Thirteen thoughts on growth and cities

  n  Economists’ favorite question is still “How did we get so rich?” We learned how to coordinate production. We learned how to coordinate discovery. We learned how to form mutual loyalties – for social as well as economic reasons. Can we unscramble the social from economic? Does it matter?

  n  Supply chains for commodities are ubiquitous; they illustrate and deliver the gains from specialization and exchange. Most chains for things are accompanied by chains of information. Think of instruction manuals and accompanying videos and websites and/or live  instructors.  Buy an airplane and they send you to their own training school.

  n  Supply chains for information are everywhere; these nurture supply chains for ideas. The more information, the more ideas. We live in many goods chains as well as many information chains; we are also likely to live in many idea chains. Some of the latter involve face-to-face contact. Location choice and interaction mode choice are concurrent.

  n  The more new information, the more new ideas. We seek both. Information can hatch ideas and also help test ideas. Ideas and information feed each other just like theory and hypothesis testing feed each other.

  n  Neither information, nor ideas, are manna from heaven. Key facts and idea are deemed useful -- and are sought. The search may start with a hunch but can lead anywhere. Nevertheless, it is directed.

  n  All this says (once again) that technological change is endogenous; new knowledge and supply chains for ideas are emergent.

  n  Supply chains involve many nodes/locations; spatial patterns and interaction patterns emergent. Entrepreneurs must choose what to make vs what to buy. But that’s incomplete. Make vs. buy involve where to do all these; e.g., location choice.

  n  All this illustrates how prosperity and human settlement are two sides of the same coin. Propitious location choice (opportunities for propitious choice) denote prosperous cities – and prosperous economies.

  n  What can we, should we, do about location choice and cities? We should leave room for emergent orders. This is how we get a chance at greater prosperity.

  n  The continued outward growth of major cities is nearly universal. Local policy regimes seem to make little difference.

  n  Agglomeration opportunities are not restricted to the old centers. There are many sub-centers. Locators are drawn to favored places as they economize in light of their peculiar interest in specific commodities, ideas and information flows.

  n  Cities are a complex mesh of an uncountable number of supply chains. They are much more than simply labor markets. It is not about journey-to-work or journey-to-shop but much more.

  n  Instead most urban policy/city planning discussions dwell on top-down plans and “visions”.  They even call it “smart” growth.

Engines of growth -- and new ideas

Fly low over a major urban settlement and what do you see?  A mesh of an uncountable number of supply chains, including supply chains for things and for ideas.

Discussions of cities and how they work are of three kinds. Economists like the neoclassical model of spatial equilibrium; sites are evaluated by competitors and equilibrium site rents emerge. Designers (often utopians) like ambitious plans: their top-down design skills can be scaled-up significantly. Followers of Jane Jacobs disagree and celebrate the complex spatial arrangements that emerge bottom-up; knowledge is complex and dispersed.

Most urban planning is about growth controls, containment, limits to sprawl – all of which are based on an abiding faith in getting big things right, top-down.  The fact that most urbanization continues to be at the edges demonstrates that the old-time religion fails again and again. But it does impose costs, notably housing unaffordability for many. “Costs of sprawl” indeed.  These are the costs of anti-sprawl.

Agglomeration (often vaguely defined) explains why cities even exist. My favorite approach to agglomeration introduces the idea of supply chains for ideas. Think of it this way.  Ideas are not simply “in the air” and therefore public goods – and a challenge to economic modeling. Rather, we keenly seek useful ideas for our various projects (thank you, JoelMokyr).  Also, as we engage in normal (ubiquitous) supply chaining, we are likely to exchange ideas along the way.  At many of these junctures, ideas can be re-stated or refined, perhaps in new and interesting ways. As new ideas make new product, there is feedback to ideas. Ideas are purposefully exchanged and renewed. How else would we get enhanced productivity and growth?

Supply chains are all about specialization and gains from trade.  Supply chains can be very long and very complex. They are ubiquitous. We all participate in an uncountable number of supply chains – for things and for ideas – as demanders and as suppliers.  Whereas Coase taught that entrepreneurs and managers grapple with the make-or-buy challenge, add the obvious thought that what to make or buy where is embedded in these decisions.

Everyone is keen to find conveniently located trading partners -- where trades can involve things and/or ideas. We approach site choice with this in mind. Exchanging ideas may (or may not) involve nearness.  Tacit idea exchange and trust-building may require nearness. Many ideas, many things, many modes of communication: many choices to evaluate and trade off.

 

John Cho and I have shown (using plant location data for Los Angeles) that nearby (same census block group) location (“clustering”) is barely explained by input-output links. These (sales as well as purchases) only explain about 2% of the block-group association. That leaves supply chains for ideas.

Enhanced discovery, growth, and human betterment depend on how things are arranged in space. Let the sharp people discover these. There is no other way. This is how cities become "engines of growth."

ADDED

Listen to what Will says about cities.

Be a persuader

David C. Rose explains Why Culture Matters Most. Small-group moral intuitions, small-group trust, are our heritage. But how to get large-group trust? How do we get and sustain the many individual acts that create and sustain large-group trust? Large-group trust is a commons and hard to sustain. Rose writes that today's multiculturalism embraces tribalism and is a step backward. Yet he remains optimistic. “Changing prevailing beliefs is hard but we have done it before.” (p. 168). He cites the civil rights movement and the environmental movement as recent spontaneous examples.

Civil rights, yes. Re environment, its complicated.  The LA Times reports “L.A. is hemorrhaging bus riders — worsening traffic andhurting climate goals” (June 27, 2019).  The LA bus system has been declining for years because of the 40-year (and counting)  MTA drive to build high-cost-low patronage rail transit.  They want to “get people out of their cars”. But they are moving in the opposite direction. I keep citing Baptists and Boootleggers (thank you, Bruce Yandle). It’s one of those ideas (like economic growth) that once you start thinking about it, you cannot get it out of your head. 

So Mancur Olson was right. Cronyism is inevitable in the modern mixed economy – and it just gets worse over time.  In this conversation, George Will and JonahGoldberg conclude with, “be a persuader.” This is from two of the best. It will have to do.