Bloom and bust.

• Author: Longman, Phillip

Regional inequality is out of control. Here's how to reverse it.

Despite all the attention focused these days on the fortunes of the "1 percent," our debates over inequality still tend to ignore one of its most politically destabilizing and economically destructive forms. This is the growing, and historically unprecedented, economic divide that has emerged in recent decades among the different regions of the United States.

Until the early 1980s, a long-running feature of American history was the gradual convergence of income across regions. The trend goes back to at least the 1840s, but grew particularly strong during the middle decades of the twentieth century. This was, in part, a result of the South catching up with the North in its economic development. As late as 1940, per capita income in Mississippi, for example, was still less than one-quarter that of Connecticut. Over the next forty years, Mississippians saw their incomes rise much faster than did residents of the Nutmeg State, until by 1980 the gap in income had shrunk to 58 percent.

Yet the decline in regional equality wasn't just about the rise of the "New South." It also reflected the rising standard of living across the Midwest and Mountain West--or the vast territory now known dismissively in some quarters as "flyover" America. In 1966, the average per capita income of greater Cedar Rapids, Iowa, was only $87 less than that of New York City and its suburbs. Ranked among the country's top twenty-five richest metro areas in the mid-1960s were Rockford, Illinois; Milwaukee, Wisconsin; Ann Arbor, Michigan; Des Moines, Iowa; and Cleveland, Ohio.

During this period, to be sure, many specific metro areas saw increases in local inequality, as many working- and middleclass families, as well as businesses, fled inner-city neighborhoods for fast-expanding suburbs. Yet in their standards of living, metro regions as a whole, along with states as a whole, were growing much more similar. In 1940, Missourians earned only 62 percent as much as Californians; by 1980 they earned 80 percent as much. In 1969, per capita income in the St. Louis metro area was 83 percent as high as in the New York metro area; it would rise to 90 percent by the end of the 1970s.

The rise of the broad American middle class in that era was largely a story of incomes converging across regions to the point that people commonly and appropriately spoke of a single American standard of living. This regional convergence of income was also a major reason why national measures of income inequality dropped sharply during this period. All told, according to the Harvard economists Peter Ganong and Daniel Shoag, approximately 30 percent of the increase in hourly-wage equality that occurred in the United States between 1940 and 1980 was the result of the convergence in wage income among the different states.

Few forecasters expected this trend to reverse, since it seemed consistent with the well-established direction of both the economy and technology. With the growth of the service sector, it seemed reasonable to expect that a region's geographical features, such as its proximity to natural resources and navigable waters, would matter less and less to how well or how poorly it performed economically. Similarly, many observers presumed that the Internet and other digital technologies would be inherently decentralizing in their economic effects. Not only was it possible to write code just as easily in a tree house in Oregon as in an office building in a major city, but the information revolution would also make it much easier to conduct any kind of business from anywhere. Futurists proclaimed "the death of distance."

Yet starting in the early 1980s, the long trend toward regional equality abruptly switched. Since then, geography has come roaring back as a determinant of economic fortune, as a few elite cities have surged ahead of the rest of the country in their wealth and income. In 1980, the per capita income of Washington, D.C., was 29 percent above the average for Americans as a whole; by 2013 it had risen to 68 percent above. In the San Francisco Bay area, the rise was from 50 percent above to 88 percent. Meanwhile, per capita income in New York City soared from 80 percent above the national average in 1980 to 172 percent above in 2013.

Adding to the anomaly is a historic reversal in the patterns of migration within the United States. Throughout almost all of the nation's history, Americans tended to move from places where wages were lower to places where wages were higher. Horace Greeley's advice to "Go West, young man" finds validation, for example, in historical data showing that per capita income was higher in America's emerging frontier cities, such as Chicago in the 1850s or Denver in 1880s, than back east.

But over the last generation this trend, too, has reversed. Since 1980, the states and metro areas with the highest and fastest-growing per capita incomes have generally seen hardly, if any, net domestic in-migration, and in many notable examples have seen more people move away to other parts of the country than move in. Today, the preponderance of domestic migration is from areas with high and rapidly growing incomes to relatively poorer areas where incomes are growing at a slower pace, if at all.

What accounts for these anomalous and unpredicted trends? The first explanation many people cite is the decline of the Rust Belt, and certainly that played a role. In 1978, per capita income in metro Detroit was virtually identical with that in the metro New York area. Today, metro New York's per capita income is 38 percent higher than metro Detroit's. But deindustrialization doesn't explain why even in the Sunbelt, where many manufacturing jobs have relocated from the North, and where population and local GDP have boomed since the 1970s, per capita income continues to fall farther and farther behind that of America's elite coastal cities.

The Atlanta metro area is a notable example of a "thriving" place where per capita income has nonetheless fallen farther and farther behind that of cities like Washington, New York, and San Francisco. So is metro Houston. Per capita income in metro Houston was 1 percent above metro New York's in 1980. But despite the so-called "Texas miracle," Houston's per capita income fell to 15 percent below New York's by 2011 and even at the height of the oil boom in 2013 remained at 12 percent below. It's largely the same story in the Mountain West, including in some of its most "booming" cities. Metro Salt Lake City, for example, has seen its per capita income fall well behind that of New York since 2001.

Another conventional explanation is that the decline of Heartland cities reflects the growing importance of high-end services and rarified consumption. The theory goes that members of the so-called creative class--professionals in varied fields, such as science, engineering, and computers, the arts and media, health care and finance--want to live in areas that offer upscale amenities, and cities like St. Louis or Cleveland just don't have them. But this explanation also only goes so far. Into the 1970s, anyone who wanted to shop at Barnes & Noble or Saks Fifth Avenue had to go to Manhattan. Anyone who wanted to read the New York Times had to live in New York City or its close-in suburbs. Generally, high-end goods and services--ranging from imported cars and stereos to gourmet coffee, fresh seafood, designer clothes, and ethnic cuisine--could be found in only a few elite quarters...