In 1929, the U.S. South (as well as North Dakota and surrounding states) was very relatively poor, while the U.S. North (especially New York and Illinois) was very relatively rich. The four richest states in the country were New York, Illinois, Delaware, and California, with the exception of Delaware, all home to the largest cities of America. Today, things are very different. Due to greater mobility of labor and capital and institutional convergence of the U.S. South and North (at least partly due to Federal legislation), the U.S. is a much more regionally equal country than it was in 1929, or even 1979. As I discussed in the Ascent of the Second World post, Puerto Rico is also much closer to U.S. income levels than it was in 1950.
Lighter states are richer. In 1929, regional inequality in the United States was at a point unimaginable today. South Carolina and Mississippi, the poorest states in the Union, had less than 40% of the U.S. average per capita income.2014 Today, no state has a per capita income of less than 70% of the U.S. average.
Regional inequality has declined enormously since where it was before the New Deal.
But there are two distinct periods here: One where inequality narrowed rapidly and another more recent one where it's stayed flat.
Non-convergence is at least a little mysterious given the lack of formal barriers to capital or labor mobility inside the USA.
One part of the answer is snob zoning makes labor (and key forms of capital) less mobile in practice than theory.
The American economy isn’t actually becoming more concentrated
Opportunity is clustering, but people and growth aren’t.
Donald Trump’s election win, many speculated, must be due to geographic inequality and the increasing concentration of economic activity in a handful of big coastal cities. It was tough to escape the woeful tales of small-town and Rust Belt voters in the final months of 2016.
But as Jed Kolko, chief economist at Indeed.com, pointed out last September, the economy isn’t actually becoming more concentrated. Something much more insidious is happening. Economic opportunity is becoming more concentrated, but Americans’ ability to move to take advantage of that opportunity is declining. Consequently, the rising average incomes in big coastal cities are being offset by those cities’ declining share of the population.Kolko’s analysis shows that America’s metropolitan areas are becoming more unequal, with per capita income rising faster in a small number of already affluent metro areas. This accords with the basic intuition that the growth sectors of the American economy — high tech, finance, biomedical devices — are largely concentrated in a few large coastal areas, while the plethora of manufacturing centers that dotted much of the country decades ago have declined.
What’s interesting, however, is that this has not led aggregate economic activity to be more concentrated in those affluent cities.
How can New York get richer without growing its share of the overall national economy? The answer is that these same affluent metro areas contain a shrinking share of the country’s overall population.
The growth of Rust Belt industries was fueled by massive influxes of people — the Great Migration of African Americans from the South, most famously — who flocked to new factory towns in search of better-paying jobs. Today, instead of heading to the metro areas that offer the highest wages, Americans are generally moving to places like Atlanta, Dallas, and Nashville, where economic opportunities are mediocre at best.
The reason for this is not too mysterious.
The price of a house — especially one in a neighborhood that’s considered to have good public schools — in the suburbs of Boston, Washington, or San Francisco is prohibitive.
The problem in a literal sense is that high-wage coastal cities are adjacent to oceans and thus have fewer dimensions of freedom in which to sprawl without creating untenable commuting conditions.
America does,however, possess the technological capacity to construct large numbers of dwellings on relatively small parcels of land.
We have largely chosen, however, not to deploy any of these state-of-the-art housing or transportation technologies, preferring to rely on detached single-family homes and unpriced car commuting. That naturally leads the population to migrate to sprawl-friendly geography despite relatively low pay. But if the situation turned around and we allowed more people to move to the most affluent areas, we would find that even as geographic concentration increased, opportunity and prosperity would be more widespread.