Economic Law or Political Policy?

Alan Singer
Hofstra University

A problem framing the economics curriculum is disagreement about what should be included and even when there is a consensus on topics and themes, how they should be presented. The Business Dictionary, the NCSS C3 Framework, New York Times columnist Paul Krugman, and the New York State 12th Grade Social Studies Framework even offer very different conceptions of what economics is. In Social Studies for Secondary Schools (Routledge, 2014) I provide teachers with a very simple definition. “Economics examines how societies produce and distribute the goods and services that people, communities, and nations need to survive.” But of course, it is really complex, because how societies “produce and distribute the goods and services” involves individual, business, social, and political decisions, and competition between different interests, as does defining what “people, communities, and nations need to survive.” A good example is the debate over the regulation of industry to protect the environment and human civilization from the negative effects of climate change.

Business Dictionary: “The theories, principles, and models that deal with how the market process works. It attempts to explain how wealth is
created and distributed in communities, how people allocate resources
that are scarce and have many alternative uses, and other such matters
that arise in dealing with human wants and their satisfaction.”
Their focus is on the market process and does not include the role of labor in production or government regulation.  

NCSS C3 Framework: “Effective economic decision making requires that students have a keen understanding of the ways in which individuals,
businesses, governments, and societies make decisions to allocate human capital, physical capital, and natural resources among alternative uses.
This economic reasoning process involves the consideration of costs and benefits with the ultimate goal of making decisions that will enable
individuals and societies to be as well off as possible. The study of
economics provides students with the concepts and tools necessary for an economic way of thinking and helps students understand the interaction of buyers and sellers in markets, workings of the national economy, and interactions within the global marketplace.” Their focus is on economic
decision-making and cost benefits. They recognize the role of multiple
forces in the process, but don’t specifically cite workers or unions, or
discuss how programs that benefit one group can be catastrophic for another.  

Nobel Prize winning economist and New York Times columnist Paul
Krugman: “The economy is everything that involves making or using
goods and services . . .Self-interest is still the best motivator we know – or more accurately, the only consistent motivator. So I’m for market
economies. But I’m for market economies with strong safety nets, with
adult supervision in capital markets, with public provision of goods the
private sector does badly. An idealized New Deal is about as far as I go.”
Krugman is a left-Keysnian who supports an active role for the government in regulating markets and meeting human needs, but he still relies on
market solutions.  

NYS 12th Grade Framework: “Economics, the Enterprise System, and
Finance” examines the principles of the United States free market
economy in a global context. Students will examine their individual
responsibility for managing their personal finances. Students will analyze the role of supply and demand in determining the prices individuals and
businesses face in the product and factor markets, and the global nature of these markets. Students will study changes to the workforce in the
United States, and the role of entrepreneurs in our economy, as well as
the effects of globalization. Students will explore the challenges facing
the United States free market economy in a global environment and
various policy-making opportunities available to government to address
these challenges.”

This is the worst of the definitions. First, the United States does not have a
free-market economy and never has. Second, the stress on individual
responsibility ignores the broader forces shaping our lives. Individuals,
especially children, do not choose to be poor, unemployed, or homeless.
Third, nothing is mentioned about competing interests or economic
inequality. Good points are recognition of global forces and a role for
government, but these are secondary in the,curriculum.

The idea of free markets is generally associated with 18th century Scottish Enlightenment thinker Adam Smith and his notion of an “invisible hand” self-regulating markets. Smith actually only mentioned the “invisible hand” once in “The Wealth of Nations,” his signature work. The idea was actually promoted by 20th century economists, including F.A. Hayek who described it as “spontaneous order” and Joseph Schumpeter who called it “creative destruction.” As a result of Smith, Hayek, and Schumpeter, free-market economists often describe the “invisible hand” and the supply/demand curve as “economic law.” According to Smith: “Every individual necessarily labors to render the annual revenue of the society as great as he can … He intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention … By pursuing his own interests, he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good” (https://www.investopedia.com/terms/i/invisiblehand.asp).

