Steve Reads

It took me a while to understand why an economist was exactly the right person to write this book. It’s not that economists are the only people who can understand certain busted aspects of how the government subsidizes places to live; lots of people think about that. Hardly a week goes by, for instance, when Matt Yglesias doesn’t mention the insanity of American land-use policy. Rather, it’s that economists are specially trained to spot cases when what we think we’re doing is exactly the opposite of what we’re actually doing. And they’re trained to look at that sort of reversal in the context of large groups of people.

Take, for instance, everyone’s desire to live in bucolic wilderness. Everyone heads out to be among the trees in, say, Long Island. (Read Caro’s The Power Broker to hear what Long Island was like before Robert Moses made it what we know and don’t really love.) Soon enough there are highways leading out to where everyone wants to go. Soon after that, Dunkin’ Donutses and Fuddruckerses form along the highways that cater to the automobiles that brought people to their bucolic paradise. And by this point Long Island is no longer bucolic. The end.

That’s a commonplace sort of observation in the crowds I travel in: those desiring suburban living, away from the grittiness of the city, destroy the thing they were chasing. Observations like it are lurking beneath most of Triumph of the City, and at the start I found it a bit of a yawn for that reason. Surely everyone already knows this.

But everyone doesn’t already know this, and I don’t know many popular books that make the point. It would be better if everyone did know this. A harsher, more-direct way to put the point is that those who live in the supposedly dirty city among the asphalt and concrete are the real environmentalists; those driving their cars off into the hinterlands to find nature are thereby destroying it.

This sort of paradox of individual behavior leading to collective destruction is the stock-in-trade of economists, and Glaeser deploys many arguments of this sort. The most surprising, for me, was Glaeser’s observation that environmental-impact statements are flawed because they’re not wide-ranging enough: when a building gets rejected in temperate San Francisco Bay, whose residents drive relatively little and rarely need to use heating or air conditioning, that building will eventually get built — in a different, less-green city, like Vegas or Houston or Phoenix, that has more-flexible land-use policies. Which is to say that good regulation needs to focus not only on the immediate environmental devastation (or ruined lines of sight from nearby small buildings, say), but on the big economic picture. Rejecting a building because of its environmental impact may, again paradoxically, be worse for the global environment than allowing it.

The other main reason you want an economist to look at housing problems is that those problems are fundamentally about supply and demand. If you think it’s too expensive for a middle-class person to own a house in Boston (which it is), you need to increase the supply of houses. Raising supply, for a given level of demand, means lower prices. But cities like Boston and New York are basically full: there are no more parcels of land to build on. So the only option to increase supply is to build up rather than out. In many cases this will mean demolishing an old building that has some historical appeal for those around it, and replacing it with a taller building that houses more people. But as the decades have gone along, Glaeser tells us, regulation has made it harder and harder for cities to modify old neighborhoods. The inevitable outcome is that supply doesn’t increase as rapidly as demand, and housing prices rise. When housing prices rise, many people decide they’d rather live somewhere where they can own a bit of land without sacrificing their firstborn children. And the Sun Belt boom is born.

People do continue to move into Boston and New York City. The combined population of Middlesex and Suffolk counties in Massachusetts — containing two of the Commonwealth’s two most populous cities and many of Boston’s suburbs — rose by a healthy 4.7% from 2000 to 2009. People moved here despite the high home prices, because cities offer them something they can’t get anywhere else: dynamism and excitement that can only come from putting a lot of people near one another and watching the combustion that results.

That’s Glaeser’s central argument: that there is fundamentally no replacement for cities, because no other institution humanity has constructed is as good at harnessing our creative energies. The world continues to urbanize, and all indications are that the pace of urbanization will only increase as China and India move to their great cities. In many cases (think of Rio’s favelas) they crowd into slums, and that may look terrible to us, but they’re moving into seemingly terrible slums because the rural lifestyle they’re leaving was so much worse. People’s own behavior indicates that urban life, for all its gritty lack of charm, is humanity’s best hope for a better life.

When does people’s own behavior not reflect their natural evaluation of what’s best for them? When government policy shifts their choices in a different direction, and when the prices they pay for their choices don’t reflect the true social cost of those choices. Americans live in the suburbs, for instance, for some natural reasons and some less-natural ones. Among the natural ones: schools are often better in the suburbs, their kids have a bit of lawn to play on, and homes are cheaper. Among the less-natural ones: the government subsidizes the Interstate Highway System, and encourages (via the mortgage-interest deduction) homeownership over renting.

