Can’t Let That Go By

An interesting error from Ezra Klein:

An interesting thesis from Ed Glaeser:

Ford, Durant, David Dunbar Buick, the Dodge Brothers, the Fisher Brothers, Henry Leland – it seems as if Detroit once had an automotive genius on every street corner. … But while their great invention made Detroit wildly productive for decades, it also sowed the seeds for the city’s decline. Cities work best when they are filled with smart people and small companies that innovate by exchanging ideas. Huge automobile plants, like Henry Ford’s River Rouge Plant, were highly productive, but they were isolated from the rest of the city.

This is not Ed Glaeser’s thesis. Jane Jacobs, whose work Glaeser knows well, argued this more than 40 years ago in The Economy of Cities.

Google Spreadsheets Gadget

Sort of like you find at GapMinder. Need to find some income data going farther back, if possible; it is the limiting factor. This is state population, inflation-adjusted median family income, and % of 25yr-old+ population with a bachelor’s degree. Play around with this a little bit (the “play” button is in the lower left) and see how the blue midwest states’ incomes stagnate from 1980-90 while New Jersey, New York, [Maryland], Connecticut, and Massachusetts take off. Ideally, there would be an index of education factors rather than just these fairly simple measures. All data from U.S. Census (incl. ACS) with the intercensal [?] years interpolated.

UPDATE: You can track individual states by clicking on their name or their bubble. You can change what’s on the axes and whatnot, if you want — if you have a huge spreadsheet behind a chart like this, you could have dozens of factors to change and visualize, which is really what Gapminder does. I think the value of this is not really analytical, but it deals with the opacity of tables in a really effective way. Like me, you might not be able to look at anything more than a 10×10 table and visualize the changes over time. Now, you don’t have to. I think, like with mapping, seeing quantitative data like this allows you to make some qualitative judgments about it. This table took me a couple hours to find all the data for and clean up and tweak, but just looking at the resulting chart for a half hour is, for me, more useful and memorable than just poring over a table for an hour and trying to conclude or recall something concrete about it.

Research Note

Education 1970

In the course of some dissertation research I realized that Muncie, Indiana, was a higher-paid but less-educated city than Austin, Texas in 1970. This seems to be largely because of the robust manufacturing sector in Muncie and the midwest and strength of labor organization there. This was surprising to me because I had thought that by 1970 the earning power of a college degree would have surpassed that of union membership, which this census data contradicted.

Income 1969
Austin at this time was no backwater, though Texas and the South were still generally poorer than the nation as a whole. The University of Texas had created what might be the nation’s first university research park and the city, which had had roughly the same population as Muncie in the 1920s, had leapt to a population of a quarter of a million people while Muncie growth slowed after reaching about 50,000.

Intrigued, I looked at the same data for Palo Alto, California, the classic knowledge economy, which was better-still educated than Austin and skewed towards even higher incomes, consistent with my assumptions.

I don’t think this answers my questions but it’s complicating how I’m thinking about the development of the knowledge economy. In 1963 Clark Kerr, the president of the University of California system, wrote “basic to this transformation [that is engulfing our universities] is the growth of the ‘knowledge industry,’ which is coming to permeate government and business and to draw into it more and more people raised to higher and higher levels of skill. The production, distribution, and consumption of ‘knowledge’ in all its forms is said to account for 29 percent of the gross national product, according to Fritz Machlup’s calculations; and ‘knowledge production’ is growing at about twice the rate of the rest of the economy.” Though this might be true and space, defense, and computing research might have been in growth phases at this time, by no means did the knowledge economy dominate the manufacturing economy even for the next decade.

Data from the terrific National Historical Geographic Information System.

The New Economy

There’s a great deal about mainstream economic thought that doesn’t sit well with me. Measuring and promoting economic growth. Trade. Dealing with economic inequality.

One major issue I have never understood was the beauty of the new economy, particularly regarding Michigan. Everyone says the state has to regroup for the new economy, must smash the unions who oppose the new economy, and must get more education to compete in the new economy.

