Austin Contrarian

Congestion tolls vs. revenue tolls

I think one thing that confuses people about my support for congestion pricing is that they're not clear what I mean by "congestion pricing."   

There are two kinds of road tolls.  One is a flat rate or flat charge per mile or some variation thereon.  This is the kind of toll TxDOT levies.  I've called these "revenue tolls" in the past, just to distinguish them from congestion pricing.

Revenue tolls are inefficient.  If environmental costs, wear-and-tear, and accident risks are handled through gas taxes and insurance, as they should be, a motorist driving down a deserted MoPac at 3 a.m. inflicts exactly zero cost on the rest of us.  Zip.  This means that any toll we charge him exceeds the marginal cost of his trip to the rest of us.  Charging more than marginal cost causes some people to forgo trips even though the benefit to them exceeds the harm they do to the rest of us.  That's a dead-weight loss.  (That loss might be behind some of the opposition to toll roads.)

But revenue tolls can also be too low.  When a road becomes congested, each driver entering the highway imposes a very slight cost on everyone else by increasing congestion.  The marginal cost of each trip is a positive number.  A revenue toll may or may not be high enough to cause the driver to internalize that cost.  If the revenue toll is too low, there will be too much congestion.

Revenue tolls simply aren't a good way to handle the costs that drivers impose on one another.  Thus, tolled roads like Highway 45 in north Austin are not priced right.

Optimal congestion pricing, on the other hand, is efficient.  Congestion pricing forces drivers to internalize the cost they impose on everyone else.  The optimal congestion price equals the incremental cost of congestion each driver inflicts on other drivers.  It so happens that the optimal congestion price is also the lowest price that will eliminate congestion.

In an ideal world, the congestion charge would vary continuously with the demand for the road.  The charge would rise at peak hours.  At off-peak hours, when demand is light, the optimal congestion price would be zero.  But the charge would always be just enough to keep traffic moving.  For I-35, that price would be zero at 2 a.m., but it might be $10 at 4:45 on a Friday afternoon.  Some places are now experimenting with continuously variable congestion tolls.

Congestion pricing monetizes economic waste.  Without congestion pricing, the cost of sitting in traffic or delaying a trip is lost for good.  Congestion pricing turns this loss into money, money that can be used to increase road capacity or build sidewalks or fund better schools.  Congestion pricing also gives us clear signals about the adequacy of road capacity.  When congestion tolls yield "too much" revenue, we know that we need more capacity.  

As I noted in a comment to an earlier post, there are only a few things that virtually all economists agree on.  One is that rent control degrades the quality and quantity of housing in the long run.  Another is that congestion pricing is good policy. 

One other point on rail

I should have made this point, too:  Our failure to congestion price our roads really screws up our decisions on increasing capacity.

When roads are congestion-priced, the revenue tells us when we need more capacity.  On this, see this (pdf):

One important feature of congestion prices is that they not only discourage usage when congestion is present, but they also generate revenue for capacity expansion.  Indeed, it has long been recognized that under certain conditions the optimal congestion prices for a fixed amount of capacity will automatically generate the appropriate amount of revenue to finance capacity expansion.

This means that when optimally priced road generates a stream of surplus revenue, it is time to add more capacity -- and the "right" amount of new capacity (assuming constant cost per unit of capacity) will be whatever the surplus revenue pays for.

If we priced things right, we'd know when to invest in rail.  Take I-35 through central Austin.  If congestion pricing produced a huge surplus (and it would), we could invest that money in additional capacity.  We could then decide whether new roads or rail would give us the best return on our investment.  Since increasing road capacity on I-35 would require tearing down neighborhoods or building a triple-decked highway -- both prohibitively expensive -- I'm confident that commuter rail would be the way to go.  In either case, we would have a firm understanding of the economic return from the investment.

Rail

If you haven't noticed, I mostly blog about urban economics and Austin development.  I rarely blog about transportation issues, though, and when I do I mostly write about congestion pricing of roads.

So where are my posts on light rail?  That ought to be within my bailiwick. 

The short answer is "comparative advantage."  There are lots of other people who know more about this stuff and who write about it regularly.  MIEK and the Overhead Wire cover light rail all the time (the latter multiple times a day), and they both know far more than I about the technical details -- stuff like acceleration rates and track widths and catenaries.  I could try to learn that stuff, but why? 

