The Rural-Urban Divide

Bidenomics will not restart Midwest factories or restore rust belt economies.” – The Lonely Realist

There historically have been two Americas: the rural, agriculturally-based America; and the manufacturing-centric urban one. In 1900, America was a rural country with a rural-to-urban population ratio of 60:40. Today, more than 80% of Americans live in cities. Population density differentiates the East and West Coasts from America’s South and most of its center, with the Great Middle having an urban concentration of 75%, and the two Coasts boasting over 87%. More than one-third of Americans live in America’s three largest Blue City strongholds: the BostonNYPhillyDCResearchTriangle; the SeattleSFLASD megalopolis; and the Chicago conurbation. These three Big Blues host the core 21st Century industries that anchor America’s wealth. Each is home to leading educational institutions (at all levels). Each is a global destination that attracts immigrants, students, tourists, medical patients, multinational corporations, scientists, entrepreneurs, and international law, advisory and accounting firms. Each is an important financial center and a leading medical incubator. And each is a hub for international shipping, distribution and travel by plane, train, drone, helicopter and automobile. There are other American metropolitan areas that share many of these attributes (Dallas/Fort Worth being the most notable); however, the three Big Blues have them all.

The Big Blue megacities also have a far higher cost-of-living (as well as higher tax rates) because of the density of their populations, both a cause and a consequence of their attractiveness. It began with an exodus to the cities by job-seeking farmworkers and immigrants. An ample supply of willing workers led to the concentration of factories and their supply chains that, in turn, required the establishment of supporting services and the educational infrastructure necessary for their training, which created more labor demand, which made the cities more of a magnet and resulted in further population inflows that attracted more business and industry, which made cities even more magnetic … etc., etc., etc. Expanding urban populations required ever-increasing construction, infrastructure, services, housing, security, medical care, entertainment and education, which at first was supplied by private industry. Intensifying business competition and compressing living space … as well as the attempted suppression of immigrants, laborers, minorities, ethnicities and religions … led to creeping State and local socialism regulation of what had been the vulture capitalist free-wheeling operations of America’s private businesses, a trend that continues today.

Advances in technology, some of which grew in response to the COVID pandemic, were predicted to demagnetize city-centric living by facilitating an exodus to more remote, rural locations (through tele-commuting and cloud computerization), thereby obsoleting the concentration of workers and businesses. The opposite has happened. Comprehensive infrastructure has enhanced the value of densely populated urban mega-centers. Included with the many social and cultural draws of city-life are plentiful employment opportunities and a quantity of government-supported services that attract young workers and professionals to fill the lowest- and highest-paying jobs.

President Biden nevertheless has determined to reduce America’s Big Blue-centrism by subsidizing development of America’s Great Middle through a “place-based” industrial policy: “I believe that every American willing to work hard should be able to get a good job no matter where they live and keep their roots where they grew up” [emphasis added]. The CHIPS Act is an application of that policy, earmarking >$19 billion for “Tech Hubs,” “regional innovation engines” and “collaborative innovation resource centers” intended to boost manufacturing primarily in Red States. What is unclear is how many manufacturing jobs in the CHIP Act’s semiconductor-and-green-energy-focused industries can be created in localities with comparatively low-skills densities. To be successful, “place-based” industrial policy must locate businesses where there already is a large and flexible labor pool – the very definition of the Big Blues – or build training facilities to train locals, a costly and time-consuming process. The extent of the “place-based” challenge is apparent in the staffing problems confronting TSMC, the world-leading Taiwan chip-maker that is constructing two massive semiconductor plants in Phoenix, Arizona. TSMC’s chairman explained that, “as there is an insufficient amount of skilled workers [in the State of Arizona] with the specialized expertise required for equipment installation in a semiconductor grade facility…, we are sending experienced technicians from Taiwan to train the local skilled workers and we expect the production schedule to be pushed out to 2025.” The fact that Arizona lacks sufficiently-qualified construction workers indicates that TSMC also will find it challenging to locally hire the 10,000 high-tech workers necessary to staff TSMC’s completed plants. Phoenix is a fast-growing urban oasis with a sophisticated worker base and yet lacks the appropriate technologically-skilled workers to either build or staff two high-tech factories. “Place-based” industrial policy has its difficulties.

Industrial policy aside, the benefits of technological development are accruing primarily to urbanites and not to the Great Middle. Self-driving autos with electric motors are ideal for city life … and not rural living. During the next decade they and delivery drones will reduce traffic congestion, driving down costs and the hassles of urban living … but not of rural living. Self-driving trucks and their associated automated warehousing and delivery systems will operate 24/7 without incurring employee overtime, further alleviating urban congestion, costs and hassles …, and the need for the many rural workers who operate them. This at a time when job creation and education will remain the cornerstones of Big Blue success. Despite the best intentions of President Biden, the economic divide between the Big Blues and the Great Middle is likely to widen …, and with it America’s political, economic and social schism. Although the Big Blues suffer from sky-high costs and tax rates, incomes in the Big Blues are likely to rise faster, far faster, than incomes in the Great Middle, re-establishing the historical trend interrupted by the COVID pandemic. State and local governments in the Big Blues have responded by enacting laws that offset rising costs for their less-fortunate residents, steps that are likely to draw unskilled workers from rural areas while driving the wealthiest away … further dividing urbanites from their rooted rural cousins. That makes lower-cost States like Florida and Texas attractive for those in the Blue Blues able to afford relocation. Both Florida and Texas are trying to build the types of infrastructure and private industry that would enable them to compete with the Big Blues, but it will take time to attract sufficient industry, education, and services. What of the other States in America’s Great Middle? Although the goal is for a “United” States, there is no sign of a narrowing in the rural-urban divide between them and the Big Blues …, with signs of a widening divide between them and Florida and Texas. The result is that the Big Blue Cities and their emulators are more-and-more likely to be both America’s past and its future.

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Finally (from a good friend)

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