Category Archives: Growth Causes and Consequences

The Future of American Cities

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Walter Russell Mead writes,

The increasing fragility of blue cities and states is the biggest problem the Democratic coalition faces. Those who hope that demographic change will create a “permanent Democratic majority” need to think about arithmetic as well as demography. The numbers don’t add up for blue cities. The governing model doesn’t produce the revenue that can sustain it long-term. Making cities work—enabling them to provide necessary services at sustainable cost levels while achieving economic development that rebuilds the urban middle class—is the biggest challenge the Democratic Party faces.

Cities have three major Democratic Party constituents, in tension with one another: gentrifiers, thanks to the New Commanding Heights industries of education and health care; urban African-American remnants of the Great Migration of the 1940s and 1950s; and public-sector union members. Among the conflicts:

–public sector unions with lavish pension benefits vs. the gentrifiers who will have to pay higher taxes or enjoy lower levels of services.

–public sector police unions vs. African-Americans upset with police mistreatment

–gentrifiers and African-Americans having different identity-politics preferences for electoral officials

Two Layers of Occupation

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My wife and I are planning a trip to Israel later this month. We also were there in 1980 and a couple of times since 2000. I have been thinking about my impressions about what changed between 1980 and 2000.

1. The economy improved a lot. In 1980, I remember seeing a concerned look on an Israeli’s face when my wife used her dryer, because of the electricity it was consuming. In fact, infrastructure like electricity and telephone service seemed to be at third-world levels.

2. There was hyperinflation in 1980. Around that time, Stanley Fischer advised the government to tighten its budget and issue a new currency that would have stable value. This approach saved the country.

3. By 2000, Israel was clearly a first-world economy.

4. By 2000, Israeli society was much more fractured. Income differences were considerably wider. The division between secular and religious Israelis was sharper. Differences among Israelis of European origin, Russian origin, and Middle Eastern origin seemed more pronounced.

5. In 1980, Israeli Arabs, meaning Arabs living within the pre-1967 borders, were visible everywhere. They appeared to be integrated into the society as a whole. That is no longer the case. Some of the de facto segregation is due to the intifada. But some of it may reflect the same forces that are increasing class segregation in America. When I spoke in St. Louis last March, I pointed out that 50 years ago if you sat in box seats at old Sportsman’s Park, you were as likely to be sitting next to a blue-collar worker as a white-collar worker. Now, if you were to sit anywhere other than the remote outfield seats you would not be among blue-collar workers. Or, to take another illustration, consider the disconnect between typical college-educated Americans and supporters of Donald Trump.

6. In 1980, Israel still controlled Gaza, and we visited settlements there. The Arabs living there were the poorest people I had ever seen–starving and dressed in rags. I have not been back to Gaza, so I have no idea how things have changed. I certainly hope that there has been at least some improvement.

7. In 1980, the Arabs of East Jerusalem seemed well-dressed, animated, and cultured. There was genuine economic activity and commerce. My sense is that since then among those Arabs, there has been a decline. Certainly spiritually, if not materially. Some of that you might attribute to the Israeli occupation. But I think that East Jerusalem and the West Bank are in a sense victims of a double occupation. In 1994, the Olso accords imposed on the Arabs there a Palestinian Authority which was not really indigenous. Yasser Arafat and his government were outsiders, and their control reduced the status that had been achieved by the local Arabs that made an impression on me in 1980. The way to obtain a living changed from one of commerce to one of control over the disbursement of foreign aid.

I don’t see much discussion in the press of the impact of the imposition of the Palestinian Authority on Arab society in the West Bank and East Jerusalem. Perhaps my casual impressions are wrong. But I wonder whether this second layer of foreign occupation is what did the most significant damage to the economy and the morale there.

Meanwhile, the fraction of Israelis who are militant and extremist has grown over the last 15 years.

The Future of the Automobile

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This story claims

Within a generation, automobiles will be endowed with what’s known as Level 4 autonomy—full self-driving artificial intelligence for cars—which will not so much change the game as burn down the casino. Autonomy will make it possible for unmanned automobiles to be summoned, via app, to your location. And not just any passing tramp steamer, but exactly the vehicle you need for the occasion, cleaned and fueled, for as little or as long as you need (offers may vary in your state). When you’re done—poof!—it will go away.

The point is that cars that require drivers tend to be idle a lot of the time, while cars without drivers would not be.

Four Forces Watch

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Tyler Cowen writes,

One study indicated that if the marriage patterns of 1960 were imported into 2005, the Gini coefficient for the American economy — the standard measure of income inequality — would fall to 0.34 from 0.43, a considerable drop, given that the scale runs from zero to one. That result is from the economist Jeremy Greenwood, a professor of economics at the University of Pennsylvania, and other co-authors.

