New York City’s population dropped by 5% in just two weeks because of COVID-19, a drop concentrated among white collar professionals and Wall Street workers. But it’s not just a New York City story as companies across the country have experimented with telework on a massive scale because of the pandemic.
The question is what comes next. Will workplace norms snap back into place with knowledge economy workers continuing to cluster in high cost of living urban areas? Or will the future of the workplace remain remote, with a growing number of white collar professionals working from home at least part of the week?
But cities rely heavily on high income taxpayers to fund government services and to propel growth; even a small number exiting cities could have vast ripple effects. Cato economist Peter Van Doren joins the show to discuss the possible de‐urbanization of America and offer some thoughts on what those effects might be.
00:01 Paul Matzko: Welcome back to Building Tomorrow, a podcast about tech, innovation and the future. I’ve lived for the last several years in New Jersey, closer to Philly than to New York City. But we still feel the kind of centrifugal pull of the largest metropolitan population center in America. And New York has always felt like a fact of life, a presence just on the horizon that you just take for granted. It’s been there, it’s there. It’ll always be there. But what if the peak of New York City is already past. If COVID-19 has exposed an ongoing and fundamental reordering of urban space in the US, has, for example, the fundamental logic of living in expensive crowded cities changed as the number of Americans working remotely spiked during COVID-19?
00:52 Paul Matzko: Perhaps not. Perhaps New York City, San Francisco and other hubs of innovation and finance will rebound back to their pre‐COVID‐19 norm. But I don’t think that’s as guaranteed as you might think. So I’ve asked the economist Peter Van Doren back on the show to discuss the possible de‐urbanization of America. Now, Peter, you’ve done some research into which counties have been hit hardest by COVID and have had the highest rates of COVID mortality. And there appears to be some sort of relationship to population density. Could you explain that for us?
01:27 Peter Van Doren: Well, we all know that New York and New Jersey are densely populated. And the question is, how much more than other areas of the United States? And I just went to the data today and again, these are 2010 census, right, the 2020 census data are being tabulated as we speak. So it’s important to remember how dense New York and close‐in suburbs of New Jersey are. So the most densely populated county in the country is Manhattan. It has 69,000 people per square mile. Brooklyn is 35,000. The Bronx is 33,000. Queens is 20,000; San Francisco is 17,000. Boston, 12,000. Chicago City is 12,000. DC is 10,000. Alexandria County, Virginia is 9300. Arlington County, Virginia is 8000. Now let’s go to Dallas, it’s 2700. And then LA, LA County is 2400 people per square mile.
02:34 Paul Matzko: Wow, so in order of magnitude less than New York.
02:38 Peter Van Doren: Oh, just… Manhattan 69,000 people per square mile and then LA is 2400.
02:45 Paul Matzko: Wow, so we both… Everyone… We all get intuitively that Dallas, important city; New York City, important city. But I’m not sure, it certainly never occurred to me that there was that large of discrepancy between the density of the two.
03:00 Peter Van Doren: Now, again, LA County… These are counties and there’s lots of LA county that actually isn’t inhabited. It has the hills, the… So, again, this isn’t… There are dense parts of… So, Los Angeles, parts of Los Angeles are dense, but again, sort of in the 8000, 9000 people per square mile range, which is again like Arlington and Alexandria counties in Virginia. That’s what LA, where people live in LA, that’s sort of what LA is like. And so what I’d like to see is the regret in kind of a scatter‐plot. And I don’t have a research assistant that can actually sort of do this, but again, just what the simple scatter‐plot does of county population density versus county COVID-19 deaths, and then it’d be interesting to look what that, how tight the relationship is, and then what the outliers are. Certainly San Francisco might be an outlier. That is, it’s pretty dense. But my understanding is that its fatality rate has been rather low. And then we get into this discussion of whether Governor Newsom’s lockdown orders were “earlier” than Governor Cuomo’s, and then whether that played a role and all of that. And again, there are researchers engaging in this statistical exercise and I don’t think we have the answer yet. But certainly, population density and respiratory pandemics are not good for each other.
04:37 Paul Matzko: Yeah, which I mean, there’s a long history of that, right, whether it’s the black plague or cholera, you name it, when you… It’s cities that get hit the hardest. Then denser cities, harder than less dense. I mean, London or, I don’t know, cities that were hit… Paris versus smaller regional hubs and the like. So there’s a kind of intuitive sense to that…
05:03 Peter Van Doren: When we go around the world then if… Doing that within the United States. And then if you go around the world, you get some puzzles, which is Hong Kong and Seoul. I read an Op‐Ed piece that said… Hong Kong is denser than Manhattan, Hong Kong is dense. And a piece by Ezekiel Emanuel, who’s a bio‐ethicist, bio‐ethical professor at Wharton, at Penn, he claimed in an Op‐Ed that there’s only four COVID deaths in Hong Kong.
05:41 Paul Matzko: Wow.
