Market Potential

Robert Farley is skeptical of my market potential argument:

I like the high speed rail idea, but I’m not sure I buy the argument that distance is the real problem in the Rust Belt. Seattle, Portland, and Vancouver really aren’t that close to each other by Midwest standards, yet they all seem to be doing fine. Denver is very far from anything of consequence, yet is typically regarded as a wealthy city. I haven’t done any research, and so my thinking could be all wrong (maybe Cincy and Cleveland are richer than Seattle and Portland in some non-obvious way?) but cities that aren’t really close to other cities would also seem to benefit from being regional centers of consumption. Maybe there’s some kind of upside down bell curve, such that close proximity and relative isolation are good for growth, while middling distances are a problem? Or perhaps the experience of the coastal cities of the West isn’t transferable to the Midwest (this wouldn’t apply to Denver, though)?

One way to think about this is to note that if we’re computing a city’s market potential by averaging over distance weighted GDP, then we include the city’s own market in that calculation. Denver is a pretty big market with high levels of human capital investment, and so it does ok, despite its isolation. Ditto for the Pacific Northwest. But these places are still affected by their isolation. Incomes are lower than we’d expect given population attributes. And on the other side, cities in the northeastern corridor with unenviable economic profiles do much better in terms of output and incomes than they ever could in isolation.

So it’s not at all the case that Midwestern cities couldn’t succeed in isolation. It’s just that the task is made easier if those cities are able to leverage their own resources in a regional economy.

Comments

  1. Jon says:

    Not to mention cities in the Pacific Northwest are on (or near) the Pacific and Denver is home to one of the most heavily trafficked airports in the country.

  2. Doug says:

    From Ambrose Bierce:

    RAILROAD, n. The chief of many mechanical devices enabling us to get away from where we are to where we are no better off. For this purpose the railroad is held in highest favor by the optimist, for it permits him to make the transit with great expedition.

    As you can see, I had nothing to add.

  3. Dan Staley says:

    The PacNW cities have diversified economies and large human capital investment. Denver tries to have one, but the sharp peaks in the business cycle belies assertions that this attempt is working. Plus, Denver is still cowboy and could do better in human capital investment.

    Denver Metro (soon to include Ft Collins area) is successful right now because it is trying to diversify, exists in a beautiful setting, and is the only game in town. As soon as water becomes too scarce to pay for (perhaps by 2030), Denver won’t be as attractive to as many people. IOW: the growth potential is limited.

  4. Alex B. says:

    Denver is in a much better water situation than the rest of the West.

    Denver also commands a huge hinterland to which it is the de facto capital. There’s not another major city within a 500 mile radius, and even then you’re bumping into places like Omaha and Kansas City, not exactly Chicago or Los Angeles.

    Denver’s isolation also plays into why it is where it is – as Jon notes, Denver has a large airport that’s a key hub, the city is a massive rail hub for freight, and it sits at a key location between the plains and the mountains. It’s economy has certainly been both boom and bust over history, but they’re working on evening that out as much as they can.

    Also, from the initial quote – I’d disagree with the idea that Portland, Seattle, and Vancouver aren’t that close by ‘Midwest standards.’ I grew up in the Midwest and we still had plenty of connection and access to Chicago. Minneapolis (my hometown) to Chicago is 400 miles, roughly. I went to school in both Madison and Ann Arbor, approximately 150 and 250 miles from Chicago, respectively.

    Portland to Seattle is only 175, and Vancouver is only another 150 from there.

    Distance isn’t the problem. If we take 500 miles as the limit to HSR’s effective range, a 500 mile circle around Chicago encompasses Minneapolis, Indy, St. Louis, Detroit, Pittsburgh, Columbus, etc. These cities all interact with each other right now, it’s just all auto-based.

  5. Farley misses a couple of obvious points here, a) Seattle, Portland, and Vancouver are ports, meaning that the international trade that has gutted the midwest has benefited the Pacific rim ports, and b) ports benefit from distance to another port.

    The relationship of proximity can’t be simplified. In some cases large cities suck up all the talent and money around them, in other cases they shower it on the hinterland. At the very least, this highlights the importance of local initiative and regional planning.

  6. jim says:

    Clearly proximity isn’t the only factor. Allentown and Bethlehem aren’t that far from Philadelphia and New York City, but behave like part of the rustbelt. Hartford is almost equidistant from Boston and NYC, but has been in persistent decline for as long as I can remember, despite efforts at civic redevelopment.

    Serial catowner gets it right: Portland’s early 20th C decline stemmed from Seattle getting a transcontinental rail connection and thus pulling trade away from Portland.

  7. Alex B. says:

    Conversely, Denver’s boom had a great deal to do with conscious investment in their airport as well as their Interstate Highway connections. I-70 sure isn’t the easiest way through the Rockies, as beautiful as it may be. Colorado lobbied hard to get it and I-76 built, otherwise Cheyenne would be the logical location for the capital of the front range.

  8. Erik says:

    Like Rob, I am skeptical of your overall argument, though for slightly different reasons. I am not questioning the importance of connecting cities together. But it seems to me that this analysis is taking place without any look at the past. There is nothing inherently stable about cities being successful or unsuccessful, and certainly not location. In the 1950s, Seattle and Portland were tough and relatively poor cities. On the other hand, Flint, Rockford, and Scranton may not have been prosperous exactly, but they certainly were economic hubs. Looking at the rise and decline of cities throughout American history will show similar changes. It’s really hard to argue that proximity to other major economic hubs matters much through time.

    Market potential is dependent on a wide number of factors. Isolating location in the present is a useful tool, but making that the primary tool is, I think, faulty.