The American Economy—An Overview - Regional And Local Economies

Part of microeconomics study involves the economic health of various geographical regions and communities. A regional economy can be an area as small as a neighborhood or as large as a group of states with climate, geography, industry, or culture in common. The relative strength of a regional economy reflects broader national trends. For example, in the late nineteenth and early twentieth centuries—with the economy of the American South in shambles after the Civil War—northern cities attracted millions of workers to their rapidly growing industrial centers, such as the steel mills of Pittsburgh and the car factories of Detroit. Later, as the population migrated elsewhere, this region became known as the Rust Belt. Similarly, in the late twentieth century western and southwestern states experienced unprecedented growth with the rise of the computer industry, thanks in large part to Microsoft, which is headquartered in Seattle, and the

TABLE 1.7

Government spending on education and training, 1962–2004
	In millions of dollars			In billions of constant (FY 1996) dollars			As percentages of total outlays			As percentages of GDP
Fiscal year	Total	Defense	Nondefense	Total	Defense	Nondefense	Total	Defense	Nondefense	Total	Defense	Nondefense
*Includes off-budget postal service investments.
SOURCE: "Table 9.1. Total Investment Outlays for Physical Capital, Research and Development, and Education and Training: 1962–2004," in Budget of the United States Government: Historical Tables Fiscal Year 2004, U.S. Government Printing Office, March 29, 2004, www.gpoaccess.gov/usbudget/fy04/hist.html (accessed January 4, 2005)
1962	34,495	24,891	9,604	130.9	87.5	43.4	32.3	23.3	9.0	6.1	4.4	1.7
1963	38,425	26,571	11,854	143.1	90.8	52.4	34.5	23.9	10.6	6.4	4.4	2.0
1964	40,784	25,857	14,927	153.4	88.9	64.4	34.4	21.8	12.6	6.4	4.0	2.3
1965	38,062	21,327	16,735	144.8	73.4	71.4	32.2	18.0	14.2	5.5	3.1	2.4
1966	43,440	23,959	19,481	162.9	80.5	82.4	32.3	17.8	14.5	5.8	3.2	2.6
1967	51,135	29,455	21,680	186.0	95.9	90.1	32.5	18.7	13.8	6.3	3.6	2.7
1968	57,109	33,992	23,117	199.2	106.1	93.1	32.1	19.1	13.0	6.6	3.9	2.7
1969	57,565	34,565	23,000	191.3	102.9	88.4	31.3	18.8	12.5	6.1	3.6	2.4
1970	56,466	31,625	24,841	180.0	90.1	89.9	28.9	16.2	12.7	5.6	3.1	2.5
1971	56,724	28,823	27,901	172.4	78.3	94.1	27.0	13.7	13.3	5.2	2.7	2.6
1972	58,467	27,955	30,512	170.8	73.5	97.3	25.3	12.1	13.2	4.9	2.4	2.6
1973	59,158	26,794	32,364	166.6	68.2	98.3	24.1	10.9	13.2	4.5	2.0	2.5
1974	61,076	26,830	34,246	160.9	64.8	96.0	22.7	10.0	12.7	4.2	1.9	2.4
1975	69,407	28,421	40,986	165.4	63.0	102.4	20.9	8.6	12.3	4.4	1.8	2.6
1976	76,469	29,126	47,343	170.9	60.4	110.5	20.6	7.8	12.7	4.4	1.7	2.7
TQ	19,405	6,929	12,476	41.9	13.8	28.1	20.2	7.2	13.0	4.3	1.5	2.7
1977	82,789	32,499	50,290	171.0	62.2	108.8	20.2	7.9	12.3	4.2	1.6	2.6
1978	92,598	35,328	57,270	180.1	63.2	116.9	20.2	7.7	12.5	4.2	1.6	2.6
1979	105,873	40,874	64,999	190.0	67.2	122.9	21.0	8.1	12.9	4.2	1.6	2.6
1980	118,943	47,185	71,758	195.7	71.9	123.7	20.1	8.0	12.1	4.4	1.7	2.6
1981	132,141	56,079	76,061	197.3	78.3	119.1	19.5	8.3	11.2	4.3	1.8	2.5
1982	135,565	67,805	67,760	186.0	87.5	98.5	18.2	9.1	9.1	4.2	2.1	2.1
1983	146,848	81,568	65,280	191.6	99.9	91.7	18.2	10.1	8.1	4.3	2.4	1.9
1984	165,006	94,052	70,954	207.3	111.0	96.3	19.4	11.0	8.3	4.3	2.4	1.8
1985	186,631	108,394	78,236	229.3	126.0	103.3	19.7	11.5	8.3	4.5	2.6	1.9
1986	200,206	120,428	79,777	244.6	141.7	102.9	20.2	12.2	8.1	4.5	2.7	1.8
1987	204,295	126,749	77,546	246.9	150.1	96.8	20.3	12.6	7.7	4.4	2.7	1.7
1988	208,400	123,858	84,542	249.1	146.6	102.5	19.6	11.6	7.9	4.2	2.5	1.7
1989*	220,895	131,033	89,862	258.0	151.6	106.3	19.3	11.5	7.9	4.1	2.4	1.7
1990*	227,704	130,960	96,744	259.1	148.0	111.0	18.2	10.5	7.7	4.0	2.3	1.7
1991*	231,246	127,319	103,926	254.8	139.4	115.4	17.5	9.6	7.8	3.9	2.1	1.8
1992*	233,833	120,836	112,997	253.6	130.2	123.4	16.9	8.7	8.2	3.8	1.9	1.8
1993*	236,715	116,636	120,078	251.5	123.1	128.4	16.8	8.3	8.5	3.6	1.8	1.8
1994*	223,194	104,815	118,379	232.2	108.4	123.9	15.3	7.2	8.1	3.2	1.5	1.7
1995*	233,180	97,583	135,597	237.4	99.0	138.3	15.4	6.4	8.9	3.2	1.3	1.9
1996*	228,043	94,414	133,629	228.0	94.4	133.6	14.6	6.1	8.6	3.0	1.2	1.7
1997*	228,756	92,587	136,169	227.0	92.6	134.4	14.3	5.8	8.5	2.8	1.1	1.7
1998*	228,042	93,699	134,343	224.6	93.8	130.8	13.8	5.7	8.1	2.6	1.1	1.6
1999*	239,069	94,162	144,907	233.2	93.9	139.3	14.0	5.5	8.5	2.6	1.0	1.6
2000*	253,572	97,114	156,458	242.6	95.8	146.7	14.2	5.4	8.7	2.6	1.0	1.6
2001*	283,619	105,193	178,426	266.3	103.0	163.2	15.2	5.6	9.6	2.8	1.0	1.8
2002*	312,476	116,588	195,888	291.2	114.3	176.9	15.5	5.8	9.7	3.0	1.1	1.9
2003 estimate*	342,118	127,026	215,092	313.2	122.4	190.9	16.0	5.9	10.0	3.2	1.2	2.0
2004 estimate*	355,460	137,986	217,474	320.1	130.8	189.2	15.9	6.2	9.8	3.1	1.2	1.9

