How the Trump Administration Will Strengthen Big Blue Cities in February 2025

Tough love is the theme of this substack column. My main theme is that a consequence of a Trump Administration sharply reducing Federal $ transfers to Big Blue cities is that this will cause their cities to improve their governance and focus on pro-quality of life and pro-economic growth strategies. Competition fuels adaptation.

I will start by telling a story about the City of Baltimore. I taught at Johns Hopkins University in Baltimore from 2019 to 2021. I lived in downtown Baltimore. I have co-authored a book about my experience living and working in this post-industrial city. Here is a video about our book.

Our book explores the economic growth challenges that Baltimore, Cleveland, Detroit, Philly, Pittsburgh and St. Louis have faced over the last 60 yeas as the manufacturing sector declined in these center cities. We argue that an investment co-ordination failure unfolded as four key investors; 1. people, 2. firms, 3. local government, 4. real estate investors all chose to disinvest from these areas.

In this column , I want to focus on local government leaders such as the Mayor of Detroit and the Mayor of Baltimore. When these progressive elected officials knew that they could rely on Democrat Governors and a Democrat President for $ Fiscal Transfers this creates a moral hazard effect that they have much less of an incentive to make the difficult choices to improve governance in their city.

When a Baltimore receives large $ transfers from Gov. Wes Moore and President Biden, this actually reduces the incentive of the Mayor to try to improve local public schools, deliver street safety and improve local quality of life by streamlining regulations. When elected officials are rewarded for attracting transfers, they have weak incentives to actually focus on ruthless competition of building a city where workers and people and firms want to locate in. The City of Baltimore competes with its suburbs and every other city for footloose people. Over the last six decades, Baltimore has been losing this competition and people have left and home prices have declined. Unlike in the Rocky Movie where Rocky achieves the “Eye of the Tiger”, the Mayors of Baltimore in recent years have not focused on local private sector economic growth . Instead, similar to a Chinese State Owned Enterprise —- everything has been focused on how to access external public funds to subsidize operations. This is not a recipe for long run economic growth.

When such leaders are confronted with “tough love” from the Federal Government, they now have much stronger incentives to be proactive and to adapt to the realities their cities face by engaging in more field experiments to figure out how to improve local education, deliver street safety and to keep the city clean and attractive for tourists and suburban people and WFH mobile workers to come and visit.

Going forward, the Blue Cities will have less access to “Other People’s Money”. The Mayor will have to issue bonds (and pay an interest rate premium) if she seeks to do this or that project. More fiscal discipline will lead voters to prioritize what they want from their government and to hold their leaders accountable. Right now in Big Blue Cities (including my Los Angeles) there are huge inefficiencies in spending and the public sector unions often benefit from the status quo spending patterns.

If cities must spend their own $, then this gets the incentives right for accountable local government.

I claim that the Trump Administration’s tough love policies will strengthen cities in the medium term because they will cause better (pro-economic growth) and fiscal discipline policies to be enacted. Cities will enact road pricing and privatize more services. Policing will be strengthened to make the city’s quality of life improved. Perhaps drones will be deployed to collect information on risks and opportunities in different areas and to create accountability of the city’s elected leadership.

Now a very valid question here pertains to the quality of life of the urban poor. How will the Trump Administration empower them so that their families can flourish? Increasing school choice, an emphasis on drug addiction recovery, job opportunities by reducing red tape in opening businesses are all examples of strategies that empower all American families. Future research must explore whether the urban poor’s quality of life actually improves when local governments refocus on delivering a viable private sector based economy rather than standing around waiting for Federal $ transfers.

In our 2021 book, we document that the voting turnout rates in Baltimore elections are really low. When local residents know that their tax $ are on the line in financing investments, they will engage more in local democracy. Spending “other people’s $” is not the right recipe for building great cities.