As we explored in my last post from the beginning of our republic there has been predictions of the coming demise of high-density big cities. All of them have been wrong. The same is almost certain to be the case of today’s post-pandemic predictions of doom for big cities.

There are two main reasons why those predictions are always wrong. First concentrated talent working face to face significantly boosts productivity. And second, people––particularly young professionals––want to live in high-density, high-amenity urban neighborhoods where you do not have to own a car. It is almost certain the current pandemic will not alter those realities long term.

My last post focused on productivity advantages of high-density big cities. In this post we will look at talent wanting to live in high-density, high-amenity urban neighborhoods.

Evidence of the enduring attraction of big cities and their high-density, high-amenity neighborhoods is present today in the midst of our current pandemic. In a post for City Observatory entitled The exodus that never happened, Joe Cortright writes:

Our recent report, Youth Movement, confirmed the depth and breadth of the long-term trend of well-educated adults moving in large numbers to close-in urban neighborhoods. And the real-time data from real estate market search activity confirmed that cities were still highly attractive, gaining market share in total search activity from suburbs and more rural areas, according to data gathered in April by Zillow and Apartment List.com

Now, with even more data in hand, the picture remains very much the same.  Apartment List.com economists Rob Warnock and Chris Salviati have done a thorough analysis comparing the pattern of apartment search activity in the nation’s 50 largest metro areas between the first and second quarters of 2020; basically the period just before the pandemic struck with full force, and then the three months during which much of America was reeling from the virus and stuck in lock-down, with lots of time to consider possible new living locations.

Bottom line:  As revealed by apartment search activity, interest in cities actually increased in the second quarter compared to the first, relative to other locations, including suburbs, other less dense cities, and rural areas.

What is it about high-density, high-amenity neighborhoods that make them so attractive to young professionals? Then New York City Mayor Michael Bloomberg described it this way in a Financial Times column:

Many newly successful cities on the global stage – such as Shenzhen and Dubai – have sought to make themselves attractive to businesses based on price and infrastructure subsidies. Those competitive advantages can work in the short term, but they tend to be transitory. For cities to have sustained success, they must compete for the grand prize: intellectual capital and talent.

I have long believed that talent attracts capital far more effectively and consistently than capital attracts talent. The most creative individuals want to live in places that protect personal freedoms, prize diversity and offer an abundance of cultural opportunities. A city that wants to attract creators must offer a fertile breeding ground for new ideas and innovations.

In this respect, part of what sets cities such as New York and London apart cannot be captured by rankings. Recent college graduates are flocking to Brooklyn not merely because of employment opportunities, but because it is where some of the most exciting things in the world are happening – in music, art, design, food, shops, technology and green industry. Economists may not say it this way but the truth of the matter is: being cool counts. When people can find inspiration in a community that also offers great parks, safe streets and extensive mass transit, they vote with their feet.

Since Bloomberg wrote this column in 2012 young professionals are concentrating more in big cities. And as Cortright documents in his Youth Movement report concentrating particularly in high-density, high-amenity near-center-city neighborhoods.

The lure of “places that protect personal freedoms, prize diversity and offer an abundance of cultural opportunities” and provide “great parks, safe streets and extensive mass transit” remains as strong today as it did pre-pandemic.

The current predictions of the death of high-density, high-amenity neighborhoods are driven by the belief that high-density makes one far more susceptible to the coronvirus. But as Corthright writes that turns out not to be accurate:

… People might naturally assume that because New York is our densest city, and Coronavirus hit hardest there, that there was some connection. It turns out however, that within the New York metro area, rates of reported cases are actually higher in the suburbs (including Rockland and Westchester counties) than in the five boroughs of New York City. It’s also the case that in the city itself, the hardest hit neighborhoods actually are much less dense than those least affected.

While New York has dominated the awful statistics and headlines of the pandemic, today, the hardest hit area in the US is far away, and far different:  the Navajo Nation.  In the past week, New York’s rate of infection has been surpassed by that on the Navajo Nation, one of America’s least densely settled areas.  The nation covers an area larger than Ireland spread across three states—Arizona, New Mexico and Utah—and consists overwhelmingly of very low density housing.  But its rate has grown to more than 2,449  cases per 100,000 population even higher than New York City’s 2,300.