Economists from Karl Marx through John Maynard Keynes and contemporary Nobel Prize winners Joseph Stiglitz and Paul Krugman argue that political policies and government decisions actually play a much more important role in shaping modern economies than hypothesized economic laws. Most political economists argue that government intervention in modern economies is a positive benefit to society although they disagree on how active the government’s role should be.

This series of activities are designed to involve economics students in discussion of whether “economic law” or political policy should govern modern economies. The articles are edited down to less than 500 words to meet the standard for fair-use replications. They were also selected as challenging, but within the literacy expectations of students who are ready to do college-level work.

Aim: Does economic law or political policy govern modern economies?

Do Now: Read the definition of the “Invisible Hand,” examine the cartoons, and answer questions 1-4.

Invisible Hand: The term “invisible hand” was introduced by Adam Smith in his book An Inquiry into the Nature and Causes of the Wealth of Nations (1776). It describes unobservable, or invisible, market forces that help the demand and supply of goods in a free market capitalist economy to automatically reach equilibrium (balance) at the most productive or beneficial level. – https://economictimes.indiatimes.com/definition/invisible-hand.  

Questions What is the origin of the term, the “invisible hand”?How is it supposed to operate?How are the depictions of the “invisible hand” in the cartoons similar and different?In your opinion, which cartoonist has a more accurate view of how the “invisible hand” of free market capitalism actually works? Explain.  

Introduction (Modeling — Reading with video): Tax policies are definitely government decisions and affect people and industries differently. Donald Trump argues that cutting taxes on the wealthy and on corporations will unleash productivity and create new jobs. He is generally supported by free-market advocates, primarily members of the Republican Party. This chart is drawn from an article from Time magazine (http://time.com/5030731/the-republican-tax-bills-winners-and-losers/). The page also includes a video presenting multiple views on tax cuts.

The Republican Tax Bill’s Winners and Losers

The ultra-wealthy, especially those with dynastic businesses — like President Donald Trump and his family — do very well under a major Republican tax bill moving in the Senate, as they do under legislation passed this week by the House . . . On the other hand, people living in high-tax states, who deduct their local property, income and sales taxes from what they owe Uncle Sam, could lose out from the complete or partial repeal of the deductions. And an estimated 13 million Americans could lose health insurance coverage over 10 years under the Senate bill.

Winners Losers
* Wealthy individuals and their heirs win big. The hottest class-warfare debate around the tax
overhaul legislation involves the
inheritance tax on multimillion-dollar estates. The House bill initially doubles the limits — to $11 million for individuals and $22 million for couples — on how much money in the estate can be exempted from
the inheritance tax, then repeals
it entirely after 2023. The Senate
version also doubles the limits but doesn’t repeal the tax. Then there’s the alternative minimum tax, a
levy aimed at ensuring that higher-earning people pay at least some
tax. It disappears in both bills. The House measure cuts tax rates for
many of the millions of “pass-through” businesses big and small —
including partnerships and
specially organized corporations — whose profits are taxed at the
owners’ personal income rate. The Senate bill lets pass-through owners deduct some of the earnings and
then pay at their personal income
rate on the remainder.

* Corporations win all around, with a tax rate slashed from 35 percent
to 20 percent in both bills — though they’d have to wait a year for it
under the Senate measure.

* U.S. oil companies with foreign
operations would pay reduced
taxes under the Senate bill on their income from sales of oil and
natural gas abroad. Beer, wine and liquor producers would reap tax
reductions under the Senate
measure. Companies that provide management services like
maintenance for aircraft get an
updated win. The Senate bill clarifies that under current law, the
management companies would be exempt from paying taxes on payments they receive from owners of
private jets as well as from commercial airlines.
* An estimated 13 million
Americans could lose health
insurance coverage under the
Senate bill, which would repeal the “Obamacare” requirement that
everyone in the U.S. have health
insurance. The projection comes
from the nonpartisan
Congressional Budget Office.
Eliminating the fines is expected to mean fewer people would obtain
federally subsidized health
policies.
* People living in high-tax states
would be hit by repeal of federal
deductions for state and local taxes under the Senate bill, and partial
repeal under the House measure.
That result of a compromise allows the deduction for up to $10,000 in
property taxes.