05:42 Peter Van Doren: I was like, “What? Wow.” Again, I don’t know whether… I haven’t seen any follow up on that. But I’ve certainly read other papers that suggest in dense Asian cities, the death rate has been much lower than in Europe, in Italy and in England, and in the United States and then. So there’s been a sort of a discussion about maybe it’s masks, maybe it’s contact tracing. But then I’ve also seen something about the SARS epidemic that hit there in 2003. And “they’d learned” and I’m using that in quotes, some sort of things, but again, there’s pushback like, Japan closed all its schools, but I think, Taiwan did not. And so there’s all this variation around this notion of population density. And then I think, still lots of puzzles about… Is population density the biggest explanatory factor and whether anything else is going on.
06:44 Paul Matzko: Yeah, it’s hard to tease out any one variable. I have heard, when it came to mask wearing, in a lot of East Asian countries, it is commonplace, even not during a global pandemic, for people who are sick, to wear masks as a kind of polite nod to the fact that you’re more likely to infect other people. And so, mask‐wearing is a commonplace thing, it’s not a new thing that take… During global pandemic, and that doing so, you might still get the virus, but the viral load, the number of fomites or viral particles that you receive and the dose that affects you, it appears there is some early evidence, I’ve read that the larger your initial dose of virus, the lower your survival rate is, the higher chance you are of dying as like what happened with that… The whistle‐blowing doctor in China, who would’ve gotten a very large dose, even though he was my age, and died. That dose, viral load matters, and that masks, if nothing else, they might… Whether or not they stop transmission or slow transmission, they might just decrease the amount, the viral load that is received, and so save lives. But who knows. Again, there’s… Trying to isolate any one variable here is tough.
08:07 Peter Van Doren: But I’ve read what you’ve read, that the East Asian tradition of masks and the acceptability of masks, seems there’s… Lots of people are thinking that, that’s part of the equation.
08:19 Paul Matzko: Well, you can imagine, applying that in the US, going forward, that those norms… And I’ve heard, in New Jersey, I think, because we’re part of the Greater New York and Philadelphia metropolitan regions, mask‐wearing, I have not seen someone not wearing a mask at a store since March. Mask wearing is almost 100% in public, from what I can tell. But in places… I’ve heard, in Texas, I don’t know what the rate is, but it’s vanishingly low. People… Just, the norms have not shifted, even in cities in Texas or Florida or the like, and you can imagine though, maybe a norm in the future that people in very dense cities will wear masks more frequently than they would, but that normal won’t percolate out into regional cities or into rural areas, I don’t know, it’ll be interesting to see. One… So we have, though, some sort of notion, it does appear in track with American statistics, that denser cities have had not just higher… They’re not just clusters of hot spots for COVID transmission, but do appear to have a higher mortality rate as well. That doesn’t seem to be connected, though, to overloading hospitals, I don’t think I’ve seen a case yet. And the big thing we were concerned about at the beginning, was that there would be so many cases that hospitals would run out of… ICU units would run out of ventilators, and so people would die because they weren’t receiving those forms of treatment, that does not appear to have yet happened. So…
09:58 Peter Van Doren: I agree, there was… You remember the Javits Center? There was all this publicity about the Navy hospital ship going to New York Harbor, and then, the conversion of the Javits Center into a temporary hospital unit, and I also remember the DC Convention Center, near Bowser, there was a flurry of publicity about the DC Convention Center being converted into, in‐effect, hospital rooms, through partitions and all of that, and we went through that whole exercise and then, quietly, kind of never used it and tore it all down, so… Or I think so. And the Navy ship returned to its port with great fanfare, and so we didn’t… The worst epidemiological outcome that the epidemiologists were worried about, which was in effect peak… Exceeding peak hospital capacity. I think you’re correct that that has not occurred yet in the… Anywhere in the United States.
11:06 Paul Matzko: And it’s not to say that that was impossible. We also took a bunch of very severe measures and shutdown measures, so there’s always that… I don’t know if this is survivorship bias, but people have been pointing, possibly, to the success of the shutdown, to say that we didn’t need to shut down in the first place, and there’s a logical fallacy there, potentially. I don’t say that to say that we shouldn’t have had to shut down, per se, I’m just observing the fact that whatever you say about the higher mortality rates and say, in New York City, it’s not because we exceeded hospital capacity.
11:46 Peter Van Doren: I think that’s correct.
11:48 Paul Matzko: New York City really has been disproportionally affected, not just in the number of mortalities and the number of people who have had transmission. It’s affected the city’s population, the economy… I saw somewhere that 5% of the population of New York moved out of the city in March and April. The estimated New York City population just fell 5% in a matter of weeks, as people… I think it was a lot of white‐collar workers, Wall Street and the like, who went to their vacation homes, and I don’t know where they have vacation homes… Hudson River Valley, Maine, that kind of place.
12:29 Peter Van Doren: Remember, there was the flurry of… The governors of Florida and Rhode Island were going to have police checks at the border for anybody with a New York license plate, and Rhode Island was most aggressive with that, and people on the way to Cape Cod and Massachusetts didn’t want… Anyway. We’ve already gone through enough, that we’ve forgotten about the panic about New Yorkers leaving. Now, Governor Cuomo is jokingly… Now that Florida is kind of taking off in cases and New York is declining, Cuomo jokingly talked about banning Floridians from coming to New York. And so… We’ll see how that plays out, but yes, there were… The more affluent zip codes in New York City, those people went, and they went quickly, and they went elsewhere. Bob, yes.
