
Why the Economic Fates of America’s Cities Diverged - prostoalex
http://www.theatlantic.com/business/archive/2015/11/cities-economic-fates-diverge/417372/?single_page=true
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exelius
I dunno, when I look at migration data over the long term in the US, a few
things stand out to me:

1\. Weather is a huuuuuge factor. The large, growing population centers in the
US are in warm or mild climates. Nobody wants to live in Buffalo or
Minneapolis unless you're from there.

2\. Location is far less important to the industries that generate the
majority of value today. A lot of industrial jobs (and cities) sprung up in
the midwest in the early part of the 20th century thanks to its proximity to
raw materials (iron ore, coal, etc) and easily navigable waterways. That's not
as important to the economy as a whole anymore, so companies have little
reason to start (aka create jobs) in locations that are otherwise undesirable.

3\. Given that there are fewer job opportunities that are reliant on proximity
to natural resources, and that more of the new job opportunities will be
located in cities with milder climates, it's no wonder that rust belt cities
are bleeding people. Would you start a new business in Buffalo? Or would you
just go to Chicago, New York or Philadelphia instead?

~~~
linkregister
1\. New York City has less warm/mild weather than any coastal city southern to
it along the East Coast. Yet it has the highest per-capita income of any of
them. I don't know your location but this unfounded weather-as-a-migration-
driver theory seems to be propagated by Californians and Coloradans.

2\. Agreed, network effects are what drive these headquartering decisions now.

3\. It's interesting that you're choosing Buffalo as an example. It's
currently experiencing a resurgence [1] [2], as is Pittsburgh [3] [4].

[1] [http://www.nytimes.com/2015/07/21/business/energy-
environmen...](http://www.nytimes.com/2015/07/21/business/energy-
environment/the-wind-and-sun-are-bringing-the-shine-back-to-buffalo.html?_r=0)

[2]
[http://www.ci.buffalo.ny.us/Home/Leadership/City_Comptroller...](http://www.ci.buffalo.ny.us/Home/Leadership/City_Comptroller/economy)

[3] [http://www.usnews.com/news/articles/2014/09/02/an-urban-
revi...](http://www.usnews.com/news/articles/2014/09/02/an-urban-revival-in-
the-rust-belt)

[4]
[http://www.economist.com/node/14460542](http://www.economist.com/node/14460542)

~~~
ghaff
There's a lot of history, even if sometimes accidental history, in why certain
industries are so concentrated where they are. But there does seem to be a
natural tendency to concentrate in many cases. For example, the Kendall Square
area of Cambridge is pretty much non-stop pharma/biotech construction. MIT is
part of the reason in that case but I'm sure it's not the only one.

Of course, there are often Tier 2 locales for a given industry that have less
of a concentration but still have a reasonable hiring pool and/or people
willing to relocate there (plus remotes). They may not be as in-demand as the
center of the given industry, but they can be a lot cheaper or attractive in
other ways. In tech, the housing pains of the Bay area are arguably the
perfect storm of historical happenstance, a great climate for the most part,
and constrained geography.

~~~
jghn
The pharma/biotech is driven by both the MIT/Harvard connection but also the
local cluster of medical research institutions. You don't have to go back too
far to get to a point where real estate in Kendall/Central/East Cambridge was
relatively cheap. The confluence of these things is what started the feedback
loop there.

~~~
ghaff
Feedback loop is a good way of putting it.

Yeah, I remember when the area beyond Tech Square or so was basically "there
be dragons here." There was a lot of, shall we say, underutilized land from
Cambridge's day as an eastern Detroit a fair chunk of which MIT owned but
hadn't developed.

I would walk to Kendall when I was an undergrad but I thought of that as being
totally disconnected from where the long-gone Lechmere was.

~~~
jghn
Yeah, my memory goes back to the late 90s where there was kendall sq proper
(area around the T stop), Cambridge Center, 1 Kendall and the Galleria and not
a whole lot in between any of them. Tech Sq was there too although no one ever
went there except if they had to go to tech square.

Even though the distances are all the same everything seems so much closer now
just because it's almost a single contiguous entity now instead of 5 min walks
through parking lots and empty space just to get to the next building.

------
strictnein
> "In 1966, the average per-capita income of greater Cedar Rapids, Iowa, was
> only $87 less than that of New York City and its suburbs"

And that is a 5% difference? 25% difference? 55%? Is that number inflation
adjusted?

I hate stats like this. When they show up they make me really assume the rest
of the article is junk as well.

~~~
nostromo
To give them some credit, they link to the source, so you can dig in all you
like. Here, I've done it for you.

