Republican economic policies cause their constituents to fall farther behind the rest of the country economically

John Harwood at CNBC has an important report on a new Brookings Institution study documenting that “economic divergence is as central to 21st century polarization as race, gender and religion.” These charts show how Democrats represent the growing modern economy – and how Republicans are left behind:

[T]his year’s midterm elections affirmed this much: in Washington, the two parties now speak for dramatically different segments of the American economy.

Republicans represent the smaller, fading segment, with less-educated, more-homogenous work forces reliant on traditional manufacturing, agriculture and resource extraction. Democrats represent the larger, growing one, fueled by finance, professional services and digital innovation in diverse urban areas.

Screen Shot 2018-11-20 at 5.48.21 AMh/t 270towin.com – 2018 House Election Interactive Map. Note: A geographic map is deceptive, because there is a lot of “big empty” space in the middle of the country and in the west. A cartogram map weighted for population is more accurate, but one is not yet available for the 2018 congressional election.

Donald Trump carried 2,584 counties across the country, but calculations by scholars at the Brookings Institution showed that the 472 counties Hillary Clinton carried accounted for nearly two-thirds of U.S. economic output.

Now, new Brookings calculations show the same from 2018 House elections. With a few races still undecided, districts won by Democrats account for 61 percent of America’s gross domestic product, districts won by Republicans 38 percent.

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That economic separation underpins cultural divisions that usually command more attention. Says Brookings researcher Mark Muro: “The Democratic Party and Republican Party, at this point, really do occupy different economic worlds and represent different economic worlds.”

Analysis by the Brookings Metropolitan Policy Program documents the gap between them. Residents of districts won by Democrats generate 22% more output per worker, and have a 15% higher median household income.

In Democratic districts, 35 percent of residents have college degrees, compared to 28 percent in Republican districts. Employees are less likely to work in manufacturing (7.2 percent in blue districts, 11 percent in red districts) and more likely to work in digital services (2.5 percent compared to 1.1 percent).

Blue districts have attracted the expanding segments of the U.S. population and workforce; half their residents are non-white. Red districts are 27 percent non-white.

The new Congress starkly demonstrates those differences. Nine of 10 of House Republicans will be white men, calculates David Wasserman of the Cook Political Report, compared to just over one-third of House Democrats.

This array of measures reflects the concentration of Democrats in metropolitan centers and Republicans in small towns and rural communities. Population density in blue districts is nearly five times the level in red ones.

Comparing the 19 states that have elected two Democratic senators to the 21 with two Republicans shows similar disparities. The eight most affluent areas Muro calls “superstar metros” display an even greater partisan tilt.

Those eight – Boston; Bridgeport, Conn.; New York; San Francisco; San Jose; Seattle; Trenton N.J.; and Washington, D.C. – accounted for 16.4 percent of national job growth and 35.7 percent of digital services job growth between 2010 and 2017. Not a single Republican senator represents any of them. Of their combined 81 House seats, Democrats won 71 last week.

That makes economic divergence as central to 21st century polarization as race, gender and religion. And it highlights challenges for both parties as a Democratic House and Republican Senate share power in Congress.

Within the Democratic Party, it fuels tension between trade-friendly metropolitan economies and historic industrial union allies seeking trade protection. Less-affluent Democrats bridle at how booming tech firms – such as Amazon, which announced new headquarters for New York and the Washington suburbs this week – widen income inequality and price the working-class residents out of their communities.

Between the parties, economic divergence pits Democrats promoting investments in research, skills training and infrastructure against Republicans resistant to taxes and spending. Those clashes cloud prospects for boosting productivity, growth and global competitiveness.

“The advancing parts of the economy have to ask permission from the rear-view mirror parts of the economy to get the inputs they need,” Muro says. “That’s a problem our competitors don’t have.”

At the same time, the GOP’s small-government ethos constrains its ability to boost the struggling economic constituencies that Republicans represent. In 2016, for example, candidate Trump pledged to revive coal mining communities through deregulation rather than investment.

