Political Economy

Economic Civil War

February 21, 2021

Our national divide is usually cast in terms of ideology, race, climate, and gender. But it might be more accurate to see our national conflict as regional and riven by economic function. The schism is between two ways of making a living, one based in the incorporeal world of media and digital transactions, the other in the tangible world of making, growing, and using real things.

Donald Trump, the irascible New York developer, focused on the places where the tangible economy was strong, but President Biden convinced enough voters in heartland states that their economic interests would be taken seriously. Some parts of the Biden agenda—measures to reshore industry, restore supply chains, and improve basic infrastructure—could unify the country across regional lines.

Biden’s early actions, however, focused on policies that are more popular in Manhattan and Malibu than Midland. This is painfully evident in the Administration’s early call for tight restrictions on fossil fuel development. President Biden has promised to spend $500 billion each year on abating climate change—about 13 percent of all federal revenue. Its economic impact, estimates economist Bjorn Lonborg, would reach $5 trillion, more than the entire federal budget.

Other actions—like massive new transit investments or policies that force high-density housing and racial quotas on suburbs—may please his base and the media, but are certain to arouse opposition throughout parts of the country where people work in  factories, warehouses, farms, mines and the energy sector, live in lower density neighborhoods, and value the notion of upward mobility for most Americans.

Regionalism, American style

America has always been a nation of regions and interest groups, often in conflict with each other. Class and economic concerns underlay cultural and political struggles over the Revolution and Constitution. Not just a Marx can observe that the Civil War involved a conflict between powerful, rival economic interests. The slave-driven Southern economy rested upon the export of commodities to Britain and the rest of Europe—primarily cotton but also tobacco and other foodstuffs—while the North was an emerging industrial power whose ambition was to displace these same established powers.

The Civil War led to a consolidation of power in the great cities of the Northeast and Midwest, and the Second World War shifted influence further, largely to the West Coast. More recently this ascendancy has been challenged by other states, notably in Texas and the South, which have gained population, wealth, and political influence, while the still struggling heartland has emerged as the political “decider” in national elections.

Trump , in large part due to his flawed character, may have lost too many of those voters to win the election, but the parts of the country that continued to back him—like Texas and the South—remain ascendent. These states were gaining ground in terms of jobs and people before Covid, and generally have been rebounding faster than those on the coast. In contrast, the core Biden states—California, New York, New Jersey, and Illinois—continue to lose people and jobs.

The Energy Dilemma

Energy represents the single biggest issue dividing our regions. States that produce fossil fuel energy view the idea of a rapid “decarbonizing” of the economy differently than states possessing little such energy or which, as in California’s case, feel too enlightened to use it. Except for California, all the major energy producing states voted for Trump at least once and have become increasingly Republican over the course of this century.

From an economic point of view this allegiance makes sense. Among Biden’s first actions was to cancel the Keystone Pipeline, with a potential loss of upwards of 10,000 jobs, many of them unionized and concentrated in the heartland. Attempts to squelch fracking—there’s already a ban on new leases on federal lands—could cause major job losses from in places like the Rockies, Ohio, Pennsylvania, and Oklahoma. In Texas alone, as many as a million good-paying jobs would be lost. Overall, according to a Chamber of Commerce report, a full national ban would cost 14 million jobs, far more than the 8 million lost in the Great Recession, with the potential of turning vital smaller towns into instant slums.   

Most Americans suspect Biden’s embrace of a draconian climate agenda will cost jobs, and view promises of millions of new green energy jobs as stale and bogus. They may also feel the pain of reduced support for public services like education in states like New Mexico, which depend largely on oil revenues from federal lands. A ban on attempts to regulate and eliminate fracking on private lands, something Vice President Kamala Harris has endorsed, would also cut a prime source of funding for the University of Texas; green virtue and the salaries of UT’s largely progressive faculty may soon collide.   

Manufacturing Feudalism

The impact of energy policy goes well beyond oil field and pipeline workers. Energy impacts a broad set of industries, such as manufacturingagriculture, and transportation. Low energy prices attract foreign firms, particularly from Germany, where energy prices are among the highest in the world.

Green policies that seek to eliminate fossil fuels have a distinct regional and class dimension. These policies tend to hit those blue collar industries that depend on resource-based product; a cancelled petrochemical plant in Ohio is a blow not to Washington regulators or San Francisco trustafarians but blue collar Midwesterners. States like Indiana, Wisconsin, Michigan, Iowa, and Alabama are between two and three times more dependent on industrial employment than New York, Massachusetts, or even California, all once industrial powerhouses.

The progressive agenda on climate tends to work against these industries. Ever since California decided to lead the “war” against climate change in the past decade, the Golden State has fallen into the bottom half of states in manufacturing sector employment growth, ranking 44thlast year; its industrial new job creation has lagged compared to gains from competitors such as Nevada, Kentucky, Michigan, and Florida.Even without adjusting for costs, no California metro ranks in the US top ten in terms of well-paying blue-collar jobs. But four—Ventura, Los Angeles, San Jose, and San Diego—sit among the bottom ten.

