Urban growth and its aggregate implications

That is the title of a new paper by Gilles Duranton and Diego Puga.  This piece goes considerably beyond previous research by having a more explicit model of both urban-rural interactions, and also possible congestion costs arising from more YIMBY.  Here are a few results of the paper:

1. If you restricted New York City and Los Angeles to the size of Chicago, 18.9 million people would be displaced and per capita rural income would fall by 3.6%, due to diminishing returns to labor in less heavily populated areas.

2. The average reduction in real income per person, from this thought experiment, would be 3.4%.  You will note that NIMBY policies are in fact running a version of this policy, albeit at different margins and with a different default status quo point.

3. If you were to force America’s 11 largest cities to be no larger than Miami, real income per American would fall by 7.9%.

4. If planning regulations were lifted entirely, NYC would reach about 40 million people, Philadelphia 38 million (that’s a lot of objectionable sports fans!), and Boston just shy of 30 million (ditto).

5. Output per person, under that scenario, would rise in NYC by 5.7% and by 13.3% in Boston.  That said, under this same scenario incumbent New Yorkers would see net real consumption losses of 13%, whereas for Boston the incumbent losses are only about 1.1%.

6. The big winners are the new entrants.  On average, real income would rise by 25.7%.

7. Alternatively, in their model, rather than laissez-faire, if America’s three most productive cities relaxed their planning regulations to the same level as the median U.S. city, real per capita income would rise by about 8.2%.

8. In all of these cases the authors calculate the change in rural per capita income, based on resulting population reallocations.

Recommended, I am very glad to see more serious work in this area.

Comments

So just by eliminating planning regulations, Bos-Wash grows to absorb maybe roughly half of the US population? On what time-scale could this be said to occur?

In reality you would surely hit real limits to growth long before this point. Fostering this kind of growth requires more than just a lack of government intervention to prevent growth. You will also need positive intervention by governments to competently build out more infrastructure (and more innovative infrastructure, to manage the more extreme density).

Overall I think humanity is not well-suited to hyper-density. Homo Sapiens has existed for ~500,000 years. Cities only for ~5,000. And cities were population sinks almost the entire time. The main exception is the period between the invention of modern sanitation + antibiotics until the invention of the birth control pill.

Think of it as a giant Democrat sterilisation machine.

It's a kindness, really.

+1

Obviously this couldn’t happen overnight. That said, it fits my prior that Boston is much more constrained by crazy building rules than NYC. Boston may actually be smaller than it should be. I don’t think that’s true of NYC.

In fairness to Boston, though, it may be Cambridge that is artificially constrained and should become a real city with real roads, rather than Boston.

Cities create the jobs. NIMBYs cry about arriving newcomers. Land owners sit back and collect the rent. In this sequence, who contributes the most and who is just there for the ride?

"That said, under this same scenario incumbent New Yorkers would see net real consumption losses of 13%, whereas for Boston the incumbent losses are only about 1.1%."

Hmm. What other circumstances do we know of where native incomes will be capriciously traded away to enhance the incomes of new arrivals?

But Social Welfare grows! Or elite welfare grows. Or something. So it's all good, right?

+10. Came here to say just this. "incumbent New Yorkers" are "incumbent Americans" and the story is the same.

The story is not the same. New Yorkers and non-New Yorkers are part of the same country.

Sort of. Americans are moving out of and away from NYC. The city is kept afloat (i.e., its population is kept stable) only by foreign immigration. The percentage of NYC that is foreign born is almost 40% and higher than it's been in something like a century.

Fantasy numbers for NYC, Philadelphia, and Boston.

Unless someone can say where those tens of millions of new residents are getting their drinking water, how various goods are delivered, and where their trash/sewage is going.

To put it a bit differently - how many more millions of people could live in LA if only there was a free market in water, as obviously, the actual amount of water available in Southern California is irrelevant.

Water is not scarce, just cheap. As if we don't filled our cars with gas made from overseas oil.

