If agglomeration economies require urban densification why are Houston, Paris and Atlanta so successful?
The Greenie idea of "smart growth" is based on a false theory
Agglomeration theory has always bugged me. Ever since I first encountered it doing my masters degree, the idea that economic and technical advancement is determined, in large part, by the density of urban environments has seemed like the urbanist version of the labour theory of value - superficially appealing but in the end not even close to the whole story.
There’s a very good essay written by John Myers, Ben Southwood and Sam Bowman called ‘The Housing Theory of Everything’ which posits that the failure to build enough housing exacerbates all the other malaises of western economies:
“Try listing every problem the Western world has at the moment. Along with Covid, you might include slow growth, climate change, poor health, financial instability, economic inequality, and falling fertility. These longer-term trends contribute to a sense of malaise that many of us feel about our societies. They may seem loosely related, but there is one big thing that makes them all worse. That thing is a shortage of housing: too few homes being built where people want to live.”
As readers will know, I have a load of sympathy with the idea that many of the economic and social problems facing western societies would be mitigated if not eliminated by having genuinely affordable housing (without the need for price fixing or public subsidy). But I don’t see overpriced housing being, in and of itself, the cause of a parallel problem, poor productivity. And it is productivity that is the principle (perhaps the only) gain from urban agglomeration - we get from proximity what are called agglomeration economies. These come from three sources usually called pooling, matching and learning: labour and supply is pooled, that labour and supply is better matched to opportunity, and the concentration of people results in organised and serendipitous learning. Some add a fourth source of agglomeration economy - greater amenity (or the ‘consumer city’ as we might call it).
All of this makes sense until we spot that outcomes are not consistent with this theory since the economic performance of places does not map simply onto levels of urban density. The Federal Reserve Bank of New York commissioned some research looking at the extent to which productivity is linked to the density of human capital - one of the fundamental assumptions of agglomeration theory. The research found that there was no correlation between density and productivity, at least in aggregate.
When they dug down into the data, it became clear that, while for lots of industries there were no obvious agglomeration economies, for some the gains were very large. And these industries - finance, arts & entertainment, professional services and information - are the industries we most associate with successful dense urban places.
Agglomeration, it seems, isn’t quite the silver bullet that city boosters argue, indeed there’s a school of thought which says the only thing that matters is the gross size of the metropolitan area rather than the intensity of human capital within that urban area:
“The shape of the city in space, including for example its residential density, matter much less than (and are mostly accounted for by) population size in predicting indicators of urban performance. Said more explicitly, whether a city looks more like New York or Boston or instead like Los Angeles or Atlanta has a vanishing effect in predicting its socio-economic performance.”
We know that places that have allowed cities to expand (Houston, Paris, Atlanta) have lower housing costs than places where expansion has been constrained by public policy (Sydney, London, San Francisco). We also know that there is no obvious connection between encouraging density through policy - densification has, in effect, been UK government policy since 1997 - and improvements in productivity. Indeed, the use of policy to densify human capital results instead in an increased competition between potential land uses within the city with the effect of driving up not only residential rents but also rents for commercial, industrial and leisure uses.
Given that urban density in and of itself isn’t the main reason for agglomeration economies and the associated evidence that constraining land use at the urban margin results in higher housing costs, we should be cautious in seeing policy ideas such as street votes as any sort of panacea for unaffordable housing. Nor should we focus more on new public transport infrastructure than we do on roads and active travel. For cities with an established and scaled mass transit system (London, New York, Tokyo) further intensification of public transport makes sense, but for large cities without these legacy systems the construction of new fixed rail introduces a measure of inflexibility and is extremely expensive. Moreover the nature of large urban areas without legacy metro networks is very polycentric.
A large urban metropolis like Los Angeles, developed largely during the age of the car and, therefore, focused on freeways and personal vehicles, has evolved with a multitude of urban centres. One study of LA concluded that:
“The interplay of agglomeration at different geographic levels suggests a highly complex and connected space economy. Large metropolitan areas have the advantage of scale, offering a highly diverse and specialized labor force, dense networks of intermediate suppliers, and extensive transport and communication systems. The presence of multiple centers likely lowers the land, wage, and congestion costs of agglomeration by geographically spreading economic activity while still preserving agglomeration benefits.”
When we look at the strategies followed by the UK’s metropolitan mayors, we see plans that take the polycentric urban areas of the West Midlands, Greater Manchester and West Yorkshire and seek to impose a single centre model, the complete opposite of the successful model evolving in more productive places such as Los Angeles, Atlanta and Houston. Instead groups like Centre for Cities select very dense European cities like Milan or Barcelona as models resulting in a focus on very expensive public transport systems rather than less expensive private road travel.
