Thursday, May 05, 2016

Urban Agglomeration Externalities: Inferring Causality From Correlation

In the realm of magical urbanism, cities make people more productive. In the realm of social science, cities positively correlate with greater human productivity. Magical urbanism mashed up with social science:

Sprawl probably reduces productivity. When people cluster more tightly together, they become more productive -- this is known in economics as an agglomeration externality. This explains why the same person will produce more economic output in New York City than in a small town. Here is a picture of the correlation between city size and productivity ...

... Size gives an approximation of density, though some cities sprawl more than others. In fact, density itself is correlated with productivity, even holding size constant. So there is a big opportunity for the U.S. to take better advantage of agglomeration: increase urban density by making it easier for people to move into big cities.

I linked to the picture instead of reproducing the image here. Over the last three years or so, I've read a number of papers trying to make sense of the correlation between city size and productivity, as well as density and productivity. Suffice to say, the causal links remain contested.

Click on the "correlated" hyperlink and check out "Productivity and the Density of Human Capital." I've tracked the evolution of these literature reviews, which test the theories of Alfred Marshall and Jane Jacobs (to name two). I see two lines of inquiry. The first, and more popular, refines the correlation between city and productivity. Most people don't bask in the glow of the density dividend unless one is highly skilled and engaged in nonroutinized work. It gets even more specific than that, but I'll hold that thought for Pacific Standard magazine. The second line of inquiry tries to figure out how, exactly, bigger and denser cities boost productivity. I would like to see economists figure out the productivity paradox before trying their hand at geography.

To be diplomatic, we don't know if reining in sprawl and increasing urban density will juice productivity. Maybe it will. Maybe it won't. I doubt it will. But I can't prove my case.

Throwing diplomacy out the window, sprawl probably doesn't reduce productivity. Sprawl can be very dense, like Los Angeles. Highly skilled, nonroutinized labor can live in Connecticut and work in super dense Manhattan. Take a gander at the top 20 productive metros and draw your own conclusion:

Wednesday, May 04, 2016

Bathtub Model of Migration

The United States reached peak millennial in 2015. Demographer Dowell Myers takes this simple fact a step further and predicts a stronger outflow of young adults from the urban core:

The simple metaphor of a bathtub is widely used to capture these dynamic relations within human migration.  The level of population in a city is like the level of water in a bathtub, held steady by an inflow from the faucet and an equal outflow from the drain. A rising water level could be evidence of faster inflow, or it might be that the drain has been clogged. Similarly, a falling water level might be attributed to an inflow made slower, signifying a weakened preference by human movers to arrive, but it just as well could be due to a more open drain. Demographer Ken Johnson is the most prominent to have voiced the view that postrecession population gains in cities are due to a clogged outflow rather than a stronger inflow (Johnson, Winkler, & Rogers, 2013).

In urban affairs, far more attention is paid to the inflows because they are much more visible and researchable. Those newcomers are present to be interviewed, whereas the departed outflow has disappeared to other, unknown destinations. Thus, for these reasons, many times urban analysis is subject to inflow bias: our interpretations are blind to the equal effects of the unobserved outflow. However, if we survey today’s residents about their future intentions, we might learn about their intended outflow, and yet we cannot ask future incoming residents about their intentions, about their intended inflow. Accordingly, surveys of intentions have an opposite interpretative error, one of outflow bias.

I like this bathtub model of migration, which forces the analyst to disaggregate the flows and consider how bias might be distorting the picture. In the Rust Belt, most assume brain drain is driving the population loss (outflow bias) when the data often reveal weak inflow. Residents don't think about newcomers failing to show up in their neighborhood. They notice the people who leave. As for city revival narrative, stronger inflows receive all the ink. That too makes sense. Something not happening hides behind something that is happening. Why would anyone consider the possibility of a clogged outflow?

The specter of inflow bias and outflow bias puts coverage of population dynamics in a different light. Now, all I see are bathtubs. Demographic hysteria in the Bay Area:

More than one-third of Bay Area residents say they are ready to leave in the next few years, citing high housing costs and traffic as the region's biggest problems, according to a poll released Monday.

Hey Dowell, what does the bathtub say about San Francisco dying? "[S]urveys of intentions have an opposite interpretative error, one of outflow bias."

The headlines say nothing about a collapsing inflow. How could we conduct a survey of future intentions to move to the Bay Area? Furthermore, we don't know if those who intend to leave will actually move to another region. This story suffers from outflow bias.

Monday, May 02, 2016

Urban Renewal and Innovation Districts

Do legacy cities birth innovation districts or do innovation districts sow the seeds of revitalization in legacy cities? I think legacy cities beget innovation districts. What Harvard economist Ed Glaeser thinks:

There’s an overwhelming error of urban policy over the past 75 years which has been to follow a Potemkin village strategy of urban revitalization that acts as if what you need to do to get a city going again is to build more stuff ... Innovation districts are … a hypothesis; they’re not a proven strategy at this point in time. I think they’re as sensible a hypothesis as any one out there, but they’re merely a hypothesis ... It’s very hard to imagine how you can have anything that can be plausibly called an innovation district if 10 percent of your adults have college degrees ... It’s all about having smart people who are connected by urban density and who learn from each other and work with each other.

