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Reversing Cause and Effect?

Posted by on | May 22, 2017 | Comments Off

I hate to quibble about a paper that supports my preconceived notions, but I am bothered by this as linked by Tyler Cowen

We quantify the amount of spatial misallocation of labor across US cities and its aggregate costs. Misallocation arises because high productivity cities like New York and the San Francisco Bay Area have adopted stringent restrictions to new housing supply, effectively limiting the number of workers who have access to such high productivity. Using a spatial equilibrium model and data from 220 metropolitan areas we find that these constraints lowered aggregate US growth by more than 50% from 1964 to 2009.

Isn’t it possible that cause and effect are being reversed here? I accept that zoning in places like SF make it more expensive. I would have concluded that this higher cost of living allows only the most productive to live there — less productive folks can’t afford it. So the high average productivity of these cities might partially be a result of their higher costs, not because the zoning somehow increases productivity, but because the zoning creates a sorting process where only the most productive may enter, which brings up the averages.  So a reduction in zoning and living costs would cause the productivity numbers for the city to average down as lower-productivity earners can move in.

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