According to Mark Muro and Jacob Whiton of the Brookings Institution, the recent midterm elections “reaffirmed that America’s stark and massive economic divides—which align with and inform cultural fractures—are alive and well.” For evidence of this economic divide, they partnered with CNBC and used a study they conducted after the 2016 presidential election. The purpose was to survey the counties that Hillary Clinton won versus the counties that Donald Trump won. Obviously Clinton won very few counties, less than 500, but according to the research, those counties produced 64% of the total economic output. Trump won over 2600 counties which accounted for 34% of total economic output. The measure used for total output is Gross Domestic Product (GDP).
The GDP Fallacy
In the first place, Gross Domestic Product as a measure of total economic output is terribly flawed. The fact is that GDP only measures total consumption, meaning it ignores all of the economic activity that is necessary for consumption to occur in the first place. A good analogy would be that GDP is like the bottom line profit on a Statement of Income and Expense. The top line of the Income Statement, total revenue, is best represented by another measure of economic activity, Gross Output (GO). The gross output measure includes all of the supply chain economic activity that is necessary before finished product is available for final purchase.
Essentially, GO focuses on producers and GDP focuses on consumers. And it is consumers that government economic central planners, including Brookings, pander to. So it is no coincidence that they prefer GDP, which tells us that consumer spending is 70% of all economic activity. Conversely, GO tells us that consumer spending is 30% of economic activity, and for that reason it is ignored by the authoritarian intelligentsia.
Another fallacy about GDP is that it is the sum of three primary inputs – consumer, business, and government spending. So even though private sector economic activity always suffers when government spending increases, GDP can be used to mask the deleterious effects of government fiscal policy. But even more insidious is that GDP dismisses the foundational element of all economic structures, the role of the producer, the supply side. As Hunter Hastings has taught us, consumers are the demand side of economics, and government sponsored economic theory is strictly focused on goosing aggregate demand while denigrating the only side that matters, the supply side.
High Output America and Low Output America
According to the Brookings analysis, with the help of another reliable ally, the New York Times:
The sharp political divide that surfaced in 2016 between the densest, most productive and future-oriented portions of the economy and the rest of it—between what Jim Tankersley of the New York Times has called “high-output” and “low-output” America—remains a revealing, disconcerting fact of modern economic and political life.
Their point is that the Congressional districts won by Republicans in the 2018 midterms are low-output communities, and the districts won by Democrats are high-output. The data in the article says that Democratic districts (the elites) were 61% of national GDP, their GDP per worker was 25% higher, and they had a higher percentage of college degreed and technology workers. Republican districts (the deplorables) only had a higher percentage of non-advanced manufacturing jobs.
The implications of this are insidious, and the conclusions are insane: “as economic growth is concentrating in thriving urban and suburban communities, Republicans rooted in non-urban places remote from those future-leaning ecosystems continue to wield disproportionate power in Washington.” While it is true that population centers naturally enhance collaboration, and therefore innovation and wealth creation, the article totally ignores the obvious. Besides GDP being a horribly flawed yardstick, these so-called high output regions also have high budget deficits, massive debt, corrupt politics, and large populations living in despair.
False Premises and Their Contradictions
For example California, the poster child for innovation and wealth creation, is now the most heavily taxed, regulated, and poverty stricken state in America. It can be easily be compared to a feudal manor – gated communities surrounded by a much greater number of people engaged in subsistence living due to a very high cost of living. And those are the lucky ones; it’s much worse than that in certain parts of San Francisco and Los Angeles.
What Brookings is telling us is that people with a Bachelors degree are naturally more well informed and productive. This is a false premise that is easily refuted. For example, most bachelors degrees are worthless, except for creating massive student debt and short-sighted, resentful social justice warriors. Yet they have the gall to tell us that the denizens of these urban areas are more future oriented. But what kind of future? One of unsustainable debt, authoritarian government, and a nihilistic postmodern philosophy of identity group victimhood?
Brookings is also telling us that the lower cost of living, lower wage economies are holding back their omniscient wealth producers because of an antiquated political structure known as American style federalism, especially the Electoral College and the distribution of US Senators.
The two parties even more this fall represent “what America has been and what it is becoming”—and they are at a standoff. Going forward, the question is whether a nation that fails to support the needs of its core, high-value economy can truly thrive.
This is akin to the language of the Bolshevik Revolution: the bourgeoisie was to be sacrificed for the visionaries of the new Communist party. But instead of violent revolution, their weapon is GDP backed by academic elitism and contradictions.
The Economic Way
In reality, there is a large swath of America that understands that the best government is local government. The larger the number of viable political entities there are, and the more they compete with each other to attract producers, the more peace and prosperity there will be for everyone to thrive. It doesn’t take a worthless bachelors degree to understand this. And while technological innovation is collaborative and wealth producing, how can it be life-fulfilling if your senior management team has sold out to authoritarianism?
What Brookings is advocating, under the guise of a statistical survey based on faulty assumptions, is that the US Constitution must be erased and replaced with an even stronger and more centralized system to give more political power to their cherished “high-output” population centers. The false premise is that political power, not economic freedom, is the source of wealth. To Brookings discredit, the wealth created over the last two years because of deregulation and tax cuts led to a larger percentage (34% in 2018 vs. 31% in 2016) of their “economic output” voting to continue on the Road to Liberty.