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 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.


Comment on the official reddit thread.

Metacontrarian contributed to this post.

Everyone’s A Rent-Seeker, Taxicab Edition

A year ago I wrote about the crazy, over-regulated New York City taxicab industry. Well, things are getting even crazier.

There’s a new rush of start-up competition, led by Uber, whose high-tech mobile app lets riders request luxury rides on demand instead of frantically trying to wave down a passing cab. It costs more than a cab, but the convenient experience seems to be immensely popular, and Uber has been slowly expanding to more and more cities.

Of course, the existing taxicab industries, already used to protective regulations in many cases, don’t like the competition, and there have been varying volleys and setbacks in recent months as established players have tried to put up, er, roadblocks to keep the new kids out.

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Fuel Efficiency Standards and a Hyperactive Government

Yesterday Obama announced new fuel efficiency standards that “mandate an average fuel economy of 54.5 miles per gallon” by 2025. This is the sort of arbitrary government intervention that hits all the libertarian buttons – distorting the market, deceiving consumers, enhancing the corrupt link between big businesses and big government – although I have to admit it’s likely that it won’t make things worse and may even make them better. However, the mandate does illustrate how the government is so hyperactively involved in so many things these days that an attempt to fix something with one hand may break something it’s already fixing with another hand.

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Nanny Nudger Strikes Again!

Just a couple months after banishing 32-ounce sodas from select establishments in New York City, the Nanny Nudger – aka Mayor Michael Bloomberg – is at it again. This time the man wants to nudge mothers into breastfeeding their newborns at the hospital by hiding bottles and scolding women who ask for them.

After all, science agrees that breastfeeding is best! Besides, they’re not really banning the bottles for mothers that need or really want them… they’re just making them harder to get. This will make more women breastfeed and lead to healthier children!

Of course, these results will come at a slight cost to personal freedom and responsibility. Mayor Bloomberg seems intent on proving old libertarian rhetoric about health care: the more the government pays your medical bills, the more the government will try to get you to do things to lower those bills. There are three problems with this.

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The Right To Drink Unhealthy Soda

New York City mayor Michael Bloomberg wants to ban soda. Well, except for sizes 16 ounces and smaller. And all sizes in grocery stores. And diet sodas and fruit juices. But if you’re a cup of 32 ounces of Coke in a movie theater, Bloomberg wants to get rid of you.

“Nanny Bloomberg” has already done things like ban smoking in parks and restaurants and ban “artificial trans fat in restaurant food,” but apparently those haven’t done enough to increase the health of the city, where over half of the citizens are allegedly obese or overweight.

You might think it would be smarter for Bloomberg to go the California route and increase taxes on soda to at least make some money while they’re making people healthier. Actually, he already tried to get a state tax on soda, but it was rejected. So he came up with this new plan that conveniently just has to be approved by a board of people who were all appointed by him! (Brilliant system of checks and balances you got there, NYC.)

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The Right To Work On A Farm

An article from The Daily Caller has been storming the Internets this week. The Obama administration’s Department of Labor was reportedly planning to “prevent children from doing farm chores” by applying child labor laws to children working on family farms, prompting lots of outrage from lots of people. (I’m glad I waited my self-imposed 48 hours before commenting on new controversy, as it now seems that the administration “withdrew” the proposed rule after the outcry. The reversal happened almost as fast as last year’s Christmas tree tax.)

Was Obama trying to lose the rural vote? Heaven forbid children have the opportunity to learn responsibility and work ethic – they might learn they can get by without the federal government guiding their every step! Maybe the government doesn’t want kids helping out on the farm because that’s not taxable! What kind of country are we living in where parents increasingly allow their children to do irresponsible things while the government is actively clamping down on responsible options?

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Taxes and the Slow War on Law-Abiding Citizens

I finished my taxes last week. By “finished,” I mean I completed the steps on the H&R Block website and accurately checked boxes and filled inputs to the best of my ability based on my understanding of the terms presented. But it sure is complicated, especially now that there’s a house involved; good thing vehicle property taxes don’t start for us until next year.

But it’s not just getting worse for me as I get older; it’s getting worse for everyone. This graphic about the length of federal tax law was going around the Internet the other day:

Federal Tax Law PagesThat’s a stunning growth rate (even with the inconsistent Y-axis), and every year around this time we hear calls for tax reform. Fareed Zakaria had a good post on CNN the other day:

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I Am Altering the Contraception Deal

I am altering the contraception deal. Pray I don't alter it any further.

