Urbanization and Free Markets

I’m not an environmentalist. I find global warming problematic because it will likely make living on Earth more expensive for humans. Preservation of natural resources is not inherently important to me because I don’t find it morally wrong to consume these resources at high levels. Nonetheless, it could be valuable to preserve natural resources if there is a tragedy of the commons where resources are underpriced by the market and are thus being inefficiently overconsumed. I also think humans tend to enjoy at least visiting and observing pleasant natural land and seascapes, but it only makes sense to preserve them to the extent of which the value of observing these natural areas outweighs their economic value in improving human lives through development.

Unfortunately, I find a lot of the arguments for urbanization tend to emphasize the environmental benefits. These types of arguments will not do well in convincing libertarians that they should also promote urbanization. The goal of this post is to present an argument for libertarians, classical liberals, and free market economists on why they should be interested in urbanization and urban policy.

Cities

Cities are a vital part of human civilization due to specialization, economies of scale, and network effects. You can’t build a hospital with specialized departments and research facilities in a town of 100 people. You can’t make an engineering startup in a town without stores that sell specialized equipment. You can’t teach specific niche courses in cryptography if your city can’t support a university large enough to have advanced Math and Computer Science departments.

Cities also provide more for their inhabitants to consume due to economies of scale. Cities have more diverse food and cultural entertainment like museums, concerts, or festivals. These experiences are also in constant competition, spurring innovation. We think of cities as being more expensive than living in the country, but that’s somewhat misleading; diverse experiences are available in cities rather than rural areas because they can only be provided cheaply in cities. The selection of products is much narrower in less densely inhabited areas. In cities, supply chains can focus on getting tons of varied products to a single location where everyone lives, rather than transporting fewer standardized products across a giant area. The internet is a mitigating factor to some of this, but it’s also true that you can’t get continued technological innovation without concentrating innovators in cities!

There’s another important point about cities from a libertarian or postlibertarian perspective: they offer anonymity and individuality. Cities pack enough people into an area that you can make choices about your social interactions. Unlike a small town where your personal relationships are limited by geography to the few people in the town. It is far more likely you can meet with others that share your obscure interests in a large city rather than a small town. You’re not forced to conform to what your few neighbors believe are acceptable social behavior or beliefs. Diverse cities allow for varied cultural norms, and I’d argue increased tolerance.

The policies and discussions surrounding urbanization and urban planning have mostly been driven by those on the political left. Their political enemies, the Red Tribe (for more explanation, see section IV of I Can Tolerate Anyone Except the Outgroup), is often identified by its opposition to rich urban elites. Libertarians themselves have streaks of this disdain for progressive cities and yearning for an idealized Jeffersonian yeoman farmer nation, where everyone lives on their own separate plots of land and does as they please. But postlibertarians and the Grey Tribe should not cede urban policy to the left so easily; cities are largely vital for the economic reasons I’ve put forward. While today they are often bastions of progressive politics, cities are too important to be left to be governed by the ideas of a single political group.

Dense Cities

Since there are benefits to people who live in cities as described above, it seems to follow that denser cities might emphasize those benefits to a greater degree.

The economic argument seems to make sense here: if cities concentrate people, denser cities should concentrate logistical costs. That means less investment cost in infrastructure per person and less cost to deliver a larger amount of physical goods to the same people. There should be better economies of scale for transportation when cities are packed together. Another interesting benefit might be that with locations closer together, fewer people would use cars, so there would be less total hours wasted in traffic for a city of similar size but lower density. Perhaps this would be offset by longer total transportation time since walking is slower than driving. Certainly it seems that fewer people would die in car accidents at least.

Another benefit specifically for libertarians might actually be fewer road square footage per person. Roads are expensive, are often centrally managed by the city, and so don’t respond to price signalling. Optimal road work is thus not easily achievable, leading to poorly timed construction (overabundance of construction due to road opportunity cost not being priced) or not enough road repairs (too little construction due to no consumer payment for roads). Narrower streets specifically would essentially privatize space in a dense city, space that is highly valuable.

There is also a little bit of anecdotal evidence for cultural benefits of dense cities too. For example, we might expect denser cities to have more people from an odd subculture willing to meet than the population of the city might suggest (due to close proximity). As an example, let’s use Slate Star Codex’s series of local meetups earlier this year. If we expected SSC meetup populations to be based solely on total population, we’d see it match the US Census’ Core Based Statistical Area ranking: New York, Los Angeles, Chicago, Dallas, Houston, Philadelphia, Washington, Miami.

