MONEY

Economist: Don’t waste money rebuilding Detroit

Ed Glaeser has some fascinating ideas about cities — why some thrive and others don’t. Raised in New York City, the Harvard economist studies the economic, environmental and emotional forces that shape where we live and the price we pay for our homes. I interviewed Glaeser for the “Minds Over Money” feature that ran in MONEY’s December 2009 issue, and we talked a lot about the forces that move real estate prices and what’s next for the housing market. (One of Glaeser’s most provocative opinions: He wants the mortgage interest tax deduction abolished.)

When I spoke with Glaeser, I had recently visited Detroit for a story on that city’s surreal housing market – with unemployment in the city core nearing 30% and the auto industry in disarray, I walked into house after house that was selling for less than $10,000. Glaeser, too, had visited Detroit and has done a lot of work on the decline of what he calls America’s “older, colder” cities.

Glaeser’s central point is that the country’s earliest cities developed around waterways, because those were the avenues by which people moved goods at the time. As transportation costs declined, proximity to water became less advantageous, so people – and commerce – moved to places where they actually wanted to live. In fact, says Glaeser, given how much less it costs to move things and communicate with each other over long distances, it’s surprising that today we have big cities at all.

Clearly, though, the “city” has not disappeared and, in fact, not all traditional urban cities have crumbled the way Detroit has. Places like New York, Boston and Minneapolis have gotten bigger and richer. Glaeser, who’s working on a book called Language of Cities, explores why there continues to be such a strong link between urban density and productivity. And mostly it boils down to our very human desire to be around others. “One of our greatest gifts is our ability to learn from one another,” he says. “We work more effectively around human beings. Cities are essentially machines for making us smart.” The most successful cities, then, produce ideas rather than goods.

If that’s true, then how do we help cities like Detroit and Cleveland? Glaeser takes what many would consider a harsh view. Rather than spend millions on ill-fated attempts to create jobs or lure industry, those cities would be better off spending the money on social services and education designed to prepare its residents for good jobs – elsewhere. In economicspeak, focus on human capital rather than physical capital.

This kind of urban Darwinism has a certain appeal, especially after driving the bleakest, most devastated streets of Detroit. I thought to myself, how in the world can this place come back? But both Glaeser and I were struck by how much hope rather than despair the people of Detroit demonstrated. People love their cities like they do their families. If that were all it took, Detroit would already be on the road to recovery. If only it were that simple.

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