Bigger Cities Benefit the Rich, Harm the Poor

Lambert: I don’t want this to be true because I love the big city (though not all the time). Damn. Readers?

By Leith van Onselen, an economist who has previously worked at the Australian Treasury, Victorian Treasury, and Goldman Sachs. .

New research has been released showing that Australia’s major cities are benefiting the rich more than the poor and are becoming breeding grounds for inequality in the process. From :

Lead researcher Somwrita Sarkar said the findings suggest cities like Sydney and Melbourne have a disproportionate accumulation of the highest income earners who have the advantage of affording the best services and infrastructure while poorer people face being pushed out.

“If we think of income and population distribution as a pyramid what is true is big cities drive a lot of the innovation and economic growth for the whole nation, but what is unappreciated is that the pyramid needs a stable base of a large number of people doing normal jobs to support that innovation,” she told AAP on Thursday.

“If richer and richer people agglomerate in bigger and bigger cities, you push up the prices and you push out that large pyramid base.

“Either you are pushing them out of the city or you are forcing them to live with conditions that are not very sensitive to their wellbeing.”

The findings by Dr Sarkar and her team of researchers at the University of Sydney’s Urban Lab were based on the 2011 census and income data from the Australian Bureau of Statistics…

Sydney and Melbourne had the highest numbers of people earning $2000 or more a week, while Hobart and Cairns had fairly even income distributions

…the poor spend a substantially high proportion of their income in housing and travel costs, whereas the rich spend, comparatively, a much lower proportion of their income for the same goods and services… certainly concentrating all the development on the big cities is not the way forward if we want this trend to decline.”

I am not surprised by this result. Sydney and Melbourne are home to most of the headquarters of Australia’s large oligopolistic companies (e.g. the big four banks, the managed funds/superannuation industry, large retailers, media companies, etc), which effectively collect economic rents from the rest of the nation. Accordingly, the workers in these companies earn a disproportionately higher income, thus widening the gap between rich and poor.

Both major cities are also built-out and have growth control measures in place to prevent urban sprawl. Accordingly, affordable land/housing is next to non-existent, whereas infrastructure access outside the inner areas is poor. In both cases, it is the poor in both Sydney and Melbourne that bear the burden, whereas the wealthy elite gain from both higher housing values as well as better amenity. There’s a reason why the numbers of homeless people in Australia’s major cities are expanding as the rich get richer!

It is the above dynamics that makes the wealthy elite – the ‘growth lobby’ – such strong supporters of high immigration and a Big Australia. A bigger population provides the growth lobby with a larger domestic market to sell to, thus providing them with lazy profits. At the same time, their property holdings inflate in value from all the added demand (and debt), making them substantially wealthier.

To the growth lobby, high immigration provides a way of privatising the gains from a bigger population while the rest of society – and the poor in particular – socialise the costs.

But don’t just take my word for it. The Productivity Commission’s on the Economic Impacts of Immigration, conducted in 2006, considered the distributional impacts of immigration (unlike their latest modelling). The PC’s 2006 report found that boosting skilled migration by 50% over the years 2005 to 2025 would actually lower the incomes of incumbent workers, while wealthy capital owners (and the migrants themselves) reap the gains:

The increase in labour supply causes the labour / capita ratio to rise and the terms of trade to fall. This generates a negative deviation in the average real wage. By 2025 the deviation in the real wage is –1.7 per cent…

Broadly, incumbent workers lose from the policy, while incumbent capital owners gain. At a 5 per cent discount rate, the net present value of per capita incumbent wage income losses over the period 2005 – 2025 is $1,775. The net present value of per capita incumbent capital income gains is $1,953 per capita…

Owners of capital in the sectors experiencing the largest output gains will, in general, experience the largest gains in capital income. Also, the distribution of capital income is quite concentrated: the capital owned by the wealthiest 10 per cent of the Australian population represents approximately 45 per cent of all household net wealth…

With Sydney’s and Melbourne’s populations projected to skyrocket on the back of continued strong immigration (see below charts), the outcomes for ordinary Australians and inequality are destined to get much worse.

screenhunter_16328-nov-25-07-45-660x480
screenhunter_16327-nov-25-07-45-660x479

It is precisely the wrong kind of economic model that Australia should be facilitating via ongoing high immigration and a ‘Big Australia’: one that places overall growth ahead of improving productivity, sustainability and individual living standards.

