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Sunday, February 3rd, 2013

Is Urbanism the New Trickle-Down Economics?

The pejoratively named “trickle-down economics” was the idea that by giving tax breaks to the wealthy and big business, this would spur economic growth that would benefit those further down the ladder. I guess we all know how that worked out.

But while progressives would clearly mock this policy, modern day urbanism often resembles nothing so much as trickle-down economics, though this time mostly advocated by those who would self-identify as being from the left. The idea is that through investments catering to the fickle and mobile educated elite and the high end businesses that employ and entertain them, cities can be rejuvenated in a way that somehow magically benefits everybody and is socially fair.

Trickle down economics type policies failed both because while they contained a great deal of truth – tax rates do matter in economic development – they were a reductionist oversimplification, and perhaps more importantly were self-interested recommendations of the very class that would benefit from them. The tax breaks for the wealthy and big business were in fact the real goals, not primarily policies intended for socially beneficial consequences it was said would result from them.

As it turns out, urbanism in its current form appears to suffer from the exact same problems, as Richard Florida has just documented in an article over at Atlantic Cities called “More Losers Than Winners in America’s New Economic Geography.”

A key question remains: Who benefits and who loses from this talent clustering process? Does it confer broad benefits in the form of higher wages and salaries to workers across the board or do the benefits accrue mainly to smaller group of knowledge, technology, and professional workers?

The University of California, Berkeley’s Enrico Moretti suggests a trickle-down effect, arguing that higher-skill regions benefit all workers by generating higher wages for all workers. Others contend that this new economic geography is at least partially to blame for rising economic inequality.
….
I’ve been examining the winners and losers from this talent clustering process in ongoing research with Charlotta Mellander and our Martin Prosperity Institute team….Our main takeaway: On close inspection, talent clustering provides little in the way of trickle-down benefits. Its benefits flow disproportionately to more highly-skilled knowledge, professional and creative workers whose higher wages and salaries are more than sufficient to cover more expensive housing in these locations. While less-skilled service and blue-collar workers also earn more money in knowledge-based metros, those gains disappear once their higher housing costs are taken into account.

In short, there’s no flow through to people who aren’t directly tapped into the knowledge economy itself. I might add that this probably does include a number of service sector workers like celebrity chefs and personal trainers who cater to the luxury end of services. But the majority of residents are missing out.

To put it in political speak, the creative class doesn’t have much in the way of coattails.

These findings also foot to the implications of Saskia Sassen’s global city theories, in which the global city functions of a region comprise a sort of “city within a city” which has little in common with the rest of the metro region as thus perhaps little impact on it. Indeed, we might even view the two economic geographies as being in conflict.

Florida and Sassen are academics and so can’t necessarily be seen as advocates for the phenomena they describe. They are describing what is, not what should be. The question is, what have policy makers done with this information?

As with the tax rate example, there really is an importance to attracting educated people to your city. College degree attainment explains almost everything about per capita income in a region. (Though as Florida notes, per capita values, as means, can be misleading and median is a better way to do analysis where it’s available).

Have urbanists used this as a call to arms to put all of their energy into helping those left behind in the knowledge/creative class economy? No. Instead, urban advocates have gone the other direction, locking onto this in a reductionist way to develop a set of policies I call “Starbucks urbanism.” That is, the focus is on an exclusively high end, sanitized version of city life that caters to the needs of the elite with the claim that this will somehow “revitalize” the city if they are attracted there.

As with trickle-down economics, this a) doesn’t work and b) is being promoted by the self-interested.

Firstly, it doesn’t work because it more or less operates on the basis of displacement. So it might revitalize certain select districts, but only as physical geographies not human ones. This is exactly because of the phenomenon Florida identified: there are few trickle down benefits to be had. Also, this only works in a handful of districts or in cities that are so small that you can plausibly gentrify the entire thing. The area left behind in these places, as the in the violence stricken neighborhoods of Chicago that are making national news, receive virtually no benefit. And as Bill Frey of Brookings once said, “There aren’t enough yuppies to go around to save Detroit.” Thus only a comparatively small number of cities benefit from talent concentrations anyway. (Indeed, the notion of “concentration” is inherently a relative one).

