Posts in OSR
Press Release: Bring the Small Business Administration into the Twenty-First Century

WASHINGTON, D.C., June 10, 2019 — As Congress considers the first reauthorization of the Small Business Act since 2000, the Niskanen Center and the Information Technology and Innovation Foundation (ITIF) have organized a coalition letter in support of reforms that will bring the Small Business Administration (SBA) into the twenty-first century.

“The last two decades have seen a disturbing decline in the formation of young, high-growth firms,” notes Samuel Hammond, Director of Poverty Welfare Policy for the Niskanen Center. “The disappearance of small businesses that scale quickly does not bode well for the health and dynamism of the American economy. Fortunately, the bipartisan reauthorization before the Senate Committee on Small Business & Entrepreneurship contains a number of important reforms designed to reverse this trend, in addition to a suite of long-over modernizations.”

Recent work from the Niskanen Center’s Struggling Regions Initiative, headed by Mr. Hammond, and by Dr. Robert Atkinson, President of ITIF, have both highlighted the need for SBA reform. They are joined on their letter by:

Dani Rodrik
Ford Foundation Professor of International Political Economy
John F. Kennedy School of Government 
Harvard University

John W. Lettieri
Co-founder and President
Economic Innovation Group

John Dearie
Founder and President 
Center for American Entrepreneurship

Carrie Hines
President & CEO
American Small Manufacturers Coalition

Sridhar Kota
Executive Director
MForesight: Alliance for Manufacturing Foresight

Oren Cass
Senior Fellow
Manhattan Institute

Mark Muro
Senior Fellow and Policy Director
Metropolitan Policy Program
Brookings Institution

Andrew Stettner
Senior Fellow
The Century Foundation

David Adler
Co-editor of “The Prosperity Puzzle: Restoring Economic Dynamism”
XA Investments

Originally posted at the Niskanen Center.

How Opportunity Zones Can Help the South Reach Its Full Potential

Economic divergence between urban and rural economies is as much a story about the South as the struggling Rust Belt. As the Wall Street Journal highlighted in a recent feature, the South’s decades-long convergence to the rest of the country has halted since the Great Recession:

In the 1940s, per capita income in the states historians and economists generally refer to as the South — Louisiana, Mississippi, Alabama, Georgia, the Carolinas, Virginia, West Virginia, Oklahoma, Arkansas, Tennessee and Kentucky — equaled 66.3% of the national average, according to historical data reconstructed by University of Kent economist Alex Klein and The Wall Street Journal. By 2009, that had climbed to 88.9%. That was the high-water mark. By 2017 it fell back to 85.9%.

It is true that incomes in the South have stopped gaining ground on the rest of the country, but the story is more complicated. The South is also home to some of the fastest-growing cities in the country, among them Atlanta, Charlotte, Raleigh, and Charleston. While their West Coast and Northeastern counterparts have enacted restrictive zoning laws that drive up the cost of living and deter in-migration, these fast-growing metros have so far avoided that temptation and remain magnets of economic opportunity. At the same time, places outside these cities have been struck by high poverty, job loss, and other forms of social hardship, driving overall regional economic outcomes away from the rest of the country.

The self-sorting of workers from struggling towns to places offering higher wages and living standards is an important driver of national growth. Policymakers in the South should continue to facilitate the migration of workers to the booming cities of the Sun Belt, but they must also pursue smart place-based policy to assist the communities that migrants leave behind. It is not a fact of life that vast swaths of the region are destined to succumb to stagnation and lag the rest of the country, and with a careful reconsideration of longstanding economic development practices, the South can reverse their divergence and spur more broad-based growth.

Read the rest at the Niskanen Center.

The Density Divide: Urbanization, Polarization, and Populist Backlash

In this new paper, I weave recent research in political science, economics, psychology and more into an account of political polarization and the rise of populist nationalism as a surprising and overlooked side-effect of urbanization.

I claim that we've failed to fully grasp that urbanization is a relentless, glacial social force that transforms entire societies and, in the process, generates cultural and political polarization by segregating populations along the lines of the traits that make individuals more or less responsive to the incentives that draw people to the city. I explore three such traits — ethnicity, ideology-correlated aspects of personality, and level of educational achievement — and their intricate web of relationships. The upshot is that, over the course of millions of moves over many decades, high density areas have become economically thriving multicultural havens while whiter, lower density places are facing stagnation and decline as their populations have become increasingly uniform in terms of socially conservative personality, aversion to diversity, and lower levels of education. This self-segregation of the population, I argue, created the polarized economic and cultural conditions that led to populist backlash.