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About Lambert Strether

Readers, I have had a correspondent characterize my views as realistic cynical. Let me briefly explain them. I believe in universal programs that provide concrete material benefits, especially to the working class. Medicare for All is the prime example, but tuition-free college and a Post Office Bank also fall under this heading. So do a Jobs Guarantee and a Debt Jubilee. Clearly, neither liberal Democrats nor conservative Republicans can deliver on such programs, because the two are different flavors of neoliberalism (“Because markets”). I don’t much care about the “ism” that delivers the benefits, although whichever one does have to put common humanity first, as opposed to markets. Could be a second FDR saving capitalism, democratic socialism leashing and collaring it, or communism razing it. I don’t much care, as long as the benefits are delivered. To me, the key issue — and this is why Medicare for All is always first with me — is the tens of thousands of excess “deaths from despair,” as described by the Case-Deaton study, and other recent studies. That enormous body count makes Medicare for All, at the very least, a moral and strategic imperative. And that level of suffering and organic damage makes the concerns of identity politics — even the worthy fight to help the refugees Bush, Obama, and Clinton’s wars created — bright shiny objects by comparison. Hence my frustration with the news flow — currently in my view the swirling intersection of two, separate Shock Doctrine campaigns, one by the Administration, and the other by out-of-power liberals and their allies in the State and in the press — a news flow that constantly forces me to focus on matters that I regard as of secondary importance to the excess deaths. What kind of political economy is it that halts or even reverses the increases in life expectancy that civilized societies have achieved? I am also very hopeful that the continuing destruction of both party establishments will open the space for voices supporting programs similar to those I have listed; let’s call such voices “the left.” Volatility creates opportunity, especially if the Democrat establishment, which puts markets first and opposes all such programs, isn’t allowed to get back into the saddle. Eyes on the prize! I love the tactical level, and secretly love even the horse race, since I’ve been blogging about it daily for fourteen years, but everything I write has this perspective at the back of it.

62 comments

  1. alex morfesis

    Might it just be an Australian thing…8 metro areas make up 70% of the population…it is a giant island/continent with a bunch of city states and access to the global banking system…per capita banking assets in Australia seem extreme considering the actual gdp…

    One thing that has struck me from the cheap seats 30 thousand feet up is how no one globally seems in love with sunsets as the west coasts of most major countries are fairly barren except in the u s of a…

    Australia is nearly the size of china, brazil, canada and the US and twice the size of india yet has a tiny population…perhaps there is more desert then me thinx…

  2. Julian

    What this article doesn’t seem to address is what is preventing these disadvantaged types from sticking it to “the man” and setting in motion the wheels of reverse urbanisation. If you have to be poor, then surely a cheap locale is a better place to be it than an expensive one (which would, incidentally, drive up the competitiveness of labour vs capital).

    For some reason, “poor people” (or: not rich) are not fleeing these areas en masse. There is some fleeing of places like California and others, but none of this is substantial.

    I’d like to see more on what’s maintaining the status quo here. There are outside options that are not being taken right now.

    Maybe the key takeaway is that bargaining power can’t just magically appear. It can only be taken through (collective) action.

    1. jawbone

      Living in cheaper areas outside the public transit that, albeit scant, is available means poor people have fewer sources for food shopping, fewer means of getting to work. Time to get to work becomes debilitating in the amount needed to do the simplest things. Medical visits become all day experiences, just for an office checkup. In the city, there’s at least a bus system or subway to get to the doctor, along with more doctors available.

      In the large cities, having some transit does cost in the time its takes, but it is probably much cheaper than trying to purchase, insure, and maintain a, probably, older used automobile. Also, the poor tend to be treated to higher number of traffic stops, with the concomitant tickets, possible missed court appearances and added fees. Or, if the person can make it to court to plead a lesser offense, he or she pays for that lowered impact on insurance rates by paying higher court fees. It’s not just racism at work here, but class. The older the vehicle, the more it appears to need care, the more likely a traffic stop becomes.

      Being poor is extremely costly in time.

      Being poor in the USA sucks big time.

    2. Kfish

      If you’re on unemployment benefits in Australia and move to a lower-employment area (such as most regional and rural areas) you can be penalised by having your payments stopped for 26 weeks. The idea was to stop everyone on welfare moving to the beaches, but it has a nasty side-effect of stopping people moving to the bush.

  3. Eustache de Saint Pierre

    There is historical precedent for this in 19th century London & other major English cities, especially from 1840 ish onwards, as a large number of desperate Irish fleeing from the after effects of the famine & Jews, fleeing from pogroms, joined the already desperate masses who were already barely scraping a living. The depression of the 1870’s then exacerbated an already desperate situation. I imagine that at that time, a similar situation existed in the US. We have I think, some way to go to catch up on the terrible conditions of those days, but Neoliberalism will give it it’s best shot – after all, it was Trevelyan whose strict adherence to the so called Free Market, was probably the largest cause of the mass emigration from Ireland.

    1. Herkie1

      it was Trevelyan whose strict adherence to the so called Free Market, was probably the largest cause of the mass emigration from Ireland.

      Actually most people are unaware that Ireland, about the same size as South Carolina, had before the famine about 9 million people, between death by starvation and disease, and the diaspora of millions leaving even 150 years later the population is still only 6.4 million, far below the 1840 high. It bottomed around 3 million in 1926. And they were still exporting their population at least at the time my father and three of his 8 siblings emigrated in 1949.

