Tuesday, April 3, 2018

Education, Taxes, and the New Economy in America

Paul Krugman takes a look at the socio-economic underpinnings of our political divisions:
Both political and economic polarization have a strong geographic dimension. On the economic side, some parts of America, mainly big coastal cities, have been getting much richer, but other parts have been left behind. On the political side, the thriving regions by and large voted for Hillary Clinton, while the lagging regions voted for Donald Trump. . . .
(That's not entirely true because of support for Trump in thriving parts of Texas and Georgia, but outside the South it is almost 100% true.)

We have always had regional disparities in our economy, but from World War II down to the 1970s they got a lot less severe.
Take, for example, the case of Mississippi, America’s poorest state. In the 1930s, per-capita income in Mississippi was only 30 percent as high as per-capita income in Massachusetts. By the late 1970s, however, that figure was almost 70 percent — and most people probably expected this process of convergence to continue.

But the process went into reverse instead: These days, Mississippi is back down to only about 55 percent of Massachusetts income. To put this in international perspective, Mississippi now is about as poor relative to the coastal states as Sicily is relative to northern Italy.
And why is the disparity growing? Economists have devoted a lot of effort to the problem:
For the most part I’m in agreement with Berkeley’s Enrico Moretti, whose 2012 book, “The New Geography of Jobs,” is must reading for anyone trying to understand the state of America. Moretti argues that structural changes in the economy have favored industries that employ highly educated workers — and that these industries do best in locations where there are already a lot of these workers. As a result, these regions are experiencing a virtuous circle of growth: Their knowledge-intensive industries prosper, drawing in even more educated workers, which reinforces their advantage.

And at the same time, regions that started with a poorly educated work force are in a downward spiral, both because they’re stuck with the wrong industries and because they’re experiencing what amounts to a brain drain.
The strange thing about America is that one reason the national government is not doing more to help poor regions is that those regions reject that approach to creating equality:
That new Austin et al. paper makes the case for a national policy of aiding lagging regions. But we already have programs that would aid these regions — but which they won’t accept. Many of the states that have refused to expand Medicaid, even though the federal government would foot the great bulk of the bill — and would create jobs in the process — are also among America’s poorest.

Or consider how some states, like Kansas and Oklahoma — both of which were relatively affluent in the 1970s, but have now fallen far behind — have gone in for radical tax cuts, and ended up savaging their education systems. External forces have put them in a hole, but they’re digging it deeper.

And when it comes to national politics, let’s face it: Trumpland is in effect voting for its own impoverishment. New Deal programs and public investment played a significant role in the great postwar convergence; conservative efforts to downsize government will hurt people all across America, but it will disproportionately hurt the very regions that put the G.O.P. in power.
I think this is only partly true, or only true within a certain way of thinking about the world. America has committed itself to a certain model of affluence, one based on freedom, openness to the world, deregulation, and intellectual property. Under that model, large cities that can attract smart people will thrive at the expense of everywhere else. But is that the only possible model? Austria is a wealthy country even though it is almost impossible to fire workers there, and even though they hate immigrants.

I do not believe that our current economic arrangements are the only possible ones, and that means they are almost certainly not the best ones. We suffer more from a failure of imagination than anything else. We have been captured by ideology, or maybe better by particular visions of what the world is and should be. Within the limits of the dominant paradigm, the US is doing quite well. But that paradigm is not working for millions of people, especially the old factory working class, and until we find a way to bring them back on board the prosperity train that will poison our politics and divide our nation.

3 comments:

G. Verloren said...

"The strange thing about America is that one reason the national government is not doing more to help poor regions is that those regions reject that approach to creating equality"

It's not unique to America, though. For example, Canada has been dealing with the same psychological problem for a long time.

Places like The Maritimes have lots of towns where the local economies have dried up and become untennable with the collapse of logging and fisheries. But the people in these regions are proud and stubborn, and don't like the idea of being reliant on the government to get by, and so they reject assistance and go find jobs in the oil fields out west.

There's seemingly a sense among some people that the only thing that makes their lives meaningful is their ability to fend for themselves. It seems they'd rather force themselves the most bitter of hardships and then resent the government for not doing more to magically revive the obsolete ancestral trades they'd prefet to be working, than to accept aid in their time of need and work toward learning new trades instead.

The legendary Stan Rogers was singing about (and romanticizing) this strange mentality almost 40 years ago, and the sentiment is still popularly held today:

I often take these night shift walks when the foreman's not around
I turn my back on the cooling stacks and make for open ground
Far out beyond the tank farm fence where the gas flare makes no sound
I forget the stink and I always think back to that Eastern town

I remember back six years ago, this Western life I chose
And every day, the news would say some factory's going to close
Well, I could have stayed to take the Dole, but I'm not one of those
I take nothing free, and that makes me an idiot, I suppose

So I bid farewell to the Eastern town I never more will see
But work I must so I eat this dust and breathe refinery
Oh I miss the green and the woods and streams and I don't like cowboy clothes
But I like being free and that makes me an idiot I suppose

So come all you fine young fellows who've been beaten to the ground
This western life's no paaradise, but it's better than lying down
Tthe streets aren't clean, and there's nothing green, and the hills are dirty brown
But the government Dole will rot your soul back there in your home town

So bid farewell to the Eastern town you never more will see
There's self-respect and a steady cheque in this refinery
You will miss the green and the woods and streams and the dust will fill your nose But you'll be free, and just like me, an idiot, I suppose

David said...

@John

I'm puzzled by your point about Austria. Austria may have hatred of immigrants in common with Trumpland, but other than that (which probably isn't terribly important for its economy one way or the other anyway) I imagine its economy has much in common with the sort that Krugman is advocating: high education, high tax, generous social welfare, high regulation--all to a greater extent even than Massachusetts. Nothing super different or highly imaginative there--just what Krugman would consider good, solid policy.

John said...

@David

I mean Austria refutes the model that only low-tax, low-regulation, hyped up on entrepreneurship countries can be rich in the 21st century.