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.