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  • Oren Levin-Waldman

Red States Cannot See Wage Inequality in the Same Way that Blue States Can

I have written in this space in the past about how polarization in America is really about a tale of two economies and their respective labor markets. This division, of course, has created a prism through which each approaches policy. Therefore, it would come as no great secret that blue state economies would respond differently to rising wage inequality than would red states.


Blue state economies have more workers at the top of the distribution with advanced degrees working in high tech jobs, finance, and the professions than do red states. They also have more people at the bottom of the distribution who are considered to be low skilled. Hence the gap between the two is larger in blue states than in red states, where there is less dispersion in large measure because there are more workers working in skilled blue collar occupations than in blue states. In short, there is more wage inequality in blue states than in red states.


What also separates blue states from red states is that some remnants of an old industrial economy that have all but disappeared from blue states still remain in red states. Understandably, there is concern over the future direction of red state economies and consequently greater anxiety among red state workers. And yet, because wage inequality in red states is not nearly as great in red states as it is in blue states, wage inequality may not be perceived as a problem there at all.


It will be recalled from previous discussions of the median voter theorem that the greater the distance between median voter’s income and the average income of society, the greater is the level of inequality. In a variant of this model, known as the Meltzer-Richard model, the median voter effectively chooses the size of government because the median voter chooses the tax rate.


In other words, the policy response to rising inequality is redistribution, and the assumption is that the median voter will choose a higher tax rate to finance programs, including money grants, that can benefit those at the bottom, which will of course be paid for by those at the top. The higher the tax rate, the argument goes, the bigger the size of government. Stated another way, as inequality rises, the natural response ought to be a larger and more developed welfare state.


Of course, this is a step to avoid the strife from rising inequality that could lead to revolution, which any number of econometric models predict will happen in response. But revolutions are generally a last resort. The typical model assumes a more authoritarian society whereby authoritarian rulers respond by taking steps to democratize society. In a democratic society, this would leave redistribution. Marxists have long argued that welfare state programs are nothing more than throwing a bone to the masses in order to keep them quiet and preserve the capitalist system.


Now who would have thought that Marxists shared something in common with Burkean style conservatives? The Burkean conservative argues for what appears to be a radical step intended to conserve the traditions of the past. During the 1930s, the New Deal and the welfare state that emerged were indeed radical departures, but the objective was to preserve capitalism.


With what we know about the effects of rising inequality in the U.S., there would appear to be a contradiction here. Public officials, as many studies have shown, have been less responsive to less affluent groups, i.e. those in the middle class on down. As rising inequality has resulted in less of a middle class, public officials have tended to be responsive to only the affluent. And while rising inequality should result in greater redistribution, it is no longer a foregone conclusion that public officials would even be responsive to the median voter.


And yet, total non-responsiveness could result in violence, which now brings us back to our blue state/red state divide. Blue state elites and most elites, who are also members of the professional/managerial class, are mostly found in blue states. They are the ones calling for greater redistribution. They are the ones calling for higher taxes on the wealthy with more supports going to those at the bottom of the distribution. The more progressives among them even call for a universal basic income (UBI), which, of course, would be paid for with higher taxes.


There can be no question that these blue state elites seek to preserve their privileged positions of power. Despite what appear to be assaults on free markets, these same elites seek to preserve capitalism which serves their interests. But those in red states may not see the same urgency for redistribution that blue state elites do.


Because wage inequality is considerably less in red states than in blue states, they may not see inequality as a problem at all. It would follow, according to the Meltzer-Richard model, that while blue states are choosing higher tax rates and bigger government, red states are choosing lower tax rates and smaller government. They might view blue states as attempting to ram policy responses to problems that don’t exist down their throats.


If there is still a semblance of a manufacturing based economy and more opportunities for skilled blue collar workers, then the main concern of red state workers is the maintenance of good paying jobs; not programs that require higher taxes. That is, it isn’t a difference between higher and lower taxes based on conservative versus liberal ideology. Rather, red states simply don’t see the need for higher taxes whereas blue states do.


Still, we have real polarization on policy grounds, and polarization that can indeed be nasty at times, which is rooted in significant differences between blue state and red state economies. For blue state elites, red state workers just don’t understand the problems plaguing the nation, and that everybody has a responsibility, especially the wealthy, to pay higher taxes. For red state workers, blue state elites are simply tone deaf to their concerns, which is that the industrial base that has left the blue states can still disappear from red states. That deeply troubles them.


These workers don’t want programs; they want good paying jobs. Is it any wonder, then, why free college tuition might not resonate among red state workers the same way it does among blue state workers? They want to keep the economy they have; they really have no desire to be part of the global economy that has destroyed blue state economies.


In the end, then, this type of divide makes it all the more difficult to find a consensus response on most policy, especially rising wage inequality. A tale of two economies becomes a tale of two societies. It may make some feel better to dismiss our polarization as a divide between liberals and conservatives, but it truly misses the mark. The two camps simply don’t understand each other, which only makes unity a greater challenge.

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