As everyone knows, the Big Three U.S. automakers are in big trouble. One problem has been overcapacity in the North American auto industry, which has been true for at least 20 years. A significant factor contributing to the maintenance of overcapacity has been the use of subsidies by state and local governments to attract new, mostly foreign, assembly plants. The new firms have generally located far from union areas, have no retirees, and have workers who are younger and therefore less expensive to insure. Given the fact of overcapacity, each new assembly plant leads to the closure of an existing plant, often on a one-to-one basis. This has made a big dent in the Big Three's market share.

Solving the crisis is a huge challenge, and I want to focus on health care. This alone contributes $1500 to the cost of a Big Three vehicle. As far as I can tell, the Obama health plan does nothing to address this issue, although I suppose it's possible the companies and the union could agree to opt into the default system. However, even this leaves the Big Three with large amounts of spending on health care.

Single payer, by contrast, would wipe out the $1500 cost immediately. Health insurance would be finance out of general tax revenue, and the money-losing automakers aren't going to have any profits to tax, probably for several years.

This brings us to the last link in the chain. If the health care system is paid through tax revenues, it is imperative that corporations not be able to game the system. That is, it must be made impossible for companies to abuse transfer pricing (prices for intra-corporate transactions), frequently using affiliates in tax havens, to make their profits show up in low-tax jurisdictions rather than the U.S. The easiest way from a technical standpoint is to adopt worldwide unitary taxation, whereby the IRS determines what portion of a multinational's opererations are in this country (usually based on sales, employment, and assets), and then taxes the company on that percentage of its worldwide profits. Transfer prices would then be irrelevant.

Politically, this is a tall order. Needless to say, multinationals worldwide are vociferously opposed, and it is not popular in the main forum for tax negotiations, the Organization for Economic Cooperation and Development. (I like to tell my students the OECD is the most powerful organization they've never heard of.) But the rest of the OECD's 30 members are in the same boat we are on the financial crisis, and the OECD wants to stamp out tax havens, an effort that has been hamstrung by the Bush administration. The renewal of the tax haven consensus with Obama's election may provide an opportunity to change the rules and end these tax shenanigans.

University of Iowa historian Colin Gordon has written an outstanding overview of the decline of America's cities in Mapping Decline: St. Louis and the Fate of the American City (University of Pennsylvania Press, 2008). Gordon's focus on a single city allows him to map out, literally, demographic and economic change through the extensive use of geographic information system software, bringing the trends to vivid life.

Of the many themes in the book, I want to highlight three: race, urban redevelopment, and subsidies. St. Louis has a long history of housing discrimination against African-Americans, through practices such as agreements among realtors, restrictive covenants, steering, and exclusionary zoning. Many of the nation's most important court decisions on housing discrimination stem from lawsuits in St. Louis and surrounding suburbs. Blacks were restricted to living in a very few areas of the city, and even fewer parts of neighboring St. Louis County, for many decades. Gordon documents this history through extensive archival research.

The rhetoric of urban redevelopment in St. Louis, as in many other cities, was in removing blight, but the reality was that of reducing the housing stock and using federal funding to establish commercial and tourist developments, rather than constructing new housing. As Gordon tells us, "Although blight was originally understood as a residential problem, urban renewal efforts in St. Louis skirted the worst residential areas and focused increasingly on large-scale industrial and commercial development." In the process, the meaning of "blight" was stretched beyond all recognition, allowing the upscale suburb of Des Peres to blight a mall so it could receive tax increment financing subsidies to attract Nordstrom's. (Since the book was completed, Missouri's Supreme Court ruled that property must be both an economic and a social liability to be declared blighted, blocking the use of eminent domain in the similarly prosperous suburb of Clayton.)

Finally, Gordon shows how the use of subsidies, most recently tax increment financing (TIF), has contributed to sprawl in the St. Louis region. His map of TIF districts illustrates graphically how this subsidy has been used heavily on the periphery of the region, "poaching," as he says, retail activity from the city and inner suburbs. (Missouri is one of the few states that allow sales tax to be TIFd, leading to the subsidized oversupply of retail facilities.) This is facilitated by the lack of targeting in the enabling legislation (that is, its use is not restricted to areas that meet objective criteria of economic deprivation, as are regional subsidies in the European Union).

I can't do justice to this excellent book in a short blog post. I highly recommend it, for its lessons apply to a large number of cities.