Author: Richard Florida

Clusters of smart people of the highly educated sort that economists refer to as “human capital” are the key engine of economic growth and development.  Jane Jacobs argued that the clustering of talented and energetic in cities is the fundamental driving force of economic development. In a classic essay, “On the Mechanics of Economic Development,” the Nobel prize-winning, University of Chicago economist Robert Lucas formalized Jacobs’ insights and argued that human capital, or what can be called Jane Jacobs externalities, are indeed the key factor in economic growth and development. Still, the standard way economists measure human capital is to take the percentage of people in a country, state, or metropolitan area with a bachelor’s degree or higher most scholars measure human capital in terms of population.

So I was intrigued by this fascinating analysis by Rob Pitingolo (h/t: Don Peck) which looks at the density of human capital. Pitingolo put together a neat measure that he refers to as “educational attainment density.” Instead of measuring human capital or college degree holders as a function of population, he measures it as a function of land area — that is, as college degree holders per square mile. As he explains:

I compiled the data at two geographic levels: first at the city level and second at the “urban county” level. I realize that comparing these geographies is not always entirely fair. That’s why I’m giving away the spreadsheet with all of my work to anyone who wants to build upon this analysis (download it here). I picked these cities by looking at the 50 largest metro areas by population and pulling what I deemed to be the “primary city” from each. In two metro areas, the Twin Cities and Bay Area, I pulled two “primary cities.”

He goes through a variety of analyses — all of which I highly recommend. But let me just show the results of his analysis of college degree density for the 50 largest cities.

• San Francisco and New York are far and away the leaders in human capital density with 7,031 and 6,357 college degree holders per square mile, respectively. Boston (3,871), Washington, D.C. (3,395) , Seattle (2,853), and Chicago (2.543) all have human capital densities in the range of 2,500 to 3,500 degree holders per quarter mile.
• Silicon Valley has a human capital density of 1,259 degree holders per square mile. Also in this range and above the 1,000 threshold are Minneapolis (1,997), Providence (1,711), Philadelphia (1,664), Miami (1,633), L.A. (1,596), Oakland (1,596), Baltimore (1,336), St. Paul (1,293), Pittsburgh (1,289), San Jose (1,259) Portland (1,194), San Diego (1,071), Atlanta, (1,035) and Denver (1,023).
• Interestingly, noted high-tech clusters of Austin and Raleigh are slightly below this level with 857 and 799 college degree holders per square mile, respectively. The median density in his data series is 792.
• The lowest human capital densities are in Oklahoma City (159) and Jacksonville (167). Human capital densities of less than 500 degree holders per square mile are found in Birmingham (210), Louisville (250), Nashville (268), New Orleans (285), Kansas City (288), Memphis (313), Virginia Beach (370), Indianapolis (408), Detroit (425), Salt Lake City (445), Cleveland (453), San Antonio (469), and Phoenix (470).

Pitingolo also provides an interesting analysis of human capital density at the county level, as well as identifying places that perform better or worse than expected on “predicted degree density” via a residual analysis.  He raises an important question about “human capital sprawl.” As he defines it, this occurs when human capital density is lower in the central city than its surrounding county. He finds preliminary evidence of human capital sprawl in five places — Louisville, Jacksonville, Oklahoma City, Nashville, and Indianapolis, noting that: “This preliminary result is particularly worrisome if you believe that metro areas need strong central cities and strong central cities need a lot of smart people.”

San Francisco – New Orleans – Chicago – New York City – Salt Lake City

Housing prices continue to reflect the geographic reordering of the Great Reset. The newly released Case-Shiller Home Price Index
shows a very uneven housing market, with significant recovery in some
places and continued decline in others. While the National Index is up
2 percent over the first quarter a year earlier, it is down 3.2 percent
from the end of 2009. The map below, created by Zara Matheson of the MPI, shows the year-over-year change in home prices for the 20 metro areas covered by the Index.

San Francisco, one of the nation’s priciest markets, posted the
largest gain — 16.2 percent over the past year. San Diego (10.8
percent), Cleveland (6.7 percent), Minneapolis (6.5 percent), L.A. (6
percent), and D.C. (5.6 percent) also posted significant gains.

Las Vegas continued to see significant deterioration in its
housing prices, posting a decline of 12.6 percent since last year;
while housing prices which have already fallen back to 1990s levels in
Detroit fell by an additional 4.6 percent.

This suggests that the housing seesaw pattern I discussed here last month continues.

