The start of a new year is a good time to read a bit of history. The Economist recently published a fascinating piece on Russia’s rail history: “The gauge of history: A train journey north shows how Russia has evolved—and regressed“:
What makes trains weigh so heavily on Russia’s consciousness is the sheer size of the land mass. European railway journeys, with their short distances between stations and the constant sight of human life outside the window, leave little time or space for thought or soul-searching. In Russia, however, train journeys are measured in days and nights rather than hours. It takes six days to travel from Moscow to Vladivostok, a distance of more than 9,000km. All one sees is forest, occasionally interrupted by a clearing or uncultivated fields cloaked, in winter, with snow. You can go for hours, sometimes days, without seeing a settlement or a soul. “In western Europe people die because their space is cramped and suffocating,” Chekhov wrote in a letter. “In Russia they die because the space is an endless expanse.”
Railroads have been used as a metaphor for history in Russia – and many other countries – where they symbolise both modernising progress and the supposedly linear course that history follows:
Russian history was often viewed as a track that was fixed from past to future, says Andrei Zorin, a professor of Russian at Oxford University. This led thinkers over the decades to ponder where the country had taken a wrong turn. Petr Chaadaev, an early-19th-century intellectual, lamented that Russia had made no original contribution to world civilisation because it had erroneously absorbed its Christianity from Constantinople rather than Rome. His “philosophical letter” was printed at the time of the first railway construction. Slavophiles saw the root of all evil in the reforms of Peter the Great, while Westernisers blamed the invasion of Russia by the Tatars and Mongols.
Soviet thinkers, too, were preoccupied with the right and wrong turns of history. “If you get lost on a road, you don’t have to retrace your steps; you can turn off at the next junction and find an alternative route. But if history is a railway line, you have to go all the way back in order to get on the right track,” says Mr Zorin.
Of course, the Economist engages in its fair share of vague historical ponderings in the article…
Speaking of history, one of the most important trends over the last thirty years has been the revival of cities. In a new book, the Dutch economists Henri de Groot, Gerard Marlet, Coen Teulings, and Wouter Vermuelen explore the reasons why. Here’s their summary: “The revival of cities and the urban land premium“:
End of the ‘death of cities’
Forty years ago, a large squatting movement was taking hold of the city centre of Amsterdam. This was not so much an expression of left-wing radicalism, as much as the desolation of the city. After 25 years of population decline, many vacant buildings had no better use. At around the same time, New York’s Times Square hosted mainly sex shops. There simply was no alternative use for the available floor space. It was an era in which people talked about ‘the death of cities’. What use did it have for modern mankind to agglomerate in heavily congested cities, when telephone and fax made long-distance communication so easy as to render physical proximity seemingly irrelevant? These stories are just two examples of a major turn-around in the prospects of cities over the past four decades, so vividly reported in Edward Glaeser’s (2011) ‘Triumph of the City’. Amsterdam’s squatting movement squandered as the demand for housing and office space soared. Times Square has nowadays become the vibrant centre of NYC’s theatre district…
Externalities and rents
Knowledge spill-overs imply that cities are a focal point of location-driven externalities. Land rents are the expression of these externalities. A location’s rent is high not because of the characteristics of the location itself, but because of what happens at locations in their direct proximity. This is a clear example of an externality, the value of your property depends on the actions taking by the owners of neighbouring property. These externalities provide a textbook argument for developing public policy at the level of the city and why a Henry George tax on the value of land is most efficient. In fact, the total land rent differential of a city can be shown to be an excellent instrument for the valuation of externalities generated by a city. They also allow a valuation of the contribution of public transport services. In the Netherlands, we show that these externalities account for approximately 3% of Dutch GDP.
As history has shown (see, for example, what happened to Detroit or the decline in the population of Amsterdam and Rotterdam referred to above), current successes provide no guarantees for the future. This is what Gibrat’s law tells us, growth is independent of current size. Future growth is therefore largely independent of past success. The chances for policymakers that try to row against the tide are small. A successful policy requires to ‘go with the flow’. Large investments in infrastructure in a declining city do not satisfy any real demand but lead to large financial burdens for the local population, making these cities even less attractive. However, policy can make a difference in growing cities. In order to remain on the short list of hot spots, policymakers in these cities have two margins to work on.