Rail sparks ferocious arguments, and I don't particularly want these to hijack my blog.  But for the pro side, see MIEK and the Overhead Wire.  Also check out Ryan Avent, who writes about the economics of rail almost daily.  Tory Gattis writes more skeptically, although I don't think he's dogmatic.  For hard-core opposition, there is the Antiplanner.  There are many others, of course, and I don't mean to sleight slight anyone.

My big-picture thoughts: 

1.  One "duh":  Rail should only be built when a cost-benefit analysis warrants.  (It's warranted in New York City, not warranted in McComb, Mississippi; the hard cases are the cities in between.)  This doesn't mean that rail should be required to pay its own way.  Since highways are underpriced, pricing rail at marginal cost would be inefficient.  Since there are subsidies all around, I don't think it's helpful to argue about which mode of transportation gets the most subsidy.

2.  Mobility is a good thing.  Cars provide more mobility than rail --  unless, that is, the roads are overly congested and cannot feasibly be widened or congestion priced.  When estimating the demand for rail along a congested route, it is important to count not only the actual vehicle trips, but the vehicle trips never taken because of the congestion.  The trips lost due to congestion are the main deadweight loss from congestion.

3.  Rail really does foster dense development along routes because, unlike buses, it represents a more or less permanent commitment by the city.  For this reason, it increases property values along the route.  One could argue that if the net increase in property value exceeds the cost of construction, the rail ought to be built.

4.  High-speed rail.  I suspect it's cost-justified in the northeast (especially if airport landing rights were priced properly), and probably along the congested San Diego-San Francisco corridor.  I don't know about Texas.  I would benefit tremendously from high-speed rail; I fly to Dallas or Houston several times a month and rail would make me much more productive.  I just don't know whether that marginal increase in productivity would offset the billions and billions in cost.

5.  Austin.  I don't think light rail from downtown to the airport is worth much.  I won't take it because when I get back to Austin after a day-long deposition in Houston, I want to drive directly home.  I think most other business travelers will be like me.  Tourists:  perhaps not, although I think they'll have to get a car anyway.

I think Cap Metro's commuter rail will be a bust for the reasons MIEK has been arguing for years.

Light rail.  I imagine a light rail line from South Congress to downtown, past the state government complex, and up Guadalupe to the Triangle would work.  South Congress, downtown, and West Campus are rapidly densifying.  The congestion will get much worse, or, more precisely, reach an equilibrium in which lots of trips are forsaken.  Getting from downtown to UT is already a big hassle; I'm regularly deterred from making the trip.  (I voted for the 2000 light rail plan.  If I'm going to shell out for a light rail line, though, I'd want it to go down South Lamar, too.)

Buses.  I like them.  And I ride them.  I get a little bit of exercise, plus I don't like to drive.  I think Cap Metro needs to increase frequency of service on the busy routes.

Those are my big-picture thoughts, for what they're worth.

Fire James Kunstler*

A couple of days ago, Freakonomics' Stephen Dubner hosted a round-table on the future of suburbia.   As happens too often, James "sackcloth-and-ashes" Kunstler got a seat.

Kunstler doesn't like cities, suburbs, or any other large agglomeration of people so he fantasizes that high gas prices will extinguish them.  He's a jumble of apocalyptic prophecies, loony economics, and . . . Well, I could tell you, but it is better just to show you.

Here is Kunstler's Freakonomics piece; my comments are in bold.  

There are many ways of describing the fiasco of suburbia, but these days I refer to it as the greatest misallocation of resources in the history of the world.

Personally, I would have gone with World War II — trillions of dollars allocated to the slaughter of 50-60 million people.  But, sure, I can see how building lots of tract housing would be a close second.

I say this because American suburbia requires an infinite supply of cheap energy —

I suspect that Kunstler actually hails from one of those isolated New Guinea tribes discovered in the 1960s who use the word “many” for any number greater than three.  Kunstler doesn’t know any meaningful way to describe how much energy our suburbs actually use, so he just says “infinite,” which is the Kunstler tribe’s word for “too much” —

. . . in order to function and we have now entered a permanent global energy crisis that will change the whole equation of daily life. Having poured a half-century of our national wealth into a living arrangement with no future — and linked our very identity with it — we have provoked a powerful psychology of previous investment . . .

