Fifth in a series
Most of us recognize that America is being pulled apart, becoming more unequal. We can add that this is not just the old split between workers and non-workers; instead, increasingly, it’s a split among workers.
Yes, there’s a new elite, namely, those workers and owners connected to government-favored industries, such as tech and finance—and to the government itself. And then there’s everyone else, workers and owners involved in unfavored industries. If that seems like a lopsided numerical ratio, between favored and unfavored—well, welcome to the crony-ized America of 2016, where there’s only room for a few insiders.
And yet at the same time, precisely because the skew is so large, one can see that this inequality will cause—already has caused—a substantial political backlash. As we can note today, the rising anger over this yawning gap has fueled the presidential campaigns of both Donald Trump and Bernie Sanders. Indeed, it takes the full righteous anger of just about everyone, in both parties, to bulk up the fury that we see in the pollsters’ “right direction/wrong track” numbers, which show an overwhelming, more than 2:1 negative outcome, 26:65.
And so, too, this November, the political implications are likely to be staggering—that is, really bad news for incumbents. And perceptually, at least, it’s hard to think of anyone who is more of an incumbent than Hillary Clinton, she who has been in and around the top echelons of the federal government for a quarter-century. And it’s also hard to think of anyone who has benefited more from the “rigged” system than Bill and Hillary.
Meanwhile, a new study from the Economic Innovation Group (EIG) reveals further numbers that are even more grotesquely startling. The EIG study, derived from Census Bureau data, did indeed uncover some astounding numbers. In the report, EIG got right to it, showing how economic growth through entrepreneurship was increasingly concentrated in the hands of a few: “The first and most unambiguously troubling [finding] is a collapse in the number of new firms in the economy”—that is, new-business startups, the essence of entrepreneurial energy. And the second, almost as troubling finding, the report added, is “the increasing geographic concentration of recovery-era businesses and jobs into a smaller number of more populous counties.”
The EIG report broke down data from three different economic recoveries, in three different decades: the 90s, the 00s, and the 10s. Figure 1 shows the drastic falloff in new business formations, by nearly two-thirds: from more than 420,000 in the 1992-1996 recovery, dipping down to 400,000 in the 2002-2006 recovery—and then a sharp crash, plummeting to 166,000 in the 2010-2014 recovery. Indeed, the total number of firms in the US economy today lags below the levels of 2004.
In addition, even these meager gains have been increasingly concentrated in only a few places, and the losses have been distributed far more widely. In the 90s, just 17 percent of counties suffered a net decrease in the number of businesses; by contrast, in the 10s, a full 59 percent of counties suffered a net loss. (If you’re curious as to how your county fared, take a look at Figure 5.)
Equally startling is the concentration of economic activity in a handful of lucky-duck counties—just 20 of them, to be exact. According to the report, those 20 counties, accounting for about one-sixth of the total US population, garnered half of all the economic growth in the country. Figure 8 provides a list of those elite counties.
Here we can note something interesting, if not surprising: the accelerating trend toward economic stratification. In the 1990s, it took 125 counties to add up to a total of half of all the economic growth in the country; in the 2000s, it took fewer, just 64; and today, as we have seen, it takes just 20 counties. That’s 20 counties, we might note, out of some 3131 counties, parishes, and independent towns across the breadth of America.
So undeniably, the benefits of growth are intensifying in a smaller and smaller number of areas—and dissipating everywhere else.
Yet why is this happening? The EIG report doesn’t attempt to answer that question definitively, but it makes a passing reference to the booming areas being more globally networked into the world, more “knowledge-based,” and thus more likely to attract immigrants. We might note that EIG, although headquartered in Washington, DC, is Silicon Valley-funded, so it shouldn’t be a surprise that its report includes a pitch for the Valley-favored policies of more immigration and more globalization.
In other words, the report sums up the Silicon Valley conventional wisdom: Globalism is not only good, but also inevitable. And thus the implicit message to the rest of the country: Don’t fight the power. Submit. Get with the program.
Perhaps Heartland America, seeing that it is being economically bypassed, will decide to give up. That is, folks in the Heartland might conclude that they would rather switch than fight. That is, maybe Nevada, and Arkansas, and South Carolina, and Michigan—to name four “loser” states—might choose to capitulate, and decide that they need to globalize, no matter what. Would that work, economically, for these places? It seems doubtful, but maybe they’ll try anyway, and start the process by throwing themselves open to mass immigration.
Yet there’s another way of thinking about the economic trends described in the EIG report. Perhaps, instead of simply passively going along with the trends EIG describes, the rest of the country could choose to fight, not switch. Maybe folks on Main Street could demand their fair share.
Of course, some will immediately insist that there’s nothing that can be done, that everyone in the country must bow down to the secular sacredness of the “free market.”
But what if the “free market” isn’t free? What if the economic conditions we have in America today were not the result of some “invisible hand,” but, rather, the result of the visible hand of political wheeling and dealing?