If we expected denser cities to show the social/cultural benefits to a greater extent than spread out cities, we should expect the SSC meetup populations to more closely match the population density of top cities. Unfortunately there’s no exact definition for a dense city. The simple way to define it is total population within a city’s political borders divided by the land area under that polity. However, cities usually extend beyond the political boundaries specifically because those municipal governments get in the way. If we go by this definition, the top US cities should be New York, San Francisco, Boston, Chicago, Philadelphia, and Miami. Now this actually matches the top SSC American cities pretty well, with the exception of Miami which didn’t meet the 10 person minimum despite being in the top seven cities in both total population and density. Another way we can represent density is through the number of high density areas in each metropolitan area. This yields in order: New York, Los Angeles, Philadelphia, Miami, Boston, Chicago, San Francisco.

There are obviously other factors at work in the SSC meetups including culture of the city (Silicon Valley/startup culture is probably the best predictor of SSC readers, as we see small Silicon Valley towns like Mountain View on the list) as well as a number of English speakers (explains why dense foreign cities are not high on the list), and college degrees. This last point is interesting. This article discusses how denser cities only seem to realize productivity gains in high human capital situations. Finance, technology, and other professional industries requiring higher education stand to gain from higher density cities. One question then is whether college graduates are attracted to dense urban cores or whether urbanization simply occurs around where college graduates tend to be (around universities?). To me it seems that cities clearly predate modern universities and college graduates. The establishment and growth of cities seems fairly organic, emergent, and spontaneous.

Too Dense?

This brings us to the next point: cities don’t require urban planning to exist. Humans are completely capable of decentralized self-organization of urban areas, and cities existed and continue to exist without strong municipal governments, zoning laws, building codes, etc. Nonetheless, with close quarters comes externalities, and so governments arguably have a lot of benefits to offer residents of cities over not having governments. Yet, as urban economist Issi Romem writes, American cities tend to expand outwards, and those cities that don’t expand geographically see large cost of living increases. Relatedly, as this Forbes piece points out, many of the highest density cities in the world (Dhaka, Delhi, Karachi, Mumbai)  are also relatively poor. Cities can be rich, but density doesn’t seem to be a requirement for being rich. In the U.S., most new housing comes from urban expansion, not density increases. This seems to beckon that it is not only cheaper to expand at the outside of cities than it is to expand the interior of cities, but more desirable to residents. Given the benefits of cities and density, how could this be?

One possibility is that it could be more expensive to bring goods into a city center than we thought. Maybe economies of scale don’t work as well due to increased traffic. I don’t have much evidence for that, but I guess it’s possible. This seems unintuitive though, as living in the suburbs means dealing with much more driving and traffic anyway.

However, some goods don’t need to be transported into the city…like housing. Once it’s there, it is consumed slowly over time. Yet rent is fairly correlated with density.  I don’t have good data on it, but I took at look at padmapper.com in a couple cities that I knew the general density of. I took the price slider and noted where the high priced places were compared to the low priced areas. It wasn’t a perfect correlation, but it did match my general feeling that more density was associated with higher prices. So if we assume that a housing market is in equilibrium, differences in price for dense and non-dense areas indicate on the demand side that there are plenty of people who would prefer to live in urban dense cores over suburbs given the same price.

Next, on the supply side, differences in price between dense and non-dense areas indicates higher marginal cost in dense areas compared to less dense areas. So what is driving that cost?

Certainly more complex tall structures are needed for dense living, although part of that cost is spread over many more inhabitants. Additionally, there is more reliance on public transportation infrastructure than is needed in the suburbs, which might lead to higher taxes to pay for it. However, other infrastructure costs are lower per person in the city than in the suburbs (lower fixed costs to build water, sewage, electrical, internet, and roads because they scale largely with horizontal distance, which is minimized in a city). Additionally, if cities are supposed to help make people more productive then we might hope similar tax rates would bring higher revenue in dense cities than suburbs.  It’s hard to know then whether tax burdens should be higher in cities, but it seems colloquial wisdom believes they are (high density cities don’t seem like low tax areas). I did find this 2005 paper from Harvard indicating that multi-family buildings (apartments) had a higher tax incidence than individual family homes. Moreover, as Stephen Smith at Market Urbanism pointed out, much of that local tax money goes to roads and schools, things denser urban dwellers likely use at lower rates than suburbanites. Finally, the federal mortgage interest tax credit further makes housing cheaper for suburbanites over urban core residents.