Read the whole piece. I think Tyler is right to consider this a bottom-up exercise in eugenics. My guess is that his NYT readers will hate that analysis, while at the same time behaving in ways to reinforce it.

Ricardo Hausmann on the Causes of Poverty and Inequality

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He writes,

The poor people are not being exploited. They’re being excluded from the higher productivity activities. It’s not that the capitalists are taking a very large share of what they produce. It’s just that they produce very little in the first place.

Emphasis in the original. What does he mean by “excluded from”?

if somebody is expected to be poor, you don’t want to open a bank account for him because the fixed cost of opening a bank account is not going to be recouped through the little money or the few transactions that a poor person is going to make. So banks decide not to include the poor. The same thing happens with other services: if you are going to consume very few kilowatts or kilobytes, it doesn’t pay to connect you and if your expected wage is low relative to a bus ride, it does not pay to commute to work. As a consequence, this generates a trap in which you don’t connect people because they’re poor and because they’re not connected, they’re unproductive and hence poor.

He concludes:

policies can be very important in determining the universality of access to some inputs. I think it’s very important to have a serious discussion of what are these inputs that need to be accessed universally and what is a reasonable strategy to get there.

There are important ideas here. My thoughts.

1. As a metaphor for these ideas, think of people as either living on the grid (where they can be highly productive) or off the grid (where they live in poverty).

2. The tangible components of the grid grid include water and sewage facilities, electricity, communication and transportation infrastructure, and schools.

3. The less tangible components of the grid include property rights, reliable low-cost financial intermediation, a well-functioning legal system, cultural norms that support economic activity, and what Garett Jones calls the Hive Mind (high average intelligence).

4. Both in theory and in practice, the grid requires a stable, well-functioning government. Sorry, anarcho-capitalists.

5. Nonetheless, the grid is very much an emergent phenomenon. You cannot create the grid from scratch. Sorry, seasteaders and charter-city enthusiasts. Sorry, Ricardo Hausmann?

Four Forces Watch: Assortative Mating Has Gone Up

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Tyler Cowen quotes a paper by Robert D. Mare.

Spousal resemblance on educational attainment was very high in the early twentieth century, declined to an all-time low for young couples in the early 1950s, and has increased steadily since then. These trends broadly parallel the compression and expansion of socioeconomic inequality in the United States over the twentieth century. Additionally, educationally similar parents are more likely to have offspring who themselves marry within their own educational level. If homogamy in the parent generation leads to homogamy in the offspring generation, this may reinforce the secular trend toward increased homogamy.

Commenters here have argued about this in the past. Evidently, the facts show that the Mad Men era did indeed have lower assortative mating.

Assortive Mating Questions that are rarely asked

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A commenter writes,

What I don’t understand, is who did upper middle class women marry in the Mad Men era, if the men married their secretaries?

1. The distinction between upper middle class and lower middle class was not as sharp back then.

2. College was not as much of a status marker back then. Few women went to college, and even most middle-class men did not.

3. So class selection was not as strong. A (upper-) middle-class woman who married someone without a college degree did not think of herself as marrying down.

4. The result was a lot divorces from middle-class marriages of that period. I believe that it is Stevenson and Wolfers who point out that the period of the 1970s was a transition from marriage as production complementarity (I’ll bring whom the bacon, you fry it) to consumption complementarity (let’s make sure that our leisure interests coincide). This form of marriage turns out to be much more class-selective.

The bottom line is that the upper middle class men and women both married down. In the 1970s, they got divorced, and the sorting along class lines got sharper.

Panel on Inequality

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With Thomas Piketty, Kevin Murphy, and Stephen Durlauf. View it at Mark Thoma’s blog.

Murphy offers the simplest explanation. Skilled workers become scarce, and less-skilled workers become abundant. The price of skilled labor rises, and those workers respond by working more. The price of less-skilled workers goes down, and they respond by working less. So income inequality shifts for both price and quantity reasons.

Why do skilled workers become scarce and less-skilled workers become abundant? I would say look at the four forces: bifurcated marriage patterns, New Commanding Heights (shift toward education and health care, aided by government subsidies), Moore’s Law, and globalization.

Deirdre McCloskey Standing on One Foot

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She writes,

What made us rich are the ideas backing the system — usually but misleadingly called modern “capitalism” — in place since the year of European political revolutions, 1848. We should call the system “technological and institutional betterment at a frenetic pace, tested by unforced exchange among the parties involved.” Or “fantastically successful liberalism, in the old European sense, applied to trade and politics, as it was applied also to science and music and painting and literature.” The simplest version is “trade-tested progress.” Or maybe “innovationism”?

What made us rich are the ideas backing the system. And yet the ideas have always been under attack, and we seem to be undergoing a period in which they are attacked with great vehemence by some important elites.