Thursday, July 17, 2014

Why federal policies to help struggling cities are misguided

In May 2014 the Obama administration put out a press release announcing the National Resource Network a "311" resource for cities seeking guidance on economic revitalization. In the words of HUD Secretary Shaun Donovan, "The assistance and expertise provided by the National Resource Network will allow cities to maximize and better leverage their existing federal investments, and more strategically plan for their economic future and community development priorities". The federal government though HUD has committed $10 million and the plan is to raise $10 million more from the private sector.

But federal money for cities is misguided because the funds are primarily given to cities that have shown little ability to manage their resources effectively. 56 cities are eligible in the pilot program of the National Resource Network, including several large cities that have experienced sharp population declines since 1950 such as St. Louis, MO, Cleveland, OH, Buffalo, NY, Newark, NJ and Providence, RI. Many of these cities have poor management to blame for at least part of their decline and giving them even more resources is probably not the answer.

Using federal funds to help these cities means that the government is taxing and taking resources from the residents of successful cities. Just because a city like Cleveland is struggling today does not mean that a more successful city like Indianapolis, IN should be forced to help them. Cities like Cleveland and St. Louis used to be relatively large and well off while cities like Columbus, OH and Austin, TX were small and relatively poorer. Today that is flipped, but that does not mean that the federal government should attempt to put things back the way they were; no city has a right to be large and prosperous. Below are two tables showing the 15 most populated cities in 1950 and in 2013. 



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The cities in bold font are the cities that are different between the two lists. As shown in the tables there have been a lot of changes between 1950 and 2013; gone are Detroit, MI, St. Louis, MO, Cleveland, OH, Pittsburgh, PA, and Boston, MA. In their places are San Antonio, TX, Phoenix, AZ, San Diego, CA, Indianapolis, IN, and Columbus, OH. 

But change is OK. There is no reason that as Americans we should say one list is better than the other. When federal funds are used to help struggling cities it's as if the government is trying to get back to the 1950's list. But cities, like countries, rise and fall all of the time for various reasons. Companies move to take advantage of cost savings, workers move to take advantage of amenities, inventions like air conditioning make some cities more hospitable than they once were, and local governments change tax structures, zoning policies, etc. 

I think that it is a good thing that cities compete for residents, but they should do so on their own dime, not the federal government's. When the federal government starts trying to pick winners and losers they distort the market, taxing some places and subsidizing others. These distortions cause the same problems in the market for cities as they do in other markets; they lead to a misallocation of resources which results in waste and inefficiency. America will be better off if the federal government does not favor some cities over others.

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