Tag Archives: Economics

Cities…they’re like Happy Hour

Editor’s note: This post comes from contributor Lewis Lehe, and contains his trademark blend of straightforward economics and quirky humor. -KG

A question for the ages
Today I posed a seemingly obvious question to myself: Why do we care about saving the cities we live in?

Some of us care about carbon emissions, but people were concerned about cities before we knew about climate change. I like living in the city because I would rather spend an hour reading my Kindle on a bus than sit twenty minutes in stop-and-go traffic, but that doesn’t explain why I want other people to live in Pittsburgh with me. In fact, the more people, the more traffic.

One obvious answer is that cities are full of people, and people care about people. But the death of a city often means people simply moving to other cities. Why do I care about tipping people’s decisions towards living in Pittsburgh, where I happen to want to live? (The exception is when a city dies because Godzilla attacks it.)

A blinding insight
The real reason we care about dying cities, I believe, resembles the reason our coworkers ‘huphs’ if Kate or I skips happy hour. Partly, it’s because Kate and I are interesting, smartly-dressed, and fabulously wealthy; and to be seen with us confers a kind of status…a discerned worldliness typically obtained only by the possession of a rare violin or Oscar invitation. You could say our presence is “de rigueur.” But mainly it’s because happy hour is only happy with lots of people. If you see someone downing five beers alone at happy hour, they’re unhappy no matter how cheap the Iron City (or Great Lakes Elliot Ness) is.

Just like how happy hour requires a group to be fun, businesses require a critical mass of customers to earn profits. Try finding a gay bar in rural California, and you’ll have a hard time, not because it lacks gays or because the place is stiflingly intolerant, but rather because the population is so sparse that there are not enough gay people near any one spot to sustain a gay bar. That’s why there might be more (underground) gay bars in homophobic Tehran (population 7.8 million) than in San Francisco (population 815,000).

Living in a dense, populous place means there are critical masses for more types of businesses. I only eat Ethiopian food like once per year. I doubt most Pittsburghers eat it even one third that often. But there are enough of us that our occasional trips make the restaurant Abay viable year round. This gives me a really neat experience occasionally, and it’s a godsend for those who eat Ethiopian weekly. It’s usually the people, not the specific buildings, that make a place. This is why, time and time again, residents of Tokyo have rebuilt their tiny cardboard skyscrapers in the wake of a Godzilla attack.

The idea of the critical mass is related to an economy of scale. Restaurants, bars, museums, and even concerts have high fixed costs, and, to a point, low variable costs, so they need enough customers that the average revenue per customer exceeds the average cost per customer.

Usually we hear about economies of scale with giant factories, and that’s a useful analogy in a way: just like economies of scale make more experiences available, they can also make our experiences into better values. Bus fares would be way cheaper if more people lived in the areas where my bus runs. My commute from Shadyside to South Side Works is a pretty fixed cost–one bus, one driver, one insurance policy, etc. So if twenty people rode the bus with me, we could each pay one dollar instead of two. Some buses, such as those on the East Busway, run at capacity in the morning, so it might seem like adding more riders would not lower costs, since the cost can’t be diluted any further. But more riders would mean more buses running, and more buses running means more frequent trips…or even express buses that make fewer stops but go faster.

To summarize, living next to other people gives us more options and makes some of our options cheaper. That is why we want people to live in cities with us. When they move away, they erode the critical masses, and it’s as if we ourselves moved a little farther out into the country.

A bold vision
I think it’s important to define why we want people to live in cities with us in selfish terms like I have above, because young urbanists are sometimes characterized as do-gooders…as though we want people to live in cities because (a) we know what’s good for them or (b) we hate the crass materialism of suburbia. But actually, deep down, I think some of us want other people to live next to us because (a) we know what’s good for us and (b) we want to have more nice things for less money. In the American political landscape, you are much more likely to be taken seriously if you’re fighting openly for your own interest. (I also think that, in the climate change debate, an underrated argument is “I bought all this beachfront property and I don’t care about those coal miners if it means I lose money.”)

A new moral code
Finally, considering the scale economies behind the curtain of urban living casts many supposedly community-spirited actions in a different light. If you organize to stop a condo development in Squirrel Hill, then you’ve made my life in Shadyside worse: those condo-dwellers might have given the East End the critical mass needed for a sorely needed cheap southern restaurant…or an extra bus route. When people rally to stop new development, they presume a new building is the only thing we’re missing out on. They should actually feel they are snatching newer and cheaper experiences from residents citywide.

-Lewis Lehe

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Filed under Economic Development, Editorial, Good Ideas, Headline, Public Transportation

The Pros and Cons of “Triumph of the City”

Editor’s note: This book review was contributed by Rust Wire’s economics expert, Lewis Lehe. If you haven’t already done so, make sure you watch his hilarious and informative videos on congestion pricing. – KG

The last ten years have stoked a renaissance in the genre of “books that make social science research accesible to laypersons while additionally developing the author’s own theory.” The king of the genre is the journalist Malcolm Gladwell, who set airport bookstores ablaze with “The Tipping Point,” “Blink,” and “Outliers.”

Jonah Lehrer is a journalist who wrote “Proust Was a Neuroscientist” and “How We Decide.” Tom Vanderbilt is a journalist who wrote “Traffic.” People love these books. One of my ex-roommates has severe dyslexia and, last winter, he hadn’t read a book in five years. I gave him “Outliers,” and within a few months he had read everything Gladwell ever wrote. Now Victor is truly an outlier.

