We have a few thoughts about why they are so, so wrong.
There are a lot of divisions in the United States these days, and one of the most striking is geospatial inequality.
People living in big cities are, on the whole, doing better than those in smaller communities. Metropolitan areas with populations over 1 million people have accounted for 72 percent of the nation’s employment growth since the financial crisis, while Metro areas with populations between 50,000 and 250,000 contributed less than 6 percent of the nation’s employment growth since 2010. In towns and rural communities with less than 50,000 people, employment levels remain below pre-recession levels.
Many of the communities that are still struggling are places that once were thriving as big centers of manufacturing, only to see their fortunes dive because of policy that led to factory closures and the offshoring of millions of jobs. This division of wealth is driving a lot of other divides — take a look at the current political landscape for proof — and it also has led to a number of crises, including class polarization, growing racial divides, declining life expectancy for certain population segments and high rates of suicide.
Some economists are now putting forth grand ideas, trying to figure out how to fix things and improve the fortunes of those living in America’s less populated areas, including by recruiting educated types to move to America’s less populated places and invest in them.
But not these guys.
A new paper from economists at Princeton University and the Federal Reserve Bank of Richmond, “Cognitive Hubs and Spatial Redistribution,” argues that policymakers shouldn’t fight the brain drain that’s vacuuming highly educated workers to big cities. They even argue that efforts to attract highly paid workers to smaller hubs are “counterproductive” and a “waste of resources.”
The paper is making waves among the set of thinkers who think about this stuff — and we have a few thoughts, too. For all the time economists spend debating “externalities,” the paper ignores many of the things that affect people’s lives in the real world.
Don’t Worry, “The Planner” Will Fix Everything
The Richmond paper aims “to understand the extent to which workers are misallocated in space and the policies that might improve observed allocations.” These economists see the social benefits that come with a good job in a big city as the main culprit of why big city life is leaving populations in smaller cities, towns, rural communities behind.
Finding ways to incentivize some of these highly skilled workers to move to less populated locales is not what the economists at Princeton and the Federal Reserve of Richmond see as the answer. Instead, they spend much of the paper theorizing a rather complex alternative, one that misses some important facts not only about the human condition but about geopolitical realities.
The paper’s authors center their focus on cognitive non-routine (CNR) workers, who they define as doctors, managers, lawyers, computer scientists or researchers (to name a few). These CNR workers should congregate in cities, the authors argue, while non-CNR workers (who are not defined, which speaks volumes in terms of bias) should be incentivized to move to smaller cities with something like universal basic income (UBI).
A UBI would be generated by a flat wage tax and distributed by “the planner.” The revenue collected will be used to compensate “non-CNR workers for moving to smaller and less productive or amenable cities by implementing transfers from larger to smaller cities.”
The economists claim that this compensation would be financed by CNR workers in larger cities they refer to as “cognitive hubs.” They also claim that since CNR workers gain from the policy, they won’t mind making the transfers. But non-CNR workers will still be needed in these cognitive hubs (where they will earn a higher wage) … and thus non-CNR workers in cognitive hubs will also be required to pay a transfer to discourage other non-CNR workers from leaving the “smaller and less productive or amenable cities” for high-wage cognitive hubs.
To sum up: Keep the “highly educated” folks in cities and send the others to the less populated places, except for some of the others who the educated people will need to support them. Sound familiar?
Anyway, these economists purport that their economic thought experiment will lead to welfare gains of close to 2.5 percent for CNR workers and 2 percent for non CNRs. Two percent! For means of comparison, in 2019 the Social Security Administration’s cost-of-living increase for the average retiree was 2.8 percent.
Their program seems a little complex for a worker to go through considering the change in welfare is comparable to a recent COLA increase.
The pushback on this paper has been fairly strong. Some economic policy advisers, like Jillian McGrath at Third Way, have critiqued it as classist, elitist, exclusionary, and reminiscent of the Hunger Games (although I might argue in many respects, we’re already there).
The economists in this paper err, as many economists tend to err, in viewing human workers as “resources” to be exploited for economic gain, rather than people with families, relationships, hopes, dreams, goals, and community ties.
It reminds me of a quote from labor organizer and folk singer Utah Phillips: “You are about to be told one more time that you are America's most valuable natural resource. Have you seen what they do to valuable natural resources?! Have you seen a strip mine? … Don't ever let them call you a valuable natural resource! They're going to strip mine your soul.”