Secondly, and here I go beyond Florida’s article, urban advocates are a largely self-interested class. Everybody knows that a hedge fund plutocrat is looking out for number one and has a class interest, but if we were honest with ourselves, most of us probably do the same at some different level. For example, it’s easy to cry nepotism when a politician’s relative gets put on the payroll, but if a man gets his son on at the ironworkers union, it generally flies under the radar. I don’t claim to be exempt from this myself.

The people most aggressively pushing urbanist policies like bike lanes, public art, high end mixed use developments, high tech startups, swank boutiques and restaurants, greening the city policies, etc. are disproportionately those who want to live that lifestyle themselves, or hope to someday. Like me in other words. The fact that you’re a Millennial who rides around to microbreweries on your fixie without necessarily having a high paying job yourself (yet) doesn’t matter. You are still advocating for your own preferred milieu, and that of others who think like yourself.

I have observed that when challenged on this, urbanists grow indignant, talking about their commitment to the planet or how transit benefits the poor, etc. But ultimately as with the tax cut advocates, that’s just a self-justification. With some notable exceptions, you don’t see social justice and equity issues front and center in the urbanists discussions outside of old-school community organizing/activism circles, groups that are almost totally distinct from Atlantic Cities style urbanism.

Most urbanists I know are quick to advocate tax increases for the 1% but fail to see how their own policies contribute to a widening of the income gap and class divide in their own cities. Even if they are genuinely motivated to help the entire civic commonwealth, hopefully they recognize that they at least have the same conflict of interest situation they would be quick to highlight in a businessman or politician.

The answer isn’t to junk urbanism. Just as class warfare rhetoric that demonizes the wealthy and business and wants to tax the daylights out of them isn’t the solution to what ails our economy, neither is abandoning many of the principles of urbanism. After all, tax rates do matter for economic growth. Similarly, liveable streets and such are indeed very important to urban revitalization.

What’s needed is a new orientation of these ideas so that we don’t end up with an explicitly elitist policy rationale and policy set that caters to the already privileged at the expense of the poor and middle classes of our cities. We need to be asking the question of what exactly we are doing to benefit the people without college degrees beyond assuring them that if we attract more people with college degrees everything will be looking up for them. We need to sell ideas like transit in a way that isn’t totally dependent on items like “enabling us to attract the talent we need for the 21st century economy.” If I read half as much about providing economic opportunity and facilitating upward social mobility for the poor and middle classes as I do about green this, that, or the other thing, we’d be getting somewhere. (Observe Robert Munson’s recent call to broaden the practical definition of green as one example of starting to think this way). I need to do this as much as anyone.

It’s easy to see why people default to trickle-down type theories even beyond class interest. Both sets of prescriptions – tax cuts for the elite and urbanism for the elite – took place against a backdrop of globalization and deindustrialization that eviscerated the engines of traditional working and middle class prosperity. The answers to how to fix this core problem aren’t obvious. Richard Longworth recently put together a compilation of views on middle class malaise and it is sobering reading.

In a sense, elite boosting policies have “worked” because they’ve successfully boosted the elite – a reasonably tractable problem in the new economy. But they’ve had few benefits to anyone else and have fueled huge class-based resentments that threaten civic cohesion. But just because the problem of opportunity for the poor and middle classes isn’t easy, doesn’t mean it doesn’t need to be solved. Indeed, rebuilding an engine of broad-based prosperity and upward mobility is the signature challenge of our age, and one to which urbanists should be encouraged to apply their fullest efforts.

73 Comments
Topics: Economic Development, Public Policy

73 Responses to “Is Urbanism the New Trickle-Down Economics?”

  1. John Morris says:

    The actual percent of people working in manufacturing was 9% of the American workforce in 2011. In this case, one would add in all kinds of “gritty” urban jobs like mechanics and warehouse operations. I still doubt the combined total is big enough to plan your urban economy around.