      I can tell you that it was not trade policy that drove the population down, at least it was not the decisive factor, it was in part trade to be sure, but the trade that managed this decimation of the Irish population was a genocidal policy of conquest by the British Empire. In fact Ireland had plenty of arable land and more than adequate food was grown through the whole famine years. But the English had taken all the best land for their estates leaving the enslaved peasant Irish only the most marginal land to eke out a subsistence living. The land they were allowed to use (but rarely own) was so marginal that the only crop they could grow on it was the potato. That is why when the blight came the peasants died en masse. Even as workers were employed on the great estates of the landed aristocracy growing and harvesting food crops for export to Britain. It must have been horrifying to see all that food grown in Irish soil when you had to go home at night to a starving family.

      So, I contend that this was not so much a trade policy as it was a genocidal culling of trouble making indigenous Irish. Why people who will later rise up against the system of slavery later? If they did not like the way things were passage out was available to them, so the British have none of the inconvenient guilt issues associated with other genocidal events like the Holocaust, or the Armenian slaughter by the Turks.

      Nevertheless a population drop from near 10 million to under 3 whether by starvation or diaspora over such a short span is still a genocide, if for no other reason than the crown had the ability but not the will to stop it, to the hungry, to provide access to travel and employment in other parts of the realm where there was no famine, a realm the sun never set upon.

      It seems to me you belittle the scope and depth of the causes so that it turns out this destruction of a nation and people is merely poor economic decision making. If trade policy had any impact upon what happened to Ireland during that time it was done intentionally and with malice aforethought. English subjugation of the population meant that the English were also responsible to do the right thing in such an event as the famine, they did NOTHING to ease the pain and death, but they did send reinforcements to mow down those who had nothing left to lose. How can anyone look at images of people eating weeds from a ditch before dying of starvation and claim it was trade policy that was responsible?

  4. PlutoniumKun

    I”m a bit sceptical of this analysis. I think a key reason why housing and living costs can go out of control in big cities is that all cities have a series of natural ceilings to growth – they can be physical (the city fills up its natural hinterland and finds itself surrounded by mountains or other barriers), or infrastructural. The faster a city grows, the more likely it is to keep hitting these ceilings, and prices go up. So cities which have succeeded growing rapidly end up becoming unliveable (at least temporarily) for those who’s incomes are not increasing at the right rate. You can see this in the UK where there is a massive disparity in living costs between ‘successful’ cities like London and Manchester compared to cities like Liverpool or Newcastle, which have stable or dropping populations. The problem is that while conventional economics says that this will lead to businesses moving to Liverpool or Newcastle, this is not actually happening, which indicates that the centrifugal forces for city growth are immensely powerful. The problem with facilitating such centrifugal forces by stopping wages going up (by immigration or by putting all your infrastructural investment into those successful cities) is that it means that you are promoting growth at the expensive of quality of life.

    Another key issue with analyses like this is that you inevitably hit the problem of defining what constitutes ‘the city’. Many cities, New York to take one example, has continued to grow and become more unequal by the simple expedient of pushing its poor way out to the outer boroughs. A more extreme example is Singapore, which uses nearby Malaysia as a hinterland for everything it doesn’t want within its borders, including the workers who make the city work.

    While I’m sceptical of the analysis above, I think the base conclusion, which is that emphasising growth over such matters as sustainability and quality of life is correct. But to do that means acknowledging that many cities have physical limits which cannot be exceeded without making life a misery for its inhabitants who are not rich enough to buy helicopters and private parks and water supplies. Limiting immigration is just a small aspect of this, as internal migration within a country can be just as destabilising (just look at cities like Jakarta or Bangkok). Its no surprise I think that the cities which dominate any list of great cities to live in and raise a family are what I might call ‘mature’ cities – those with a long history of infrastructure provision, a big established building stock and plenty of room to absorb natural population cycles – for example Amsterdam or Paris or Stockholm or Vienna.

    For me then, the core questions should be about providing decent housing and amenities for everyone as a basic right – and if the costs of this means that a particular corporate HQ is going to move somewhere else, you might just have to accept this. But thats a very difficult argument to make in the face of a growth obsessed polity.

    1. Altandmain

      Fundamentally, the problem is that the system the way it is set up is not designed to maximize the standards of living for the inhabitants of the city.

      The system is designed for a small number of wealthy to benefit at the expense of the residents. You get this dynamic where the poor are forced out due to gentrification (or forced into substandard housing very far from the city core), the middle class is barely hanging by (due to the rising costs of rent and other costs of living, while wages of course do not keep up), and only older, wealthier people benefiting. The only middle class people who might benefit are those who bought homes decades ago and who can realize a massive capital gain (provided they sell at the right point in time).

      Then the rich and real estate interests immediate buy the politicians, preventing real change from happening.