The underlying problems in the Navajo Nation are not density, but rather poverty, a lack of health care, and housing over-crowding. Interestingly, these same factors were identifies as correlates of Covid prevalence rates within New York City by a Furman Center analysis of zip-code case data.

And as Emily Badger explores in a New York Times article entitled Density Is Normally Good for Us. That Will Be True After Coronavirus, Too. high-density cities have many health related benefits. She writes:

Since the 1990s, researchers and planners have increasingly come to argue that dense urban environments, derided historically as diseased, can actually foster health. They don’t mean overcrowded tenements, but places where people live close enough to one another to walk where they need to go and to support one another. Such environments offer an alternative to sedentary, car-dependent sprawl, an antidote to growing health problems like obesity.

… In practical ways, density makes possible many of the things we need when something goes wrong. That is certainly true of hospital infrastructure — emergency response times are faster, and hospitals are better staffed in denser places. When one store is closed or out of toilet paper, there are more places to look. When people can’t leave home for essentials, there are alternative ways to get them, like grocery delivery services or bike couriers. When people can’t visit public spaces, there are still ways to create public life, from balconies, porches and windows.

The subtitle of Edward Glaeser’s Triumph of the City summarizes well the enduring value of cities and their high-density, high-amenity neighborhoods: How Our Greatest Invention Makes Us Richer, Greener, Healthier, and Happier. That is not going to change in a post-COVID world.

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Bruce Bartlett, one of the authors of the Reagan tax cuts, in a critique of Donald Trump’s tax cut proposal  provides an insightful overview of tax cuts effects on the national economy. He writes:

Tax rates were very high when Reagan proposed cutting them — much higher than today. The high tax rates from the World War II era had been only partly cut by John F. Kennedy, and the top income-tax rate was 70 percent. Inflation was pushing workers into higher tax brackets when they received cost-of-living pay raises.

According to the Tax Policy Center, the average federal income-tax rate on a family of four with the median income rose from 9.1 percent in 1972 to 11.8 percent in 1981. The marginal tax rate — the tax on the last dollar earned — rose from 19 percent to 24 percent in the same period.

By contrast, the average tax rate on the median family in 2014 was just 5.3 percent, and the marginal rate was 15 percent. Inflation is nonexistent, and no one is being pushed into higher tax brackets by it.

In short, taxes were too high in 1981 and needed to be cut — including for the rich. The tax rates above 50 percent were not bringing in much revenue because wealthy people were likely to invest in tax shelters.

But the Reagan tax cut played only a secondary role in the 1980s boom, which wasn’t really much of a boom. Real G.D.P. grew 37.9 percent in the 1970s, compared with 36.1 percent in the 1980s. The economy felt better because inflation came down extraordinarily quickly, far more quickly than economists in 1980 thought was possible. But this was primarily a result of the Federal Reserve’s tight money policy, not taxes.

The tax cut deserves credit for softening the blow from the reduction in inflation, which brought on a sharp recession in 1981-82. But what we think of as the Reagan boom was the typical rebound from a sharp recession, just as we had seen after all previous postwar recessions. Much credit for growth in the Reagan years must go to the sharp increase in government purchases for his defense buildup.

What many Republicans also forget is that Reagan cared about deficits and supported 11 different tax increases from 1982 to 1988 that collectively took back half of the 1981 tax cut. Although many conservative economists predicted doom from the 1982 tax increase, which equaled 1 percent of G.D.P., the beginning of the boom coincided with its enactment.

These economists also predicted catastrophe from the 1993 tax increase enacted under President Bill Clinton and from the expiration of many of President George W. Bush’s tax cuts in 2013. But in each case financial markets and the economy grew sharply afterward. By contrast, the economy tanked during the Bush years despite numerous large tax cuts.

