Chapter 8 | Analyzing Metropolitan Long-Term Growth Patterns

BRUCE KIRSCH: We open up the chapter saying, the US is a nation of constant, positive, population growth, and that’s one of the great things about this country. Why is it that the US finds itself in this fortunate state, but some countries in Europe are net negative on population growth?

DR. PETER LINNEMAN: Well, the extreme case would be Japan, which is actually shrinking, notably, in population, and China, which is about to go completely flat. Look, I think it’s pretty simple, the dynamics of population growth and why the US grows. First and foremost, we have been a nation of immigrants, and we’ve been a nation that is relatively good at integrating immigrants. I’m not saying we’re great at it, I’m saying relative to other countries. Immigrants, certainly within two or three generations, are well assimilated, by and large, into our economy. It may be difficult for the first generation, because of language, and so forth, but we’re very good at it. And as a result, we get, roughly, about half of our population growth from we’re good at immigration, and so people want to come here- and we’re a good economy with a good framework, and so forth. And we just are much more open, and good, and better at integrating immigrants than pretty much most countries in the world.

The second is, our birth rate is higher than in places in Europe and Japan, where the birth rates are sort of 1.2, 1.1, 1.3 births for each birth age woman. And you go, well, they may be replacing themselves, but they’re only replacing 2/10 of their husband. We’re still right around two, so each birth-age woman does about two. That’s highly skewed, interestingly, with immigrants, and the children of immigrants being a bit higher than two- and those who have been here longer than a generation or two being lower than two, not quite European or Japanese in that regard.

And the last part is as medical technology improves, we live longer, and that’s not differentially true here than Europe or Japan, right. But it’s you get fewer people dying, they live five years longer, you get population growth. But the big two are really we have higher birth rates, particularly among immigrant generations, and we have a much more open society at integrating immigrants. I wish it were better than we are, but that’s basically what it is.

BRUCE KIRSCH: In the beginning of the chapter, we mention a key term, which is agglomeration economies. And this basically says that the reason that dense urban areas exist is because, well, we’re social animals. And we trade with one another, and we work together, and it’s beneficial, more so than it is to not be near one another.

When broadband started to really penetrate the US, and it’s obviously penetrated the whole world, and now we have very, very inexpensive robotics, in your mind– and I know this is looking sort of the way down the road, but in your mind, do you think that continued significant broadband penetration and telepresence or holograms or anything of that nature is going to move the needle on whether agglomeration economies and density are still important?

PETER LINNEMAN: I don’t think it changes it much. You look at Seattle area, which by historic standards, was remote. And it’s been one of the great growth areas, because you have major companies who have spun and grown– Microsoft being obvious. But not only did they grow, they were entrepreneurial. And five of their people left and started their own firms doing related but not the same. And then one of those people left.

And so I think the agglomeration benefit– yeah, we talk about it’s nice to have a whole bunch of other people like me around. And you see some of that. But it’s not like the Chrysler worker walks over to the Ford factory and says, how are we doing? It’s not so much that.

I think where it really comes as an agglomeration tends to be from the top, which is you get the entrepreneurial management type spin-out. And if you’ve got a big agglomeration in an industry or a set of industries, that means more people are spinning out creating new firms. If you don’t have much of an agglomeration, you could have some be successful, but it’s not a big enough success to spin out in people.

And so I think that’s where the agglomeration comes. And there’s not much evidence that the benefit of agglomeration is dissipated as technology has improved. And in fact, if anything, you look at the rebirth of New York City, it would suggest that if anything, agglomerations are more important today than in the past. I’m not sure that’s in spite of or because of technology. But certainly, there’s no evidence of a big change.

BRUCE KIRSCH: You performed a very interesting study on regional growth variability. It looks at different characteristics, and the statistical simulation creates these alpha beta continents. What did you learn from this simulation, and what’s the key takeaway there?

PETER LINNEMAN: It’s interesting. I had looked at, and we describe also in the chapter, the more traditional type of, well let’s see how that area grows depending on education, and let’s see how it grows on the weather, and other things. And then, it occurred to me some years ago. Why don’t we just look at it the same way people look at stock returns? There’s an intrinsic growth dimension.

And there’s a dimension that varies depending on where the US economy is at. Well, the most interesting thing I learned from those studies is, not every place varies with the economy the same way. Some are hyperreactors. And I’ll give you the obvious examples. You think of Orlando. Orlando is a hyperreactor to the US economy. When it’s down, they can forestall my vacation to Disney. When the economy’s great, let’s take our vacation to Disney. And so it’s a hyperreactor.

And then, you look at places like state capitals. And I should have known it, but I hadn’t quite focused on it. You look at places like state capitals, they tend to be not hyperreactors. Because while the private sector may go up and down with the US economy, the state governments are much flatter, much more stable. And so they have relatively low betas if you say reacting to the economy.

And I just think it’s a useful way– it’s not a perfect way– it’s a useful way of thinking about, normally as you know, I hear people say, well, it’s a great growth market. Is it a great growth market because the US economy is booming? Or is it a great growth economy because in and of itself, it grows a lot? And the disentanglement of that, you can see very different patterns for very different places.