13:27 Paul Matzko: And I think… Someone did note that it’ll be important whatever happens to the future of cities like New York, that this really is just a acceleration, and it might be a temporary acceleration, lots of people are gonna move back, presumably of a trend that New York City has been shrinking since 2017, that the… More people have been leaving than coming in for several years now. And, you’ve… So it’s… It’s not as if… If we tell this story, it’ll be tempting I think for future historians tell the story of the decline of New York City and start with, “If New York declines… ” right? [chuckle]
14:10 Paul Matzko: Lots… Lots of uncertainty still going on here in contingency, but if New York goes into another kind of downward cycle like it did in the 70s and 80s, it’ll be tempting to tell that as a pandemic‐induced story rather than something that preceded that. I guess the question is this, “what would it take?” I wonder about this all the time, I’m not a city person at heart. I know you’re not either Peter since you live out in the suburb in Maryland. I’m not the kind of person who wants a second storey walk up in Manhattan or whatever. I like having little space, I like being out. So I…
14:48 Paul Matzko: I’m not the kind of person inclined to cluster in a city, but cities are these kind of sub‐quasi mysterious organism to me. Lots of people prefer to be in cities, I know there’s lots of jobs there, and there’s these knowledge clustering effects and network effects that happen in the industries; Wall Street’s there and every new financial firm has a benefit from being close to the other financial firms, so you get these network clustering effects that help build urban economies and demand for people, population growth. But what is it that causes a city… Why does that logic sometimes just stop. There are cities that have had the logic of network effects and clustering, and then that just changes. It may happen in New York City in the 70s, the logic of being in New York City temporarily shifted for a decade or so, and, something like 10% of the New York population left during that time span. What do you think Peter? Why does that kind of thing happen in general? Why did it happen in New York City in the 70s and 80s? Could that be happening now?
16:02 Peter Van Doren: Well, in my adult scholarly lifetime, all my training in graduate school was about ‘cities are dying’, and every Brookings Brook, in every AEI book, and Cato was young and didn’t really have much in the book way early on, and… But all the urban courses I took and then taught were all about, “Oh my God, we need to save cities,” and then flash forward to two thousand and… The mid‐2000s, the mid two thousand and teens, and we’re worried about the exact opposite, which is, there’s all these people that ought to be able to move to cities and ought to go to cities, but cities and not too expensive.
16:44 Peter Van Doren: They’ve come back so much that all the books on my shelf from 30 years ago are now all wrong and outdated… So, I’m… There’s this… There’s a… But let me parse this, which is… There’s different kinds of cities. So, Detroit, for example, the notion of agglomeration economies in manufacturing, which was historically what New York was about; it was a port, you could ship things by water, you could assemble labor and raw materials, and then you could manufacture things in cities, that’s what… So prior to say 1950, that’s what cities were about… Well, think of manufacturing now, and think of the auto plants in the United States, post‐1950…
17:34 Paul Matzko: They’re all [17:34] ____ towns. Yeah.
17:36 Peter Van Doren: Well or, they’re in Alabama and South Carolina, and they’re in the middle… And they’re near interstates, they’re near… Certainly transportation and all that, but.
17:46 Paul Matzko: They’re not in cities, yeah.
17:47 Peter Van Doren: They need to be near a harbour to get raw materials and to have immigrant labor work in a factory setting. Wow. That’s… So then… So now cities are white collar employment, so now we have to ask the question, “Given how expensive cities are, why do firms up until now, why have firms found it useful to locate in cities even though they have to pay higher wages because of housing costs and things like that. So, all the white collar work associated with corporate headquarters in law, in finance, in real estate. Why are they willing to pay the price to locate where they do, when the usually econ answer is, “Well, there’s something called the agglomeration economy. There must be higher productivity, which is why volunteer… Firms are voluntarily willing to pay for all this, no one’s forcing them to be where they are, they find it advantageous for firm reasons.
18:52 Peter Van Doren: The question is, will the pandemic change all that because we’re learning that white collar folks don’t need to be proximate to each other. If you look at the real estate section of the New York Times or the Washington Post, post‐March, what I’m seeing is incredible amounts of concern on the parts of office building owners as to whether or not the demand for that space is going to continue and then nobody knows. That’s the… So up until recently, the central concern of urban economics was the role of zoning in increasing housing costs and we need to get rid of that and we need to move a lot more people in the city, in other words we need to increase urban population because of the wage and income benefits that would arise for people who do so and with high housing costs, that’s only true lately for college educated people.
19:53 Peter Van Doren: For less than college education, the wage gains from a lower skilled person moving to urban USA are offset by higher housing costs and so the concern of the literature was they were stuck where they were and we… Now we ought to get them to go to bigger cities but in fact, given the wage versus housing costs, it was rational for them not to do so post say 2012 and now the question is, will the pandemic change everything about white collar work so that we go back through a decentralization move, which then undermines all the new books on my bookshelf which say cities are back and too crowded and we need to… Or not crowded enough and we need to worry about how to make them even more crowded. It could be all that will be useless as well.
