The "rust belt" is essentially an area in the Midwest made up of heavy capital industries - e.g. steal mills and the auto industry. And though punitive taxes, regulations, and labor unions have done much to ruin the rust belt, I believe that the main culprit is the Federal Reserve. Here's why:
The Fed has had a policy of continuing inflation and lowering interest rates. Lower real interest rates have done two things to the economy: first, it has promoted consumption over saving, and second, it makes US investors look overseas for higher return on capital (due to higher interest rates overseas). The result? Less capital investment in the United States. Lower interest rates mean that US and foreign investors who would invest in the US choose not to do so, instead seeking out to invest in foreign lands. At the same time, the fall in US saving has caused investment to fall even more.
Thus, less investment in the US has meant less capital accumulation, which makes US industries less profitable, since capital is the comparative advantage of the US over other countries (after all, other countries have lower labor costs). This has been the major reason why outsourcing has occurred. In order to increase capital investment/accumulation in the United States, the Fed needs to promote saving and investment by raising interest rates (or better yet: disbanding itself). Such a move would cause short-term pain, but the rust belt would boom again and good paying blue collar jobs would return to America.
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