Monday, May 16, 2016

Flat World of Finance

Whether global (more recently) or national, the location of certain professional services have defined the urban hierarchy. At the top are cities with F.I.RE. (finance, insurance, and real estate) industries. Finance in particular has come to define the latest era of globalization, with a few large cities dominating the sector. No more, FIRE is dying:

Forget the bright lights and fast pace of living in two of the world’s greatest metropolises, city living for a new generation of financial workers is now more Jacksonville in Florida and Warsaw in Poland than New York and London.

Instead of serving to attract top talent, New York and London price out financial firms in search of fatter bottom lines. High-end banking is no longer tethered to the strictures of the urban hierarchy. The world is, effectively, flat. Convergence defines the economic geography.

If FIRE is dying, then what kind of proximity logic is taking its place? What kind of industries are economically divergent? ICE:

New York is reinventing itself once again, drawing on a different source of advantage, the unique assets that, regardless of the FIRE sector's future, will sustain it as a world city. Our intellectual, cultural and educational (ICE) strengths—already among the world's greatest—are becoming the essence of New York's global identity. The creative economy of New York is once again a gateway economy, as ICE assets originate here to influence and shape our world.

The hub of ICE ("intellectual, cultural, and educational") is the urban research university. White coats replace white collars. Private industry will flock to be near knowledge production, like a moth to a flame.

New York City does not dominate this world as Boston does. Cambridge's Kendall Square makes Manhattan look bush league by comparison:

Speaking in one of his shiny new labs on the banks of Manhattan’s East River, André Choulika, chief executive of Cellectis, says he is a “big Boston fan”, but that the cut-throat competition for talent there would make it tough for a small company like his.

“In New York, you don’t have your employees hired when they go to buy their sandwich from the food truck, like in Boston,” he says.

For biotech, New York is to Boston as Jacksonville is to New York for finance. The city has enough assets to be a player. But it isn't the top dog in this ICE industry. It's the Small Apple.

Sunday, May 15, 2016

Is the World Still Spiky?

Richard Florida insists the world is spiky. Geography still matters. Blah, blah, blah, blah. Touting that geography still matters is a straw man. Geography matters whether or not the world is spiky. Spiky is one pattern (economic divergence). The flat world pattern (economic convergence) is another. Urbanists fawn over Richard Florida's normative spiky geography. Denser cities are the best way to organize space. Sprawl (flat world) is bad. If the world is more spiky (spikier?), urbanism is winning. Suburbanism is losing. Urbanism is dying:

It’s been dubbed the e-change movement, where people move from the city to the country, using the internet to make a living. Garlick is not alone in making the move. The recent Super Connected Lifestyle Locations (SCLL) report identified more than 600 “lifestyle towns”, from Kiama in NSW to Ballarat in Victoria. With the rise of silicon suburbs in regional areas outside our capital cities, demographer Bernard Salt says, “We are witnessing a quiet lifestyle revolution in suburban Australia.”

Since I own the nauseating X place is dying meme, I get to explain. There is no zero-sum game between urban and rural. There is no zero-sum game between urban and suburban. Spiky and sprawl are not mutually exclusive geographic patterns. Sometimes, the world is flatter because it is so spiky. London is flatter because it is so spiky:

I’d expect future London émigrés to consider the European sunbelt, which stretches from Lisbon to the delightful Albanian coast. The Mediterranean is the perfect place to live as long as you aren’t part of the local economy. London is the opposite: the ideal is to be part of the economy without living there. The logical thing to do (presuming Brexit doesn’t happen) is to arbitrage the two: live on the Med and work for a London company. This will be an obvious decision for the next generation of knowledge workers, for whom the concept of a daily commute to an office will probably seem baffling.

For the next generation of knowledge workers, it will be dubbed the e-change movement. Work in London, live in Lisbon. Technology will make today's daily commute seem baffling. The world is flat for workers who have a remuneration connection to spiky London.

One can't arbitrage London unless one lives and toils there. The world is spiky. To live and toil in London is to desire escape. The world is flat.

The Rust Belt is spiky. The Sun Belt is flat. The spiky Rust Belt made the flat Sun Belt possible. For African-Americans, Atlanta is Chicago sprawl.

Friday, May 13, 2016

The Sun Belt's Broken Promise

Ah, the allure of the Sun Belt. Air conditioning conquered the climate. The federal government papered over racism. State governors shifted oppressive tactics from African-Americans to unions. Most significantly, the warmth of other suns offered the anarchy of sprawl. Legacy costs were a Yankee problem.

