UP Links 26 June 2013

...in order to get together to work, people have to travel from their homes to production sites. How do they do that?In the typical developing-country city, they do so with difficulty. Daily commute times for low-income formal-sector workers often exceed three hours, and the average direct cost of transportation is equivalent to roughly two hours of work at the minimum wage. An eight-hour shift becomes an 11-hour shift for which net pay is only six hours.This implies an effective tax rate of 45% on low-income formal-sector workers. Add to this the inconvenience of travel and the potential problems caused by being far from home in case of a family emergency. With these considerations in mind, it becomes easier to understand why people would prefer to do something useful near home rather than where modern production takes place.

New York, like any city, needs entrepreneurship to survive. As old businesses become obsolete, new start-ups must replace them, or employment will wither. If a particular industry becomes hugely successful and brings vast wealth to a city, real-estate costs can soar, allowing the local government to overtax and overregulate complacently—and driving out the scrappy entrepreneurs who will build the economy of the future.

Urbanization is an important part of the Chinese dream, a concept touted by the new leadership. Among the priorities of urbanization is turning migrant workers into urban citizens, which requires a fundamental change to the hukou system.

Pindyck’s policy proposal is to set a low carbon tax now. He argues: “Because it is essential to establish that there is a social cost of carbon, and that social cost must be internalized in the prices that consumers and firms actually see and pay. Later, as we learn more about the true size of the [social cost of carbon], the carbon tax can be increased or decreased accordingly.”

The pivot toward middle-income housing raises questions about whether the city can really afford to solve its housing program through subsidies—so limited compared with the need that they’re given out by lottery—especially now that the mandate has expanded to cover the vast number of New Yorkers who could plausibly be considered “not rich.”With a limited pool of money for those in desperate need of housing—the Section 8 waiting list, for example, is completely closed—does it make sense for the city to be subsidizing new Manhattan construction for those who could pay the same in an older building in Park Slope or Yorkville.