Image by Ramy Raoof

The Central ParadoxThe Central Paradox

Wh i i h i i hi h• Why is it that in an era in which transportation and communication costs have virtually vanished cities have becomehave virtually vanished, cities have become more important than ever?

• Urban resurgence is visible in high income• Urban resurgence is visible in high income levels, robust housing prices, and a concentration of innovation in urban areas.concentration of innovation in urban areas.

• This is even clearer in the developing world.

The Near Perfect Correlation between b i i dUrbanization and Income

% population urban 1998, WDI200 Fitted values

100 Hong KonBelgiumSingapor

VenezuelUnited K

Germany,

Peru

Brazil Korea

FranceCanadaMexico

Argentin

TurkeyJordan

Iceland

New Zeal

Belgium

Saudi Ar

Bahrain

Australi

SpainNorway

Israel Luxembou

United S

NetherlaMalta

Colombia

Gabon

United ADenmarkSweden

Japan

Chile

Trinidad

UruguayBahamas,

50

Poland

Philippi

Honduras

Italy

Cote d'I

South af

Bolivia

Egypt El Salva

MauritanGreece

Nicaragu

Fiji

Morocco

Hungary

Malaysia

Finland

Paraguay

EcuadorSwitzerl

Cameroon

Portugal

Syria

TunisiaDominica

CyprusAlgeriaIran, I.

