Glaeser... Glaeser... Where have I heard that name before?

Joseph's last post has got me thinking that it might be a good time for a quick Edward Glaeser retrospective.

Glaeser is, unquestionably, a smart guy with a lot of interesting ideas. Unfortunately, those ideas come with a heavy dose of confirmation bias, a bias made worse by a strong tendency to see the world through a conservative/libertarian filter, a provincial attitude toward much of the country and a less than diligent approach to data. The result is often some truly bizarre bits of punditry.

The provincialism and cavalier approach are notably on display in this piece of analysis involving Houston, a city Glaeser has written about extensively.

Why is housing supply so generous in Georgia and Texas? It isn’t land. Harris County, Tex., which surrounds Houston, has a higher population density than Westchester County, N.Y.

The trouble is Houston is IN Harris County (technically, the town does spill over into a couple of other counties -- Texas counties are on the small side -- but it's mainly Harris).

Keep in mind that Glaeser is one of the leading authorities on cities and Houston is one of his favorite examples.

[Update: Glaeser has correctly placed Houston is Harris County in the past, though the Harris/Westchester comparison still raises questions.]

Glaeser's flawed example was part of a larger argument that "Red State growth is that Republican states have grown more quickly because building is easier in those states, primarily because of housing regulations. Republican states are less prone to restrict construction than places like California and Massachusetts, and as a result, high-quality housing is much cheaper."

Like so much of Glaeser, it's an interesting idea with some important implications but as presented it doesn't really fit the data.

This confirmation bias can lead to some other truly strange examples:

But there was a crucial difference between Seattle and Detroit. Unlike Ford and General Motors, Boeing employed highly educated workers. Almost since its inception, Seattle has been committed to education and has benefited from the University of Washington, which is based there. Skills are the source of Seattle’s strength.

The University of Michigan is essentially in a suburb of Detroit. UM and UW are both major schools with similar standings. Washington is better in some areas, Michigan is better in others, but overall they are remarkably close. When you add in Wayne State (another fine school), the argument that Seattle is doing better than Detroit because of the respective quality of their universities is, well, strange.

Glaeser's confirmation bias has led him to make a number of other easily refuted arguments. His predictions about the auto bailout aren't looking good. Joseph pointed out numerous problems with his statements about food stamps. Dominik Lukeš demolished his school/restaurant analogy. His claims about Spain's meltdown are simply factually wrong.

To make matters worse, Glaeser doesn't seem to show much interest in engaging his critics. As far as I know, none of these points have ever been addressed.

Utopian urbanists and the will of God

Here's a hypothetical discussion I'd like you consider, not because it could ever happen but because I think it makes an interesting thought experiment.

Imagine we're sharing a cup of coffee with Edward Glaeser and we make them the following proposal: let's take a large metropolitan area in the South or West and just zone the hell out of that puppy, set aside huge swathes of land right through the middle of the city, allow no development whatsoever, not even any roads except for a couple of elevated highways.

I predict that Glaeser would object strenuously to the suggestion. He would probably start things off by waxing eloquently on the evils of zoning, then decry the inefficiency of wasting land that could potentially house millions of city dwellers.

Suitable chastised we drop that idea and change the subject, asking him what cities in the South or West we should look to as models. I'll make a second prediction: he would cite either Seattle or San Francisco (and possibly both), praising them for their density, walkability and lack of sprawl.

The trouble is that all of these appealing aspects are pretty much a direct result of large swathes of undeveloped land that cover large parts of these area, swathes that can be driven across only by way of a handful of elevated highways.

Of course, it's awfully easy to be unfair to someone when you're writing his dialogue for him. It's quite possible that I've misrepresented Glaeser's positions on one or both of my predictions. Still, when I read Glaeser, I can't shake the impression that he's not just suggesting policy changes that can make things better; he's talking about a utopian product of libertarian ideals.Because of this I get the feeling that a city building around a body of water is fundamentally different than a city building around a piece of zoned land, even if the end result is the same. (Is it even possible for the end result to be the same? That's a topic for another post)

None of this makes Glaeser's analyses bad or diminishes any of his many good ideas, but when it comes to setting policy, utopianists always make me nervous.

One of Krugman's talents

...is the ability to dig up or create a simple picture that effectively rebuts a popular but flawed narrative.

For example, take the profligate PIGS story -- the EU is in trouble mainly because four countries (Portugal, Ireland, Greece and Spain) were reckless spendthrifts. It's a widespread explanation. Edward Glaeser even used a Spain specific variant of it to argue against high-speed rail.