FIGURE 1.1

"dotcom" companies centered in California's Silicon Valley. Other major economic regions of the United States include the Farm Belt of the Great Plains and the Sun Belt states of the South and southwestern United States, with warm climates that make them popular tourist destinations and a strong agricultural region.

When a region or community experiences a serious economic downturn—such as happened in the upper Midwest when the auto and steel manufacturers starting losing ground to foreign competitors, and in the Farm Belt with the rise of agribusiness and the subsequent demise of the small family farmer—its citizens often fall into a cycle of unemployment and poverty, leading federal and local governments and private nonprofit organizations to step in and offer assistance.

Housing

Perhaps the most important indicator of an area's economic sustainability is whether or not its citizens can afford housing. In HUD's "Fiscal Year 2005 Budget Summary" (http://www.hud.gov/about/budget/fy05/budgetsummary), HUD Secretary Alphonso Jackson called home ownership the "lynchpin of the nation's economy," noting that in 2003 American homeowners borrowed approximately $80 billion against their homes to invest in "home improvements, furnishings, education, consumer goods, and new businesses," which in turn spurred further economic growth for the country as a whole.

According to the Milken Institute, an independent nonprofit think tank that studies ways to improve the U.S. and global economies, especially for disadvantaged people, home prices in the United States rose 30% faster than wages between 1992 and 2004 ("Down Payment Assistance Program Essential Element for Low-Moderate Income Families to Overcome National Homeownership Affordability Gap," April 22, 2004, http://www.milkeninstitute.org/newsroom/newsroom.taf). Furthermore, home ownership for minorities falls far behind that for non-Hispanic whites: Fewer than 50% of all African-American and Hispanic families in the United States own homes, versus 75% of non-Hispanic white families.

