Friday, September 29, 2017

Not "in the air"

Russ Roberts interviewed Philip Auerswald on populism. Rapid change divides the population; some thrive while others are left behind and become resentful. The two discuss rural-urban divisions but focus on the big cities (they mean metropolitan areas) vs the rest. The success of these places as breeding grounds for new ideas (end enhanced productivity) is an old idea. We talk about "engines of growth."

Roberts and his guest evoke "density" as a proxy to explain how it is that new interactions and new ideas are spawned. They discuss "water cooler effects", coffee houses and places to meet for breakfast gatherings. Ray Oldenburg calls them "The Great Good Place". From Vienna's coffee houses to Starbucks -- and many more. The discussants also mention that big cities are places where good ideas are "in the air."

I prefer to talk about supply chains. The fundamental lesson of economics is that these are formed by profit seekers responding to market signals. There are supply chains for things and supply chains for ideas. All of us participate in many of these -- as buyers and/or as sellers. We choose locations as we trade off all of these roles.

The Coasian what-to-make-vs-what-to-buy choice (in light of transactions and monitoring costs) involves what to buy where.  Overcoming distance involves a key transaction cost. All supply chains have a spatial realization.  This is how we get the spatial patterns that characterize the cities we know.  Location choices in light of supply chain participation(s) over many interaction modes (including electronic) are constrained by many things, including land use controls and historical facts on the ground. The former involve policy choices.

Supply chains for things are based on technological requirements ("recipes") while supply chains for  ideas make sense in light of Joel Mokyr's idea that we are all keen to find useful knowledge.

Ideas, trust and social capital are made in cities. But not from or in "the air." They are formed (emerge) via the deliberations, choices, and actions, of motivated individuals.

I prefer this story to the much invoked idea of "agglomeration."  Agglomeration and "clusters" (also vague) occur via many densities and many spatial arrangements. The point is to understand how and why specific arrangements emerge.