You do know where LA gets its water from? And that its need for water is why basically there is no water available for other communities around it?

The California Water Wars wiki article is not bad, particularly with all the linking - https://en.wikipedia.org/wiki/California_water_wars

This pretty much encapsulates the point - "Eaton and Mulholland had a vision of a Los Angeles that would become far larger than the Los Angeles of the start of the 20th century. The limiting factor of Los Angeles's growth was water supply. "If you don't get the water, you won't need it," Mulholland famously remarked. Eaton and Mulholland realized that the Owens Valley had a large amount of runoff from the Sierra Nevada, and a gravity-fed aqueduct could deliver the Owens water to Los Angeles."

There are plenty of places where water is scarce in the U.S. - southern California is one of them. It takes a lot of effort to get more than half of Southern California's water from the Colorado river. Such as via the Colorado River Aqueduct. "The system is composed of two reservoirs, five pumping stations, 62 mi (100 km) of canals, 92 mi (148 km) of tunnels, and 84 mi (135 km) of buried conduit and siphons. Average annual throughput is 1,200,000 acre⋅ft (1.5 km3)"

Do note that the free market had nothing to do with any of this - it was all public works projects. If the free market had been allowed to function, LA would still likely be a fairly minor city on the West Coast.

Desalination technology is mature and robust. It is expensive compared to current water prices, but not expensive enough to make much of a difference in a broader cost of living context. It doesn't happen because of below market water prices and related politics.

LA really does have unlimited water, and with a free market for water, it would never be a reason to keep people out.

+1.

The cost of providing water for household consumption is an almost negligible part of a domestic budget, even via desalination. Water shortages almost everywhere an artefact of political mis-pricing and farming lobbies.

The experience of Cape Town and its recent brush with Day Zero - when there would be no water flowing from taps at all - suggests otherwise when it comes to almost negligible part of a domestic budget.

Oddly, water shortages in many places are due to a lack of rain over years, but that is not exactly something that people in the UK are familiar with. The Saudis have a different perspective concerning their lack of water, and explains why they are the largest consumers of desalinated water. Of course, no one ever referred to the Saudis having a water shortage due to mis-pricing or farming lobbies - as many know that Saudi Arabia is not a place with abundant rainfall.

Sigh,

The point is not what the cost currently is under whatever crack-smoking patronage scheme government has inflicted on utilities. Or how bad things have got under government management. Only the government can build a $3m toilet.

The point is what the maximum cost should be, given the basic costs of desalination, storage, and transport. Water is not expensive. Nor, really, is the infrastructure to manage it.

(Domestic) Water shortages are almost nowhere due to a "lack of rain". Rainfall per capita-year is a totally crap predictor of water price, as you would know if you had any familiarity with the data. (Domestic) Water shortages are almost everywhere a failure of under-pricing water for agricultural use and failure to build sufficient storage infrastructure.

When I think of sound, rational, technocratic public policy, my mind immediately goes to Saudi Arabia.

Wasn't there a comment talking about the Dust Bowl?

Desalination is like fracking - the only reason to do it is the fact that consumers will pay the price for something they cannot do without. And because the original source of liquid has become inadequate.

The entire planet has unlimited water, from a certain perspective. However even the largest consumers of desalinated water (the Saudis) would likely find that idea a bit strange.

Though one can certainly hope that desalinated water will become too cheap too meter, it does not seem a safe bet.

It's a few $/ton, last time I checked, including storage, delivery, and disposal. You spend more on your morning coffee than you do on your drinking, washing, and toilet. Water is the cheapest traded commodity on the planet.

Of course, rainfall, rivers, and aquifers provide a substantial amount of the service gratis. So those get tapped out first.

Since I pay maybe 5 cents for my coffee (around a pound a month, and it is definitely not from Kona or Jamaica), it seems reasonable to assume that I pay more for drinking, washing, and toilet water, at around 50 cents a day.