20:52 Paul Matzko: So, there’s… The main driver of this conversation is I suppose the rise of remote work, teleconferencing, video conferencing. I don’t know how much you used Zoom and well, Zencastr that we’re using right now. I don’t know how much you used these before…
21:11 Peter Van Doren: This is my first.
21:16 Paul Matzko: Was your first Zoom meeting ever like the Cato meetings?
21:20 Peter Van Doren: Yes, I didn’t know what it was…
21:22 Paul Matzko: Yeah.
21:22 Peter Van Doren: But as my colleagues tell me, I’m the worst MIT grad that ever existed, I’m barely into the 19th century technologically, let alone the 20th and the 21st.
21:34 Paul Matzko: Yeah, you bust out your telegraph line tried to get… Yeah, that’s right.
21:40 Peter Van Doren: Exactly.
21:40 Paul Matzko: So we’re engaged in this mass national experiment in enforced remote work. And I think one number I saw was that the number of Americans working at least sometimes remotely doubled in two weeks…
21:55 Peter Van Doren: Oh Yeah.
21:55 Paul Matzko: From 31% to 62%, which is incredible. It’s a… That is a generation’s worth of change. It took a generation to go from, the low negligible numbers, the 31%. Yeah, ’cause I can’t imagine remote work… I don’t know. Now, I think about what the trend line, how did we go from zero percent remote work ’cause by definition, work couldn’t be remote once upon a time to 31% but however long that timespan was, decades I imagine, going from 31 to 62 took two weeks, which blows my mind. And apparently people tend to like it. I saw a Gallup poll that something like 60 some odd percent, 60% of workers forced to go remote by the pandemic say they’d like to keep doing it even post pandemic. So appears to be relatively popular and I’ve seen signals like Twitter or Facebook, they’ve both announced the indefinite extension of working from home.
23:00 Peter Van Doren: No, these are big…
23:01 Paul Matzko: So it looks like that it might stick.
23:03 Peter Van Doren: Cato’s own discussions. You and I resided on the sixth floor of the Cato building and we had many random interactions because of that physical proximity. And since you and I have… Since Cato shut down the building in early March, you and I have not interacted at all. And that that is a cost on the other hand, my commute was three hours a day and yours was…
23:35 Paul Matzko: Yeah.
23:37 Peter Van Doren: Yours was hugely long if… ‘Cause you live in New Jersey, and now you’re thinking of living even further.
23:45 Paul Matzko: Maine, yeah.
23:46 Peter Van Doren: And so, I’ve always been a believer in the Cato people ought to show up and talk to each other. But some of my colleagues never were there, and they’re productive. And so, this is a dime, I’m torn ’cause I wake up, I sleep more, I don’t mean… The roads are… All the infrastructure of cities is built around, taking millions of people every day and taking them from somewhere and taking them and putting them somewhere else, and then reversing that eight or nine hours later, and wow, what if we don’t need any of that?
24:25 Paul Matzko: Yeah. So, I guess the question is, is the benefit of not having of not having that commute, of being better rested, of all those things, does that offset the downside of the lack of kind of I think Tyler Cowen called it intellectual friesian, the interaction, like what… Our conversations in the hallways and…
24:45 Peter Van Doren: Peter Goettler, the head of Cato is wrestling with this and he’s torn, he knows both of the things we’re describing, which is in the largest cities, you spend a lot of time getting to and from work and getting affordable housing and yet you do that because of this interaction that occurs that the sum of the of the togetherness is greater than the separate components and yet I enjoy my now 10 seconds commute down the stairs.
25:24 Paul Matzko: Yeah.
25:26 Peter Van Doren: And…
25:28 Paul Matzko: Are you are you still in your pajamas, Peter? That’s… You don’t have to answer that.
25:33 Peter Van Doren: No, I don’t… I actually I haven’t won pants, [laughter] I wear shorts now. And I haven’t worn a dress shirt… You know who I feel badly for? The dry cleaners, they need dry cleaner. I talked to mine and the woman who cut my hair I actually gave her extra money. I said those of us who are lucky enough to have salaries that aren’t dependent on the pandemic, I ought to keep my spending up for the small businesses in the way that I would have in under normal circumstances. And I tried to give my dry cleaner extra money. I said, charge me what I… I don’t know, $25-$30 a week. Now I’m down to two pairs of shorts every other week. And it’s like, wow, he said… I said, “How are you doing?” And he said, “Not good.” And so all of this… How much the economy depends on us toing and froing, from houses to workplaces every day, we’re learning how much that is and will that come back or not, and we are conducting a gigantic experiment.
26:47 Paul Matzko: I suppose I’m not entirely sure. I’m no expert, but I was thinking about this. We’ve done this big transition. So just take one sector of the economy, which is food. We all have to eat, and we have in huge numbers, transitioned from eating out as much to eating in. So, now there are still take‐out and the like, but people are buying more grocery stores, people are cooking more of their own food.
27:17 Peter Van Doren: Yes, yes.