Income and cost-of-living calculations have led the government to set a general figure of 30% of income as the amount most Americans can afford to pay for housing. According to HUD's 2005 estimates (http://www.hud.gov/offices/cpd/affordablehousing/index.cfm), approximately 12 million households—both renters and home-owners—spent more than 50% percent of their income on housing, causing these households to be what HUD terms "cost burdened"—meaning they were likely to be unable to pay for other necessities such as food, clothing, and health care. Home prices vary greatly across the country and depend largely on the overall economic stability of different regions. For example, the median price for a home in Boston, a growing economy, was $413,500 in 2003. In Pittsburgh, a declining economy, the median price for a home was $102,642 during the same year, according to Global Insight, an economic consulting firm. Table 1.9 shows the twenty-five cities with the highest median home values, according to the 2000 U.S. Census. According to the Federal Housing Administration (FHA), 69% of Americans were home owners in the third quarter of 2004, up from 68.4% in the third quarter of 2003 (http://www.hud.gov/offices/hsg/hsgtoday/ht_arch.cfm).

PUBLIC AND PRIVATE HOUSING AND ECONOMIC DEVELOPMENT ASSISTANCE PROGRAMS. The U.S. government

TABLE 1.8

Productivity in the total economy, 1961–2003
	GDP at market prices, billions 2000 $	Number of jobs, millions	Actual hours per week per job	Total hours actually worked, billions	End-year net capital stock, billions 2000 $	GDP per job, $	GDP per hour, $	GDP per unit of capital stock, $
Year	A	B	(C*1000/52)/B	C	D	A/B*1000	A/C	A/D
Note: Real GDP and capital stock data are expressed in chained 2000 dollars.
SOURCE: "Table 5. Productivity in the Total Economy, United States," in List of Tables, Bureau of Economic Analysis, Bureau of Labor Statistics, October 17, 2004, http://www.csls.ca/data/ipt10.pdf (accessed January 4, 2005)
1961	2,560.0	69.99	36.54	132.98	5,339.2	36,578	19.25	0.479
1962	2,715.2	71.49	36.68	136.37	5,516.6	37,980	19.91	0.492
1963	2,834.0	72.18	36.63	137.50	5,698.5	39,261	20.61	0.497
1964	2,998.6	73.75	36.80	141.10	5,908.2	40,662	21.25	0.508
1965	3,191.1	75.96	36.96	145.99	6,163.3	42,008	21.86	0.518
1966	3,399.1	78.98	36.81	151.19	6,456.6	43,036	22.48	0.526
1967	3,484.6	80.92	36.35	152.94	6,733.7	43,063	22.78	0.517
1968	3,652.7	82.91	36.12	155.73	7,006.5	44,056	23.46	0.521
1969	3,765.4	85.30	35.97	159.54	7,279.2	44,145	23.60	0.517
1970	3,771.9	85.16	35.40	156.75	7,515.3	44,291	24.06	0.502
1971	3,898.6	85.14	35.23	155.94	7,719.2	45,793	25.00	0.505
1972	4,105.0	87.34	35.29	160.28	7,955.3	47,001	25.61	0.516
1973	4,341.5	90.37	35.17	165.30	8,226.5	48,041	26.27	0.528
1974	4,319.6	91.87	34.74	165.94	8,484.6	47,021	26.03	0.509
1975	4,311.2	90.31	34.35	161.30	8,679.7	47,736	26.73	0.497
1976	4,540.9	92.74	34.41	165.93	8,877.6	48,962	27.37	0.511
1977	4,750.5	96.20	34.33	171.73	9,107.9	49,384	27.66	0.522
1978	5,015.0	100.85	34.28	179.79	9,401.1	49,727	27.89	0.533
1979	5,173.4	104.04	34.13	184.61	9,731.1	49,727	28.02	0.532
1980	5,161.7	104.69	33.82	184.13	10,033.2	49,306	28.03	0.514
1981	5,291.7	105.56	33.61	184.47	10,336.7	50,129	28.69	0.512
1982	5,189.3	104.21	33.54	181.73	10,575.7	49,797	28.55	0.491
1983	5,423.8	105.08	33.85	184.98	10,795.7	51,617	29.32	0.502
1984	5,813.6	109.47	34.13	194.28	11,119.8	53,107	29.92	0.523
1985	6,053.7	112.27	34.04	198.70	11,482.0	53,921	30.47	0.527
1986	6,263.6	114.22	33.82	200.87	11,798.7	54,840	31.18	0.531
1987	6,475.1	117.17	33.84	206.17	12,090.5	55,261	31.41	0.536
1988	6,742.7	120.62	33.85	212.31	12,380.9	55,902	31.76	0.545
1989	6,981.4	123.33	34.03	218.22	12,678.6	56,606	31.99	0.551
1990	7,112.5	124.81	33.71	218.76	12,977.7	56,985	32.51	0.548
1991	7,100.5	123.85	33.51	215.81	13,212.3	57,332	32.90	0.537
1992	7,336.6	123.82	33.57	216.14	13,432.3	59,251	33.94	0.546
1993	7,532.7	126.10	33.76	221.34	12,977.7	59,737	34.03	0.580
1994	7,835.5	129.63	33.84	228.11	13,234.7	60,444	34.35	0.592
1995	8,031.7	132.47	33.92	233.67	13,553.1	60,630	34.37	0.593
1996	8,328.9	134.84	33.75	236.65	13,927.3	61,770	35.20	0.598
1997	8,703.5	137.89	33.97	243.60	14,347.0	63,120	35.73	0.607
1998	9,066.9	140.87	34.00	249.04	14,805.7	64,364	36.41	0.612
1999	9,470.3	143.59	34.04	254.16	15,299.5	65,954	37.26	0.619
2000	9,817.0	146.20	33.83	257.23	15,816.2	67,146	38.16	0.621
2001	9,890.7	145.97	33.49	254.20	16,207.2	67,759	38.91	0.610
2002	10,074.8	144.36	33.42	250.87	16,503.7	69,790	40.16	0.610
2003	10,381.3	144.34	33.26	249.64	16,793.2	71,925	41.59	0.618
Average annual rates of growth
61–73	4.50	2.15	−0.32	1.83	3.67	2.30	2.62	0.80
73–81	2.50	1.96	−0.57	1.38	2.90	0.53	1.11	−0.38
81–89	3.52	1.96	0.16	2.12	2.59	1.53	1.37	0.92
89–00	3.15	1.56	−0.05	1.51	2.03	1.56	1.62	1.09
89–96	2.55	1.28	−0.12	1.16	1.35	1.25	1.37	1.19
96–03	3.20	0.98	−0.21	0.77	2.71	2.20	2.41	0.47
89–03	2.87	1.13	−0.16	0.97	2.03	1.73	1.89	0.83
96–00	4.20	2.04	0.06	2.11	3.23	2.11	2.05	0.93
00–03	1.88	−0.43	−0.57	−0.99	2.02	2.32	2.90	−0.13