All of the above are Glaeser's words. If you know his work, you aren't surprised. Cities should get smarter before building innovation districts. Don't build innovation districts to get smarter. In that regard, Glaeser and I are on the same page.

"[A]ll about having smart people who are connected by urban density and who learn from each other and work with each other" is a hypothesis, too. The positive correlation between urban density and innovation may support Alfred Marshall's hypothesis, but doesn't prove it. In this regard, Glaeser and I are on different pages.

Glaeser is a market ideologue. He makes the facts fit his a priori conclusions. An overwhelming error of urban policy over the past 15 years has been to follow a Jane Jacobs East Village strategy of urban revitalization that acts as if what you need to do to get a city going again is to build denser stuff. Denser makes it better. Marshall told me so. Enough said.

We are to question the innovation district, but not the density hypothesis. Instead of cities building more stuff, cities should cram into small spaces more smart people. Both approaches offer to put more of something into a given space. Stand back and then let the market magic happen. Color me skeptical.

Sunday, April 24, 2016

Pointless Urbanism: YIMBYs Are The New Yuppies

We need bigger cities because suburbs are bad. The only people who know suburbs are bad lived there with silver spoons in their mouths. The folks who poo-poo suburbs have a geographic choice. Damn all ye working class African-Americans dreaming of a green lawn and a white picket fence but redlined urban for decades.

In light of such a legacy, which land use morphology makes sense? What is geographically just? A rich world defined by arcs of urban epochs:

In 19th-century Paris, photographers rushed to document the last moments of medieval streets and intimate alleys. In London, most urban construction today is perceived as a nuisance rather than a sign of progress, greeted not with nostalgia for the old but frustration in the moment: a closed Tube station, a road diversion, a racket. As the capital grows, it goes through waves of rebuilding, each purporting to address a dominant issue. In the late 19th century it was slum clearance; after the second world war it was the rebuilding of a city devastated by bombing as a physical expression of a new welfare state; in the 1980s the rebuilding was an effort to revitalise the city as a global financial centre. And now — what exactly?

What exactly, indeed. Today's rationale is real estate development as economic development, with the young white, college-educated elites leading the charge. Where oh where will the well-born millennial find the safe suburban in the urban jungle at an affordable price? In the same place where the career banks of boomers find attractive, that's where. The sons and daughters of one big generation fight their dads and moms over urban space. Once again, the privileged decide the fate of the city, as they always have done.

Today's affordable urban hood is yesterday's slum clearance or new financial district. Make way for the YIMBY, today's version of the YUPPIE. Tiny houses cater to the millennial ego the way cooperative living appealed to the boomer sense of social justice. Both approaches made shelter affordable to poor (for the time being) idealists.

As the Yuppies became reviled, so will the YIMBYs. Both groups shout, "gentrification beats concentrated poverty!" Boomer and millennial work together. They sound the same. Both can win as long as everybody else loses.

In the gap generations, the same is true. The impact isn't felt because the demographics are small by relative comparison. The beats and the slackers worked together to monopolize the crumbs of urbanism left over from the boomers and millennials. The same silver spoon critique applies. The numbers fail to add up.

Thursday, April 21, 2016

The Geography of Market Innovation

Government shouldn't pick winners. Deregulate and unleash the market. Taxes distort the economy. Why aren't my free market friends shouting down noncompete clauses?

So the argument goes, without noncompetes, innovation suffers. California mocks that position. California discourages noncompetes. Silicon Valley innovates just fine and thank you. Squash noncompetes and don't worry about innovation. The defense [department] could rest right here.

The obvious rationale for banning noncompetes seems lost on libertarian-leaning Republicans. California is a high-tax state. Fight high-tax states. Since California is tax and spend liberal, banning noncompetes must be bad. Never mind that Silicon Valley anything disproves any devolution fantasy. Big Government birthed Big Tech. Without nonprofit Stanford, the private market chases the diminishing returns of manufacturing.

Noncompete contracts serve the interests of big business. As Ben Chinitiz once wrote, serving the interests of big business hurts the regional economy. Competition is good.

What's good for the goose is good for the gander. How competition saved New York, competition for talent could save the United States. Make America great again. Stop subsidizing captive labor for lazy industry.

Wednesday, April 20, 2016

Before Suburbs, When Cities Were Great

Once upon a time, there were cities with Daniel Hudson Burnham ambition. Published in 1890, the great Alfred Marshall wrote:

When an industry has thus chosen a locality for itself, it is likely to stay there long: so great are the advantages which people following the same skilled trade get from near neighbourhood to one another. The mysteries of the trade become no mysteries; but are as it were in the air, and children learn many of them unconsciously.

I love the smell of urban agglomeration in the morning. The very air of the city promises innovation, prosperity, and productivity. Why oh why would we kill the goose laying the golden eggs with sprawl? Proximity, dammit, that's the ticket.

