Peter Morici: Reaganomics may not save the Republicans
Republican hopes for holding control of Congress in the midterm elections hinge on the success of Reagan-style tax cuts and deregulation. However, without significant progress early this year on entitlements and infrastructure — with substantial focus on the chronic problems of rural communities and smaller cities — those policies may not prove to be enough.
During the Bush-Obama years, annual economic growth was only 1.8%, but the prosperity instigated by the expansion of financial services, biotechnology and digital industries was adequate to satisfy voters in the citadels of progressive thinking on the two coasts and among communities supported by major universities.
President Donald Trump won an unlikely victory in 2016 by energizing voters in the nation’s interior — places that fell victim to globalization and were left behind by the recent recovery.
So far his record on the economy is better than his predecessors but hardly more inclusive.
Anticipation of tax cuts and deregulation have already delivered a lot of the benefits of supply-side policies. Gross domestic product growth averaged 3% for the second, third and fourth quarters, posted an estimated 2.6% for the entire year and appears on track to perform similarly in 2018.
Sadly for Republicans, this surge has two salient characteristics. Disappointed Hillary Clinton supporters are inclined to believe President Barack Obama’s claims to ownership of this progress and whoever is responsible, the benefits haven’t reached Trump voters with sufficient force to motivate them to deliver another unlikely victory for the GOP in the midterms.
The recent Virginia statewide and Alabama Senate elections demonstrated quite clearly progressive voters—African Americans, women and college graduates—are energized to turn every election into a Dump Trump referendum. They turned out in record numbers, while jurisdictions with heavy concentrations of Trump supporters voted in fewer numbers.
America’s interior is beset by inadequate health care, rampant drug addiction, hidebound public schools, distant access to vocational training, poor internet and wireless service, a wholesale breakdown of families and civic institutions, and cultural alienation from the faster-growing cities on the two coasts that are more effectively exploiting globalization and the technologies that define the 21st century.
Over the last two decades, as factories in the interior shuttered — unable to cope with the onslaught of competition from Chinese imports and realigning global supply chains — aging Baby Boomers and Millennials in those places became stranded in opportunity deserts.
Employers won’t invest in these disenfranchised locales, and many young people can’t leave.
Workers looking to move across state lines often encounter steep occupational licensing requirements. Tough zoning laws—imposed by big city mayors to pacify affluent residents—make rents prohibitive.
Rural and small-town workers without family support systems or training and apprenticeship experience in coastal states simply can’t relocate in large numbers to entry- and mid-level jobs in big cities. Carrying all the handicaps imposed by rural economic dislocation and cultural disaffection, many have simply given up and dropped out of the labor force.
Often white, religiously conservative and patriotic, these places contribute disproportionate numbers of their young people to the military and have borne more casualties in the Middle East and elsewhere. Otherwise they have become America’s new ghettos.
Not surprising, citizens in these communities took advantage of Obama’s solutions—easier access to Social Security disability pensions, food stamps, Medicaid and so forth. For example, more than 1 out of 20 between the ages of 16 and 65 are now classified as unable to work.
Much of the decline in labor-force participation among adults, without small children or elderly relatives to care for, stems from the disincentives to work impose by expanded entitlements but in the 2016 presidential election, the heartland sent the message that it wants jobs more than handouts.
Entitlements and infrastructure are next on the agenda for Congress and the White House.
Republicans will come up short if they merely cut benefits and do not radically alter federal and state approaches to health care, education, labor market, broadband, land use and occupational licensing policies that have so badly abused the economies and social fabric of small-town America and left its inhabitants so disabled and isolated.