In response to this, Krugman shows us the debt levels and deficits of these four countries (plus Germany as a reference point) on the eve of crisis:




As Krugman summarizes:

Yes, Greece had big debts and deficit. Portugal had a significant deficit, but debt no higher than Germany. And Ireland and Spain, which were actually in surplus just before the crisis, appeared to be paragons of fiscal responsibility — the former, said George Osborne, was

a shining example of the art of the possible in long-term economic policymaking.

We know now that the apparent fiscal health of Ireland and Spain rested largely on housing bubbles — but that was by no means the official view at the time. And nothing I’ve seen explains how new fiscal rules would prevent a similar crisis from happening again.

Cheap Beer, Paradoxical Dice, and the Unfounded Morality of Economists

Sometimes a concept can be so intuitively obvious that it actually becomes more difficult to teach and discuss. Take transitivity. We say that real numbers have the transitive property. That means that if you have three real numbers (A, B and C) and you know A > B and B > C then you also know that A > C.

Transitivity is just too obvious to get your head around. In order to think about a concept you really have to think about its opposite as well --

A > B, B > C and C > A. None too imaginatively, we call these opposite relationships intransitive or non-transitive. Non-transitive relationships are deeply counter-intuitive. We just don't expect the world to work like that. If you like butterscotch shakes better than chocolate shakes and chocolate shakes better than vanilla shakes, you expect to like butterscotch better than vanilla. If you can beat me at chess and I can beat Harry, you assume you can beat Harry. There is. of course, an element of variability here -- Harry might be having a good day or you might be in a vanilla kind of mood -- but on average we expect these relationships to hold.

The only example of a non-transitive relationship most people can think of is the game Rock, Paper, Scissors. Other games with non-transitive elements include the boomer classic Stratego where the highest ranked piece can only be captured by the lowest and my contribution, the game Kruzno which was designed specifically to give students a chance to work with these concepts.

While these games give us a chance to play around with non-transitive relationships, they don't tell us anything about how these relationships might arise in the real world. To answer that question, it's useful to look at another game.

Here are the rules. We have three dice marked as follows:

Die A {2,2,4,4,9,9}

Die B {1,1,6,6,8,8}

Die C {3,3,5,5,7,7}

Because I'm a nice guy, I'm going to let you pick the die you want. I'll then take one of the two remaining dice. We'll roll and whoever gets the higher number wins. Which die should you pick?

The surprising answer is that no matter which one you pick I'll still have the advantage because these are non-transitive dice. A beats B five out of nine times. B beats C five out of nine times. C beats A five out of nine times. The player who chooses second can always have better odds.

The dice example shows that it's possible for systems using random variables to result in non-transitive relationships. Can we still get these relationships in something deterministic like the rules of a control system or perhaps the algorithm a customer might use to decide on a product?

One way of dealing with multiple variables in a decision is to apply a threshold test to one variable while optimizing another. Here's how you might use this approach to decide between two six-packs of beer: if the price difference is a dollar or less, buy the better brand; otherwise pick the cheaper one.* For example, let's say that if beer were free you would rank beers in this order:

1. Sam Adams

2. Tecate

3. Budweiser

If these three beers cost $7.99, $6.99 and $5.99 respectively, you would pick Tecate over Bud, Sam Adams over Tecate and Bud over Sam Adams. In other words, a rock/paper/scissors relationship.

Admittedly, this example is a bit contrived but the idea of a customer having a threshold price is not outlandish, and there are precedents for the idea of a decision process where one variable is ignored as long as it stays within a certain range.

Of course, we haven't established the existence, let alone the prevalence of these relationships in economics but their very possibility raises some interesting questions and implications. Because transitivity is such an intuitively appealing concept, it often works its way unnoticed into the assumptions behind all sorts of arguments. If you've shown A is greater than B and B is greater than C, it's natural not to bother with A and C.

What's worse, as Edward Glaeser has observed, economists tend to be reductionists, and non-transitivity tends to play hell with reductionism. This makes economics particularly dependent on assumptions of transitivity. Take Glaeser's widely-cited proposal for a "moral heart of economics":

Teachers of first-year graduate courses in economic theory, like me, often begin by discussing the assumption that individuals can rank their preferred outcomes. We then propose a measure — a ranking mechanism called a utility function — that follows people’s preferences.

If there were 1,000 outcomes, an equivalent utility function could be defined by giving the most favored outcome a value of 1,000, the second best outcome a value of 999 and so forth. This “utility function” has nothing to do with happiness or self-satisfaction; it’s just a mathematical convenience for ranking people’s choices.

But then we turn to welfare, and that’s where we make our great leap.

