The Skyscraper Economist

The Valley of Depth

The following is an amateurish attempt to summarize Barr, Tassier, & Trendafilov (2011) and Barr's subsequent work on the economics of really tall buildings. 

Dr. Jason Barr, my former professor and thesis adviser as an undergrad, has been studying the economics of skyscrapers for years. When I was a freshman in his intro micro lecture, he inadvertently convinced me to study urban economics and, most significantly, of the amazing versatility of modern economics in its ability to study seemingly every facet of modern life.

What sealed the deal for me was an earlier paper of his (pay-walled, but you can download an earlier version) on what determined the location of Manhattan's first skyscrapers. If you look at Manhattan from afar (pictured above), you'll see tall buildings crowded together in the downtown and midtown, but between them is a valley of much shorter buildings. Some geologists and historians believed that the primary reason for this height valley was the fact that the bedrock below Manhattan also forms a valley between downtown and midtown. Since skyscrapers have to be anchored into the bedrock to avoid sinking, the costs of construction were expected to rise beyond profitable levels in this bedrock valley. Thus, skyscraper builders skipped up to midtown where the bedrock once again rises close to the surface.[1]

Barr and Drs. Troy Tassier and Rossen Trendafilov of Fordham were apparently the first to test this claim empirically. Analyzing data on all buildings 80 meters or taller built between 1890 and 1915 in Manhattan, they found that depth to bedrock had only a small effect on total construction costs.[2] It was actually often cheaper to build a tall building in the bedrock valley, since land prices in the downtown district dwarfed the costs of anchoring. They noted that some of the tallest buildings swarmed City Hall, where the bedrock valley is deepest.

Probit regression then showed that the probability of a skyscraper being built on a given lot was significantly related to transit and park access (positive), distance from the city center of Wall Street and Broadway (negative), land values (negative but possibly endogenous), and demographic factors.[3] [4] Greater depth to bedrock had a negative but statistically insignificant effect.

In fact, when the authors distinguished between bedrock above and below sea level, greater depth to bedrock above sea level actually significantly increased the probability of skyscraper location, since bedrock above sea level is nearer to the surface and may have to be blasted away, but you're less likely to have to splurge on dynamite if the bedrock is just far enough away from the surface. Thus, lots with bedrock above sea level but deep enough to avoid blasting were preferred.

The story this evidence supports is economically intuitive and jives well with historic data. Initially, builders face a tradeoff between the higher costs of acquiring land downtown and the external benefits from locating close to their competitors ("agglomeration economies," or external economies of scale, as they're called). The first skyscrapers will cluster around the city center, but newer builders will have to locate further away until eventually the agglomeration benefits fall off and are dwarfed by the new costs borne from locating in the "rougher" industrial neighborhoods of Five Points and SoHo. With the predominantly white, urban middle class skipping north to modern-day midtown, the later skyscraper builders followed the labor supply.[5]

The paper was picked up in 2012 by the New York Observer and earned a somewhat barbed comment from Paul Goldberger of the New Yorker. Nevertheless, Dr. Barr's media portrayal as the Skyscraper Economist officially began with what he called the Manhattan Bedrock Myth and its subsequent debunking. The NYT covers Barr et. al. (2011) for a general audience.

At first, I was tempted to call Barr's work "myth-busting," applying a variety of cutting edge economic models to various historical contexts in order to empirically test commonly held beliefs (maybe like Freakonomics without the coding errors and climate change tomfoolery). But I prefer the term "myth fact-checking." The goal is to add an extra layer of qualification through a formal analytic framework and empirical scrutiny, to supplement myths--not bust them. Hence how political facts can be judged "True," "Mostly True," Somewhat True," and so on.

This was one of the first real economics papers I ever read, which may be why I dwell so much on it, but Barr has quite a lot of more recent work to check out (including a book dropping in May). I certainly can't do all (or any) of them justice here, so I'll outsource some of that job to major news outlets and other bloggers:

• The Economist covered Barr, Mizrach, & Mundra (2015) on "The Skyscraper Curse," first posited by Lawrence (1999), which states that the completion of record-setting tall buildings is an indicator of malinvestment and incoming financial crisis and economic decline. More myth fact-checking, and the verdict: Mostly False.[6]
• Washington Post's WonkBlog most recently covered the Curse paper, with a neat interactive timeline of NYC's skyscrapers from the Council on Tall Buildings and Urban Habitat.
• Elsewhere in the blogosphere, there's a great post by Socioeconomic Science on the Skyscraper Curse, geared toward a more academic audience.
• NEP-HIS and Vox cover Barr, Smith, and Kulkarni's (2015) attempt to measure how much Manhattan's land is worth today. You can download the paper directly here.