In fact, as we consider the policies that led to this sudden economic concentration, we can see that they were utterly deliberate, enacted with full awareness as to their impact. Yes, it was a conscious deliberation—the deliberate picking of winners and losers—that got us to this point.
How so? Let’s look at three policy clusters:
First, globalism, the obvious fruit of NAFTA, the WTO, and a dozen other trade deals—deals which, of course, have aided the big port cities, such as Miami and Los Angeles (both of which are in EIG’s Top 20). Meanwhile, as for Indiana and Ohio—well, we know what happened to those states, and all their counties.
Second, financialism, made possible by the rampant deregulation of the financial sector in recent decades, culminating in the repeal of Glass-Steagall in 1999, and subsequently bolstered by the multi-trillion-dollar policy of “quantitative easing” over the last decade. So obviously New York City made it into the Top 20, and now the rest of the country is owned, seemingly, by some hedge-funder “managing” his assets with a spreadsheet and an algorithm. Meanwhile, of course, the disappearance of locally-owned banks means the disappearance of locally-available capital for jobs and growth.
Third, the phenomenal growth of the Internet and e-commerce, which was facilitated, of course, by many federal policies, including the FCC-mandated transfer of value from the phone companies to the Internet companies, and then to the decision to tax-shelter online purchases from sales taxes. So it’s no wonder that California’s Santa Clara and San Francisco counties are also listed in the Top 20.
So yes, life has been good for investment bankers, asset managers, and app-makers, even as it’s been hard for just about everyone else.
Yet there’s a flaw in this happy-yuppie-techie world.
And that flaw is just this: The resulting politics are not stable, because so few are winning and so many are losing. And in politics, the majority rules.
We might consider: Those 20 winning counties are in just seven states—Arizona, California, Florida, Illinois, Nevada, New York, and Texas. Those are mostly big states, to be sure; in electoral-college terms, they add up to 189 electoral votes. That’s a lot, but as we know, America has 50 states. And those other 43 states possess a total of 349 electoral votes. So, to put it bluntly, the losers outnumber the winners. Thus we can see the makings of a Trump-ian, or Sanders-ian, majority coalition of the frozen-out, demanding justice.
At this point, we can pause to note two objections. First, some will protest that what’s happening in the economy today, like it or not, is just the workings of the free market, and the free market is sacrosanct. But as we have seen, it wasn’t the free market that did this—it was the unfree market. And even if it had been the workings of the free market, at some point, we must realize that the interests of the nation as a whole must come first. Contrary to what some ivory-tower dwellers might wish, America is not a theory; it is a nation of 320 million flesh-and-blood citizens who have the God-given right to life, liberty, and the pursuit of happiness. If you think America is just a theory, then please explain how Americans came to fight and die in such real-world places as Belleau Wood and Bastogne—and explain where their rifles and tanks came from.
The second objection is stronger. It argues, frankly, that even if the market is shafting ordinary Americans, well, there’s nothing to be done, because the government is too inept to do anything about it—and any attempt will only make things worse.
Admittedly, this is a strong critique. In fact, the US government, especially in the last half century, has been mostly grossly incompetent, sometimes even outright malevolent. There’s no excuse to be made for the total folly of, for example, the War on Poverty—or the War in Iraq.
Yet a longer look at American history tells us a different, and more hopeful, story. In the past, at least, the government has been a reliable engine of economic activity. We can cite, to name a few success-stories, the Erie Canal, the Transcontinental Railroad, the Tennessee Valley Authority, Hoover Dam, the Interstate Highways, cruise missiles, and, yes, the Internet. This author has even cited the US Department of Agriculture; today it might be the butt of jokes, but once upon a time, it was an effective agent for work-based uplift and empowerment.
The pattern, in other words, seems to be that the government is more effective at “hard” Hamiltonian projects that create work, as opposed to “soft” Great Society-type programs that create welfare. And while there’s never a guarantee that the promises of tough-minded Hamiltonianism won’t degenerate into promiscuous welfarism, we, the people, have the capacity to keep our eye on the ball if we want to. So it’s likely that we can succeed in keeping the economic-development effort robust if we really try: Just in the last few decades, for example, the federal government successfully introduced drones for the warfront, as well as GPS on the homefront. So it’s not hopeless. We can do better. Indeed, given the downward slope of the last few decades, if we want our country to continue, we had better do better.
To put it another way: It’s just common sense to have a plan to get everyone working and being productive. And if that violates the tenets of a precious ideology, well, then, it’s not, in fact, a very good ideology.
Yes, the American Dream should be open to all those who are willing to work for it. Just as the policies that led to the concentration of wealth were deliberate, there’s no reason why the policies that would lead to un-concentration couldn’t be just as deliberate.
But first, obviously, we will need new leadership.
Part One of this series.
Part Two of this series.
Part Three of this series.
Part Four of this series.