Improvements in welfare occur when there are improvements in utility, and those occur only when an individual gets an option that wasn’t previously available. We typically prove that someone’s welfare has increased when the person has an increased set of choices.

When we make that assumption (which is hotly contested by some people, especially psychologists), we essentially assume that the fundamental objective of public policy is to increase freedom of choice.

But if these rankings can be non-transitive, then you run into all sorts of problems with the very idea of a utility function. (It would also seem to raise some interesting questions about revealed preference.) Does that actually change the moral calculus? Perhaps not but it certainly complicates things (what exactly does it mean to improve someone's choices when you don't have a well-ordered set?). More importantly, it raises questions about the other assumptions lurking in the shadows here. What if new options affect the previous ones in some other way? For example, what if the value of new options diminishes as options accumulate?

It's not difficult to argue for the assumption that additional choices bring diminishing returns. After all, the more choices you have, the less likely you are to choose the new one. This would imply that any action that takes choices from someone who has many and gives them to someone has significantly fewer represents a net gain since the choice is more likely to be used by the recipient. Let's say we weight the value of a choice by the likelihood of it being used, and if we further assume that giving someone money increases his or her choices, then taking money from a rich person and giving it to a poor person should produce a net gain in freedom.

Does this mean Glaeser's libertarian argument is secretly socialist? Of course not. The fact that he explicitly cites utility functions suggests that he is talking about a world where orders are well defined, and effects are additive and you can understand the whole by looking at the parts. In that world his argument is perfectly valid.

But as we've just seen with our dice and our beer, we can't always trust even the most intuitively obvious assumptions to hold. What's more, our examples were incredibly simple. The distribution of each die just had three equally probable values. The purchasing algorithm only used two variables and two extremely straightforward rules.

The real world is far more complex. With more variables and more involved rules and relationships, the chances of an assumption catching us off guard only get greater.



*Some economists might object at this point that this algorithm is not rational in the strict economics sense of the word. That's true, but unless those economists are also prepared to argue that all consumers are always completely rational actors, the argument still stands.

What exactly are the localized benefits of a university?

I grew up in a small university town and I can say definitively it was a great environment. There were plays and concerts and speakers. When I started writing fiction as a high school sophomore, I got to sit in on a class taught by a well-established novelist. When I was a senior there was a program where I could take my remaining high school requirements in the morning and take college classes in the afternoon.

I am, as you might imagine, a great supporter of colleges and college towns as is Joseph, my co-blogger. This puts us in an odd position. We are always looking for an excuse to promote higher education but the current line of argument about the economic benefits of universities at the local level is so weak and ignores so many counter-examples that it may do more harm than good.

The focus on local benefits is almost fatally flawed from the beginning by the fact that most of the benefits accrue at the state or more often national level. Both innovations and people tend to flow with the market. When we fund research and produce skilled workers, the chances of a big long-term pay-off are very good but predicting the exact form and location of that pay-off is all but impossible.

Keeping in mind that we are leaving out the majority of the return we expect on our investment, what benefits do we expect a university to provide to its host?

First there are the soft benefits such as enriching an area's intellectual and cultural life, providing role models, enhancing reputation. Viewed from a high enough level, the soft benefits may turn out to be the far most important, but they are difficult to measure and plan around. For now let's focus on the hard benefits.

University as employer

Universities are often seen as an almost ideal industry -- pollution-free, creating a number of stable, middle-class jobs and generating charming, highly liveable neighborhoods.

The problem here is that, if the suburban model takes hold and the town doesn't have a lot to recommend it outside of the school, the results can be really ugly, leaving the area with no tax base, an economy based on delivering pizzas and thousands of poor, badly-behaved students who get loud and drunk on Thursday night then head back to their parents' houses on Friday.

How do you avoid this fate?

One way is simply to stay small enough to maintain that Mayberry quality where it is possible for a professor to afford a decent little house within three or four miles from the school. I could give you some examples but while they may be charming, they aren't relevant to this discussion.

Another solution is to have a university in a large, economically diverse town where the economy and quality of life won't be completely overwhelmed by the ebb and flow of the academic calendar. Unfortunately, even very large universities only have twenty or thirty thousand employees (academic and administrative). College Station can build an economy around a university. Seattle really can't.


University as incubator

Call this the SAS model. Entrepreneurs who began as students and faculty decide to start some innovative new business just down the street. It's great when these things happen, but they don't seem to happen frequently enough, particularly not on the scale we'll need if we want to count on them to revitalize a stagnating city.

To further complicate matters, this desire to start a business in the vicinity of a school is directly related to the appeal of the area (students who hate to leave a town are more likely to find a way to stay). The vibrant urban areas that are likely to attract these small businesses are the very areas that don't need them.


