Regulation and the Geography of Inequality

Abstract

We live in an era of widening geographic inequality. Around the country, the spread between economically and culturally thriving places and those that are struggling has been increasing. “Superstar” cities like New York, San Francisco, Boston, and Atlanta continue to attract talent and grow, while the economies of other cities and rural areas are left behind. Troublingly, escalating geographic inequality in the United States has arrived hand-in-hand with serious economic, social, and political problems. Areas that are left behind have not only failed to keep up with their thriving peers; in many ways they have stagnated and seen opportunities evaporate. At the same time, superstar cities are running up against extreme housing affordability problems, rendering middle-class life all but unsustainable. To make matters worse, the widening gulf between dynamic and stagnant places increasingly feeds into a democratic crisis of unrepresentative government at the federal level. The dominant explanations for widening geographic inequality focus largely on inexorable economic trends. Forces like “agglomeration effects” and globalization have reshaped the economy, benefitting some areas and harming others. We think these explanations leave out a crucial factor: the effects of specific regulatory choices on economic geography. The Progressive Era and New Deal regulatory order in the United States promoted geographic dispersion in economic activity. The unraveling of this regulatory order around 1980 coincided with the reversal in geographic convergence and the beginning of an era of growing divergence. More specifically, regulatory policies in the areas of transportation, communications, trade, and antitrust helped construct an era of geographic convergence in the mid-twentieth century and deregulation in those same areas contributed to the rise of geographic inequality over the last generation. To combat geographic inequality and its attendant downsides, we make the case for reincorporating geographic factors into federal regulatory policymaking in transportation, communications, trade, antitrust, and other domains.