Unfortunately, the genre’s weak spot has been that all these books are written by journalists, rather than the equivocating career researchers behind the original findings. That’s why it’s refreshing to read a book like “Triumph of the City.” Ed Glaeser is a respected Harvard economist who rejuvenated the entire field of urban economics by doing lots of messy data collection and statistical analysis. “Triumph of the City” is a popular exposition of three of his primary findings and a few of his political opinions.

The findings are:
(1) Cities raise incomes because people are more productive when they interact face-to-face.
(2) Zoning, historic preservation, and pro-home-ownership policies engender sprawl.
(3) Urban dwellers emit less carbon.
The book’s policy prescriptions could be summarized by the following:
(1) Don’t do anything that might cause someone to move to Houston.

Pros:
Everyone should read this book, because it challenges conventional wisdom within the urbanist community. He argues powerfully that many activists’ attempts keep out evil developers just push development elsewhere or make cities more expensive. He’s critical of revitalization programs like light rail and convention centers. He’s critical of historic preservation. One of the most novel cases made is that northern California should allow vastly more sprawl, because Californians emit very little carbon into their perpetually temperate atmosphere.  A liberal Republican, Glaeser’s broader opinions figure frequently and honestly, and he has what I would call the “standard economist political belief”–free markets combined with generous social insurance (see Denmark, Australia, Singapore). If you are fundamentally suspicious of unplanned economic activity, then none of the arguments will move you.

I wouldn’t read the book solely for the arguments, however. “Triumph of the City” is also just a great repository of interesting little piece of stat-porn like:
–“If an area has January temperatures that are 5 degrees warmer, its prices go up by 3%”
–“In Los Angeles, construction costs are 25% higher than in Houston, but housing is over 350% more expensive”
–“More than 85% of people living in multifamily dwelling rent their living quarters. More than 85% of people in single-family detached dwellings own them.”

One of the book’s greatest strengths is the immense index at the end. I predict the books and articles there found will soon become heavily cited in college papers, simply because its hard to find such a great listing of so much research in one place. The index explains a lot of claims which, for brevity’s sake, come off as a little brash or far-fetched.

Cons:
The book has a few drawbacks: Glaeser sometimes vacillates on the scope of the word “city.” He compares the Houston metro to New York City proper too often, and he treats  Santa Clara County (Silicon Valley) as though it were a singular city. Glaeser also seems to really love Chicago for being pro-growth, but a recent census release showed its population declined over the past ten years. And Glaeser comes close to using Detroit as a synecdoche for the entire Rust Belt, which is a pete peeve of mine. Pittsburgh is 68% percent white, and a third of its adults have a bachelor’s degree. Detroit is 77% African American, and only 12% of its adults have bachelor’s degrees. Both places are solidly Rust Belt, yet their demographic differences mean each city faces entirely different day-to-day challenges, as readers of this web site know.

Finally, Glaeser ignores the influence of illicit Codeine cough syrup consumption, which, to me, is the most salient feature of life in Houston, aka “Syrup City”:

Conclusion:
The book will give you lots of food for thought on how you can save your city. But most importantly, you will walk away feeling that your city is worth saving…that there are pressing global issues we can only solve by clustering together amid sidewalks and bus routes…that we can and should  defeat the suburbs of Houston in pitched, hand-to-hand combat.

-Lewis Lehe

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What is Congestion Pricing? Is it Fair?

Take a look at these two quirky videos about congestion pricing by Lewis Lehe:

How do you price a road? Half res from Lewis on Vimeo.

Is congestion pricing fair? from Lewis on Vimeo.

“This series began as half of my senior thesis, which answered why it’s hard to visually show certain modes of economic thinking,” Lewis explained.

“I chose congestion pricing as an example, because it’s a policy that economists support and voters oppose, and because I care about transportation. By January, I’ll have finished a website with about six animations, links, interview clips, and FAQ’s about congestion pricing.

I’ve tried to make the material watchable by mixing the argument with surreal elements. Feel free to comment with any praise or encouragement. In ‘Is congestion pricing fair?’ there is a false ending.”

A bit of background about congestion pricing from Lewis: “Congestion pricing is close to free lunch. It raises money, lowers congestion, and improves efficiency (by letting individuals monetize their time). In the next ten years, many cities and counties will resort to congestion pricing, because (1) congestion is worsening, (2) infrastructure is collapsing, and (3) municipal pension plans are going totally broke. The biggest problem with congestion pricing is equity, but I am confident we can resolve it by using revenues wisely,” he believes.

About Lewis in his own words:
“After growing up in Birmingham, Alabama (‘the Pittsburgh of the South’), I studied math/econ at University of Pittsburgh, because I lose power if I go too far from an abandoned steel mill. Now I make charts and graphs for the steel industry. I learned After Effects partly at La FUC in Buenos Aires but mainly from online tutorials as I made this series. I get my equipment from Pittsburgh Filmmakers. I have been making movies for 7 years. My Dad is an urban/environmental planner.”

I like how these videos are funny and make a complex economic and transportation topic more understandable. What do you think?

-KG

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Filed under Economic Development, Editorial, Good Ideas, Public Transportation, The Media, Urban Planning

Two Arguments on Migration and Efficiency

Kudos to Portfolio magazine writer Ryan Avent for challenging the flawed consensus among economists about the government’s role in declining post-industrial cities.

We published a New York Times article several weeks ago from economist Edward Glaeser who that said migration away from Rust Belt cities was healthy in terms of economic efficiency. Any special government aid to Rust Belt cities such as Detroit would only delay necessary economic mobility.

This is how the argument goes: basically, the faster people leave Buffalo and Detroit and Ohio and Indiana and their high unemployment rates for growing areas with lower joblessness, the better for everyone, because unemployment is an inefficient use of resources. This has been the general consensus among economists.

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