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Urban Miscalculation

eye on the news

Urban Miscalculation

Big-city Democrats’ support for the Sanders-Warren economic agenda is counterproductive. December 20, 2019
Economy, finance, and budgets
Politics and law
Cities

In 2016, socialism reemerged as a force in American politics because of a septuagenarian senator from a rural state, but it has since morphed into a mostly urban phenomenon. Though Democrats successfully flipped moderate suburban districts in 2018, it was their Democratic Socialist contingent that unseated big-city moderates in party primaries, resulting in a new generation of congressmen, city councilmembers, and state legislators.

Cities’ leftward shift has changed the Democrats’ political calculus. At one time, urban politicos were paragons of their party establishment and leery of left-wing activists, who failed to appreciate the transactional nature of urban governance. Now, mainstream Democrats are using the presidential primary process to burnish their left-wing credentials. In Philadelphia, for example, Mayor Jim Kenney—a product of the local Democratic machine, who backed Hillary Clinton in 2016—followed leftist district attorney Larry Krasner in endorsing Elizabeth Warren. In New York, elected Democratic Socialists have endorsed Bernie Sanders, while Mayor Bill de Blasio, who hasn’t endorsed a candidate since exiting the race himself, speaks highly of Sanders and Warren and trolls Michael Bloomberg, his predecessor, on Twitter. In Los Angeles, Mayor Eric Garcetti, considered a leading moderate, has remained noncommittal, often praising each candidate.

As far as political calculation goes, it’s not surprising to see urban Democrats seeking a détente with the Left. Partly as a result, however, low-turnout Democratic primaries, which serve as the major elections of big cities, are now decided by a disproportionate share of ideological voters—and that doesn’t bode well for the long-term interests of these cities.

To consider the potential impact of a Sanders-Warren agenda on urban America, it’s worth reviewing how cities became dominant in the global economy. In his 2012 book, The New Geography of Jobs, Enrico Moretti observed that, in 1980, when America’s cities began to bifurcate into thriving knowledge hubs and stagnant manufacturing centers, the best predictor of an urban area’s future prosperity was how many college graduates lived there. The winners in this fight for talent have reaped the rewards in the form of dense concentrations of high-tech industries that require skilled labor and innovation.

Moretti recounts the decisions Wal-Mart made in starting its e-commerce business. Famous for its loyalty to Bentonville, Arkansas, the company nevertheless located its Internet team on the outskirts of San Francisco. In the Bay Area, Wal-Mart enjoyed access to a labor market of programmers and online-marketing specialists—the niche businesses that design and secure online-payment platforms—as well as a social milieu aware of the newest ideas and trends in e-commerce.

What would happen to these hubs of capital, industry expertise, and entrepreneurial activity if we asked them, say, to foot the bill for Medicare for All, free public college, and everything else on progressive wish lists? According to the New York Times’s Neil Irwin, the full weight of the Warren agenda, combined with state and local taxes, would impose a top marginal tax rate of 63 percent on New Yorkers earning more than $200,000—about 10 percent of the state’s households, accounting for close to 40 percent of its gross income. Undeterred by these figures, the economists supporting Warren dismiss the idea that high tax rates deter wealth creation.

Other scholars aren’t as sanguine. According to a paper from Harvard and the University of Chicago, innovation—as measured by patents, the number of inventors, and citations—is highly responsive to prevailing tax rates. Going from a moderate to a minimal tax burden isn’t likely to set off a tech boom in a city—but going from moderate to high taxes is likely to depress whatever high-tech economy the city possesses. Factoring in this lost dynamism, the optimal top tax rate falls from the nearly 70 percent favored by Warren-aligned economists to just 22 percent.

To expand upward mobility, grow wages for the working class, and boost GDP growth, urban policymakers should be trying to draw more people to America’s dynamic cities. Instead, they seem increasingly intent on driving them out.

Photo by Win McNamee/Getty Images

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