* Many families making less than $30,000 a year would face tax
increases starting in 2021 under
the Senate bill, according to
Congress’ nonpartisan Joint
Committee on Taxation.

* By 2027, families earning less
than $75,000 would see their tax
bills rise while those making more would enjoy reductions, the
analysts find. The individual
income-tax reductions in the
Senate bill would end in 2026.  

Questions
1. Based on this report, who
benefits the most from tax reform proposals?

2. Based on this report, who loses
the most from tax reform
proposals?

3. In your opinion, are these proposals fair? Explain.

4. Does government tax policy
support the idea that the “invisible hand” is operating or that
economies are driven by political
decisions? Explain.

Team A: Renewable Energy Is Surging. The G.O.P. Tax Bill Could Curtail That. Source: https://www.nytimes.com/2017/12/07/climate/tax-overhaul-energy-wind-solar.html  

Questions
1. Based on this report, who
benefits the most from current
economic policies?

2. Based on this report, who loses the most from current economic
policies?

3. In your opinion, are these
policies fair? Explain.

4. Does government policy support the idea that the “invisible hand” is operating or that economies are
driven by political decisions?
Explain.

The Republican tax bills moving through Congress could significantly hobble the United States’ renewable energy industry because of a series of provisions that scale back incentives for wind and solar power while bolstering older energy sources like oil and gas production.

The possibility highlights the degree to which the nation’s recent surge in renewable electricity generation is still sustained by favorable tax treatment, which has lowered the cost of solar and wind production while provoking the ire of fossil-fuel competitors seeking to weaken those tax preferences.

Whether lawmakers choose to protect or jettison various renewable tax breaks in the final bill being negotiated on Capitol Hill could have major ramifications for the United States energy landscape, including the prices consumers pay for electricity.

Wind and solar are two of the fastest-growing sources of power in the country, providing 7 percent of electricity last year. Sharp declines in the cost of wind turbines and photovoltaic panels, coupled with generous tax credits that can offset at least 30 percent of project costs, have made new wind and solar even cheaper than running existing fossil-fuel plants in parts of the country.

In different ways, direct and indirect, the House and Senate bills each imperil elements of that ascension. A Senate bill provision intended to stop multinational companies from shifting profits overseas could unexpectedly cripple a key financing tool used by the renewable energy industry, particularly solar, by eroding the value of tax credits that banks and other financial institutions buy from energy companies.

The House bill’s effects would be more direct, rolling back tax credits for wind farms and electric vehicles, while increasing federal support for two nuclear reactors under construction in Georgia. Fossil fuel producers are under little pressure in either bill and some would stand to benefit: The Senate legislation would open the Arctic National Wildlife Refuge in Alaska to oil drilling, while a last-minute amendment added by Senator John Cornyn, Republican of Texas, would allow oil and gas companies to receive lower tax rates on their profits.

The tension between new and old energy was on display this week at a White House event to promote the Republican tax legislation, where a coal plant employee from North Dakota thanked President Trump for a provision in the House bill that would drastically reduce the value of the production tax credit for wind.

“The production tax credit has destroyed the energy market, especially in the Midwest,” the employee, Jessica Unruh, who is also a state representative, told the president. “Wind production has really eroded our state tax base and replaced coal production when it comes to electricity production.”

The wind industry has warned that the House language, which would reduce the wind tax credit to 1.5 cents per kilowatt-hour, from 2.4 cents, and change eligibility rules, could eliminate over half of the new wind farms planned in the United States.

