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Krugman doesn't state so explicitly, but the reasons for the high cost of living in Manhattan is because of "rent seeking" a Microeconomics market inefficiency created by using politics to limit density to create artificial scarcity in housing and thus increase the price of housing for new entrants and artificially inflate the cost of housing for existing property owners.

Another reason for the high cost of housing is the overuse of historic landmark status laws.

For more about how to fix the high cost of housing, see Harvard Economist's column: http://www.nydailynews.com/opinion/build-big-bill-article-1....

For more about the explicit Microeconomics, see Tim Harford's fun to read book, "The Undercover Economist" http://www.amazon.com/Undercover-Economist-Revised-Updated-E...

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