Because the story of urbanization just is the story of a strengthening relationship between density, human capital and economic productivity, it's also the story of relative small town and rural decline. The same process that has filtered better-educated, more temperamentally liberal whites out of lower density places has left those places with less vibrant economies, but also with more place-bound, ethnocentric populations.

Read the paper at the Niskanen Center.

Elizabeth Warren wants an industrial policy. Here are the traps to avoid.

In a new campaign proposal for reviving American manufacturing, Sen. Elizabeth Warren (D-MA) argues that American companies have recklessly offshored industry, prioritizing shareholders at the expense of working- and middle-class jobs. To address this situation, she calls for aggressive interventions that include:

  • Weakening the U.S. dollar to spur export industries;

  • Expanding publicly funded R&D;

  • Requiring the government to purchase American-made products;

  • Investing in postsecondary apprenticeship programs;

  • and creating a “Department of Economic Development” to coordinate trade- and development-related agencies around a National Jobs Strategy.

Warren cites the experiences of Germany, Japan, and China as countries that have had success with industrial policies America is allegedly too timid and constrained to pursue. “If we want faster growth, stronger American industry, and more good American jobs,” she writes, “then our government should do what other leading nations do and act aggressively to achieve those goals instead of catering to the financial interests of companies with no particular allegiance to America.”

Sen. Warren’s proposal comes at a time when “industrial policy” — once a term of derision — is gaining plaudits among commentators and academics alike. But enthusiasm for what Warren calls “economic patriotism” must be tempered by careful analysis of the specific policies being proposed. In what follows, I take a closer look at the tools other rich countries have used to develop and sustain globally competitive manufacturing industries, and gauge their applicability in the U.S. context.

Read the rest at the Niskanen Center.

Has Trump Handed Democrats an Opening in Red America?

President Trump’s feckless trade war is bludgeoning the bottom line of the Republican Party’s reliable rural base. But the party’s disregard for the economic interests of its own constituents goes well beyond barriers to Chinese markets.

Small towns and rural areas, along with some Rust Belt metros, are falling ever further behind booming urban dynamos — leaving many heavily Republican regions in a deepening morass of economic deterioration, joblessness, substance abuse and declining life expectancy. The lower-density places most Republicans call home produce barely half as much wealth as our biggest cities — and it’s showing.

Yet the travails of America’s struggling red regions, and practical ideas about might be done to alleviate them, are barely mentioned in right-leaning policy circles. For example, “The Once and Future Worker,” a widely discussed book by Oren Cass, a former economic policy adviser to Mitt Romney now at the Manhattan Institute, focuses on initiatives to expand employment and wages for American workers but largely neglects the changing geography of economic output and opportunity behind the woes of heartland workers.

Worse, the Republican Party under Mr. Trump has blundered into a positively anti-rural economic agenda, leaving the soybean fields littered with $20 bills for enterprising Democratic presidential hopefuls to pick up. The president’s nativist immigration agenda deprives farms and small factories of workers local economies can’t otherwise supply, while the administration’s latest budget proposalcontinues the Republican assault on the health care and social insurance programs rural populations increasingly rely on to survive.

To address the problem, we need to understand it. For decades, poorer areas had been converging economically with wealthier ones, but that stalled in the early 1980s as employment began to shift away from widely distributed agriculture and manufacturing jobs toward the service sector and high-skill “knowledge work” in the city-centered information economy.

Read the rest at NYTimes.com

How to Escape the Two-Income Trap

The reprisal of Elizabeth Warren’s 2004 book The Two-Income Trap has sparked a valuable debate within the conservative policy community. Co-authored with her daughter Amelia Warren Tyagi, the book argues that the rise of two-income households has created a bidding war over goods like housing and child care, offsetting apparent household income gains and leaving families in a more precarious financial state.

Tucker Carlson thinks the book is onto something and that the GOP should become the party of traditional families. Helen Andrews thinks so too, but laments the contemporary dearth of female voices leading the charge. Other conservative thinkers aren’t so sure, particularly those like Scott Winship who have long defended the encouragement of maternal work as a pillar of conservative anti-poverty policy.

Warren’s original argument consists of many moving pieces, including tie-ins with her somewhat dubious academic work on household bankruptcy. Nonetheless, The Two-Income Trap’s appeal to a certain type of traditionalist should be obvious enough.

Yet accepting Warren’s version of the story at face value falls into a trap of its own, derailing the normative debate traditionalists would like to have into an empirical debate about Warren’s specific claims. Matt Bruenig’s critique, which showed how the data in The Two-Income Trap was improperly adjusted for inflation, was particularly devastating. Michael Strain of the American Enterprise Institute picked apart Warren’s “bidding war” theory in a recent column, writing: “If you’re looking for a reason why their costs have risen so much, start with policies that subsidize their demand and restrict their supply, not with women working.”

