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Where You Are Born Determines Your Future… But Fixing That Reality is Vexing

July 12, 2018

A the title of a recent NYTimes Upshot article by Neil Irwin describes a reality that vexes both economists and policy makers: “One County Thrives. The Next One Over Struggles. Economists Take Note.” The article uses Loudon County VA and Jefferson County WV as exemplars of this phenomenon, but there are several other paired counties across the nation that have the same issues. Here’s Mr. Irwin’s description of the divide:

Economically, Loudoun County is humming from the technology boom in Washington’s suburbs, with the number of businesses rising 49 percent from 2005 to 2015. But on the other side of that border, Jefferson County doesn’t have the same economic dynamism: The number of businesses in the county fell 11 percent in the same period, according to census data.

Mr. Irwin uses this as a springboard for political analyses, noting that the poorer counties supported Donald Trump in 2016 while the more affluent counties trended toward Hillary Clinton. He also notes that average increases, which drive macro-economic thinking, often mask marked differences in well-being, differences that can put regions into a death spiral due to “path dependence”:

But averages can mask a lot of discontent. If growth in jobs, incomes and output is concentrated in a few areas, the overall national numbers might look perfectly fine even as people in huge areas of the country feel despair and a lack of opportunity.

Path dependence may be one cause of recent trends. In a place with a depressed economy, for example, the most ambitious people move to places with more opportunity, leaving an even bleaker situation behind.

Having consulted in school districts in poor counties in New England and worked in a relatively poor county in Maryland, I repeatedly heard the lament about the outmigration of the “best and brightest”. Even New Hampshire, which has a relatively strong economy, is trying to hold onto those “ambitious people” who work as entrepreneurs and provide forward thinking local leadership.

Mr. Irwin doesn’t offer any clear answers to the steps counties or policy makers can take to address this divide. He describes an idea advanced by the Third Way think tank that suggested two bad ideas bookending a relatively good one: “...a public fund to support small-business loans in the struggling regions, nationwide broadband internet and vouchers to help the unemployed move to places where there are more jobs.” Increased broadband would clearly help counties attract new technology related or impacted businesses and hold onto those who favor their hometowns over other areas where technology is more readily accessible. Small business loans might make a difference, but only if the loans are available to existing businesses as well as new ones, who often get benefits that create resentment among existing ones. The notion of offering vouchers to help the unemployed move would only exacerbate the negative economic cycle sine those left behind would tend to be the elderly or those who have extended families in the area. Irwin concludes with this:

Individual proposals aside, experts haven’t formed a consensus on how to make economically moribund places feel more like economically dynamic ones. But it is clearer than ever that this divergence explains much of what ails the United States’ economy, and just maybe its politics, too.

Here’s an idea for Mr. Irwin and the “experts”: invest in local government agencies— including public education— instead of businesses. Local government agencies employ highly educated individuals whose salaries will fuel the local economy and whose commitment to developing community will attract other businesses to move into the town. If you want to make a community more vibrant and more attractive to new business ventures and the in-migrants who would follow, you need to invest in local government as well as business.

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