    I’m really for keeping the zoning as open to possible uses as possible and consider this to be a really important part of the urban ecosystem. But setting aside very large chucks of cities specifically for this purpose when there is little evident market demand does not make sense.

  2. Ernest Hass says:

    Don’t forget that the reason urban areas, especially upgraded urban areas, are increasing in price and displacing lower income earners is not just that the demand for these areas is increasing, but that the supply is fixed.

    No one benefits from affordable public transit and urban amenities more than the poor. Don’t confuse the knowledge clustering with urbanism. Areas of cities with low average incomes can still benefit from urbanism; these benefits are some of the reasons that the poor have been attracted to urban areas even after the affluent fled.

    That lower income families cannot afford urban living is not an argument that there is too much urbanism, its an argument that there isn’t enough.

  3. John Morris says:

    Couldn’t have said that better.

  4. rick says:

    Suburbanites are obligated to purchase and carry the cost of an automobile ($5000 to $10,00 per year per auto) while an urbanite might forgo this cost. At least exist as a one vehicle household as opposed to the typical multi-vehicle suburban household.

  5. Kyle says:

    “Trickle-down” economics was a strawman definition which twisted what is called supply-side economic theory, which called for decreasing the tax rates on businesses and investment, which happen also to be the taxes on the higher earners. The trickle-down definition twisted it into being a call for tax cuts on the rich under the assumption that the rich would then increase their spending, which would then “trickle-down” to the poor. The reality is that was never what the policy was about and no economist has ever supported such a tax policy based on that. The point was to reduce the taxes on investment and businesses in order to let them create more jobs, which happens through business expansion and investment.

    Nor were the policies about helping any mythical “class.” The policies were resisted by most of the political establishment on both sides at the time, as the Keynesian mindset that was dominant thought they would overwhelm the economy with demand. They were pushed for by Ronald Reagan who was ideologically devoted to reducing government spending. And most everyone’s taxes were cut under Reagan, not just those of the affluent.

    And contrary to this blog post’s assertion, it worked incredibly well, helping to usher in one of the biggest economic recoveries in the history of the nation.

  6. neil21 says:

    This feels very straw man to me. My understanding of urbanism is a pattern of development that allows daily needs to be met on foot. I would advocate for that to be the touchstone of any land use policies.

    If some municipalities implement those policies, and so prosper, and others don’t, and so stagnate, I don’t blame policies. I blame the municipalities.

  7. Pete from Baltimore says:

    Regarding comment #42 by John Morris
    I agree with you.But i think that a major problem is that guys like Richard Florida are wrong about this . For instance Ive heard Florida and others advocate that cities should try to attract more Gay people. Because Gay people supposedly dont have children and wont burden the tax system with kids in Public Schools.

    Im all for cities being welcoming to all types of people. But Florida needs to talk to the lesbian couple a few doors down from me. They have a child that just turned two last week.And they are thinking of selling their house at a loss.Just to make sure their kid does not have to go to the local City Schools. I know other gay couples in my neighborhood who have the same concerns.

    Richard Florida’s belief is that Upper middle class people and Gay people are somehow a Class of people who never grow old. And who only seem to go to spend their time going to clubs and biking and skateboarding,ect.

    Richard Florida and many other self-described “Urbanists” seem to have a very limited knowledge of urban dwellers.

    And i think that way too many self-described “urbanists” nowdays, focus way too much attention on downtowns. Living in Manhattan is “urban living” .But so is living in Queens or Brooklyn. I myself live in an urban area. I live well inside the City Limits of Baltimore.But i dont live in an apartment or condo. I live in a small rowhouse .