First, the city has to be attractive for innovative entrepreneurs and enterprises to locate their business.
Second, the city has to be an attractive choice for high-educated top talent as a place to live in.
Read the whole article – it’s excellent. I’m going to have a look at the book as soon as Stu sends me the copy he promised. (And I, in turn, will send Stu William Fischel’s new book on the political economy of zoning, Zoning Rules!)
de Groot et al’s analysis of urban economies is a nice complement to an NZ Herald op-ed by economist Kinley Salmon, who argues that the Government’s push for more oil exploration is a short-sighted approach to diversifying the NZ economy:
Worse still, oil is about the least strategic way possible to diversify the economy. Diversification is not a one-shot game – it is a continual process of expanding the array of products an economy produces. It therefore matters whether the initial steps in diversification make further diversification easier or harder.
Some products better enable future diversification than others because learning how to produce these products generates the skills, regulations, inputs and technology needed for many other related products. Just look at the development and subsequent diversification of the New Zealand film and media industry…
And oil? Well it is about as unstrategic a product as possible. By building the capability to produce oil, we do not give ourselves any strategic advantage to diversify further. Instead, we risk getting stuck into yet another product with huge price volatility, record low prices today, and high emissions. Sound familiar?
To take us from the past to the future, here’s Paul Krugman’s Christmas column on “Things to celebrate, like dreams of flying cars” (in the NY Times). Krugman argues that we may be seeing a resurgence in innovation in physical technology, rather than information and communication technology. This has particularly important implications for energy – oil will increasingly have competitors – and, with luck, for halting the worst of climate change:
Progress in rocketry is fun to watch, but the really big news is on energy, a field of truly immense disappointment until recently. For decades, unconventional energy technologies kept falling short of expectations, and it seemed as if nothing could end our dependence on oil and coal — bad news in the short run because of the prominence it gave to the Middle East; worse news in the long run because of global warming.
But now we’re witnessing a revolution on multiple fronts. The biggest effects so far have come from fracking, which has ended fears about peak oil and could, if properly regulated, be some help on climate change: Fracked gas is still fossil fuel, but burning it generates a lot less greenhouse emissions than burning coal. The bigger revolution looking forward, however, is in renewable energy, where costs of wind and especially solar have dropped incredibly fast.
…now we can see the shape of a sustainable, low-emission future quite clearly — basically an electrified economy with, yes, nuclear power playing some role, but sun and wind front and center. Of course, it doesn’t have to happen. But if it doesn’t, the problem will be politics, not technology.
True, I’m still waiting for flying cars, not to mention hyperdrive. But we have made enough progress in the technology of things that saving the world has suddenly become much more plausible. And that’s reason to celebrate.
My only quibble with Krugman’s article is that we’re not talking about saving the world – we’re talking about saving ourselves. As George Carlin said, if we don’t shape up, “the planet isn’t going anywhere, we are! We’re going away… the planet will be here, we’ll be long gone. Just another failed mutation.”
And, as he points out, politics, not technology, is likely to be the handbrake on change. For example, we’ve invented electric bikes, so cars aren’t necessary to make many short journeys in hilly New Zealand cities. But we have to be willing to make new technologies useful. In the case of cycling, that means constructing a network of safe, separated cycleways.
As British cycling blog As Easy As Riding A Bike points out, change is hard. Reallocating road space can provoke a backlash from people who believe they have a right to drive on every square metre of the street. But perhaps cycling needs a backlash?
Almost all of what passes for ‘cycling infrastructure’ in Britain has never generated a backlash, for one simple reason. It has never represented a direct challenge to the way our roads and streets are designed to prioritise motor traffic flow, without giving time or space to cycling in a way that might impinge on that prioritisation of motor traffic. That ‘infrastructure’ has never reallocated road space in any meaningful sense.
