Will Trump's Policies Help Appalachia And Similar Places?

By Adam Millsap of Mercatus.

"The support of blue-collar workers in Appalachia and elsewhere helped Trump become President-elect. Many rallied around his tough talk on trade and corporate offshoring. But his protectionist policies to address those issues— renegotiating NAFTA, withdrawing from the Trans-Pacific Partnership (TPP) deal and using tariffs to discourage firms from offshoring their operations—won’t help the region much and will harm many.

Free trade makes the world a better place. It reduces prices for consumers, increases their choices and supports jobs, both by freeing up resources to be used on other things and by opening up markets for American exports. A worldwide retraction of trade will not help the average American.

The steady decline of the coal industry is partly due to economic factors such as low natural gas prices and partly due to federal regulatory efforts to reduce carbon dioxide and mercury emissions. Trumps anti-trade policies don’t directly address these issues. But two of Trump’s other ideas, reducing regulation and lowering the corporate tax rate, will help America’s workers.

Federal regulation affects states differently depending on their industry makeup. To measure these disparities, my colleagues at the Mercatus Center constructed the FRASE index, which uses data from the Code of Federal Regulations to construct a measure of how federal regulations affect a state’s economy. As shown in the map below, the most regulated states tend to be energy-producing states, including several states with Appalachian counties such as Kentucky, West Virginia, Alabama and Mississippi (darker states are more regulated).

Source: Mercatus RegData http://regdata.org/50states/

 
Reducing unnecessary and overly burdensome federal regulations will help state and local economies across the country by reducing compliance costs and making it easier for people to start and expand businesses.

Reducing regulation is often difficult, but luckily there’s a model for Trump and congress to follow: The Canadian province of British Columbia instituted a policy that cut red tape by 37% and a similar policy was recently enacted that applies to the entire country. There’s no reason why the British Columbia model can’t work in the U.S.

But even though regulation has harmed the coal industry, the goal of reducing regulation should not be to regrow it. The rise of fracking in places like North Dakota has positioned natural gas as a cheaper, cleaner alternative to coal, and this will likely be the case going forward. Appalachia and other areas built around old industries such as coal, steel and labor-intensive manufacturing won’t prosper by focusing on the past. Growing, thriving economies are those that constantly adapt and advance. Additionally, the research on the coal resource curse shows that coal is probably not the best long-term strategy for a prosperous economy.

The real purpose of reducing regulation is to kick-start more entrepreneurship and innovation. Since no one can see the future, reducing regulation is important because it allows more people to try more things, some of which will catch on, grow and provide the goods and services—and jobs—of the future.

Trump also supports reducing the corporate tax rate. A reduction of the corporate tax rate will make America a more competitive place to do business and lead to higher wages by boosting worker productivity.

A lower corporate tax rate combined with less regulation would improve America’s business environment and generate more economic growth. Coincidentally, these domestic policies would strengthen the labor market and likely (hopefully) make protectionism a non-issue.

People in many parts of the country are feeling left out. Their jobs are disappearing, their communities are eroding and they aren’t sure how to fix it. But the solutions do not lie overseas—they are right here. America became the largest and most dynamic economy in the world by having low taxes that incentivized production and low regulation that allowed resources to easily flow to their highest valued use. Creative, innovative, hardworking people drive prosperity and America has an abundance of them, and there are more that want to get in. We just need to let them do their thing."