Are Declining U.S. Dynamism and Increasing Inequality Linked?

business_ethics_highlights_2Declining economic dynamism is a concern we usually associate with the U.S. political ‘right’. Increasing economic inequality is a concern we usually associate with the U.S. political ‘left’. This piece in The Atlantic is interesting because it advances a thesis cross-cutting both the political spectrum and well-worn narratives about the sources of these economic ills. The most novel aspect is that it traces both declining economic dynamism and increased economic inequality to local public policy—particularly, to local land-use policies. The combination of zoning restrictions, greenspace ordinances, highrise restrictions, etc., prevailing in the most economically productive and dynamic locales (e.g., Silicon Valley, Los Angeles, New York, Boston) erect a significant barrier to entry in the form of high real estate prices. This sees Americans migrating toward cheaper real estate rather than toward greater opportunity. The problem is that the locales with cheaper real estate lack the cultural and financial infrastructure to incubate entrepreneurial venturing. This, in turn, makes them sources of lower-paying employment opportunities relative to the productive and dynamic locales. In a classroom environment, this piece could be used to jumpstart a discussion about the sources of wealth and the way public policy initiatives seemingly unrelated to wealth creation end up having an effect on both its creation and distribution. >>>

LINK: How America Lost Its Mojo (By DEREK THOMPSON for The Atlantic)

Americans today are strangely averse to change. They are less likely to switch jobs, or move between states, or create new companies than they were 30 years ago. In economist-speak, “the U.S. labor market has experienced marked declines in fluidity along a variety of dimensions.” In English: America has lost its mojo. Manifest Destiny has yielded to manifest dormancy.

Why are Americans stuck in place—and why are these stuck Americans less likely than their forebears to switch jobs and start companies? These are huge questions, and they don’t necessarily have to be connected. There could be one explanation for why Americans stopped moving and another for why Americans are starting fewer firms. But in fact the reasons are intertwined. They are a driving force behind regional inequality, and the phenomenon stems from a significant root cause: the cost of having a place to live in America’s most productive cities.

What do you think?

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