October 25, 2018

JOEL KOTKIN: One Nation, Two Economies.

Over the past few decades, the U.S. has developed essentially two economies. On the one side is the widely celebrated “post-industrial” economy: software, entertainment, media, and financial and business services. These sectors flourished as the stock market soared in the ultra-low interest-rate environment fostered by the Obama administration, whose recovery strategy was built around bailing out major banks, all headquartered in deep-blue cities. The winners under Obama included urban real estate, financial-service firms, and the tech oligarchs. These elements now constitute the Democratic Party’s burgeoning financial base, allowing it consistently to spend more than the GOP in key congressional races, while the GOP still gains support in energy and other less heralded “legacy” industries.

There’s a glitter gap between the parties, too. The Democrats now own the fashion, media, literary, and entertainment communities, in the process turning the putative party of the common man into the political vehicle of the leisure class. In contrast, during the depth of the recession, a much larger, more dispersed America struggled. As traditional industries like manufacturing, energy, agriculture, home construction, and basic business services declined, the progressive clerisy in forums like Slate crowed that these blue-collar jobs were never coming back. Unlike the tech oligarchy or the financial giants, these older sectors wielded little political influence under Obama and, in the case of energy, seemed destined for a radical downsizing.

These heritage industries and the people who work in them elected Trump. Despite repeated tales of how tariffs are destroying manufacturers, the industrial sector, after weakening at the end of Obama’s term, has been enjoying its best growth since the mid-1990s. Critically, incomes are up for the lower deciles of the labor force, including young workers. Nothing guarantees that this recovery will continue, but Trump can justifiably boast about accomplishing what Obama failed to deliver in eight years. Democrats might mutter that renewed growth has come from regulatory reforms and big corporate tax breaks, but that makes Trump’s point: a continuance of Obama-style economic and regulatory policy would have hurt most Americans outside of Wall Street and Silicon Valley.

Despite the media’s national obsession with gender and race, American politics continues to follow broad geographic and economic lines. The battle lines have changed over time, from a conflict between coastal merchants and southern farmers to splits over tariffs between western farmers and eastern financiers, and eventually to the battle between an ascendant Sunbelt and struggling older states in the northeast. Today we have a new divide, what might be described as the “tangible” sector versus the ephemeral; the French Marxist economist Thomas Piketty has aptly called it “the brahmin left against the merchant right.” One economy trades in digits, images, and financial transactions, the other in real goods such as cars, steel, oil, gas, and food. These economic sectors have often radically different imperatives.

The Bay Area economy, for example, depends on noncitizens for as much as 40 percent of its workforce, including relatively cheap, work-visa-shackled, latter-day indentured servants from Asia. This explains why Trump’s travel ban and other, often crude or insufficiently justified moves on immigration have helped transform Silicon Valley into a one-party political goldmine. This software-dominated economy, along with its cousins in Hollywood and finance, also is far less exposed to regulatory excesses than firms in manufacturing, home-building, or energy. Tech servers can be located in low-cost regions like the Pacific Northwest or the South, while manufacturing, highly sensitive to environmental regulation and electricity prices, has been relocated to places like Texas or the Midwest—or preferably to China—so that firms can produce gadgets without expanding their localized “carbon footprint.”

Any return to Obama’s energy policy—or the even more extreme one enacted in California—could set back the economic recovery in much of the country, most notably Appalachia, but also across the energy belt that extends from the Permian Basin and the Gulf to the Bakken fields in North Dakota. Even Democratic Texas senate candidate Beto O’Rourke, who in the past supported a $10 a barrel tax on oil, has a tough task justifying his position in oil-rich Texas.

The tangible and ephemeral economies create distinct political trajectories. In Texas or Tennessee, for example, working-class people can get decent jobs and aspire to homeownership and other aspects of middle-class life. Historically, Democrats and Republicans in these regions favored robust economic growth, battling mainly over how to achieve it. But today, a pro-growth bipartisan consensus is increasingly elusive, as Democrats adopt the environmental and lifestyle preferences of their often childless urban base. Superstar firebrands like Democratic congressional aspirant Alexandria Ocasio-Cortez can talk about going on a war footing to fight global warming because there’s not much industry left in her district in Queens and the Bronx.

Childless.

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