      1. PlutoniumKun

        Indeed yes, and this is why having a sur of useable space is vital for a liveable city. When a city grows too fast its almost impossible for supply to keep up with demand due to inevitable constraints.

        Another element is that while a fast growing city can suit young and mobile people so long as there is room room available, its a different matter when it comes to families. I know a few young people living in Sydney who love it – they live in shared apartments near the centre and have a great social life. But they all say they can’t settle down there – to marry and have children means buying a house, which unless you are very wealthy means way out in the far suburbs, which means a life of long distance commuting and traffic jams and a dull social life.

  5. Norb

    I once read that the Romans built their cities with a particular size limit in mind. When that size was reached, it was time to build a new city, not continue the sprawl. The social stratification existed, but at least the rulers had sense enough to realize that disease and strife had to be kept to manageable limits. This system only works though when there are other lands to conquer, but still, proper city planning is a marvelous thing and one of humankind’s great achievements.

    Maybe walled cities will make a comeback. The rich can obtain a captive labor force which they once again assume responsibility for by providing food, shelter and clothing in exchange for uncontested obedience. Servants quarters or districts in the walled city. Indirectly, this is the result of current trends and there will come a point where this will be cheeper to achieve than supporting a “Free” market. The walls will go up to keep the undesirables out. Just one possible future.

    While the glamor of the big city is a powerful dream, the reality it has become is more of a nightmare. Cities always required the inputs from the surrounding countryside to sustain their existence. Cut off that flow and the cities die. A proper free city would be one that has a healthy, sustainable relationship to the countryside surrounding it. The city efficiently concentrates industry, high culture, and government. As resources become more scarce, the flow of energy that keeps the mega cities of today functioning will diminish and either their self sustainability will have to increase or their size will decrease. The other future is complete collapse, like Detroit and many other US cities.

    In the end, we must ask ourselves what is a city? If it functions as a tool to achieve particular ends, then to question and understand those ends is of utmost importance. Form follows function. A city designed for the good and wellbeing of the people has one form. A city designed for the wellbeing of the rich has another. In a sense, the working class is building their own prison. Time to stop, envision a proper “free” city, and start constructing that instead.

  6. DWD

    This is such a given I am surprised that it would be in the least controversial.

    I would even go so far as to claim it is not just the wealth/services gap inherent in the structure of large cities, it is also the incessant call for centralization to improve efficiency that takes money from more rural areas and concentrates it in cities thus exacerbating the problem.

    Time was when every small city had their own offices of companies and governmental services that have become more centralized in the larger cities. The phone companies used to have offices as did the utility companies in most small cities. Even the locals had access to state and federal government offices. In the effort to become more efficient, these offices were closed and the jobs moved to more central locations.

    Now if someone in a small city or rural area has to deal with these entities it up to them to travel to their current locations — usually in a large city — rather than going to their own local offices or making a smaller journey to one of the small cities near them.

    It really comes down to a prejudice against more rural areas for when the jobs are removed this causes more poverty and a dearth of opportunity for the citizens of the smaller areas including their progeny.

    As the era of instant communication envelopes more of our economic activity, there really is no reason for concentrating people in large cities so incentives could be created to go back to a more distributive rather than exploitive economic model.

    1. Norb

      The future will be formed by those able to escape the exploitive trap being constructed by corporatism. It is really that simple. Efficiency is a power of nature and is a good thing. Efficiency eventually leads to an equilibrium state. Corporatism is efficient at making people poor and unhealthy, so leading to unstable societies. Corporatism is good at concentrating wealth and breeding inequality.

      As people concentrate more on building healthy, stable communities, the size and function of cities will take care of itself. A natural growth model if you will. Everything we have now is most unnatural in character and cannot last.

      Cities are not bad in themselves and a rural lifestyles is not for everyone. It is a balance that is needed and a sense of cooperation. But once again, this smacks of socialism so cannot be addressed in polite company.

      The real prejudice is the unrelenting support for the free enterprise system to the detriment of the commons. The few given leave to exploit all the earth and its inhabitants. To put everything up for sale.

      A rediscovery of the commons and a dedication to its protection is the only way out of the trap being set. We truly are in a race to the bottom. But what if that condition was used to envision a different possibility for economic organization instead of despair. To begin a world anew with different priorities. The city and the countryside can work together in mutual support, it just needs to be demanded- and made so.

      1. DWD

        Very good Yes, I agree.

        In the end those things we have in common are much greater than those things that separate us but exploitation to benefit the few does not lend itself to the commonweal, does it?

        1. Norb

          What we need today is a sense of duty to more than just ourselves. I think this is a standard base position of most people that has been cynically turned on its head by our economic and financial masters. They turn a strength into a weakness- loyalty and self-sacrifice are misguided. Once again, Michael Hudson’s parasite metaphor in action.