Plus the price we pay for gas doesn’t cover the damage we do when we belch smoke into the atmosphere. Glaeser tosses out some numbers toward the end of Triumph of the City suggesting that American gas taxes ($1 or so per gallon) don’t nearly cover the social cost of burning gasoline, while European taxes (averaging $2.30 per gallon) may be too high.

(I’d want to read the research backing this. A lot depends upon how you model the environmental cost of a pound of carbon. If the greenhouse effect’s response to an additional pound of atmospheric carbon is highly nonlinear — if we eventually cross a point of no return — then this would strongly encourage us to stay away from that point. If, instead, the response is very smooth — if increasing carbon by a little increases damage by a little — then that would seem to make policymaking somewhat easier. Or rather, would make the required policies less drastic.

We should add another important angle to this, namely how our policies should react in the face of our ignorance. What if our models of how the greenhouse effect responds to an additional pound of carbon are wrong? If the atmosphere is more fragile than our models predict, then undertaxing carbon is really, really bad. If the atmosphere is less fragile, on the other hand, is it really so bad to overtax carbon? This isn’t just technical noodling: if the point is to charge people the actual cost of the pollution they’re causing, you’d better figure out what “actual cost” means.

Triumph of the City doesn’t pursue this sort of direction. The book as it stands is about lightly exercising our intuitions about cities to lead us to surprising conclusions. It’s not about running off into the weeds with technical details. If you want those, the book is very well-footnoted.)

If anything, Glaeser is too conservative in his lambasting of American anti-urban policy. The true cost of gasoline includes the cost of invading foreign countries whenever our supply of oil is threatened. And surely those who buy and sell crude-oil futures know that the supply of Middle East oil is unlikely to drop so long as the U.S. government stands ready to secure it with guns. So a true accounting of the price of oil would include much of the cost of maintaining the U.S. military even in peacetime.

Glaeser doesn’t mention this sort of detail. It must be because he’s aiming his book at people quite unlike me — people who are starting from an anti-urbanist background. The main battleground he’s chronicling in Triumph of the City is urban v. rural rather than urban v. suburban. In part that’s to avoid charges of hypocrisy: to get better schools and a lawn, he and his wife and kids moved a few years back to MetroWest, while he continues to commute into Cambridge via Interstate 90 to work at Harvard.

That commute indicates probably the more important reason that Glaeser doesn’t hate suburbs: the suburb is still within reach of the city, and therefore makes it part of the engine of economic dynamism that he lauds. People are still near enough that they can sit down face to face (after a short drive, perhaps) and build the great works that cities produce. The point is human interaction, which is not available to nearly the same extent within rural areas.

What about the Internet, then? Doesn’t the Internet make physical proximity obsolete? This is clearly the major difficulty that Glaeser is going to encounter with his thesis, and I don’t think he really resolves it. He asserts that the Internet makes person-to-person interaction more valuable, and that certain work just needs a handshake and two people sitting together hashing something out. I certainly agree, but this doesn’t have the same rigorous economic grounding that he brings to the rest of his book.

The bulk of the book is organized around some axioms of economic thinking. Let people choose whatever they want to choose — if they want to live in suburbs, fine; if they want to live in cities, fine — but make them pay for their choices. Let the supply of housing rise to meet its demand. And bring some economic discipline to the way we educate our kids: let poor schools fail, let poor teachers lose their jobs, and let great teachers be paid well. With the market allowed to work the way it should, Glaeser has no doubt that cities will continue to be vibrant centers of innovation. If you’d like a rather breezy yet informative take on cities, Triumph of the City is a good use of a few hours of your time.

The reporting on budget cuts is just all wrong. The Times reports that the House is set to cut $60 billion, but doesn’t really go into detail on what those cuts include.

Among the cuts that it does describe are an amendment to deny funds to Planned Parenthood. Now, this is really stupid. As of 2008, only 3% of Planned Parenthood’s expenses went toward abortion; about 13 times that much went to contraception, and 9 times more toward STD treatment.

So what does a “smaller budget” in the Planned Parenthood context mean? It means more unplanned pregnancies. This may or may not increase expenses in the future (you can imagine scenarios under which it increases, and others under which it decreases), but you miss the entire picture if you focus narrowly on how much avoids going into the budget today.