    Many city residents live in houses.And so a lot of the debates that many self-described “urbanists” get into about “Apartments/Condos VS Houses” ,strikes many urban dwellers like myself, as silly

    Its the same with “walkability”. I myself do not own a car.Because i cant afford one. I am sure that there are people in Baltimore that do not oown a car by choice.But after 20 years of living here as an adult, and after knowing hundreds and hundreds of people, i literally have not met one yet . Most people that i know , like that they can walk to the local bars and restraunts . But they drive their cars to wrok and even to the nearby grocery store. The ones like myself who do not own cars, do not own cars because we can not afford to

    So many debates by urbanists which pit “Cars VS Walking” really dont make sense to many urban dwellers outside of places like Manhattan.” Walkability” is great. But in the end, most urban Americans are worried about trying to find a parking space at night. So urbanists should recognise this reality. And shouldnt take at face value people’s praise of “walkability”. I have met many people who say that they moved to the City because of being “Able to walk everywhere”. But i cant help but notice that those same people also drive their car on any journey that is more than a 5 minute walk. Those often are the same ones who say that they moved to the City because they love “diversity”. I tend to take that one with a grain of salt as well. Because they often make sure that they live in an already gentrified[and white ] neighborhood

    I love cities.And love my own city of Baltimore. But when i hear new residents to Baltimore gush about walkability and diversity,ect, i take it with a grain of salt. Ive heard it all before.And i know that usually within a few years these types have kids and move out to the suburbs

    My point is that “urbanists ” and “urbanism”needs to view Americans, especially American city dwellers, as who they really are.Not as who urbanists ,and the city dwellers themselves , want to be .

  8. Pete from Baltimore says:

    Regarding comment #48 by John Morris

    I would agree with you that manufacturing is becoming very mechanicalised .So are many types of construction. The housing boom of the late 90s and eraly 200s disguised this a lot. But now that the Boom has ended, i can not forsee large gains in construction employment. Much of this is less due to efficiency, than to the fact that the Government taxes human labor [ Employer S.S. Taxes,ect] but gives tax breaks to companies that buy machinery. We have a tax system that really discourages human labor from being used

    As you say, often, factories are NOT coming back. General Moters closed its Baltimore plant a few years back.And the plant was razed and there are now biotech offices there now. Its good that there is at least something there.But it should be noted that its a case of, at most, a hundred, biotech jobs replacing a few thousand auto plant jobs

    But i think that the main problem is that there really are cases where cities have activly driven out wharehouses and factories. I have seen it fisr thand. And often the luxury condos that replace these factories, are subsidized by the City Government. And not just by tax breaks. There are luxury hotels and condo buildings in Baltimore City that literally got, and still get, cash subsidies from the City Government. This is at a time when the poor are getting their housing subsidies cut.

    I think that too many cities do try to activly discourage blue collar workplaces[and i dont limit this to just manufacturing sites]. But at the same time, , a lot of these cities use tax payer funds to directly subsidize luxury hotels and expensive sports stadiums . As well as “White elephant” convention centers, and luxury condo buildings.

    Many cities are sadly making clear that they want their blue collar residents to leave and be replaced with wealthier types of people.

    As i said in earlier comments, i have no problem with cities attracting rich people. By all means. But it shouldnt be part of an overall plan to replace blue collar residents

    And as i said in my earlier comments, i still think that the needs of rich city dwellers are very often the same needs of middle and lower income ones. So a city cant just try to attract rich people or “Creative Class” people or immigrants, without also attracting ALL types of people.

    It all comes down to the basic fact, that unless it is a special case[like NYC or DC] most cities have to do some very basic things to attract residents.

    Cities need to keep taxes at a tolorable level.And even more important, make sure that residents are getting good services in return for their taxes. And cities need to provide good Public Schools for residents.As well as keeping crime to a mininum. And cities need to provide good paying jobs at all levels[ or at the very least, SOME sort of jobs]

    When cities do these basic things, they can, and often do, prosper. But when they can not even do these basic things, they fail.And all of the gimmickry from the Richard Florida types cant not save them

    Its like people trying to lose weight. You can do all of the fad diets that you want. But in the end it boils down to eating less and exercising more. Too may cities are trying to do the equivilant of fad dieting. And too much “Good Urbanism” is being drowned out by faddish gimmicks by so called “urbanists” like Richard Florida

  9. Chris Barnett says:

    Amen to Pete’s comments directly above.