Other papers which are well worth reading but might not have been picked up by the media include Barr (2010), a fully fleshed-out model of skyscraper height determinants; Barr & Cohen (2014), which presents and analyzes data on floor-area ratios in NYC from 1890-2009; Barr (2013), which studies strategic interaction between skyscraper developers in NYC and Chicago from 1885-2007; and Graham & Barr (2008), which used Granger causality tests on state-level panel data from 2000-2006 to reject the claim that an increase in same-sex couple households caused a decline in married heterosexual households.[7]

Notice throughout all of this work is an eye toward history.

Footnotes:

[1] - Here, skyscrapers are defined as buildings 80 meters or taller in height.

[2] - New York's first zoning ordinances were enacted in 1916. Thus, focusing on this time period probably eliminates such a potentially tricky confounding factor.

[3] - The authors' take on the endogeneity of land values here:

"We have decided to use land values as an independent variable in one of the specifications for the following reason: The emergence of separate business districts began in the second half of the nineteenth century, with the construction of the elevated railroads and the northward movement of the population. As such, the land values in 1909 most likely reflect land value patterns that were in place before the development of skyscrapers. In addition, however, we are less concerned about the estimated coefficient for the land value variable, but rather we are interested in including it as a possible control variable, to see how its inclusion affects the estimate of the depth to bedrock variable. As will be discussed in more detail below, its inclusion provides evidence that, holding land values constant, depth to bedrock did have some influence on the placement of skyscrapers. For example, within lower Manhattan, builders were sensitive to the expense of anchoring the building to the bedrock. However, the effect of bedrock is small when compared to the effects for other variables." (p. 1068)

[4] - That is, density of manufacturing worker residents (negative) and percent white residents (positive). As Barr puts it, “Who’s moving north? It’s the wealthy and the middle class. If you’re an insurance salesman, do you really want to be traipsing through the slums of Five Points or the factories of Soho to get to work? That land was cheap, but the location was worthless.” (The NY Observer, 01/17/12)

[5] - The reason may not seem obvious, but skyscrapers rent office space to companies. If the middle class office workers lived further away from their workplaces, they would have to be paid  more by the companies to cover transportation costs. Thus, companies are less willing and able to pay rent for remote office space, and thus a skyscraper was less profitable in a location far from the middle class.
[6] - This paper was written with Bruce Mizrach (Rutgers) and Kusum Mundra (Rutgers), another former professor of mine who has done awesome work on immigrant homeownership (covered by WaPo) and trade creation.
[7] - John Graham is another former professor of mine who also has a (text)book out that I'm using to torment my own students this semester.

References:

Cohen, Jeffrey P. & Jason Barr. (2014). "The Floor-Area Ratio Gradient: New York City, 1890-2009." Regional Science and Urban Economics 48: 110-119.

Barr, Jason, Bruce Mizrach, & Kusum Mundra. (2015). "Skyscraper Height and the Business Cycle: Separating Myth From Reality." Applied Economics 47(2): 148-160.

Barr, Jason, Fred Smith, & Saylai Kulkarni. (2015). "What's Manhattan Worth? A Land Values Index from 1950 to 2013." Working Papers Rutgers University, Newark 2015-002. Download link.

Barr, Jason. (2013). "Skyscrapers and Skylines: New York and Chicago, 1885-2007." Journal of Regional Science 53(3): 369-391.

Barr, Jason, Troy Tassier, & Rossen Trendafilov. (2011). "Depth to Bedrock and the Formation of the Manhattan Skyline, 1890-1915." The Journal of Economic History 71(4): 1060-1077.

Barr, Jason. (2010). "Skyscraper Height." The Journal of Real Estate Finance and Economics 45(3): 723-753.

Graham, John & Jason Barr. (2008). "Assessing the Geographic Distribution of Same Sex and Opposite Sex Couples Across the Unites States: Implications for Claims of Causality Between Traditional Marriage and Same Sex Unions." Review of Economics of the Household 6(4): 347-367.

Lawrence, Andrew. (1999). “The Skyscraper Index: Faulty Towers.” Dresdner Kleinwort Benson Research. Not available online.