“provoked a powerful psychology of previous investment”?  Jimmy’s been reading Derrida, or somebody.  Maybe this person.

. . . that will make it difficult for us to let go, change our behavior, and make other arrangements.

Compounding the problem is the fact that we ditched our manufacturing economy . . .

We certainly wouldn't be in the mess we’re in if most of us were still employed manufacturing automobiles, refrigerators, and barbecue grills. 

. . .. for a suburban sprawl building economy (a.k.a. “the housing bubble”), meaning we came to base our economy on building even more stuff with no future.

We now have cold, hard evidence that Kunstler doesn’t know what he's talking about.  The “suburban sprawl building economy” is not “also known as” the “housing bubble”; the sprawl-building economy has been around for decades while the housing bubble is a phenomenon of the last few years.  And the housing bubble was least pronounced in some of the places that have the most suburbs (Dallas, Houston).  This man is deeply confused.  And about suburbia, the only thing he writes about.  

This is a hell of a problem, since it is at once economic, socio-political, and circumstantial. 

“Circumstantial?” He's lost me.

Here’s what I think will happen: First, we are in great danger of mounting a futile campaign to sustain the unsustainable, that is, of defending suburbia at all costs.

In fact, it is already underway. One symptom of this is that the only subject under discussion about our energy predicament is how can we keep running all our cars by other means. Even the leading environmentalists talk of little else.

Kunstler’s not reading the same environmentalists I am.  The environmentalists I read range from the sensible (impose a carbon tax) to the fringe who gleefully welcome the demise of the automobile.  I guess they are talking about the automobile, but they’re certainly not mounting a campaign to save it, which is what he implies.

We don’t get it. The Happy Motoring era is over. No combination of “alt” fuels — solar, wind, nuclear, tar sands, oil-shale, offshore drilling, used French-fry oil — will allow us to keep running the interstate highway system, Wal-Marts, and Walt Disney World.

Of course no combination of alt fuels can save us.  It takes an “infinite” amount of energy to run the highways, Wal-Marts and Walt Disney World, and we all know that the amount of energy in the universe is finite.

Does Disney World use that much energy, anyway?  I figured Disney would be leading the parade of green-washing corporations.  Anyway, it’s compact and walkable, which is what Kunstler wants.  Sure the rides use energy, but roller coasters use energy for only half the ride; the other half is free, courtesy of gravity.  We need more transportation that’s half free.  (I know this is bogus, folks, but Kunstlerites will never be able to figure out why.)

The automobile will be a diminishing presence in our lives, whether we like it or not.

Really, I don’t see why Disney World is a big problem.  Unless you believe that in the near-distant future, all interstate travel will be impossible, why would Disney World disappear? 

Further proof of our obdurate cluelessness in these matters is the absence of any public discussion about restoring the passenger railroad system — even as the airline industry is also visibly dying. The campaign to sustain suburbia and all its entitlements will result in a tragic squandering of our dwindling resources and capital.

I admit I haven’t been to Disney World in twenty-five years, but I liked it OK.  There’s supposed to be lots of cool new stuff, but I assume Epcot still sucks.

The suburbs have three destinies, none of them exclusive: as materials salvage, as slums, and as ruins. In any case, the suburbs will lose value dramatically, both in terms of usefulness and financial investment.

Usefulness and financial investment, surprisingly, are correlated.

Most of the fabric of suburbia will not be “fixed” or retrofitted, in particular the residential subdivisions. They were built badly in the wrong places. We will have to return to traditional modes of inhabiting the landscape — villages, towns, and cities, composed of walkable neighborhoods and business districts — and the successful ones will have to exist in relation to a productive agricultural hinterland, because petro-agriculture (as represented by the infamous 3000-mile Caesar salad) is also now coming to an end.

That particular salad’s notoriety was richly deserved.  On its 3,000-mile joyride from Los Angeles to New York, it looted two banks, robbed three post offices, and terrorized the citizens of Topeka, all while burning 200,000 gallons of fuel and emitting 3.5 million metric tons of CO2.  But I think Mr. Kunstler is unfairly implying that all Caesar salads are bad actors; I've known lots of salads who've gone about their business conscientiously, day-in and day-out, and never strayed more than 100 miles from home.  Mr. Kunstler owes our produce an apology.

Fortunately, we have many under-activated small towns and small cities in favorable locations near waterways.