Read the rest at the American Conservative.

A National Scholars Program for Struggling Regions?

In the wake of the college admissions scandal, the meritocratic nature of elite universities is under new scrutiny. The revelation that the ultra-wealthy and connected were bribing officers and fabricating application information struck a chord at a time when inequality is at the forefront of the national conversation. Even more dismaying is that these bribes likely weren’t necessary to begin with. Perfectly legal donations and alumni connections routinely land the unexceptional children of the rich and powerful into prestigious institutions.

Regression to the mean is one of the many anxieties of affluence. Yet entry into exclusive collegiate social networks can help to ensure class and status are reproduced across generations. If the black market for elite college admissions feels worse than the usual influence peddling, it’s only because this ulterior motivation is rarely expressed so explicitly.

Fortunately, there’s a simple way elite universities can atone for their role in perpetuating inequality by helping talented students from struggling communities and school districts move up in the world.

One model comes from Johns Hopkins University. It’s called the Baltimore Scholars Program (BSP) and it works like this: Students who attended either a Baltimore City public school or applicable charter school from at least the 10th grade are eligible for a means-tested scholarship. For those coming from families making less than $80,000 per year, tuition, room, and board are completely covered. For those making between $80,000 and $150,000 per year, the family’s contribution is capped at 10% of total family income.

This isn’t affirmative action for Baltimoreans. They still need to get into Hopkins, but once they clear that hurdle, all or most of the costs associated with going to school are taken care of.

The same model could easily be applied to other communities. For example, Stanford could have an Oakland Scholars Program; Harvard and MIT could have a Southie Scholarship; Princeton could have one for students from the Trenton and Newark public schools system, and so on.

On top of scholarships for needy students in their own communities, elite universities could adopt a nationwide focus, offering needs-based scholarships to talented high school graduates from struggling public school districts across the country.

Even if admissions skullduggery were done away with completely, children in low-income households and of limited social capital would still face substantial barriers to getting into top colleges. While these barriers are varied and require many different solutions, the inability to pay for tuition continues to discourages otherwise-talented students from applying at all.

While legislation and other bureaucratic hurdles may need to be cleared before a “Struggling Regions Scholars” program could be implemented in public universities, private universities could create such a program unilaterally. The quality of public education in struggling areas will naturally limit the supply of qualified applicants. Nonetheless, expanding something like the Baltimore Scholars Program to elite universities across the country would go a long way to making the college admissions process more equitable and accessible. Perhaps the best way for top universities to reclaim the mantle of meritocracy is to start practicing it.

OSRDaniel Takashblogs
How Can Policy Help Left-Behind Americans?

By Charles Fain Lehman

A new project, announced Wednesday by the libertarian-leaning Niskanen Center, aims to define a comprehensive program to help put regions struggling despite the roaring economy back on their feet.

The Struggling Regions Initiative (SRI), a project of the Center's Poverty and Welfare Policy program, is intended "to push the frontier of research into the issues facing struggling regions with the goal of developing new ideas for broadly shared economic growth," according to its website. Funded by the Rockefeller Foundation, the SRI will focus on finding ways to overhaul federal policy in order to better support those regions that are increasingly left behind.

Samuel Hammond, who runs the Poverty and Welfare Policy Program, framed it as being about designing "the right framework," so that "ordinary workers can benefit from change rather than suffer from it."

"It's not Washington's responsibility to micromanage local economies or to pick winners and losers. Yet no one can deny that national policymaking has ripple effects throughout the country," Hammond wrote in an article introducing the project. "The Struggling Regions Initiative is premised on identifying realistic ways — from trade agreements to the structure of the tax code — to strengthen and diversify America's industrial economy, and in a way that promotes economic growth and dynamism."

Support for ailing regions is likely to feature heavily in electoral pitches from the left and right come 2020. What makes Niskanen's plan different is sort of sub-textual: In order to fix what's hurting these regions, it suggests, the American federal government needs to, for the first time in decades, articulate a comprehensive, coherent industrial policy. …

Read the rest at FreeBeacon.com


Here’s an issue Democrats should jump on

By Jennifer Rubin

We have written about the serious and widening gap between rural and urban America. The red/blue divide is largely a rural/urban divide — even within states. As urban areas prosper, rural areas are depopulating, coping with an aging population and suffering from more health problems (including opioid addiction). If rural America was as rich, healthy and vital as the urban centers and their thriving suburbs, President Trump might not have been able to exploit this population with fear-mongering, racism and xenophobia.

If rural America recovers, could we get sustained growth above 3 percent? Increase the average lifespan? Diminish the audience for right-wing populism? Possibly, but in any event, fellow Americans are suffering and neither party is coming up with constructive solutions.