Senegal

JamaicaIreland

Panama

Costa Ri

CongoAustria

Botswana

Ghana GuatemalNigeria

Kenya

Cote d I

Angola

Indonesi

Tanzania Mali IndiaBanglade

Pakistan

Egypt

MozambiqZambia Central

GuineaSierra L

ComorosTogo

Thailand

Mauritiu

Niger

SwazilanLesotho

Guyana

Western MalawiGuinea-B

GambiaZimbabwe

Chad

MadagascChinaZaire

Benin

Sudan

Yemen, N

Haiti

Sri Lank

6 8 10

0

UgandaPapua NeEthiopia

Burundi

g

Nepal

Log of GDP 19986 8 10

12Figure 1: Output Per Worker and Area Size

Bridgepo

San Jose

AnchoragAnn Arbo Atlanta-

Boston-C

Charlott

ChicagoDallas-F

Denver-ADes Moin

Durham,Hartford Houston-

IndianapLafayettMidland

Naples-M

Ne Orle

New York

Philadel

San Fran

San Jose

Seattle-Si F

Trenton- Washingt

Winston-

11.5

r Wor

ker

Albany-SAlbuquer

gAnn ArboAtlantic

Augusta-

Austin-R Baltimor

Barnstab Baton RoBend OR

Birmingh

BloomingBoise Ci

Boulder,

B tBurlingt

Cape Cor

Cedar RaCharlestCharlott

Chattano

Chicago-

CincinnaClevelan

ColoradoColumbiaColumbus

Columbus

Dayton,Decatur,

Des MoinDetroit-

ElizabetElkhart-

El PEvansvil

Fargo N

FarmingtFayettev

FayettevFort Wal Fort WayGainesvi Grand RaGreen Ba

Greensbo

GreenvilGulfport

HarrisbuHarrison

Honolulu

Huntsvil

p

I CitJackson,

Jacksonv

JacksonvKansas C

Killeen- KnoxvillKokomo,

Lafayett

Lake Cha

Las Vega

Lawton,Lexingto

Lima, OHLincoln

Little R

Los Ange

LouisvilMacon, G

Madison,Manchest

Memphis,Miami-Fo

Midland,Milwauke

Minneapo

M t

Napa, CA Nashvill

New Have

New Orle

Norwich-Ocean Ci Oklahoma

Omaha-CoOrlando-

PhiladelPhoenix-

Pittsbur

PittsfiePortland

Portland

Providen

Raleigh-Reno-Spa Richmond

RoanokeRochesteRocheste

Rocky MoSacramen

S i

St. LouiSalinas,

Salt Lak

San Anto

San Dieg

Santa BaSanta Fe

S tSavannahSheboyga

Shrevepo

Sioux Ci

Sioux Fa

SpringfiSyracuse Tampa StToledo

Tulsa, O Virginia

Warner RWichita,Wilmingt

WorcesteOut

put P

er

Abilene,

Akron, OAlbany,

Alexandr

Allentow

Altoona,Amarillo

A i t

AppletonAshevillAthens-C

Augusta-

BakersfiBangor,

Barnstab Baton Ro

Battle CBeaumont

Bellingh

Bend, OR

Billings

Binghamt

BlacksbuBlooming

Blooming

Bowling

BremertoBuffalo-

Burlingt Canton-MChampaig

Charlest

Chico C

ClarksviClevelan

CollegeColumbia

Corpus C

Dalton,Davenpor

Decatur,Deltona-Dothan,

Dover, D

Duluth,Eau ClaiEl Centr

El Paso,

Erie, PAEugene-S

Fargo, NFlint, MFlorence

Fort ColFort Smi

Fresno,

GainesviGoldsbor

Grand Ju

Greeley,GreenvilHagerstoHanford-Hattiesb

Hickory-

Holland-

Houma-Ba

Huntingt

Iowa Cit

Jackson,Jackson,Janesvil

Jefferso

JohnsonJohnstowJonesborJoplin,

Kalamazo

Kennewicee

KingsporLa CrossLafayett

LakelandLancasteLansing-

Laredo,

Lincoln,

LongviewLubbock,

Lynchbur

,

Mansfiel

Medford,Michigan Mobile,

Modesto,

Monroe,

MontgomeMorgantoMount Ve

Muncie,

M k

Myrtle B

Niles-Be

Ocala F

Ocean Ci

Odessa,

Ogden-Cl

Olympia,Oshkosh-

Owensbor

Oxnard-TPalm BayPanama C

ParkersbPensacol

Peoria,

Pine Blu Port St.Poughkee

Providen

Provo-OrPueblo,

Racine,

Rapid CiReading,

Redding, Riversid

Roanoke,Rocheste

Rockford

Saginaw-

St. ClouSt. JoseSalem, O

San Ange

San Anto

San LuisSanta CrSanta RoSarasotaSavannah

Scranton

SebastiaSheboyga

Sherman-

Sioux Ci

South BeSpartanbSpokane,

SpringfiSpringfi

Springfi

State Co

StocktonSumter,

Syracuse

Tallahas

Tampa-St

Terre HaTexarkan

Toledo,

Topeka, Tucson,Tuscaloo

Tyler, T

Utica Ro

ValdostaVictoriaVineland

Waco, TX

Warner RWaterlooWausau,

Weirton-Wheeling

WichitaWilliams

Winchest Worceste

Yakima

York-HanYoungsto

Yuba Cit

11Lo

g O

,AndersonAndersonAnnistonAuburn-OBay City

Brownsvi

Chico, CCoeur d'

College

CumberlaDanville

El CentrFlagstaf

FlorenceGadsden,

Glens FaIdaho FaJohnstow

Kankakee

Kingston

Lake Hav

Las CrucLebanon,

LewistonLogan, U

Madera,McAllen-

Merced,Monroe,

MorristoMuskegonOcala, FOgden Cl

PascagouPrescott

Punta GoSalisburSpringfi Utica-Ro

Vallejo-Visalia-

gYakima,

Yuma, AZ

10.5

12 14 16 18Log population, 2000

New YorkNew York

• New York’s explosive era from 1790 (33,000) to 1860 p ( , )(813,000)– note no clear break with the Erie Canal.

• Between 1790 and 1850, the U.S. switches from h h b d k d lpoint‐to‐point shipping to a hub and spoke model 

• In the early 1820s, packet ships typically carried between 300 and 400 tons. 

• By 1838, 1000 tons became normal and the Amazon carried 1771 tons in 1854 (Albion, 1970).