RECAP: The words “Obama” and “birth” have been in the headlines again, but this time it has nothing to do with that silly certificate. If you missed all the action, a couple weeks ago Kathleen Sebelius, head of Health and Human Services under the Obama administration, announced that employers who provide insurance to their employees would be required to include birth control in those plans, at “no extra cost” (in quotes because the cost always gets spread out somewhere). This contraception mandate included an exemption for religious organizations like churches, but not religious organizations with non-religious services – like Catholic hospitals. Well, that really ticked off the Catholic Church, which officially denounces birth control even though evidence suggests that most of their members use it anyway. Conservatives got riled up about Obama’s attack on religious freedoms, and even some Democrats started defecting. Then yesterday Obama announced that they were tweaking the mandate to honor religious freedoms by way of a technicality where the religious organization doesn’t have to provide the service to its employees but the insurance provider has to contact the employees directly to offer it – at “no extra cost.” Or something like that.

It’s been rather dismaying for me to read the comments in the news articles about this, as most people just attack the Catholic Church and/or general conservatives for being hypocritical or hating women or being against birth control. But those attacks completely miss the broader points, which some conservatives have been dutifully trying to explain. Ross Douthat wrote about the false liberal assumption that government is the only thing we “choose to do together” and how this mandate is an example of government trying to crowd out voluntary community efforts: “It is Catholics hospitals today; it will be someone else tomorrow.” Douthat also gave a smack-down to Kevin Drum’s assertion that it’s OK because it’s “a matter of conscience only for a tiny number of men in the formal hierarchy of the Catholic church.” John Cochrane says “Insurance is a bad idea for small, regular and predictable expenses.” Sonic Charmer says BYOFS: “Buy Your Own Freaking Stuff.” Tim Carney has been leading the charge on Twitter: “Hey, I’ve got my own compromise: We don’t prohibit you from buying contraception, and you don’t prohibit us from NOT buying it!”

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What’s In A Name: How the Government Invites Definition Lobbyists

There’s been an interesting topic showing up in the Google News headlines for the last couple of days. The “experts” at the American Psychiatric Association are considering changing the definition of autism, which probably means that many people “would no longer meet the criteria to get health, educational and social services.” Naturally a lot of people are concerned about losing access to these services. I haven’t been able to figure out yet exactly what kinds of services these articles are talking about, whether it’s private (like insurance) or public (like government programs) or some of both (probably), but it’s interesting how definitions are becoming so important these days, especially as they seem to endlessly and arbitrarily change.

Last month our government decided that X-Men are not humans. For reasons unbeknownst to me, our tariff laws dictate that “the import tax on dolls is twice what it is for toys.” Well, the makers of X-Men action figures wanted to pay the lower rate, so their lawyers fought the customs office to argue that X-Men weren’t humans so they could be charged the toy rate instead of the doll rate, and “the court found that mutants are not human.” (Of course, this caused a fun and ironic storm in the comic world since a key part of the X-Men story is that the mutants are trying to convince the government that they are human, or at least that they deserve the same rights.) None of this would have mattered at all if we didn’t have laws that allowed a bunch of money to be hinged on the definitions of “doll” and “toy.” If there was no import tax, or even if it was just the same for dolls and toys, we would never have had to force a court to waste time making a decision on the humanness of X-Men.

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The Right To Use A Cell Phone And Drive

On December 13, the National Transportation Safety Board recommended “a nationwide ban on the use of cell phones and text messaging devices while driving.” The recommendation comes after a high-profile incident in my own state of Missouri where texting led to a crash that involved a tractor trailer and two buses. Now it’s not unusual for the government to want to increase regulation when something big and terrible happens; people generally expect their government to prevent big and terrible things from happening. But does this justify a nationwide cell phone ban? Let’s consider.

First, there is a valid case for such regulation. Some libertarians might bash the NTSB’s call for a ban as regular old government power-grabbing, but there is a legitimate negative externality here. You could be driving down the road, minding your own business and following all traffic laws, and a distracted cell-phone-wielding driver could plow right into you. Few people seem to have issues with drunk driving laws; why wouldn’t you want to be protected from the negative externality of someone crashing into you?

Well, when we discuss whether or not the government should get involved in trying to prevent a negative externality, there are two things we should consider. Is the negative externality big enough to worry about, and is the government likely to make it better? I believe the answer to both questions is NO with about a 90% certainty.

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