A List of 'Principles of Economics' Books Since 1776

Note: If anyone is unfamiliar with the names of famous economists mentioned in this post, I suggest New Ideas from Dead Economists by Todd Buchholz as an approachable intro to the history of economic thought. More famous but less accessible to the layman is Heilbroner's The Worldly Philosophers. Or you can look up individual names in this online encyclopedia.

Greg Mankiw has written The standard introductory economics book for undergraduates today, Principles of Economics. While a Ph.D. student, Dan Hirschman, inspired by Mankiw's ability to succinctly summarize the fundamental definitions and deep, central insights of the economics discipline into 10 short sentences, attempted to do the same for sociology—with less financial success, but definitely a worthwhile read.

When Adam Smith published The Wealth of Nations in 1776, economics was still considered a branch of philosophy, but that didn't stop many of his successors from quickly churning out books with the same bold title, Principles.[1]  David Ricardo (1817), Thomas Malthus (1820), John Stuart Mill (1848), and other "Classical" economists all wrote their own Principles of Political Economy.[2] Later, Carl Menger (1871) and Alfred Marshall (1920) dropped the "Political" from their titles (and coincidentally began the "Neoclassical" school of thought), and Marshall's Principles was the standard textbook until Paul Samuelson dropped the seminal Foundations of Economic Analysis in 1947 and the more user-friendly Economics in 1948. And we've never been the same since.

So, there were many Principles books before Mankiw's, but most undergraduates and even full-fledged economists will never read even one of them. What deep insights, if any, did these tomes contain? Are they still worthwhile reads to a budding economist? Have any of their ideas been lost to the whims of an indifferent academia?

For posterity, here is a list of them all that I will be updating as (and if) I discover more:

1. On the Principles of Political Economy and Taxation by Ricardo (1817);
2. Principles of Political Economy by Malthus (1820);
3. Elements of Political Economy by James Mill (1821);[3]
4. Principles of Political Economy by John Stuart Mill (1848);
5. Principles of Economics by Menger (1871);
6. Principles of Economics by Marshall (1920);
7. Economics by Samuelson (1948);
8. Principles of Economics by Mankiw (1998).[4]

I will update this list when I can. Years in parentheses are the original publication dates, but the most recent editions are probably the ones that should be read.

One day, I might have the chance to attempt to read one or all of these books. For now, I think it's useful to compile a list of all Principles books so that someone might one day feel obliged to crack one open in search of any deep insight. I do realize that the opportunity cost of attempting to read verbose and ambiguous old books might be high, but there is evidence that, for instance, actually reading Adam Smith's Wealth of Nations might lead us to a new and improved model of trade and development (Reinhard, 2012), although the extent to which Krugman and Romer have failed to incorporate all of Smith's useful ideas into their own models remains to be seen (by me).

Updates: 

i.) John Bates Clark (yes, that one) wrote Essentials of Economic Theory in 1907. I might add it to this list, but I might be pushing it with the title.

ii.) I've found The Principles of Feminist Economics and Principles of Black Political Economy. Both important and relevant, and most likely set to be added to the list.

Footnotes:

[1] - These titles always remind me of Newton's Principia. There's probably no direct connection, but those who insist economists have "physics envy" will find solace nevertheless.

[2] - Ricardo's was actually called On the Principles of Political Economy and Taxation. I say it still counts.

[3] - I've added this book to the original list. Although not including "Principles" in its name, James Mill's Elements was clearly written with the same grand goal as the Principles books. From the preface to the 3rd edition in 1844, Mill confesses, "My object has been to compose a school-book of Political Economy, to detach the essential principles of the science from all extraneous topics, to state the propositions clearly and in their logical order, and to subjoin its demonstration to each." [Emphasis mine.] This stated purpose combined with the title's strong similarity to the others' earns it a spot on this list, and so I proceed to find others meeting the same criteria.

[4] - The 1st edition was published in 1998, but he has been putting out new editions every 2 years or so, in typical modern textbook fashion.

References:

Schumacher, Reinhard. (2012). "Adam Smith's Theory of Absolute Advantage and the Use of Doxography in the History of Economics." Erasmus Journal for Philosophy of Economics 5(2), 54-80.

In Search of the Moral Effects of Teaching Economics

[This post comments on Etzioni (2015).]

