Rust Belt Populism: An Economic Analysis | Pia Malaney


Within our market economy we think of us as
having the ability to vote through our dollars. So it’s one dollar, one vote. But we’ve seen inequality in this country
increase so dramatically recently that we are in some sense hearing some voices much
more loudly than others. If you look at the percent of income that
is going to the top one percent of our population in the last 20 years it’s doubled from 10
percent to 20 percent. If you look at the pay of CEOs compared to
the pay of the average production worker it went from being something like 24 times the
pay of an average production worker to being closer to 200 times. In many ways the voice of our working class
Americans is no longer being heard at the same level because they don’t have as much
control within that economy. So they’re looking to what we can think
of as another economy, a separate place to hear their voice which is our ballot economy. And we’ve always believe that our ballot
economy represents one person, one vote. Of course we’re seeing changes in that too. We have come to understand very clearly the
effects of gerrymandering over the last several years. We have seen, in this last election, the impact
of the electoral college and what that does to the voice of the majority. And we also understand that when you have
two senators from a state like Wyoming or from Vermont and two senators from California
that, in fact, we don’t really have one man, one vote. But we have enough equality within that system
that we actually were forced to listen to the voices of people who have felt disenfranchised
in our market economy. So what are these policies that have caused
people to react in this way? Well we can think of just a few of them if
we think about finance, integration, trade. Very often we have been told by the establishment
that immigration represents a win-win for America. The trade represents a win-win for America. Well, let’s delve a little deeper into that. Is that really true? As economists when we think about welfare
we’re very careful to think about ourselves as technocrats. So we don’t want to decide for a society
what distribution within a society should look like. And so we have this notion of welfare called
Pareto welfare. And we think of something as a Pareto improvement
if you can make at least one person better off by making nobody worse off. As you can imagine this is somewhat difficult
within a policy context. It’s very hard to find a way to have any
policies that have no negative impacts on anyone but can make some people better off. So we found a refinement to that, something
we call Kaldor-Hicks where we look at the net benefit versus the net cost. And the idea is that we can have a net benefit
and we can redistribute it amongst the losers. So we take whatever benefit we have to the
society as a whole and we redistribute so that overall people are better off. Well then we have a Kaldor-Hicks improvement
and we think of that as a welfare improvement. Let’s look at what is going on in the situation
of trade. So we know with trade that there are winners
and there are losers. We also know that by the principle of comparative
advantage that we’re going to actually have an efficiency gain. So you’re going to have some transfer where
American consumers do better off because we have access to goods at better prices. And American producers maybe lose some of
their resources because they can’t sell as much to our economy and they have to face
a more competitive economy. And then we know that we also have this competitive
gain. And if you add up the benefits and the costs
you find that, in fact, we have an overall benefit. What we often here when we hear about trade
is that it’s a win-win situation. And what we’re really referring to is the
fact that we have a Kaldor-Hicks improvement. Except we as economists understand that there’s
one more piece to that – which is that I order for everyone to be better off we really
need to find a way to redistribute that income away from the winners and towards the losers
so that they’re compensated for their loss. Similarly if we look at immigration there
are winners and losers. There are at least three things that happen
when we increase immigration in this country. Wages go down as the supply of labor goes
up. And as a result of that there is some transfer
from domestic workers to foreign workers. There’s some transfer from domestic workers
to domestic capital because the cost of wages has just gone down. And there is also an efficiency gain. So GDP does indeed go up as we increase immigration
and it goes up by more than just the benefits to foreign workers and domestic capital. However, the incidence of the loss has just
fallen on domestic workers and unless we can actually carry out the next piece of that
which is the redistribution everyone is not winning from this. There are designated winners and designated
losers. So as economists we understand that there
is a tradeoff between efficiency and equality. And we understand that any kind of redistributive
policies that we undertake is going to have some cost in terms of efficiency which is
the amount of welfare that we can actually provide to a society as a whole. And achieving maximum efficiency has very
much to do with understanding what people’s choices are and allowing them to maximize
their choices given whatever the constraint set is. Any time you have a tax or any kind of redistributive
policy we’re changing the incentive structure by changing the price system. And so we’re introducing a distortion which
is always going to have some kind of efficiency effect. We’re always in this position of needing
to decide how much efficiency and how much overall welfare do we want to give up so that
we can actually have a more equal society. And this is the piece that ends up being more
of a political choice than a technical choice. And it’s also the piece that’s very hard
to get people to push through politically. Except that what we’re now seeing in terms
of this populist backlash is that people are saying things have shifted maybe too much
to one side. Maybe we need to rethink where we are in terms
of this trade off. And, in fact, the establishment and the educated
elite understands very well what feels wrong and they understand that there is a piece
of this that we haven’t been fully honest about. It may not be a zero sum game but it’s also
not a win-win. And I order to understand the message that
we’re getting from rust belt America we need to understand what the real implications
of these policies have been for them.