Free Market Perspectives

So while it’s possible to say that it simply costs more to live in a dense city, it’s also true that government seems to cost a lot in cities. Perhaps that’s a necessary part of living in cities, but if we leave urban policy as the sole domain of the Left, there will be no counterbalancing philosophy that understands market forces. Without that check, government will cost more than its benefits.

Moreover, raising tax revenue and providing services are not the only functions of municipal governments: they also create regulations, which are another way they contribute directly to the cost of living in cities. Here it seems there is little nuance to be had: most high productivity cities have far too restrictive housing regulations. This has reduced the ability of labor to relocate to more productive areas of the economy, and according to this NBER paper, has allowed for massive missed opportunities in economic growth. And this makes intuitive sense; over time, technology should allow us to build denser and denser cities more cheaply, yet new housing in some of the most productive cities has not kept pace with demand. The explanation must be regulatory hurdles on new housing.

Such an outcome squares well with the common opposition to urban development known among the urban policy community with the pejorative NIMBY (not in my backyard), and it applies not just to housing, but to any development in a city. Elected municipal governments are responsible to the people who live in the city at present, not to possible future citizens. While this may seem just, it is emphatically a net negative in a utilitarian calculation; improvements in human lives should not be discounted based on where that human lives. Policy that makes it harder for people to move to a city to make it denser, when those people want to move there, creates worse outcomes than we would otherwise have.

Finally, let’s take a step back: I’m not saying that people have to live in dense urban cores; people should live wherever and however they would like to. I’m saying that governments can mismanage urban policy in ways that prevent people from moving to where they would actually want to go. Bad policy changes the nature of cities and reduces the potential benefits they can bring. Because urban policy tends to rely significantly on some state intervention, I find that there is not a plethora of free market urbanists. Nonetheless, cities are an important part of the modern human experience and they will continue to be in the future. Libertarian perspectives have much to offer urban policy and it would be a shame to abandon it to the left.

 


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Metacontrarian contributed to this post.

Encrypted Communication Apps

I have discussed this idea in the past, but normally I’ve only gotten excitement about encrypted communication from my fellow libertarians and netsec friends. But with the current Presidential situation, there seems to be more interest in communicating without being overheard by the government, even among my government-loving left-wing friends. And this is excellent! Even if you don’t need privacy, by communicating securely all the time, you make it less notable when you do have to communicate securely, and you create more encrypted traffic that other government targets of surveillance can blend into.

First, let’s go over a very quick summary of encryption. If you’re already familiar with encryption, skip down past this section and the pictures to the list.

Public Key Encryption in 5 Minutes

An encryption algorithm takes information, like text, numbers, picture data (it’s all just 0s and 1s to computers) and outputs different text on the other side. A good encryption algorithm will output text that looks randomly generated so that no information can be gained about the source text. That output is then sent out in the clear (over the internet, where people might be spying) to the recipient. The recipient then reverses the process, decrypting the message and getting the original text, numbers, picture data, etc. However, if an algorithm always created the same output data from the same inputs, bad guys could figure out what you were saying pretty quickly. This introduces the idea of keys. A key is a number the algorithm uses to change the output in a predictable way. If both the sender and the recipient have a secret key, they can use their keys and the algorithm to send messages that only they can read (without the right key, the algorithm won’t reverse the encryption):

Symmetric key encryption. Public domain image.

But we can do better! In our previous scenario, we need to somehow communicate the secret key separately from our message. That’s a problem, since we likely are using encryption precisely because we can’t communicate openly. The solution is something called public key encryption. In this system, each person has two keys, one public and one private. To send someone a message, you can encrypt the message with their public key, and then send it to them. Then only they alone can decrypt the message with their private key.

Public key cryptography. Public domain image.

The reality of the mathematics is slightly more complicated, but for our purposes, what matters is how the public and private keys exist in each messaging app. Messing with these keys is difficult and confusing for users, but loss of the private key means communication is unsecured. Therefore, when using encrypted messaging, it’s important to be aware of how the app uses and manages the keys.

