That's a very interesting and original way of looking at it.
It would also explain clustering in other areas (finance in NYC, Oil and gas in Houston etc).
Do you have any links or references exploring that idea in greater detail?
It would also explain clustering in other areas (finance in NYC, Oil and gas in Houston etc).
Do you have any links or references exploring that idea in greater detail?
Wealth is basically self-concentrating. Our political systems tend to end up with a few capital (and often Capitol) cities where the spoils from the plundering, both metaphorical and literal, end up.
The original article does present some interesting and relevant examples of countervailing forces at work as well, and is insightful. But the elephant in the room, as always, is that returns to capital and rent extraction are the primary drivers of wealth, and that the winners tend to keep winning and vice versa.
But even if things seem "really obvious" and we can tell "just by looking at the facts", I feel better if someone has looked at the data and shown that to be the case.
We aren't living in the feudal era, and a lot of people like to think that the reason people move to the cities is because of (for instance) bars and restaurants, museums and the opera, high-paying jobs and so on.
This proximity to wealth may be a symptom of some third factor or it may be the driving factor.
That's why I appreciate it when smart, hard-working people take their time to figure it out for me.
How do you define wealth concentration, for example? If your definition is flawed, you can throw out the entire model.
And these would actually be rent seeking activities? Is that the idea?
I was just contrasting two different types of reasons for why people cluster in those cities.
Type I, the optimistic theory
Information is more efficient and trust is better when people meet in person. Industries need to co-ordinate trust and information flow through lots of people, so they have to be in the same place. They produce a lot of value, which produces wealth and increases productivity. That wealth pays for all these great things.
This causes a happy cycle of smart and educated people being attracted to the "good" things in life coming to the cities, and providing labor for the companies and so on.
Type II, the pessimistic theory
In order to get industries going (tech startups, new Oil and gas company etc) you need capital, and the capital exists in these enormous clusters. So the people who want to fund the industry has to go to these clusters of existing capital and convince them to invest them. The returns from the success of the industry go back to the same place and so on.
The existence of the bars, restaurants and museums are compatible with both, but only have causal power in the first type of theory.
Sometimes resources are grasslands with plentiful wild animals that you can spear and eat. Sometimes it's gems or petroleum buried underneath the rocks. And yes, resources are things like museums or pretty views or available five star restaurant meals. But the dynamic throughout human history is reasonably understandable, you can observe the same basic concept in a Petri dish.
The biggest resource of all in modern society is financial wealth. So people go to places that have it. Unlike the grassland, where new arrivals quickly deplete the available resource, in this modern scenario the result tends to be the creation of more wealth, and the cycle reinforces itself.
If prices of drinks are going up naturally because people are making more money, "rent" for real estate is going up, etc. that is not "rent-seeking".
[1]http://www.mercerrestaurantgroup.com/how-to-open-a-restauran...
Museums, opera, symphony, most theater, etc. are kept alive by the philanthropy of the local rich.
High salaries are paid by rich VCs looking for return, or companies with more cash than they know how to handle commissioning prestige projects. (How many people at Google actually work on revenue generation? That doesn't happen at Joe's Computers in Nowheresville).
Concentrated wealth is the reason cities can have these things.
I do, however, also agree with your counter-point to the previous comment.
Plundering, seriously? Isn't HN supposed to be a community of entrepreneurs?
To further complicate matters, both behaviours can be exhibited by the same person.
The Bay Area plus NYC metro area are 8.5% of the total US population so yes they are a significantly larger chunk of GDP and wealth. But, they are large enough that the differences are smaller than you might think.
Places like Albany, NY were regional banking centers as recently as 30 years ago. In Albany's case, that was an artifact of the city's role as a transportation hub for canals and railroads.
As the role of banking has changed and the market has consolidated from a highly distributed model, its harder and harder to do business outside of large areas. If you're a midsize business, it's hard to get lines of credit simply because nobody wants to travel to talk to you.
Even within large organizations like government and Fortune 50 companies, consolidation drives centralization. Big places used to have regional administrative services (HR, Finance, etc). You could make a career working in some regional field office.
Now, centralized functions mean that you work at HQ, a regional center, or you're a task worker in the provinces.