Sunday, October 5, 2008

The New South

There is no guarantee that the following makes any sense.  

Many people are interested in the notion of economic convergence.  Economic theory predicts that in the long-run, all economies should move to the frontier of development.  So Japan meets the West, expands a lot, and now has has the same standard of living as other rich countries while growing at the same rate.  Obviously this doesn't happen everywhere, and the question is whether the sources of those differences lie in genetics, culture, institutions, policy, or something else.  

One such convergence situation is the post-WWII behavior of the American South.  The South had always lagged the North in development, but this was earlier a geographical issue as the Southern plains attracted the Barbados-based plantation elite while the North pursued trade and manufacturing.  This gap continued.  The geographical barrier to convergence disappeared with a higher level of technology, and the fact that the South and the North are in the same country mean that a lot of other barriers to convergence were not a big deal.  The main barriers to there being similar economies in the North and South became institutional and related to the quality of governance.  

My argument is that ultimately changing institutions created the "New South," and that this really started to change with the political dominance of a group of socially conservative Democrats and Republicans in the '60s with a constituency broadly in favor of different economic ideas.  The shape of this new ideology--Goldwater Republicanism--was formed by many things.  There was an influx of Northerners.  Broadly, there were push and pull dynamics creating essentially a new party.  On a more national level, this is covered negatively by people like Krugman, who sees a basically racist Southern strategy, and more positively by people like Brooks or Douthat.  

The push factors include the racial fallout of the Civil Rights movement, which both increased Democrat votes from black voters and shifted many white voters into the Republican Party.  Liberal judicial decisions were another factor, from busing (again, more racial stuff, but one that lead to more private schooling, which was Christian, and so led to more evangelicalism) to Roe v. Wade.  The growing Christian gap would become a larger factor later on.  There were pull factors as well, as the newly constituted Republican Party was better able to attract natural conservatives, with their focus on law and order issues, taxes, welfare, cultural topics, and so forth.  I can imagine tipping effects, in which more and more conservatives join the Republican Party, which markets itself as more Republican, and so forth.  It's easy to call this racism, but it seems to me a more basic consequence of a pluralist society.  Societies riveted by ethno-linguistic divisions display much less social trust as a whole, and tend to have less redistributionist institutions.  This is not necessarily linked to race, look at India, in which caste divisions behave politically much like ethnic rivalries, and really hamper coherent policies.  

The product of these forces was to yield a much more ideologically consistent and partisan set of political parties in the south.  With a median voter that's conservative in the South, you end up with rotating conservative Democrat and staunch Republican governance.  The traditional base of the new conservatives consisted exactly of the sort of people open to a more upwardly mobile, free enterprise system of government, so an economic conservative approach became a natural fit to this program.  

Of course, the development of the "New South" had to do with many things, among them the rising importance of service industries not linked to geography, technology, AC, highways, and the positive impacts of Civil Rights bills in desegregating the population.  But many of the proximate causes of the convergence between North and South needed to take place in a tolerable institutional environment, which was then supplied by the new Republican governors.  Low-tax regimes, opposition to union labor, State subsidies, spending on infrastructure, education, and research, and so forth attracted an array of manufacturing (car manufacturing) and service (banking, telecom) interest; even as many economic fundamentals were in long-term decline (textiles, furniture, cotton, agriculture).  

With the recent transformation of the Republican Party into the Party of the South, it's popular to talk about how the social hangups of Southerners have become the stuff of national cultural wars.  But it's interesting to see that the institutional barriers between North and South has largely revesed itself with the South in an arguably better position.  There have been some attempts to take on the old guard in blue areas--especially by moderate Republicans like Romney, Bloomberg, Giulianni, and Schwarzenegger, and some moderate Democrat responses like Daley, Spitzer, and Cory Booker (Are these attempts to be a Clinton Democrat on a more local level?).  But largely, Blue states continue to hemorrhage people and jobs to the Sun Belt.  This election continues in many ways that trend, with the choice between a Chicago politician who promises more regulation, higher taxes, and a host of industrial policy technocrat intitiatives to solve problems in health care, energy, and education and an Arizonan politician who combines sufficient deferrence to the socially conservative wing of the party with a support for lower taxes and less regulation.