What Could Go Wrong?
The economists from Princeton and the Federal Reserve Bank of Richmond are not the only ones who fail to view economics as if people mattered. U.S. history’s version of “the planner” likely suffered from the same perspective.
A failure to consider the value of people and communities led us to the policies of deindustrialization and a model of globalization that devastated much of the industrial heartland. Policy that favored offshoring allowed corporations to maintain and even increase their productivity at a fraction of the typical cost, leaving workers to forge a future in a community robbed of its main source of income.
Consider the city of St. Louis.
Whomever “the planner” the economists refer to in this white paper dealt cities like St. Louis a series of devastating blows.
Post-World War II brought a manufacturing boom to St. Louis. Workers prospered and fueled an economy that contributed to the rise and vibrancy of middle-class communities among all segments of the population. Black neighborhoods like The Ville, for example, were largely sustained by the magnitude of manufacturing jobs in St. Louis.
Those jobs were secure, paid fairly, and ensured people without college degrees had equal opportunities to participate in the American dream. St. Louis thrived with workplaces like the Granite City Mill, which supplied steel products to industries ranging from construction to container to tubing and piping, and automotive. St. Louis was second only to Detroit in auto manufacturing, with Ford, Chrysler, and General Motors Co. plants located within her boundaries. Factory employees knew what they did mattered; the manifestations of their work literally kept America moving.
Until it did not.
First came a nasty pattern of segregation and discrimination, enforced and sustained by what the Richmond economists would call restrictive “spatial redistribution” policies. This came in the form of deed instruments, private realty, federal housing and mortgage policies, local zoning, and an enthusiasm for urban renewal that equated black occupancy with blight. Couple this with new streams of funds local government received for federal redevelopment and highway expansion, and St. Louis saw sprawl, as people, employment, and the tax base moved to the suburban fringes.
But then even the suburbs weren’t safe.
One by one the factories closed. Some jobs were lost to automation, but the biggest culprit was trade. Corporations moved their facilities overseas, where cheap labor was abundant and environmental and workplace regulations were negligible at best.
The final blows came in 2006 when the Ford plant closed; the subsequent closing of two Chrysler assembly plants wiped out more than 6,000 jobs. In general, more than 43,000 direct and indirect jobs are gone. More than 43,000 families left in financial crises.
Not sure “the planner” was looking out for them.
A declining tax base left St. Louis with less money for schools, roadways, and public safety. The once vibrant, proud, and stately St. Louis neighborhood of the Ville now resembles a bombed-out war zone. Some blocks have been reduced to vacant lots of overgrown grass. Five schools sit idle, like so many St. Louis factories and mills. Unemployment, as well as the murder rate, has soared. Many still there feel trapped, hopeless, and disengaged.
Due to the lingering forms of those “spatial redistribution” policies, black residents in the city have been especially hit hard (a pattern repeated in other industrial communities). As has often been the case in American history, black Americans are akin to the proverbial canary in the coal mine, their suffering indicates that all Americans are at risk of calamity if those problems go unaddressed.
While the canary fights for its life, “the planner” continues to develop economies in major U.S. cities focused around technology and finance. These economies have spill-on effects, including soaring housing costs, which has led to gentrification and the displacement of long-time residents (often communities of color).
Simultaneously, in rural areas and small towns, the recession seems to have never ended. Residents have a deeply felt sense of not getting their “fair share” of not just government resources, but also respect, which to those residents seems like an injustice.
Whatever “the planner’s” intention, the United States is now in a climate of tribal economic realignment. That’s left many vulnerable to narratives that demonize those who aren’t like them, many of whom remain unaware of the technological and geopolitical issues threatening their ways of life.
To be blunt, “the planner” doesn’t have a great track record. So why would anybody go along with what the planner wants to do now?
Keeping all this context in mind, the ideas put forth by these economists at Princeton University and the Federal Reserve Bank of Richmond come across as tone deaf. The authors are either unaware of or actively choose to ignore the mistrust communities have of decision makers who have not shared their experience and the small-town resentment of coastal cosmopolitanism.
But hey, some workers may gain wealth of as much as 2 percent!
The bottom line is that no solution for the geospatial inequality in the United States will succeed if it doesn’t consider the humanity inherently entwined in the issues that affect where people live. Policy dictated on high by “the planner” is bound to fail if it does not have the buy-in of the people who will be most impacted by it.