Maurice Vega

53 Responses

  1. The US are ruled by uneducated inbreeds that hold the power for the republicans, wich best interest is keep their bases uneducated and indoctrinated.

  2. redistribution. elitist ideology. she almost admitted the elitists may have made some mistakes at the end.

  3. Donald Trump is the Moderate Independent that Americans have wanted as President for over 30 years.

    Trump's "popularity" comes from people being sick of the self righteous hate mongers on the religious right and regressive left.

  4. Interesting talk but I didn't hear anything about how to solve the problem. Just explaining what it is. Warren Buffet has said in a recent interview that the gap between the rich and poor will continue to increase because the market forces will cause that trend to continue. I don't think the people in the rust belt or other similar areas will see any changes anytime soon.

  5. Why is it that foreigners like myself understand the US electoral system more than actual Americans?

  6. Hi, Eat the rich! Trump is a disease on the economy and those who blindly supported him.
    He needs to be strung up like Mussolini was, along with all of his billionaire friends.
    Power to the people and down with the oligarchs! They are just ripping off the country for all they can take before the whole house of cards comes crashing down.Mark my words; Before this is over there will be blood! You can't run a good government with terrible people. Trump is Crazy! Wire taps from Obama! Just crazy! Thanks.

  7. As far as I understand what you are saying is, efficiency breeds inequality, however this assumes things such as tax funded welfare programs can't exist. the solution to your problem seems to me to not require a trade-off between the two ideas within a socialist society, however I have limited understanding of economics, to be able to evidence this idea.

  8. This is good – but sems to ignore the crash of 2008 and the massive level of loss and redistribution of wealth that this represented. It is talking about the issue of the context of the radical distortion of economics represented by the neo-liberal paradigm.

  9. Stop fucking beating around the bush and call it as it is: Class war of privileged and entrenched against poor and desperate.
    This roundabout and "sophisticated" mumbling is disgusting. Tell it how it is, it's obvious to anyone who wants to see.
    Wealth is sacred (because we powerful have it) and people are disposable (because they are someone else's children).

  10. How about not redistribute any wealth and allow citizens to keep more of their money, donate freely, and decentralize the welfare state.

  11. Stop spreading misinformation.

    First of all, the rust belt population that Trump appealed to with his populist message is either economically the same as the average area in the country, or better.
    https://www.reddit.com/r/badeconomics/comments/5heql1/i_think_this_will_count_as_an_r1_xpost_from_cmv/

    Second, immigration doesn't hurt native workers. It actually provides a significant net benefit to native workers in all areas, with only a few small groups experiencing relatively small losses.
    https://www.reddit.com/r/badeconomics/comments/4phhdt/immigration_is_bad_for_poor_people_its_just/d4l0sxg/
    https://www.reddit.com/r/badeconomics/comments/3exxhq/okay_is_lowskilled_immigration_a_negative_or_not/ctjgkby/

    Third, AUTOMATION, NOT TRADE OR IMMIGRATION, has caused the decrease in manufacturing jobs. So any immigration or trade policy to help save manufacturing jobs is doomed to fail.
    http://www.vox.com/the-big-idea/2017/1/24/14363148/trade-deals-nafta-wto-china-job-loss-trump
    http://econlog.econlib.org/archives/2016/12/its_the_automat.html

    The populist message is a fucking travesty. Immigration and free trade are both vital to the world, and our economy would be better off if both were prioritized. I'm not an advocate for total free market (no government regulations, no public business); in fact, the guys who won the Nobel Prize for econ last year won it by showing that some enterprises SHOULD be state run because they are so important that the free market would cost cut them down to uselessness (private prisons, education, poliece, probably some amount of healthcare).

