It’s the Cities, Stupid
26th January 2016
But even better are the less read The Economy of Cities (1970) and Cities and the Wealth of Nations (1984), twin volumes which do nothing less than demolish and rebuild macroeconomics. Economics went wrong, she explains, with the work her titles allude to, Adam Smith’s The Wealth of Nations. Nations aren’t the proper unit of macroeconomic analysis; cities are.
Jacobs arrives at this conclusion by considering the stagflation of the 1970s– simultaneous high unemployment and high inflation, something that was not supposed to be possible under either left-wing (Keynesian) or right-wing (monetarist) economics. They were supposed to trade off. She points out that this condition– high prices and not enough work– is normal for backward regions; Western economists mistook the fitful but constant economic boom from Smith’s time on as a permanent condition.
Thinking in terms of national economies smears over the economic facts. Once we take off these lenses, we can see that the world consists not of developed and poor nations, but of dynamic and poor regions. One of the great advantages of this point of view, in fact, is that we become aware of the backward regions in the First World, and realize that they follow the same dynamics as the Third World. These days they may be comfortable enough due to transfer payments from richer regions, but they are economically passive nonetheless.
And the dynamic regions are centered around cities. (The one apparent exception: supply regions, rich in natural resources. We’ll get back to them below; for now we’ll just note that they’re rich because cities want the resources and come and get them. Arabs didn’t have to travel across the oceans to find people to hawk their oil to.)