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April 12, 2008

« Is There Really a Shortage of "Good" Men? | Main | Mega Krugman »

My piece in today's Wall Street Journal is here.

The problem is that much of our public policy not only ignores the rise of the mega-regions, it actually works against them. If we want to bolster economic competitiveness and ensure long-run prosperity, we must pursue policies that take mega-regions into account.

Above all, this means remaining committed to open global trade. Mega-regions thrive on trade, which is why their leaders – from business officials to mayors – strongly support it. While political candidates may find it attractive to bash trade agreements like the North American Free Trade Agreement, this will only weaken mega-regions in both the advanced and developing world.

Second, it's time to stop transferring wealth from our most productive mega-regions to lagging places. In the U.S., the past 50 years have seen a massive transfer of tax money from innovative and prosperous mega-regions on the East and West coasts to the South. While this transfer may be a boon to local politicians and developers, such misguided policy has diverted economic resources away from the core mega-regions where they can be used most productively.

Third, our public policy must work toward, not against, density. Nearly every expert on the subject agrees that innovation and productivity are driven by density. For the better part of a century, we've subsidized suburbanization. That stimulated consumption of cars and appliances, which drove the industrial economy and allowed families to buy affordable homes. But it also diffused the density that is increasingly required for innovation and growth. Of course, every place does not have to be like Tokyo or Manhattan. Silicon Valley-style density would probably be sufficient. We can still have suburbs, but our economic policy has to start to encourage density, not sprawl.

Fourth, our urban policy should not be aimed only at improving schools, creating affordable housing and redistributing income. Urban policy must also start to address economic competitiveness. It must strengthen mega-regions by improving fast-rail transit between their nodes, modernizing airports, and achieving greater cross-border flows of goods and people.

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Comments

Whitney Gunderson

Quote: "Second, it's time to stop transferring wealth from our most productive mega-regions to lagging places. In the U.S., the past 50 years have seen a massive transfer of tax money from innovative and prosperous mega-regions on the East and West coasts to the South."

I am young, naive and skeptical that this is actually happening in a massive context. Where can the facts and figures be found on this topic?

Zoe B

Tim Harford (The Logic of Life; 2008) argues that in wealthy nations the urban areas subsidize the rural ones because 1) "many rural subsidies offer a clear benefit to rural residents but a concealed cost for city dwellers.... big benefits provided to a tightly defined group of people", while the concealed nature of the true cost to city dwellers means they may not notice that they are subsidizing; and the relative low cost per city dweller means that most people (f they know about the rural subsidy) will not expend the effort to fight it; and 2) "the subsidy does not encourage many people to pile in and collect it."....(given the relative decline of rural areas), "it would take a huge subsidy to attract many people away from the cities. Rural lobbies can be fairly sure that subsidies will not be slurped up by latecomers, and that is why the lobbyists work so hard." In contrast, "When a population is rural and most of the population is involved in farming, the same logic that makes farming a good target for subsidies in a rich country -- that farmland does not appear or disappear, it just becomes more- or less-profitable -- is also the logic that makes farming a good target for taxes in a poor rural economy". (p. 184) Thus, in these nations the rural areas subsidize cities. This latter situation may not be stable in the long run: eventually a lot of poor rural folks figure it is worth the risk to try getting a job in the city. Even in poor nations the percentage of urban population is increasing over time. Harford cites some examples, with references that will take you to the data.

Whitney Gunderson

Zoe - Why didn't you cite the actual data examples from Tim Hartford's work?

I understand the argument that Hartford is making. Urban areas in developed countries subsidize the remaining rural areas. But Florida claims that we are transferring wealth from mega-regions on the West Coast and the East Coast to the South. Hypothetically, Florida is claiming that public policy has forced these mega-regions to write tax money rebate checks to the South for the past 50 years, and that the money would be invested more wisely in the mega-regions it came from in the first place. If anything, it seems to me that brain-drain in the South subsidizes mega-regions with a high supply of productive people looking for creative work. I agree that money should be reinvested where it is most productive. Look, I think Florida's work is groundbreaking, but sometimes, he makes a statement like this that is just unbelievable and sometimes, it gets him in to trouble. That's why I want to know the framework that this statement is based on. I am not naive enough to think that we can all be over dramatic.

RF

Whitney - There is a pretty extensive literature that documents that transfer since the Great Depression. In fact, it was more or less a targeted strategy and outcome of the New Deal. The point is that wealthy productive parts of the country have generated the tax receipts that have been use to support development in other parts. See for example, Downs, Bradbury and Small, Urban Decline and the Future of American Cities who make this point rather elegantly. R

RF

And we could add Chi-Pitts to that list:-)! too. R

Whitney Gunderson

Hey RF! Good to hear from you. I am your biggest fan and I got your back and all that, but you are wrong on this for three reasons.

First, for as much as the New Deal is political gospel for Democrats, parts of it failed miserably or were not enacted. The long-term intention of the New Deal was creating a base for sustainable long-term nation-wide economic development, so that rural areas could offset a future urban market crisis. Instead, the New Deal created infrastructure for economic development to occur much more so in urban areas than rural.