The final proof that tax cuts are not the be-all and end-all of growth policy is the Tax Reform Act of 1986, which dropped the top income-tax rate to 28 percent. Conservative doctrine predicted an economic boom, but I don’t remember one, nor can I find one in the data.

Eduardo Porter in a column entitled The Case for More Government and Higher Taxes reviews the new book How Big Government Should Be?  He writes:

“A national instinct that small government is always better than large government is grounded not in facts but rather in ideology and politics,” they write. The evidence throughout the history of modern capitalism “shows that more government can lead to greater security, enhanced opportunity and a fairer sharing of national wealth.”

…  Here are some other things Europeans got from their trade-off: lower poverty rates, lower income inequality, longer life spans, lower infant mortality rates, lower teenage pregnancy rates and lower rates of preventable death. And the coolest part, according to Mr. Lindert — one of the authors of the case for big government — is that they achieved this “without any clear loss in G.D.P.”

Even assuming that higher taxes might distort incentives, the authors concluded, negative effects are offset by positive effects that flow from productive government investments in things like health, education, infrastructure and support for mothers to join the labor force.

Exactly! For decades we have been told that lower taxes for both the nation and Michigan were the key to economic growth. As if what the taxes paid for didn’t matter. But the evidence is that public investments do matter. As we have explored frequently high tax places like Minnesota (see our State Policies Matter report) and New York City (here) are some of the nation’s most prosperous places. In large part because those taxes have led to higher human capital by both developing talent and creating places where mobil talent wants to live and work.

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On the topic of welcoming to all (see my pledge of allegiance post) the Governor’s signing of the domestic partner benefit ban was a big step backwards. Two columns – one by Brian Dickerson in the Free Press and other by Tommy Allen for Mlive – capture how wrong and harmful that decision was. The Dickerson column says it all in its title: The good governor sides with the bigots. As does the title of the Allen column: Domestic partner benefit ban: Can Michigan experience economic recovery when we enshrine discrimination?

On places doing well economically despite supposedly high (to listen to the small government ideologues crushing) business costs check out a fascinating account in Bloomberg Business Week on Silicon Valley and an Economist article on New York City. These are two places that the right always pontificates about are in a state of permanent decline. As companies and people supposedly flee high tax/big government/high costs places. Wrong! Here is what Business Week says about Silicon Valley:

It was never clearer than in 2011 that Silicon Valley exists in an alternate reality—a bubble of prosperity. Restaurants are booked, freeways are packed, and companies are flush with cash. The prosperity bubble isn’t just a state of mind: Times are as good as they’ve been in recent memory. The region gets 40 percent of the country’s venture capital haul, up from 31 percent a decade ago, according to the National Venture Capital Assn. And the U.S. Bureau of Labor Statistics recently reported that growth of the area’s job market led the nation, jumping 3.2 percent, triple the national rate.

Some of that job growth is auto related. Ford just announced that they will be joining many auto companies in Silicon Valley. Why? Concentrated talent.

And then there is New York City (check out my recent posts here and here)  which as the Economists writes is doing well and is positioning itself to do even better in the future with their investment in the new Cornell/Technion campus. As they write:

Some $1.2 billion was invested by venture-capital firms in New York in 2010. The Big Apple even overtook Massachusetts in venture-capital funding for internet and tech start-ups, making it second only to Silicon Valley. And in the third quarter of last year, it surpassed it in venture capital in all categories. Between 2005 and 2010 employment in New York’s high-tech sector grew by nearly 30%. Google alone has about 1,200 engineers in the city.

Finally, as you know a central conclusion of ours from the years of research we have done on the characteristic of the most prosperous places around the country is that, with the exception of a few energy production states, the states that do well are anchored by a vibrant central city. As our Governor says Michigan can not succeed if the city of Detroit isn’t succeeding.

Dome Magazine published a terrific series of four columns by Craig Ruff on the importance of cities to Michgian’ success. You can find the first here. Definitely worth checking out all four. Ruff sums up how important this is to Michigan’s success this way: “Does Michigan need cities? Unequivocally, I say “yes.” Getting there is a whole ’nother kettle of fish. Why we, virtually alone and voluntarily, turned vibrant cities into detritus defines us and, very sadly, forecasts our future.”