But coal mining employment has not reversed its long-term decline, and the government projects falling coal consumption this year and next. Owners of unprofitable coal-fired power plants have shuttered them at a record rate in 2018.

Muro has co-authored a forthcoming study on ways to narrow the geographic divide. It advocates a “place-sensitive” strategy targeting economic development toward 10-12 mid-sized “heartland metros,” and subsidies to make relocation more affordable for individual workers pursuing greater opportunity.

Republicans will respond with a knee-jerk response to dismiss this idea as “socialist central planning” of the economy, even though under Donald Trump they have abandoned free trade for protectionism under a trade war tariff regime. And how is that working out for “red state” constituencies?

The New York Times reports, A $12 Billion Program Bailout to Help Farmers Stung by Trump’s Trade War Has Aided Few:

America’s farmers have been shut out of foreign markets, hit with retaliatory tariffs and lost lucrative contracts in the face of President Trump’s trade war. But a $12 billion bailout program Mr. Trump created to “make it up” to farmers has done little to cushion the blow, with red tape and long waiting periods resulting in few payouts so far.

According to the Department of Agriculture, just $838 million has been paid out to farmers since the first $6 billion pot of money was made available in September. Another pool of up to $6 billion is expected to become available next month. The government is unlikely to offer additional money beyond the $12 billion, according to Sonny Perdue, the agriculture secretary.

The program’s limitations are beginning to test farmers’ patience. The trade war shows no signs of easing, with China and the United States locked in a stalemate that has reduced American farmers’ access to a critical market for soybeans, farm equipment and other products. Europe is planning more retaliatory tariffs on top of those already imposed on American peanut butter and orange juice, and Canada and Mexico continue to levy taxes on American goods, including on pork and cheese.

* * *

Farmers had mixed feelings about the bailout when it was announced last summer, as they tend to prefer free enterprise over government intervention, but many are disappointed as the subsidies have not made up for their losses.

“I don’t think this is going to be enough to compensate them,” said Eric Belasco, an economist at Montana State University and a scholar at the American Enterprise Institute. “It seems like there’s not really an end in sight.”

* * *

“This was supposed to make sure farmers were not the victims of this trade policy,” said Jim Mulhern, president of the National Milk Producers Federation. “I think most agriculture producers feel that the payments have not come close to making up for the damage for the tariffs.”

* * *

Farmers in general are having a tough year. The Agriculture Department’s economic research service predicts net farm income in the United States this year will fall by $9.8 billion, to $65.7 billion, a 13 percent drop from 2017. Weak pricing, tight credit and corporate monopolies have put pressure on farms in recent years, and new trade barriers have exacerbated their economic problems.

Soybean farmers have received the most generous subsidies, but even for them it has been too little, too late. Through mid-October, according to federal data, American soybean sales to China — the world’s largest importer of soybeans — have declined by 94 percent from last year’s harvest. The subsidy rate of 82.5 cents per bushel is covering less than half the losses of American soybean farmers.

Pork has also been getting pinched. The National Pork Producers Council estimated that China’s pork tariffs, which were a response to Mr. Trump’s steel and aluminum tariffs, could cost the industry more than $2 billion this year.

* * *

For many Republicans who oppose Mr. Trump’s trade policies, the program treats a self-inflicted wound. Senator Patrick J. Toomey, the Pennsylvania Republican, has said that the bailout “compounds bad policy with more bad policy.”

Anthony Orlando, an assistant professor at California State Polytechnic University, Pomona, confirms the Brookings Institute findings above. Is Trump country really better off under Trump? No. It’s falling further behind.

How have Trump voters fared economically, compared with Hillary Clinton voters?

Not noticeably better, according to the data. By most measures, my latest research shows, Trump counties — and especially counties with higher proportions of Trump voters — continue to fall farther behind the rest of the country economically. The story of our economy, like the story of our politics, continues to be a story of division and divergence.

