The economics of city life

Tim

Harford has just moved, to

one of the grimmest parts of Hackney. Just outside the back door is a "massage

parlour", a kebab shop, a jerk chicken joint and a betting shop, not

to mention flowers for the young man who was recently shot dead outside a

local nightclub. At the front is a row of abandoned cars, courtesy of the

garage just across the road and the other one just round the corner. Delis

are there none.

Is he mad? Not at all:

The surprise is that externalities in cities are on balance positive – people-watching,

being close to friends, enjoying the buzz of a lively culture. We know this

because city wages have not kept pace with city prices: do the same job in

the countryside and you will be able to buy more stuff even with a lower wage.

If cities truly were such miserable places, we should all have moved out by

now. It turns out that people flock to London not to seek their fortune but

to enjoy the things that money cannot buy.

But this is too glib, and in fact is downright false. People flock to London

(insofar as they do flock to London: I don’t have the numbers, but

neither does Harford) precisely to enjoy the things that money can

buy. Think of all the things you might spend money on in London, and then ask

yourself how many of those things you might be able to buy in the countryside.

It is true that city wages have not kept pace with city prices, but that’s

because city wages are not the only source of buying power. Look at London’s

GDP, and I wager you’ll find it’s been growing much faster than London’s wages.

That money doesn’t disappear: it gets spent all over the city, mostly by companies

who have successfully managed to prevent their wage bills from spiralling upwards.

One of the perks of living in London, indeed, is to enjoy the things which

money can buy for you, even if you don’t spend that money yourself. Look at

all the boozy expense-account lunches, the "free" tickets to the opera,

hell, even the packets of post-its brought home from the office. No one’s going

to take you out for a £250 dinner if you’re living in the countryside.

If you live in London, on the other hand, especially if you’re in a white-collar

profession, such things happen quite often.