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I want to start the year by writing about those who provide lessons and/or ideas on the agenda that can allow us to move towards Governor Snyder’s goal of a Michigan 3.0. Seems like I spend a lot of time in these posts criticizing what Michigan is doing. Rather than complaining, I want to focus on what a positive agenda would look like. The bottom line: if others are doing it, so can we. We will have to choose a new course of action, but the choice is ours alone.

The elected official in America today who is most aggressively pursuing positioning his community for a 3.0/knowledge-driven economy is New York City Mayor Michael Bloomberg. He inherited a city already with many assets for a 3.0 economy: an entrepreneurial culture, a city that is welcoming to all as well as great public services and amenities that make NYC a place where mobile talent wants to live and work. To his credit Mayor Bloomberg is pushing to enhance those assets.

Unlike many, when the economy collapse at the onset of the Great Recession he raised taxes (yes raised, not cut taxes) to make sure that the city could maintain quality basic services and amenities. He has been an innovator in improving schools, a national voice for pro-immigration policies and an investor in infrastructure, parks and the arts all of which enhance NYC as place that can compete globally for talent.

But maybe his biggest and most impactful action has been to sponsor a competition to lure a brand new engineering and technology higher education campus to the city. Talk about outside the box and making a big bet! A mayor getting involved in funding higher education. But Bloomberg understands that higher education – particularly research universities – are a critical economic driver in a knowledge-driven economy. Quite simply you want to be the place where new knowledge is being created and new talent is being prepared. The city offered as an incentive land as well as $100 million in infrastructure improvements.

The New York Times reports that Cornell University in partnership with Technion-Israel Institute of Technology won the competition over such prestigious competitors as Stanford, Columbia and Carnegie Mellon. According to the Times the plan calls for about 280 faculty members and 2,500 students in master’s and doctoral programs. The schools have also committed to training at least 200 teachers each year in science education, and to help teach at least 10,000 students, from kindergarten through 12th grade, each year. The initiative includes a $150 million venture capital fund for start-up companies that agree to remain in New York for three years, as well as math and science education support for 10,000 city children. They estimated that building the campus would create 20,000 construction jobs, and that it would spin off 600 new businesses over the next generation, creating 30,000 more jobs and as much as $1.4 billion in tax revenue.

Contrast that to Michigan’s approach to higher education the last decade. Cutting spending by nearly a third, imposing price controls and increasingly micro-managing from Lansing how universities operate. I’m sure there wasn’t anything in the NYC competition that asked universities about whether they offer domestic partner benefits, or placed conditions/restrictions on stem cell research, or affirmative action restrictions or whether or not they have tenured professors who are not teaching full time or placed limits on the tuition they charge. All misguided obsessions here. Ask yourself: “who is positioning themselves better for Governor Snyder’s 3.0 New York City or Michigan?”

This competition is not just about how a state or city value higher education – as a powerful asset for economic growth or wasteful spending institutions that need to be reined in. It is also about whether there are essential assets that matter to economic growth that communities need to invest in whether times are tough or not to be globally competitive. Mayor Bloomberg’s higher education play is entirely consistent with Denver in the 80s, when its economy collapsed, deciding that to be globally competitive they needed a world class airport and Portland in the 70s and Salt Lake City in the 90s deciding that to be competitive they needed rail transit or California in the 50s committing themselves to building a comprehensive, world class higher education system. The list goes on and on. The lesson is clear: public investments in strategic assets are essential to globally competitive states and regions.

Once again contrast that list of impactful public investments to what is happening here. Where we are letting our roads crumble, walking away from the Woodward light rail even with private investors putting $100 million on the table, weakening what was once one of the great higher education systems on the planet, etc. Once again, ask yourself “who is positioning themselves best to win in a flattening world, those who make big strategic public investments or those – like us – who don’t?”