Team B: Inequality Is Not Inevitable by Joseph Stiglitz, NYT, June 28, 2014 SR1 http://opinionator.blogs.nytimes.com/2014/06/27/inequality-is-not-inevitable/?ref=opinion

Questions
1. Based on this report, who benefits the most from current economic
policies?
2. Based on this report, who loses the most from current economic
policies?
3. In your opinion, are these policies fair? Explain.
4. Does government policy support the idea that the “invisible hand” is operating or that economies are driven by political decisions? Explain.

An insidious trend has developed over this past third of a century. A country that experienced shared growth after World War II began to tear apart, so much so that when the Great Recession hit in late 2007, one could no longer ignore the fissures that had come to define the American economic landscape. How did this “shining city on a hill” become the advanced country with the greatest level of inequality?

Our current brand of capitalism is an ersatz capitalism. For proof of this go back to our response to the Great Recession, where we socialized losses, even as we privatized gains. Perfect competition should drive profits to zero, at least theoretically, but we have monopolies and oligopolies making persistently high profits. C.E.O.s enjoy incomes that are on average 295 times that of the typical worker, a much higher ratio than in the past, without any evidence of a proportionate increase in productivity.

If it is not the inexorable laws of economics that have led to America’s great divide, what is it? Part of the answer is that as World War II faded into memory, so too did the solidarity it had engendered. As America triumphed in the Cold War, there didn’t seem to be a viable competitor to our economic model . . . Ideology and interests combined nefariously. Some drew the wrong lesson from the collapse of the Soviet system. The pendulum swung from much too much government there to much too little here. Corporate interests argued for getting rid of regulations, even when those regulations had done so much to protect and improve our environment, our safety, our health and the economy itself. But this ideology was hypocritical. The bankers, among the strongest advocates of laissez-faire economics, were only too willing to accept hundreds of billions of dollars from the government in the bailouts that have been a recurring feature of the global economy since the beginning of the Thatcher-Reagan era of “free” markets and deregulation.

The American political system is overrun by money. Economic inequality translates into political inequality, and political inequality yields increasing economic inequality . . . So corporate welfare increases as we curtail welfare for the poor. Congress maintains subsidies for rich farmers as we cut back on nutritional support for the needy. Drug companies have been given hundreds of billions of dollars as we limit Medicaid benefits. The banks that brought on the global financial crisis got billions while a pittance went to the homeowners and victims of the same banks’ predatory lending practices.

The problem of inequality is not so much a matter of technical economics. It’s really a problem of practical politics. Ensuring that those at the top pay their fair share of taxes — ending the special privileges of speculators, corporations and the rich — is both pragmatic and fair . . . Widening and deepening inequality is not driven by immutable economic laws, but by laws we have written ourselves.

Team C: Big Mac Test Shows Job Market Is Not Working to Distribute Wealth by Eduardo Porter, NYT, April 22, 2015, B1, http://www.nytimes.com/2015/04/22/business/big-mac-test-shows-job-market-is-not-working-to-distribute-wealth.html?ref=business

Questions
1. Based on this report, who benefits the most from current economic policies?
2. Based on this report, who loses the most from current economic
policies?
3. In your opinion, are these policies fair? Explain.
4. Does government policy support the idea that the “invisible hand” is operating or that economies are driven by political decisions? Explain.

Some 15 years ago, searching for a consistent way to compare wages of equivalent workers across the world, Orley Ashenfelter, an economics professor at Princeton University, came upon McDonald’s. The uniform, highly scripted production methods used throughout the McDonald’s fast-food empire allowed Professor Ashenfelter to compare workers in far-flung countries doing virtually the same thing. The company also offered a natural index to measure the purchasing power of its wages around the world: the price of a Big Mac. Some of his findings are depressing. Real wages — measured in terms of the number of Big Macs they might buy, declined over the first decade of the millennium widely across the industrialized world.

