Using the REAL Models to Understand Midwest Restructuring

Abstract

The 1980s and early 1990s were a time of profound restructuring in the Midwest. The region had stood as the nation’s wealthy and progressive manufacturing center for a long-standing century. But the confluence of shocks that took place during this time shook the region’s economy to its foundations—defense spending shocks, farm crisis, foreign competition, and technological change. In turn, these shocks challenged the region’s businesses and policymakers to either change course or to wither away. By the mid-1990s, there was very visible evidence — both statistical and otherwise — that the region had been successful in its transition well beyond the hopes and expectations of majority opinion. Indeed, some observed that such a renaissance was probably unique in the annals of those regions experiencing deep manufacturing decline and decay in the industrial age... so much so that the Midwest’s experiences merited a deeper analysis and understanding as a guide to policy makers both in the Midwest and elsewhere. In cooperation with many analysts drawn from an array of organizations, the Federal Reserve Bank of Chicago organized a two-year project to bring together the best researchers and their work to address the Midwest turnaround. Over the course of the many topical symposiums, it became apparent that the project was fortunate in its inquiries because crucial tools to understand the Midwest turnaround and to guide its policy decisions were under development by the Regional Economics Applications Laboratory (REAL) and its directors—Philip Israilevich and Geoffrey Hewings.