President Obama’s State of the Union speech brimmed with ideas to increase upward mobility and spur job creation—most of which have been tried previously, without good results. From calling on Congress to raise the minimum wage to announcing the creation of six new “high-tech manufacturing hubs” centered around research universities, too many of these ideas flow from misplaced confidence in the ability of top-down government policy to steer the economy and lift the circumstances of those in poverty.
The same is true for another of the president’s initiatives: his newly unveiled “promise zones.” In designated areas with persistently high poverty rates, the president has pledged to offer more federal money, special attention, and streamlined regulations. Five communities have been targeted as the first zones with the possibility of up to 20 by the time Obama leaves office.
It’s an idea that some Republicans seem to like, and it recalls similar efforts launched by nearly every president of the past 50 years. And like those earlier efforts, it appears almost certain to fail. Whether it was Dwight Eisenhower’s “slum clearance,” Lyndon B. Johnson’s “model cities,” Ronald Reagan’s “enterprise zones,” or Bill Clinton’s “renewal communities,” the end result has nearly always been programs that most social scientists agree produced little net benefit. No matter how they are packaged, sold, or created and no matter who oversees them, what you might call “place-based relief” simply has not worked.
Successful cities and neighborhoods emerge from an interplay of cultural, human, and physical attributes that simply can’t be replicated by central planners. Neither the right’s approach of slashing taxes and regulation nor the left’s approach of creating a host of new social programs can remedy the fundamental causes of social ills. Even when such policies successfully foment change, the revitalization often displaces the poor individuals it was intended to help.
While some efforts to fix troubled areas—even those along the lines of the president’s promise zones—might be worth trying, we shouldn’t expect much of them. But one area where government has proven itself adept is in helping people to move. Public policy that aimed to help residents of shrinking, economically moribund communities with high rates of unemployment to relocate to growing, economically vibrant ones that face labor shortages would be far more productive.
Throughout most of American history, the down-and-out have proven remarkably willing to move in search of opportunity. In the mid-19th century, many easterners loaded wagons and headed west to establish homesteads. In the early 20th century, African Americans from the South fled bigotry and crop failures to make new lives in the industrial North.
While deep aspects of the national character may make Americans a footloose people, there’s little doubt that government policies often encouraged migration. President Abraham Lincoln’s 1862 Homestead Act (and amendments that modified the program through 1916) encouraged westward migration. Mandates on freight shippers that forced them to cross-subsidize railroad passenger tickets made it easier for northern factory owners to advance money to African Americans looking to come North. Even the Sunbelt’s growth resulted in no small measure from the development of the Interstate Highway System and flood control efforts that were paid for with federal tax dollars.
But current policies don’t promote mobility. In 2012, the U.S. Census Bureau found internal migration had hit its lowest levels since record keeping began in the 1940s. This decreased mobility hurts the country.
A wealth of research shows that people who move in search of work earn more money and find better opportunities. The Moving to Opportunity Program, championed by Jack Kemp and the Clinton administration, produced good results when it helped move people from lower-income to higher-income neighborhoods. A recent study from Harvard and the University of California, Berkeley, likewise finds certain cities allow for far more income mobility than others. Moving really can provide better opportunities than staying put.
Rather than continuing efforts at place-based relief, the federal government ought to do what it can to encourage people to move from places that lack opportunities to those that offer them in abundance.
Efforts should begin with the most obvious incentive: direct cash grants to help people move. Moving a four-member household to a different part of the country generally costs about $5,000, presenting a significant barrier to mobility. Using “mobility grants” paid through the unemployment system, states could allow unemployed people with modest resources to take a lump-sum distribution of future unemployment benefits to help pay moving expenses. Since many depend-ents of the unemployed receive costly benefits like Medicaid, this sort of program could provide a net savings even if the relocation grants cost slightly more than the unemployment benefits would have.
Encouraging relocation also offers an alternative to making the supposedly temporary extension of unemployment benefits (from 26 to 99 weeks) permanent federal policy. Since skills tend to atrophy during long periods of unemployment, such a system would serve the unemployed themselves better than Democrats’ desired course.
There’s reason to believe a well-structured relocation voucher could work. In a limited experiment in the 1970s, 40 unemployment offices across the South offered cash assistance as well as help to those willing to search for work in other states. The program didn’t force anyone to relocate but allowed individuals to indicate their willingness to relocate when signing up for benefits. Different offices offered varying levels of assistance; those with the most thorough counseling and benefits experienced the highest success rates. The program worked well for the young, the less educated, and for African-American males, groups that often have the hardest times finding jobs in the current economy.
In the longer run, we should consider restructuring policies that currently provide powerful incentives to stay in place. In particular, since nearly all social assistance programs are administered at the state level, the proliferation of more and more programs provides greater and greater incentives not to move.
Even the mostly federal Medicaid and the Supplemental Nutrition Assistance Program (better known as food stamps) have different eligibility criteria and application processes in every state, making the decision to move, and the need to reapply for each, very expensive. Making these benefits simpler and more portable would encourage mobility. Obviously, the aim of taking work in a new location is to no longer need such benefits. But for some, the risk of a temporary loss in benefits is a high hurdle.
The best solution might be to “cash out” as many of these benefits as possible into an expanded version of what’s already the largest antipoverty program: the Earned Income Tax Credit. The EITC, which rebates employer and employee payroll taxes to people with modest incomes, has virtually perfect incentives. Because it is administered through the federal tax code, it’s also entirely portable. That said, it remains quite modest. A single person with no dependents gets less than $500 in EITC. Making the credit larger—even expanding it into a full-fledged “negative income tax”—could promote mobility.
Finally, housing policy should move away from prioritizing homeownership as strongly as it does currently. Moving people into homes they cannot afford does no good for anyone. Even worse, it discourages mobility. In all but the hottest real estate markets, selling a house or apartment is much more difficult than moving out of a rental. In many distressed areas, individuals now find themselves trapped “upside down” by loans with balances that exceed their home’s resale value. This makes moving impossible.
Instead, housing policy could do more to help people find good, affordable rental properties. High housing costs in areas with rapid job growth are a major barrier to individuals relocating there. Programs that can mitigate those costs would be a step in the right direction.
Evidence continues to mount that the mortgage interest deduction does little to increase homeownership rates. Capping the deduction at $400,000 in home value (about twice the U.S. average) would free up billions of dollars that could be used to make rental costs deductible for low-income people.
President Obama’s latest effort at place-based poverty relief is unlikely to work any better than similar programs liberals and conservatives alike have already tried. Government simply cannot create successful communities. But government policies can encourage people to move. To help lift the poor who are trapped in failing communities, conservatives and liberals alike can return to America’s roots: an antipoverty agenda founded on geographic mobility.
Eli Lehrer is president of the R Street Institute. Lori Sanders is a senior fellow at R Street.