          Really, what is coming to a head is people are finally realizing that religious institutions are full of heretics and political leaders are actually traitors and counter revolutionaries. How can a supposed follower of Christ not provide care of the poor and needy? How can a supposed American Patriot lobby for the TPP and the weakening of the people of this nation? It is all about the needs of the many and the rise of inequality, by any measure cannot be hidden. It is the Achilles heal of corporatism. No amount of messaging can hide that fact and the only other way is to somehow anesthetize the majority of the population. This is not a long term solution. Bread, circuses, and war is not a long term solution.

          False leaders days in power are numbered. This is Trumps dilemma. He will have to deliver some form of relief to the working class or the corporate game is up- or definitely on the way down.

          When you actually hear leaders honestly dedicated to the common good, the commonweal, their message is as unmistakable as it is fresh. Hence, the need to silence them. The success of Sanders and Tulsi Gabbard come to mind.

          1. sd

            One of my first trips to NYC was in the winter (early 80s) stopped in to take a look at St. Patrick’s Cathedral. It was warm and toasty inside. I saw a nun asking an old and obviously poor man who was sitting alone in one of the pews, to leave the church.

            That moment continues to succinctly sum up so much.

      2. anonymous in Southfield, MI

        As people concentrate more on building healthy, stable communities, the size and function of cities will take care of itself. A natural growth model if you will. Everything we have now is most unnatural in character and cannot last.

        I agree with the substance of what you say. However, urban planners have not been much interested-at least here in SE Michigan (Cleveland and Chicago appear to be in the same trap I’m outlining) -in building along the lines you give. I believe it is due to the automobile trap designers and planners fall into-huge swaths of urban areas-even in smaller venues -are given over to automobile use and not mass transit. I’ll be talking more on this topic later but for now it seems to me that if we don’t remove automobile use from the drawing board we’re doomed to have wretched cities and rural areas as well.

        1. Lambert Strether Post author

          When I photograph my home town, as opposed to just looking at it, I’m amazed at how dominant the automobile is, and how much space is devoted to them. This is very visible via Google Earth, too.

          We don’t even see the dominance, in the same way that we don’t see the ugliness of overhead wires. They vanish from our consciousness, until they show up in the view finder.

          1. Onlyindreams

            Overhead wires scar the landscape. They only have a sense of beauty when rows of birds are resting on them.

            Driving through California, I commented that California would be so beautiful if it weren’t for all the freeways. To which my sister said, “my face too would be so beautiful without all these wrinkles.”

            The world desperately needs a facelift.

      3. jsn

        Efficiency as an economic construct pushes all public goods into the realm of externalities: it’s a concept at odds with lived, biological reality where health and robustness is all about healthy margins and untapped resources. Market efficiency strip mines these resources and converts them to immediate money wealth, often and increasingly destroying real wealth in the process: clean air; clean water; healthy soils; healthy diets; health care; the ability to save from income for most people.

        Tax away the rents and price in organic health and I agree, city size will take care of itself.

        The challenge will be that short term strip-mining of these public goods will always appeal to concentrated power, concentrated power has to be constrained wherever its allowed to form. For a healthy civilization to prosper it will need to have enough concentrated power, properly constrained but available, to deal with the emergence of inadequately constrained external power structures and defend itself from their destructive arrogance (think us, the US, now).

        1. Barry

          Efficiency is maximizing X in relation to Y: deciding what X and Y are in the social realm is a political act, not a scientific one.

          Exposing the X and Y when people extol efficiency helps force the discussion in productive ways: what should we be maximizing? Why shouldn’t we be maximizing something else?

    2. Katharine

      Like you, my first thought was that this was obvious, but yet it is difficult to separate the effects of size from the effects of the habitual inequitable allocation of resources. (In Baltimore, there are several free bus routes serving the downtown area, for the convenience of businessmen and tourists, while basic bus service in most of the city continues to be cut. This is not a problem of size but of entitlement and pure minginess.)

      One of the dumbest examples of inappropriate concentration of services I have heard of is that a letter mailed between towns in a midwestern rural area travels via a major city a couple of hundred miles away, because it is allegedly more efficient to handle mail that way. I would really like to see the analysis purporting to justify that claim, because I suspect it is leaving out a lot of factors. Certainly for the people in the small towns it means very inefficient mail service!

      On the other hand, some utilities are easier to manage efficiently in areas of greater concentration. Water mains that don’t serve a lot of people per unit length are prohibitively expensive to maintain, and the same is true of much utility infrastructure.

      There is a troubling pattern in the data here, but it is mere correlation; there is not enough information to analyze, much less interpret causes. Maybe the original study had more. Link?

      1. Moneta

        The numbers of the post postal system do not include the cost of foodstamps and Medicaid due to less jobs thanks to its “efficiency”.

        If all industries had to include externalities, their efficiency equations would change dramatically.

  7. William Beyer

    It’s the entire setup of our economy that benefits the rich over the poor, not big cities. The authors confuse cause with effect. It appears they’re just looking for another fake villain to rage against.