Or take the IRS, everyone’s favorite bad guy. The GOP is predictably going after it. But we know what happens: cut from the IRS budget, and more people avoid paying the taxes that the law requires them to pay. If you think the tax burden is onerous, fine; then change the law so that it’s less so. But if you want to enforce the tax law, that enforcement costs money. The IRS budget pays to enforce the tax law. If you think that a marginal dollar of IRS expense leads to less than a dollar in taxes recouped from cheats, then suggest ways to improve the ratio. The way the press talks about the budget, however, avoids discussing benefits, and the GOP is in no rush to debate the merits of a marginal dollar in IRS expenditures. (Far be it for me to suggest that the very point of cutting the IRS’s budget is to make it easier for wealthy people, the GOP’s natural constituency, to cheat on their taxes.)

Or take the $131 million the GOP wants to cut from the Securities and Exchange Commission’s budget. Greater SEC oversight might have prevented the financial crisis that we’re just now digging out of. That would have saved us trillions of dollars in bailout money. If a marginal dollar of spending on the SEC yields more than a dollar of savings, we should spend that dollar; if it doesn’t, we shouldn’t. But narrowly focusing on expenses without focusing on results is the essence of foolishness.

Everyone loves to attack regulation of the sort that the SEC engages in. And yes, it confers costs on businesses. When the EPA fines firms for dumping toxic waste into the water, that’s regulation too, and that’s an expense. But it also saves money: keeping toxic waste out of the water keeps people safer, lets them live longer lives, keeps them in productive economic activity for more hours every day, etc.

The SEC’s and the EPA’s budgets are visible costs: the numbers are written down in a book and debated. Their benefits — birth defects prevented, financial crises averted — are longer-term, and the connection is not always visible. In fact, if government is working well, we often don’t notice the regulation’s benefits. Had the SEC been working perfectly, we might have avoided a financial crisis altogether. When FEMA fell apart under the Bush administration and New Orleans drowned, we noticed that failure; had FEMA done its job, there would have been nothing to notice. We had 30 or 40 years of financial stability after the Great Depression, in no small part because banks were kept highly regulated and boring. I suspect this invited people to think that regulation was unnecessary, because the world seemed to do fine without it. But that doesn’t mean the regulation went away; it just means the regulation was invisible.

Invisible, properly-functioning regulation — from FEMA, from the SEC, from the EPA — means invisible benefits: cities that don’t flood, financial crises that don’t drive us into recession, rivers that we can swim in without thinking of the agencies that made it possible. The costs, though, are there for everyone to see in the budget books every year.

To every decision there are costs and benefits, but somehow government policies are treated as though they conferred costs and never benefits. This same refusal to see the forest for the trees came up when the Affordable Care Act was being debated. Democrats insisted on keeping the cost of the bill below an arbitrary limit of $1 trillion over 10 years. But don’t focus on “how much the government spends on health care”; focus on “how much the average taxpayer is spending on health care”; whether the taxpayer’s expense comes out of taxes or from his wallet is largely immaterial. Presumably when the government spends $1 trillion on health reform, that’s going to lower the amount that we consumers have to spend out of pocket. So it’s just transferring expenses from one bucket (out-of-pocket health-care expenses) to another (taxes). Does a dollar taken from taxes reduce out-of-pocket expenses by more than a dollar? If so, there’s a good argument that we should spend that dollar; if not, there’s less of a good argument.

Granted, you could argue that government expenses are always worse than personal expenses, no matter the ratio. This is an argument from principle, which you get from dyed-in-the-wool libertarians, and it’s crazy. I think most Americans would reject it out of hand, and it absolutely wouldn’t sell. Suppose a dollar of government health-care expense, or a dollar spent regulating the private insurance industry, saved $10 off the average American’s out-of-pocket health expenses. Would you be willing to let the government handle this and charge you your dollar of tax? I know I would; I hope you would too.

Sometimes what government gives us for our taxes is something that the private market just couldn’t provide. Medicare provides insurance for old people, which they couldn’t get at any price beforehand. Here it’s not even a question of how much it costs the government to provide something that the market also provides; it’s the government creating a functioning market where none existed before.

Again: to every policy there are costs and there are benefits. We live in a time when government policies are assumed to consist solely of costs with nary a benefit. Republicans rejoice in this assumption, which allows them to talk about “cutting $60 billion” without having to answer the question: are they also cutting more than $60 billion in benefits?

We need to stop considering government expenses in their own separate bucket. At the very least, we need two expense buckets: out-of-pocket expenses and tax expenses. We simply cannot view the federal budget in isolation from the rest of the economy.