The Arrogance of Power
According to the Meltzer-Richards version of the median voter theorem, the greater the distance between the median voter’s income and the average income of society, the more inequality there is. As the remedy is presumed to be redistribution, the median voter is said to choose the size of government because s/he is choosing the tax rate. But this assumes the median voter functions in one economy. Instead of thinking of the U.S. as a single economy, it might be more appropriate to think of four regional economies. This means that one size fits all policy problems cannot work.
Inequality, for instance, is greater in the Northeast and West, and less so in the South and Midwest. If the median voter is opting for increased redistribution as a corrective, this might indeed be the case in the Northeast and West. The median voter in the South and Midwest, however, would have absolutely no reason to choose higher taxes in the South and Midwest. Is it any wonder, then, that regional politics are different?
Indeed, voters in the South, much of which are red states, tend to be more conservative and generally do not favor redistributive politics. Not only is there less dispersion in wages, but a higher percentage of workers in the South are in manufacturing than in other parts of the country, whereas a considerably higher percentage of workers have graduate and/or professional degrees in the Northeast. In the South and Midwest, there are more skilled workers in blue-collar occupations.
In the Northeast specifically, there are more workers who are highly educated workers at the top of the distribution and more poorly educated workers at the bottom. All of this is to say, there is more of a middle class in the South and the Midwest. Given these differences, it can reasonably be assumed that voters in the South and Midwest don’t see quite the same need for the type of redistribution, or redistribution at all for that matter, that voters in the Northeast and West see.
It also suggests that when national politicians, especially those hailing from the Northeast, propose more redistributive policies, there is more likely to be resistance from those regions where inequality is less. And yet, more often than not, Washington takes a one-size fits all approach to economic policy.
It is true that the Constitutional Convention of 1787 sought to address the lack of interstate regulatory authority under the original Articles of Confederation. A federal system where it was assumed that states would be responsible for domestic affairs was theoretically supposed to be more attentive to the needs of the people. But a national economy also needs a strong national government that has both power and authority to regulate and address pressing national problems.
Those problems, however, cannot be defined as what might serve the interests specifically of the Northeast. Much of the Washington establishment is rooted in the Northeast, having been educated in the Northeast. It forms a prism through which the rest of the country is viewed. If public policymakers formulate policy based on the median voter of the Northeast, they are totally ignoring the median voters in other regions of the country. Just as the coasts don’t reflect the interests and preferences of the rest of the country, neither does the Northeast.
There would appear to be countless examples whereby officials in Washington set themselves on a policy course in which the expectation is that the economy as a whole will benefit. Green energy policy, for instance, is supposed to clean up the environment, but its costs are being borne by those working in the fossil fuel industry. Much of this industry is located in the South. Is it any wonder that there is resentment towards the Northeast where many of the architects of this policy can be found?
Applying the breaks on the economy to control inflation by raising interest rates will have an impact on those sectors of the economy sensitive to interest rates. This could have an adverse effect on what remains of the manufacturing sector. The region with the strongest manufacturing base can still be found in the South. Again, is it any wonder that there would be resentment from those regions where manufacturing remains towards those regions, or primarily one region, where many are employed in information technology.
Fed policy, of course, may be somewhat tricky because it is based on monetary policy that was developed in major universities. But many of these universities where Fed governors have trained, and where the neoclassical model reigns supreme, are indeed in the Northeast. Even though neoclassical economics has spread to universities across the country, many of their faculties were nonetheless trained at elite institutions in the Northeast.
Previously in this space I have written about the tale of two economies: blue state and red state economies. Four different regional economies is probably more accurate. And yet, there is considerable overlap. The economy of the South is primarily red whereas the economy of the Northeast is blue. Much of the Midwest economy is red, with any number of blue states mixed in, and much of the West’s economy is blue with some red states mixed in.
This, of course, begs the following question: Are certain states red because they are in a region in which the economy is such that there are more opportunities to have a middle class existence whereas other states are blue because they are regions where their economies no longer offer such opportunities? It can’t be enough to say that the South is red and the Northeast is blue because of ideological differences. On the contrary, there are serious economic differences driving the apparent ideological divide.
Differences between the Northeast and South parallel the differences between blue states and red states in terms of wage inequality, industrial and occupational composition, and educational attainment, which to some extent can serve as a proxy for skills. If the median voter in the South is choosing the size of government, it is clear that s/he is choosing a smaller government than the median voter in the Northeast. There simply is no need to adopt redistributive policies in the South that the Northeast may think is essential.
It could be that much of the apparent failure of policy at times is the failure of national policymakers to seriously engage these regional differences. It may well be reminiscent of the late Daniel Patrick Moynihan’s famous observation that the War on Poverty failed because of “maximum feasible misunderstanding.” That is, policymakers in Washington intent on formulating national policy didn’t go into the communities they were trying to help and actually discuss those communities’ needs. At the end of the day, it boils down to the arrogance of power.