The cycle lane in the picture above did not generate any controversy when it was painted, because it gives up at the point when things get a bit difficult…
David Arditti has astutely observed that in these places of competing demand, effective measures to enable cycling should be generating a backlash. If there is no backlash, then whatever it is you are doing is unlikely to make any significant difference. If you are designing a Quietway, for instance, and nobody is moaning about it – that probably means you aren’t doing anything to reduce motor traffic levels on the route so that it is genuinely ‘quiet’, or, alternatively, it means you are sending it on a circuitous and indirect route in order to avoid difficult decisions.
If you are designing a route on a main road and there is no backlash, again, something has probably gone wrong. You aren’t reallocating space and time at junctions; you aren’t moving parking bays where they get in the way of your infrastructure; you aren’t dealing with bus stops; you aren’t repurposing motor traffic lanes for cycle traffic.
Urban planning is another topic that inevitably generates backlash. Any attempt to “upzone” a neighbourhood to enable more people to live there will make some people angry. City Observatory’s Daniel Hertz makes this point eloquently in his article critiquing the notion of a “cross-ideological consensus on zoning”:
Writing in the Washington Post earlier this month, economist Ilya Somin made such a claim. Libertarians, he wrote, have opposed the strict laws that prescribe expensive, exclusionary, low-density homes in most neighborhoods across the country for some time; but now, as noted lefty economist Paul Krugman’s recent column and a speech given by the chair of President Obama’s Council of Economic Advisers show, liberals are joining the zoning reform camp.
Suffice it to say that while we’re happy to see this issue get press in the Post, much of this argument seems misguided. For one, people have been making arguably left-of-center, egalitarian arguments against zoning since at least the 1920s; and the most sustained attack on exclusionary zoning in American history occurred in the 1960s and 70s as an outgrowth of the Civil Rights Movement, hardly a bastion of libertarianism.
More importantly, though, anyone who thinks there is a “consensus” about the damage caused by too-strict zoning ought to attend the next community development meeting in their neighborhood. While there may appear to be a policy consensus among national-level policy wonks, things look very different on the ground, including the ground on which zoning policy is actually made. Arguably, something very close to a consensus has existed on zoning for quite some time—at least since the 1970s—and it’s not that it’s too strict. It’s that it’s doing a great job, and if anything needs to be stricter.
Nor is this really an “ideological” issue. Rather, it’s a financial one: homeowners dominate local development politics in large part because their homes make up such a large proportion of their total wealth that any decline in property values could devastate them. (Or, conversely, cut into huge capital gains, if they are lucky enough to own property in, say, San Francisco’s Mission neighborhood.) As a result, they’re extremely wary of any change to their surroundings that might reduce their property values—and zoning gives them the legal ability to stop those changes.
So even to the extent that there’s a consensus about the damage of zoning among policy wonks, part of that consensus is also that zoning is incredibly difficult to change, because the interest local homeowners have in preserving it is so powerful.
Zoning reform is politically challenging but let’s be clear: the stakes are high. Allowing people to build more housing in desirable areas will reduce housing costs and (indirectly) raise incomes by enabling increased agglomeration economies. In Vox, Matt Yglesias documents how this can be done: “Seattle shows San Francisco and New York how to fix the housing crisis“:
Seattle and the San Francisco Bay Area have a lot in common — coastal locations, high-tech economies, and relatively high wages. But as California’s Legislative Analysis Office wrote in a recent report, it’s much easier to get permission to build new houses in the Seattle area. Consequently, the Seattle area’s housing stock has grown twice as quickly as the Bay Area’s. The CLAO writes that in recent years, Seattle’s total number of housing units “grew at an average annual rate of 1.4 percent per year while San Francisco and San Jose’s housing stock grew by only 0.7 percent per year.” The main reason for this is that Washington state centralizing more planning functions at the state level, which gives hyperlocalized Not in My Backyard sentiments less when determining what people are going to be allowed to build.
So what happened? While prices in the Bay Area have been skyrocketing, some Seattle landlords have actually seen the rents they can charge start to fall. Mark Stiles of the Puget Sound Business Journal writes that landlords are finding the trend “alarming” — though if you’re a tenant in Seattle you probably feel differently…
Here’s a final chart of the week, also from City Observatory’s Daniel Hertz. As it shows, construction of lowrise apartment buildings has fallen off a cliff in the last three decades – a victim of changes to zoning codes to discourage multifamily developments. Could the future be different?