Even before the financial crisis struck, the wages of McDonald’s workers in the United States, many Western European countries, Japan and Canada went nowhere between 2000 and 2007, a period of steady, though unspectacular, economic growth in most of the developed world. In the United States, real wages actually declined . . . Faced with a tightening labor market and besieged by a vocal, combative movement demanding higher wages for America’s worst-paid employees, McDonald’s, Walmart and other large employers of cheap labor have offered modest raises to millions of workers scraping the bottom of the job market.

The battle for public opinion is fought mostly on ethical grounds — pitting the healthy profits of American corporations and the colossal pay of their executives against bottom-end wages that force millions of workers to rely on public assistance to survive. But what is often overlooked in the hypercharged debate about corporate morality is how a similar dynamic is taking hold around the industrialized world.

Lane Kenworthy, a professor of sociology at the University of California, San Diego, has disentangled the evolution of household incomes over the last three or four decades. The wages from work, he found, are playing a diminishing role for a growing swath of the labor force . . . A combination of sluggish employment and stagnant wages has forced more families to rely on the public purse in many developed nations. 

In Canada, for example, labor market earnings for the bottom fourth of the income ladder grew by roughly $25 a year between 1979 and 2007. Government transfers increased by $78. For Canadian households one rung higher — between the 25th and the 50th percent of the earnings distribution — there were no increases in labor market compensation. All gains came from the government. In Germany — often portrayed as the gold standard of the postindustrial labor market — the entire bottom half of households experienced shrinking earnings from work. They only got ahead because of rising government benefits.

Perhaps it is simply that the demand for skill in the modern job market has grown faster than its supply. The United States, notably, hasn’t increased educational attainment at the rate the labor market requires. And the economy simply doesn’t need as many less-educated workers as it once did.

Team D: Top 10% Took Home Half Of U.S. Income in 2012 by Annie Lowrey, NYT, September 11, 2013, B4

Questions
1. Based on this report, who benefits the most from current economic policies?
2. Based on this report, who loses the most from current economic
policies?
3. In your opinion, are these policies fair? Explain.
4. Does government policy support the idea that the “invisible hand” is operating or that economies are driven by political decisions? Explain.

The top 10 percent of earners took more than half of the country’s total income in 2012, the highest level recorded since the government began collecting the relevant data a century ago, according to an updated study by the prominent economists Emmanuel Saez and Thomas Piketty. The top 1 percent took more than one-fifth of the income earned by Americans, one of the highest levels on record since 1913, when the government instituted an income tax. The figures underscore that even after the recession the country remains in a new Gilded Age, with income as concentrated as it was in the years that preceded the Depression of the 1930s, if not more so.

High stock prices, rising home values and surging corporate profits have buoyed the recovery-era incomes of the most affluent Americans, with the incomes of the rest still weighed down by high unemployment and stagnant wages for many blue- and white-collar workers.

The income share of the top 1 percent of earners in 2012 returned to the same level as before both the Great Recession and the Great Depression: just above 20 percent, jumping to about 22.5 percent in 2012 from 19.7 percent in 2011 . . . [R]icher households have disproportionately benefited from the boom in the stock market during the recovery, with the Dow Jones Industrial Average more than doubling in value since it bottomed out early in 2009. About half of households hold stock, directly or through vehicles like pension accounts. But the richest 10 percent of households own about 90 percent of the stock, expanding both their net worth and their incomes when they cash out or receive dividends.

The economy remains depressed for most wage-earning families. With sustained, relatively high rates of unemployment, businesses are under no pressure to raise their employees’ incomes because both workers and employers know that many people without jobs would be willing to work for less. The share of Americans working or looking for work is at its lowest in 35 years. There is a glimmer of good news for the 99 percent in the report, though. Mr. Piketty and Mr. Saez show that the incomes of that group stagnated between 2009 and 2011. In 2012, they started growing again — if only by about 1 percent. But the total income of the top 1 percent surged nearly 20 percent that year. The incomes of the very richest, the 0.01 percent, shot up more than 32 percent.

