Friday, July 18, 2008

Avent on Glaeser

After promoting Ed Glaeser's recent article in my last post, I find that Ryan Avent has a long and caustic post criticizing it:
"Ed Glaeser, font of much of the research that drives this blog, often confounds me. He’ll put together an excellent piece of academic research on urban issues, adding key insights to the way we view the organization of cities. Then he’ll turn around and write something in the New York Sun that looks like a press release from the desk of Randal O’Toole, a lazy, wrongheaded, and deeply ideological thumb of the nose to the rest of us urbanists."
I think Avent's response is deeply wrongheaded, as I'll explain in a minute. First we need to delve further into his complaint:
"Glaeser’s own research indicates real wages in New York are lower than might be expected from productivity alone, because amenity flows (Glaeser’s terminology) have been increasing. The opposite is true in the sunbelt. Real wages have had to increase there over time, in order to compensate residents for declining amenity flows. This corresponds to Glaeser’s research on the consumer city; lots of people want to be in New York not only because they earn more, but because it is an unrivaled consumer experience. This, too, is relevant to Glaeser’s disposable income argument. Money goes farther in Houston, sure, but there’s less to spend it on. If we assume a diverse set of middle-class tastes, it should be obvious that there will be many households for which less dough in New York will be preferable to more in Houston."
Of course there will be "many" households that put high monetary value on the amenities available in New York. So what? Glaeser is trying to explain the enormous difference in population growth between New York and Houston, and the natural conclusion is that low property prices are making cities like Houston increasingly attractive to middle-class Americans seeking a middle-class lifestyle. Given the numerical disparity in population growth, this can hardly even be an argument.
"Glaeser’s meditation on differences in transportation costs is particularly unfortunate. A few initial points. The Center for Housing Policy concluded in 2006 that for families with an income between $20,000 and $50,000, roughly the same share of household budgets was spent on combined housing and transportation costs in New York and Houston. That is, cheaper housing for working families in Houston was offset by more expensive transportation. The same report also noted that for those same families, average annual transportation costs were $10,262, not the $8,500 national average cited by Glaeser. That was in 2006.

Glaeser’s own research also indicates that lower income households prefer to live near public transportation, or, in the absence of public transportation, near the center. Glaeser notes that the recent rise in gas prices constitutes a small actual increase in transportation costs, but he, more than anyone, should recognize that this will significantly impact marginal households–the same ones being pushed from high cost places to low cost places by expensive housing. And since 31 percent of household budgets goes toward transportation, its reasonable to think that a doubling of gasoline prices will be painful for many working class Houstonians."
I'm not sure where Avent gets his statistics, but the usual source for such data is the Consumer Expenditure Survey from the Bureau of Labor Statistics. A quick look at the most recent survey tells us that in 2006, the average household expenditure on transportation was 17.6% of consumption. Admittedly, fuel costs have risen since 2006; the average price for a gallon of gasoline in 2006 was $2.60ish, while today it's around $4.10. But even if we bump up fuel costs by 58%, taking them from 4.6% of expenditures to 7.3%, total transportation costs are still only 20.3% of consumption. Where does "31 percent" come from? I have no clue.

This makes me awfully skeptical of the Center for Housing Policy report that he cites, which declares that in the income range between $20,000 and $35,000, transportation accounts for 21% of spending by households in the central city, 31% by those "near other employment center," and 37% by those "away from employment center." The Consumer Expenditure Survey dissects its data by income group, and the $20,000-$30,000 group spent 17.4% of its budget on transportation. Adjusting for increases in fuel prices, this rises to 20.5%. The $30,000-$40,000 group spent 19.3%, translating to 22.4% of consumption with higher fuel costs. These average costs for all households are close to the figure the Center for Housing Policy report provides for households living in the central city. Worse, the survey was actually published in 2006, meaning that its numbers shouldn't include the recent spike in gasoline prices for which I adjusted. The report should be consistent with the 2006 CES data without adjustment, and its figures for a group with very low transportation costs, central city households, are higher than the CES number for all households.

Clearly, there is something very wrong with the data in this report. As an "expert" on transportation policy, Avent should noticed this immediately, or at least before he used it as a prominent part of his argument that Glaeser -- the most respected urban economist of his generation -- had written a "lazy, wrongheaded, and deeply ideological" piece.

He continues:
"But the most egregious part of this whole piece is the ridiculous assertion that Houston’s growth has been driven by the free market alone, and that it would be wrong to boost places like New York by tying Houston down with regulation. Outrageous. Glaeser knows that were externalities like congestion and carbon emissions priced consistently in both places, Houston’s cost advantages would rapidly evaporate.

I know he knows this, because he just finished writing a report on green cities that praises places like New York for design features, including public transportation, that make them greener than places like Houston and greener than the national average. And this, of course, completely ignores the historical role of government policy favoritism for highways, suburban housing, and sprawl generally. Free market, indeed."
Avent's confident assertion that Houston's cost advantages would "rapidly evaporate" is more a declaration of faith than a result of any kind of data-driven analysis. In his article, Glaeser notes that if Houston residents use 500 more gallons of gasoline than New York residents each year, a $3 per gallon increase in gas prices will cause a $1500 decline in disposable income -- significant, but not enough to singlehandedly make Houston less economical. A very high $100 price on each ton of carbon dioxide would cause a further $1 increase in the price of gasoline, leading to $500 more in spending. Glaeser estimates that after housing, taxes, and transportation, a typical middle class Houston family is $11,200 richer than a typical Queens family. Does $500 make this cost advantage "rapidly evaporate"? No.

Air conditioning requires lots of carbon-intensive electricity, but heating isn't costless either. While air conditioning is inherently less efficient, heating in cold Northeastern climates operates against a much larger temperature gradient. This creates some ambiguity, and I don't have immediate access to the numbers necessary to settle the matter. I suspect that Houston homes do produce more carbon, but I doubt that even a large carbon tax would come close to eliminating the disparity in disposable income that Glaeser calculates. Certainly Avent shouldn't be making glib pronouncements about how huge amounts of money "evaporate" when he doesn't seem to have any numbers either.

Additionally, while some form of congestion pricing may be appropriate, Avent neglects to mention that Houston residents are precisely the ones that suffer from any congestion that occurs in their city. While transportation there might be more efficient with better congestion pricing (although Houston needs such pricing much less than New York), a congestion fee would just monetize the deadweight loss that Houston residents already suffer. If anything, it would make Houston more competitive.

And "government policy favoritism" for highways? First of all, most of our highways are actually funded through gas taxes, which effectively act as a form of road-usage toll. I am perfectly open to arguments that we need to invest more money in urban transit, especially with the recent increase in oil prices. But Avent's implication is that this is another "hidden cost" of the Houston model, and that simply isn't true. The vast majority of the cost is paid by the residents of Houston and other similar Texas cities, through a combination of gas taxes and local and state taxes. Glaeser includes all these costs in his estimates.

Most of all, Avent misses the fundamental point. Glaeser is not opposed to policies that confront global warming, and he's not a fanatical advocate of sprawl. Indeed, he's made an environmentalist case for streamlining growth restrictions, which often force new development further outside of urban centers, creating a more jumbled and carbon-intensive growth pattern.

Rather, Glaeser is making the simple point that differences in property prices are incredibly important for middle-class households seeking a comfortable life, and that since these disparities in price are often created by regulatory barriers to development, better growth policies in high-price locales have the potential to vastly improve quality of life. This isn't a reactionary scheme dreamed up by Exxon Mobil; it's a progressive policy aimed at bettering the livelihood of families striving to grasp the American Dream.

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