For working class consumers, green virtues have led to the rapid expansion of energy poverty in California, largely in the impoverished and hotter interior. This can also be seen in Europe, which has implemented strict green policies. As many as one in four Germans, and three-fourths of Greeks, have cut other spending to pay their electricity bills, which is the economic definition of “energy poverty.” A recent study in Environmental Economics, concluded, for example, green energy policies hit rural communities in Germany much harder than cities, even though they are “on a par” with big cities in terms of GHG production.  

Repealing Geography

In making their case for draconian energy policies, progressive politicians often cite “green jobs” as a substitute for positions that may be eliminated; President Biden commonly brushes away concerns about job losses with this appeal. Yet it’s unlikely that oil riggers, geologists, welders, haulers, and machine tool operators now thriving in the south and the heartland will be too thrilled by the promise of “green jobs” advanced by Biden Administration spokespeople, since these pay far lower salaries, are usually shorter term, and far less likely to be unionized.

More serious still, Biden’s team must address the fact that the key Democratic base—the big coastal core urban areas—has been fundamentally undermined by the pandemic, last summer’s disorders, and a steady rise in crime. Critically, the shift to on-line work undermines the fundamental logic of dense core cities by driving talent to other regions. An estimated 42 percent of the 155 million-strong U.S. labor force is working from home full-time during the pandemic, up from 5.7 percent in 2019. Experts like Stanford economist Nicholas Bloom suggest it will remain at least 20 percent of the workforce even after the pandemic ends.

The big cities face a huge challenge. One recent report from Upwork finds that between fourteen and twenty-three million Americans are seeking to move to a less expensive and less crowded place. A recent Harris poll found that upwards of two in five urban residents are now considering a move to a less crowded places. The latest consumer survey from the National Association of Realtors found that households are “looking for larger homes, bigger yards, access to the outdoors and more separation from neighbors.”  

Leading tech firms, including FacebookSalesforce, and Twitter, now expect a large proportion of their workforce to continue to work remotely after the pandemic. Some three quarters of venture capitalists and tech firm founders, notes one recent survey, expect their ventures to operate totally, or mostly, online. The largest gains in tech workers since the pandemic began, according to a study by Big Technology, are in Madison, Cleveland, and the suburbs around New Haven while New York City, San Francisco, Boston, and Chicago have taken the biggest hits.    

Can Democrats Cope?

The big question facing President Biden will be how to address the country’s emerging new geography. Suburbs, not big cities, are the critical territory for the future. In the decade before the pandemic, more than 90 percent of major metropolitan area growth took place in the suburbs and exurbs, a trend that is now apparently expanding. Policies boosting middle class jobs, fixing roads, and improving schools and health care would appeal across sectional and geographic lines.

But Biden will also be pressured by urbanistas like the Chicago Council on Global Affairs, who refuse to acknowledge the critical shifts in preferences and expect the new Administration to service their needs first. Big-city mayors like New York’s Bill de Blasio look to Biden to bail out their often-enormous debt. Others want him to force suburbs to accept more dense housing as a way to relieve themselves of their poor populations. They also expect him to invest massively in what was already-failing mass transit and spend hugely on high-speed rail, even in the face of widespread cost overruns and painfully slow construction, most evident in California’s botched approach.

Progressives want the vast interior of the country to serve the “green energy” agenda popular in large metropolitan areas. After all, placing ultra-hot solar farms in the desert does not bother coastal elites, and allows them to satisfy their energy virtue in ways that mean they can avoid looking at windmills. According to a 2019 report by The Nature Conservancy, California’s decarbonization will require as much as 3 million acres of natural and agricultural areas to be turned over the solar and wind farms. A 2015 study by the Carnegie Institution for Science and Stanford University suggests that building enough solar power to reduce U.S. emissions by 80 percent in 2050 could require upwards of more than 27,500 square miles, destroying both farmland and unique natural habitats along the way.    

It is not likely that the interior states will accept such a diminished, subsidiary role. For most of the past few decades, huge swaths of the country, most notably the South and the Great Plains, have struggled to overcome a history of economic marginalization. They once could count on politically moderate Democrats like Byron Dorgan in North Dakota or John Breaux in Louisiana to keep their interests in front of party leaders. Now, blue state Democrats like Ohio’s Marcy Kaptur or Tim Ryan decry what appears to be the abandonment of their constituents. Ultimately the White House may realize that it is a fool’s errand to deny geography. Instead, Biden can appeal to those parts of the country that are growing in both population and economic might. If he fails to do so, we could see the Republic move closer to disunion than any time in the past 150 years.

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Originally published by The American Mind.

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