But coffee is an almost negligible part of my domestic budget, certainly compared to water.

If you're resorting to single sample anecdotal gainsaying, when you know perfectly well what the population mean really is, then you should know that I know that you know that I've got you on the point.

As we say in chess, your gambit is unsound beyond ELO 1800.

Checkmate to Alistar.

"...because the original source of liquid has become inadequate."

Yes, we have exceed the capacity of the natural systems to provide clean water. So?

We also exceeded the capacity of the nitrogen cycle. "Consumers will pay the price for something they cannot do without", that something is called fertilizer.

Well, the largest problem with water is not the source, but the distribution network. Look for electricity cost of any water company, even if natural systems provide clean water, it costs money to ensure water is available 24/7 in your bathroom tap.

+1.

I once had to sit through a graduate student presentation where they breathlessly recited areas of the globe with humans under "water stress" because there "wasn't enough rain". I pointed out that their map had highlighted the tropical and equatorial rainforests; locations of the highest rainfall per capita-year on the planet, whilst leaving Israel unmarked.

It seems that some people simply don't do the internal mental model checking others do.

What is your point? That desalination plants should be banned to force people out of LA and lower their incomes??

prior's point is always just to argue, no matter how many goal posts he has to move or non sequiturs he has to furnish.

Is the extrapolation accurate? Aren't there diminishing returns to a city's size? In particular, without good public transit, population density chokes growth. I know, because my fast growing sunbelt city is choking. Most of the growth has been in the suburbs because that's where the inbound people wanted to live (on a cul-de-sac with a pool). Today, inbound young people want to live in the urban core. What's happened is that the combination of the two (high growth and density in the suburbs and high growth and much higher density in the urban core) has made for transportation gridlock. Cowen doesn't approve of government operated transit (in particular rail), but he needs to spend some time in new cities like mine to experience the negative externalities of high growth without an efficient way to move people around.

Lagos now has a population of ~ 20 million, vs. 300,000 in 1950. Public transit (and a lot of other infrastructure) seems to be optional.

http://worldpopulationreview.com/world-cities/lagos-population/

https://en.wikipedia.org/wiki/Lagos_Rail_Mass_Transit#History

Of seven proposed line, one is actually under construction. That one is now scheduled to open in 2022, 11 years late. The number of planed rail cars is tiny.

So actually, no public transit today, and population expected to double. My expectations for success are not high.

Having lived "in" Chicago, I note that the Chicago MSA, where I lived and worked, was not in the City of Chicago, which was a small part of the 10,000 square miles of Chicagoland, twice as large as the NYC and LA MSAs.

That was in the 70s when Chicago city was blocked from expanding by surrounding areas incorporating to prevent annexation, while gaining all the benefits of Chicago to the economy.

For example, dozens of "Chicago" global corporations are headquartered in Deerfield, a town of 18,000 people 25 miles north of the city.

There is zero shortage of buildable land in Chicagoland, and no particular reason to be in Chicago the City, other than readily available real estate.

Land use in Chicagoland is defined by three States, a half dozen counties, and a hundred towns and cities.

'That said, under this same scenario incumbent New Yorkers would see net real consumption losses of 13%, whereas for Boston the incumbent losses are only about 1.1%.

6. The big winners are the new entrants. On average, real income would rise by 25.7%'

Replace 'New Yorkers' with 'Americans', and this entire model could effectively be identical for immigration. "Productivity goes up, but the gains go to the new entrants, established residents real consumption drops double-digits."

Hence, Trump.

Made this point above.

Yes, both NIMBYism and immigration restrictionism are bad for the same reasons. Lots of other things work this way too, reducing occupational licensing would reduce welfare for incumbent professionals but benefits newcomers and consumers, market competition reduces welfare for incumbent monopolists but benefits new companies and consumers, etc. There’s no reason to privilege wealthy incumbents over less wealthy newcomers.

"There’s no reason" this does not always matter. Even if you think it should.