The reasoning behind this rejection of car-permissive urban strategies relates to the idea that private transport is inefficient and polluting whereas public transport (or active travel options such as cycling) is efficient and clean. The problem here is that the motor car is such a dominant part of our transport system that no substitute has the capacity to replace the car. We can (and should) encourage alternatives, especially in denser urban areas, and ideas like 15-minute cities have merit as a design principle rather than as an urban management strategy. Where there is no fixed rail mass transit system, installing one is disruptive, expensive and, if Manchester is a guide, not especially effective. Such systems seem more a badge of urban success than a creator of that urban success in the first place. Lots of French cities have trams but this isn’t necessarily a reason for those cities’ success (or indeed, as a place like Roubaix shows, lack of economic success).
Returning to familiar themes, Sam Bowman in his latest essay argues (rightly) that Britain needs to ends the vetocracy that is preventing economic growth and development - everything from too few homes in London through the inability to build a bridge over the Thames estuary to the chronic and crippling lack of laboratory space in and around Cambridge. I worry, however, that the focus on agglomeration leads to misplaced urban strategy:
“The big four, as I see them, are housing, childcare, transport and energy. The first three of these relate to “agglomeration” – the aggregate increases in productivity and innovation we get from letting people live and work near each other. That’s the root principle behind the “housing theory of everything” – a city is greater than the sum of its residents, because being close together lets them specialize and collaborate more deeply, and generate more useful ideas together, than if they were working in smaller towns, or alone.”
It isn’t the agglomeration economies per se but rather the assumption, as we see in Bowman’s essay, that the way to realise these economies is accelerated urban densification. This is despite Bowman telling us about Paris:
“Housing supply there is freer: the overall geographic extent of Paris’s metropolitan area roughly tripled between 1945 and today, whereas London’s has grown only a few percent”
The success of Paris, at least up to recent times, has been in its physical expansion - it is far more like Houston or Atlanta than London or San Francisco. And, while Britain is geographically smaller than France or Texas, this doesn’t mean our only option to meet housing needs and address declining productivity is to increase levels of urban density.
Bowman is right that the best way to deal with NIMBYs is to buy them off but, for all that I support its introduction, I don’t see the street votes idea working at scale. I do see a neighbourhood plan model working where, as Pierre Poilievre, Canada’s opposition leader proposes, national government funding for any community is predicated on the delivery of new housing. Communities can stop housing if they want but they lose government grants for their communities as a result. Just as important, this approach takes away the ‘no loss’ benefit from anti-housing campaigners. Somebody might get elected opposing new housing but in doing so they are also going to stop funding for the new sports centre, health facility, road link or bus station.
Urban agglomeration theory, especially the Jane Jacobs version where random encounters in the street or at a coffee shop create economic growth, is not a function of densification but a function of urban scale and the ability of residents to move freely around that metropolis. Transport and housing policies should focus on this ability to move from home to work, leisure and education rather than get trapped in prescriptive models based on assumptions about the impact of densification. We should, I feel, think more about enabling development rather than about controlling, managing or directing development. The fastest growing US cities, in economic terms as well as in terms of population, are not the dense urban legacy cities like San Francisco and New York but rather the sprawling new places in the Sun Belt and Texas. Maybe, instead of looking at Milan, Barcelona or Tokyo, UK economic planners should turn their eyes to Houston, Nashville and Atlanta?
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The non-existent subsidies for "fossil" fuels
A popular talking point among green energy evangelists is that gas, oil, and coal are, in large part, successful because they are highly subsidized. Wind and solar, so the argument goes, would win in a fair fight, but, alas, the playing field is far from fair. But the supposed data they are drawing on to come to such a conclusion is misleading and geared more toward generating headlines than good policy.
A primary source used to back this claim up is a working paper presented by a group of International Monetary Fund authors titled “Still Not Getting Energy Prices Right: A Global and Country Update of Fossil Fuel Subsidies.”
The paper claims that hydrocarbon-based fuels—like gas, oil, and coal—enjoy $5.9 trillion in subsidies annually. Though often presented in the media as an IMF paper, it is specifically not an official publication of the organization but rather a working paper that is meant to, according to the IMF, “elicit comments and to encourage debate.”
Well, here is your debate, IMF.
As is often the case with so-called academic studies, the top-line number here makes for a much better headline than it does a basis for public policy. Indeed, even a cursory look into how the study came to its fanciful conclusions shows how misleading it ultimately is in general and how trivial it is for the United States.
There are three basic problems with the study.