Team E: Health Care and Profits, a Poor Mix by Eduardo Porter, NYT, 1/9/13, B1 http://www.nytimes.com/2013/01/09/business/health-care-and-pursuit-of-profit-make-a-poor-mix.html

Questions
1. Based on this report, who benefits the most from current economic
policies?
2. Based on this report, who loses the most from current economic
policies?
3. In your opinion, are these policies fair? Explain.
4. Does government policy support the idea that the “invisible hand” is
operating or that economies are driven by political decisions? Explain.

Thirty years ago, Bonnie Svarstad and Chester Bond of the School of Pharmacy at the University of Wisconsin-Madison discovered an interesting pattern in the use of sedatives at nursing homes in the south of the state. Patients entering church-affiliated nonprofit homes were prescribed drugs roughly as often as those entering profit-making “proprietary” institutions. But patients in proprietary homes received, on average, more than four times the dose of patients at nonprofits. Writing about his colleagues’ research, . . .the economist Burton Weisbrod provided a straightforward explanation: “differences in the pursuit of profit.” Sedatives are cheap, Mr. Weisbrod noted. “Less expensive than, say, giving special attention to more active patients who need to be kept busy.”

This behavior was hardly surprising. Hospitals run for profit are also less likely than nonprofit and government-run institutions to offer services like home health care and psychiatric emergency care, which are not as profitable as open-heart surgery. A shareholder might even applaud the creativity with which profit-seeking institutions go about seeking profit. But the consequences of this pursuit might not be so great for other stakeholders in the system — patients, for instance. One study found that patients’ mortality rates spiked when nonprofit hospitals switched to become profit-making, and their staff levels declined.

These profit-maximizing tactics point to a troubling conflict of interest that goes beyond the private delivery of health care. They raise a broader, more important question: How much should we rely on the private sector to satisfy broad social needs? From health to pensions to education, the United States relies on private enterprise more than pretty much every other advanced, industrial nation to provide essential social services. The government pays Medicare Advantage plans to deliver health care to aging Americans. It provides a tax break to encourage employers to cover workers under 65. Businesses devote almost 6 percent of the nation’s economic output to pay for health insurance for their employees. This amounts to nine times similar private spending on health benefits across the Organization for Economic Cooperation and Development, on average. Private plans cover more than a third of pension benefits. The average for 30 countries in the O.E.C.D. is just over one-fifth.

Our reliance on private enterprise to provide the most essential services stems, in part, from a more narrow understanding of our collective responsibility to provide social goods. Private American health care has stood out for decades among industrial nations, where public universal coverage has long been considered a right of citizenship. But our faith in private solutions also draws on an ingrained belief that big government serves too many disparate objectives and must cater to too many conflicting interests to deliver services fairly and effectively.

Our trust appears undeserved, however. Our track record suggests that handing over responsibility for social goals to private enterprise is providing us with social goods of lower quality, distributed more inequitably and at a higher cost than if government delivered or paid for them directly.

Team F: Skilled Work, Without the Worker by John Markoff, NYT, 8/19 A1 http://www.nytimes.com/2012/08/19/business/new-wave-of-adept-robots-is-changing-global-industry.html

Questions
1. Based on this report, who benefits the most from current economic
policies?
2. Based on this report, who loses the most from current economic
policies?
3. In your opinion, are these policies fair? Explain.
4. Does government policy support the idea that the “invisible hand” is operating or that economies are driven by political decisions? Explain.