University as labor supplier

This is probably the most commonly cited effect and it's certainly true that many of the more attractive industries require highly educated workers. It is not, however, so clear that these workers have to be in the area before the jobs are there or that the advantages of being able to recruit from an area college are that great. With only one very small nationally ranked school, Houston can't hope to supply itself with the first string academic talent it needs but that hasn't stopped its phenomenal growth (plenty of Ivy League grads are willing to move south), nor have the advantages of a local school caused Microsoft to focus its attention on UW instead of Waterloo.

Universities are vitally important to our intellectual, cultural and economic future and they have paid for themselves many times over. They do not, however, have that great a record of revitalizing urban areas. It would appear that you need more than a "build it and they will come" attitude, that certain conditions have to be in place and, even with those conditions, the short-term magnitude of the effects may be less than we hope.

Another New Haven thought

Matt Yglesias wonders if looking at just New Haven alone is the wrong unit of analysis as the surrounding county is quite prosperous. I think that this quote nicely summarizes the problem with this analysis:

But even the strongest cities can't -- and shouldn't have to -- handle the costs of urban poverty by themselves/ In the 1960s and 1970s, rich and middle-class city dwellers fled to the suburbs in part to escape having to pay the costs of addressing urban inequality. Rich enclaves have often formed right outside of urban political boundaries, where the prosperous can be close to the city without having to pay its taxes or attend its schools. A level playing field mans that people should be choosing where to live based on their desires for neighborhood or opportunity, not based on where they can avoid paying for the poor.

-- Edward Glaeser, Triumph of the City, page 258.

The difference between Seattle and New Haven is that the core of Seattle had managed to capture at least part of the prosperity that comes from institutions like the University of Washington and Microsoft. This suggests to me that there is at least a two stage process to using a university to enhance urban prosperity.

It also suggests we might want to be leery about things like significant budget cuts as it would be foolish to risk disrupting these types of success stories.

Credit where credit is due

I have resumed reading Edward Glaeser's book Triumph of the City. I am not always a fan of Dr. Glaeser's arguments but his discussion of urban sprawl is interesting, perceptive, and (I suspect) correct. The section is worth it for the discussion of Paris and alternative models of urban density alone.

I am not convinced that he has modeled the predictors of urban prosperity well but I find his arguments for the drivers of sprawl to be compelling. I would be skeptical of any attempt to seriously engage the problem that did not consider these points. For example he references a fixed time cost to public transportation (waiting for the bus, traveling between destinations and stops) that puts the focus on car use in a whole different light.

I was back to being impressed with his work in this section.

Make that 300... No, make that 400 years

From Edward Glaeser:

The late Senator Daniel Patrick Moynihan of New York is often credited with saying that the way to create a great city is to “create a great university and wait 200 years,” and the body of evidence on the role that universities play in generating urban growth continues to grow. (Disclosure: I work for a university.)

I'm a big believer in more funding for education and research, but as for generating urban growth, the evidence is decidedly Glaeserian.

I'll let Joseph take it from here:

Mark has been discussing Edward Glaeser and his comments on how universities Now, I am a big fan of universities and think that they serve an important role in global economic development. However, I am dubious that they make any particular community prosperous. Consider New Haven, CT -- the home of Yale University (recently ranked the #11 university in the world).

According to wikipedia, the poverty rate in New Haven is 24%, which compares unfavorably with the rest of the United States where it is 14%. The poverty rate in New Haven, despite the presence of Yale, is nearly twice that of the United States as a whole.

Now, one might note that many of the poor residents of New Haven are likely to be students. This is true. But these students still use municipal services and thus require the local tax base to support them (in addition to the long term residents). They do not (after they graduate and make additional income) send money back to New Haven so, in a sense, New Haven is actually subsiding the urban communities that Yale graduates move to.

So, it is actually possible that a large university in a small community could be a drag on the economy due to the lower per capita tax base. Plus, you have a large segment of the population with only a short term interest in the community which may make long term planning more difficult. And New Haven, CT is not the only university town that I can think of with high levels of poverty.

Furthermore, if a strong local university (like the University of Washington) is a solution to urban poverty (as it was presented in the Detroit versus Seattle comparison of Edward Glaeser) then it is unclear why a stronger economy has not grown up around Yale which is a strong school by any measure.

More Glaeserian causality

We all occasionally make too much of anecdotes and jump too quickly from correlation to causality, but with Edward Glaeser, this sort of thing is starting to become a habit.