My home town in Mississippi was activated last year; it got stationed in Karbala.

This will be increasingly important as transport of goods by water regains importance.

We face an epochal demographic shift, but not the one that is commonly expected: from suburbs to big cities.  Rather, we are in for a reversal of the 200-year-long trend of people moving from the farms and small towns to the big cities.

Right.  Because the first thing people will do when the cost of transportation rises is move farther apart.

Oh, and I assume that’s a misprint in the second-to-last line; “200” should read “4000.” 

People will be moving to the smaller towns and smaller cities because they are more appropriately scaled to the limited energy diet of the future.

Energy ultimately matters because people use it to generate something of value to themselves or to others.  What we ought to care about is the amount of output one person can generate with one unit of energy, a concept I’m sure is totally out of Kunstler’s reach.

Big cities offer economies of scale that make people more productive.  That’s a fundamental reason why people live in them.  For example, Californians — large-city dwellers — have a per capita GDP about 50% higher than that of Mississippians, who mostly dwell in small towns.  Californians are much more productive than Mississippians, and a lot of that edge comes from living in big cities.

Thus, for Mississippians to generate more output per unit of energy consumed, they have to use much less energy per capita than Californians.  Now, there’s no reason to expect this to be true because there is no reason to expect small towns to be more energy-efficient than big cities:  (1)  small towns are less dense than big cities, and thus require more infrastructure — particularly roads – per inhabitant; (2) there’s no mass transit in small towns, and it’s not economical to install it; (3) there are fewer economies of scale in small towns — it doesn’t take 10 times as much energy to treat water for 10 times as many people.  About the only thing you can say for small towns, from the “circumstantial of energy conservation psychology,” is that they’re less congested. 

And, surprise, the data bear this out.  In 2005, California had more than 12 times as many people as Mississippi, but California as a whole consumed only 8 times as much energy as Mississippi.  This means that Mississippians used 50% more energy per capita than Californians.  The city-dwelling Californians’ superior energy efficiency and their superior productivity combine to make them twice as productive, per unit of energy, than small-town-dwelling Mississippians.

When a resource like energy becomes more expensive, the market automatically directs it to more productive uses, not less productive.  More productive uses outbid less productive uses.  If Kunstler knew the first thing about economics or cities, he’d know that rising energy costs will encourage people to move from small towns to big cities, not the other way around.

I believe our big cities will contract substantially — even if they densify back around their old cores and waterfronts. They are products, largely, of the 20th-century cheap energy fiesta and they will be starved in the decades ahead.

No, suburbs may depend on cheap energy, but our cities are largely products of economies of scale.  See above.

One popular current fantasy I hear often is that apartment towers are the “greenest” mode of human habitation.

Harvard urban economist Ed Glaeser is one of these fantasists.  Glaeser is a lot smarter than me, and all evidence indicates that I’m a lot smarter than Kunstler.  With a nod to the principle of transitivity, my money’s on Glaeser.  (Glaeser at least knows what “infinite” means.)

On the contrary, we will discover that the skyscraper is an obsolete building type, and that cities overburdened with them will suffer a huge liability — Manhattan and Chicago being the primary examples. Cities composed mostly of suburban-type fabric — Houston, Atlanta, Orlando, et al — will also depreciate sharply.

Structures depreciate.  Cities grow or shrink.  “Fabric” doesn’t do either.

The process of urban contraction is likely to be complicated by ethnic tensions and social disorder.

Kunstler apparently views denser, better-integrated neighborhoods as apocalyptic. 

As petro-agriculture implodes, we’ll have to raise our food differently, closer to home, and at a finer and smaller scale.

Speaking of fantasies, this one is popular among the peasant wing of the environmentalist movement.  As energy becomes more expensive, it will become more important, not less, to take advantage of economies of scale in agriculture.  Serfs with scythes and oxen aren’t very productive.  There’s a reason urbanization has always been tied to agriculture productivity.

This new agricultural landscape will be inhabited differently, since farming will require more human attention. The places that are not able to grow enough food locally are not likely to make it. Phoenix and Las Vegas will be shadows of what they are now, if they exist at all.

I’ve explained before why the “local food” movement is misguided, at least when energy efficiency is the concern.