    1. Inode_buddha

      THIS a zillion times. (fwiw, I’m allergic to urban living in general, although I currently live in a smaller rust-belt city. The negatives far outweigh the conveniences. I can actually feel my blood pressure drop the further out I go into the boonies.)

      1. DWD

        I live in a small city on the coast of Lake Michigan and would not/could not give up my space for urban living like my sister in Chicago.

        Nah.

        I just left the morning observation of the bird er: in addition to the usual assortment of cardinals and titmice and chickadees along with the woodpeckers and nuthatches attacking the suet cakes, I had eight squirrels – three varieties – and 15 wild turkeys milling around. All less than 20 feet away.

        I can be anywhere in town in 15 minutes and parking is close and free.

        I dunno: cities are fine for those who love them. I like the sunsets on the lake, the peace of the evenings – I can hear the impact of the leaves as they fall or the rustle of a bird when it flies – to the constant hubbub of the city.

    2. ChrisAtRU

      +1 … just look at Silicon Valley and the Bay Area. A great example of the cause and effect you mention – the affected including both a large city (SFO) and its smaller satellite communities.

      1. MyLessThanPrimeBeef

        The setup of the economy or the economy is set up by those living in cities.

        “Innovations” like financial derivatives or genetic engineered food come from people living in big cities.

        National political decisions are made in bigger cities.

        The setup favors those in cities. Only bigots or low information people live in rural areas.

        One can grow up in a city, go to Harvard, only to realize the futility of modern living and it’s easy to go back to farming in, say, the Imperial Valley.

        It’s not as easy to raise a child and see him/her got admitted to Harvard (so he/she too can be enlightened to realize the futility of modern living and return home).

        1. Moneta

          Last century, when farmers had too many kids for the productivity of the land, they would send them off to become priests, nuns or the city.

          Farmers could not have so many children and expect the economy to stick to essentials.

    3. Art Eclectic

      Not just our economy, human nature. All throughout human history, wealth has brought a stronger desire to protect that wealth (and expand it) and it has brought the access/leverage with which to do so. The wealthy have always bought off politicians to protect themselves and their interests. The power of wealth is limited only the amount of wealth and the leverage it buys you.

      The promise of America has always been that anyone can rise from rags to wealth, our lack of class stratification opens up an opportunity (or at least it used to). This is the wellspring from which the idea of “you get what you’re worth” has originated. If you’re poor, it’s your own damn fault.

      So the wealthy look down upon the middle and working classes because they had the opportunity but not the drive or intelligence to better themselves. They get what they deserve in our meritocracy. If they can’t afford housing, it’s their own fault for not being more valuable or creating more value for the wealthy.

      1. Norb

        And also throughout human history, when the rich overextend their divine privilege, and fail to relieve the mass suffering of those not as gifted or fortunate as they are, there tends to be a lot of destruction that results. Both the rich and poor suffer, and all that was built up is turned to ruins. What a wonderful world the drive and intelligence of the greedy bring forth into the world.

        Our nomadic past as a species is probably our base state. Look at all the refugees in the world. Given the choice of standing and fighting for a cause, most will choose to flee instead- seeking peace and stability for their families and loved ones. Democracy probably has a scale limit also. Corruption and greed are most easily controlled on a smaller scale. Direct human interaction is needed. This is not possible in vast cities and collections of millions of people. A sense of common duty or great rational skills would be required and that is not a skill set one needs exploit others- just a rapacious cunning.

  8. Ed

    The historical way that large, post-industrial revolution cities housed the poor was in slums and, after World War 2, sprawl, which is really a different, probably better, version of slums. By creating this space for the poor there was some space for the middle class as well.

    If you make slums illegal through housing legislation, and sprawl illegal through anti-growth measures, then you have created a city with no place for the poor to live and the middle class is squeezed out as well. You can have two of super-large cities, class differences, and a pretty urban landscape, but not all three and eventually this gets found out.

    1. jrs

      sprawl doesn’t work very well even for the poor, it’s a couple hours of commuting each way to the ex-urb on top of an 8+ hour day at the office. Quality of life = non-existent.

  9. Joaquin Closet

    Uh, let’s do a little thought experiment. Take an acre of open, unused land. Put two millionaires on it. Then put four relatively wealthy people on it, eight middle class denizens, and say, 16 poors. Lastly, to keep it simple, let’s say that no one can occupy more than 400 square feet of “ground space.” Get everyone together and say, “You all have to live on this one acre of land and exist and subsist on whatever this acre of land can yield. Do what you want.”

    What do you think that acre of land will look like in, say, a year’s time? Not a big ‘ol farm, I can tell you that. Ingenuity, wealth and the obvious-to-most power grab will create high-rise buildings, the offering to outsiders to take care of the infrastructure, commerce, policing, educating and health-care needs of the most wealthy. And so on and so on.

    Due to the fact that all this is happening on a finite piece of ground, there will be limits to population and services offered, among many other things. Think the millionaires care that the 16 poors have a place to live, eat or exist in?

