The majority of GOP officeholders, along with many conservative think-tankers and pundits, continue to cling to 1980s economic policy, however ill-attuned to 21st-century America. They insist that lowering top marginal tax rates on the rich is the key to economic success, forgetting that the top marginal tax rate is already about half of what it was before President Ronald Reagan’s tax cuts (70 percent) and ignoring the huge geographic gaps in wealth and productivity. Cutting top marginal tax rates might give a momentary boost to the economy and help the rich get richer, but it does nothing to address the staggering geographic divide between aging, poorer rural America and richer urban America. Not only do the vast majority of struggling, non-college-educated Americans in rural areas pay little federal income tax (and hence benefit minimally from cuts in federal income tax rates), but they have real needs for which supply-side economic theory has no effective response.
James Pethokoukis of the American Enterprise Institute writes:
America’s elite communities are leaving the rest of the country behind. That’s the core conclusion of a new report from the Economic Innovation Group [EIG]. Researchers there found that the nearly 7 million jobs added between 2000 and 2015 “overwhelmingly flowed” into the nation’s most prosperous communities. (The metrics here involve income, housing, educational attainment, startups, unemployment, and job flows.) Employment in the top fifth of zip codes rose by 6.5 million, three times as many jobs as in the second-best group and ten times as many as in “mid-tier” ones.
And for some communities — mostly located in Appalachia, the Southeast, and sparsely populated parts of the Southwest — the Great Recession never really ended. Take Texas, for example. There are really two Lone Star States, with “a small number of extremely fast-growing, prosperous zip codes on the one hand, and relatively muted losses among its most distressed zip codes on the other.”
EIG urges adoption of a “radical connectivity agenda that forges stronger linkages between thriving places and lagging ones—be it improved housing and transit access within metropolitan areas or new broadband investments in rural ones.” That means:
We must reinvest in our citizens and in the productive capacity of our communities, equipping them to better engage in the modern economy instead of leaving them to manage local decline. And we must be more aggressive in removing barriers to mobility and entrepreneurship—both intentional and inadvertent—that are too often found at every level of policymaking.
Each region and every community is a node in the vast neural network that is the U.S. economy. The healthier that network and the more robust the connections among its nodes, the stronger the foundations of American prosperity. Our task now is to harness the immense power and energy of our strongest communities to help revitalize the network as a whole.
Pethokoukis also points to the work of three scholars who favor “place-based” policies. Former treasury secretary Larry Summers, Benjamin Austin and Edward Glaeser argue in a Brookings Institution paper:
The best case for place-based policies exists when spending in some areas generates a much bigger behavioral response than in other areas. If the supply of workers into the labor force is more elastic in some areas than in others, devoting more federal resources to that area will do more to reduce the not working rate. When employment responses differ across space, welfare gains can be achieved, even without extra transfers to that area, by redirecting existing Federal transfers. For example, re-allocating Medicaid spending to employment subsidies may be welfare improving in areas with a higher employment response to the effective wage. …
Depending on wider beliefs about labor markets and migration, place-based policies can either mean more generous employment subsidies in depressed areas, or equivalently generous policies that tilt more strongly towards employment in areas with more non-employment.
Efforts to help distressed areas do not preclude policies that make it easier for those who are willing to uproot themselves to relocate to higher-growth areas. Converting unemployment benefits into relocation benefits and reducing licensing barriers that impede moving to other states can be part of the mix of economic solutions.
The cruel irony is that policies that might help Trump voters are nowhere on the GOP economy priority list. Instead, Republicans are fixating on 1980s economic policies and worse, following Trump down anti-growth rabbit holes such as protectionism and immigration exclusion. Fueling white grievance might in the short run prove politically profitable, but over time it will leave voters angrier and poorer and our democracy less stable.
Democrats who want to gain adherents in distressed areas, be they in the South, New England or the Midwest, should champion pro-work polices that address 21st-century economic conditions, which not coincidentally, also promote illiberal populism that threatens the foundations of our multiracial, multiethnic democracy.