27:18 Paul Matzko: And this is bad for restaurants, of course, and that involves lots of economic disruption, there’s people who were, capital that was geared towards building and maintaining restaurants, labour that was geared towards working at restaurants has been disrupted. But it’s not clear to me, in the long term, that that would be a bad trade‐off that people…
27:39 Peter Van Doren: Oh, but… The New York Times had a very interesting analysis, which is based on Harvard research. Most recessions… This recession is very, very, very different, and the Times showed that consumption by zip code and income, the consumption, and this is done through visa and effect charging and debit card data, and that usage has dropped off the most in the richest zip codes. And the Times has discovered, much to its chagrin that, in the unequal economy that the Times has always complained about lately, the little people depend on the consumption driven by affluent people, and that consumption is service‐oriented, and all of that has gone away. They’ve discovered that the consumption reduction in the lowest income zip codes in the United States has gone down the least, and the consumption in the most affluent zip codes has gone down the most. And then in turn, the income of the lowest income people in the United States is worst if they live near the richest zip codes. And the consumption and the incomes of poor people that live mostly among other poor people or not near affluent people, has been much more stable. So the economy has had transformed into all sorts of people doing, in effect rest assisting through consumption of the spending of affluent people. And so, just push it, yes, the economy can and will restructure, but all those people that waited on everybody in restaurants, what are they gonna do now?
29:40 Paul Matzko: Right, yeah. It’s restaurants, it’s dry cleaners, it’s masseuses… The whole… I was thinking about what I pass, when I walk from the train station in DC, to Cato headquarters. All those storefront shops, it’s subways and masseuses, and lots of restaurants, obviously. How many people would have to stop working at Cato headquarters and let’s just… We can… In general, people working in offices, white collar workers in offices in DC or New York City.
30:23 Peter Van Doren: Well, think of all the eateries near Cato…
30:26 Paul Matzko: Yeah.
30:26 Peter Van Doren: That nobody…
30:27 Paul Matzko: How many of them would… If 10% of their customers base dried up, that might be enough to put them all out of business. Their margins are…
30:36 Peter Van Doren: Oh, it’s 10%. I suspect the Subway right next to Cato, it hasn’t had anybody in it.
30:45 Paul Matzko: Well, I don’t mean 10% during the pandemic, but even if after, because of, let’s say, some percentage of the people who left New York to live out and now they’re gonna work remote, and then some percentage of people are going to do a hybrid where they come into the office instead of five days a week, they come into the office three days a week and work remotely two, or as… What percentage of daily foot traffic is gonna decrease permanently as a result of this? How many people before it basically devastates? ‘Cause as you say, our urban economies in particular, are so driven by this support service infrastructure for white collar office workers.
31:28 Peter Van Doren: Correct.
31:28 Paul Matzko: And how many of these office workers leaving is enough to just undermine that entire ecosystem. I only have…
31:34 Peter Van Doren: I think we’re about to find out.
31:38 Paul Matzko: Yeah, yeah.
31:39 Peter Van Doren: It’s…
31:40 Paul Matzko: So, I’ve gotten more pessimistic, I think as… I used to have the same intuition as the books on your bookshelf, which was that cities are here to stay because of the network agglomeration effects, that we… And again, I’m a big YIMBY person, we need to reduce zoning restrictions, build more density, that conversation feels… It’s not untrue. I still think we should reduce zoning and have freer housing, more housing density, if that’s what the market demands and what not. So it’s not that it’s untrue, but it does feel dated, and I’ve become more pessimistic about the future of cities as previously considered.
32:25 Peter Van Doren: Also…
32:25 Peter Van Doren: Actually this all started… Yeah, go ahead Peter.
32:27 Peter Van Doren: Well, just the other caution, as I get older, I realize that one thing scholars all do, even though we say we shouldn’t, is we kind of linearly extrapolate from current stuff and say that’s what’s going to continue.
32:41 Paul Matzko: True, true. That’s fair, yeah.
32:43 Peter Van Doren: So, all the urban, all the books on my shelf were pessimistic about cities 35 years ago. And all they were doing is saying, “Wow, nothing looks good, and it’s not going in the right direction”, and then before we realized it, it all turned around and we’re still debating why and whether policy mattered or not for that. And so do we or should we extrapolate from that to out how many years and the answer, given what we’ve talked about today is, “No, hell, we shouldn’t extrapolate.” The true answer is, you and I don’t know whether there will be a fundamental re‐examination of office work and commutation in residential patterns or not, and things right now seem like, wow, a lot of people are wondering and thinking about that. And five years from now, will we look back at this conversation as we were on to something, or oh, no, we didn’t realize World War seven was about to happen, and in other words, shocks happen and makes everything we’re talking about look kind of ill‐informed.
33:50 Paul Matzko: Yeah, and of course, because we are human beings and thus vain, we will revisit this conversation in five years if we were right and not if we wrong…
34:00 Peter Van Doren: Yes. Exactly.
34:00 Paul Matzko: If you will.
34:00 Peter Van Doren: Yes, right, correct.
