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Which is the wrong part?

I assume you don't question the transfer of money from the less-wealthy to the more-wealthy via modern financial methods.

All of it

I guess I don't understand it well enough to realize what is wrong. However, it does seem like we are being paid in company scrip. They have an option to inflate, deflate, or get bailed out so that the house always win, to mix metaphors.

can you expand on "wrong"?

2. I can tell you, having lived in Detroit my whole life, this is easier said than done.

Wouldn't an economist argue that New York City should not even try to diversify its economic base? Because New York City has a comparative advantage in financial services, it would be inefficient for it to use resources to diversify into areas where it does not currently have a comparative advantage. Detroit is a testament to good, efficient economic planning. It did what it was good at and did not try to compete in areas where it was less able.

It's more of a biologist's argument. Specialists can do very well, until they don't.

1. Wrong, as in increasing productivity does not lead to increased leisure, but increased consumption, as well as increased demand for goods, resulting in higher prices.

Shorter Glaeser: Fisher's fundamental theorem of natural selection applies to cities, but exogeneous factors matter more.

Wow, not sure how people are having trouble finding the issues with #1. How in the planet was our productivity surplus been 'gone to the financial sector'? what does that even mean???

Our surplus created our larger houses, technology advancements, better cars, better food, etc. If anything, the increased wealth and higher standard of living that we all have has created something of an incentive of getting in debt basically because we expected our gains to continue (maybe we expected too much but that was exactly because things were improving so fast). Same thing with the decline in savings. If people expect good times to continue they have less motivation to save.

The whole thing about 'replacing industrial capitalism with financial capitalism' sounds like monday morning quarter backing at its highest. Globalization is the major factor behind the move of industries to the 3rd world... finances got more of the available wealth in 1st world country as a result of that. Again, correlation and causation mix up.


True, globalization has created changes that could not be anticipated. There will not be a return to the "good old days," but that doesn't mean that we can't find a better way forward given the new realities.

Even worse with number 1, he seems totally innumerate for an economist. Even if you gifted the bottom 50 million Americans with a trillion dollars (e.g. from Martian gold), I doubt that an extra 20K would suddenly make those people live a life of leisure. The small truth that compensation has become skewed to finance has been distorted into the total non sequitur that finance has sucked all the surplus and taken away our leisure and flying cars.

"why isn’t everyone rich and enjoying the leisure economy that was promised?". I wasn't around then but I rather doubt that anyone was promising a "leisure economy" in 1945. Or 1980 for that matter.

Leisure suits, maybe, in 1980.

I, for one, demand my leisure suit. Down with the 1% who deny the other 99% their leisure suits!

1. "Interesting" is in the eye of the beholder, but anyone who remembers the undergraduate bull sessions of his youth will have trouble finding much in this uninformed rant that is "interesting."

I should think that this rant would be a goldmine for anyone who wanted to use irony to undermine left wing talking points. The only way it could
have been better would have been to include Smedley Butler, Prescott Bush, and Ickesian Lizard People.

2. There's a huge difference between autos in Detroit and finance in modern New York City. Consumers still buy cars and Detroit would still be fine today except the Japanese were just better at making them, and the minute trade and globalization became a factor they won. Finance is already globalized, nobody is doing it better than New York, and who is a threat to do so? Britain has basically decided they don't want London to be a global financial center. Switzerland is to finance as Germany was to cars: a niche player. China, which is now also Hong Kong, can't be trusted and Japan is Japan. Singapore is the only actual threat, and I think there's plenty of room for them and New York together.

thanks, needed a good laugh.

Yeah, well, I am sure that Detroit thought the same thing about the Japanese, the Germans and the Koreans at some point. "Sure, those other countries try to make cars, but they have nothing on us. Cadillac is the 'Standard of the World.' Who can compete with us? Not those Germans, Japanese and Koreans with their puny little wussmobiles."

Fast forward forty years, and GM would give its left nut to have consumers believe that Cadillac is up to par with Lexus and BMW, rather than some also-ran faux luxury nameplate favored by old people who wear wraparound sunglasses and unsuccessful drug dealers who sleep at their mothers' apartments in Suitland.

My argument is that the auto industry equivalent of New York finance today isn't GM 40 years ago, it's Toyota today. And if I had to bet on the #1 auto company in the world 40 years from today, I'd say Toyota is the most likely.

Similarly, I would say that 40 years from now New York will continue to have the most firms on this list

and this list

and the list of full-service investment banks

Some Chinese city, or possibly Mumbai, will sit atop all three of those lists.

40 years ago, you would have expected Toyota to be #1? Not GM?

The entire industry itself might be dis-intermediated by the future succesors of bitcoin, facebook and kickstarter. A lot can happen in 40 years.

I think dis-intermediation of the industry is a tall prediction considering the likelihood that rent seeking and regulatory lockout of competition in the financial sectors is only going to get stronger.

Consumers still buy cars and Detroit would still be fine today except the Japanese were just better at making them, and the minute trade and globalization became a factor they won.

No -- that's a (common) misunderstanding of the situation. The *city* of Detroit hit its peak population in 1950 and has been shrinking ever since (during many of the best decades of the U.S. auto industry). The 'Detroit' auto companies are, at present, doing pretty well, and the unemployment levels in the Detroit suburbs (where the companies and their various suppliers mostly operate) have declined dramatically to about the national average. But the city of Detroit really doesn't have a lot of auto industry remaining and has benefited relatively little. Instead, the mayor and city council have been engaged in a desperate (partisan, racially charged) struggle to avoid bankruptcy or a state takeover. The 'Detroit' automakers could completely rout the competition and even then the city would likely continue its decline.