1966 average income:

$3,962 - New York City area

$3,875 - Cedar Rapids area

So, 2% less.

~~~
humanrebar
Adjusted for cost of living, Cedar Rapids sounds much _better_ than NYC with
those numbers.

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hyperion2010
> They did so primarily by making the tech industry much less about
> engineering and much more about lawyering and deal making.

This is my take home for everything. Lawyers are the ones in congress. Who
ultimately benefits from the arrangements we have now? Lawyers and pretty much
no one else.

Simplistic? Yes. However, if you play the 'follow the money' game I'm not sure
who else benefits, because I'm fairly certain it isn't the landlords.

~~~
Periodic
What really stood out to me was the idea that the current climate of shooting
for an acquisition as a primary exit strategy is due to the threat of the
entrenched goliaths of the industry and the concentration of power they have
in terms of markets and patents. I had never linked that trend to anti-
competitiveness in the market because the market looks so competitive based on
how many companies are starting and getting funded.

------
jonesb6
I cannot recommend the book Boomerang by Michael Lewis enough. He examines
what several countries (Greece, Ireland, Iceland, Germany, the United States)
did between 2000-2012 when they were allowed to barrow vast sums of money with
little oversight. He's a great narrator and it's an overall insightful book.

Towards the end of the book he examines what a number of American cities did
when they were allowed to barrow vast sums of money with little oversight.
Thumming through it now he covers Vallejo and San Jose. TLDR would be they
bankrupted themselves with pensions and tax cuts.

Oh and it's a light read too. And it has an Arnold Schwarzenegger interview.

~~~
throwaway_xx9
The story goes much deeper than that.

The public sector unions across California circulated a letter in each
municipality that they would only support candidates willing to approve 8%
guaranteed annual pension returns.

And they got it. As a result, California cities are all bankrupt today.

FYI: San Jose is bad, but ironically wealthy Palo Alto has one of the worst
budgets.

------
Ologn
› Today, the commuter-rail system that once made it comparatively easy to live
in suburban New Jersey and work in Manhattan is falling apart, and commutes
from other New York suburbs, whether by road or rail, are also becoming
unworkable. Increasingly, this means that only the very rich can still afford
to work in Manhattan, much less live there

I don't find this to be true. New York City subways are better now than they
were in the 1970s. Public transportation into Manhattan has not changed much
in the past decades, although the prices have risen. There are plenty of
places to live for working class people with decent commutes to Manhattan. I
know plenty of people at startups who lived in Manhattan - engineers could
live by themselves, others needed roommates. You're not going to live on 5th
Avenue, of course. I live in the suburbs so my apartment has some space, not
due to expense - I could rent a smaller Manhattan apartment for the same
price.

------
Eiriksmal
This was an excellent, thought-provoking piece. Anyone have some book
recommendations for further examinations of how the rise of the corporation
has affected America?

------
powera
This seems to ignore cost of living. A lot of the reason salaries are high in
San Francisco is because rent is high, and rent is high because salaries are
high. Just because people can make "more money" in San Francisco doesn't mean
they'll be better off.

~~~
ams6110
Rent is high because housing is scarce. That does lead to higher salaries
(because you can't attract employees if they can't afford housing) but the
rent is not high just because salaries are high.

~~~
totalrobe
Rent is not high just because of scarcity. It's high in North Virginia even
there is plenty of new housing on the market - the problem is that developers
are only building luxury apartments and trying to rent at above market prices.
Most of these places are offering 3-4 months free up front because nobody is
paying the obscene sticker prices for a 12 month lease.

It's not just a local phenomenon - public REIT's are buying up affordable
units nationwide and renting them out at >20% above market...

[http://www.multifamilyexecutive.com/business-
finance/luxury-...](http://www.multifamilyexecutive.com/business-
finance/luxury-apartments-galore-at-what-cost_o)

~~~
exelius
Rent is high because home-buying credit is scarce. Banks are still gun-shy
about lending, so only people with stellar credit or who are borrowing a small
percentage of their earning power can get home loans right now. Which has
caused REITs and other PE organizations to come in and buy up real estate to
fill the gap -- and REITs are not interested in dealing with "affordable"
rental units and the social problems that often come along with them. So they
market their buildings as "luxury" and attach a high price tag.

This has led to a couple of side effects: a shortage of rental units (and the
associated high rental prices), a shortage of qualified buyers (people aren't
able to roll the equity from their starter house into a new home because they
never bought the starter house), and an extreme shortage of new construction
at the low end of the market (the only people who can even qualify to buy
today are upper-middle class).

We're still not out of the subprime quagmire yet. The rental market in the US
was sized for a world where subprime mortgages existed -- and now that they
largely don't, those people have to live somewhere.

Regardless, "affordable" housing will not exist unless it is subsidized by the
government. The private sector has no interest in renting to the low-income
segment when the "up-market" segment is lower cost, higher margin and has
significantly lower legal risk.

