The big shift

The latest in California:

California Controller John Chiang, a Democrat, warned last week that the state was "less than 50 days away from a meltdown of state government."

While that's music to my ears in many ways, I wonder just how culpable California is in all this. Or for that matter the auto industry, the financial industry, and the housing industry. What if they are all ultimately caused by a fundamental shift in consumer preferences, i.e. a real business cycle? I think we are all aware of the shift in living patterns that has occured over the last decade or two. Sometime in the mid to late 1990s, the seemingly inexorable pattern of rich folks leaving the city for the suburbs started to reverse.

Understandably, this was not widely predicted, indeed it appears unprecendented at least in the US and Brittain. The car companies, domestic and foreign, lost this bet. Suburban homeowners and the suburban housing industry lost this bet. The financial industry, by facilitating these bets, also lost. States with a disproportionate share of suburban development, i.e. the sun belt states, lost this bet. Ultimately, this may the explain the downfall of the US as a car centric economy. Although non-car centric Europe has suffered just as much in the initial crash and aftermath, it remains to be seen who will emerge stronger.

Addendum: Offsetting this trend to some extent is politics. Many southern states, particularly Texas, are growing despite their car-centric infrastucture, because they have lower taxes and regulation.

Help is on the way in DC?

From the Examiner:

Columbia Heights is getting a new Target store, a Staples, new condos, a Starbucks, sit down restaurants, parking and other services. The new commerce is made possible because the local government provided initial funding (Tax Increment Funding TIF) for the projects. Mayor Adrian Fenty and several councilmembers unveiled a new $95 million TIF Tuesday to bring new development to other blighted neighborhood corridors. These include a total of $35 million for Georgia Avenue in Northwest, $10 million for Martin Luther King and South Capitol in Southeast.The H street Corridor in Northeast will see 25 million. Minnesota-Benning in Northeast will get $15 million and Pennsylvania Avenue in Southeast will receive $10 million.

What's not reported here is that Columbia Heights residents waited for these businesses for a decade or more. Columbia Heights has a tragic history going back to the 1968 riots. I've only observed it since early 2000 when I moved there. For seven years, the commercial center of the neighborhood, around the metro, looked like a moonscape - literally several acres of dirt. Until a Giant opened in the neighborhood in 2005 you'd have been hard pressed to find a place to buy milk. It remains to be seen if the sudden big box development will really produce a viable, organic neighborhood.

So why did this happen in Columbia Heights while surrounding neighborhoods, such as Adams Morgan and U street, and the city as a whole experienced a historic rebirth? The answer is that city bureaucrats essentially owned Columbia Heights, treated it as an urban planning experiment, and doled out the development rights to a single monopolist, unaccountable to the taxpayer. Columbia Heights never suffered from a lack of access to capital. It suffered from central planning.

A much simpler, more straightforward, and less discriminatory approach to revitalizing DC's neighborhoods would be to make them more attractive to business by reducing DC's notoriously high taxes and regulation.

Lower taxes lead to population growth

Wendell Cox, Peter Gordon, and Christian Redfearn have an interesting article in the new issue of Econ Journal Watch in which they refute Baum-Snow's conclusion that highways caused suburbanization. From Baum-Snow's abstract:

Between 1950 and 1990, the aggregate population of central cities in the United States declined by 17 percent despite population growth of 72 percent in metropolitan areas as a whole. This paper assesses the extent to which the construction of new limited access highways has contributed to central city population decline. Using planned portions of the interstate highway system as a source of exogenous variation, empirical estimates indicate that one new highway passing through a central city reduces its population by about 18 percent. Estimates imply that aggregate central city population would have grown by about 8 percent had the interstate highway system not been built.

As far as I can tell, Baum-Snow did not correct for local taxes, which is likely be a more important driver of population growth. For instance, Suitably Flip looks at state tax rankings from the Tax Foundation and population growth from the Census Bureau. He finds that lower taxes (especially on property) lead to population growth:

The trend is obvious even though this represents only one year of data (July 1 2006 -July 1 2007). I imagine the relationship is even stronger and more significant when looking at longer time periods.

Just say no to New Orleans

Ed Glaeser puts it this way:

President Bush got us on the wrong path of favoring place over people when he declared “this great city will rise again.” The Democrats have echoed this sentiment. Barack Obama promises “to rebuild now, stronger than ever.” Hillary Clinton argues that “rebuilding New Orleans is not a local obligation, it is an American obligation.”

Wrong. Federal policy does not have an obligation to see that cities rise again — not Buffalo, not Detroit, not New Orleans. Federal policy has an obligation to see that the people of America enjoy as much freedom and opportunity as possible. Federal attempts to rebuild declining cities areas are quixotic, inefficient, and unlikely to help the poor. Spending billions on light rail in New Orleans or upstate New York may make for good stump speeches, but the people of these regions would be better off if they were given cash or fully portable housing vouchers rather than boondoggle projects.

I'll be in New Orleans next month for a wedding and of course I'll try not to mention this.

Keeping the Soviet dream alive in DC

Hard to believe the DC Convention Center is losing money:

Nearly four years ago, city officials opened the $850 million Washington Convention Center with a string of superlatives. The largest publicly financed project ever built in the city, they said, would attract more than a million visitors a year, fill hotels and set off an economic boom.

