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That's a very interesting and original way of looking at it. It would also explain clustering in other areas (finance in NYC, Oil and gas in Houston etc). Do

That's a very interesting and original way of looking at it. It would also explain clustering in other areas (finance in NYC, Oil and gas in Houston etc). Do you have any links or references exploring that idea in greater detail?

CPLX 10y ago
I don't mean to have this come across as snarky, at all, but really the reference for this is the whole of human history. Wealth is basically self-concentrating. Our political systems tend to end up with a few capital (and often Capitol) cities where the spoils from the plundering, both metaphorical and literal, end up. The original article does present some interesting and relevant examples of countervailing forces at work as well, and is insightful. But the elephant in the room, as always, is that returns to capital and rent extraction are the primary drivers of wealth, and that the winners tend to keep winning and vice versa.
- startupdiscuss 10y ago
  That's not snarky, and you have a point. But even if things seem "really obvious" and we can tell "just by looking at the facts", I feel better if someone has looked at the data and shown that to be the case. We aren't living in the feudal era, and a lot of people like to think that the reason people move to the cities is because of (for instance) bars and restaurants, museums and the opera, high-paying jobs and so on. This proximity to wealth may be a symptom of some third factor or it may be the driving factor. That's why I appreciate it when smart, hard-working people take their time to figure it out for me.
  - antisthenes 10y ago
    The problem is, as often in economics, defining the terms and building a model that approximates life. It's not as trivial as a sorting algorithm or a simple 1 parameter regression. How do you define wealth concentration, for example? If your definition is flawed, you can throw out the entire model.
    - Paul-ish 10y ago
      I suppose that is why people spend their entire academic career looking at these things.
  - glibgil 10y ago
    > bars and restaurants, museums and the opera, high-paying jobs And these would actually be rent seeking activities? Is that the idea?
    - startupdiscuss 10y ago
      That wasn't what I was thinking of. I was just contrasting two different types of reasons for why people cluster in those cities. Type I, the optimistic theory Information is more efficient and trust is better when people meet in person. Industries need to co-ordinate trust and information flow through lots of people, so they have to be in the same place. They produce a lot of value, which produces wealth and increases productivity. That wealth pays for all these great things. This causes a happy cycle of smart and educated people being attracted to the "good" things in life coming to the cities, and providing labor for the companies and so on. Type II, the pessimistic theory In order to get industries going (tech startups, new Oil and gas company etc) you need capital, and the capital exists in these enormous clusters. So the people who want to fund the industry has to go to these clusters of existing capital and convince them to invest them. The returns from the success of the industry go back to the same place and so on. The existence of the bars, restaurants and museums are compatible with both, but only have causal power in the first type of theory.
      - CPLX 10y ago
        It's not all that complicated. People go to where resources are. Sometimes resources are grasslands with plentiful wild animals that you can spear and eat. Sometimes it's gems or petroleum buried underneath the rocks. And yes, resources are things like museums or pretty views or available five star restaurant meals. But the dynamic throughout human history is reasonably understandable, you can observe the same basic concept in a Petri dish. The biggest resource of all in modern society is financial wealth. So people go to places that have it. Unlike the grassland, where new arrivals quickly deplete the available resource, in this modern scenario the result tends to be the creation of more wealth, and the cycle reinforces itself.
    - acchow 10y ago
      Is that a typo? Rent seeking refers to a specific kind of behavior https://en.m.wikipedia.org/wiki/Rent-seeking https://en.m.wikipedia.org/wiki/Rent-seeking
  - closeparen 10y ago
    It takes relatively wealthy people (or at least big spenders) to make trendy upscale bars and restaurants work. Museums, opera, symphony, most theater, etc. are kept alive by the philanthropy of the local rich. High salaries are paid by rich VCs looking for return, or companies with more cash than they know how to handle commissioning prestige projects. (How many people at Google actually work on revenue generation? That doesn't happen at Joe's Computers in Nowheresville). Concentrated wealth is the reason cities can have these things.
    - jethro_tell 10y ago
      It should be noted that the vast majority of the IT industry isn't startups. Lots of the drive of rent is not funded by VCs.
      - Mtinie 10y ago
        I'd argue that what you're identifying as those businesses in the majority were at one time, startups themselves. Without the previous generation of concentrated wealth those businesses would not be in the position they are. I do, however, also agree with your counter-point to the previous comment.
