HOW do you solve a problem like Ohio? Over the course of a generation America’s once-thriving industrial heartland has withered. Economic stress has contributed to rising rates of drug addiction and falling life-expectancy. Frustrated, Ohioans and other Midwesterners pushed Donald Trump to victory in November. That has focused attention on the plight of declining industrial areas in the rich world. Yet orthodox economics has few answers to the problem of regional inequality.
Economists used to think the best policy was often merely to wait. From 1880 to 1980 the incomes of poorer and richer American states tended to converge, at a rate of nearly 2% per year, according to research by Peter Ganong and Daniel Shoag of Harvard University. That pattern has since broken down (see chart). Yet the shift of resources and the movement of people from declining places toward thriving ones remains an important part of the process of economic growth. In theory, the gains should be big enough to compensate those harmed by the shift, leaving everyone better off. “Governments should not try to rescue failing towns,” The...Continue reading
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