Economists have long taught this history to their undergraduates as an illustration of the growth theory for which Robert Solow won his Nobel Prize in economics: Poor places are short on the capital that would make local labor more productive. Investors move capital to those poor places, hoping to capture some of the increased productivity as higher returns. Productivity gradually equalizes across the country, and wages follow. When capital can move freely, the poorer a place is to start with, the faster it grows.... Or at least it used to....So, to fight inequality, encourage sprawl. Or, if you hate sprawling cities like Atlanta or Phoenix, accept that you're the problem when it comes to creating inequality. You're making it too expensive for the working man to come live and work where you do. That means he'll live in Atlanta, where he will make a bit less money, but he can afford to live better on it. Which, in turn, means you might rethink what "inequality" means. If I could earn $5,000 a month here, or in New York City, or in China, there's a significant "inequality" even at the same rate of pay. After expenses I'd be scraping by in New York, doing quite well here, and rolling in dough in China once I converted my pay into Renminbi.
In a new working paper, Shoag and Peter Ganong, a doctoral student in economics at Harvard, offer an explanation: The key to convergence was never just mobile capital. It was also mobile labor. But the promise of a better life that once drew people of all backgrounds to rich places such as New York and California now applies only to an educated elite -- because rich places have made housing prohibitively expensive....
[T]here are two competing models of successful American cities. One encourages a growing population, fosters a middle-class, family-centered lifestyle, and liberally permits new housing. It used to be the norm nationally, and it still predominates in the South and Southwest. The other favors long-term residents, attracts highly productive, work-driven people, focuses on aesthetic amenities, and makes it difficult to build. It prevails on the West Coast, in the Northeast and in picturesque cities such as Boulder, Colorado and Santa Fe, New Mexico. The first model spurs income convergence, the second spurs economic segregation.
In Praise of Sprawl?
What if a major reason for the income inequality that concerns many on the Left was anti-Sprawl aesthetics?
By Grim on Friday, July 20, 2012