It’s the Subsidies, Stupid

I read Eduardo Porter’s article in the New York Times, “Why Big Cities Thrive, and Smaller Ones Are Being Left Behind” with considerable skepticism:

To prove his point, Mr. Muro compared the 100 largest metropolitan areas in the country, those with populations above 550,000, with the 182 smallest, which have populations ranging from 80,000 to about 215,000. On average, the big ones got out of the recession faster than the small ones.

To get a sense of the future, he selected big and small metropolitan areas only in the 10 states most subjected to economic disruption — as defined by the penetration of automation and job displacement as a result of foreign trade — to tease out the effects of these transformative forces.

The difference in performance widened: Private employment grew almost twice as fast in large metropolitan areas as it did in small ones from the trough of the recession, in 2009, to 2015. Income grew 50 percent faster. And the labor participation rate — the share of the working-age population in the labor force — shrank only half as much.

“Economic transitions work against smaller America,” Mr. Muro told me. “This is a period demanding excruciating transitions.”

How, then, does he explain Pittsburg, Cleveland, Detroit, and Chicago? They are or at least were “big”. All are experiencing the same things he attributes to “small” cities.

IMO he’s looking at the wrong factors. Over the period of the last 15 years New York City has received repeated massive subsidies. The subsidies have taken the form of direct grants, regulations, and propping up its local industries (mostly banking and finance) and have been valued in the trillions of dollars. How would New York have fared if Citibank had been allowed to fail?

The industrial Midwest on the other hand has received an ongoing onslaught in the form of the managed trade agreements negotiated over the period of the last 40 years that have picked winners and losers. New York and Los Angeles have been winners. Chicago has been a loser.

That tells us nothing about the benefits of large or small, coastal or central, or much of anything else other than the value of political clout.

4 comments… add one
  • PD Shaw

    I think this is a political piece, poorly disguised as an economic piece. The groups being compared appear to have been selected due to a Richard Florida piece for Politico that contained the insight that rural areas preferred the Republican candidate and the most urban areas preferred Clinton. The numbers given for divergence are not that great, and the colored map next to them suggests regions play a strong role.

  • steve

    LA, Dallas, Houston, Boston all got large federal subsidies? I think NYC is a special case. Also, IIRC, when studied, large cities (their citizens) usually pay out more in taxes than they receive in benefits. This last is from memory so I could easily be corrected.

    Steve

  • I think NYC is a special case.

    If you exclude enough of the “special cases” the argument that big cities are faring better than small ones for any reason other than subsidies begins to get pretty wobbly. That’s the thing about big cities. There are a lot fewer of them.

    My point is that you can cherry-pick this practically any way you want and that’s pretty clearly what Mr. Porter is doing.

    But, yes, lots of cities are receiving subsidies and particularly those that have high taxes. The deductibility of state and local taxes is itself a subsidy to those cities. And the various tax breaks for which oil producers are eligible are subsidies and Texas benefits mightily from them. You don’t think that Texas avoids a state income tax because they’re so efficient, do you?

    As a state Massachusetts is one of the top 10 recipients of defense spending. The loop around Boston is just full of defense contractors.

  • Guarneri

    “You don’t think that Texas avoids a state income tax because they’re so efficient, do you?”

    I’m sure that’s true. Just as Alaska had oil. Perhaps MA has brainpower. Florida has sunshine and winter warmth. Sometimes its luck of the draw; sometimes its cultivated; sometimes its lobbied or power brokered for.

    The only worthwhile lesson is that subsidy quickly gets out of control and should be resisted.

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