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Now on planet ideology where an increasing number of Lansing policy makers, Michigan business leaders and pundits live, this can’t possibly happen. Their manta: companies only locate in places where business costs are the lowest. One thing we know for sure is business costs are not low in Manhattan. High taxes, high land costs and high labor costs.

Detroit News columnist Daniel Howes laid out well the case that is driving state economic policy these days in a column entitled: New tax policy could be game-changer that Michigan needs. He argues that businesses are mobile and move to where costs are the lowest. His case that Michigan is uncompetitive on business costs come from rankings from the Tax Foundation and a recent survey this month of 500 CEOs by Chief Executive Magazine. Both of which rank Michigan at or near the bottom of states.

Who else is at or near the bottom in both? New York. In fact, New York is dead last in the overall Tax Foundation’s State Business Tax Climate Index. So that means companies should be fleeing New York – and particularly even higher cost New York City – at least as fast as they supposedly are Michigan.

Wrong! As the Times article goes on to talk about other companies are making the same decision UBS is considering. One being Google. The Times write: The move would be the latest sign that New York has regained its allure as a caldron for the young and creative. Six months ago, Google paid nearly $2 billion for a large building just north of the meatpacking district, in the same Manhattan neighborhood where many of its employees live.

The article continues: “A key piece of the mayor’s economic strategy has been to make New York City a place people want to be,” Deputy Mayor Robert K. Steel said, “and more than ever the city is the ideal location for any company, like UBS, that succeeds by attracting a talented, motivated work force.” Mayor Bloomberg has figured out what our leadership hasn’t: talent concentrations are the asset that matters most to economic growth in an increasingly knowledge-based economy. Increasingly companies succeed by attracting a talented, motivated work force.

The leadership of companies like Google and UBS aren’t stupid and they certainly are profit maximizers. They don’t seek out high cost places to locate their operations. But they know that talent trumps low costs, because it is the skills of their employees that determine their success and ultimately profitability.

If we are looking for a state/local policy maker as a model for how to do economic development Mayor Bloomberg should be at or near the top on the list. His agenda – focused on preparing, retaining and attracting talent – is the path to the 3.0 economy Governor Snyder campaigned on.

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The second trend is that both college educated adults and knowledge-based enterprises are increasingly concentrating in big metropolitan areas anchored by vibrant central cities. So if metro Detroit and the city of Detroit primarily and secondarily metro Grand Rapids and Lansing don’t work the state will not be prosperous.

Along comes three recent articles that demonstrate the continuing power of these two big trends. The first from urbanphile.com shows how college educated adults continue to move to big metros, particularly their central cities. As they write: To put it in perspective, the 171,000 college degrees added in Manhattan in the last nine years would constitute by my quick look the 141st largest city in the United States in its own right, roughly equal to the entire population of Chattanooga, TN. Pretty amazing!

The second is specifically about NYC from the Economist. They report that this year NYC  with less than 3% of the nation’s population has created 7.5% of all the new private sector jobs in the country. Sure the financial sector bail out helped. But this is more about the concentration of talent that is creating job growth across the broad knowledge-based economy.

Finally a real insightful article from Chris Farrell in Business Week. It is about the symbolic importance of Google’s recent 10% pay increase. That’s right: a big pay raise in these awful times. As Farrell writes: Workers in the most cosmopolitan cities are seeing wage gains. For instance, the average weekly wage increase for all private industry workers in the U.S. from the first quarter of 2009 to the first quarter of 2010 was 1 percent, according to the BLS. Yet average weekly wages in tech-heavy San Francisco over the same period showed an increase of 5.4 percent. The gain in information-rich Washington, D.C., was 2.8 percent. New York City had an 11.9 percent increase, with the biggest pay earned in finance (22.7 percent) and professional business services (10.9 percent). “This isn’t about information technology,” says Paul Saffo, a longtime Silicon Valley consultant and managing director of foresight at the startup Discern Analytics. “This is about knowledge work.”

Get aligned with these trends and you can prosper. If not, you will get poorer compared to the country. It is that simple.

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