    Here in Indiana, the proportion of manufacturing jobs is something closer to 15-20%, a very significant part of our economy. We have added three big car assembly plants in the past 25 years, even as GM, Ford, and Chrysler have closed parts operations.

    Indianapolis has four former “Big Three” sites. The first to close was a Chrysler parts plant which has been repurposed as a warehouse/light industrial complex. This is what I suggest is appropriate, for such sites typically have good utility service and excellent road and rail access. The number of jobs will never be what it once was, but retaining jobs that people without degrees can get is an important piece of urban diversity.

    Indianapolis also has a 100-acre GM site near downtown. A ULI task force came to town and proposed “Celebration Urbanism”, an urban village next to a railyard, divorced from the existing street grid and the surrounding commercial/industrial uses. The “plan” was complete with a new fantasy/centerpiece monopole bridge connection to the Lucas Oil Stadium/Convention Center district.

    It is this kind of “Urbanism” that goes to prove Aaron’s point. Coffee shops and restaurants are not economic development.

  10. Chris Barnett says:

    A personal footnote: like Pete, I live in an old city neighborhood that is pretty diverse. The built form is “worker bungalows” on relatively small lots, the Midwest equivalent of rowhouses. The built density in such neighborhoods approaches 5-6,000 per square mile, about as dense as it gets here. It fits the definition of “food desert”; dollar and c-stores are the only walkable food stores.

    I cannot conveniently access most of the metro area’s jobs or shopping for necessities without a car. My 16-minute drive to work in a first-ring suburb 7 miles away would take more than an hour by bus and require me to walk 3/4 mile to and from the nearest stops. As it is, I drive maybe 7,000 miles a year, far below the national average. A cheap used car lasts me a long, long time.

    I understand that “good Urbanism” is about connecting people in neighborhoods like mine to life’s necessities more conveniently. But we can’t turn every city into Greenwich Village circa 1963 using a cookie-cutter plan according to St. Jane. (I blame not Jacobs but those who have distorted her message over the years.)

  11. John Morris says:

    I’m really not trying to attack the idea of manufacturing in cities, just adding some context and history.

    In the case of NYC, one had a huge drop in manufacturing employment over a 50 year period that happened in spite of the fact that city leaders and zoning set aside huge central areas of the city for it.

    At the same time, idiotic romantics, (And I include Jane Jacobs) imposed height and density limits on the surrounding housing stock. The result is a huge housing shortage, meaning that few of the people who still work in inner city factories are likely to be able to afford to live near them.

  12. John Morris says:

    The great irony in NY, is that without the height limits places like Williamsburg could keep more of their inner city manufacturing- and still fill housing demand. Instead the remaining factories are being torn down or converted into condos.

  13. Scott Beyer says:

    I simply don’t agree with this article. When poor people live in gentrifying cities, what trickles down to them is not only greater job prospects, but better services. Just compare people in New York City with those in Detroit. Poor or not, the New Yorker will be in a city with 8.8% rather than 17.6% unemployment. She will be surrounded by better transit and schools, safer neighborhoods, nicer roads, and cleaner parks.

    This doesn’t mean her life will be perfect, or her path to upward mobility guaranteed. But all you must do is compare what her life would’ve been like in the 1980s, pre-gentrification NYC–which was then a lot closer to Detroit–to realize how the incoming money has improved the city’s quality of life.

  14. John Morris says:

    Sorry Scott, my guess is you are willingly distorting what was said.

    In the case of NYC, that is still mostly true it still had a very large old school apartment stock in the outer boroughs- and also a huge number of people willing to break the dumb rent control and manufacturing zoning laws to create more affordable housing. It has also allowed lots of new construction- even if almost all of it is targeted at the top end.