offers programs to both rural and urban communities to spur economic development. The U.S. Department of Housing and Urban Development (HUD) runs the Initiative for Renewal Communities, urban Empowerment Zones, and urban Enterprise Communities (known as RC/EZ/EC), a series of incentive programs for communities that have experienced economic hardship due to a loss of population and jobs.

One of the most important elements of HUD's economic renewal function is its Office of Community Planning and Development (CPD), which contains sections that oversee laws and regulations related to affordable housing, community and economic development, energy and environmental issues that concern economically burdened communities, housing for HIV and AIDS patients, and assistance for the homeless. Each of these CPD section has an impact on a region's or a community's functioning, but the most economically significant are the housing and development programs.

In addition to government-sponsored development assistance, a number of privately funded, nonprofit organizations offer financial help in the form of downpayment assistance programs (DAPs) to lower- and middle-income people who could not otherwise afford to buy homes. With government budgets strained by a rising national debt—at more than $7.5 trillion in February 2005 and rising every day—and the recession of the early twenty-first century, these private programs can act as important resources for local and regional economies to build their tax bases and create sustainable employment and healthy living conditions.

The CPD's Office of Affordable Housing Programs (OAHP) handles programs such as the Self-Help Home-ownership Opportunity Program (SHOP), which falls under the authorization of the Housing Opportunity Program Extension Act of 1996 and provides federal funds to nonprofit organizations such as Habitat for Humanity International and ACORN Housing Corporation to buy land on which to build or rehabilitate affordable housing for low-income families. The Helping Hands for Home-ownership Act, signed into law in 2004 by President George W. Bush, allows prospective recipients of SHOP benefits to pay the required "sweat equity" to receive funding by helping to build their own houses and those of other SHOP families. In February 2005 HUD Deputy Secretary Roy A. Bernardi announced that approximately $27 million in grant money would be awarded to 1,700 lower-income families through Habitat for Humanity, the Housing Assistance Council, and PPEP Microbusiness and Housing Development Corporation ("Bernardi Awards Nearly $27 Million in 'Sweat Equity Grants' to Help Lower-Income Americans Become First-Time Homeowners: Record SHOP Funding Will Create More Than 1,700 New Homes for Lower-Income Families," HUD No. 05–020, February 22, 2005). The CPD also runs the Homeownership Zone (HOZ) program. HOZ is designed to stimulate local economies by allowing cities to reclaim vacant and/or decrepit property and build new neighborhoods of single-family houses. The HOZ program has not received funding since 1997.

