The Rural v. Urban Political Divide And Adults Our Economy Doesn't Need

What Was Wrong With Real World Socialism?

The standard Econ 101 explanation for the failure to communist-socialist economic systems is that by separating rewards from productive activity, they destroy the incentive to be productive and efficient. In Econ 201 you may further learn about the deep flaws in the Marxist Labor Theory of Value.

Neither of these explanations are entirely wrong, but they give rise to a misleading narrative that can lead to bad policy focused on monetary incentives for individuals to make them individually more productive.

In truth, the connection between rewards that serve as incentives and the nature of the work that most people do is only indirect and attenuated for the vast majority of actors in the economy who don't interface directly with the market. For most people, the main incentive to work and work well is to avoid being fired and to be promoted by managers hired by an employer, and that holds just as true in socialist economies as it does in capitalist ones.

It turns out that in practice, the number one thing that socialist economies do poorly and capitalist ones do will, is shut down firms that fail to be economically self-sufficient at the firm level. In socialist economies, failing firms are subsidized and given far too many second chances.

The United States has relative few large, economically not self-sustaining, firms. The most notable of them is AMTRAK, the national passenger rail company, which survives only on large, wasteful operating subsidies for an inferior product in an a company that is not at all innovative. 

Socialist economies, historically, have had vast numbers of AMTRAKs that constituted an immense drain on their national economies and impeded progress.

Why Is There An Urban-Rural Divide?

What does this have to do with the urban-rural political divide in the U.S.?

The connection is that the urban-rural political divide in the U.S. and many of its other current political pathologies, are to a very large extent, although not exclusively, driven by a prosperity gap. Urban areas in the U.S. are economically productive and affluent and have political values that are associated with affluence and economic security. Rural areas in the U.S. are far less economically productive, poor, and economically insecure, and have political values that are associated with those conditions.

In particular, conditions in "red America" which is disproportionately found in rural areas and small towns, have been so profoundly stagnant economically for the last fifty years that whole political communities have given up on improving the system and are resorting to nihilism, sour grapes, and a "burn the whole thing down" attitude towards democratic capitalism, science, and any notion of a shared factual reality that can be discerned from trustworthy sources.

Why does this happen?

In an idealized Econ 101 world, disparities between poor economically unproductive areas and rich economically productive areas are resolved by people moving from poor areas to rich areas until an equilibrium is reached.

If this happened, there would still be urban v. rural political divides in the U.S., but they wouldn't be nearly as severe and would have a very different character.

But, of course, we don't live in an idealized Econ 101 world. There are barriers to migration from unproductive rural to productive urban areas that undermine these incentives, there are barriers to migration generally that act as "friction" in the system regardless of the incentives, and there are factors the tie people to unproductive areas.

Technology has relentlessly reduced the need for rural workers from the year 1800 to the present, in almost every single year. There has been gradual migration to cities, but it hasn't kept up and hasn't been rapid enough to resolve the imbalances.

A huge array of subsidies and regulatory incentives allow rural business and towns to continue with minimal disruption when they no longer make economic sense, and despite the externalities, like misallocation of scarce water supplies, environmental damage, and worker mistreatment that results from these choices. Most of the farms in the United States aren't productive enough to support even a single family, but policy incentives and sentimental attachments to those farms, keep them from going anyway. Our nation's rural economies have millions of AMTRAK firms that are not failing and being shut down when they should be. Rural America also has millions of retirees outside the workforce who cling to homesteads where it is vastly more expensive to provide them what they need than it is in urban areas, leaving the difference split with both higher costs, mostly subsidized by the government, and inferior services.

There is also a sorting effect. 

Economically productive urban areas have lots of meaningful work that requires educated and skilled people to do it, but struggles to find opportunities for work that is productive enough to support a living wage for people who are less educated or less skilled.

Rural areas, due to a steady flow of outmigration (even though it isn't fast enough) have low housing costs which keep the costs of living low, and have industries that haven't modernized because government policy buffers make it possible for them to stay in business without doing so, and these less modern businesses have more uses for less educated and less skilled workers that are sufficiently productive to cover a local living wage, although these jobs too are increasingly scarce leading to stagnant wages and regular bouts of unemployment.

As a result, urban areas get to first pick of the labor market, and rural areas are left with the gleanings and with people who are continuing to live there despite strong economic opportunities elsewhere for non-economic reasons. This just further magnifies the productivity gap and makes the divide worse.

