Tag Archives: economic theory

Cities

Random Blogging, ,

A reader recently sent me an article from Governing addressing an issue near and dear to me: are people moving out of cities in significant numbers? Has the pandemic increased those numbers?

I’d seen a couple of New York Times articles about an exodus from New York City to “healthier” outlying areas, and of course, there is an ongoing debate about the sustainability of the national population shift from small town America to the nation’s cities. The article addressed two highly pertinent questions: are lots of people really leaving cities, and why do people move anywhere?

As most readers of this blog have figured out by now, I’m a “city girl.” (Well, “girl” might be stretching things…) I’m a huge fan of urban life, and a believer in the social and intellectual benefits of density and diversity, so I was interested in an article that looked at what the evidence suggested, rather than what various theories have propounded. And the article actually started by distinguishing theory from reality

There’s an old joke about economists that I’ve always liked. A junior professor goes to his senior colleague with a brilliant new idea. The older man dismisses it. “That may be fine in practice,” he sniffs, “but it will never work in theory.”

Economists are like that, at least many of them. They don’t like to have reality intrude on their abstractions. One of the best examples has to do with mobility. Years ago, I read an article by a prominent economist downplaying the problem of a small-town factory that spews out pollution. What’s the big deal, he asked. There must be another town nearby without a soot-belching factory. The residents of the first town could just move over there. Pretty soon the polluter would get the idea.

It works in theory. But it isn’t the way most people behave. They don’t like the idea of uprooting themselves. This may be because they don’t want to leave their friends and relatives, because they cling to hometown memories and traditions, or maybe because they just don’t feel like cleaning out the garage. In any case, they don’t move. Or if they do, they don’t go far away.

The article acknowledged the predictions that have been worrying me–the economic forecasts of an “outpouring of affluent Americans from virus-plagued cities to safer rural climes.” One libertarian predicted a flood of “fresh college graduates and new parents” lighting out for Mayberry, accompanied by employees no longer tethered to corporate buildings downtown. (This rosy scenario overlooks the fact that COVID is currently ravaging the nation’s “Mayberries.”)

So what does the evidence show?

There has been an outflow from many urban neighborhoods, but it hasn’t been very large. Last June, a careful study by the Pew Research Center found that 3 percent of Americans reported moving permanently or temporarily for reasons related to the coronavirus. In November, the number was up to 5 percent. That’s not a trivial number of people, but it’s far short of a national exodus…

It’s also interesting to see where those folks are going. The largest destination of people leaving San Francisco last year was across the bay, to Oakland and surrounding Alameda County. The three next most common destinations were all in the Bay Area as well. Other targets were Denver; Portland, Oregon; and Austin, Texas–not Mayberry.

Most people who did move cited economic reasons–job loss, especially–not the pandemic.

Most cities that lost population in 2020 didn’t lose it because of people leaving. They shed population because newcomers weren’t coming. In New York City, according to a McKinsey study, the ratio of arriving workers to departing ones was down 27 percent. This, too, is only common sense. Why would you move into New York when jobs were disappearing there? Similar numbers apply to Los Angeles, Boston and Seattle.

This has the makings of a significant event. Nearly all the big cities that gained or held onto population numbers in the past decade did so because of immigrants arriving from outside the United States. If they stop coming for an extended length of time, big-city populations could drop significantly even if the mass exodus continues to be a myth.

The racist assault on immigration has had an effect on cities. As the article notes, America’s most vibrant cities have become enclaves of affluent professionals and modestly paid service workers–the bulk of whom have been immigrants. If the immigrants stop coming,  we’re likely to see a shortage of urban workers and a decline in demand for housing in many urban neighborhoods. That could make central cities more attractive, and not just to immigrants– it could fuel added arrivals by young professionals. Or…??

I’m sure economists will have a theory…

Learning from Experience

Random Blogging, , ,

I know I have harped on the dismaying extent to which our policymakers legislate on the basis of ideology rather than evidence, but I want  to revisit that theme again today.

Several people have commented on my recent post/IBJ column about the drug war–and the enormous sums we continue to spend (in a time of austerity, no less) on a policy that everyone sentient knows has not only failed miserably, but in many ways has been counterproductive.

As a civil libertarian, I would have great qualms about the drug war even if it HAD been effective. But let me suggest another policy area where ideology has trumped experience.

It always seemed to me that the argument against confiscatory tax rates having a negative effect on job creation made sense. (Leave aside the question of what constitutes a “confiscatory” rate for now.) If I am a wealthy person, and I know that even a successful investment in a new factory or other job-creating enterprise will yield a minimal after-tax return, why should I take that risk? And even if lower tax rates leave me with more dollars in my pocket that I DON’T invest, filling my order for that fur coat and yacht creates jobs, too.

Unfortunately, experience has not supported that eminently logical proposition. As a number of economists have documented, job creation has actually IMPROVED after tax increases. Again, actual performance depends on how much of an increase, on what, and how steep the rate is following the increase. But increases in the general income tax rates have demonstrably NOT harmed job creation-quite the contrary.

There are many reasons why we have experienced this puzzling departure from theory. The most likely is that–contrary to the belief that people are  “rational actors,” humans are more complicated, and what constitutes a “reward” or “incentive” will vary widely from individual to individual. I can attest that many academics who could make much more money in the private sector work as hard for the recognition of their peers as many private-sector folks work for financial rewards. (As I so often tell my students, “it’s more complicated than that theory might suggest.”)

The real question, however, is not why a particular, perfectly reasonable, theory didn’t hold up. The real question is, why do so many people stubbornly cling to the theory and ignore the evidence provided by actual experience?