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May 04, 2016

Mercantilist Logic and Land-use Regulation

Emily Washington in this Market Urbanism article says that the "regulations that restrict urban development likewise reduce opportunities for innovation and specialization by limiting cities’ population size and density." and "removing land use regulations will allow greater gains from trade as more people are allowed to live in important economic centers like New York City and Silicon Valley."

 

"Adam Smith taught the world that mercantilism impoverished 18th-century nations by erecting barriers to trade and reducing opportunities for specialization and economic growth. Regulations that restrict urban development likewise reduce opportunities for innovation and specialization by limiting cities’ population size and density. Even as improvements in communications technology and falling transportation costs reduce the burden of distance, many industries still benefit from the geographical proximity of human beings that only dense development can provide...

 

Empirical evidence bears out the importance of cities in facilitating the space for entrepreneurship. A research group at the Santa Fe Institute headed by Luis Bettencourt and Geoffrey West has found that city size has increasing returns to scale for wealth creation and innovation. They find that city population size corresponds to wealth creation through a power law with an exponent of 1.2. Similarly, Ed Glaeser points out that Manhattanites’ hourly wages are 170% higher than the U.S. average, demonstrating the relationship between human density and productivity...

 

In spite of the enormous costs of land-use regulation for economic growth, individuals who lobby in favor of land-use regulations are often rationally propping up their own land values. What is individually rational is collectively irrational. To put in perspective the estimated 9.5% increase in GDP that could result from land-use deregulation in San Francisco, San Jose, and New York City, that would translate to an average raise of nearly $5,000 per person per year. Every year that high-productivity cities prevent building and block out new residents, global standards of living suffer enormously."

 

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