Lecy ∙ Urban Policy LECTURE 01 Cities and Prosperity

“In the 1970ss, cities were dying – at the same time mainline churches, civic organizations, and political parties were dying. People were moving out. Most cities had their lowest population growth in the 1970s. For the ten largest cities (except Houston), each showed a decline in per capita income relative to the rest of the country. In four of the five largest cities, housing prices plummeted. (Only Los Angeles escaped the 1970s house price slump.) Crime rose in the 1970s, and metro areas bled people. Everyone pretty much concluded that cities were dead, murdered by the automobile; phones, faxes and computers; and the rush to the Sun Belt suburbs. People didn’t have to cluster in one place. There simply wasn’t much need for cities or for people to be close to one another. People could scatter; they could live anywhere because distance no longer mattered.” ~ Bishop, The Big Sort CONTEXT:

THE INCREDIBLE SHRINKING CITY

ASIDE: POLICY DOES MATTER

“In the 1970ss, cities were dying – at the same time mainline churches, civic organizations, and political parties were dying. People were moving out. Most cities had their lowest population growth in the 1970s. For the ten largest cities (except Houston), each showed a decline in per capita income relative to the rest of the country. In four of the five largest cities, housing prices plummeted. (Only Los Angeles escaped the 1970s house price slump.) Crime rose in the 1970s, and metro areas bled people. Everyone pretty much concluded that cities were dead, murdered by the automobile; phones, faxes and computers; and the rush to the Sun Belt suburbs. People didn’t have to cluster in one place. There simply wasn’t much need for cities or for people to be close to one another. People could scatter; they could live anywhere because distance no longer mattered.” ~ Bishop, The Big Sort CONTEXT: Cities didn’t die. They became more important. Why?

O’FLAHERTY: WHY PROXIMITY IS GOOD Economies of scale within firms Intermediate input economies of scale (FEDEX helps all businesses) Specialization (you need a critical mass of supply and demand) Demand smoothing (productive redeployment of resources) Positive externalities (spill-over effects) Lower search costs Innovation

THE NEW SCIENCE OF CITIES: Radiolab – (start at 4:00) Geoffrey West Ted Talk:

WHY DOES AGGLOMERATION HAPPEN?

ONE CONCRETE EXAMPLE:

BRIAN UZZI – CREATIVITY AND THE SMALL WORLD PROBLEM

Low Density / Few Collaborations High Density / Many Repeat Collaborations (Austin) INTENSITY OF COLLABORATION VARIES OVER TIME Large Community, Many People to Collaborate With (NYC)

SUCCESS IS DRIVEN BY DENSITY No critical mass in the creative industry Same people working in teams, reproducing the same formula for the musicals Most success

THE ECONOMICS OF CITIES IN ONE GRAPH Glaeser, Edward L., “Why Economists Still Like Cities.” City Journal (1996): 70–77.

Shopping malls often offer free space for anchor tenants – stores that people need to come to visit. Brings people to the mall for stores that they would not visit otherwise. Supply chains operate in similar ways. Think about how many firms it takes to make a car, a computer, build a sky- scraper. Once in place the supply chains can be productively redeployed for purposes other than cars. WHAT IS AGGLOMERATION?

Innovation is a product of networks. Resilience is a product of the size of an eco-system. For example, as the textile industry in NYC declined the space became available for other nascent industries. IMPORTANCE OF DIVERSITY:

O’Flaherty, City Economics, CH2: Why Proximity is Good. Chakrabarti, A Country of Cities, CH1: Prosperity, CH2: Sustainability and Resilience. Glaeser, Edward L., “Why Economists Still Like Cities.” City Journal (1996): 70–77. Supplementary Reading: O’Sullivan, Urban Economics, CH3: Why Do Firms Cluster? O’Sullivan, Urban Economics, CH2: Why Do Cities Exist? Glaeser, Triumph of the City, CH9: How Do Cities Succeed? Bettencourt, L. M., Lobo, J., Helbing, D., Kühnert, C., & West, G. B. (2007). Growth, innovation, scaling, and the pace of life in cities. Proceedings of the National Academy of Sciences, 104(17), Post, T. (2014). “Why Do Small Businesses Grow in Clusters?” Forbes Magazine.

CURRENT ARGUMENTS FOR CITIES Good for the economy Good for health / happiness Good for the environment Civic laboratories Help lift people out of poverty Economies of scale Can create effective transit systems

CITIES A Country of

CHAKRABARTI’S ARGUMENT Battencorp and West extol the virtues of large cities vs. small cities. Chakrabarti makes the case for urban areas vs. suburbs. Instead of size, he emphasizes density.

CHAKRABARTI’S ARGUMENT

In other words, we subsidize sprawl.

SUMMARY In

SUMMARY OF MAIN POINTS Cities are important because size produces increasing returns to innovation and efficiency. Agglomeration economies are at the basis of economic productivity. The size of a city matters, but also the density of the city.