Fortunately, the indispensable Niskanen Center wants to look at this problem. “According to data from the Bureau of Economic Analysis, over half of total U.S. [gross domestic product] is produced by only 20 metropolitan areas,” Niskanen reports. “The New York metropolitan area alone accounts for over 10 percent of the nation’s output in any given year, and with only 6 percent of its population. America may remain the land of opportunity, but in way that has become increasingly concentrated in fewer and fewer locations.” There are few winning zip codes and many losing ones. “Once-vibrant regions across the United States are struggling with population decline, the collapse of industries, and shrinking tax bases.” …

Read the rest at WashingtonPost.com

How to Prevent the Next Lordstown

General Motors first broke ground in Lordstown, Ohio, 55 years ago and was once considered the most modern GM plant in the country. Thanks to a combination of business decisions by the company, tariffs implemented by the Trump administration, and a general dearth of innovative thinking the Lordstown Assembly is now set to close for good in January 2020.

From its first car, the Chevy Impala, to what now appears will be its last, the Chevy Cruze, the plant was known for its adaptability to ever-changing consumer demand. But with the announcement that GM is cutting 14,000 jobs across North America, including shuttering its Lordstown operations, adaptation has given way to extinction.

The ecological analogy is useful in more ways than one. The Trump administration’s tariffs on steel and aluminum have cost Ford and GM about $1 billion each. In any commercial ecosystem, when you raise the cost of inputs—a factory’s food source—the population declines.

Automakers, meanwhile, are looking ahead to trends in self-driving and electric vehicles. Yet rather than fostering that next stage in evolution, blunt trade restrictions and threats to revoke subsidies are the economic equivalent of wildlife conservation, treating the U.S. automotive sector as if it were an endangered species.

Public policy isn’t the only source of blame for the Lordstown closure, but it clearly hasn’t helped. Simply put, Washington, D.C., needs creative  policies to encourage genuine economic development. …

Read the rest at TheBulwark.com

The ELEVATE Act Explained

In simple economic models, workers disrupted by trade or automation are instantly reallocated from declining industries to ones on the rise. Yet that is rarely if ever the case in the real world. Labor markets are highly complex institutions, riddled with frictions created by geography, social networks, discrimination, and regulations that vary from place to place.

In a world where nothing ever changes, this wouldn’t be a big problem. Yet in a dynamic, growing economy, change is the rule, particularly with increased foreign trade and major breakthroughs in AI and robotics on the horizon. This demands that the United States finally get around to constructing a truly national labor market — one with robust employment, training, and relocation supports that follow workers wherever they go.

The “Economic Ladders to End Volatility and Advance Training and Employment” or ELEVATE Act is a big first step in that direction. It provisions include:

  • A new title to the Social Security Act for states to fund and implement subsidized employment programs;

  • Guardrails that ensure states pursue re-employment and retraining programs with a strong evidence base and low overhead;

  • Funding conditioned on states’ quarterly unemployment rates to create aggressive and fast-acting “automatic stabilizers”;

  • A demonstration project to identify “pro-worker employers” to ensure subsidized job placements don’t erode job quality;

  • A national self-employment benefit for recently unemployed workers to pursue entrepreneurship;

  • And a national relocation assistance program to reimburse eligible individuals for the expenses associated with “moving to opportunity.” …

Read the rest at NiskaneCenter.org

OSRSamuel Hammondlabor
The Free-market Welfare State

Today I’m proud to release my latest paper for the Niskanen Center, “The Free-Market Welfare State: Preserving dynamism in a volatile world.” You can find it here.

The paper proposes a set of principles for a “free-market welfare state” research and reform agenda, based around a simple but provocative thesis: America’s historical combination of free-markets and limited income security is fundamentally unstable. Either we get better at complementing markets with comprehensive income and re-employment supports, or the forces of creative destruction will generate anti-market backlashes with lasting political consequences:

The fallout from China’s entry to the World Trade Organization (WTO) in 2001 is a clear case in point. Cheaper imports benefited millions of Americans through lower consumer prices. At the same time, Chinese import competition destroyed nearly two million jobs in manufacturing and associated services—a classic case of creative destruction. Yet rather than help those workers adjust, our social insurance system left them to languish. In the regions of the United States most exposed to import competition, Social Security Disability Insurance (SSDI) was more than twice as responsive to the economic shock as unemployment insurance and Trade Adjustment Assistance (TAA) combined, even though it is one of the most restrictive disability programs in the developed world. Indeed, while critics of the welfare state often argue the United States spends a trillion dollars a year on social programs, only about a quarter of this comes close to anything resembling cash or quasi-cash income support—about the same annual amount spent subsidizing employer-based health insurance.

Read the rest at NiskanenCenter.org