Trump’s America vs. Clinton’s America

It is no secret that the country is as geographically fractured as it is economically unequal. In fact, the two trends are intertwined. In separate studies, economists Rebecca Diamond and Peter Ganong and Daniel Shoag revealed a widening gap in incomes, skills and wages between low-income and high-income regions, beginning around 1980. After decades of converging, in other words, our cities and states have been growing apart. The wider the income gap grows between the regions, they show, the harder it becomes for those in service and even blue-collar jobs to afford to live in high-income, high-rent places with high-quality amenities such as clean air, good schools, low crime, strong job markets, transportation infrastructure and retail stores.

Driven out of thriving communities by those rents, people who were just getting by are surrounded by others who were also struggling, in areas that the better-off had fled. That leaves a skimpy tax base, shrunken opportunities and economic segregation.

Thus, we increasingly live in two Americas, and we vote accordingly.

Consider the stark differences in basic measures of local economic performance — employment and housing prices — between counties where the majority of votes were cast for Donald Trump and counties where the majority voted for Hillary Clinton. The average Clinton county employs seven to eight times as many workers as the average Trump county, with nearly double the market value per single-family home. In part, this difference reflects the higher population density of the urban areas, which voted disproportionately for Clinton. But as my analysis shows, it has been growing over time, as the Clinton counties outperform their Trump counterparts.

Post-election, the more things change, the more they stay the same?

After November 2016, many Trump supporters told reporters that they expected this gap to narrow. In essence, they were hoping to see faster job growth — and income growth, which would drive up housing prices — to catch up to the rest of the country.

Looking at 13 months of data since the election, we can see that that hasn’t happened. The average Trump county added 1.13 percent more jobs, while the average Clinton county added 0.49 percent. These increases are quite small, especially considering that significantly fewer jobs existed in Trump counties to begin with.

Housing prices tell a similar story, with even more data stretching into 2018. Regardless of how I compare the counties, Clinton supporters consistently come out on top. Even though their housing prices started significantly higher than their counterparts in Trump counties, their value increases even faster after November 2016.

The major shortcoming of this comparison is that it fails to account for pre-election trends. Maybe the Trump counties aren’t growing faster than the Clinton counties, but at least they are improving relative to their previous performance? Maybe they’re bending their trend closer to the trend of the Clinton counties, even if they’re not overtaking them?

Not at all, it turns out. Using a standard statistical technique called “difference-in-differences,” I estimate the difference between Trump and Clinton counties before and after the election and show whether the difference … differs. In other words, I look at whether the economic performance gap narrows. The answer: No. Statistically, there appears to be no significant improvement in job growth. The gap in housing price growth actually widens. In fact, the larger the Trump electorate and the larger the degree of Trump support, the worse the county’s economic performance.

Finally, you might wonder whether it’s fair to lump all Trump voters together. Many of them would have voted Republican regardless of the nominee. Perhaps it makes more sense to focus on the voters who switchedto Donald Trump after voting for Barack Obama in 2012. Arguably, these voters were wooed specifically by the candidate’s promise to “start winning again.”

Even among these counties, however, there does not appear to be any improvement. Their performance is statistically indistinguishable from the performance of their fellow Obama counties that stuck with the Democrats in 2016.

Profesor Orlando concludes “these preliminary findings reveal the economic state of our nation remains much as it did before Trump’s election: divided as much by economics as it is by politics.”





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One response to “Republican economic policies cause their constituents to fall farther behind the rest of the country economically

  1. For Sure Not Tom

    I have a vendor telling my finance folks that prices are going up because of tariffs, and they’re raising prices on some things we need faster than we can update the contracts.

    So I have a large scale IT project for a Too Big To Fail financial company that’s been delayed weeks while our lawyers argue things out.

    Meanwhile, Ivanka Trump is registering trademarks in China and getting fast approvals because that’s how crime families work.