    Now extrapolate that out, say, 350 years (New York City’s relative growth time) and what do you think that acre looks like?

    Naw, you don’t need any sociologists, city planners…let alone a Cfdtrade article…to tell us what this looks like.

    1. Norb

      Where is the agency? Why are the rich given so much credit? We need some honest class warfare going on and you will be surprised on how quickly the rich fold- not all, but most. The rich need most of all to be respected and honored. Withhold that, and they have serious psychic trouble. Being surrounded by sycophants does not serve well as HRC has recently found out.

      The main problem with your thought experiment is the precept of, “Do What You Want”. That is the problem, that is what is killing everything on this planet. True freedom and justice is not about doing what you want, it is about knowing and doing what is right. New guidelines must be demanded and fought for.

      One way or another, a new world is coming. Best get ready to choose your partners in this endeavor. At least for me, choosing the people that are bringing on the pain are not the ones.

  10. jfleni38

    This idea is what is called “having a firm grip on the obvious”, rather than some more esoteric theory of economics.

    Just glance at any city in the world where the rich have it all, while the hoi poloi are either homeless or starving or both.

  11. Glen

    It is tiresome to hear again the drivel about the knowledge economy and creative class. Have them face the same environment as the manufacturing sector and it would have collapsed far faster. It is only by protecting the “creative class” by copyright, patent and licensing that they have succeeded.

    1. barnaby33

      Glen interesting point, except that those systems of protection are mostly quite finite. Plus the IT and general creatives industries are really only a generation old. That competition is rising and rising fast. I think what you are faulting is an arbitrage play that is ending fast and abetted by those that created it.

  12. Jim Haygood

    As recently as the 19th century, a majority in the US and other advanced economies were engaged in agriculture. They lived in the countryside, because that’s where the land is. They needed at least a few acres for personal subsistence, and more than that for commercial scale crops and livestock.

    Now only 1 or 2 percent of the population are engaged in agriculture. Naturally, a migration to cities and regional towns occurred, because that’s where the jobs are.

    For some “knowledge workers,” the internet sets them free from geographic constraints. They can live in remote areas that feature natural beauty, cheap land and no jobs. But a majority are still tied to a town or city in pursuing their careers.

    The tendency of the birth rate to drop with increasing wealth is heightened in megacities. On Planet Japan, which an early 1980s European Community paper caricatured as “workaholics living in rabbit hutches,” the population is shrinking.

    Apparently, humans retain a free-ranging instinct from their savannah-roaming days. As ol’ Jim Morrison used to say … do you remember when we were in Africa?

  13. Ivy

    Urban economics discussions often benefit from inclusion of . The link is to his books, starting with Urban Economics, which was at one time a standard in the field.

  14. Ignim Brites

    I wonder if there isn’t something within the human mind which intuitively (albeit falsely) “legitimizes” greater inequality in larger populations.

  15. Vatch

    There are a couple of definitions that seem to be missing from this discussion. What’s a city? Is it a legally defined entity, or is it a continuous urban area, which probably contains numerous official cities? How do we define a big city? Do we use the total population, or do we use the population density?

    One can probably find different estimates, but Wikipedia lists Shanghai and Karachi (Pakistan) as the biggest cities in the world. Tokyo, Shanghai, and Jakarta are the biggest urban areas in the world. The most densely populated cities include some relatively small cities, but the densest cities with large populations are cities such as Manila, Dhaka (Bangladesh), and Chennai (formerly Madras). New York City isn’t even in the top ten of the first two lists, and doesn’t appear on an list of the densest cities that I have seen.

    1. Foppe

      who/what of? Plants? If so, Monsanto will be confused — Agent Orange sales will go through the roof, but their other products, not so great.

      1. Vatch

        Amusing! But I think we can be pretty sure that McWatt is referring to the need to limit human population growth. McWatt is correct about that.

  16. eyebear

    What is missing in Australia? Rain.

    There’s a scarcity of potable water all over the continent. Some areas get tropical rainfall or it rains in the ‘winter’ – whatever such a weather might be on the other side of the blue marble. But the australians couldn’t build a thousand cities like the people of the ‘Holy Roman Empire’ from 800-1000AD. There is neither enough rain nor plowable soil.

    So you can only build a city if there is enough of those goods. And in Australia only a small fringe of the whole continent is ‘useable’. So concentration is the way it works. Since the medieval ages we know the difference between the city and the country. And – who could have known – the city reaps the benefit the country has sown.

    Oh, and since the medieval ages we know the dynamics of society – you can have a look at it, even nowadays. Just visit the ‘Fuggerei’ in Augsburg. It’s from 1521 and since then, it’s the eldest welfare housing project which is in it’s intended use since then.
    The question from the article is solved, if the cities just produce good welfare housing projects.
    Just a politcal mistake, to see there, nothing else.

