- March 7, 2019
- Posted by: Trading
- Category: News
On the struggles of America’s working class and the rise of Donald Trump, the number crunchers often get confused.
They’ll say there’s no crisis of economic mobility. They’ll say there’s no stagnation of wages among blue-collar workers. And, in the realm of politics, they’ll say that Donald Trump’s base, while reacting to his proclamation that the American Dream was dead, had no legitimate grievances.
That’s because the number crunchers too often see individuals in too abstract a context, as rows or cells on a spreadsheet, to be sorted by individual traits such as age, sex, or income. They fail to see people as they actually live: in places, as members of a community with a particular location on our globe.
It’s the fatal abstraction.
Once we look at people in places, we see a much more complicated picture.
We see that many parts of America have incredible economic mobility, but many regions are dreadful on that score.
We see that the places most affected by trade with China have seen serious wage drops and unemployment spikes for blue-collar men, and plenty of worse consequences that follow. **And we see that, even if Donald Trump’s earliest supporters were doing fine on paper, they were living in places that were not doing fine.**
Start with how trade affects certain places in America.
The free-market story of free trade says that all involved nations benefit when they reduce trade barriers between them. This is true. The United States economy, as a whole, is richer thanks to freer trade—by one estimate our economy made an extra $2 trillion from trade liberalization since the 1950s.
But free trade was always going to produce some losers. In the U.S., low-skilled workers in manufacturing suffer, because that manufacturing shifts to cheaper overseas locales. The lower prices of goods, though, free up consumer money to spend on new goods or services, to be produced, presumably, by the ex-factory workers, even if at a slightly lower wage.
‘Never gonna be anything here’
Visit the Monongahela Valley where the Wheeling-Pittsburgh Steel factory used to operate, though, and you’ll see things didn’t work out that way.
Main Street in Fayette City is crumbling. Andrew Duda Sr. used to work at the steel mill. He was at Vargo’s newsstand, practically the only business open on Main Street when I visited in 2016.
“Just drive down through the river roads,” his son, Andrew Duda Jr., said, “from here through Monessen… it’s all shut down.”
“Areas like this,” the clerk at Vargo’s piped in, “there’s never gonna be anything here.”
The senior Duda, an old union guy, used to be a Democrat, but in 2016, he was fully behind Trump. “When Trump talks about the trade deals, he’s a hundred percent right. That NAFTA—that was the worst thing.”
Even before NAFTA and China’s entry into the World Trade Organization, international competition helped kill the Wheeling-Pittsburgh plant and countless others. The result wasn’t merely lower wages in the Mon Valley. It was economic and social devastation, including high unemployment, more men on disability, more drug abuse, and even more babies out of wedlock.
Trade shocks hit some places hard
Economist David Autor of MIT, focusing on the later, more dramatic trade shock caused by China, found: “Rather than modestly reducing wage levels among low-skill workers nationally, these shocks catalyze significant falls in employment rates within trade-impacted local labor markets.”
Autor has also found that the places in America exposed to competition with Chinese manufacturing also saw more deaths, more men on disability, and less marriage.
That is, the U.S. economy got cheaper goods, and some factory towns got destroyed.
Economist Raj Chetty has produced very different studies with a very similar theme: Where you live dramatically effects how you end up. “Places themselves have causal impacts,” is how economist Melissa Kearney summed it up.
Economic mobility is not really decreasing in America, most of the numbers show. Some economists hold this up as evidence that the working class and poor aren’t really stuck. But Chetty dug into the numbers on a local level and found very uneven levels of opportunity and mobility.
America may still be the “Land of Opportunity,” he found, but it’s really many lands of opportunity and many other lands of hopelessness. Chetty writes: “intergenerational mobility varies substantially across areas within the U.S.”
A kid born into the bottom quintile in Salt Lake City has an excellent chance (one in ten) of reaching the top quintile. That same kid, born in Charlotte, has only a 4.4% chance.
Families and communities matter
What distinguishes the places with the best mobility from those with the worst? School spending or progressive taxation don’t make much of a difference, the data suggests. The two biggest factors are the percentage of kids raised by intact families and the area’s score on measures of “social capital”—civic participation, number of churches, amount of volunteering, and so on.
That is, places with strong communities and strong families provide the most opportunity.
Finally, there’s the question of Trump. My new book, “Alienated America” explores why people believe the American Dream is dead, and how that belief contributed to Trump’s instant explosion onto the political scene in mid-2015.
Different studies of Trump’s core voters turned up different results. “We found little evidence to suggest individual economic distress benefited Trump,” one typical study proclaimed. One study at Vox.com explained that science disproved “the common sentiment that poor white Americans came out in droves to put Trump over the top in 2016.”
But a different study, published at FiveThirtyEight, found “Trump significantly outperformed Romney in counties where residents had lower credit scores and in counties where more men have stopped working.”
The same researcher found, “ More subprime loans? More Trump support. More residents receiving disability payments? More Trump support. Lower earnings among full-time workers? More Trump support.”
Plenty others found the same thing. So how to explain the difference between the studies that found economic woe behind Trump’s win, and those that found nothing of the sort?
The studies that denied the connection between economic woe and Trump were studies of individuals. The studies that saw that connection were studies of places.
It can be easy, if you live in a well-connected community in a thriving locality—as so many of our academics, commentators, and politicians do—and if you only study the topline aggregate data to miss what’s going on beneath the surface and on the other side of the tracks.
The true story of America today is that we are a great country, with many struggling places.