Instead, convention attendance is dropping, the surrounding neighborhood is yet to be transformed by the promised new development, and conventioneers are filling fewer hotel rooms than expected.

The number of hotel rooms booked is especially significant because it is the most accurate measure of performance, and last year hotel convention bookings missed projections by 13 percent. Bookings are likely to fall short of projections by 24 percent this year and 29 percent next year.

...

The city's solution is to increase its investment, pressing ahead with plans to build a $550 million hotel next to the convention center, financed in part with a $135 million tax subsidy from the city, which convention center officials expect to be repaid with tax revenue generated by the project. The rest will be privately financed.

Someone please explain how DC officials are supposed to be experts, or even average, at the convention and hotel business. Likewise for the baseball and stadium business.

Someone's been reading Jane Jacobs

Ryan Avent at the DCist reminds us that it is diversity which makes great cities. Unfortunately, DC ain't one of them:

almost no one, other than the President of the United States, makes his home among the office blocks of downtown and the Golden Triangle. And it shows. Despite being the single densest employment center in the metropolitan area, holding more Greater Washingtonians at any one time than any other place in the region, the streetscape is strikingly--sometimes shockingly--bleak.

I would add that Adams Morgan continues to be the most vibrant neighborhood in town precisely because its residents have steadfastly fought off various ill-conceived urban renewal efforts by government. The one that slipped by is the Marie Reed Learning Center, an awful eyesore and dead space which nearly cuts Adams Morgan off from Dupont Circle to the south and U street to the southeast.

What is missing in Adams Morgan is daytime businesses, and that, I'm afraid, is because the resident activists lack consistency in their fight for diversity. It's really just a few anti-business Nazis, some of whom I know, who have made it difficult for any large business to move in. Just ask Harris Teeter.

The bottom line is that zoning regs are pure evil, and the enemy of diversity. They are vestiges of the high modernist era, a time in which social planners arrogantly disregarded the interests of the Everyman, the man on the street, as it were, and pretended to have an elite access to and interpretation of information. But the high modernists are dead. Can we not move on now?

Civilization and socialism

What I was trying to get at in the last post is a very simple point: cities are a civilizing force. Cities and civilization are intimately linked, and, indeed, the two words share the same root. Jane Jacobs' observation of this fact in Death and Life is only notable because she wrote it in 1961, when all of the received wisdom pointed the other way. From Lewis Mumford to Le Corbusier to Frank Lloyd Wright, the consensus was that cities are problematic, breed social ills, etc.

But Jane Jacobs was only reviving an old idea. Adam Smith in his Lectures on Jurisprudence identified the underlying mechanism that makes cities civilized. It is commerce. I quote at length:

Whenever commerce is introduced into any country, probity and punctuality always accompany it. These virtues in a rude and barbarous country are almost unknown. Of all the nations in Europe, the Dutch, the most commercial, are the most faithful to their word. The English are more so than the Scotch, but much inferior to the Dutch, and in the remote parts of this country they far less so than in the commercial parts of it. There is no natural reason why an Englishman or a Scotchman should not be as punctual in performing agreements as a Dutchman. It is far more reduceable to self interest, that general principle which regulates the actions of every man, and which leads men to act in a certain manner from views of advantage, and is as deeply implanted in an Englishman as a Dutchman. A dealer is afraid of losing his character, and is scrupulous in observing every engagement. When a person makes perhaps 20 contracts in a day, he cannot gain so much by endeavoring to impose on his neighbors, as the very appearance of a cheat would make him lose. Where people seldom deal with one another, we find that they are somewhat disposed to cheat, because they can gain more by a smart trick than they can lose by the injury which it does their character. They whom we call politicians are not the most remarkable men in the world for probity and punctuality. Ambassadors from different nations are still less so: they are praised for any little advantage they can take, and pique themselves a good deal on this degree of refinement. The reason of this is that nations treat with one another not above twice or thrice in a century, and they may gain more by one piece of fraud than by having a bad character. France has had this character with us ever since the reign of Lewis XIVth, yet it has never in the least hurt either its interest or splendour.
But if states were obliged to treat once or twice a day, as merchants do, it would be necessary to be more precise in order to preserve their character. Wherever dealings are frequent, a man does not expect to gain so much by any one contract as by probity and punctuality in the whole, and a prudent dealer, who is sensible of his real interest, would rather chuse to lose what he has a right to than give any ground for suspicion. Every thing of this kind is odious as it is rare. When the greater part of people are merchants they always bring probity and punctuality into fashion, and these therefore are the principle virtues of a commercial nation.

Smith is focusing on commerce as the source of morality, but another interpretation is that it is human interaction generally that imparts morality. I like both, and don't see them as so distinct. I see commerce as simply a more exact and disciplined kind of human interaction.

