Cities and markets

The fundamental insight of economics is that choices based on market prices give us the best allocations of scarce resources.  It follows that prices that come to us from any other sources can be problematic. The fundamental insight of urban economics is that good and bad things can happen when people crowd into cities. It follows that cities will grow and prosper if and when the costs of crowding are somehow mitigated. Prof Don Shoup put both of these insights together some years ago and made the case for wiser pricing of parking.

The Economist of April 8 has come around. "Sacred Spaces: Never mind public transport, bicycle lanes or elegant architecture. What really determines how cities look and move is their parking rules" and "Aparkalypse now: The average car moves just 5% of the time. The improve transport and cities, focus on the other 95%."  Print and electronic headlines not the same but these guys do know how to write.

The third relevant insight is from Hayek. Prices set without the benefit of market discovery are likely to be wrong -- and problematic. What then are we to do with all of the Pigouvian ideas re somehow getting the prices right in cases of external costs?

One approach is to let land markets be. (Not planners' favorite idea.) Land markets can help to arrange land uses in ways that reduce the likelihood that potential negative externalities become realized externalities. The hard-of-hearing will bid for residential space near places like airports -- if we let them.  So here we have it again. Rely more on markets.

For cities, the market failure theme was thoroughly embraced while the potential for policy failure was thoroughly ignored.