Urban economics: Superstar cities vs. 'mellow' cities

Do smaller urban centers promise a better life than a congested megalopolis?

By , Guest blogger

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    A man carts children down a street in the Dharavi slum area of Mumbai, India, in this file photo from July 2009. Of the 19 million people who reside in Mumbai and its suburbs, half live in slums. Will that make megacities less appealing to middle class families?
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The Wall Street Journal has provided Joel Kotkin with the space to sketch the tradeoffs of living in megacities (such as NYC or Tel-Aviv) vs. living in smaller cities such as Raleigh. His thesis boils down to "Smaller, more nimble urban regions promise a better life than the congested megalopolis." Is this correct? Will Don Trump and Derek Jeter read his column and move to Nashville? These immediate counter-examples highlight that we need to be a pinch nuanced here.

To his credit, Kotkin later reveals that he is talking about the middle class and the urban poor. If this is really his focus, then why did the Wall Street Journal publish it? (that was a joke). Consider this quote from his piece;

"Consider Mumbai, with a population just under 20 million. Over the past 40 years, the proportion of its citizens living in slums has grown from one in six to more than half. Mumbai's brutal traffic stems from a population density of more than 64,000 per square mile, fourth-highest of any city in the world, according to the website Demographia."

Now, to a non-economist the first sentence appears to suggest that quality of life is growing worse in Mumbai for the urban squatter poor. The slums are growing more dense. But, if we take revealed preference seriously then the people who are moving into such slums must prefer it to the even poorer rural areas. So, the incumbent urban poor are made worse of as the urban slums grow (rents rise, density increases, urban wages fall) but the new migrants must prefer their new destination or they would not have made the costly move to the city. So, overall --- does Mumbai offer the urban poor a good "quality of life" or not?

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Returning to the United States, Kotkin makes a very reasonable point about the fate of the middle class in the U.S Superstar cities;

"The largest American cities—notably New York, Los Angeles and Chicago—also show the most rapid decline in middle-class jobs and neighborhoods, with a growing bifurcation between the affluent and poor. In these megacities, high property prices tend to drive out employers and middle-income residents. By contrast, efficient cities are where most middle- and working-class Americans, and their counterparts around the world, will find the best places to achieve their aspirations."

Now, he is ignoring the fact that NYC, LA and Chicago all have suburbs where the price of land heads to zero. You can live in a very large, very cheap home in LA as you go east towards Riverside. As employment has suburbanized, commute times do not go to infinity as people suburbanize. More and more people have suburban home to suburban jobs commutes.

If few middle class people can afford to live in Manhattan, or near Santa Monica in LA or in Lincoln Park in Chicago; what problem arises? I wish I had a fancy Mercedes but I can't afford one. I'm not going to lead a revolution because I know that Don Trump has 22 of them.

He is correct that for some middle class people that there may be better cities for them to live in that NYC, LA or Chicago but so what? It is up to them to make this choice. The key is that they have choice. In nations around the world, we need different cities to pursue their own competitive edge in terms of amenities, job opportunities and culture. Today, Detroit has a growing Arab-American population. As this group grows in terms of education, numbers and income, Detroit will become a stronger city because of this. Young Arab immigrants to the United States know that if they move to Detroit that they will have access to religious events and sympathetic social networks to start their life in our nation.

This type of specialization across cities is fantastic. Individuals differ with respect to their conception of what is "the good life" and the menu of cities that the U.S offers (coastal and big and superstar, inland and medium sized) offers different choices for different people. Just like when you go to a restaurant with a diverse menu, in the U.S you face a menu with 300 different choices. Neither Kotkin or I know what's right for you, but you do!

Cities differ on at least the following 6 dimensions.

A. labor market opportunities (industries that the city specializes in)
B. geographical amenities (close to a coast, climate amenities such as LA)
C. marriage market opportunities (ethnic types in cities and their counts)
D. learning and culture opportunities (presence of leading universities such as a Harvard)
E. consumer cities (large counts of people similar to you so that restaurants and shops you like are open there)
F. Endogenous attributes such as local pollution and crime ---- (read my Green Cities book!)

Different households will place different weights on these 6 factors. Real estate prices will differ across cities as a function of these 6 atributes

He never defines what is an "efficient city". I presume that he means low commute times. But, does this mean that day traders who work in their underwear in their basement are the most efficient people? He also glosses over the fate of the urban poor. Big cities such as NYC have been generous to their urban poor and to balance the budget taxes do need to rise. In the "efficient cities" that Kotkin celebrates such as

"The winners included business-friendly Texas cities and other Southern locales like Raleigh-Durham, now the nation's fastest-growing metro area with over one million people. You can add rising heartland cities like Columbus, Indianapolis, Des Moines, Omaha, Sioux Falls, Oklahoma City and Fargo."

How do they treat their poor? There is a welfare magnets effect here. Cities such as San Francisco end up with more poor people and more taxes because they are "nice" to the poor. Non-liberal cities are rewarded for being not nice in terms of redistribution. While Kotkin would call that "efficient", there are other words for that such as "cheap" and "nasty". Economists know that redistribution should take place at the Federal level (to minimize the local magnet effect) but the Republican Congress is unlikely to enact this.

So, my question for the WSJ is; "why did you accept Mr. Kotkin's piece?" Can LA, Chicago and NYC really learn from the Omaha experience? Should your company move to Omaha? Yes, if you land intensive and don't need to learn from other nearby firms. But, there are many companies seeking to network and to learn and to have access to superstar talent for whom NYC continues to be the right place to be.

In this age of firm fragmentation, firms can have it both ways but splitting their firm such that the deal makers are in the center city of the Superstar cities and the "back office" is somewhere else where it is cheaper. The firm has the right incentives to consider the tradeoffs that will maximize its profits.

Why have I written this long blog piece? Because, Dr. Kotkin has taken the slot of an urban economist here. The WSJ should believe in competition for scarce resources and allocate it to those who can make the best of it.

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The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. This post originally ran on greeneconomics.blogspot.com.

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