34:00 Paul Matzko: It’s like yes. Well, and there are… To your point, I saw some skeptics of this kind of techno‐pessimistic trend, and there’s been a number of pieces in the Times in the Post echoing my kind of pessimism and folks have pushed back and said, “Hey look, there were companies back in after the last crash in 2007, there were folks after the internet bubble in the late ‘90s, companies that said, “Look, go ahead and work from home, housing costs are too high here, you can work from home if you want,” and people… And they eventually reversed those policies ’cause folks didn’t want to work from home, and so their thing…
34:44 Peter Van Doren: Well, I know my wife thinks that I’m around too much now. It is interesting.
34:49 Paul Matzko: She wants you… “Get back.”
34:52 Peter Van Doren: Families are learning that they wanted to be with each other all the time, and now maybe they desire that less so and that the ritual of leaving the house every day may actually be an important one that we didn’t appreciate.
35:10 Paul Matzko: But the counter‐argument to the counter‐argument is that our technological substitutes are better, they’re not perfect, no substitute is 100%, but for example, yeah we don’t have our inter‐office conversations like we normally would, but we are able to have a conversation on Zencastr, that’s a thing that wouldn’t have existed even a few years ago, or we can’t have office meetings for the Cato general meetings, but we can do it on Zoom, and we can’t all meet in the auditorium but we can on zoom. Again, it’s not perfect substitute, but it’s a substitute that would not have existed in 2007, in 1999, and so on, and so as our substitutes have improved… And that cross‐applies cross a lot of remote work options. 30 years ago, we wouldn’t have had email, which makes a lot of remote work possible, that wouldn’t have been possible in the 1980s, say with… So yeah, we’ll see, yes, we might just see this as a temporary aberration and cities will snap back to their norm, but if they don’t, I’d suspect it’ll be because we have technological substitutes that make remote work… I don’t know what the ratio is, is it a… Do we just go from a 76% substitute to a 80% substitute? Who knows, but it’s…
36:40 Peter Van Doren: The cynical part of me, if you are a fan of The Office, the old sitcom on TV, I’m cynical about meetings, both when they really happened in proximity and when they happen on Zoom, maybe we should just stop having meetings.
37:01 Paul Matzko: Yeah, but…
37:02 Peter Van Doren: And that most of us think of our colleagues in the way that The Office portrayed, which is that we think they’re crazy and so having to deal with them less so maybe use… Anyway, I’m just…
37:14 Paul Matzko: And I your Dwight… Am I your Dwight, Peter?
37:17 Peter Van Doren: No no no no no ’cause notice what we did was we never had a meeting, we… I saw Phil Cook, the CEO of Apple, he was on CBS Sunday Morning yesterday, and he said, It’s just useful to bump into people and talk about stuff, and that’s what you and I did, we never… You and I never had a meeting. In fact, I’m very… I’m anti‐meeting, I just think that I don’t know what purpose meetings have other than to lead to sitcoms like The Office and teams and this and that, I mean I just kinda roll my eyes but smart people interacting randomly. Yeah, I get that. I think that’s what offices are about.
38:10 Paul Matzko: Yeah and that builds not only does it lead to innovation potentially, or productivity boost, but also just the kind of sense of camaraderie, a willingness to work for the sake of the body, the corporation… I mean corporate body that you might not get. This is actually something Tyler Cowen in his Bloomberg column worried about, which is that folks… Yes, it’ll lead to better work‐life balance, which it has, clearly, you’re sleeping better, you’re sleeping more, you’re spending more time with your family, less time at the office. It’s true for me too, but that will lead to a decline in… It’ll be a drag on productivity, and thus the drag on economic growth and innovation, and it’s possible. I mean I can see that, I can see the argument for why such a thing, why remote work would be kind of a net economic drag. Actually, I want to ask you about this, he also worried that if tech labor in particular goes remote, that it will become more commoditized, or modified less… So if you say, if you’re a tech company in San Francisco, and you say, Okay, look, Hey, engineers, you don’t actually have to live in San Francisco anymore, you can live in Salt Lake City or in anywhere in the country. The next step is to say…
39:37 Peter Van Doren: Or Bangalore.
39:39 Paul Matzko: Or Bangladesh or India, and which… And plus, we can pay those people a whole lot less, and so his argument was that it would lead to… Remote work leads to commodification, less compensation, outsourcing offshoring and so on. Do you think that’s likely? I mean, how would you assess that chance?
40:00 Peter Van Doren: I won’t ever… All I’ll say is, what firms do, what Cato preaches what firms do, is they experiment. And again, sitcoms can reveal things about culture and about whether things are going south or not. So the dreaded thing about outsourcing, the most horrible thing in all of our lives is call centers where you and I have to call somebody to get our cable changed or warranty for our washer and dryer verified or… On and on and on and on. I think, at least from the most dreaded experience in the modern western world is dealing with the call center, where the people are obviously not from your culture in any way, shape or manner and you have to interact with them and they don’t know how to interact with you and you don’t know how to interact with them and everyone just gets frustrated. And I’ve talked with… A friend of mine, actually, is a software manager, and he manages call centers for his products where customer… These are corporate customers call in to deal with issues involving this software, this particular software.