I still don’t know what’s wrong with manufacturing. Of course I understand why production centers close and move to Mexico or China, but there seems to be a bias against creating new production centers here as new products are developed. One case in point is hybrid automobiles. Why the hell would we even entertain anything but the idea that Michigan should be the North American design and production center for hybrid automobiles? If Ford and GM had or do get off their asses to create competitive hybrid technology, is there some reason we would not want those production jobs in Michigan? What about the production of train cars, something Detroit used to be a center for?

Indeed, it seems that with all this new economy education we’ve served up, we’re actually better positioned for production since we could create processes that are less wasteful and less polluting. Perhaps this would only be economically feasible if, for example, we imposed a carbon tax, but you take my point, I think. The U.S. and/or Michigan should be able to compete when human costs and environmental externalities are internalized.

Paul Krugman has said for a while that we’re eventually going to have to recreate a good share of our production capacity as the dollar falls in value. Stephen Roach in the Times the other day suggests production and infrastructure would help alleviate our stagnant economy.

A more effective strategy would be to try to tilt the economy away from consumption and toward exports and long-needed investments in infrastructure.

That won’t be easy to achieve. Such a shift in the mix of the economy will require export-friendly measures like a weaker dollar and increased consumption by the rest of the world, which would strengthen demand for American-made goods. Fiscal initiatives should be directed at laying the groundwork for future growth, especially by upgrading the nation’s antiquated highways, bridges and ports.

That’s not to say Washington shouldn’t help the innocent victims of the bubble’s aftermath — especially lower- and middle-income families. But the emphasis should be on providing income support for those who have been blindsided by this credit crisis rather than on rekindling excess spending by overextended consumers.

By focusing on exports and on infrastructure spending, we might be able to limit the recession. Such an approach might also set the stage for a more balanced and sustainable economic upturn in the next cycle. A stimulus package aimed at exports and infrastructure investment would be an important step in that direction.

Consumption has never made sense to me, either on an intuitive, personal level, or on a large, macroeconomic level. Cheap goods do not seem to me to be that great. Moreover, a larger wardrobe or more toys–seemingly the natural consequence of cheap goods–never seemed to aid in quality of life much, either for my middle class self, or the poor that my economist friends always seemed to be (disingenuously) arguing on behalf of. The same with food: the expensive stuff that’s somewhat local and high quality seems to be better for you than the cheap, high-fructose crap that gives the poor all the calories they ever need for a low, low price.

So for my econo-friends: what’s so bad about manufacturing and local production? I’m looking for something better than a facile Ricardo re-hash.

Questioning Economic Development

I still haven’t put together my theory or at least thoughts on a better evaluation of economic development, which I promised last summer. Based on my travels in the Mediterranean (which I will hopefully revisit this fall), there is a great deal to be said for a more complex and multi-faceted evaluation of what economic development means, what it enables, and how it can be measured.

At times like this my mind drifts back to Marshall Berman’s book All That is Solid Melts into Air. In part of a larger argument about development and the creation of the modern world, Berman focuses on a surprising section of praise Karl Marx holds in his writings for the European bourgeoisie. Essentially, he praises them and the world they are creating because through their destruction of the feudal economic, political and social system, they are creating a world in which the proletariat has an opportunity to realize a whole new set of possibilities in economic, social, and political life, as well. It is this cognitive realization in addition to the physical realization that will help provoke them to socialist revolution. Essentially my thinking is that economic development must provide a better set of possibilities in terms of health, education, and social life in addition to basic needs such as subsistence living, income, and national wealth. I would submit that many of the villagers of Sicily are richer than a good number of Americans because they need not sacrifice their health or family ties for increased income or wealth, which comes with added stress, a poorer diet (and, as we have seen, mediocre to bad health care), and a worse overall family situation. The rub, of course, is if Sicilians, for example, have the chance to pursue career or wealth as the number one priority if they so choose.

Anyway, I’m revisiting this because of something I read at Economist’s View on Bill Gates.

[T]here’s more to Adam Smith, he added. “This was written before ‘Wealth of Nations,'” Mr. Gates said, flipping through a copy of Adam Smith’s 1759 book, “The Theory of Moral Sentiments.” It argues that humans gain pleasure from taking an interest in the “fortunes of others.” Mr. Gates will quote from that book in his speech today. …

To a degree, Mr. Gates’s speech is an answer to critics of rich-country efforts to help the poor. One perennial critic is Mr. Easterly, the New York University professor, whose 2006 book, “The White Man’s Burden,” found little evidence of benefit from the $2.3 trillion given in foreign aid over the past five decades.