    In most other places- one is seeing one group pretty much replacing the other- often by brute force eminent domain. In the Bay area, DC, etc you are not seeing much of a win-win situation. Greater opportunity does not seem to offset higher housing costs.

  15. John Morris says:

    Sorry Scott, my guess is you are willingly distorting what was said.

    In the case of NYC, that is still mostly true it still had a very large old school apartment stock in the outer boroughs- and also a huge number of people willing to break the dumb rent control and manufacturing zoning laws to create more affordable housing. It has also allowed lots of new construction- even if almost all of it is targeted at the top end.

    In most other places- one is seeing one group pretty much replacing the other- often by brute force eminent domain. In the Bay area, DC, etc you are not seeing much of a win-win situation. Greater opportunity does not seem to offset higher housing costs.

  16. Frank says:

    I find it interesting that Richard Florida is now debunking what he once advocated with his “Creative Class” concept. The idea that urbanism, as advocated by the so-called New Urbanist, will not work has been floated, by myself and others, since “urbanism,” (“New Urbanism,” “Creative Glass Urbanism,” what ever you want to call it) became the fad of the day.

    Frank A. Mills
    Urban Paradoxes

  17. Felipe Magalhaes says:

    critical urban theory has been going over this also. take a look at the book edited by neil brenner and others, “cities for people not for profit”, there’s one chapter specifically about that critique, and also in jamie peck’s “constructions of neoliberal reason”, a chapter of the book that i think is also published as an article somewhere, called “creative liberties”.

  18. James says:

    Trolling is a art!

  19. alex daurora says:

    rich people are simply retaking the cities they abandoned for the supposed “safety” of the suburbs. As gas prices rise and people realise that a lengthy commute to work is a waste of time, they want to come back. now poor people will be displaced. I foresee the suburbs becoming the new ghettos, with all those huge, overpriced, unpaid for homes that caused the economy to collapse becoming multi-family homes. The poor will become even more dependant on the declining public transportation, while the rich can ride their fixies to work.

    City improvement without affordable inner city housing is just giveaways to the rich

  20. PS says:

    Very important post, thank you. Arlington, Virginia wins awards for “Smart Growth” for its plan to drive up housing prices all over the County, especially areas that are now relatively affordable and close to convenient transit (bus). The trade groups and lobby groups like Smart Growth America are the most guilty parties for Starbucks Urbanism.

  21. John Morris says:

    I translate that as, I got my affordable place to live, screw you.

    Obviously, there’s a big contradiction here since without decent levels of density, these areas cannot support local stores, and transit has to operate at a loss to serve a low density line. Ditto with most other city services.

    As long as smart growth advocates are actually for lots of smart growth, they are the friends of affordable housing.

  22. John Morris says:

    Tech Shop, Pittsburgh is opening in March.

    The place is loaded with high tech CAD workstations, laser cuters, vacuume forming equipment, 3-D printers and other very high tech tools.

    For a membership fee one can use all this stuff or take classes.

    Interestingly, the space is part of a complex that includes high end retail; a hotel; coffee shops and Google’s city offices. On the street in back, new tech office spaces are being developed next to lots of factory and warehouse buildings.

    This is a good example of the blurring of building uses that can happen. A good city can blend creative and “working class”, though I agree that few so far seem to be doing that well.

  23. John Morris says:

    Tech Shop, Pittsburgh is opening in March.

    The place is loaded with high tech CAD workstations, laser cuters, vacuume forming equipment, 3-D printers and other very high tech tools.

    For a membership fee one can use all this stuff or take classes.

    Interestingly, the space is part of a complex that includes high end retail; a hotel; coffee shops and Google’s city offices. On the street in back, new tech office spaces are being developed next to lots of factory and warehouse buildings.

    This is a good example of the blurring of building uses that can happen. A good city can blend creative and “working class”, though I agree that few so far seem to be doing that well.

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