First, it so broadly defines “subsidy” as to be completely meaningless. In fact, the study states that only 8% of its reported costs reflect actual, direct subsidies. The rest predominantly comes from the amorphous “undercharging for environmental costs” that supposedly occur from the extraction, refining, transportation, and use of fossil fuels. Such environmental costs include “underpricing for local air pollution” (42%) and “global warming costs” (29%). What’s left goes to the equally tenuous congestion and road accidents costs (15%) and forgone tax revenues (6%).
Though characterizing any of these so-called indirect subsidies as a pro-hydrocarbon bias is problematic, we will focus on the undercharging environmental costs, which are divided between global warming and local air pollution, because they represent the preponderance of their calculations.
The problems with the global warming number are many. For example, there is virtually no evidence that man-made global warming is having any costly impact on today’s world. The real costs, if one buys into global warming alarmism, come in the future—thus the study relies on the extremely tenuous and theoretical social cost of carbon calculations.
As my Heritage Foundation colleague Kevin Dayaratna has pointed out, the use of the social cost of carbon is so unreliable that it is virtually useless as a basis for public policy.
Second, the study presents its overall findings in global terms when the numbers only have meaning at local and regional levels. For example, the largest contributor to its bottom-line number is local air pollution. Putting aside the fact, as my colleague Travis Fisher points out, how easy it is to cook the books and exaggerate the assumed costs of things like small particulate matter in the air, the other problem is that regional variances for local air pollution are so immense that any broad policy conclusion, such as “tighten local air pollution standards,” would be irrelevant.
It would make no sense to apply the same policy response in the U.S.—where local air pollution levels are very low and getting lower—that you would apply to countries in the East Asia and Pacific region, where, according to the study, local air pollution levels are high. The study undermines its own credibility by presenting a cumulative, global number that serves no purpose other than to inflate its bottom line.
And third, the study provides no accounting for the massive contribution to human flourishing that has resulted directly from the use of hydrocarbons. This is perhaps the biggest problem with this study specifically, and the modern environmental movement more broadly.
The truth is that human well-being has skyrocketed in terms of wealth, health, and life expectancy since the Industrial Revolution, which was fueled by hydrocarbons. No statistic demonstrates this more clearly than the fact that climate-related deaths are down a staggering 92% since the 1920s, when the statistic was first recorded.
Nonetheless, the IMF authors took the time to give us their number on the alleged subsidy costs associated with gas, oil, and coal; so, in the spirit of fairness, a look at the benefits associated with fossil fuels seems appropriate.
Let’s break it down, and for the sake of consistency, all numbers will be adjusted to 2019 dollars. Prior to 1700, per capita gross domestic product (the sum value of all goods and services produced within a nation’s borders) in the West stagnated at around $955 per year. Today, the average North American can expect a per capita GDP of around $66,935.
While historians and economists may debate at the margins, most can agree that two things were key to this astronomical rise in economic production. First was the spread of free enterprise (thank you, Adam Smith), and second was the broad availability of affordable, scalable, and efficient energy (thank you, hydrocarbons).
For hundreds of years, people in Western nations made around $955. Then they started using coal, then oil, and then natural gas. Now, Americans make around $66,935. So, the average income, one could argue, has increased nearly $66,0000 as a direct and indirect result of hydrocarbons (using the same rationale as the study authors). That’s a big number, for sure.
Of course, the study authors took their localized numbers and globalized them. For the sake of comparing apples to apples, let’s do that for the United States.
There are approximately 331,900,000 Americans today. Had we stayed on the same GDP trajectory that we had been on for hundreds of years prior to the use of hydrocarbons, we would have a GDP today of around $316,964,500,000. Subtract that from 2022’s GDP of approximately $22.24 trillion and you get $21,926,692,686,448! That’s nearly $22 trillion in a single year in increased economic output and wealth due to free enterprise and the use of hydrocarbons.
Now, to be fair, let’s subtract the $5.9 trillion ($5.5 trillion in 2019 dollars) in alleged direct and indirect government subsidies for so-called fossil fuels that the working paper cites, which, remember, is a global number; it’s not just limited to the United States. When you subtract those alleged subsidies from the increased economic output, you still get over $16 trillion in direct and indirect benefits from hydrocarbon use. And that’s just for the United States—globally, the benefits would be immensely more!
Oh, and by the way, the environment—despite what the authors suggest—is getting better and better all the time, even with those pesky local pollutants that they pin 42% of their costs on. While some regions of the world do have work to do, the United States shows that gas, oil, and coal use and economic growth do not dictate poor air and environmental quality; and, indeed, Americans have enjoyed ever increasingly clean air for decades.