These days, an awful lot of people — the production builders, the realtors — are waiting for the “bottom” in the real-estate industry with hopes that the suburban house-building orgy will resume. They are waiting in vain. The project of suburbia is over. We will build no more of it.

If I can point him to a subdivision now under construction, do you think he’ll agree to go away?

Now we’re stuck with what’s there. Sometimes whole societies make unfortunate decisions or go down tragic pathways. Suburbia was ours.

I think I'm beginning to get this guy.  Kunstler, I think, has turned himself into a cottage industry by making flamboyant, absurd predictions that he frankly has no interest in verifying.  He’s less interested in his claims' veracity than their sound-bitedness.  That sells more books.

People like Dubner should stop giving this guy a platform.

*See here for the reference.

Depopulation

Ryan Avent on whether (eventually) falling exurban home prices will keep the exurbs populated:   

I don’t actually think that $4 gas is sufficient to render outer ring exurbs vacant and/or slum-like. I do think, however, that economists need to be more careful when casually assuring everyone that exurban home prices will simply fall to the market clearing level, keeping such places occupied and healthy. An economist in the 1950s or 1960s might have said that sustained depopulation of urban centers was an impossibility, since prices should just fall until costs in cities and suburbs equalized. That economist would have been wrong. The combination of price stickiness and feedback loops can wreak havoc in real estate markets.

All true.  Detroit is not healthy, and has not been for a long time.  About 23% of its housing stock is vacant.  But boy, oh boy do markets try to clear:

The Detroit Board of Realtors recently found that home sales in the city (excluding suburbs) in the first two months of this year jumped 48% from a year earlier, to 1,540. The average home price there sank 54% to about $22,000.

Since any structure with a toilet and kitchen sink is worth more than $22,000, Detroit sellers are now paying buyers to take the land underneath their homes.  Since $22,000 is the average home price, we can safely assume that many Detroit homes (structure plus land) have a negative value.

And that's ultimately the reason why falling home prices may not clear Detroit's market, even in the long run.  Sellers won't pay someone to take a house; they will just walk away.  The market-clearing price today is not even on the supply curve.

Another water-pricing rant, but this time with a cite

Yale's Sheila Olmstead and Harvard's Robert Stavins have released their working paper "Comparing Price and Non-Price Approaches to Urban Water Conservation" (gated) just in time to fuel another of my water-pricing rants.   They find (surprise!) that pricing reduces water use more cost-effectively than a command-and-control system.

The abstract:

Urban water conservation is typically achieved through prescriptive regulations, including the rationing of water for particular uses and requirements for the installation of particular technologies. A significant shift has occurred in pollution control regulations toward market-based policies in recent decades. We offer an analysis of the relative merits of market-based and prescriptive approaches to water conservation, where prices have rarely been used to allocate scarce supplies. The analysis emphasizes the emerging theoretical and empirical evidence that using prices to manage water demand is more cost-effective than implementing non-price conservation programs, similar to results for pollution control in earlier decades. Price-based approaches also have advantages in terms of monitoring and enforcement. In terms of predictability and equity, neither policy instrument has an inherent advantage over the other. As in any policy context, political considerations are important.

Here's the money quote, if only because it matches precisely what I wrote just two days ago:

Non-price management techniques can create political liabilities in the form of water-utility budget deficits.  Non-price conservation programs are costly.  In addition, if these policies actually reduce demand, water utility revenues decline.  During prolonged droughts, these combined effects can result in the necessity for substantial price increases following “successful” non-price conservation programs, simply to prevent water utilities from unsustainable financial losses.  This occurred in 1991 in southern California.  During a prolonged drought, Los Angeles water consumers responded to the Department of Water and Power’s request for voluntary water use reductions.  Total use and total revenues fell by more than 20 percent.  As a result, the Department requested a rate increase to cover its growing losses (Hall 2000).  In contrast, given urban price elasticities common in the United States, price increases will increase water suppliers’ total revenues.  The extra per-unit revenues from a price increase outweighs lost revenue from the decreased demand.

In other words, a city can conserve water by raising prices, in which case it will have more water and more money.  Or a city can adopt water-conservation rules, in which case it will have more water but less money.  It's dumb enough for a cash-strapped city to choose the second option, but it's super-duper-fantastically dumb for it to spend $1 million on an advertising campaign just to guarantee that it loses  as much money as possible.