From the New York Times:

Vast public infrastructure projects, like high-speed rail, helped create Spain’s current fiscal morass and did little to revitalize Japan during its lost decade.

Of course, given the magnitude of the demographic and economic forces acting on Japan, it's difficult to say exactly what effect high-speed rail had.

As for Spain, do we really have reason to believe massive spending on public works helped cause the crisis? Here's Paul Krugman's answer:

On the eve of the crisis, Spain was running a budget surplus; its debts, as you can see in the figure above, were low relative to GDP.

So what happened? Spain is an object lesson in the problems of having monetary union without fiscal and labor market integration. First, there was a huge boom in Spain, largely driven by a housing bubble — and financed by capital outflows from Germany. This boom pulled up Spanish wages. Then the bubble burst, leaving Spanish labor overpriced relative to Germany and France, and precipitating a surge in unemployment. It also led to large Spanish budget deficits, mainly because of collapsing revenue but also due to efforts to limit the rise in unemployment.

Wouldn't Glaeser's argument imply that Spain was spending too much and wouldn't that, in turn, show up in the debt to GDP numbers?

The paradox of New Haven

Mark has been discussing Edward Glaeser and his comments on how universities can create urban prosperity. Now, I am a big fan of universities and think that they serve an important role in global economic development. However, I am dubious that they make any particular community prosperous. Consider New Haven, CT -- the home of Yale University (recently ranked the #11 university in the world).

According to wikipedia, the poverty rate in New Haven is 24%, which compares unfavorably with the rest of the United States where it is 14%. The poverty rate in New Haven, despite the presence of Yale, is nearly twice that of the United States as a whole.

Now, one might note that many of the poor residents of New Haven are likely to be students. This is true. But these students still use municipal services and thus require the local tax base to support them (in addition to the long term residents). They do not (after they graduate and make additional income) send money back to New Haven so, in a sense, New Haven is actually subsiding the urban communities that Yale graduates move to.

So, it is actually possible that a large university in a small community could be a drag on the economy due to the lower per capita tax base. Plus, you have a large segment of the population with only a short term interest in the community which may make long term planning more difficult. And New Haven, CT is not the only university town that I can think of with high levels of poverty.

Furthermore, if a strong local university (like the University of Washington) is a solution to urban poverty (as it was presented in the Detroit versus Seattle comparison of Edward Glaeser) then it is unclear why a stronger economy has not grown up around Yale which is a strong school by any measure.

This example highlights, I think, that predicting what factors create a prosperous community is a difficult question and not one that has easy answers.

Update: The discussion continues here and here.

Universities and Growth

Mark had a really nice post about one of Edward Glaeser's points. Mark points out that it seems odd that Glaeser overlooked the schools in the Detroit area when he pointed out how important the Univeristy of Washington is to Seattle's success. Curiously, he did not mention Microsoft, which seems to also be an important explanation for Seattle's success. I think the underlying issue here is that simple explanations (location of schools) do not really describe complex phenomenon (relative prosperity) well.

If you look at the the top ranked schools, there are really two major clusters in the United States (one in the Northeast, peaking in Boston and one in California, peaking in San Franscisco). But the causal direction is unclear to me -- did these schools become excellent due to their proximity to vibrant economies or vice versa?

Or are these factors independent, which schools like Princeton might argue for.

What type of instrument or experiment could we use to decide on this?

These questions matter because we care about how to best handle things like economic slumps. It might be that there is no effective policy response (that would be worth knowing). But, at the very least, overly simple explanations should concern us.

If you don't post it someone else will

I was planning to do a post on these comments by Edward Glaeser, but I decided to put it off because:

a) Joseph told me he was reading the book and could give me a better assessment of how the ideas held up;

b) I'd recently criticized Glaeser at some length;

c) I had about a dozen other posts I wanted to do.

One of the comments that annoyed me was Glaeser's comparison of public schools and restaurants, now Dominik Lukeš has spent two thousand plus words taking the analogy apart stone by stone and salting the ground. If you're in the mood for a good dismantling and salting you should definitely follow the link.

Edward Glaeser

Two quotes from the first chapter of his new book, triumph of the city:

All of the world's older cities have suffered the great scourges of urban life: disease, crime, congestion. And the fight against these ills has never been won by passively accepting things as they are or by mindlessly relying on the free market.

and

Infrastructure eventually becomes obselete, but education perpetuates itself as one smart generation teaches the next.

so far the book itself is beating my expectations based on his recent articles. Already there is a strong theme of needing to consider group interests relative to individual interests (and the collective action problems that result when you do not properrly regulate a city). We'll see if the rest of the book holds up or not.