The ultimate consequence of this state variation in development policies is the Housing Bubble.  In some sense, it's a myth that we had a "national Housing Bubble"; it remained in many ways a regional problem with certain areas like California, New York, Chicagoland, and (yes, somewhat counter to the point) Florida.  Tight land regulations in these areas artificially inflated the value of land, creating the actual housing "bubble" that encouraged poor lending tactics and eventually the securitization problem.  Places like Texas, Georgia, Arizona or othern Southern areas that don't have quite the zoning regimen had a flexible response to demand in housing and so never suffered quite the price movement up or down.  These places are really being spared the worst of the current problems, while continuing to attract more corporate headquarters and operations.  Another housing implication is that since Democrats generally run cities, and since Democrats generally favor regulations, you have city-level housing markets that are absolutely horrible, with the attending higher housing prices diminishing to a large extent the value of a College degree (since of course you don't attend a top-tier school and move to Nebraska).  

Of course, the old Democrat holdouts are still home to some of the most amazingly productive sectors of the economy (Sillicon Valley, New York) with the associated Universities and so forth.  So the combination of highly productive people with an increasingly pushed middle class yields greater inequality issues in Blue States, and then of course that's all they talk about.  You could probably make the case that what Blue States now need is Republican governance, and Red States some Democrat policies.  

One reason for the general success of the Republican method is that state-level government has many different spending priorities and issues than on the national level.  And since state governments can't hold a deficit; national-level Republicans have of course run up the national debt, while state-level Republicans have not.  So while the national level assessment of Republicans is mixed--they might have saved the economy from turning into Europe, but they also messed up a lot of stuff on spending--the state-level economic assessment tends more positive.  

I think the crucial point is not that the Republicans are smarter, but that the people who vote for them are generally social aspirers open to new business with little personal stake in bureaucratic pork, which leads to broader support of a certain free-enterprise economic agenda, combined with the fact that the Republican talent pool is incorporating business-minded people.  Look at the ranks of prominent Southern state-level Republican politicians, and you see both a bias for religion and business.  Bush fit this model rather well, what with his MBA and so forth.  Of course you still have the lawyers (in America and Britain, politicans are chosen from the stock of lawyers, while in Korea and Germany it tends to be engineers), but it still seems to me a contrast between the sorts of people who have run Democrat machines in other parts of the country.  Edwards, Hillary, and Obama were all of course lawyers (on the other side, you have Romney a businessman-turned-governor, Huckabee a rather effective preacher-turned-governor, and so forth) and the primary race at times really felt like a battle between the UNC-educated lawyer who specializes in court cases and the Ivy-trained lawyers who focus a bit more on the academic stuff.  Arguably, neither group is really set to run an economy.  Corruption seems like an inevitable outcome, but really no one cares about corruption paired with actual development. 

I guess one of the things this is a reaction to is the notion that economic conservatism is just a really bad idea that was pushed on the Americd toan people, with universal devastating consequences.  I hear this from a lot of people, who just can't imagine that the Regan/Bush gang were really anything but absolutely horrible.  I ten push a little against this idea.  

Update:  There is also the cultural change in the South where more people become evangelical Christian and that starts to matter.  Is that another factor?

I'd love feedback on this to figure out whether to actually pursue this idea.  


Bolkonsky said...

thats probably the most succinct explanation of the housing crisis ive ever heard. kudos.

im going to steal this and claim it as my own, publish it on facebook muhahah

SFG said...

Didn't most of the bubble occur in places like Arizona and Florida? Housing prices in NY and Boston never really fell that sharply.

Thorfinn said...

The "bubble regulation" part was probably overplayed here--housing bubbles really were global, so presumably many global events had to have taken place.

The zoning story in general seems reasonable though. Krugman talked about it a while back:

And Ed Glaeser has done work on this recently:

The point I guess is not there was no price bubble in middle america, but not much price increase beyond the cost of production. As far as Arizona goes, a lot of that seems to be spillover from the CA boom. Florida actually had many zoning restrictions, aside from the fact that good seaside land is limited.

Some of NY/Boston did seem to rise (the downtown areas), but if it failed to rise in general that's partially linked to outflows of people. Hard to get a bubble while people are leaving. Given a set population flow, more zoning seems to make the price swings greater, though you could still argue it's a good idea.