Blue States Subsidize Red Ones

A blog about business and economics.
Oct. 18 2012 12:16 PM

How The US Currency Union Works—Endless Subsidies To Low-Productivity Areas

Jon Cohn notes the central irony of American politics. Because rich people are Republicans but rich states vote Democratic, Democratic policies transfer wealth from Democratic places to Republican ones:

If Rick Perry wants to strip the Texas welfare state bare, why should voters in Maine or Oregon care? If anything, the blue states would probably benefit from such a move. Since red states have more poor people, and since their state governments spend less money on the safety net, they receive a larger share of federal funds. Among states that voted Republican in the last three elections, all but one gets more money back from the federal government than it pays in taxes. For most Democratic states, it’s the opposite. Looked at this way, the red states are the moochers and the blue states are the makers. 
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If you glance over at the European Union, it's clear that this is a key strength of the United States as an integrated economic zone. Everyone cares about their communities and since all our elected officials represent specific geographical constituencies there's a fair amount of parochialism in our politics, but political activists are overwhelmingly committed to a nationwide ideological vision. People who favor transfer payments and social programs for the poor don't care that this disproportionately entails sending money our of San Francisco and to Kentucky. This gives the country a resilience in the face of external shocks that Europe likes. The agenda of the Dutch Labor Party is that there should be a strong welfare state for Dutch people not that the relatively affluent Dutch should be taxed for the benfit of relatively poor Portugal.

What's interesting to ask about the United States is why things play out this way. My best guess is that large cities are engines of both prosperity and liberalism (you can perhaps see this most clearly in the DC suburbs' encroachment into Virginia upending the state's politics) rather than either liberalism causing prosperity or vice versa.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

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