On Vacation

I’m going to be on vacation and not posting here until the new year. See you all in 2018.

from Aaron M. Renn


How Can America Create the Startup It Needs?

I recently caught up with Dane Stangler of the Startup Genome project to talk about startups in the US. He talks about the general decline in startup activity, the geography of startups, how to create a startup cluster, and the role of broadband access in startup creation. If the audio player for the podcast doesn’t show up for you, click over to listen on Soundcloud.

Subscribe to podcast via iTunes | Soundcloud.

from Aaron M. Renn

Bringing Down Housing Prices in the Bay Area

Photo Credit: Alfred Twu

On Sunday the New York Times ran a story on the difficulties of building new housing in California, focusing on the city of Berkeley.  There’s a lot of good in the piece, including the insane difficulties of getting approvals to build even when you propose something in keeping with the existing zoning.

But it misses a lot too. Firstly, it focuses on building more multifamily housing in existing single family neighborhoods. That seems to be the main lever it believes needs to be pulled to bring down housing costs. The idea that the Bay Area might build more housing on greenfield sites – single or multifamily – isn’t even contemplated. Nor does the piece cite examples of where large scale infill densification actually rendered housing affordable in the absence of new greenfield construction. I’m not aware of any such cases.

That’s not to say that upzoning or densification are a bad things. I would support upzoning and building more infill in nodes proximate to transit stations. (I also think we should be honest that our intent in this is in fact to change the character of the neighborhood). But if you’re taking urbanized area expansion off the table, don’t ever expect to bring housing prices down materially.

The focus of these kinds of stories usually seem to be places like Berkeley, or San Francisco or Palo Alto or New York City. But these are special places. It’s not realistic to think you could ever build enough housing to accommodate the demand to live in them. Keep in mind that if prices fell by 50% in San Francisco, which would still be high, massive numbers of new people would contemplate moving there.  The housing crisis has to be solved primarily through building more workaday communities, not elite ones.

Also, the piece fails to note the role of various building regulations, impact fees, lawsuits, etc. in driving up the price to construct housing. The San Diego Union Tribune recently had a piece on housing prices in that city that details some of these. (They also note that about half of San Diego County land is off-limits to building, including some zoned for agricultural use only).

Lastly, I find it interesting that many of the same kind of people who complain about state preemption in other contexts are very happy to see the state of California disempowering localities to make land use decisions (a core function of local government).

In short, yes, we need to make it easier to build in existing neighborhoods and we need to allow increased density in some locations. But we shouldn’t pretend that building more apartments in the Berkeleys of this world will bring Bay Area housing prices down to affordable levels absent greenfield development (or a collapse in demand).

from Aaron M. Renn

What Is the Future of Flyover Country?

Image via City Journal

My latest piece in City Journal is a look at the interior of the country and its future. It’s an introductory survey that points out that there isn’t a simple coasts vs. the rest, but that there are many distinct regions and cities with varying performance. Many interior regions and cities are doing very well while others legitimately struggle. But in most cases there are still significant hurdles that need to be addressed. Here’s an excerpt:

Cultural attitudes can also be crippling, particularly in the Rust Belt and rural areas. There’s a deep hostility to change and often an active suppression of the pursuit of excellence. In some communities, young people find their college ambitions squelched. Other communities have seen so little influx of newcomers that they’ve become culturally narrow and unwelcoming to outsiders, making it hard to build social networks in these insular places. Changing this social trait won’t be easy—yet it is, arguably, essential to all future change. The fact that the civic attitude in Columbus, Indiana, is so different from that of much of the Midwest is a key reason that it has outperformed.

Third, the region needs to develop its human capital. Today’s manufacturing jobs often require computer or other technical skills, for example, so communities need labor-force training programs to help workers develop advanced skills in these sectors. The knowledge-worker labor force also needs upgrades. The heartland suffers because of the “superstar” effect. In today’s world, the spoils often go to the very top of the hierarchy. The heartland is too often good, even very good, but not the best. An exception that proves the rule is Carnegie Mellon University’s computer-science department, which attracted companies like Uber and Google to set up shop in Pittsburgh. The heartland needs to develop more such leading departments in its universities and attract some top talent. To do that, changes in cultural attitudes will be crucial.

Finally, the nation’s interior regions need to find ways to innovate in new, next-generation industries and technologies. The fracking revolution is an example of a homegrown technology disruption that developed local wealth and jobs, while having a global impact on energy prices. Until the heartland can start leading with some of its own innovative industries and technologies, it will always be in a reactive position. It needs to learn how to play offense, not just defense.