41:20 Peter Van Doren: And they’ve gone through all sorts of outsourcing and non‐outsourcing and within and outside the United States, and he’s gone through all these things. They’re finding out that this alleged… There is a labor cost savings involved, but it ends up being not worth it because the interaction with the customer is such a negative experience that they’ve actually gone back and brought things back into the United States and etcetera, etcetera. So all I’ll say is, I don’t know how all of these will work out, but I know that firms are always experimenting with whether spending more money on higher quality labor, does or doesn’t matter for their bottom line, and that’s as it should be. And the fact that the culture seems to suggest how annoying it is, I would think eventually, CEO’s don’t like seeing how annoyed customers are with dealing with these matters and they get a better experience if they’re willing to spend a bit more on that.
42:34 Paul Matzko: That is true, as I listen to you talk, just thinking through my own working life and interactions with help lines, customer help lines…
42:43 Peter Van Doren: Oh Lord.
42:43 Paul Matzko: It used to be common… You use to expect that you would get someone from a South Asian call center based… And that used to be the norm by…
42:54 Peter Van Doren: Exactly.
42:55 Paul Matzko: And now, it’s actually pretty rare. Generally, if you’re calling during normal hours, whether it’s West Coast, East Coast, 8:00 to 5:00, some time in that range, you’re gonna get someone in a North American‐based call center. And that’s actually been a big change, just in my own personal lived experience over the last what, 5–10 years. To your point, I think that it’s… Yeah, I never really thought about it before, but that’s true. Yeah, we’ll see. I’m trying to think of where I would… So let’s say, ’cause you really don’t have to empty out cities entirely. It’s not like New York City is gonna go away. It’s not gonna become Cleveland in a decade, even in the worst case scenario. But you don’t actually have to have that much change before you do see major disruption and I was thinking about this. In fact, the genesis of this conversation began with one of our random office interactions, after I read an article about David Tepper, who is a hedge fund billionaire from New Jersey, who bought my favorite football team, the Carolina Panthers and he moved from New Jersey. I think he lived in one of those North Jersey, New York City suburbs, to Florida to avoid the New Jersey income taxes which are quite high.
44:24 Paul Matzko: And one guy leaving, now admittedly the wealthiest man in New Jersey at the time, in a good year, probably lowered total state income tax revenue by 2%. And so, you don’t need many people like David Tepper. Now there’s only one day David Tepper. There’s only one wealthiest man, but you don’t need many folks from that top bracket to leave before you really start worrying about state finances, the structure of the entire government system and so, even if most of those 5% of New Yorkers who emptied out in March and April, if 4% of them came back, if 1% of top earners left permanently and started paying taxes in Maine or Massachusetts or wherever, that could have huge ripple effects. I don’t know. Maybe it makes me… I feel like if I was buying or selling states, I would short New Jersey and Connecticut at the moment.
45:28 Peter Van Doren: Well, Connecticut, interesting. What state has the lowest population growth rate in the United States, the answer is Connecticut. It’s very, very affluent and very, very poor all at the same time, and it’s not growing, and why isn’t it going? ‘Cause it’s high in state and local taxes and yeah, I think where do athletes… Athletes are mobile. Where do all of the golfers live? What’s their state of residence? The answer is Florida.
46:01 Paul Matzko: No income tax, right?
46:03 Peter Van Doren: Exactly.
46:04 Paul Matzko: People respond rationally to incentives. Imagine that.
46:07 Peter Van Doren: Yeah. And in county… I mean local governments know this. They know that Governor Cuomo doesn’t raise taxes infinitely. Mayor de Blasio might try but Cuomo knows not to do that. And Governor Hogan of Maryland, right? I mean why would a very, very blue, Liberal, Liberal Maryland. Why we don’t see the Republican governors every now and then? The answer is to kinda keep a lid on things. The taxes endow and the spending don’t get out of hand and I tell you Montgomery and Prince George’s County, Maryland are about as liberal and blue as one could get and yet… And that’s where all the votes are in Maryland and yet Governor Hogan won election because of the votes from PG and Montgomery County ’cause the rural vote isn’t enough to make Republican Governor in Maryland you need people in the close in, very high income tax‐paying suburbs, they’re the pivotal voters in Maryland and may now and then kinda slap the Liberal Democrats in the face and say, yeah, I think things are getting out of hand here and so yes.
47:33 Paul Matzko: There are kind of two stories about city decline that go on in my head and I’m not sure how to make them continent and… So the one version is the reason why cities go into decline, whether it’s Detroit or Cleveland, all Rust Belt Cities is because of broader exogenous factors like Detroit it’s because of lower…
47:56 Peter Van Doren: But then they were as I said earlier they were manufacturing cities and…
48:01 Paul Matzko: Right, so as manufacturing changed, the structure of global supply chain and manufacturing, the reason for those cities to be able to charge a premium on companies and on labor declines and people leave so it’s connected to shifts in production. The other story I often hear is that it’s about taxation, like here in New Jersey we live in a suburb of Trenton and Trenton has significantly higher tax rates than the surrounding suburbs and so why would you choose a place with higher tax rates and worse public infrastructure versus a place with lower taxes and better infrastructure, it’s a kind of a no‐brainer and so in effect they tax the city to death so is there a way of making those two stories fit together or is it an either or?