At the Philips Electronics factory on the coast of China, hundreds of workers use their hands and specialized tools to assemble electric shavers. That is the old way. At a sister factory here in the Dutch countryside, 128 robot arms do the same work with yoga-like flexibility. Video cameras guide them through feats well beyond the capability of the most dexterous human. One robot arm endlessly forms three perfect bends in two connector wires and slips them into holes almost too small for the eye to see. The arms work so fast that they must be enclosed in glass cages to prevent the people supervising them from being injured. And they do it all without a coffee break — three shifts a day, 365 days a year. All told, the factory here has several dozen workers per shift, about a tenth as many as the plant in the Chinese city of Zhuhai.

This is the future. A new wave of robots, far more adept than those now commonly used by automakers and other heavy manufacturers, are replacing workers around the world in both manufacturing and distribution. Factories like the one here in the Netherlands are a striking counterpoint to those used by Apple and other consumer electronics giants, which employ hundreds of thousands of low-skilled workers.

Many industry executives and technology experts say Philips’s approach is gaining ground on Apple’s. Even as Foxconn, Apple’s iPhone manufacturer, continues to build new plants and hire thousands of additional workers to make smartphones, it plans to install more than a million robots within a few years to supplement its work force in China. Foxconn has not disclosed how many workers will be displaced or when. But its chairman, Terry Gou, has publicly endorsed a growing use of robots. Speaking of his more than one million employees worldwide: “As human beings are also animals, to manage one million animals gives me a headache.”

Take the cavernous solar-panel factory run by Flextronics in Milpitas, south of San Francisco. A large banner proudly proclaims “Bringing Jobs & Manufacturing Back to California!” Yet in the state-of-the-art plant, where the assembly line runs 24 hours a day, seven days a week, there are robots everywhere and few human workers. All of the heavy lifting and almost all of the precise work is done by robots that string together solar cells and seal them under glass. The human workers do things like trimming excess material, threading wires and screwing a handful of fasteners into a simple frame for each panel.

Such advances in manufacturing are also beginning to transform other sectors that employ millions of workers around the world. One is distribution, where robots that zoom at the speed of the world’s fastest sprinters can store, retrieve and pack goods for shipment far more efficiently than people. Robots could soon replace workers at companies like C & S Wholesale Grocers, the nation’s largest grocery distributor, which has already deployed robot technology.

Team G: What Happened to the American Boomtown?
by Emily Badger, NYT, Dec. 6, 2017, B3 https://www.nytimes.com/2017/12/06/upshot/what-happened-to-the-american-boomtown.html

Questions
1. Based on this report, who benefits the most from current economic
policies?
2. Based on this report, who loses the most from current economic
policies?
3. In your opinion, are these policies fair? Explain.
4. Does government policy support the idea that the “invisible hand” is operating or that economies are driven by political decisions? Explain.

The metro areas that offered the highest pay in 2000 have grown by some of the slowest rates since then, while people have flocked to lower-wage metros like Las Vegas, Phoenix and Charlotte, N.C. Similarly, the metros with the highest G.D.P. per capita are barely adding workers relative to much less productive areas. Some people aren’t moving into wealthy regions because they’re stuck in struggling ones. They have houses they can’t sell or government benefits they don’t want to lose. But the larger problem is that they’re blocked from moving to prosperous places by the shortage and cost of housing there. And that’s a deliberate decision these wealthy regions have made in opposing more housing construction, a prerequisite to make room for more people.

Compare that with most of American history. The country’s economic growth has long “gone hand in hand with enormous reallocation of population,” write the economists Kyle Herkenhoff, Lee Ohanian and Edward Prescott in a recent studyof what’s hobbling similar population flows now. Workers moved north during the Great Migration and west out of the Dust Bowl. The lure of the Gold Rush made San Francisco a boomtown after the 1850s. The rise of the auto industry helped triple the size of Detroit between 1910 and 1930. Other northern cities like Cleveland similarly swelled as they became manufacturing hubs. Los Angeles grew to a city of more than a million in the 1920s as film sets, oil wells and aircraft manufacturing promised opportunity. Seattle boomed after World War II, as Boeing did. Houston’s population took off as it became the center of the country’s energy economy.

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