Tim Ryan Needs a Lesson in Regional Inequality

Tim Ryan is making himself look kind of clueless with comments like these:

Democratic Rep. Tim Ryan (Ohio) is going against party leaders and calling for a business friendly agenda ahead of the 2018-midterm elections.

“To be competitive globally, we have to reduce the corporate tax rate,” Ryan told The Hill in an interview from his Youngstown, Ohio, district office. “We’re just not competitive globally because of that.”

Ryan, a fast-rising Democrat from industrial Ohio, is challenging Democrats to take a different approach to big business and work with corporate America to create jobs.

“We can’t just be the party of redistribution of wealth; we need to be the party of the creation of wealth in communities all over the country, not to just Silicon Valley, not just Wall Street, but all over.”

…Though Ryan says he’s confident Democrats can take back the House in 2018, he insists a pro-business message will be key.

“If we could figure out the big economic question, which really is how do we get wealth out of the coasts and into the industrial Midwest and start creating real jobs by the hundreds, if not by the thousands, in places like I represent that’s a game changer for me.”

I’m tempted to send his staff a copy of our November/December issue of the Washington Monthly so they can read my brother’s excellent piece Bloom and Bust that magnificently explains how changes in public policy, not a deceptively high corporate tax rate, have caused the regional inequality that is killing places like Youngstown, Ohio.

Here’s a little sample from Phil’s article:

A major factor that has not received sufficient attention is the role of public policy. Throughout most of the country’s history, American government at all levels has pursued policies designed to preserve local control of businesses and to check the tendency of a few dominant cities to monopolize power over the rest of the country. These efforts moved to the federal level beginning in the late nineteenth century and reached a climax of enforcement in the 1960s and ’70s. Yet starting shortly thereafter, each of these policy levers were flipped, one after the other, in the opposite direction, usually in the guise of “deregulation.” Understanding this history, largely forgotten in our own time, is essential to turning the problem of inequality around.

What were some of the changes in public policy that contributed to this problem?

Well, airline regulation was one key factor:

Beginning in the late 1970s, however, nearly all the policy levers that had been used to push for greater regional income equality suddenly reversed direction. The first major changes came during Jimmy Carter’s administration. Fearful of inflation, and under the spell of policy entrepreneurs such as Alfred Kahn, Carter signed the Airline Deregulation Act in 1978. This abolished the Civil Aeronautics Board, which had worked to offer rough regional parity in airfares and levels of service since 1938.

With that department gone, transcontinental service between major coastal cities became cheaper, at least initially, but service to smaller and even midsize cities in flyover America became far more expensive and infrequent. Today, average per-mile airfares for flights in and out of Memphis or Cincinnati are nearly double those for San Francisco, Los Angeles, and New York. At the same time, the number of flights to most midsize cities continues to decline; in scores of cities service has vanished altogether.

Since the quality and price of a city’s airline service is now an essential precondition for its success in retaining or attracting corporate headquarters, or, more generally, for just holding its own in the global economy, airline deregulation has become a major source of decreasing regional equality. As the airline industry consolidates under the control of just four main carriers, rate discrimination and declining service have become even more severe in all but a few favored cities that still enjoy real competition among carriers. The wholesale abandonment of publicly managed competition in the airline sector now means that corporate boards and financiers decide unilaterally, based on their own narrow business interests, what regions will have the airline service they need to compete in the global economy. (See “Terminal Sickness,” Washington Monthly, March/April 2012.)

Railroad and trucking deregulation are another:

In 1980, President Carter signed legislation that similarly stripped the government of its ability to manage competition in the railroad and trucking industries. As a result, midwestern grain farmers, Texas and Gulf Coast petrochemical producers, New England paper mills, and the country’s mines and steel, automobile, and other heavy-industry manufacturers, all now typically find their economic competitiveness in the hands of a single carrier that faces no local competition and no regulatory restraints on what it charges its captive shippers. Electricity prices similarly vary widely from region to region, depending on whether local utilities are held captive by a local railroad monopoly, as is now typically the case.

Since 1980, mergers have reduced the number of major railroads from twenty-six to seven, with just four of these mega systems controlling 90 percent of the country’s rail infrastructure. Meanwhile, many cities and towns have lost access to rail transportation altogether as railroads have abandoned secondary lines and consolidated rail service in order to maximize profits.

It was actually aggressive public policy that created the broad regional equality the country enjoyed before deregulation and lax antitrust enforcement took it all away. Tim Ryan doesn’t know who screwed him or how he was screwed, and his solution now is to just tax the bandits less– as if the rest of us won’t have to make up the difference.

Martin Longman

Martin Longman is the web editor for the Washington Monthly and the main blogger at Booman Tribune.