
In recent decades, bigger cities have tended to do better than small towns and rural areas. But that doesn’t necessarily imply that big cities have more pro-growth economic policies, indeed one can make an argument that the opposite is true.
Tyler Cowen linked to a Washington Post article that discussed the reasons why the DC suburbs in northern Virginia are growing faster than the suburbs in Maryland:
The overall business climate has also played a role. In general, Virginia has had lower taxes and less regulation than its neighbors. For 2019, the corporate income tax rate in Virginia was 6 percent, compared to 8.25 percent in Maryland and the District.
Virginia also is a right-to-work state, which means employees cannot be required to join a union as a condition of employment. In contrast, both Maryland and the District allow union shops.
The different approaches arise partly from political disparities between Virginia and Maryland in parts of the states outside the Washington region. Conservatives from Southern Virginia have frequently wielded power in Richmond and favored corporate-friendly policies. By contrast, liberals from the Baltimore area have tended to dominate the Annapolis state government.
Big cities tend to be governed by left of center politicians that often enacts anti-growth regulations. On the other hand, big cities also have enormous economic advantages associated with a concentration of high valued-added industries such as finance and tech. The real problem occurs when big cities are embedded in larger states that contain areas lacking in the benefits of “agglomeration”. Thus upstate New York has done poorly in recent decades, as firms would have little incentive to locate in smaller New York cities that are burdened by New York State regulations.
Illinois and Indiana are an almost ideal comparison. The two states are pretty similar, except that Illinois contains the huge Chicago metro area. As a result, Illinois governance is much more left wing, more in favor of burdensome regulations on business than is the case in relatively conservative Indiana. For this reason, smaller cities in Illinois are losing population while Indiana continues to grow pretty fast for a northern state. Since 2010, Illinois’s population has fallen from 12.83 million to 12.67 million. Indiana has grown from 6.48 million to 6.73 million. (The Northeast and North Central US are showing very little population growth.)
Of course you don’t want to push this too far. It’s still true that big cities are outperforming smaller towns. And there is more population growth in inland California than in West Virginia. (It’s very difficult to build in coastal California.) Nonetheless, the fastest growing places in America tend to be metro areas located in relatively conservative states, such as Austin, Charlotte, Orlando, Nashville, Phoenix, Salt Lake City, etc. The conservative political establishment leads to a relatively pro-business economic climate, while the cities also gain from the benefits of agglomeration. Northern Virginia fits that pattern.
BTW, the new census data shows that California’s population growth has slowed sharply. During the early 2010s, California gained more than 300,000 residents per year. In the most recent year the growth slowed to 50,000, in percentage terms a rate far below the national average (which is also slowing.) Now most of America’s population growth is in three places: Texas, the Southeast and the Mountain West. These states generally have either conservative or centrist governments.
Despite all the talk of reform, NIMBYism in California has actually gotten even worse since the early 2010s.
Here is Amazon’s plan for Arlington Va:
READER COMMENTS
Alan Goldhammer
Jan 5 2020 at 5:49pm
What is left unsaid in both Tyler’s post and the WaPo article is the dramatic political shift in Northern Virginia. Democrats control almost all local governments and seats in the state legislature. The big issue for all has been surface transportation which is quite congested. While there is a state right to work law, some of the localities are moving to more of a NIMBY approach to future development. It will be interesting to see whether this growth spurt in Virginia continues.
Things are not as bleak as the WaPo article presents for suburban Maryland (disclosure: I live in Bethesda). There is a huge amount of construction going on; Marriott’s new headquarters is going up about a mile from my house. In some areas such as biomedical research, Maryland has outpaced Virginia in recent years.
Analyses such as this are complicated and I think the WaPo article was overly simplistic.
Lorenzo from Oz
Jan 5 2020 at 7:49pm
There seems to be some overlap in your thinking with this recent post by Cameron Harwick.
Mark Z
Jan 5 2020 at 9:10pm
I don’t think the big cities themselves are as insulated from the policies their citizens favor as they themselves believe. It isn’t just small Illinois cities that are declining, so is Chicago (both proper and metro area). LA has recently been approaching demographic stagnation much faster than the US overall and LA county lost population in 2018.
Much of the apparent economic advantage of some major cities may just be higher cost of living, but due to ‘location stickiness’ from the difficulty of moving to a new city or MSA, the possible reality of such overpricing isn’t fully apparent yet (except perhaps is some places like Chicago). ‘Demographic arbitrage’ will likely take a lot longer than other kinds of arbitrage. Another big factor, imo: many people have a strong preference for living in cities like NYC, LA, or SF (either a specific one, or any one of the top tier cities), and they’re willing to pay a lot of money – in the form of higher living costs – to live there. Some of the income advantage of such cities isn’t due to the city making people better at their jobs, but rather due to the willingness of residents to pay a higher price to live there. Rather than augmenting productivity, the city itself is a unique, supply constrained luxury good, and some of the income premium is the price residents pay to consume that luxury good.
Scott Sumner
Jan 6 2020 at 4:09am
I don’t follow. How does a greater willingness to pay for an urban location lead to a bigger income?
Mark Z
Jan 7 2020 at 1:25am
If people are willing to pay higher prices to live in a city, then the city can afford to pursue policies that drive up labor costs, for example. If the price of an unskilled service (i.e., that can’t be imported from elsewhere) in a big city is $15 an hour, that almost anywhere else is $8, people are willing to stay and pay a premium to keep living in NYC, and the worker makes $7 an hour more than the comparable worker in Buffalo, because if Buffalo drove the price of labor up to $15 and hour, people would leave. Most of the additional wages the unskilled laborer makes may of course be absorbed by higher rents, but nominally he is still making much more money. I’m assuming also that living in a big city is essentially a luxury good, and poor people like the hypothetical unskilled service sector employee won’t/can’t bid down the price of unskilled labor. Someone who makes $100k a year in Buffalo can afford to sacrifice 20k a year in other consumption (or saving) in exchange for the privilege of living in NYC, but an unskilled service sector employee who makes 25k per year in Buffalo cannot afford to do so, so prospective employers have to pay him significantly more than his Buffalo salary to get him to be willing to live in NYC.
Or at least that’s a story I have in mind.
Thaomas
Jan 6 2020 at 10:03am
I think it is reasonable that an urban area will have more instances in which the behavior of one person affects others, so in an urban area the optimal amount of regulations that change market outcomes would be greater that in a rural area. Conceptually there is no reason that urban regulations should be super optimal or rural areas should be optimal.
TMC
Jan 6 2020 at 2:25pm
Most cities have a lifetime for their high productivity era. New York and DC seem to be the exception where they can go on indefinitely. DC because it’s the seat of government, and New York both has a hold on the financial industry plus is the primary spot for (legal) immigration into the US. Even NY loses US citizens every year, but makes up for that in immigrant inflow. The AP has a report that states “The report shows California added more than 180,000 people when accounting for births and deaths for the 12 month period ending July 1. But when you include people who moved in and out of the state, California lost 39,500.”
To me it seems there is a small group of highly productive people that attract more productive people, after which a lot of less productive people are attracted to the wealth of the area. Cleveland had Rockefeller, Pittsburgh had Carnegie, Detroit had Ford. The less productive people start voting in a fashion to ‘get their share’ of the wealth. Then eventually, the highly productive people need to move on or perish. This might take decades or longer to happen though.
Thaomas
Jan 8 2020 at 2:21am
Lots of problems arise from trying to solve income distribution problems at the local and state levels rather than the national level and solve it via price quantity controls rather than taxes and subsidized services.
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