With immigration, the incumbents are your countrymen

You're charged with their happiness and welfare in a way you are not for immigrants. Oh, wait, you don't understand that concept....you think you're terribly sophisticated in a "all humanity is my countrymen" sort of way, whilst advertising your virtue over all those flyover rubes.

Well, one day, homo economicus, you'll find out the maximum coalition isn't an efficient coalition for equilibria in a security game.

Congestion and congestion costs are a self-limiting factor that is being ignored here.

+1. I don't think the model estimates the growth in transportation costs with scale effectively, alas.

4. Excellent point about Philly's additional objectionable sports fans. If you had worked in the word 'D-cells', it would have been great.

That's all?

Let's grant a 8% drop in income by diminishing the great metropoli. Median income is $33,700 so would expect folks to lose a whopping $2696 per person. That's pathetically cheap for better social capital.

For instance, NYC has terribly low age-specific fertility rates. If we could have 10 million fewer women experiencing the gap between desired and achieved fertility that correlates with living in NYC the additional population growth would more than offset the entire wage gains.

Likewise, if we had more people staying closer to their parents we might not have to burn quite so many billions on childcare. Or perhaps we might look at elder care, where people not living out in the great beyond near their elders saves the better part of a trillion dollars.

Heck, requiring even a single additional flight a year to see the grandkids/go home for Christmas will eat a large percentage of the economic gains.

And that is before looking at the impact of destroying social capital in the metropoli by leveraging ever more people into tiny, family-hostile housing in order to get secure jobs. If we see even a small drop in achieved fertility due to more dense development that will represent a huge knock on both desired life outcomes and long term economic potential. Likewise if we make rural America even less dense, does anyone expect the opioid use rate to go down?

Unless there are an awful lot of adjustments for the costs of social capital dislocation, I cannot fathom how society would be better off if we are only getting a few grand more per year.

+1

It's immigration writ small. Frankly, if you could trade NYC fertility levels for rest-of-country levels for that amount of money, it would be a fantastic win.

Long term, humanity needs to solve the urban fertility problem. If you can make cities nice places to live for families, you'll do a lot of good. But for now, the socially optimal thing to do seems to be to encourage suburbs.

The largest impediment to fertility is the time and difficulty of finding a suitable partner. Urban areas enhance fertility by creating a large dating pool where people meet partners and then move out to the suburbs or their smaller hometowns to raise kids. But people who never lived in big cities to begin with do not necessarily have higher fertility. People in my high school class who stayed in my hometown have very low fertility and are mostly unmarried even as we are now leaving childbearing age. And even in the mid-size city I live in now, it’s hard to get single young people to move here even for wages that are similar cost-of-living adjusted for what they could make in New York, and the biggest reasons given are frequently concerns about the dating pool or finding a job for their partner.

This is a studied topic. Increasing the size of the choice set beyond a certain (and relatively small) point makes the choice harder and the outcome worse, not better.

Witness urban people being generally less successful at finding partners than suburban or rural people, and much less successful at having sex than married people. Urban living sounds like a good idea in this respect, but it doesn't really work out that way.

https://www.cdc.gov/nchs/products/databriefs/db297.htm

That study finds that the married is similar between urban and rural areas, but the “formerly married” rate is higher in rural areas, suggesting lower quality of marriage there.

And the “having less sex” finding in that study is focused on people under 18. When you’re under 18, you have a similar chance of meeting partners no matter where you live because you’re going to school. The vast chasm between urban and rural dating opportunities occurs in one’s 20s and 30s when there are no longer structured social environments in the same way.

The paradox of choice seems more applicable to things like deciding what brand of peanut butter to buy when the differences between brands are not huge and it’s better to just buy something then waste energy on optimizing. But people can be very different from each other so it seems that you would want to spend a lot of thought on finding the right life partner.

“That study finds that the married is similar between urban and rural areas, but the “formerly married” rate is higher in rural areas, suggesting lower quality of marriage there.”