    But get the fuck out of here with this immigration bullshit.

  12. the rustbelt hillbillies constantly vote against welfare and in favor of business, let them lie in the bed they made

  13. What happened was the Democrats ignored the poor and working class.
    Instead they focused on lgbt rights and PC SJW none issues.
    Trump gave them hope and Democrats offered them nothing, I'm not even American and I can see this!
    If the Democrats don't change its going to be a long eight years…

  14. When inequality has a foot in the policy writers door, normally from what I have read, executives claim to have the highest level of philanthropy. This is enough of a pleasurable notion, the conversation never goes past that state.
    Conservatives claim retirement programs are what make up for the spike yet, their own super PACs(mainly banks) are funded by businesses who lay off forces by the thousands; not to mention 2008!

  15. TLDR establishment types from both parties were screwing over the rust belt folks with mass unregulated immigration and unrestricted free trade which depressed wages so they voted for this beautiful disaster of a president as a way to swing things to the right but now were are a bit too far right think that's what she means

  16. the rust belt is the way it is because of its unwillingness to adapt to changes in the economy. anyone who feels sorry for those doping losers has been scammed.

  17. A. "Rust Belt" populism is far more a product of social and political changes than it is economic. If the center and the left want to understand the recent wave of populism or (more accurately) look for someone to blame; they need only look in a mirror. The PC culture has created a habit of destroying peoples lives because of tweet, created college safe spaces, trigger warnings, soda bans, mandatory composting, free speech zones on college campuses and segregated college dorms so minorities feel "safe." C'mon, seriously?!
    2. The law of unintended consequences applies to every economic transaction and public policy. No transaction can be without an externality. Additionally due the complexity of hundreds of millions of people carrying out dozens of economic transactions a day, there is no good way to model our current economy. This is the greatest cause of the economic disparities described in the video. Public policy with good intentions (mass welfare, public sector unions, complex regulations or should I say regulatory capture) often leads to situations that weren't anticipated and outcomes that often contradict the original goal.
    – I really wish I could watch one interview or youtube video with an economist, where they say "We don't know. The field of economics is highly speculative, does not rely on the scientific method and is mostly academic in nature. We can study and research but we just don't have enough information to say much of anything with certainty." Would that be so hard?!

  18. There is a difference between a worker who's paid well and a same citizen who gets money through welfare – you can't make people feel fulfilled though monetary handouts! I am surprised that economists do not see the difference between an earned dollar and one that has been thrown at the "loosers".

  19. as someone currently in the rust belt, from my perspective the main implications have been that the people supporting trump are mostly upset because because they're no longer the center of attention. it's almost purely cultural issues they have where they are disgusted by other groups of people trying to better their lives, which admittedly has gone to far with things like sjws. but if you talk to them, it's about gay marriage, or abortion, or trans bathroom issues. it's viewing people being allowed to be more free as a form of tyranny that is being thrust upon them, regardless of how little impact it has on them personally. there is economic bitterness, but it's mostly terribly misinformed and not based on any real lowering of their standard of living. again, it's mostly cultural, as in they don't want to be forced to pay for other people's health care or for a school to buy a new sign that reads "learning center." because that is somehow thought policing and coddling.

    that's why fact mean nothing to them, because they're reacting on emotion. I suppose it's possible that those emotions have a root in the large loss of jobs that happened 30 years ago, but unless you're in the more affected parts of Michigan your standard of living probably hasn't changed that drastically and you're not living in squalor. the real problem with immigration in the rust belt is fear mongering. outsourcing is what really did us in, but that happened long before these folks felt so "left behind." I appreciate your desire to understand things, and I'm sure my opinion is heavily biased, but I've spent the last 10 years trying to find the logic in my father's drift into this way of thinking, and there is none that I can see. it's pure emotion that has carefully crafted by people could give a flying shit about the rust belt.

