"Only the Rich Can Play" and Place-Based Policies

Cross Posted at the Niskanen Center

This book review is about people v. place-based policies at the federal level (and Congress) but, because there is a good bit about inter-governmental relations, I thought it would be of interest to SLOG-Law readers, so I'm cross-posting it. -- DS

David Wessel’s Only the Rich Can Play : How Washington Works in the Gilded Age is sure to enter the pantheon of Washington, D.C., books that explain the complicated, exciting, and messy ways big legal changes actually get through Congress. The book is in many ways a successor to Showdown at Gucci Gulch, a book that explains how D.C. really works.

But the book also has important lessons for understanding the future of regional economic development policy. We’ve had a long national debate about “people-based” and “place-based” responses to entrenched poverty. Most of this debate takes the form of comparing theoretical policy ideas, a war of white papers and academic articles about what some hypothetical Congress should do. Only the Rich Can Play shows why it is hard – and maybe impossible – for our actual Congress to pass decent place-based policies. Whatever one thinks of “place-based v. people-based” policies in theory, Only the Rich Can Play should be seen as a powerful argument against our capacity to make place-based solutions work in practice.

As a Washington reportage, the book brings it and then some. Sean “You know what’s cool? A billion dollars” Parker creates a think tank and a team of lobbyists to push for what is now known as the Opportunity Zones (OZs) tax break. The program shields investors who earn capital gains from paying taxes on those gains if they invest the money in economically distressed communities. The group includes wonks you’ve heard of (Kevin Hassett, Jared Bernstein, and Ron Klain, among others) and lots of people you haven’t. They pull together a coalition of Democrats and Republicans, most notably Senators Tim Scott and Cory Booker, who put OZs into the broader tax cut package Republicans pushed through in 2017. The broader coalition supporting OZs is at turns idealistic (probably more than the book allows) and self-interested, but the Parker collaborative at its core is at all times smart and coolly strategic, bringing together lobbying muscle, lawyerly savvy, and genuinely expert analysis.

As the OZ package works its way through the legislative and administrative process, it becomes increasingly friendly for rich taxpayers. The description of the inner workings of the regulatory process in the Trump administration in Only the Rich Can Play is both delightful and horrifying. Fans of congressional process, of budget scores and “Byrd Droppings,” will find many fascinating details. Further, Only The Rich Can Play does a better job than any book I can remember at showing how lobbying and the work of policy experts are linked in contemporary politics. Ideas and analysis play an important role in politics, and thus play an important role in lobbying.

OZs were intended to bring investment to economically distressed communities. People with large capital gains were given a tax break for making long-term investments in targeted areas. Avoiding capital gains taxes was a huge incentive for investors, but the regulatory process made the deal even sweeter. Investments that qualify for the tax break are not tied to job creation among residents of distressed communities, despite research suggesting that this is the key to ensuring that place-based subsidies actually target the needy. Even though many OZ designated places are economically depressed, other designated locations were not. Locations eligible to receive OZ investments ended up including not-exactly-depressed places like the Pearl District in Portland, Ore., Hell’s Kitchen in midtown Manhattan and downtown Berkeley, CA. Growing and gentrifying places have received a substantial amount of the overall OZ investment since 2017, providing tax breaks for deals that likely would have happened anyway.

This a Washington story, about how regulation works in the bowels of federal agencies and congressional committees. But the book has a lesson for the broader debate over “place-based policies.” The last 40 or so years have featured a growing geographic inequality, the rise of the New Yorks and San Franciscos of the country and the decline of the heartland. This has led a whole variety of wonks and academics to push against the broad agreement in favor of “people-based” solutions to poverty (cash or in-kind aid to low-income individuals) and to argue instead for “place-based” solutions like sending money to firms that hire people in the distressed areas or to their governments. This literature claims that aid that creates employment and better services in economically distressed areas will better target true economic disadvantage than social welfare programs that target aid to low-income individuals (people with low incomes today won’t necessarily have them tomorrow, after all). Those in favor of people-based solutions respond that traditional welfare programs actually do a better job of targeting the needy, and that place-based policies distort where firms move, reducing economic efficiency.

But this debate is mostly a clash between visions of ideally drawn policy. What Only the Rich Can Play shows us is exactly how unlikely it is for a decent version of place-based policy to get through a geographically structured Congress in a country with 50 states.

One of the central lessons of the political science literature on infrastructure spending in Congress (think Barry Weingast or John Ferejohn) is that it tends to get spread around districts. “Distributive politics” norms of pork-barrel deal-making lead to a failure to concentrate spending on valuable projects. The same problem distorts place-based policies.

Getting OZs through Congress required three important political steps, each of which took the program further from the ideals of place-based policy.

The first step was tying investment in distressed areas to a powerful interest, namely people with huge capital gains who would like to avoid taxes. There’s no obvious connection between helping poor communities and the tax cut. Tax breaks for investment in these areas could have been given to people who didn’t have large capital gains. But tying capital gains reductions to OZ investments had a powerful political logic – it linked the inter