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One Nation, Two Economies

eye on the news

One Nation, Two Economies

More than gender, race, or other hot-button media issues, a deep socioeconomic divide will shape the midterm elections. October 24, 2018
Politics and law
Economy, finance, and budgets

Almost all news coverage of the current election season has focused on cultural issues such as gender, race, and immigration. What the media have missed are deep socioeconomic trends driving parts of the country in divergent political directions. President Trump has overseen a significant transformation in the geography of the nation’s growth and prosperity. Instead of clustering along the coasts—as many progressives may have preferred—the nation’s economic expansion is now increasingly benefiting red states, notably in the southeast, Texas, and the intermountain West.

Indeed, according to the most recent Bureau of Economic Advisors report, income growth is strongest in pro-Trump states. In the first quarter of 2018, the income-growth leader by far was Texas, with 6 percent growth, followed by Louisiana, North Dakota, Montana, Arkansas, and Iowa. All are growing faster, often considerably faster, than liberal states like California, Washington, Oregon, Massachusetts, and New York.

Strong wage growth in blue-collar sectors helps red states, while a weaker stock market threatens high-income coastal economies. Some of the same urban areas that benefited most under President Obama’s tepid recovery now show signs of languishing. By the end of last year, key metro areas including New York, Los Angeles, Chicago, and Boston were falling behind competitors like Nashville, Orlando, Phoenix, Dallas, and Salt Lake City. The Bay Area economies, which ranked in the top five for income growth over the last decade, ranked 15th and 16th last year. Tech and business-service growth, though still strong in Silicon Valley, is now much more rapid in Sunbelt hotspots.

Over the past few decades, the U.S. has developed essentially two economies. On the one side is the widely celebrated “post-industrial” economy: software, entertainment, media, and financial and business services. These sectors flourished as the stock market soared in the ultra-low interest-rate environment fostered by the Obama administration, whose recovery strategy was built around bailing out major banks, all headquartered in deep-blue cities. The winners under Obama included urban real estate, financial-service firms, and the tech oligarchs. These elements now constitute the Democratic Party’s burgeoning financial base, allowing it consistently to spend more than the GOP in key congressional races, while the GOP still gains support in energy and other less heralded “legacy” industries.

There’s a glitter gap between the parties, too. The Democrats now own the fashion, media, literary, and entertainment communities, in the process turning the putative party of the common man into the political vehicle of the leisure class. In contrast, during the depth of the recession, a much larger, more dispersed America struggled. As traditional industries like manufacturing, energy, agriculture, home construction, and basic business services declined, the progressive clerisy in forums like Slate crowed that these blue-collar jobs were never coming back. Unlike the tech oligarchy or the financial giants, these older sectors wielded little political influence under Obama and, in the case of energy, seemed destined for a radical downsizing.

These heritage industries and the people who work in them elected Trump. Despite repeated tales of how tariffs are destroying manufacturers, the industrial sector, after weakening at the end of Obama’s term, has been enjoying its best growth since the mid-1990s. Critically, incomes are up for the lower deciles of the labor force, including young workers. Nothing guarantees that this recovery will continue, but Trump can justifiably boast about accomplishing what Obama failed to deliver in eight years. Democrats might mutter that renewed growth has come from regulatory reforms and big corporate tax breaks, but that makes Trump’s point: a continuance of Obama-style economic and regulatory policy would have hurt most Americans outside of Wall Street and Silicon Valley.

Despite the media’s national obsession with gender and race, American politics continues to follow broad geographic and economic lines. The battle lines have changed over time, from a conflict between coastal merchants and southern farmers to splits over tariffs between western farmers and eastern financiers, and eventually to the battle between an ascendant Sunbelt and struggling older states in the northeast. Today we have a new divide, what might be described as the “tangible” sector versus the ephemeral; the French Marxist economist Thomas Piketty has aptly called it “the brahmin left against the merchant right.” One economy trades in digits, images, and financial transactions, the other in real goods such as cars, steel, oil, gas, and food. These economic sectors have often radically different imperatives.

The Bay Area economy, for example, depends on noncitizens for as much as 40 percent of its workforce, including relatively cheap, work-visa-shackled, latter-day indentured servants from Asia. This explains why Trump’s travel ban and other, often crude or insufficiently justified moves on immigration have helped transform Silicon Valley into a one-party political goldmine. This software-dominated economy, along with its cousins in Hollywood and finance, also is far less exposed to regulatory excesses than firms in manufacturing, home-building, or energy. Tech servers can be located in low-cost regions like the Pacific Northwest or the South, while manufacturing, highly sensitive to environmental regulation and electricity prices, has been relocated to places like Texas or the Midwest—or preferably to China—so that firms can produce gadgets without expanding their localized “carbon footprint.”

Any return to Obama’s energy policy—or the even more extreme one enacted in California—could set back the economic recovery in much of the country, most notably Appalachia, but also across the energy belt that extends from the Permian Basin and the Gulf to the Bakken fields in North Dakota. Even Democratic Texas senate candidate Beto O’Rourke, who in the past supported a $10 a barrel tax on oil, has a tough task justifying his position in oil-rich Texas.

The tangible and ephemeral economies create distinct political trajectories. In Texas or Tennessee, for example, working-class people can get decent jobs and aspire to homeownership and other aspects of middle-class life. Historically, Democrats and Republicans in these regions favored robust economic growth, battling mainly over how to achieve it. But today, a pro-growth bipartisan consensus is increasingly elusive, as Democrats adopt the environmental and lifestyle preferences of their often childless urban base. Superstar firebrands like Democratic congressional aspirant Alexandria Ocasio-Cortez can talk about going on a war footing to fight global warming because there’s not much industry left in her district in Queens and the Bronx. Coastal California’s mild climate makes high energy prices tolerable. In the more conservative and blue-collar Inland Empire, or on the other side of the Sierra Nevadas, high energy costs pose an existential threat.

Indeed many of today’s Democrats—in contrast to traditional party heroes from Franklin Roosevelt to Bill Clinton—have no problem with accelerated deindustrialization that hurts working-class voters and regions that continue to support Trump. Since the path to higher-wage blue-collar jobs is more complicated, progressives offer instead increased subsidies for everything from education to health care and housing. With little prospect of getting a good job in the private sector or buying a house, new voters, notably millennials and minorities, could become willing captives of an expanded welfare state—and that’s why Silicon Valley oligarchs are pushing guaranteed-income proposals.

Of course, the very manufacturing and energy companies denounced by some as “polluters” are known to others as employers. And if that part of the economy continues to grow, Republicans could further strengthen their electoral position across much of the country’s midsection. In 1992, 15 of the 20 most manufacturing-oriented congressional districts were Democratic; today, all 20 are controlled by the GOP.

Perhaps the biggest hope for the Right lies in migration patterns. More Americans—contrary to the conventional wisdom of the media and the investment community—are leaving deep-blue metros like New York, Boston, Los Angeles, and San Francisco to settle in suburbs and more conservative regions  like Dallas, Houston, Nashville, San Antonio, Charlotte, Raleigh, and Orlando. Millennials are driving this trend.

Until the two parties recognize that a prosperous America needs both economies, and must accommodate a broad range of people and industries, we will continue to whipsaw between two oppositional policy agendas. We need room for the ephemeral and the tangible, the coastal and the interior, blue- and white-collar jobs. Waging political war against one or the other simply weakens our nation—just as the U.S. is reemerging, largely without media notice, as the strongest large economy on the planet.

Photos: Justin Sullivan, Spencer Platt/Getty Images

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