I think this just suggests that rural people are older on average. I don’t think anyone would believe urban marriages are on average better in any measurable way.

With respect to sex, dating, and choice, there’s a whole literature on this, and it’s damning. See, for example, https://www3.nd.edu/~ghaeffel/OnineDating_Aron.pdf , https://www.ncbi.nlm.nih.gov/pubmed/19250015 , https://www.sciencedaily.com/releases/2015/01/150113204129.htm?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+sciencedaily%2Fmind_brain%2Frelationships+%28Relationships+News+--+ScienceDaily%29 , and, as you mentioned, https://www.amazon.com/The-Paradox-Choice-More-Less/dp/149151423X .

Fertility in cities is worse than elsewhere. Total lifetime fertility in urban areas has been below replacement rate since 2009. Since then it has fallen further to around 1.7. Rural populations stayed above replacement rate until 2017 and currently sit around 1.9.

In three generations at urban lifetime fertility rates the working population will be down 40%, at rural rates be done 15%. I cannot easily find data for NYC but they historically were worse than urban average. Going to a no-limits growth might drop fertility rates significantly further.

People may move to the city to date, but for family formation (however defined), the metropoli are far worse than average. The two income trap is well known and frankly only going to be worsened by enabling yet more corporations to build out metropoli.

Maybe this is all spurious correlation, but NYC is not a sustainable economy. Absent a large inflow of human capital (paid for with taxes elsewhere), NYC's economics runs right into Japan's problems within decades.

I think of New York City as kind of like a war. It generates economic activity and sounds exciting, but it chews up a lot of young people in the process.

The singular is not metropolus so the plural is not metropoli

If people were willing to trade off a lower income for all of those benefits you mention, then people would already be moving to smaller and more rural areas.

Moreover, it’s unclear whether you would actually achieve higher social capital in less urbanized areas. Many people move to big cities precisely because of the greater social opportunities there.

The benefits of child-bearing are external to some extent. You have children, I get my Social Security down the line.

That’s just because of how social security is structured. You having children probably doesn’t have much impact on my 401k, and we could structure social security to be like that instead.

The costs of children are externalized too, for instance education is the biggest single category of spending in most states and is often a supermajority of spending in most localities, yet the taxes for it come from everyone.

It's an example, but it's hardly the only one. Your 401(k), to take your example, grows with GDP growth, i.e., with productivity growth and population growth. All the more so when the population growth is in the smart, ambitious segment of the population that cities effectively destroy.

Put another way, to the extent that I care about my life and the economy 20 years down the line ( I'm relatively young, and I have kids who will be around then too, so I do), it matters to me that people, particularly smart people, have more kids.

"All the more so when the population growth is in the smart, ambitious segment of the population that cities effectively destroy."

I don't think this works the way you, and your parent commenters are describing.

Rural populations are a reservoir of population from which "smart, ambitious" individuals spring up from in ways that cannot be predicted.

I think it's important to recognize this and to foster productive and healthy rural communities so as to preserve the health of this reservoir and the pipeline it represents.

In fact, I am tempted to suggest that people don't become less fecund because of their urban environment, but that they moved to the urban environment *because they were less fecund*.

They are.

And have been continuously for years.

Half of NYC residents flee the place within a decade. They are vastly more likely to do so when forming families.

Further when it comes to families, they drive basically all the greenfield development as they move to less urban burbs in droves.

As far NYC itself ... shockingly it has the lowest enrollment in elementary schools in 30 years. It has lost net population every year and burns multiples of that in net domestic out-migration. Given the constant churn of young folks trying to start a career even the net domestic out-migration number undercount, drastically, how many New Yorkers move out to less urban areas precisely to form families.

People move to NYC, per survey data, for the jobs and to a far lesser degree for status. Social capital, as distinct from human capital, does not even rate.

