After the past two presidential elections, as well as the recent Virginia gubernatorial contest, there has been a growing narrative about “two Americas.” One consists of thriving urban areas that voted overwhelming for Hillary Clinton and Joe Biden and the other of “hurting” rural communities that went heavily for Trump.
During the 2016 election, the Metropolitan Policy Program at the Brookings Institution headed by Mark Muro found that counties that voted for Clinton accounted for nearly three-fourths of increased U.S. economic output and almost two-thirds of new jobs. The imbalance is even starker when considering that Trump carried more counties than any presidential candidate since Ronald Reagan in 1984.
The results of the 2020 presidential election suggest that the divide increased further due to differences in views about the COVID-19 pandemic. An NPR report quoted Kathy Cramer of the University of Wisconsin saying, “There’s this sense that decisions about the pandemic are being made in cities and kind of imposed on rural spaces.”
Amid all this, there has been extensive coverage of social and cultural factors contributing to the divide, but the economic underpinnings are not understood by many Americans.
My take is that the main structural forces in the past two decades are globalization, which has contributed to a decline in manufacturing in the U.S. that has hurt many rural areas, and rapid technological change, which has favored large metropolitan areas.
According to the Washington Center for Equitable Growth, GDP growth in rural America lagged urban growth by about 4.5 percentage points from 2010 to 2018, with the widest difference seen in the far West. Much of the gap nationally is attributed to a boom in technology in large metro areas. Mark Perry of the American Enterprise Institute observes that the top six metro areas (New York, Los Angeles, San Francisco, Chicago, Dallas and Washington, D.C.) produced $5 trillion in output in 2018, which collectively would make them the third-largest economy in the world.
The story is similar on the jobs front. Following steep losses in the 2008-09 recession, metro areas experienced steady job growth in the following decade. Rural areas, by comparison, did not recover fully and by 2015, jobs had declined by about 4 percent from their prior peak. This is visible to many in numerous store fronts that have been shuttered on main streets in rural communities.
In a Brookings Institution commentary written in early 2018, Mark Muro cited the key challenge policymakers face as follows: “As the evidence of big-city pull-away and small-town and rural decline accumulates, it doesn’t seem right that a great nation would leave the shape of its long-term economic geography entirely to the vagaries of today’s tech-fueled market.”
But what, if anything, can the federal government do to lessen the disparities?
The tack that Donald Trump took was to appeal to blue-collar workers by attempting to reverse the decline in U.S. manufacturing. In 2018, he raised tariffs across the board on goods imported from China as well as on select goods from other countries to encourage domestic production.
But these measures were unsuccessful: Manufacturing jobs rose only marginally in the period prior to the COVID-19 pandemic, and the U.S. trade deficit continued to increase rather than decline. Moreover, the Trump administration wound up having to subsidize farmers to offset the adverse impact of the tariffs on agricultural production.
One area where the Trump administration had greater success was in the energy sphere. Efforts to deregulate the oil industry and increase fracking of shale oil helped to create jobs in several oil producing regions. They also enabled the United States to become self-sufficient in energy. But they did not narrow the gap in jobs between urban and rural areas nationally.
For its part, the Biden administration is seeking to reduce U.S. reliance on fossil fuels via increased regulation while encouraging the development of alternatives. The latest version of the reconciliation bill calls for $325 billion in clean energy tax credits over 10 years.
Regarding technology, the bipartisan infrastructure bill that was signed into law this month included measures that will benefit rural areas through improved roads, bridges and waterways and expanded broadband infrastructure. Still, it remains to be seen how effective these programs will be at tackling climate change and lessening income disparities.
That said, some commonly perceived differences in household income and in poverty levels between rural and urban areas are inaccurate. According to the latest census data in 2015, median household income in urban areas was only 4 percent higher than in rural areas, and this calculation did not take into account differences in the cost of living. Moreover, poverty levels were lower in rural areas (13 percent) than in urban areas (16 percent), although there were considerable differences across regions and states.
According to Hanna Love and Tracy Hadden Loh of Brookings, the narrative in the press of two societies that are fundamentally opposed to each other is a myth that hinders finding effective policy solutions. They argue that by conflating “rural” with “white,” it overlooked the needs of rural people of color during the pandemic. Furthermore, they claim the binary-based narrative propagates a myth of “place-based poverty” that leads to oversimplified anti-poverty programs. Accordingly, one of the goals of research at Brookings has been to identify strategies from local leaders to strengthen rural economies and foster diversity and dynamism.
One strategy for rural communities to consider is to develop policies that will attract immigrants to their communities. A study by the Center for American Progress concludes that the benefits are more than just demographics, as immigrants can often bring vitality to stagnant communities. The study also acknowledges the potential for conflict that exits because “even a small numerical change in a rural community may seem overwhelming.”
Hopefully, as these issues are addressed by local communities, they can lay the groundwork for a more positive view of the role immigrants play in American society at large.
Nicholas Sargen, Ph.D., is an economic consultant and is affiliated with the University of Virginia’s Darden School of Business. He is the author of “Investing in the Trump Era; How Economic Policies Impact Financial Markets.”