The Best Apps

The following is my ranked order of preferred secure communication:

1. Signal. This the gold standard encrypted communication app. It’s open source, free, has group chat, works on mobile and desktop, and of course is end-to-end encrypted. It even has encrypted voice calls. The one significant drawback is that it requires a phone number. It uses your phone number to distribute your public key to everyone that needs to contact you.  Because of this, it offers excellent encryption (requiring no security knowledge!), but no anonymity. If you want that, check the next entry.

2. PGP Encrypted email. So this one is a bit complicated. OpenPGP (stands for Pretty Good Privacy) is an open protocol for sending encrypted messages. Unlike the other apps on this list, PGP isn’t an app and therefore requires you to produce and manage your own keys. The tools you can find at the link will allow you to produce a private and public key pair. To send a message to someone else, you will have to obtain that person’s public key from them, use the software to encrypt the message with their public key, and then send it to them. Because it is so much work, I have this method second on the list, but there is no better way to communicate securely and anonymously. To better distribute your public key, I recommend keybase.io (use that link to send use encrypted emails!). The good thing about PGP is that it can be used with any email, or really any other method of insecure communication. Additionally, it’s open source, free, and very encrypted. 

Both Signal and PGP are very secure methods of communication. The following apps are good, but they are not open source and thus are not as provably secure. They are still better than just using unencrypted methods like SMS text, email, etc.

3. Whatsapp. WhatsApp is pretty good. It’s free, widely used, implements Signal protocol (and requires a phone number), works on mobile and desktop, has group chat and encrypted phone calls, and is encrypted by default. Moxie Marlinspike, the guy who made Signal, the number one app on this list, actually implemented the same Signal protocol on WhatsApp. That’s great, but unfortunately, WhatsApp isn’t open source, so while Moxie vouches for WhatsApp now, we don’t know what could happen in the future. WhatsApp could push out an update that does sneaky, but bad things, like turning off defaults. It’s also important to acknowledge that WhatsApp’s implementation already isn’t perfect, but it’s not broken. If you use WhatsApp, it’s important to make sure the notifications are turned on for key changes. Otherwise, it’s an excellent, widely used texting substitute.

4. Threema. Threema has an advantage in that it isn’t based in U.S., and it’s more security focused than Whatsapp. Threema is fairly feature rich, including group chat, but it isn’t free, it’s limited to mobile, and it isn’t open source. Threema uses the open source library NaCl, and they have a validation procedure which provides some comfort, although I haven’t looked at it in depth and can’t tell if it proves the cryptography was done perfectly. This paper seems to indicate that there’s nothing obviously wrong with their implementation. Nonetheless, it cannot be higher on this list while still being closed source.

5. FB Messenger secret conversations. Facebook Messenger is a free app and when using its secret conversations options, the Signal protocol is used. The app is also widely used but it takes effort to switch the conversations to secret. An encrypted app that isn’t encrypted by default doesn’t do much good. FB Messenger does let you look at your keys, but it isn’t as easy to check as it is in WhatsApp, and since it isn’t open source, keys could be managed wrong or defaults changed without us knowing. It also doesn’t have other features like group chat or desktop versions.

6. iMessage. Apple has done a good job with an excellent secure protocol for iMessage. It’s also feature rich, with group chat and more, but it’s only “free” if you are willing to shell out for Apple products. While Apple does a good job documenting their protocols, iMessage is not open source, which means we can’t verify how the protocol was implemented. Moreover, we cannot view our own keys on the app, so we don’t know if they change, and we don’t know how Apple manages those keys. It is therefore possible that Apple could either loop government spying into their system (by encrypting all messages with an extra master key) or simply turn over specific keys to the government. The amount you are willing to use iMessage to communicate securely should be determined by the amount you trust Apple can withstand government attempts to access their security system, both legal and technological.

Things I have specifically not listed on purpose:

  1. Don’t use SMS. It’s not encrypted and insecure. It would be good to not even use it for 2-factor authentication if you have a better option.
  2. Don’t use email. It’s not encrypted and insecure.
  3. Don’t use Telegram. They created their own “homemade” crypto library which you should NEVER EVER DO. Their protocol is insecure and their encryption is not on by default. In fact, there are at least two known vulnerabilities.

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Reasons For Optimism 81-84

81. Airway made by 3D printer saves baby’s life.

82. The global poverty rate has dropped by half since 1990, and the absolute number of the absolute poor has dropped from 1.9 billion to 1.2 billion.

83. 31 Charts That Will Restore Your Faith In Humanity. It’s a bit linkbaity, and some of the info is a little old or ambiguous or may be familiar to you already, but overall it’s pretty uplifting.