48:52 Peter Van Doren: Well, again, I’m a kind of multivariate, econometrician‐type person and so when these kinds of discussions, I wanna convert them into… If we had a regression equation and the left‐hand side variable were population and the right‐hand side variables were all the things you mentioned, the question is, what are the coefficients on those variables and are they different from zero? And so the answer is yes, to all of your, in other words, and then you ask well, what’s the magnitude of the coefficient? Is the effect of tax rates bigger or less than the effect of any of the other things you measure or mentioned and I’d have to dig into the data more to answer that question, that’s why I won’t on the air, but all of these things have effects and so then we’re saying, if you’re a decision maker and you’re faced with tradeoffs between raising tax rates and/or preserving services which will cause people to leave more than the other.
50:03 Peter Van Doren: In other words if I raise the rate to keep the services good, and I’ll use that in quotes, where good is measured by spending, I keep spending more. Should I do that or should I cut the budgets and keep the tax rate where it is and etcetera, etcetera, etcetera and that varies a lot by the class of people involved and so some people live where they live because of schooling and some live where they live because of proximity to jobs and all of this matters and each of us, in effect maximizes, given our budget constraint and given the location possibilities. And so urban economics at its best tries to figure out the answer to all your questions. One thing I ought to inject in the equation is that, and particularly in New Jersey, I know a lot about Trenton and I studied it when I taught at Princeton and then its suburbs, Trenton does have a very high tax rate but then what happens is housing values go down so that the total outlays of a household in Trenton are much less on the mortgage and much more on taxes and then where you live it’s the other way around, you pay more in taxes and so what… Then you have a disaster like Detroit and you can get services that are so bad and taxes that are so high that land values have to fall below zero and that’s why vast areas of Detroit are vacant. In effect you need this to pay people to go there ’cause land prices can’t go below zero.
51:48 Paul Matzko: Yeah, it is a bizarre experience for those of our listeners who haven’t been to Detroit, there’s so much open space because they bulldozed the entire city blocks of housing basically because it became blighted and then it was better to destroy it, it was better for it to be not used till the price goes below zero to your point which it’s a striking thing and we’ve never really experienced anything quite like driving through Detroit.
52:17 Peter Van Doren: To go to that, the hardest thing for an urban manager or mayor to do is you can cut marginal costs, you can decrease services and expenditures at the margin what you can’t do is just abandon the physical plan, now there’s this underlying street and water and sewer and electrical infrastructure which is… You can think of it as fixed cost and so Detroit is the epitome of how it’s just you’ve got… In other words, it was built to handle a million and whatever people and now nobody is there and yet fixed costs remain. So what happens in the private sector is, this is the mystery of why a factory keeps going but then it has a fire and then it doesn’t re‐build so you’re saying, well, why did it stay in business before the fire? The answer was it covered its marginal cost, but it wasn’t earning any money and it was gradually depreciating its physical plan. So when the fire happened, it doesn’t rebuild.
53:24 Peter Van Doren: Detroit is sort of like that. Now, New York, you see what have to… That happened in the South Bronx in the ‘70s. There were parts of New York that were like Detroit. Jimmy Carter visited the South Bronx in ’77. It was empty, through arson, it got burned and then no rebuild, nothing. It was just very high fixed costs, nobody wanted to be there, and now look, it’s actually the low‐cost house [53:52] ____. It’s come back because it was lucky to be surrounded by the rest of New York that rebounded and then… So it’s a long‐winded complicated answer to your, to your question.
54:10 Paul Matzko: No, it’s interesting. Well, and I guess it, we’re yet to see whether, and who knows, it’s gonna be up to the aggregated choices of lots of individuals and cities around the country, whether they’re gonna re‐value the weight of, well now, the value of being close to work might decrease slightly because of technological substitutes, so you’re making remote work more feasible or more productive. Also the risk of being in a dense center when there are pandemic‐type events, might feel less worth it to some people. How much does that matter on the margin? It’s gonna be a choice that lots of people are gonna be making over the next couple of years. Am I willing to pay the premium on that condo in the Bronx or wherever I live, in Upper East Side. I’m just saying random areas in New York ’cause I have no idea what any of that means. Upper East Side sounds swanky though.
55:02 Peter Van Doren: It is, yes. Your listeners will laugh.
55:04 Paul Matzko: Okay, good. Okay. [chuckle] Okay, so fine. I know embarrassingly little about New York City’s neighborhoods, but I do know that we live in a time of economic, social and technological disruption, the once unthinkable suddenly seems quite think‐able. You know, I’d love to hear from y’all, especially those of you who live in big cities. How, if at all, has COVID-19 changed how you think about where you live? Have you found yourself considering moving out of the city proper? Or has your company signalled its willingness to let you continue to work remotely, even after the pandemic shutdowns are over? Let me know. You can write me at email@example.com. Or you can DM me on Twitter @PMatzko. And with that, until next time, be well.
56:01 Paul Matzko: This episode of Building Tomorrow was produced by Landry Ayres for libertarianism.org. If you’d like to learn more about libertarianism, check out our online encyclopedia, or subscribe to one of our half dozen podcasts.