Glaeser makes a thoughtful argument, and an important one if you think New York City is important (and it may not be in the medium future, if he is correct).

I have one problem with the argument I will mention up front. When it comes time to suggest solutions, Glaeser site the citys’ historical districts, where real estate development is made more difficult than normal, as a reason for the decline of the city’s manufacturing industry. The historical districts in New York, which are mainly in residential areas, have nothing to do with the decline of the city’s manufacturing base. But this is a Manhattan Institute writer. We are lucky to escape a call to abolish rent control in this article.

There is a larger problem in that I don’t think that specialization so much is bad as lack of sustainability. Picture a city next to a mountain that turns out to be solid gold. The gold is discovered and the city booms, while any business in the city that does not have anything to do with gold mining or supplying things to the miners gets priced out. Then the mine gets exhausted. The city sinks to a lower level of poverty it has had before, because the non-mining businesses it has had before have been crowded out, and because of the corruption that grew up around the mining industry. And actually the city leadership has tried to invest the profits from the mine into a diversified investment portfolio, and a capital fund designed to support business start-ups in the city, but all of the money allocated to those two funds has been stolen! This is a pretty common story. But I don’t think the lesson is “make sure your economy is diversified” but “make sure your economy is sustainable”. And maybe its OK if the the gold discovery is big enough, and the city has a long run.

Also, the strategy of the city government doesn’t seem to be so much as to bet on the finance industry but to bet on the continued concentration of wealth internationally. The number of finance jobs has been shrinking for some time (which I think Glaeser is pointing out), but the idea seems to be to make the city an attractive place for wealthy people to visit and live, sort of a really big Aspen. New York today can be a pleasant and lucrative place to live once you get this. But I don’t think this variation of the “all eggs in the FIRE basket” strategy will be that sustainable either.

Yes, pick any successful manufacturing facility that has scaled beyond the "craft" stage, anywhere in the world, and what do you see? Vast horizontal layout. Machinery consuming large amounts of electricity. If they do fabrication as well as assembly, significant amounts of waste which must be disposed of. New York has reached a point, especially in Manhattan, where they have to arrange things vertically -- not a good choice for the production line. New York has some of the highest electricity prices in the country. And some of the highest costs for waste disposal. Urban cores are ill-suited to modern manufacturing.

Why do we care about the health of cities? Shouldn't we care about the wellbeing of the people living there? Maybe the 1 million+ people who left Detroit are better off having lived in Detroit when it was booming and now having left it to live somewhere else. Maybe gains from concentration of industry can be fleeting and cities can boom and decline and have all of their citizens better off for the experience.

Take an example of 2 cities. The first pair are 'diversified' and have constant populations for 100 years. The second pair have each grow and decline as various industries that they specialize in grow and decline, and citizens move back and forth between them as their relative fortunes wax and wane. Why would we necessarily prefer the first pair to the second?

Because of real estate investment. Cities that do well over time produce fantastic, and very safe looking, returns on real estate investment, cities that don't do well are a disaster for that investor. Since every property owner in a city is such an investor this is very signifigant. The problem is that most of these investors are not terribly informed about what increases property values on a more macro scale and many of them don't view property investmdnt as an investment until they have to sell, which is a little too late.

For an example, if you bought a nice lower middle class house in Cleveland in 1970, the prices were not that different than the equivalent in the Bay Area, and quite a bit higher than the prices in say Phoenix. However today, even with the housing bust, the difference is astonishing. It is even more impressive for higher end real estate. If you think of American cities as aggregations real estate investments they really make a lot more sense

Actually, if you've ever read Glaeser's writings on Detroit, you'll find he agrees with you on the issue 100%.

Anon, having to move from the place where you grew up, because it was a boomtown when your parents moved there but now its bust so you should move to another boomtown, which will go bust in turn when your children are looking for jobs, has its problems.

What problems?

Inability to have grandparents and extended family around when raising children, for one. Lack of access to long-term friendships and relationships.

So what would send New York the way of Antwerp? I just don't see a realistic scenario for that to happen without something so dramatic that would spell doom even if New York diversified its economy.

Bannerjee seems to assume that what matters are technocratic interventions. He can't test what would happen if you shut down the World Bank, or if you overthrew the government, or if you changed the constitution of these countries. He can't RCT tariff changes or any grand macro changes like NGDP targeting. He assumes that we will want to continue to encourage interventions as long as we have more RCTs and he doesn't take into consideration the bias of liberal academics in choosing which RCTs to propose.

I remember him at a visit to our school. He was the most arrogant Cambridge, Mass representative I have ever met (and believe me, he had plenty of competition). He looked down his nose at all the grad students and dismissed inconvenient questions. I see that he has now found a way to become patronizing on a worldwide scale.

Raul, you sound like a student. Like most adults Bannerjee is focused on the possible. Shutting the World Bank, "overthrow" governments!!, Change constitutions are the thought bubbles, of those with recent memories of second life video games. The one statement that impressed me in the article, was the shift of focus from political transformation that is obsessed upon by Westerners. Your first paragraph about sums up why I like the guy.

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