Rust Belt shamers such as economist Edward Glaeser and journalist Richard Longworth seized on this new narrative. Whatever the wealthy manufacturing states did wrong, the greenfield South did right. Population change told the tale of the tape. Ohio is dying. North Carolina is thriving. A contemporary mesofacts migration:


For decades, Raleigh and other cities in the US Sun Belt have lured workers from fading industrial centres in the north and midwest, promising jobs and a lower cost of living. But as Mr Perry’s experience shows, even success stories like Raleigh are showing signs of economic malaise.

How now brown town? Eventually, every region will have Rust Belt problems. China has Rust Belt problems. Don't get me started on Japan and the 1980s movie, "Gung Ho." This kid born in Erie, Pennsylvania has seen a litany of would-be economic champions come and go. The Sun Belt has joined the long line of suitors for Penelope.

Most industrial centres, such as Pittsburgh, are done fading. Relative to Pittsburgh, how does Raleigh look now? Like a failure.

US Middle Class

Concerning population, Glaeser's preferred metric of success, Raleigh towers over Pittsburgh. Concerning income growth, Pittsburgh towers over Raleigh. You can have your population victory lap, Sun Belt.

Like China, the Sun Belt basked in cheap and easy growth. Now the game gets harder. Sun Belt boom towns are too busy touting corporate headquarter poaching victories to care.

Wednesday, May 11, 2016

Naturally, Collision Density Explains the Start-Up-Ness of a City

I believe people develop, not places. I think people develop, not places. Which sentence comes across as more convincing? The first sentence is wishy-washy. The second sentence executes a binding contract with the reader. If I think something is true, then I'll have to prove it to you. I can believe in whatever I like and I don't expect anyone to care. From the density cult:

So, I believe that startup cities are those that amass a significant amount of potential to facilitate collision density between different kinds of thinkers. Collision density is naturally much higher in cities than in suburbs and suburban tech parks because cities house a much higher rate of diverse actors in smaller, more compact spaces. As the tools of innovation are becoming more democratized, and cities are increasingly home to dozens, if not hundreds, of accelerators, coworking spaces, fab labs, and the like, combined with proximity to artists, designers, schools, and users, entrepreneurs are able to regularly mingle with and create mashups of ideas, some of which may turn into commercializable innovations.

Emphasis added. The words "believe" and "naturally" act in tandem in this non-argument. Naturally, everyone believes collision density is higher in cities than in suburbs because Jane Jacobs didn't like sprawl. That's how the paragraph reads to me.

For geographers, the use of the term "natural" or "naturally" will set off the alarm of environmental determinism. Many geographers believe that environmental determinism is bad. The perspective is an academic taboo, like geopolitics. Naturally, Nazi Germany should do something about that Czechoslovakian knife sticking in the side of the Vaterland and keep going until lebensraum is restored.

Because of greater collision density, the increasing democratization of the tools of innovation will increase the commercializable innovations in cities. What does that even mean? Put a bird on it and present the model at the next International Economic Development Council conference.

The United States has a long, recent history of successful innovation and commercialization in the very places where, naturally, collision density is lacking. Believing in Jane Jacobs density won't change that fact. But democratization will? Excuse me while I pursue my manifest destiny.

Monday, May 09, 2016

Bathtub Model of Migration: African American Exodus From San Francisco?

African American San Francisco is dying. Conflating population change with migration, community leaders declare exodus. However, are blacks really fleeing the city? Recall the bathtub model of migration:

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.

Relatively normal outflow combined with weak inflow into San Francisco would also result in a demographic decline of African Americans. Residents living in these neighborhoods wouldn't notice the lack of blacks moving into the area. They would notice those who left.

Blaming out-migration for population loss is rational. Expecting zero out-migration is irrational. People leave every city, no matter how cool and economically vibrant. Save some sort of acute crisis, lack of in-migration is the typical reason for dwindling numbers (leaving out deaths and births). Turns out, San Francisco is no exception:

The story of San Francisco’s declining black population is characterized more by a lack of in migration than an unusual amount of out migration. Just about 1 in 10 African Americans who live in San Francisco leave the city every year. This is not much greater than for Whites or Hispanics. This out migration is in some ways positive, in part representing an ability to leave the city that was not possible in the days of stronger housing discrimination.

If San Francisco is a bathtub, then the flow out the drain for African Americans is similar to other groups. The flow into the basin is unusually low. Mystery, or what should have been a mystery, solved.

"The flip side of this out-migration issue is: Why is there no in-migration?" [James McCray Jr., director of the Tabernacle Community Development Corp.] continued. "Why are there no African Americans or Latinos coming here to contribute to this great city?"

I'm surprised that someone would ask such a question. I wish more people would engage in this kind of inquiry instead of fixing up a place in order to keep residents from leaving. Out-migration happens. Nicer cities wouldn't have put the kibosh on sprawl. But they could have encouraged more newcomers. The concern about out-migration is misplaced, a misreading of the facts. The tub tells all.

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.