Alleviating The Urban-Rural Divide

We could, as a matter of government policy, gradually "take off the training wheels" and "crutches" that prevent unproductive rural firms from failing. 

We could cease to allow rural retirees to make an extremely costly economic choice to remain where they lived their working years free of incentives to align themselves with the economic costs that society faces as a result of their choices.

If we did so, rural areas would depopulate faster, rural economies would modernize and become more productive, and the people who remained in those areas would be more affluent and economically secure. 

As a result of these changes, the "fuck the system" and "damn the truth" subculture that has evolved in rural America would fade away. So would deaths of despair from causes like suicide in rural areas and opioid overdoses in rural and small town America. The urban-rural divide in the American economy would wane to a manageable level that would enhance the long term health of American democracy.

The Problem Of Adults Our Economy Doesn't Need

Of course, that's only half the problem.

Ending subsidies for the rural economy and people unreasonably staying in rural areas when they retire would solve the rural-urban political divide to a manageable extent. 

But it would leave unresolved a second and distinct problem that isn't intrinsically related to it, even though they coincide in the early 21st century United States.

The other problem is that our society has lots of people, especially working age men, who aren't college educated and don't have skills that continue to have economic value sufficient to justify paying them a living wage in a modern economy, but who are unable or unwilling to do what it takes to become more useful and more productive, as a larger share of their female peers have. 

If the slack that subsidies create in the rural economy were removed, the uneducated and unskilled men in those economies would have no haven or way to survive, and would be even more desperate and alienated.

Our entrepreneurs have failed to come up with work for them that is economically productive enough to support a living wage for more than a small minority of them.

Their economic malaise drives a great deal of crime, family failure, child abuse and neglect, political resentment, civic distrust, and general societal malfunction.

So, the second half of the problem is to find something worthwhile for them to do.

Finding Something For Unproductive Workers To Do

Perhaps this means finding ways to transfer wealth to them with dignity in order to prevent them from causing trouble for everyone else.

To some extent, rural subsidies have been a backdoor way to achieve these ends, but they've produced considerable unforeseen political and economic side effects that are reaching a breaking point.

In times of war, we've addressed this problem as a society by widespread military enlistment. Yet, at the moment the U.S. military has a near record low number of active duty military personnel and yet the Army is still struggling mightily to recruit enough people who meet its minimum standards to fill its ranks. Even the Army struggles to find any use for many of the members of this alienated group of uneducated and unskilled men. (Note that one can be skilled and can be smart without  higher education, but the skilled and smart uneducated men aren't the problem.)

In the Great Depression, less successfully, we tried to address this problem with programs like the Civilian Conservation Corps and public works construction programs. 

Today, it is a difficult, complex, and central problem faced by our society that I don't have an easy answer for while writing this post. 

A higher minimum wage solves the living wage problem, but leaves other people who aren't productive enough to justify a minimum wage pay as an economic proposition more often unemployed. 

A low minimum wage, however, results in backdoor subsidies of marginally productive for profit businesses that can continue to do business only if they pay their employees a living wage, when their employees need government support on top of their wages to survive. 

It creates a legion of AMTRAKs, even though it does it less obviously. It is something of a Goodwill Enterprises business model, with hidden subsidies for marginal workers (in the case of Goodwill, financed with charitable organization tax breaks and private in kind charity in the form of donations of unneeded goods).

Also, when the minimum wage is too low, very profitable businesses can pay workers much less than their economic productivity as a result of government welfare benefits to those workers that makes the situation sustainable, because the ability to survive with a sub-living wage undermines the bargaining position of overabundant unskilled and uneducated workers, with an economic effect that transfers money spent on government welfare benefits for low income workers to top executives and owners of firms that pay wages far lower than they could afford to the workers receiving those subsidies. This, in a nutshell, is the story of Walmart and is, at least in from my perspective, even more problematic.

There have been dozens of serious efforts in the post-World War II era to establish job training programs for displaced workers, and pretty much every single one of those programs, except public higher education and military enlistment, have been dismal failures that end up on the scrap heap of failed policies that are forgotten when policy makers go down that path once again.

This post merely motivates the need for a solution and the nature of the problem, rather than offering up a simple solution to it and briefly illustrates the difficulties associated with some of the most obvious solutions. 

I'll ponder better solutions to this problem on another day.