Click through to read the whole thing.

from Aaron M. Renn

Productivity and Growth in the Digital Age

I mentioned the restoring American economy dynamism conference I attended earlier this week. I was able to record a podcast there with Jaana Remes, one of the speakers. Jaana is a partner at McKinsey and part of their in-house think tank the McKinsey Global Institute. You should definitely get on their list because they put out incredible research on trends in the US and global macroeconomy, as well as cities.

We talked about the challenge of economic growth in the US, the risks from robots, and the two-tier sorting of cities we’ve seen. If the audio player doesn’t display for you, click over to listen on Soundcloud.

Subscribe to podcast via iTunes | Soundcloud.

from Aaron M. Renn

Yes, Net Neutrality Should Be Repealed

Image via City Journal

I recently strongly criticized the FCC over its plan to relax station ownership rules and for allowing TV and radio stations to close their local studios. But I support the FCC’s move to repeal net neutrality.

The idea of net neutrality isn’t a bad one. But the way this rule was implemented applies only to the ISPs, not to the Silicon Valley platform companies which are de facto monopolies. Most of us have more alternatives for getting broadband than we do for Facebook or Twitter. What’s more, those Silicon Valley firms are themselves the biggest backers of net neutrality, which is their plan to hobble the only other companies big enough and with enough market power to resist them. Until net neutrality applies to Silicon Valley edge services, it should not be applied to ISPs.

I detail this in my latest City Journal piece, “Who’s Really Censoring the Web?“:

The basic idea of net neutrality makes sense. When I get a phone, the phone company can’t decide whom I can call, or how good the call quality should be depending on who is on the other end of the line. Similarly, when I pay for my cable modem, I should be able to use the bandwidth I paid for to surf any website, not get a better or worse connection depending on whether my cable company cut some side deal to make Netflix perform better than Hulu.

The problem for net neutrality advocates is that the ISPs aren’t actually doing any of this; they really are providing an open Internet, as promised. The same is not true of the companies pushing net neutrality, however. As Pai suggests, the real threat to an open Internet doesn’t come from your cable company but from Google/YouTube, Twitter, Facebook, and others. All these firms have aggressively censored.

And yet, these are the same companies—censoring anodyne political channels like Prager University, while letting their sites be used for child exploitation and Russian propaganda—that want to lecture the FCC on net neutrality. Silicon Valley companies want to regulate ISPs even as they continue to benefit from their own special legislative exemptions from regulation and liability—including Section 230 of the Communications Decency Act, which protects companies like YouTube from liability for the content posted on their sites.

It should come as no surprise that another key net neutrality backer is the porn industry. Pornographic videos at “tube” sites like PornHub generate massive traffic and eat up tons of bandwidth. It would be entirely appropriate for ISPs to put these sites at the bottom of the priority list for network traffic, or make them pay up. Valid reasons exist to prioritize one kind of traffic over another.

Click through to read the whole thing.

from Aaron M. Renn

Restoring American Economic Dynamism

Photo by Dmitry Avdeev, CC BY-SA 3.0

I attended a conference here in New York yesterday about how to restore America’s economy dynamism. It included a lot of folks including former Bank of England Governor Lord Mervyn King and Nobel Prize winning economist Edmund Phelps.

There were some interesting remarks and I need to dive into some of the actual papers. After doing so I might write more at a future time. But a few things caught my attention at first glance.

The first is how willing multiple of the presenters were to forthrightly say economic concentration, including corporate mergers, was a factor in suppressing growth.

Anton Korinek of Johns Hopkins gave an interesting presentation on the economics of superstars (his paper is here). In his view “information” (digital technology) leads to increasing returns to scale as it is inherently non-rival. Add excludability (provided by IP laws) and you have the makings of natural monopolies. These see significant “superstar” returns reaped, though in theory they will level off once the price reaches the monopolistically optimum level. In his view, in the mid-term we are going to increasingly see an economy geared towards superstar winners.

Thomas Philippon argues that the US has been underinvesting, and declining competition is a big reason why. (This paper appears to be relevant). He notes that, for example, that according to OECD research, the US had less product regulation than Europe during the 1990s, but today it has more product regulation. Interesting stuff here.

Jaana Remes of McKinsey talked about the demographic headwinds making growth tougher. (Quite a bit of our previous economic growth came from population growth and urbanization, two factors now largely played out in the US). I recorded a podcast with her I’ll be posting in the near future.

I also recorded another podcast with Dane Stangler from Startup Genome, who talked about the startup deficit (was well as those who argue that we have plenty of the kind of startups that matter).

There were a couple of popular ideas for improving things. The two big ones focused on missing institutions. In particular, a comparative lack of German style apprenticeship programs and a lack of innovation intermediaries like Germany’s Fraunhofer Institutes.

Again, I may give some of the papers various speakers wrote a read. I thought it was interesting to see economists more or less admitting there are problems.

from Aaron M. Renn