Thinking About Cities with Paul and Zed, Part 1

I got into a Twitter discussion with Zed about something Krugman wrote about cities (in a blog post and a series of tweets). The discussion itself turned on fairly trivial points, but I want to make a few broader points about the way that I expect small cities to fade.

I take Krugman to be engaging in the following intellectual enterprise. Spatial economics doesn't provide any obvious reason that small industrialized cities far from major metro centers should exist. One response would be to play around with spatial economics until you come up with an explanation. But Krugman proposes something a bit more radical. Maybe small cities only exist because we haven't yet reached equilibrium. In the very long run we should expect them to disappear. In particular, most industrial cities owe their existence to a string of good luck involving the location of a cluster of economic activity. A few rode their clusters all the way to big-city status, but many more didn't make it, and we should expect most small cities to go into decline as their good luck runs out.

My claim will be that small cities have already disappeared much more than it first appears, if you are considering economic activity rather than overall population. The end state of small cities is not so much to disappear in a literal sense as to turn into retirement centers revolving around related industries such as healthcare. Since this doesn't necessarily involve a large population decline, it can occur without showing up in the raw population numbers.

First I think it is helpful to take a minor detour. It is periodically reported that New York City has a large net domestic out-migration rate. In other words, a lot more people moved from NYC to elsewhere in the country than from elsewhere in the country to NYC. This would superficially appear to indicate some weakness in NYC's economy or its growth prospects, and it is regularly reported as bad news for NYC. I have been fooled by this reporting in the past. It's important to understand that in fact the most dynamic, thriving cities in the U.S. also tend to have the greatest rates of domestic out-migration. This post does a great job explaining why, so I urge you to read it. The short version is that cities like NYC tend to attract a lot of international migrants, who aren't counted in net domestic migration numbers (that is, they aren't counted unless/until they leave the city for elsewhere in the country), and that people tend to move to NYC when they are young and then move out when they are older (sometimes after having children). These factors make it seem that NYC is shedding residents when really it is growing fairly rapidly.

What I want to focus on is the post's conclusion, which considers the mirror-image situation:

Conversely, many rural and exurban counties that have become retirement havens are experiencing the opposite effect. Loss of (and inability to gain back) a young adult population has left them with chronically low birth rates and an aging population. This results in rapid natural decrease and population loss, which is then offset by a constant influx of older adults and retirees taking advantage of the low cost of living and slow pace of life.

In other words, the flip side to NYC's large negative net domestic migration rate is a positive net domestic migration rate in places that are, by most measures, stagnant or in decline. It is what I would expect to observe in the small industrial cities that Krugman is writing about.

Now back to my main point. When a city that formerly served as an industrial center loses its local industry, I would not expect its population to shrink rapidly. Instead, I would expect its population to get older as its young people leave and its low rents (or cheap houses, which are basically the same thing) attract retirees. This has all kinds of consequences. One notable consequence is that, pace Zed, cities in decline should become less and less promising for new businesses as their labor forces shrink far more rapidly than their populations. (I suppose an exception would be businesses catering to the elderly, but bear in mind that is not what we mean when we speak of economic clusters. For an economic cluster to form, the business would have to export goods or services of some kind.) In fact, the working-age population is shrinking in most of the country.

This pattern seems especially unfortunate given that, at least in my experience, few small cities in the U.S. are very walkable or otherwise conducive to a carless lifestyle. And yet this is where we tend to park our elderly population, leaving them isolated and lonely. I think this is one reason for our toxic politics. Our retirees end up in these horrible places with nothing to do and nowhere to go, and they spend all their time getting riled up by cable news and social media.

I would also expect an increased brain drain from small cities as their economic clusters disappear. The remaining jobs focus on providing goods and services to retirees. These jobs may pay a decent wage, but they offer little room for advancement. More ambitious and/or talented young residents will go to big cities for jobs with significant advancement opportunities. (This has always been the case, but previously it was somewhat offset by the local industry. By way of example, when Caterpillar was in Peoria it provided a lot of jobs with significant advancement opportunities. Those jobs are now at its new headquarters near Chicago.) This feeds into my earlier point about old voters. If you're a retiree in a declining industrial city, you look around and see few good jobs, a bunch of disproportionately unambitious or unskilled young native-born people, and all the social problems that come along with that. It looks very different from the view you would get in a relatively young, dynamic city like Chicago, even though Chicago faces its own serious social problems.

So in short, big cities will not necessarily grow all that rapidly in terms of population, nor will small cities necessarily shrink. But their demographics will shift (and have shifted) considerably, with big cities skewing younger, more ambitious, more skilled, and generally more affluent. This is what it looks like to shift to a new equilibrium, and it has already happened more than you would imagine from aggregate population numbers. Increasingly we live in a country where economically important activity is highly concentrated in major metro areas, while smaller cities fade away. (In another post I will elaborate on the argument that when a city has gone over to the retirees, it has essentially already faded away.)

What is to be done? Driverless cars may ameliorate things, to the extent they give retirees more mobility. As a society we should probably make it cheaper and easier to live in big cities. (I don't mean to exaggerate how big these cities need to be, by the way. Salt Lake City has about 325,000 residents, and it's plenty big to support real economic activity. It probably helps, though, that it is the political capital and the only major city in a large area.)

But this is a difficult problem, because it's very hard to figure out the welfare effects of increasing the size of big cities while decreasing the size of small cities. Fewer people would be left in miserable circumstances, but the circumstances would presumably be more miserable. Maybe there are some small cities that can and should be boosted rather than shrunk. This might be especially valuable in geographic regions that would otherwise lack a real city for hundreds of miles. But these calculations are inherently nearly impossible to do. The case for urban-friendly policies rests mostly on the positive things cities accomplish, and not the secondary effect on residents of small cities.