As a lawyer, I've been trained to look at both sides of any issue.  But I simply can't fathom the resistance to pricing water properly.  ("Resistance" isn't even the right word -- there's nothing to resist, because no one that matters is pushing it.)

Can anyone out there make a cogent case for top-down regulation?  Devil's advocates welcomed.

Another absurd consequence of the City's refusal to price water properly

The City is about to pony up $1 million for a "public service" campaign (starring Ray Benson) to educate us about the new water conservation regulations.

Austin, of course, is running a well-publicized budget deficit.  Library hours will be cut.  City departments will be left understaffed.  Our infrastructure will no doubt be starved of investment for yet another year.  (How many feet of sidewalk would $1 million buy?)  But the City intends to press ahead with its gold-plated advertising campaign.

Because our city leaders insist on conserving water by fiat rather than price, public service campaigns such as this one are an unfortunate necessity.  The city refuses to incentivize us to conserve water through rational pricing, so it has to tell us to conserve water.  It will cost $1 million to tell us the first time -- and hundreds of thousands per year more for dedicated staff to tell residents one at a time.

What makes the City's refusal to raise prices so idiotic is that if its advertising campaign succeeds, the City is guaranteed to see further declines in revenue.  It's simple:  If you sell less water at the same price, you get less money.  Spending $1 million on a campaign to slice City revenue is a dumb idea any year, but it's especially dumb when we are staring down a big budget deficit.

On the other hand, if the City adopted a rational pricing system -- if it simply raised prices for large water users -- total revenue would actually rise as the City met its conservation goals.  And the City could save $1 million on advertising to boot.  These silly top-down regulations regulations will cost the City millions of dollars in the end.

The water restrictions are Leffingwell's baby.  They are a terrible, wasteful mistake. Leffingwell should demonstrate some political leadership by pushing for a sensible pricing scheme.

Give FDA the right incentives

The emerging consensus is that FDA unfairly blamed tomatoes for the salmonella "outbreak."  I say this confidently because members of Congress have begun pushing for hearings.

The tomato growers, not surprisingly, want the U.S. government to compensate them for the havoc it wreaked.  To the tune of $100 million.  Note that this probably understates the total cost. $100 million is the tomato growers and shippers' estimate of their own damages.  The total cost including losses to downstream users, particularly restaurants, is much higher.  (I can personally attest that Chipotle lost several lunch sales while it was out of salsa.)

Should the government compensate tomato growers?

I don't think tomato growers have a compelling equitable case.  Over the long run, the price of produce ought to reflect the risk of random, FDA-induced scares.  Think of FDA as a freak hailstorm or 100-year flood;  a portion of the price of produce reflects the cost to growers of self-insuring against government-induced catastrophe.  Compensating tomato growers may give them a windfall. 

The real case for compensation is that the government needs proper incentives.  If it doesn't pay for the damage caused by bogus scares, it has an incentive to over-warn.  FDA officials face political punishment for acting too slowly to quell a genuine outbreak, but little sanction other than embarrassment for acting too aggressively.  And since FDA has the experts, it is difficult for the public to assess whether it indeed acted too aggressively.  

The solution is to have Congress pay compensation on a case-by-case basis.  Presumably, FDA officials want to protect their budget, and it is a bad budget-preservation strategy to force your paymasters to shell out hundreds of millions of dollars for your blunders.

Yes, there are problems with this.  It is difficult even for Congress to determine when FDA has blundered.  And making growers unconditionally responsible for outbreaks gives them an incentive to police their industry.  But we don't want to encourage over-policing -- we don't want to pay for too much safety -- and FDA overreactions don't give anyone the right incentives.

Related posts:

• Don't mess with my pico.
• After the salmonella rush.

Glaeser on Houston

Harvard urban economist Ed Glaeser, whose work I often cite, recently touted Houston in a New York Sun column: 

New Yorkers are rightly proud of their city's renaissance over the last two decades, but when it comes to growth, Gotham pales beside Houston. Between 2000 and 2007, the New York region grew by just 2.7%, while greater Houston — the country's sixth-largest metropolitan area — grew by 19.4%, expanding to 5.6 million people from 4.7 million.

...

Houston's great advantage, it turns out, is its ability to provide affordable living for middle-income Americans, something that is increasingly hard to achieve in the Big Apple.  That Houston is a middle-class city is mirrored in the nature of its economy. Both greater Houston and Manhattan have about 2 million employees.