Mr. Gates said he hated the book. His feelings surfaced in January 2007 during a Davos panel discussion with Mr. Easterly… To a packed room of Davos attendees, Mr. Easterly noted that all the aid given to Africa over the years has failed to stimulate economic growth on the continent. Mr. Gates, his voice rising, snapped back that there are measures of success other than economic growth — such as rising literacy rates or lives saved through smallpox vaccines. “I don’t promise that when a kid lives it will cause a GNP increase,” he quipped. “I think life has value.”

I’m interested to hear what he has to say this year at Davos.

Did I Say Columbia?

I actually meant Yale.

New Haven has no revenue to invest in urban infrastructure. Yale’s got a ton. Guess who calls the shots on development?

Yale University is rebuilding itself — drawing on its huge, rapidly growing endowment and on multimillion-dollar gifts, mainly from alumni — to renovate 54 buildings and construct 16 new ones. Not since the 1930s has Yale undertaken so ambitious an expansion.

The message in this outburst of activity, here and in other places across the country, is that private spending, supported handsomely by a growing number of very wealthy families, is gaining ground on traditional public investment. In the case of New Haven, once the recipient of more federal dollars per person for urban renewal than any other city, private investment now far surpasses public outlays.

“For us,” the mayor said, “infrastructure spending has come to mean growing the university. Yale has the money, and what they get from us is the approval to grow.”

But for all the wealth going into private philanthropy, its reach is limited. Richard C. Levin, Yale’s president, is not committing money to the mayor’s reconstruction plan or to other items on Mr. DeStefano’s wish list, like high-speed rail service to Manhattan or lengthening the runway at Tweed New Haven Regional Airport so more airlines will fly here.

Doug Rae’s book on New Haven, City: Urbanism and Its End, is a great introduction to the problems the city has faced and continues to face. I remember in high school my physics teacher at the magnet school was talking about college life and said that you didn’t even need to leave campus and, in the case of urban campuses like the University of Chicago or Yale, you wouldn’t want to. New Haven’s manufacturing base deteriorated and the mid-sized city faced many of the same black/white, center/periphery issues other northern cities like Detroit and Chicago dealt with, save for a wealthy white island in Yale University.

More on Starbucks

I love coffee. I drink a lot of it. I’m kind of a snob about it. My wife got me about 10 pounds of coffee of several varieties and roasts for Christmas which will supply the espresso machine we got in September.

So I was interested to read that Starbucks is good for mom-and-pop coffee shops. I actually believe this to an extent, based on two data points. Point the first is the block I live on. There’s a Starbucks on the ground floor of new construction about 30 feet from my door. Across the street, there’s an independent place about 100 feet away. The independent place (under new management) has taken off since the opening of the Starbucks according to locals who have been here a while. The block has become a coffee haven. Point the second is an anecdote from Tom Monaghan’s autobiography, Pizza Tiger. Domino’s Pizza was getting sued by Domino Sugar for trademark infringement and started a second chain of pizza places called Pizza Dispatch in case they had to close all the Dominos. They found that when they opened a Pizza Dispatch near the Domino’s location, retail sales went up at the original location because the area became known for pizza. [Insert reader tirade on Monaghan here.]

Business for independently owned coffee shops has been nothing less than exceptional as of late. Here’s a statistic that might be surprising, given the omnipresence of the Starbucks empire: According to recent figures from the Specialty Coffee Association of America, 57 percent of the nation’s coffeehouses are still mom and pops. Just over the five-year period from 2000 to 2005—long after Starbucks supposedly obliterated indie cafes—the number of mom and pops grew 40 percent, from 9,800 to nearly 14,000 coffeehouses. (Starbucks, I might add, tripled in size over that same time period. Good times all around.)

The question is, when does Starbucks become bad for indie coffee? I suspect there comes a time when there are so many Big Coffee chains around driving up rents that indies can’t afford the leases in good retail areas. UPDATE: Lemme know, Murph.