National stats miss local variation
The real economic story is written at grassroots level, writes Tim Harford
THE standard economic indicators are familiar, as are the criticisms of their shortcomings. The consumer price index does not capture new products; unemployment figures do not count workers who have given up in despair; gross domestic product includes bad things if they have a market price, and excludes good things if they don’t. But one fundamental flaw is rarely discussed: these statistics are almost always applied to countries.
This is odd, because the nation state is a political unit, not an economic one. Policy does influence the economy, of course — national authorities can impose a common interest rate, tax rates and regulations. But, as the unorthodox thinker and writer Jane Jacobs argued, the natural unit of macroeconomic analysis is not a nation state at all. It is a city and its surrounding region.
Aberdeen, Cardiff and Manchester are subject to some similarities by virtue of their shared participation in the British economy but their relative fortunes fluctuate because they are pushed and pulled by different forces.
In her book, Cities and the Wealth of Nations, Jacobs zooms in further, looking at “Shinohata”, a pseudonymous Japanese hamlet that had a subsistence economy, supplemented by woodland foraging and a little silk farming.
In the 20th century, the villagers began to produce more silk cocoons. After the war, Tokyo’s expansion pulled Shinohata into its economic orbit.
The booming Japanese capital became a market for Shinohata’s fresh fruit and wild mushrooms; Tokyo’s labour market lured young men and women from the village. The tale is unpredictable; Japan’s economic miracle was the sum of countless unrecorded stories of local development.
Others also see that economic development may be profitably studied through a magnifying glass. A new research paper from three development economists, William Easterly, Laura Freschi and Steven Pennings, offers A Long History of a Short Block — a tale of the economic development of a single block of Greene Street in downtown Manhattan.
Easterly is known for his scepticism about how much development can ever be planned, and how much credit political leaders deserve when things go well.
“Here’s a block where there is no leader; there’s no president or prime minister of this block,” Easterly explains.
Greene Street, he suggests, offers a perspective on the spontaneous, decentralised features of economic development. Its history offers plenty of rapid and surprising changes.
In 1667, the Dutch ceded what is now New York to Britain in exchange for what is now Suri- name in Latin America.
In 1850, Greene Street was a prosperous residential district. Two large hotels and a theatre opened nearby, and prostitutes moved in. By 1870, the middle classes had fled and the block was at the heart of one of New York City’s largest sex-work areas.
In the late 19th century entrepreneurs swooped in to build warehouses for the garment trade. Greene Street’s fortunes waned when the industry moved uptown after 1910. In the 1940s and ’50s, urban planners suggested bulldozing the lot and starting again but a community campaign fought them off.
Property values revived as artists colonised Greene Street in the 1950s and ’60s, attracted by the airy and cheap spaces. None of these changes could easily have been predicted; some are rather mysterious even in retrospect.
The lessons of Greene Street? Getting the basic infrastructure right is a good idea. Aggressive planning, knocking down entire blocks in response to temporary weakness, is probably not.
Predicting economic development at a local level is a game for suckers.
Most importantly, even a tremendous development success — the US and, within it, New York City — is going to show some deep wrinkles to those who get in close.
Even a development success like New York is going to show some deep wrinkles up close