In Manhattan, almost 600,000 of them work in the idea-intensive sectors of finance, insurance, and professional services; only 2% are in manufacturing, and fewer than that in construction. Finance increasingly drives New York City's economy as a whole. By contrast, Houston is a manufacturing powerhouse that makes machinery, food products, and electronics, with a retail sector twice the size of Manhattan's and lots of middle-class jobs.

Housing prices are the most important part of Houston's recipe for middle-class affordability. In Gotham, the extraordinarily high housing costs aren't a problem for the hyper-rich. With enough money, you can live in a spacious aerie overlooking Central Park, shop at Barney's, eat at Le Bernardin, and send your children to Brearley or Dalton.

The abundance of poorer immigrant New Yorkers, in turn, tells us that for people simply seeking a lifestyle that beats rural Brazil, the city's many entry level service-sector jobs, wide array of social services, and extensive public transportation can offset high apartment prices.

But what if, like most Americans, you are neither a partner at Goldman Sachs nor a penniless immigrant? Consider an average American family with skills that put them in the middle of the U.S. income distribution — nurses, sales representatives, retail managers — and aspirations to a middle-class lifestyle. What kind of life will such people lead in Houston and New York City, respectively?

...

The Houston family is effectively 53% richer and solidly in the middle class, with plenty of money for going out to dinner at Applebee's or taking vacations to San Antonio. The family on Staten Island or in Queens is straining constantly to make ends meet.

...

The permitting process in Manhattan is an arduous, unpredictable, multiyear odyssey involving a dizzying array of regulations, environmental, and other hosts of agencies. A further obstacle: rent control. When other municipalities dropped rent control after World War II, New York clung to it, despite the fact that artificially reduced rents discourage people from building new housing.

Houston, by contrast, has always been gung ho about development. Houston's builders have managed — better than in any other American city — to make the case to the public that restrictions on development will make the city less affordable to the less successful.

...

But Houston's success shows that a relatively deregulated free-market city, with a powerful urban growth machine, can do a much better job of taking care of middle-income Americans than the more "progressive" big governments of the Northeast and the West Coast.

The right response to Houston's growth is not to stymie it through regulation that would make the city less affordable. It's for other areas, New York included, to cut construction costs and start beating the Sunbelt at its own game.

I was surprised by the harsh reactions to this column.  Ryan Avent, one of the best urban-economics bloggers around, called the piece "a lazy, wrongheaded, and deeply ideological thumb of the nose to the rest of us urbanists."  (Not all the reactions to Glaeser's piece were negative.  Tory Gattis, not surprisingly, liked it.)

I think the negative responses miss Glaeser's point.

Plastic bags redux

I will be frantically busy for the next week, so blogging will be light.  One last thought before the blackout:

A few months ago, I argued against the very vocal campaign to ban plastic bags in Austin.  I argued that the save-landfill-space argument was dumb.  I argued that the reduce-petroleum-and-therefore-greenhouse-gases argument was dumb.  No one offered a convincing rebuttal, and I still believe these are flimsy arguments at best.  

Plastic bags do end up as litter sometimes.  But I didn't see any particular reason to treat plastic bags differently than other litter in waiting.  If we want to impose a tax on bags to discourage their use, we ought to do the same with fast-food sacks and sandwich wrappers.

That never sat right with me, though.  After thinking about this issue in the shower for eight solid months, I've concluded that there is one difference between plastic bags and other forms of litter:

Property owners do not have an incentive to pick up plastic bags.

The main externality from litter is that we have to look at it.  Fortunately, property owners usually have an incentive to clean it up.  Heavier litter usually stays where it falls.  If I find a beer bottle on my property, I will pick it up, because I know it will be there the next day, and the next, and the next.

Plastic bags are different because they will simply blow away.  I know that, so even if a plastic bag lands on my property, why take the time to pick it up and put it in the trash (other than altruism)?  I won't have to worry about it after the next breeze.

A case in point:  About two months after my plastic-bag piece, I spotted a plastic bag stuck in a tree in front of my house.  I thought that was funny, so I snapped a picture and posted it.  In my excitement, I forgot to pull the bag out of the tree.  It occurred to me a few days later that I had never thrown away the bag -- and, of course, by then it was gone.  Someone else's problem, I guess.