Amitai Etzioni’s recent post on Evonomics (which appeared in HuffPo in March 2015) relates to a 2015 paper of his published in Sociological Forum, "The Moral Effects of Economic Teaching." In the paper, he considers the question: Does exposure to the neoclassical[1] economics models taught in undergraduate economics classes lead to more "anti-social" (defined in the literature as more self-interested) or immoral/amoral behavior (usually defined as dishonest) exhibited by econ majors relative to non-econ majors? The paper then covers the experimental literature on this topic.
A distinction here must be made. Do economics courses teach one to act in a more self-interested or immoral way (called "indoctrination effects" in the literature)? Or is it simply that more self-interested people are drawn to study economics (self selection), perhaps because it bears a reputation for teaching models which adhere to their preconceived normative beliefs? The goal of Etzioni and others has been to tease out the pure indoctrination effects from the self-selection effects; given, of course, that economics majors exhibit more anti-social behavior in the first place.
Reading this paper, one is tempted to believe that there is an overwhelming consensus that economics majors, through indoctrination effects, exhibit more anti-social or immoral behavior. Even when covering studies finding evidence in favor of self-selection, Etzioni makes it clear that the indoctrination evidence is more compelling. In the same issue of Sociological Forum, we even find philosopher Michael Boylan (2015) supporting Etzioni with a consideration of how exactly economics is taught and how this is likely to create “a morally corrupting paradigm” (from Abstract).
I submit that a closer examination of the extant literature actually shows otherwise. The evidence we have so far is inconclusive at best. Etzioni's Evonomics article especially overstates this literature by removing qualification altogether and failing to cite studies which contradict his hypothesis.
Etzioni (2015) reserves 2 paragraphs for covering the studies which do not support the hypothesis that econ students exhibit anti-social behavior. Namely: 

[E]ven in games like the prisoner's dilemma, the economics students’ tendency to defect disappears when given the opportunity to interact with their fellow player beforehand and make promises to cooperate once the game has begun—a finding reported by Frank et al. (1993) and later replicated by Hu and Liu (2003). (Etzioni, 2015, p. 232)

This is an understatement. The experiment of Hu and Liu (2003) in fact finds that, after controlling for gender, grade, and whether promises of cooperation were made, “the probit of economists' cooperative moves is still 0.47 higher than that of noneconomists” (p. 693). Hu and Liu note that this finding contradicts Frank et. al. (1993) but is consistent with Lattimore (1992), a study that preceded both Frank et. al. and Etzioni (2015) yet didn’t get cited in the latter.[2] Moreover, this difference disappeared in the subsample in which promises to cooperate were made, similar to what Frank et. al. (1993) found.
An interesting note:

A more parsimonious interpretation of the results is that economists are more likely than others to promise to cooperate and more likely to persuade their partners to see things from their point of view. Therefore, having promised to cooperate, economists are as likely as others to keep their promises, and perhaps even more likely if the promises were made as a result of their leadership. However, as noted above, there is nothing in the material incentives confronting subjects that favors promise keeping, a fact that economists apparently understand better than others. In this regard, keeping promises entails a greater leap of altruistic faith on the part of economists than others. (Hu and Liu, 2003, p. 700).

[Emphasis mine.] Despite Hu and Lie finding evidence for pro-social behavior exhibited at a greater rate by economics majors, Etzioni (2015) does not include this study nor Lattimore (1992) in the paragraph explicitly listing studies with pro-social findings. 

To me, the naive reader, this implies that there are far fewer studies contradicting Metzioni's hypothesis than there actually are.

Faravelli (2007) provides a good summary of the literature since 1993:

Yezer et al. (1996) strongly criticised the results obtained by Frank et al. (1993) from a methodological point of view. They claimed that the evidence of that paper only implies that economics students display uncooperative behaviour in specialised games. They conducted a “lost-letter” experiment, in which envelopes containing currency are dropped in classrooms before the beginning of the lectures. The return rate on lost letters is used as a measure of co-operation. According to their results, the “real life” behaviour of economics students is actually more cooperative than that of subjects studying other disciplines. Similarly, Frey and Meier (2003) claim that “students may play the equilibrium learned in their economics classes, but they do not apply it to real life situations” (Frey and Meier, 2003, p. 448). Further, their results indicate that the particular behaviour of economists is only due to self-selection. On the basis of Yezer's results, Zsolnai (2003) suggests that there might be no contradiction between honesty and co-operation, which are two different qualities, and claims that economists' behaviour is characterised by respect for property rights and self-interest motivation simultaneously. Finally, Hu and Liu (2003) found evidence that economics students are more likely to co-operate in prisoner's dilemma games.