Housing prices across the United States have fallen
considerably since the bubble burst, but the pattern has been far from
uniform. Housing prices have held up better in wealthier and more
productive regions, with higher concentrations of knowledge,
professional and creative work, and high-tech industry as well as
higher levels of amenity (measured as working artists and cultural
creatives) and openness (measured as greater percentages of
immigrants). Housing prices have fallen further in locations with lower
incomes and wages to begin with, with blue-collar manufacturing
economies, lower levels of skill, and lower levels of amenity and
openness. Expect that pattern to continue.

United States – San Diego – San Francisco – Las Vegas Nevada – S&P/Case-Shiller Home Price Indices

Economic crises like the current one have devastating economic and
social costs, but they also give rise to major rounds of technological
innovation. That’s why I call them Great Resets. There was a significant spike in patents in the wake of the Panic and Long Depression of 1873 — and subsequent decades
saw the rise of major new innovations from the light bulb, phonograph,
and telephones to systems innovations like electric power, telephone
systems, and urban transit (i.e. street cars, cable cars, and subway
systems). The Great Depression was far and away the most
“technologically progressive decade of the 20th century,” according to
the detailed research of economic historian Alexander Field, outpacing the high-tech boom of the late 20th century by a considerable margin.

Joseph Schumpeter
long ago showed how economic crises give rise to the gales of creative
destruction — as new entrepreneurial individuals and enterprises seize
the opportunity to forge new business models, and new industries
revolutionize and transform the economy. The British economist of
innovation, Christopher Freeman,
found evidence that innovations not only accelerate but bunch up during
economic downturns only to be unleashed as the economy begins to
recover, ushering in powerful new waves of technological change.

A study
released today by the Kauffman Foundation (h/t: Ian Swain) provides
additional evidence that our current crisis takes the form of a Great
Reset. According to the study, 2009 was a banner year for new business
start-ups. As the graph above shows, more than 550,000 new businesses
were started over the course of the year. The report found that “the
340 out of 100,000 adults who started businesses each month represent a
4 percent increase over 2008, or 27,000 more starts per month than in
2008 and 60,000 more starts per month than in 2007.”  This represents
the highest rate of new business start-ups in 14 years. The start-up rate
for African Americans also surged to record levels, according to the
study.

Joseph Schumpeter – Business – Great Depression – Innovation – Economic history

The National Bureau of Economic Research says we’re not out of the
recessionary woods yet, though some think the economy is looking up.
Floyd Norris of the Times, for one, thinks the numbers are pointed in the right direction. (More over at The Atlantic Wire.) Restaurants certainly seem to be rebounding.

Today, I stumbled across another intriguing indicator. It’s called the Leading Indicator of Remodeling Activity
— LIRA for short. Produced regularly by Harvard University’s Joint
Center for Housing Studies, the index measures “national homeowner
spending on improvements for the current quarter and subsequent three
quarters,” and aims to track “future turning points in the business
cycle of the home improvement industry.” The graph charts the trend.

The plunge from 2007 through 2008 is striking. But a turnaround does
seem to be in the works. Harvard’s Nicolas Retsinas, who directs
the Joint Center, notes that: “The LIRA suggests annual spending will
accelerate, with nearly five percent growth in 2010.”

It’s hard to tell whether the LIRA signals a broader economic
recovery. It may be that people who can’t sell their homes are deciding
that, if they have to stay put, they might as well renovate. If that’s
the case,  now may be the time to start that renovation project you’ve
been putting off — well before the good contractors start
getting booked.

It’s been hard to justify high-speed rail (HSR) projects in terms of
conventional cost-benefit analysis. But, it may be time to rethink–and broaden–the way we think of the benefits of HSR. HSR’s benefits
are usually thought of in terms of lowering transport costs by reducing
problems like gridlock, pollution, and travel time. But the real
benefit of HSR may turn on its ability to expand economic growth,
according to a new analysis by my colleagues at the Martin Prosperity Institute.

There are three main mechanisms through which high-speed rail can help
expand the economy, according to the MPI study. First, HSR expands the
labor pool available to firms, bringing talented workers from nearby
centers within commuting distance and thus expanding the quantity and
quality of available employees. Second, HSR makes more jobs available
to workers without making them have to relocate and move to a new home.
Third, HSR extends the benefits of other expensive,
productivity-enhancing infrastructure such as airports across broad
regions. International airports, major research universities, and
reference libraries are all more financially viable and internationally
competitive when they serve a larger population. High-speed rail allows
them to build the scale they need to achieve world-class excellence and
also spreads their high costs across a wider population.

The MPI report is here.

Photo credit: Chuck Kennedy/Wikimedia Commons