  20. Too many people fighting for policy change or an elected official to "save them" and too few working to improve their lives. America is becoming to advanced for a high school drop out to continue to make $30/hr as as union assembly line worker. The problem with the rust belt is they haven't woken up to the fact a Chinese child can do their job for .50 a day. They still don't view education and advanced skills as an important cultural trait. While the children of foreigners learn coding , engineering, and chemistry the rust belt still has their kids focus of football and shooting garbage.

  21. Immigration does not mean wages go down. Especially if the immigrants were rich wages would in fact go up. It's POOR immigrants that make wages go down.

  22. The real question is why the middle classes are middle classes. Their current state is an accumulation of the decisions they have made over their lives up to now. If they are losers then they have to accept it. I am a middle class but I don't whine. Instead I focus on finding ways to make my situation better because I'm in this state through my own inability.

  23. efficiency is not innately a good The most efficient marketplace doesn't function. Sooner or later when you've made production more efficient and more efficient you end up on the wrong end of the scenario. Where you've put so many people out of work or drove down wages so much that there is no one left to buy your shit. A economy without 90% of it's consumers having the ability to purchase is a dead economy. The engine of the economy is the masses and while we a siphoning money to the "winners" the the GDP is going up but the fucking gears are breaking and the engine is grinding to a halt.

  24. To simplify this whole thing. If all the gains from the added production go to the leaders of industry the system won't work. Those gains need to be redistribute.

  25. Unfortunate Americans do not understand either politics or economics, much less the influence of economic policies on politics.

  26. The problem is that as economic systems scale up in size, they all fail and become inefficient. Further, the kaldor hicks analogy demostrates that while they go for the general welfare, there will be people that eat a shit sandwich. Who gets to decide who?

  27. The GINI index is mostly the SAME…where ever you look ….except maybe Norway or England. It's not like the americans are screwing up that bad, mostly just a screwed up capitalism out of control, like a nuclear reactor with no cooling water.

  28. that was great !!!!! I wonder how in this political atmosphere a movement to redistribute would become successful

  29. I think this is perhaps the beginning of the death throes for late neoliberal capitalism. What we're seeing is a sudden realization by a lot of people that in terms of class relations here in America, they are the "losers" of the arrangement. Even as productivity in this country continues to rise, public welfare continues to stagnate and decline. This is because the current system still includes its most inefficient element – profit incentive for investment. Because all of these huge companies with massive capital, and massive impact on the economy and thus people's lives, are run for-profit, they are actively incentivized to maximize that profit at all costs. This leads to companies which behave in ways counter to the public welfare in pursuit of that profit. It also incentivizes private corporate entities to lobby and interfere with matters of public policy which effect their markets.

  30. Misunderstands the American political system…it has never been about one man one vote…the Founders feared the tyranny of the mob and created a system of representative government where the rights of the majority and the minority were balanced.

  31. Quality education might be the only gift the future generations is going to get,,, nonetheless everything gona be same,,, keeping everything in worst possible way…
    Market? That was the cheapest trick people gona believe and lose billions in sec…which costs life.

  32. Garbage. How can you possibly have a functioning economy when you punish the successful by robbing them, and then reward the unsuccessful with stolen goods? How can anyone, much less an economist, with the faintest grasp of history and the horrors of socialism suggest such a remedy?

  33. "without this…there are designated winners and designated losers" yes, moreover the scale and ratio of the win/loss per person is completely misaligned

  34. So if we must "compensate" workers for "losses" due to trade with foreign countries, why don't we compensate businesses that go out of business to competitors in neighboring states? Why don't we compensate businesses having it rough in one town because of the growth of a business in another town? Why don't we compensate the business on one block because they're losing business to a different business on the next block? If we have a moral obligation to compensate people for not producing as well as someone else, then we should do it on all levels. Then maybe people would get a sense of the absurdity of it. If your goal is to redistribute wealth, there's far more effective ways to do it.

    Bailing out ineffective producers, whether they be dispersed (like manufacturing in the mid-west) or concentrated (like the banks back in '08), only creates false incentives and enables failing industries to fail longer, ultimately crashing harder at a later date and making everyone else pay for their existence all along the way.

    And I am from the Rust Belt, and no, I do not think I have any moral claim on someone else's money via taxes to "compensate" for a declining economy in my area.

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