A Milken Institute study of the impact of one nonprofit downpayment assistance program (that of the Nehemiah Corporation of America, a Sacramento, California-based nonprofit organization dedicated to community economic empowerment) found that the six housing markets that received Nehemiah DAP help—Atlanta, Columbus, Baltimore, Philadelphia, Sacramento, and St. Louis—all saw an increase in home equity appreciation (the amount of a home's monetary value that a home owner actually owns) since 1998, with appreciation ranging

TABLE 1.9

25 most expensive cities of 100,000 people or more, by median value of single-family homes, 2000
Place	Specified owner-occupied single-family homes	Median value (dollars)	Rank
SOURCE: Adapted from "Places of 100,000 People or More Ranked by Median Value: 2000," U.S. Census Bureau, 2000, http://www.census.gov/Press-Release/www/2003/placesrank.xls (accessed January 4, 2005)
Sunnyvale, California	49,476	495,200	1
Cambridge, Massachusetts	38,181	398,500	2
Santa Clara, California	43,882	396,500	3
San Francisco, California	44,850	396,400	4
San Jose, California	44,192	394,000	5
Honolulu, Hawaii	42,373	386,700	6
Berkeley, California	29,107	380,200	7
Fremont, California	43,004	363,400	8
Stamford, Connecticut	76,852	362,300	9
Daly City, California	28,780	335,000	10
Glendale, California	250,050	325,700	11
Thousand Oaks, California	55,598	324,800	12
Torrance, California	28,572	320,700	13
Irvine, California	85,935	316,800	14
Huntington Beach, California	40,437	311,800	15
Bellevue, Washington	41,835	299,400	16
Pasadena, California	45,925	286,400	17
Costa Mesa, California	15,869	273,100	18
Arlington, Virginia	16,088	262,400	19

from 2.5% (St. Louis) to 65.2% (Sacramento) for African-Americans; 3.8% (Columbus) to 74.2% (Sacramento) for Hispanics; and 3.7% (Columbus) to 66.4% (Sacramento) for whites (Perry Wong, Daniela Murphy, Frank Fogelbach, and Rob Koepp, "Expanding Affordable Home Ownership with Private Capital: A Study of the Nehemiah Down Payment Assistance Program," Santa Monica, CA: Milken Institute, April 2004). Additionally, the study found that the fifty-seven counties represented in the six housing market areas had gained a total of 36,240 new home owners between fiscal year 1997–98 and 2004–05, generating an increase in property tax revenue of more than $287 million.

COMMUNITY AND ECONOMIC DEVELOPMENT. The CPD runs several programs and grants to revitalize economically disadvantaged communities. The Community Development Block Grant (CDBG) provides funding to states, counties, and urban communities in need of safe, affordable housing and business development to become economically viable. The RC/EC/EZ programs also fall under the CPD's economic development wing. Hollis Wormsby reported that in December 2001 forty economically distressed cities and communities across the country were named Renewal Communities and became eligible to receive a portion of $17 billion in tax incentives for residential and business development ("HUD Announces Black Belt Counties Selected as Renewal Community Eligible for $17 Billion in Tax Incentives," HUD No. 02013BBC, January 23, 2002). The Renewal Community program was part of the Community Renewal Tax Relief Act of 2000, which also authorized HUD to name seven urban Empowerment Zones. Renewal Community designation was set to run from 2002 to 2009. Benefits of the Community Renewal Tax Relief Act include:

• Tax credits for businesses that hire employees who live in a Renewal Community; for those that hire employees from a demographic group with a high unemployment rate; for those that hire people who were formerly receiving long-term welfare benefits; for investors who provide financing for businesses in RCs; and for rental-housing owners who build new properties or renovate old ones in RC zones.
• Tax deductions for states with one or more Renewal Community; for businesses to add $35,000 per year in necessary equipment and supplies; and for businesses to perform environmental cleanup in an RC zone.
• A Zero-Percent Capital Gains Rate allowing the purchase of an interest in or property of an RC business during an area's RC designation.
• Financing for certain public school programs and renovations in RC areas with Qualified Zone Academy Bonds.