Etzioni (2015) cites the same Yezer et. al. paper, but fails to mention this methodological qualification.
Interestingly, Faravelli is making the sociological argument that context matters. Defining three resource allocations (Utilitarian, Rawlsian, and Egalitarian) he finds that when given enough information to place them in a “meaningful context” (e.g., one of the characters in a setting is physically handicapped), econ and sociology majors exhibit similar distributions of preferences over allocations, with the majority of both majors favoring Rawlsian allocations,[3] noting:

Our results indicate the presence of a learning effect that reflects an increasing appreciation for the [Rawlsian] principle. The latter does satisfy the Pareto criterion, which is not the case for the Egalitarian distribution. However, the shift in preferences is not at all in the direction of the Utilitarian solution, which suggests that senior students are no more concerned with the maximisation of output than their younger colleagues. Given that senior students of economics are more likely to favour inequality only if this implies making both the individuals better off, training in economics does not seem to have negative consequences.

[Bold emphasis mine, italics from the author.] Etzioni (2015) interestingly cites the same Faravelli paper as evidence in favor of an indoctrination effect, but seems to have missed the previous passage. Also, it is unclear if Etzioni would consider a Rawlsian allocation "moral."

Other recent experiments not mentioned in Etzioni (2015) include Muñoz-Izquierdo et. al. (2014), finding that while econ majors might be the most dishonest, they can also be the most altruistic. Hellmich (2012) presents what I hope is a more comprehensive survey of the relevant literature before 2012 than Etzioni (2015), and finds that the evidence so far is inconclusive at best.
Thus, I don’t find Etzioni's 2015 paper to be a complete literature review on this topic, Which brings me to his Evonomics post mentioned in the beginning. All I have to say is, at least Etzioni's 2015 paper managed to mention that there exist at least a few studies which don’t support his hypothesis. Now, it seems he is content to only mention those which agree with him, and assume that this very real problem is the result of closed-mindedness on the part of most mainstream economists:

Moreover, while practically all economic classes are taught in the “neoclassical” (libertarian, self centered) viewpoint, in classes by non-economists — e.g., in social philosophy, political science, and sociology — a thousand flowers bloom such that a great variety of approaches are advanced, thereby leaving students with a cacophony of conflicting pro-social views. What is needed is a systematic pro-social economics, that combines appreciation for the common good and for others as well as for the service of self. (Etzioni in Evonomics, 2016)

While I can’t say that a lack of pluralism is corrupting young economists, I am sympathetic to the call for more pluralism in economics for other reasons. For now I defer to David Colander (2000), who argues that modern mainstream economics is now more eclectic than ever before, although clearly it hasn’t submitted to the criticisms of all heterodox economists.

Footnotes:

[1] - Although I am beginning to believe that this is no longer a useful term to describe modern mainstream economics, it probably describes the kind taught in introductory and intermediate courses.

[2] - There appears to be no version of Lattimore (1992) availble online, but here is the Google Scholar citation. It is in Volume 21 of Economic Notes, available in print.
[3] - i.e., greater inequality in resource distribution, but greater equality in individual welfare.

References:

Boylan, M. (2015), Learning Economics: A Cautionary Tale. Sociological Forum, 30: 234–239. 

Colander, David. 2000. “The Death of Neoclassical Economics.” Journal of the History of Economic Thought 22(2): 127-143.

Etzioni, A. (2015), "The Moral Effects of Economic Teaching." Sociological Forum 30: 228–233. 

Faravelli, Marco. (2007). "How context matters: A survey based experiment on distributive justice." Public Economics 91(7-8): 1399-1422.

Frank, Robert H., Thomas Gilovich, and Dennis T. Regan. 1993. “Does Studying Economics Inhibit Cooperation?” The Journal of Economic Perspectives 7: 2: 159–171.

Hellmich, Simon Niklas. 2012. "Are Economists Selfish and Rational? And if so, Why?" Universität Bielefeld Fakultät für Soziologie Didaktik der Sozialwissenschaften Working Paper Nr. 4.

Hu, Yung-An and Day-Yang Liu. 2003. “Altruism Versus Egoism in Human Behavior of Mixed Motives.” American Journal of Economics and Sociology 62: 4: 677–705.

Mu˜noz-Izquierdo, Nora, Beatriz Gil-G´omez de Lia˜no, Francisco Daniel Rin-S´anchez, and David Pascual-Ezama. 2014. "Economists: cheaters with altruistic instincts." Munich Personal RePEc Archive Working Paper.

Lattimore, R. (1992). "Is it Rational to Be Rational? The Case of Economists." Economic Notes 21: 395-417.