Second, the Industrial Era, which was the bedrock of the economy at the start of the 20th Century, coupled with two World Wars and the subsequent Baby Boom Generation, have fueled a century long urban population boom that has generated unprecedented levels of urban wealth, innovation and influence. The claim that Bradbury, Downs and Small make, that there is a culture of decline in urban areas, is just not founded in long-term population trends, the reality of globalization and a creative economy, or the renewed interest of people in living in urban centers. Mentioned before, there are tremendous natural resource transfers from rural areas to urban areas. People, through rural brain drain, also have a tendency to transfer from rural areas to urban areas. Urban hegemony is an established phenomenon, and is necessary for the United States to compete in a global economy. This is epitomized in San Francisco, where in 2000, the average value of a home was $550,000, more than three times the national average.

Third, arts and thriving culture in urban areas are always closely followed by rural advances and improvements in agriculture. Jane Jacobs explained this better than anyone. Saying that urban areas shift wealth to, or subsidize rural areas is incorrect. Resources and people go rural to urban. There is money that goes to rural areas in the form of agricultural subsidies, but better land conservation practices and a steady food supply are supplied in return. The dollar value of these subsidies pales in comparison to the value of resources and people going rural to urban. There is also money that goes to urban areas in the form of subsidies for housing and highway infrastructure. A historic example of this would be the housing projects on Chicago’s south side and the freeway network in Los Angeles that was designed in the 1950s.

I have to laugh at all this because I just sent a similar short essay to people interested in Midwest community development titled “Why Richard Florida is Right,” but now I am saying you are wrong! By the way, anyone who lives by an Acela and doesn’t see the mega-region concept is…. well, that’s just amazing to me. I look forward to more spirited debate.

Michael Wells

"In the U.S., the past 50 years have seen a massive transfer of tax money from innovative and prosperous mega-regions on the East and West coasts to the South." What Richard was talking about was tax money, which is government policy and is demonstrably transfered through not only farm subsidies but social programs like unemployment insurance and food stamps, which are used more in the country than the city on a per-capita basis (despite the "Welfare Queen" mythology.) I would add the Midwest to the South, states like Nebraska, Iowa, the Dakotas, etc. get huge subsidies from the Coasts. They don't of course get the big defense contracts like the South because they don't tend to have the population concentrations of Texas, Georgia or the Carolinas. And tax money flows urban to rural not only nationally but within states as well, for instance in Oregon from the Portland region across the Cascades.

What Whitney describes is not government policy, but people's individual decisions to move from rural to urban areas. While this is abetted some by government policies that favor large agricultural and resource corporations over family farmers and drive people away from farming, these aren't pro-urban policies but pro-corporate. And the resource transfers that don't benefit the rural locals, such as virtually free mining rights or below-cost timber sales, are also pro-corporation rather than pro-urban.

I think a case can be made that many government policies have screwed rural America, but they weren't benefiting the cities.

Michael Wells

The conservative Tax Foundation has a new study on tax flows between states at: http://www.taxfoundation.org/research/show/62.html
It show that California and the Northeast states are the biggest net losers and the winners are mostly Southern and upper Midwest. Both Oregon and Washington are net losers, so the whole West Coast pays more than it gets back. In the South, all states except Texas and Georgia get back more than they pay.

Here’s their executive summary:
The Tax Foundation’s annual federal tax burden and expenditure study clarifies the geographical patterns of income redistribution that federal tax and spending policies cause each year. The results of the study have been controversial for years because they show that the nation is not only redistributing income from the prosperous to the poor, but from the middle-income residents of high-cost states to the middle-income residents of low-cost states.
Thanks to a steeply progressive federal income tax, states with higher incomes pay vastly higher federal taxes, payments that are unlikely ever to be matched by federal spending directed to those states. Ironically, most of these high-paying states are the so-called blue states that have generally elected politicians who support a more steeply progressive tax system even though their own constituents bear a greater share of the burden as the code gets more progressive.
All categories of federal taxes, including income taxes on individuals and businesses, social insurance taxes, excise taxes, estate and gift taxes, customs duties and all other taxes, are tabulated and the total tax burden of each state is determined. This figure is compared to the flow of federal funds back to each state, bringing the two sides of federal fiscal operations together.
In fiscal year 2004, New Mexico, Alaska, West Virginia, Mississippi and North Dakota received substantially more from the federal government than they paid in taxes, while New Jersey, Connecticut, New Hampshire, Minnesota and Illinois paid much more in taxes than they received in spending. Tax burdens for fiscal year (FY) 2004, which starts October 1, 2003 and ends September 30, 2004, are used in this study because the most recent state-level federal expenditure data released by the Census Bureau, to which the tax burdens are compared, is for FY 2004.

Whitney Gunderson

I know this blog is not "top-page" material, but I would still like to comment on two issues.

Michael, with regard to your first post, what is the distinction between pro-urban and pro-corporate? Corporations urbanize. Are you going to tell a farmer who just got forced into a buy out by Archer Daniels Midland that he should not be mad because the policy that allowed the "city boys" at ADM to put him out of business is pro-urban and not pro-corporate? Or the other way around? I'll let you do the talking on that one.

Secondly, on a per capita basis, United States' tax flows are going from the middle-income residents of high-cost states to the middle-income residents of low-cost states. But still, the low-cost states are not growing in population or wealth, while the high-cost states are. Why? "Brain drain subsidies" from low-cost states to high cost states, because there is enough opportunity in high-cost states to offset the additional expense not found in a low-cost area. This is the whole point. As powerful as subsidies and supply-side economics are, they are no match for the power of a region full of creative people. In effect, overall wealth is going rural to urban, even though a portion of that comes back as a urban to rural subsidy. We have to measure this in terms of overall value and not just dollars.

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