84. A solar plane is flying across the United States. It’s making lots of stops and going very slowly, and probably not even saving any energy since the alternating driver has to meet up at the stops, but it’s continuing to break various sorts of distance records and on pace for an around-the-world flight by 2015. Exciting proof-of-concept!

Reasons For Optimism 76-80

76. A new estimate of the Bakken Formation that has been transforming North Dakota says there is more than twice as much recoverable oil as the previous estimate. U.S. oil inventories reached an 82-year-high this week. Meanwhile, demand continues to hold steady even as job growth continues to the best levels in five years.

In other words, we have more oil under the ground and more oil above the ground than ever even as we’re needing to use less of it than ever, making an energy shortage less and less likely as we slowly transition away from fossil fuels.

77. Another nugget of good news on the online patents & innovation front: A judge has thrown out Craigslist’s attempt to sue a competitor for using their submissions to make a better website.

78. Google is innovating in the fast-growing continent of Africa with a payment card called BebaPay (h/t @justinwolfers).

79. Just a few months after introducing 3d printers in their stores for printing, Staples announced they will start selling them as well. Looks like the devices are continuing to follow the personal computer’s path to widespread use.

80. Scientists are making progress on a cure for leukemia.

As always, Expected Optimism has a few more good reasons.

Reasons For Optimism 69-75

69. There has been a lot of momentum in the move to re-legalize the unlocking of cell phones, from a generally supportive White House petition response to calls for reform from industry groups to legislation introduced in Congress. (If you’re interested in progress on this front, follow leading activists @sinak and @DerekKhanna)

70. The Obama Administration has set rules for greater public access to publicly-funded research following a White House petition and open advocate Aaron Swartz’s suicide. There are still limitations, but it is an improvement to the status quo, and should enhance the public goodness that justifies its funding.

71. While federal drone policy is finally in the headlines, about 30 state legislatures have been moving to limit drone surveillance within their borders. Various legislation has been introduced in Alaska, California, Georgia, Hawaii, Idaho, Indiana, Kentucky, Maine, Maryland, Massachusetts, Minnesota, Nebraska, New Jersey, New Mexico, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, and Texas, and has begun completing steps to passage in Arizona, Florida, Illinois, Missouri, Montana, North Dakota, Oklahoma, Virginia, and Washington. (For progress on this front, follow @drones)

Continue reading Reasons For Optimism 69-75

Reasons For Optimism 55-58

55. Africa’s rapid economic development continues. “64 recent major discoveries of fuel deposits” will help the continent meet its growing energy needs, and connecting more Africans to the electric grid will save millions of lives from the respiratory illnesses caused by “kerosene lanterns and charcoal cookstoves,” among many, many other coming improvements to their standards of living.

56. At the other end of the spectrum, obesity may be declining in children of low-income families in the US.

57. Doctors have restored a man’s sight with adult stem cells.

58. SpaceX has successfully test-launched their reusable Grasshopper rocket at a new record height. It’s pretty cool to watch the rocket defy gravity as it calmly hovers and lands. SpaceX is working on fully reusable launch vehicles with the goal of making space travel dramatically cheaper.

See the latest from Expected Optimism for several more reasons for optimism.

Reasons For Optimism 50-54

50. Over Thanksgiving I randomly caught some segments of a (CNBC?) TV program about John Deere and the combines they design and manufacture. They are constantly working on new models that harvest crops more efficiently and more cheaply and are easier to repair and a host of other endless improvements. The show felt like a brief glimpse into the millions of quiet, incremental innovations that capitalism is constantly bringing us, and perhaps part of the reason we are still able to feed an entire planet despite the doomsayers of decades ago. It’s easy to get caught up in the big and more visible bad news and forget the subtle productivity improvements that are quietly advancing in thousands of industries year after year.

Continue reading Reasons For Optimism 50-54

Reasons For Optimism 46-49

46. Poop Transplants Are Saving Lives. Um… self-explanatory.

47. A new report says the Marcellus Shale natural gas reserves are larger than expected. We’re still not running out of energy.

48. Volvo says that by 2014 they will have cars with low-speed autonomous following capability. The driverless revolution is coming.

49. Judge Protects Cellphone Data On 4th Amendment Grounds, Cites Government’s Technological Ignorance. Always nice when the judicial branch blocks the overreach of the other branches. It’s almost like how our government is supposed to work!