That air the children smelled to learn a trade smelled like dirty, filthy trash. But if the godfather of cluster theory says it is magic, who am I to quibble? Before the automobile, cities used to be so awesome:

There are some photographs taken for Harper’s Weekly, before and after photos of street corners in New York in 1893 and then in 1895. And the before pictures are pretty astonishing, people were literally shin-high or knee-high in this muck that was a combination of street gunk, horse urine and manure, dead animals, food waste, and furniture crap.

Good times. Why would anyone want to leave? Talk to anyone who has a living memory of working in a city manufacturing mill and you'll know. It's like exile in the rural hinterlands. From day 1, everyone tells you to get out of the city as fast as you can. But don't run far. Baba still wants to play with her grandchildren. To complicate that narrative, James Parton (1966):

There is one evening scene in Pittsburg which no visitor should miss. Owing to the abruptness of the hill behind the town, there is a street along the edge of the bluff, from which you can look directly down upon the part of the city which lies low, near the level of the rivers. On the evening of this dark day, we were conducted to the edge of the abyss, and looked over the iron railing upon the most striking spectacle we ever beheld ... It is an unprofitable business, view-hunting; but if any one would enjoy a spectacle as striking as Niagara, he may do so by simply walking up a long hill to Cliff Street in Pittsburg, and looking over into -- hell with the lid taken off.

The city was terribly beautiful. The terrible part is the legacy of the passage. It was terrible. It was beautiful.

The anti-sprawl crowd celebrates the beautiful without acknowledging the dead horses in the street illuminated at night by the blast furnaces. My wife's father grew up in urban Pittsburgh. My father grew up in urban Erie, in poverty. Neither one ever told me to go back to the city. Both were proud they escaped. Fear the city. That's how I was raised.

Today, I don't fear the city. I love the city. I went through some years hating my suburban upbringing, feeling ashamed. I love the suburbs, too. The rural? That was my geography of rebellion. I ran off a few times and did the off-the-grid commune. I felt the Bern. Been there. Done that. Celebrate your normative geography of choice.

Early in the 20th century, the geography of choice:

Following World War I, as the United States grew into a more industrial, urbanized country with a diverse immigrant population, this pastoral ideal became associated with places where the white upper classes would go to retreat from the realities of the city. “Eventually,” Mozingo says, “it became associated with middle-class values, turning the single-family house in the pastoral suburb into an aspirational American object. It’s still quite powerful.” At the time, most corporate offices were still in large skyscrapers near a city’s central business district or in a nearby industrial zone alongside the company’s manufacturing facilities. “Executives were often cheek by jowl with their blue-collar workers,” Mozingo says, “even though they were in generally a nicer building of some kind.”

The migrant is passive, duped into leaving the urban for the suburban. Don't forget, following World War I, the city sucked. For most of time, the city sucks. For most of time, being alive sucked. Let's not get all warm and fuzzy about the romantic rural of the 19th century. Let's be aware of how the romantic rural impacted migration.

The migrant isn't passive. She's the agent of globalization. The world turns on her education. The world turns on her migration.

The move from the urban core to the suburban greenfield wasn't some grand conspiracy concocted by Dwight D. Interstate. People wanted out. Some could. Most could not. To this day, African-Americans desire the suburban dream. Make their suburban dream come true.

Monday, April 18, 2016

Why New York City Is Dying

Population growth is a negative economic indicator. I'm serious, unlike when I write some city is dying. In the United States, the largest metros with the weakest population growth do much better in terms of prosperity than the largest metros with the strongest population growth. Such "dying cities" can and do perform better than "thriving cities". The boom in Reading's (Pennsylvania) population came with a dramatic climb in poverty rate. Last time I checked, a higher poverty rate was a negative economic indicator. Setting population growth as a policy goal might be the pinnacle of idiocy. I'm happy to leave such concerns to economist Ed Glaeser.

After I have turned population growth on its head, Luke Juday (Demographics Research Group, University of Virginia) does me a solid and turns net positive domestic migration on its head:

While domestic migration is still a good indicator of demand and growth in most counties, it’s less helpful in counties that specialize in a particular age group. Dense cities with limited ability to grow may attract young migrants, causing them to have high natural increase, which in turn pushes out older migrants, lowering the city’s death rate. Conversely, many rural and exurban counties that have become retirement havens are experiencing the opposite effect. Loss of (and inability to gain back) a young adult population has left them with chronically low birth rates and an aging population. This results in rapid natural decrease and population loss, which is then offset by a constant influx of older adults and retirees taking advantage of the low cost of living and slow pace of life.

Because New York City is a magnet for the young and well-educated, it is dying (net outmigration). Every community wants to attract and retain young adults with college degrees. But without robust immigration, succeeding could inform demographic decline. That's right. Plugging the brain drain will cause your town to start dying.

A better way to stop brain drain is to stop educating residents. Less educated young adults are less likely to leave home. Have brain gain cake and eat it too without fear of population loss. Hooray!

In the case of New York, domestic outmigration indicates economic vitality and success. If the population of college grads started going down, I would get concerned. For now, there's the deep talent pool of NYC and then there is everywhere else. Dying never looked so good.