• New York’s manufacturing growth is an outgrowth of• New York s manufacturing growth is an outgrowth of its role in trade: garments, publishing and sugar–ultimately finance 

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Image by Andrew Jameson

The Decline of the Costs of Moving GoodsThe Decline of the Costs of Moving Goods

.185063

Rea

l)r T

on M

ile (R

Dol

lars

per

.02323

Railroad Revenue per Ton Mileyear

1890 2000

Heat‐Biased Technological Change andh hthe Move to Warmth

Log Change in Population 1980-2 Fitted values

Las Vega

1

Austin S

.5

Atlanta,

Austin-S

BakersfiDallas-F

Fresno,

Orlando,Phoenix-

Raleigh-

SacramenSarasota

Stockton Tucson

West Pal

Albuquer

Allentow

Augusta-

Baton RoCharlest

Charlott

ColumbiaColumbus

Corpus C

Denver-B

Des Moin

El Paso,

es o,

Grand Ra GreensboGreenvil

H l l

Houston-

Indianap Jackson,

Jacksonv

Kansas CKnoxvill

Lafayett

LancasteLexingtoLittle R

Los Ange

Memphis,

Miami-Fo

Minneapo

Mobile,

Nashvill

Norfolk-Oklahoma

Omaha, N

Portland

Richmond

Salt Lak San AntoSan Dieg

San Fran

Seattle-

Spokane,

Tampa-St

Tucson,

Tulsa, O

Washingt

Wichita,

0Albany-S

Allentow

Beaumont

BirminghBoston-W

Buffalo-

Canton-M

ChattanoChicago- Cincinna

Clevelan

Corpus C

Davenpor

Dayton-SDetroit-

Fort WayHarrisbuHartford

Honolulu

Huntingt

Johnson Kalamazo

Lafayett

Lansing- LouisvilMilwauke New HaveNew Orle

New York,

Peoria-P

Philadel

Pittsbur

ProvidenRocheste

Rockford

Saginaw-

St. Loui

Scranton

ShrevepoSpringfiSyracuseToledo,

Youngsto

Figure 24: 1980-2000 Population Growth and Mean January Tmp.January mean temperature 1980

0 20 40 60 80

City 1950 Pop. 2000 Pop. ChangeN Y k 7 891 957 8 008 278 +1 5 %New York 7,891,957 8,008,278 +1.5 %Chicago 3.620,962 2,896,016 -20%

Philadelphia 2,071,605 1,517,550 -27%Los Angeles 1,970,358 3,694,820 +87%g , , , ,Detroit 1,849,568 951,270 -52%Baltimore 949 708 651 154 32%Baltimore 949,708 651,154 -32%Cleveland 914,808 478,403 -48%St. Louis 856,796 348,189 -60%Washington 802,178 572,059 -29%Boston 801,444 589,141 -26%

Norilsk (25% down 1989‐2002)Norilsk (25% down 1989 2002)

The Rebirth of NYC, ChicagoThe Rebirth of NYC, Chicago

• Some erstwhile manufacturing centers continue So e e st e a u actu g ce te s co t ueto decline, while others reinvent.

• People and ideas thrive; People movers don’tp p• Finance in New York and an urban chain of ideas

– Understanding risk and return with data– The sale of riskier assets (Milken)– The use of risky assets to restructure companies (KKR)– The nationwide sharing of risk (Ranieri and MBSs)– The sale of data tools (Bloomberg)

Change in Population, 1970-2000 Figure 7:

.82000

g p ,by Quintile of Percent College Graduates, 1970

6on, 1

970-

24

.P

opul

ati o

2.4

Cha

nge

in

0.2

Mea

n C

0

Lowest Second Third Fourth HighestSource: U.S. Census Bureau

Figure 4: Population Growth for MSAs in the Northeast and Midwest

60%

53%

50%

000

40%

wth

(197

0-20

20%

30%

pula

tion

Gro

8%

15% 15%

20%

10%

20%

Ave

rage

Pop

8%

0%

10%A

0 - 7.5% 7.5% - 9.5% 9.5% - 11% 11% - 15% 15%-31%

Percent of Population with a BA (1970)Data from the United States Census

Log Wage Residual 2000 Fitted values

10.2Minneapo

New York

Atlanta-Austin-R

Charlott

IndianapKansas CRichmond

San FranWest Pal

10 Albany-S

AlbAllentow

Columbia

Columbus

Dayton,

Fort WayGrand RaGreensbo

Harrisbu

HonoluluLancaste

Las Vega

Louisvil

NashvillOmaha-Co

Orlando,

Phoenix-Richmond

Salt Lak

San DiegSt. Loui

Toledo Tulsa O

Wichita,

9.8

Albuquer

Baton RoBirmingh

Buffalo-Canton-M

Charlest Chicago-

Jackson,Knoxvill

Little R

N O lOklahoma

PittsburRocheste

San AntoSpokane,Stockton

Syracuse Tampa-StToledo,

Tucson,

Tulsa, O

Youngsto9 8

BakersfiFresno,

Memphis, New Orle

.05 .1 .15

9.6

Figure 42000 Share of Skilled Workers

.05 .1 .15

1.5

Human Capital Spillovers in India1

1st

rict

.5id

ual i

n di

0w

age

res

-.5Av

erag

e -1

0 05 1 15 2 250 .05 .1 .15 .2 .25Fraction of people with higher education diploma

Sources: Indian Human Development Survey 2005 and Indian General Census 2001 (graph includes 221 observations)