Exactly which traditional measures of social capital do you believe are higher in NYC? Social cohesion (e.g. how well you know the neighbors)? Voluntary organization membership? Family connections? Trust worthiness/friendliness of strangers?

There is a reason that far more people who live in major urban centers desire to live elsewhere than any other dwelling status.

Don't you need to compound those earnings over 30 years?

Okay. Long term inflation adjusted return on stocks is 7%. $2696 continually invested every year gives us $254,666.

Average lifetime earnings for an American, even with only 40 years of labor, would be $1,348,000.

And again, this vastly underestimates the utility of live humans. The services provided that are not part of GDP. Elder care, for instance, starts at a sizeable fraction of median income and increases to several multiples thereof; families with more children are much better able to reduce their use of these services. And of course there is the whole, having more family members leads to lower health expenditures, fewer car accidents among the elderly, and the like.

I am always amazed at how economists will trumpet the value of small percentage gains in monetary terms, but then ignore the social needs that are correlated with basically everything good in life.

We have been undershooting desired fertility for decades (we last overshot it in the 60s) and have been doing so by more than the entire gap to replacement level. I just do not understand the impulse to remake the social milieu into something that has been making it exceedingly difficult to fulfill one of life's greatest desires while also attaining economic security.

Our goal should not be maximizing economic output. It should be maximizing human flourishing. Having everyone live in the Bos-Wash with horrid commutes, family sizes significantly below the desired level, working longer hours, and having to live in the least desired setting (dense urban) is silly.

And frankly it seems a heckuvalot less disruptive to just make it easier to relocate good jobs out of the metropoli than to basically burn a bunch of capital to rebuild with something marginally more efficient.

"Our goal should not be maximizing economic output. It should be maximizing human flourishing. "

+10

>and Boston just shy of 30 million

Never forget the first rule of MR: No matter how blindingly, obviously and laughingly false something is, it will still be posted on Marginal Revolution, just because a host finds it interesting.

It's a 43-fold growth. I imagine they must be considering "Greater Boston" or some such definition. Even so, it's absurd.

You won't get much argument from me if you say that Boston proper shouldn't have all the low-rise housing it does, sure. And heck, we were once willing to make new land by extending out into the river and the sea! But obviously there's something wrong with the 30 million estimate.

This is fine.

But note that with constrained growth you don't just get reduced migration to cities. You get more sorting. As more corporate lawyers move to gentrified cities, more psychics must leave. Maybe even leave the state.

This creates a double whammy for Will Wilkinson's urban divide.

https://www.niskanencenter.org/explaining-the-urban-rural-political-divide/

If you lifted planning regulations in NYC, you would have 39.9 million people living in squalid conditions while paying huge rents just to be in the city. Depending on how far you're going with removing regulations, many would be using stoves for heat, since it would have a cheaper first cost for developers. Similarly, water would be available through delivery only, since it would save a fortune to remove water supply from developments.

I know conservative economists hate regulations, but without them, the city you are describing looks more like the slums of India or South America.

The odds of NYC's economy reacting well to the massive influx is pretty low, so most of those new residents will not be working in NYC's well-paying core industries, but in the massive, cheap service industry that would be needed to support the new huge population.

For those not inclined to read the whole paper, there is a youtube video as well https://www.youtube.com/watch?v=iD0nHtMnBQM

So basicly displacing 30 million people to gain 5 years of economic growth.

"Say we opened the floodgate of development. What kind of effects could we expect? The economy would grow, and by a lot. According to a recent paper by the economists Chang-Tai Hsieh, from the University of Chicago’s Booth School of Business, and Enrico Moretti, from the University of California, Berkeley, local land-use regulations reduce the United States’ economic output by as much as $1.5 trillion a year, or about 10 percent lower than it could be."

From "Why Falling Home Prices Could Be a Good Thing" By Conor Dougherty Feb. 10, 2017

https://www.nytimes.com/2017/02/10/upshot/popping-the-housing-bubbles-in-the-american-mind.html

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