War Between the States
THE DIFFERENCE between a recession and a depression is that, when your neighbor's out of work, it's a recession; when you're out of work, it's a depression. I say, when Jimmy Carter's out of a job, this nation is on the way to recovery. Like any president-elect, Ronald Reagan carries the baggage of pregnant campaign promises to office this January. Unlike others before him, however, "Ronnie" betrays a suspicious amount of faith in his grab-bag of rhetoric about economics--tax cuts, defederalization, and Laffer Curve explosions. Less government is the promiscuous rabbit he promises to produce from his cowboy hat to stimulate business. Let the private sector make us great again televisions and the late show for everyone!
It isn't, and can't be, that simple. Supply side economics, replete with a tighter, balanced federal budget and reduced social spending, would not pave the country's streets with gold. It would exaggerate the defects of an economy already regionally lopsided, and compromise government's ability to deal with resulting social problems, either at the state or federal level. The vector of economic prosperity currently points south and west, toward the Sunbelt, and away from the Frostbelt and the traditionally prosperous regions of the northeast and midwest. This economic trend leaves in its wake poverty, unemployment and urban decay in proportions neither the federal government nor Frostbelt state governments can adequately deal with. Less government, whether by the design of conservatives or not, would amount to a neglect of federal social responsibilities in favor of increased disparity of regional economic fortunes.
The Frostbelt's aging manufacturing base has decayed and suffered from foreigh competition. Between 1970 and 1978, the Frostbelt altogether lost over 400,000 manufacturing jobs without much slack taken up by new jobs in the service sector. As the Joint Economic Committee once stated, "the northeast and midwest contain the oldest, least efficient manufacturing facilities, which are the first closed as production is reduced." Large, mobile corporations abandon these plants in favor of newer Sunbelt facilities, located where labor and energy is cheap, the quality of life slow and easy, and golf courses green year round. For every manufacturing job lost in the Frostbelt region during the seventies, the South and West gained almost three.
The Frostbelt's dependence on the transportation industries makes it sensitive to economic downturns. In Detroit, unemployment pushes into the upper ten percentages as the Big Three lay off workers and register record level quarter losses. The Youngstown-Akron area of Ohio has lost tens of thousands of jobs with steel and Firestone tire plant closings and related business lost. In the same area and other states, outdated steel plants have shut down rather than modernize because the Big Three own enough steel rusting on four wheels in huge factory parking lots. As the old Detroit saying laments, "When the economy catches cold, Detroit catches pneumonia." The damage of prolonged decline in the transportation industry has spread the disease widely in the Frostbelt.
To a degree, the recessions of the seventies struck only the New England, Midwest and Great Lake states. Between September, 1974, and June, 1975, for example, national nonagricultural employment dropped by 2.5 per cent. Employment actually grew in the southwest and Rocky Mountains; job decline in the far west was negligible. During recovery from the recession, nationwide employment grew by 5.2 per cent; however, employment still declined in the Midwest states and grew by less than 1 per cent in New England.
REAGAN'S SUPPLY-SIDE ECONOMICS would not automatically rekindle business in the Frostbelt. American automobile producers will struggle to survive alongside Japanese imports with or without tax incentives. In a sense, probusiness" incentives would amount to windfall benefits for firms currently expanding in the country's most desirable regions.
In turn, less government would entail reduced social services (to compensate for reduced federal tax revenues) and decentralization of fiscal responsibility for social services. Economic decline has destroyed municipal and state tax bases to the point that minimum spending obligations necessitate deficit spending Defederalization would assure extreme neglect of social services where states lack the resources to address them. Whether because of the horrors of completely rotted industrial cities, or because of skyrocketing local corporate taxes, businesses would veritably fly out of Frostbelt regions.
Besides the basic social problem of unemployment, the payment of unemployment insurance threatens to empty the coffers of many Frostbelt states. Beginning in 1979, insolvent unemployment programs forced states to borrow funds from the Federal Unemployment Account to pay unemployment insurance benefits. As of July, 1979, twelve Frostbelt states showed loans outstanding totaling $4.9 billion; Pennsylvania alone owed $1.2 billion. In all the south and west, Arkansas, Montana, and the District of Columbia owed only $100.6 million.
Ironically, the phased decontrol of oil prices announced in April, 1979 by President Carter could flood oil-producing Sunbelt states with new tax revenue, improving their competetive standing over less fortunate states. Conservative estimates by the Congressional Budget Office forecast that between 1980 and 1990 eight states will collect $112 billion in new revenue as a result of increased severance, corporate, and property taxes due to raised oil prices. Alaska's average yearly revenue increase will equal three times its relatively small 1978 budget. The six other states will enjoy similar, if less substantial profits.
These states could shrewdly reinvest these funds in infrastructure systems, schools and hospitals, and publicity campaigns to bring new business running across their borders. Who would pay the dominant part of increased energy prices and which states would suffer from the Sunbelt's heightened competitive edge are likely to become overt regional controversies in the eighties.
Last of all, the northeast and midwest stands to gain little from impending escalation of defense spending. Congress has repeatedly refused to target procurement contracts, even of non-strategic goods, to areas of economic distress. While such programs would not significantly compromise the cost effectiveness of defense spending, Sunbelt representatives realize that equitable distribution of procurement contracts would direct billions of dollars of business from their regions.
Are the politicians of the New Right animated by an immaculate affection for free enterprise? Or, perhaps, do their ideologies and regional interests conveniently coincide? It's always popular to debunk the government. But at least he realizes that the domestic function of government is to prevent the economy, where possible, from becoming altogether distorted, and to clean up after the social ills created by the public sector. Admittedly, the dynamism of American enterprise created this country's prosperity; it also created economic behavior and trends with undesirable and dangerous social implications. Government fulfills a protective role for Americans, so quietly in most cases that it is taken for granted and so quietly that the nation must watch carefully over the next four years to make sure the function is not eliminated.