On its face, my benefits of hydrocarbons calculation could look like a version of the same screwy math used by the IMF working paper. That would be a fair critique. The point is, however, any broad assessment of the alleged costs of using coal, oil, and gas must also be paired with the immense benefits those fuels have brought all of society. When that is done, the only logical conclusion is that these fuels have made the world a better place for all of us, and any contention otherwise is about as valuable as a solar panel at midnight.
https://www.dailysignal.com/2023/05/31/debunking-another-misleading-green-energy-study
**************************************************Ireland considering killing 200,000 cows to fight climate change
There were multiple reports this week that the Irish government was contemplating a plan to cull 200,000 cows within three years to fight climate change.
The possible plan was detailed in an internal Department of Agriculture document that was unearthed in a freedom of information request.
The Irish Creamery Milk Suppliers Association immediately railed against the reported plan to kill 200,000 cows.
Pat McCormack – the president of the Irish Creamery Milk Suppliers Association – declared, "If there is to be a scheme, it needs to be a voluntary scheme. That’s absolutely critical because there’s no point in culling numbers from an individual who has borrowed on the back of a huge financial commitment on the back of achieving a certain target that’s taken from under him."
"We should be investing in an infrastructure that can deliver from a scientific perspective. And we know low emissions are better and we should be continuing to invest in further science and research because that’s absolutely critical as we move forward," McCormack said, according to the Irish Times.
McCormack claimed that Ireland's current dairy herd is at the same level that it was 30 years ago. The Irish Mirror reported, "Dairy cows rose 1.4 percent (22,800 head) to 1.6 million in 2022 but over the past decade have increased by around 40 percent."
After the report of the government contemplating the slaughter of tens of thousands of cows surfaced, the country's agriculture department issued a statement.
A spokesperson for the Department of Agriculture, Food and the Marine said, "The paper referred to was part of a deliberative process – it is one of a number of modeling documents considered by the Department of Agriculture, Food and the Marine and is not a final policy decision. As part of the normal work of Government Departments, various options for policy implementation are regularly considered."
Ireland's Environmental Protection Agency claimed that agriculture was responsible for 38% of greenhouse gas emissions in Ireland in 2021, far outpacing transportation at nearly 18%.
The Food Vision Dairy Group published a report last October calling for an "urgent need to address the negative environmental impacts associated with dairy expansion."
Shortly after the release of the report, Ireland's Minister for Agriculture ,Charlie McConalogue, publicly proposed that farmers reduce the number of dairy cows.
Experts say proposals to significantly reduce the levels of livestock present food security issues.
Brett Moline, spokesperson for the Wyoming Farm Bureau, told Cowboy State Daily, "It's going to make food expensive, and we still have a large part of the population that is food-insecure."
Moline warned that if the U.S. and U.K shut down food production then it will move to countries with questionable environmental regulations.
https://www.theblaze.com/news/ireland-cull-cows-climate-change
*********************************************After nuclear power shut-down, Germany will need more brown coal power next winter
Germany will likely need several lignite power units that had been brought back online from reserve during the energy crisis last year also for the coming winter, economy minister Robert Habeck said at a press conference.
In view of the gas supply situation and the difficulties surrounding the installation of new LNG import infrastructure on the island of Rügen, the country will need additional capacities in winter, such as the eastern German lignite units, the Green Party minister said. “I expect that we will use them again in winter [2023/2024].”
During the energy crisis, Germany had decided to temporarily allow lignite power plants that had already been in a reserve to re-enter the market and produce electricity. The rules are currently scheduled to expire by the end of June, but could be extended by ministerial decree, Habeck said.
Habeck visited the lignite mining state of Brandenburg for talks with state premier Dietmar Woidke about the coal exit in mining region Lusatia. Germany’s ruling coalition of SPD, Green Party and FDP had decided to pull forward the country’s coal exit “ideally” to 2030 from the current target of 2038.
However, especially the eastern German states have opposed the plans, and Habeck refrained from demanding the target be reached. “The question is whether we stay at ‘38, whether we can bring it forward a bit and whether we reach 2030. I am patient,” he said, but added that the federal government would create the necessary conditions. “I don't think we'll be so far apart in the end,” he said. Analysts and energy politicians have long argued that, due to increased prices in the European CO2 trading system, an earlier coal exit is very likely because the majority of coal power plants will not be profitable after 2030.
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My other blogs. Main ones below
http://dissectleft.blogspot.com (DISSECTING LEFTISM )
http://edwatch.blogspot.com (EDUCATION WATCH)
http://pcwatch.blogspot.com (POLITICAL CORRECTNESS WATCH)
http://australian-politics.blogspot.com (AUSTRALIAN POLITICS)
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http://jonjayray.com/blogall.html More blogs
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Jim Hansen and his twin
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