Macro Roundup

Hsieh/Moretti updated their estimates on how restricting housing supply has slowed US GDP growth, suggest that GDP would be 3.7% higher in a counterfactual. add a new suggestion that if you can’t create denser population centers the US could expand transportation to ease access to the NYC/SF labor makerts

“…Specifically, we find that a major impediment to a more efficient allocation of labor across US cities is the constraint to housing supply in high TFP cities….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 metropolitanareas we find that these constraints lowered aggregate US growth by 36 percent from 1964 to 2009…..We use data from 220 metropolitan areas in the United States from 1964 to 2009 to perform two calculations. First, we quantify the effect of spatial misallocation. We find that most of the increased spatial dispersion in the marginal product of labor is due to the growing spatial dispersion in housing prices. In turn, the growing spatial dispersion of housing prices is largely driven by strict zoning laws in cities such as New York and the San Francisco Bay Area with strong productivity growth. We find that the increased spatial misallocation of labor due to housing supply constraints in cities with high productivity growth rates lowered aggregate growth between 1964 and 2009 by a significant amount. In particular,we calculate that increasing housing supply in New York, San Jose, and San Francisco by relaxing land use restrictions to the level of the median US city would increase the growth rate of aggregate output by 36.3 percent. In this scenario, US GDP in 2009 would be 3.7 percent higher, which translates into an additional $3,685 in average annual earnings. Second, we calculate the contribution of each US city to aggregate US growth and compare it to an “accounting” measure based solely on the growth of the city’s GDP. The difference reflects the effect of a city’s growth on the efficiency of labor allocation across cities. While the accounting measure suggests that New York, San Francisco, and San Jose’s contribution to aggregate GDP growth between 1964 and 2009 is 12 percent, viewed through the lenses of our model, these cities were only responsible for 5 percent of growth. The difference is because the aggregate benefit of TFP growth in New York and the Bay Area was in part offset by increased misallocation of labor across cities. In contrast, for southern cities the accounting and model-based measures are the same. Due to an elastic supply of housing, much of the growth in the South took the form of employment growth, with no effect on misallocation….An alternative is the development of public transportation that links local labor markets characterized by high productivity and high nominal wages to local labor markets characterized by low nominal wages. For example, a possible benefit of the high speed train currently under construction in California is to connect low wage cities in California’s Central Valley—Sacramento, Stockton, Modesto, Fresno—to high productivity jobs in the San Francisco Bay Area. This could allow the labor supply to the San Francisco economy to increase overnight without changing San Francisco housing supply constraints. An extreme example is the London metropolitan area. A vast network of trains and buses allows residents of many cities in southern England—including far away cities like Reading, Brighton, and Bristol— to commute to high TFP employers located in downtown London. Another example is the Tokyo metropolitan area. While London and Tokyo wages are significantly above the UK and Japan averages, they would arguably be even higher in the absence of these rich transportation networks. Our argument suggests that UK and Japan GDP are significantly larger due to the transportation network…..”
Chang-Tai Hsieh and Enrico Moretti, “Housing Constraints and Spatial Misallocation,”American Economic Journal, April 2019, https://faculty.chicagobooth.edu/chang-tai.hsieh/research/growth.pdf

Chris Hughes, "It’s Time to Break Up Facebook,"New York Times, May 9, 2019, https://www.nytimes.com/2019/05/09/opinion/sunday/chris-hughes-facebook-zuckerberg.html