  17. rfdawn

    Inequality growth is not only an inside-city process. Wealthy immigrants increase inequality simply by arriving and their likely preference is to arrive in a big city. If they are flight capitalists, their first priority is capital refuge, not capital return. That price-insensitivity inflates high-end real estate first but the bloat does not stop there. Immigration should not just be assessed by headcount, but by capital inflows too. Of course, many governments love this overall boost to “growth” and don’t fret the pesky details.

  18. Moneta

    Interesting because this article came out a couple of days ago and when the money machine starts printing again it’s going to be to invest in projects using pension money. And it looks like the cycle of bigger cities will just continue…
    “>

  19. Clonal Antibody

    More than half of all New Yorkers don’t have enough money saved to cover them in the event of a lost job, medical emergency, or other disaster, according to a by the Association for Neighborhood & Housing Development.

  20. PlutoniumKun

    There is an assumption made here (and in the comments) that immigrants go to the big rich cities. In fact, this is not always the case. Many immigrants specifically go to poorer cities to take advantage of cheaper property and its opportunities for starting new businesses. As an example, in the UK most South Asian immigrants, at least initially, went to the industrial cities of the north, places like Leicester and Leeds. A lot depends on whether the culture and background of the immigrants leads them to want to work in established sectors or whether they aim to set up their own businesses.

  21. Steve H.

    A single point of ‘hmm?’ here: the specific reference is to ‘skilled’ workers, but rural skills are not urban skills, and the historical push has been from the country to the city in times of scarcity.

    It’s possible that cities are a priori extractive and emergent. I’m not seeing the favelas considered in this analysis.

  22. Steve H.

    Ian Welsh has a review of Jane Jacobs ‘Cities and the Wealth of Nations’ which is relevant. Some quotes:

    Jacobs definition of city is as follows:
    A settlement where much new work is added to older work and this new work multiples and diversifies a city’s division of labor OR a settlement where this process has happened in the past.

    Because new work arises on old work, the more work you have in a settlement, the more likely it is for new work to arise.

    Which comes to the more basic point that people have to be able to start new businesses. Where they can’t, for whatever reasons (water carrying slaves in Rome are one example Jacobs uses) then new work can’t be created. This strikes at the heart of questions of credit, of centrally planned economies vs. decentralized ones, at the massive loss of regional banks in the United States (large banks are worthless for starting new local businesses, as a rule)…

    ianwelsh.net/review-of-the-economy-of-cities-by-jane-jacobs/

    1. PlutoniumKun

      There are clearly strong centrifugal forces involved in a successful city. One of the most striking things you can do to demonstrate this is list the biggest 20 cities in Europe every century since Roman times. Its remarkable how stable the list is. In the last 2 centuries, only the addition of a couple of 19th Century industrial cities such as Birmingham and Dusseldorf really interrupts the list. And it striking that it is ‘newer’ cities such as those which arose through 19th Century textiles or early 20th Century car manufacture that seem most vulnerable to rapid decay. The key variable to me is productivity – big cities increase productivity significantly (I’d add the word ‘innovation’, but that word has become sadly decayed in usability the last few years). Cities, in particular those which are not dependent on a single industry, have incredible staying powers.

      I’d note by the way that the study in the article above focuses on Australia – and Australian cities are by global standards very new. I strongly suspect this makes them more vulnerable to dynamic external forces.

      1. Steve H.

        That point about newer cities and decay is intriguing. Geological effects have dominated over millenia: water edges for food, river mouths and good ports for transport. Industrialization added new factors, like proximity to coal for the steel mills.

        More unique and transient factors take weight later. Does Detroit as a global force happen without a Henry Ford decision? And now some attempts at cities based on finance and speculation are popping up, littorally developed on sand.

        Australian cities being among the newest makes them a poor substrate for generalizations. My friends who live there are very aware of how vulnerable they are to those dynamic external forces you note.

  23. Winston

    Both Australia and Canada have migrant/immigrant leaving problem:


    Thousands of migrants leaving Australia


    Australia’s migrants leaving their new home in search of a better life

    Canada Immigration: Foreign Skilled Workers Struggle To Find Jobs In Their Professions

    They both have ltd economies because over reliant on staples/resources/commodities

    How are millennials responding to a tough job market? Lowering their expectations


    Low-wage, part-time jobs the new normal in Australia

    Millennials’ job plight is more complex than simple unemployment
    Even young people with jobs still grapple with low wage growth, job insecurity, high debt loads and more

  24. RBHoughton

    The American physicist Geoffery West examined the services in cities – wiring, energy use, road area, office space – and came up with a surprising discovery that when a city doubles in size it get a bonus of 15% more social and economic activity. For example an economist working in one city will get 15% more than his colleague working in a city half the size.

    1. P.Stallworth

      Is there a point where increased amount of activity and/or complexity leads to a decrease in a quality of life? I am thinking of some economies metastasizing into producing bads and disservices…

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