additionally, the top-down stay-at-home orders, many of which were extended by city and county officials in spite of governors’ lifting orders, imposed a much larger burden on small and medium-sized businesses. The result was a much harder unemployment rate in those areas. If major city officials are at all worried about the economic health of their constituents, they would think twice before imposing additional housing restrictions and business-related taxes as people try to recover from the government-instigated crisis. 

Despite the Net Positive, Broken Windows Are Never the Answer

While I believe we should highlight the growth that middle-sized cities and larger towns are already experiencing as a result of the influx of new residents post covid, destruction is never the solution to stagnant economies. 

As economist Frédéric Bastiat explained in 1850, if someone intentionally breaks a window, the glazier called to fix it might benefit, but only at the expense of the shopkeeper, who had to shut down until the matter was resolved, losing money as a result. In other words, there is no upside to destruction, because it doesn’t “create jobs,” or “boost total income,” as economist Robert Murphy explained in this article. While some groups will benefit from these events, in this case, smaller metros, society as a whole is either stagnant, at best, or poorer, at worse.