The regional economies that comprise the United States used to be converging. Mississippi is still the poorest state, but its relative income is much higher than it was a decade ago. Studies done toward the end of the 20th century often found that city and state unemployment rates were not correlated from one decade to the next. No longer. Recent work suggests that in regions where work was in short supply in 1980, joblessness might have gotten even worse over the subsequent generation. The same is true of all the various indices of social distress.
Why? Part of the answer is migration between cities and states has fallen sharply in recent decades, in part because of problems in the housing market. It might also be that migration has become less effective in fostering economic mobility than economists suppose. Outmigration from troubled areas tends to disproportionately remove those area’s most able and catalytic residents. There is also the consideration that outmigration reduces the demand for new construction and the value of housing wealth, which in turn reduces spending.
Perhaps most important, weak economic performance coupled with outmigration sets the stage for what might be called fiscal-space death spirals. Just when the need to train and retrain workers for jobs outside traditional industries expands, the capacity to fund community colleges and other training institutions declines. Just as it comes to seem most important to attract new businesses, the capacity to fund first-rate schools and necessary specialized infrastructure is most circumscribed. It cannot be an accident that Northern Virginia, one of the most economically vibrant areas in the United States, could afford to attract Amazon (whose founder and chief executive, Jeff Bezos, owns The Post), or that Rust Belt cities, with their many pension and other liabilities, struggle to hold on to the businesses they have.
A look at an economic and political map of the United States, or that of almost any other industrial country, for that matter, points up the political stakes in deteriorating economic geography. The areas where distress is greatest and opportunity is least provide disproportionate support for candidates advocating populist nationalist policies that seek to close off the rest of the world, to demonize immigrants and to resist the inclusion of minority groups.
What is to be done? Traditional approaches have involved tax incentives for investments in distressed places. It hasn’t worked well, as the tax incentives have often gone to projects with little real development content or that would have happened anyway. In any event, the investment has been small relative to the scale of the problem.
Here are some larger ideas that should be thought through carefully. Perhaps the federal government should levy punitive taxes on the receipts from targeted local tax incentives. This would stop the zero-sum competition between localities, and give more disadvantaged communities a fairer chance to compete.
The federal government could also announce plans to provide extra support to public education and community colleges in areas where joblessness is high or has recently risen. There is no reason investment in the next generation should suffer most where current pain is greatest.
Because interest rates are so low that there is limited room for them to be reduced, the response to the next recession will inevitably be focused on fiscal policy. Policymakers should design it keeping clearly in mind that the economic multiplier will be greatest, and the inflationary impact least, where the economy lags most.
These may or may not be the best ideas for enabling people wherever they live to share in U.S. economic progress, and they are no substitute for addressing inequality more directly. But it is hard to see how we can bring about enduring improvement in the nation’s condition without addressing the needs of the tens of millions of Americans who live in places that are failing to catch up with the rest of our country.