Unemployment and EducationUnemployment and Education21.7 Merced,

Yuba Cit

Bakersfi

Fresno, Modesto,

Redding,

Rockford

Salinas,StocktonVisalia-

Yuma, AZ

unem

p

Atlantic

B t b

Canton-M

Ch l tt

Chico, CDecatur,

Deltona-

Detroit-Elkhart-Flint, M

Florence

Hickory-Jackson,

J il

Kankakee

Kokomo, LakelandLas VegaMansfiel Medford,

Myrtle B

Ocala, F

ProvidenPunta Go Reno-Spa

RiversidRocky Mo

Sacramen

Saginaw-Santa Cr

Sumter,

Tampa-StToledo,

Vallejo-

VinelandSteubenv

Youngsto

jan1

0u

Akron, OAlbany,

Allentow

Ann Arbo

Anniston

AshevillAtlanta-Auburn-O

Augusta-

Barnstab

Beaumont

BellinghBinghamt

Birmingh

Blooming

Boise Ci

Boston-C

Brownsvi

Buffalo

Champaig

Charlest

Charlest

Charlott

Chattano

Cheyenne

Chicago-

CincinnaClarksvi

Clevelan ColumbiaColumbusColumbus

Cumberla

Danville

Davenpor

Dayton, Decatur,Deltona-

Dothan,

Dover, DDuluthEl Paso,

Elmira,

Erie, PA

Eugene-S

EvansvilFayettev

Flagstaf

Florence

Fort Way

Gadsden,

Glens FaGoldsbor Grand Ju

Grand Ra

Greeley,G

Greensbo

GreenvilGreenvil

Hagersto

HartfordHattiesbHuntingt HuntsvilIndianapJackson,

Jackson,JacksonvJanesvil

Johnson Johnstow

Kalamazo

Kansas CKnoxvill Lafayett

Lansing-

Laredo, Lewiston Lexingto

Lima, OH Los Ange

LouisvilMacon, G

McAllen-

Memphis,Miami-Fo

Milwauke

Mobile,

MontgomeMuncie,

Naples-M

Nashvill New HaveNew YorkOdessa

Orlando-

Owensbor

Panama CParkersb Pensacol

PhiladelPhoenix

Pine Blu PittsfiePocatell

Portland

Pueblo,

Racine,

Raleigh-Reading,

Sacramen

Salem, OSan Dieg San Fran

San Jose

San LuisSanta Ba

Santa Ro

Savannah

ScrantonSeattle-Sheboyga

South Be

Spokane,Springfi

Springfi

S f

St. Loui

Syracuse

Tampa St

Terre Ha

Tuscaloo

Vallejo-

Wausau,

WheelingWilliams

WilmingtYakima,

York-Han

Abilene,

Albany-S

Albuquer

Alexandr

Altoona,

Amarillo

Anchorag

Ann ArboAppletonAthens-C

Austin-R

BaltimorBangor, Baton Ro

g

Billings

Blooming

Boston C

Boulder,

Bremerto

Buffalo-

Burlingt

Casper,

Cedar Ra

Charlest

Charlott

Cheyenne Colorado

Columbia

Corpus CCorvalli

Dallas-FDenver-A

Des Moin

,

Dubuque,

Duluth, Eau Clai

,Evansvil

Fayettev

Flagstaf

Fort Col

Fort Smi Gainesvi

Great Fa

Green BaHarrisbu

HonoluluHouma-Ba

Houston-g HuntsvilIndianap

JacksonvJonesborJoplin,

Kansas C

Killeen-

Knoxvill

La Cross

Lafayett

Lake ChaLancasteLas Cruc

LawrenceLawton,

Lewiston Lexingto

Little R

Longview

Lubbock,

Lynchbur

Madison,

MinneapoMissoula

Monroe, New Orle

Odessa,

Oklahoma

Olympia,

Omaha-Co

Phoenix-Pittsbur

PortlandProvo-Or

Rapid Ci

RichmondRoanoke,

Rocheste

Rocheste

Salt LakSan AngeSan Anto Santa Fe

SavannahSherman-

Shrevepo

Sioux Ci

Sioux Fa

SpringfiSt. Clou

St. Jose

State Co

Syracuse Tallahas

TexarkanTopeka,

Trenton-Tucson,

Tulsa, OTyler, TUtica-Ro

Victoria

Waco, TXWashingtWaterloo

Wichita Wichita,

College completion among populat.110482 .523833

4.8 Bismarck Fargo, NGrand Fo Iowa CitLincoln,

ap d CSioux Fa

Average Employment Growth, 1977-2000Figure 10:

1.5

2000

g p y ,by Quintile of Average Firm Size, 1977

wth

, 197

7-2

1m

ent G

row

.5 E

mpl

oym

0Av

erag

e0

Lowest Second Third Fourth HighestSource: County Business Patterns, 1977 and 2000

Defeating Density’s Demons lets h l hthe Consumer City Flourish

• The same innovations that help NYC financeThe same innovations that help NYC finance help NYC restaurants and retail. 

• Urban scale abets specialization (all those nail• Urban scale abets specialization (all those nail salons) and activities with fixed costs (theaters museums)(theaters, museums).

• History has left NYC with great physical assets.

• But it’s the people that really make the city exciting– city as marriage market.  

Prices and Permits across L M li A0

Figure 13:Median Housing Values in 2005

and Permits 2000 2005 Across MSAsLarger Metropolitan Areas

San Jose

8000

005

and Permits 2000-2005 Across MSAs

Los AngelesSan Diego

San FranciscoSan Jose

6000

00al

ue, 2

005

Honolulu

L V

New York

ProvidenceRiverside

Sacramento

S ttl

Stockton

VallejoWashington

W t

4000

00H

ousi

ng V

a

AkronAlbany AlbuquerqueAllentownAnn Arbor

AtlantaAustinBakersfield

Baltimore

Baton RougeBirminghamBoston

B ff l

CharlestonCharlotte

Chicago

CincinnatiCleveland

ClevelandColorado Springs

ColumbiaColumbusDallasDayton

Denver

Detroit

F t W

Fresno

Grand RapidsGreensboroGreenvilleHarrisburg

Hartford CT

HoustonIndianapolisJacksonvilleKansas CityKnoxville

Las Vegas

Little RockLouisvilleMemphis

Miami

MilwaukeeMinneapolis

M bilNashville

New Haven

New OrleansOklahoma City

OmahaOrlandoPhiladelphia Phoenix

Pittsburgh

Portland

Providence

RaleighRichmond

Rochester

Salt Lake City

S A t i

Sarasota

Scranton

Seattle

SpringfieldSt. Louis

S

TampaToledo

Tucson

TulsaWi hit

Worcester

Y t Little Rock

2000

00M

edia

n H

Baton RougeBirminghamBuffaloCleveland ColumbiayEl PasoFort WayneGreenvilleLittle Rock

McAllenMemphisMobileOklahoma CityPittsburghRochester San AntonioScrantonSyracuse TulsaWichitaYoungstown Little Rock

0

0 1 2 30 .1 .2 .3Permits 2000-5/Stock in 2000

Source: U.S. Census Bureau

Image by QuarterCircleS

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