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Let's Not Put All Our Eggs In The Coastal Cities Basket

Apr. 03, 2018 9:51 AM ET3 Comments
Martin Lowy profile picture
Martin Lowy


  • Pundits, many good ones, too, advocate restricting local rules that inhibit denser development because more people should have access to the best jobs.
  • The nation's economy would be more efficient and GDP would grow faster, they argue.
  • But they are wrong. Pushing jobs and opportunity out to less affluent cities would lead to better economic results and less inequality.

Left, right and center, economists and other pundits are plunking for a reduction in impediments to building new residences in high-cost cities like NYC and SF where the best high-paying jobs are to be found. See the articles referred to below and John Cochrane’s excellent Grumpy Economist blog here as examples. Restricting access to these cities, it is reasoned, contributes to inequality and reduces potential national output.

In fact, the reverse is true, as I will argue in this article. Basically, it would be better to continue to restrict access to the great cities of the coasts. That would encourage smart young people to go elsewhere, building great cities between the coasts.

The basic reason the impediments are okay is quite simple: Building new residences in the densest cities where the best jobs may be found adds to the concentration in a few places of people with the best jobs who are making the most money. Everywhere else falls behind, placing more pressure on smart young people to move to the high-income locations. Thus the high-income cities become more insular and the low-income places become more resentful. And both kinds of places suffer from reduced (real) diversity and lower quality of life.

If all the smart young people moved to the apparently more productive coastal cities, the hollowing out of the nation’s heartland would be exacerbated.

The basic argument in favor of more concentration

Chang-Tai Hsieh of the University of Chicago and Enrico Moretti of UC Berkeley explained the perceived problem in a 2017 NBER paper. In “Housing Constraints and Spatial Misallocation,” published by NBER May 18, 2017, they argued as follows: Wage differences between cities are twice as great as they were in 1964, which suggests that labor productivity differences between cities have doubled. Therefore, output can be increased significantly by expanding employment in the

This article was written by

Martin Lowy profile picture
I was trained as a lawyer and practiced in the fields of corporate law and bank regulation in large U.S. firms for 20 years, then decided to do other things. My career has included banking and being an entrepreneur. For seven years I was CEO of a high-tech sports business. I have retired from active business and spend full-time writing, mostly on economic subjects. My books include: InStAbILItY: Booms, Busts, the Fragility of Banks, And What To Do about It 2017 High Rollers: Inside the S and L Debacle (1991) Debt Spiral: How Credit Failed Capitalism (2009) Practical Handbook for Bank Directors (1995), second edition due 2012 Corporate Governance for Public Company Directors (2003) Capitalism for Democrats (2019) Capitalism for America (2019)

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