It is for this reason that Europe, or any densely populated area, has numerous advantages. Europe has the additional advantage of being historically densely populated. The disadvantages are in politics, or collective action. Democracy, social democracy, and socialism are all correlated with civilization. In America, if not everywhere, cities are the bastion of left-wing politics. As far as I know, there is no such thing as a conservative city. It seems this is an inextricable condition of civilization, and one which Adam Smith did not foresee (as Dan Klein noted this week in class). Libertarianism may wax and wane, but socialism persists in one form or another. It is the baggage of civilization.

So I don't expect the libertarian dream to ever come true. Europe and America seem to be converging on a sort of mediocre social democracy. Countries like Ireland have rolled back the power of the state, while America pushes forward with ever more expensive public works, from Katrina relief to the Iraq War. But I don't see instability. Yes, the Medicare trainwreck looms large, but I expect we'll grow our way out of it, and maybe reduce benefits a bit.

In short, I think we are all locked in to a world wide growth rate of about 2% to 3%. The developing economies are growing faster, but they too will converge to this rate, as social democracy takes hold and achieves its equilibrium state.

Modern Drunkard

So, Robin Hanson again shocked us with the facts last night in health econ class. Most compelling to me, and all the undergrads who were there, is the apparent health benefits of drinking. This is different than all those reports about "one glass of wine per night turns out to be healthy." The statistical evidence indicates there is no upper limit on the health benefits of drinking, ie the more you drink, the healthier you are. Why does this not make the news? Well, you may have guessed that government and other paternalistic organizations don't like the message.

And I would agree, based on the reaction of the undergrads. I certainly didn't need this information in college. I almost wish someone had told me "drinking makes your stomach hurt, because everytime you take a drink I'm going to punch you in the stomach."

One wine hangover will convince anyone that drinking cannot possibly cause health benefits. So, Robin offered up an alternative explanation: drinking signals health. At least in part, people drink to signal their health. The last guy standing is the alpha male. Maybe that was my problem, I never figured out the standing part.

So this may explain why drinking is so prevalent on college campuses. Young'ns have a comparative advantage at drinking a tremendous amount without taking on that evil, drink-sodden look. Does this mean we should consider moving the drinking age up to 22, or 25? After all, it does appear to be a market failure, of the kind Robin was referring to in his signaling example.

At Sewanee, Max will remember the university banned kegs during our second semester freshmen year. The first semester was truly a drunkard's dream. Free beer everywhere. The ban made drinking beer a little more expensive. So we switched to whiskey. It was more fitting anyway, since Sewanee is located in the hills of East Tennessee, surrounded by distilleries. My point is that I doubt there is any good way to actively suppress such an effective signaling equilibrium.

In Europe, as we know, youth drinking laws are less restrictive. And youth drinking appears to be less of a problem. I speculate that this has more to do with alternatives to drinking, while the laws are of little consequence. Being surrounded by castles and art museums, as opposed to hillbillies and 'stills, the signaling in Europe occurs along more refined cultural dimensions. This factor alone may explain why K-12 produces better results in Europe, as I wondered in a previous post.

This illustrates another of Jane Jacob's major themes, which she focused on in The Death and Life of Great American Cities. It is that cities, as the highest form of human civilization, offer many more benefits than costs. In economic terms, the positive externalities, e.g. networking, far exceed the negative externalities, e.g. pollution. See more on this here.

I wonder if she knew about Robin's health stats that indicate city living takes 15 years off your life. Smoking only takes 3.

Bottomline: I'm not really sure where this leaves us. But it's happy hour at the Big Hunt.

French culture from an English perspective; a continuing series

Max, a little taste of home for you. (HT to Tyler).

And how do you lure the right stores in, assuming you can decide what the right ones are in the first place? Jane Jacobs doubtless has some answers, but this [is] France. If you give the Parisian city government a slush fund to subsidise interesting shops opening on the Champs Elysees, hey, guess what, the mayor's best friend's brother-in-law has just decided to go into the bespoke millinery business.

My general point is that, for as long as the French think they can suspend the laws of economics in a 400-mile mile radius around Clermont-Ferrand, we should delight in any weird policies they may attempt (eg, declaring yoghurt a strategic industry; imposing a 35 hour week and then regretting it). Just to see what happens.

Actually, Jane Jacobs would recommend intervention in this case. She claimed that neighborhoods tend naturally to become specialized and homogeneous, and so government should zone for diversity. That's about the only idea of hers I don't like. How is the government's definition of diversity better than that of the neighbors who live there? And why should we expect the government to more effectively, ie efficiently, achieve diversity?

Why are cities so expensive?

It all comes back to this guy, and people like him. Ed Glaeser' s work suggests the same radical idea, that housing prices have gone up primarily because of regulation. It restricts the supply! Supply goes down, the price goes up! Why does it take research to make this point?

Addendum: By extension, it should also be clear that excessive regulation in cities is also the root cause of sprawl. As this article states:

No other region in the country, however, has created as many jobs in recent years as the Washington metropolitan area. Between 2000 and 2005, the region added 359,000 new jobs, said Stephen S. Fuller, director of the Center for Regional Analysis at George Mason University, citing Labor Department statistics. That was 75,000 more jobs than the nation's No. 2 job engine, Miami. "We've been adding jobs faster than we've been able to add resident workers," he said. "Had we been able to produce more housing, we could have added more people."