How to Deal with “Left Behind” America

AEI’s James Pethokoukis wrote:

Recent attention — thanks in good part to the 2016 elections — on inequality and mobility issues has focused on America’s “left behind” Appalachian and Rust Belt regions, such as depicted in “Hillbilly Elegy“. A couple of recent Economic Innovation Group reports add context.

One illustrated the lopsided nature of the post-recession recovery, finding that (a) 20 counties alone generated half of the country’s new business establishments, and (b) only 15 large counties enjoyed their strongest recovery in the 2010s. A more recent analysis — based in part on data from Harvard’sEquality of Opportunity Project — finds 51% U.S. counties home to 60% of kids exert “a negative impact on children’s future earnings.” As that report concludes, “Most children in the United States are growing up today in counties with a poor record of fostering upward mobility. As the geography of U.S. economic growth narrows, it may become even harder to prevent further retreat of economic mobility”.

One possible response to all of this is the most obvious one: assist people in moving from distressed areas to where the jobs are. The issue of declining US geographic mobility is a key theme of economist Tyler Cowen’s new book, “The Complacent Class“. My AEI colleague Michael Strain has suggested offering relocation vouchers to the long-term unemployed in high-unemployment areas. “The Obama administration, among others, has urged to cities and counties to rethink their zoning and other land use laws, which affect the housing market in high-growth cities,”impede mobility and thus contribute to rising inequality and declining productivity growth.”

But not everyone will move, of course. So how to make left-behind regions more prosperous? In a new Financial Times commentary, economist Diane Coyle advocates what she calls “universal basic service” that would focus on the communities themselves: quality of public services, schools, infrastructure. Coyle: “If teachers or nurses do not want to move to Detroit and West Virginia . . . then there should be a pay premium large enough to overcome their reluctance. And the quality of service in local transport networks should be as good in declining as in wealthy areas.”

A different version of this idea might be to relocate some federal departments — such as the Labor Department and FBI — out of Washington and to distressed areas. The Economist is skeptical of that idea, noting the “the spillover effects of that sort of employment to outside, private industry are quite small.” Yet it could be a piece of a broader regional development strategy.

For its part, EIG favors more private investment. One possible mechanism is a bill, the Investing in Opportunity Act, which would encourage new investment in distressed communities through tax breaks. On the regulation side, recall this idea from venture capitalist Marc Andreessen which encourages state and local governments to figure out:

what domain is (or could be) specific to their region—and then removing the regulatory hurdles for that particular domain. Imagine a Bitcoin Valley, for instance, where some country fully legalizes cryptocurrencies for all financial functions. Or a Drone Valley, where a particular region removes all legal barriers to flying unmanned aerial vehicles locally. A Driverless Car Valley in a city that allows experimentation with different autonomous car designs, redesigned roadways and safety laws. A Stem Cell Valley. And so on.

James Pethokoukis
April 5, 2017