21 May 2015

Why today’s bad social and economic policies are to blame for Baltimore’s decline


The central challenge of economic regulation is to ask which forms help the overall performance of complex societies, and which retard their growth.

As a matter of first principle, the correct answer approach runs as follows. Those forms of regulation that strengthen the system of private property rights and reduce the costs of contractual enforcement should on balance be expected to increase the level of market activity and generate gains that will be shared by all people within the system, regardless of their social rank or economic class. In contrast, those forms of regulation that act as an implicit tax on voluntary transactions should be expected to slow down the rate of economic activity. Once again the losses will not be concentrated on any one class, but will spread throughout the system.

Note this contrast. A writing requirement to enforce long-term contracts will generally work well, but a law that dictates minimum wages or maximum rents will have exactly the opposite effect. The latter will slow down business activity. Those residents with options will exit the system. Those who do not will be trapped with diminished prospects. On average, the poor will suffer a disproportionate share of the loss.

This pattern is especially acute with local governments, where the exit options are far greater than they with states or nations. After all, the suburbs are often only a stone’s throw from the inner city, and they frequently offer an irresistible combination of better schools and lower crime rates. The prediction therefore is that cities that offer inferior packages of goods and services will pay the price, in terms of inferior surroundings for those who are left behind.

There is, however, a rival hypothesis as to why certain cities fail: in institutional racism. These two rival accounts are very much in discussion now because of the inexcusable killing of Freddie Gray by the six members of the Baltimore police force. In dealing with this incident, the right approach is, I believe, to concentrate on the questions of police administration, which are complicated as ever by the presence of a strong union that compromises effective police deployment. Unfortunately, the temptation in many quarters is to make the same mistake that was made after the justified killing of Michael Brown in Ferguson, Missouri, which is to think that some broad social causes account for any particular breakdown in police discipline.

The debate between these rival theses is now intense. A recent New York Times editorial that sought to explain How Racism Doomed Baltimore. The New Republic has chimed in with its explanation of why ‘Liberal Policies Didn’t Fail Baltimore.” As is common in articles of this genre, the writers quickly take us back to events that occurred some 100 years ago, when Baltimore, much a southern city, introduced restrictive racial laws in the years between 1910 and 1913, when the City passed laws, subsequently struck down, which made it illegal for any black person to move into a home on any block where more than half the people are white — all inexcusable legislation. The state and city officials then abused the police power of inspection to harass property owners that sought to undermine the state-imposed segregation. The award of government-backed home mortgages followed exactly the same trend. Institutional racism was very much the order of the day, and there is no doubt that in at least some neighborhoods, the aftershocks are still felt. The major lesson to learn from this egregious pattern of government abuse is that judicial oversight was needed to prevent elected officials from using their power to disadvantage minority groups. It may be still needed today.

The hard question is to figure out the magnitude lingering effects of these and other interventions. On this point, the basic position of the Times and the New Republic is that the legacy of segregation is what determines the parlous position of a city like Baltimore. But what they omit is more instructive than what they discuss. For their hypothesis to be true, it would be necessary to project a straight downward trend in Baltimore that starts 100-years ago, which then continues unabated to the present day.

Methodologically, this approach gets things exactly backwards. In looking to establish connections between government policies and social activities, the place to start is with those regulations of recent vintage, not those which were removed from the books a half a century or more before. In this case, the point is especially compelling because the claim that racism doomed Baltimore is not consistent with the historical trends inside the city.

Back in the 1950s, Baltimore was a thriving city that had largely escaped its legacy of racial segregation. Two figures, neither of which is mentioned in the Times account tell the basic story. The first relates to population. In 1910, the total population of Baltimore was about 558,000 people. By 1960 that number had climbed to about 939,000 people. The greatest portion of that increase took place, ironically, in the decade between 1910 and 1920, when the population surged by 175,000 people to 733,000 people. In the 55 years from 1960 to 2015, the population plunged to about 621,000 people, losing about one-third its citizens, at a time when the national population increased about 45 percent, from 179 million people to about 322 million people today.

The second set of figures has to do with race. In 1960 Baltimore was about two-thirds white, and one-third black. By 2015 the city was about 64 percent black. It is clear that there were differential rates of outmigration, many of which were to nearby suburbs. The net effect of these changes was to reduce the wealth base of the city and its capacity therefore to generate tax revenues to support its fundamental services. The particulars on this issue are stunning, because of the correspondence of two elements. Baltimore has been a one-party city now for close to 50 years. At present its mayor, its police chief, its school superintendent, and its council president are all black. About half the police force is black as well. But no matter where one looks the city is in massive disarray on all relevant measures pertaining to economic growth. It has a high city individual income tax of 3.2 percent. Its corporate tax rate is 8.25 percent. It has the second highest per capita expenditures on education at $15,700 per student. Yet its educational achievement lags far behind other areas, as its crime rates soars to about 370 percent of the national average for violent crimes. All major branches of the city have been in locked in Democratic hands since 1963, when the rapid decline on all relevant measures started.

The sources of these difficulties are not racism. Instead they are a combination of two key factors. The first is the danger of any single-party monopoly over long period of times, which leads to all sorts of corruption both great and small. The second is the burden of a progressive agenda that takes it on faith that tax and transfer policies can revive the fortunes of a flagging city. No one can doubt some small residual effect of the earlier segregation policies. But the influence of remote causes is always tiny compared to those of immediate ones.

The best thing that could happen to Baltimore would be the rise of some a black Republican group that could take over some of the reins of city power. Only if that step is taken is it possible that matters will improve. But that particular result is not likely given the early returns. Just recently, at the request of Baltimore Mayor Stephanie Rawlings-Blake, the new Attorney General Loretta Lynch announced a comprehensive investigation of the Baltimore police force for the use of excessive force and discrimination on the grounds of race. No one can doubt that this investigation may turn up some institutional abuses that should be corrected.

Unfortunately, the downside of this decision is that it plays into the New York Times and New Republic narrative, that institutional racism and not progressive policies lie at the root of Baltimore’s longstanding problems. In that sense the current movement is a diversion from the real work that is needed, which is to pull back from the progressive policies that have led it, and cities of Philadelphia and Detroit, to flirt with social and economic disaster. Ideas of have consequences. Bad ideas have terrible consequences.

It is not plausible that the convulsions of the post 1960-period could be attributed to the discarded and discredited policies of 50 years before. What matters are the contemporary policies that drove this transformation. On this point, the bread and butter economic theory points to familiar culprits that in combination can wreck any city: high taxation, extensive regulation and massive transfer payments, all of which lead to the exit behaviors that have been all too evident in Baltimore over the relevant time period.

Richard Epstein is the Laurence A. Tisch Professor of Law at the New York University School of Law, The Peter and Kirsten Bedford Senior Fellow at The Hoover Institution, and the James Parker Hall Distinguished Service Professor of Law Emeritus and Senior Lecturer at the University of Chicago.