      - aplomb 10y ago
        Prices are driven on the margins - that is the last transaction
    - andruby 10y ago
      If you've ever played city building games like Rome, Anno, The Settlers, Banished this will be familiar. They encoded the dynamic of number of people, increasing needs and critical mass well imho.
  - figers 10y ago
    A large share of units in Boston rent to mostly college students who's parents pay the ever increasing rent. Harvard, MIT, BU, etc aren't going anywhere...
- olalonde 10y ago
  > Wealth is basically self-concentrating. Our political systems tend to end up with a few capital (and often Capitol) cities where the spoils from the plundering, both metaphorical and literal, end up. Plundering, seriously? Isn't HN supposed to be a community of entrepreneurs?
  - sqeaky 10y ago
    We might not be the plunderers, we might just be their tools.
  - CPLX 10y ago
    Yes, seriously. Next time you're in London take a detour to the British Museum if you remain confused on the subject.
  - moomin 10y ago
    Just because we believe there are people who accrue wealth by adding value doesn't mean there aren't people who do the opposite. If you recall Atlas Shrugged, James Taggart makes an awful lot of money and can't understand why Dagny still doesn't approve. To further complicate matters, both behaviours can be exhibited by the same person.
- Retric 10y ago
  A huge missing part of this discussion is Tech is not that concentrated in 'The Bay Area' people are. More people live in 'The Bay Area' than Maine, Montana, Delaware, North Dakota, South Dakota, Alaska, Vermont, and Wyoming combined. The Bay Area plus NYC metro area are 8.5% of the total US population so yes they are a significantly larger chunk of GDP and wealth. But, they are large enough that the differences are smaller than you might think.
protomyth 10y ago
It also provides a place with interesting signals. You could tell shale oil was going to take off when Minot ND suddenly had direct, daily flights from Houston.
ikeyany 10y ago
Are you serious? That's Students choose to attend "good schools" because of the networks and resources. Immigrants flock to the US because of our resources. Increasing your chances of prosperity is the reason why anyone moves anywhere (unless a family member is in need).
sgron 10y ago
The reference that I posted elsewhere in this thread is pretty thorough: http://web.stanford.edu/~diamondr/jmp_final_all_files.pdf http://web.stanford.edu/~diamondr/jmp_final_all_files.pdf
yblu 10y ago
I first read about this connection in Paul Graham's essay "How to be Silicon Valley" [1] [1]: http://www.paulgraham.com/siliconvalley.html http://www.paulgraham.com/siliconvalley.html
jlewis7272 10y ago
A good resource that is still in use today by many urban planners is a book called "The Death and Life of Great American Cities" by Jane Jacobs. She explores among other things the growth, decline and renewal of urban centers. Even though this was written in the 60's most of her ideas are still considered when city urban planners make decisions.
ghaff 10y ago
In industrial industries like Oil & Gas, there are also a lot of advantages to having clusters of suppliers and service industries together. When I worked in the drilling business (not in Houston but in another city fairly nearby), pretty much all the overhaul, fabrication, part suppliers, etc. were all in the general area and we could visit them to review plans, oversee tests, etc.
Spooky23 10y ago
Remember that you have consolidation happening too! Places like Albany, NY were regional banking centers as recently as 30 years ago. In Albany's case, that was an artifact of the city's role as a transportation hub for canals and railroads. As the role of banking has changed and the market has consolidated from a highly distributed model, its harder and harder to do business outside of large areas. If you're a midsize business, it's hard to get lines of credit simply because nobody wants to travel to talk to you. Even within large organizations like government and Fortune 50 companies, consolidation drives centralization. Big places used to have regional administrative services (HR, Finance, etc). You could make a career working in some regional field office. Now, centralized functions mean that you work at HQ, a regional center, or you're a task worker in the provinces.

CPLX 10y ago

I don't mean to have this come across as snarky, at all, but really the reference for this is the whole of human history. Wealth is basically self-concentrating. Our political systems tend to end up with a few capital (and often Capitol) cities where the spoils from the plundering, both metaphorical and literal, end up. The original article does present some interesting and relevant examples of countervailing forces at work as well, and is insightful. But the elephant in the room, as always, is that returns to capital and rent extraction are the primary drivers of wealth, and that the winners tend to keep winning and vice versa.

startupdiscuss 10y ago
That's not snarky, and you have a point. But even if things seem "really obvious" and we can tell "just by looking at the facts", I feel better if someone has looked at the data and shown that to be the case. We aren't living in the feudal era, and a lot of people like to think that the reason people move to the cities is because of (for instance) bars and restaurants, museums and the opera, high-paying jobs and so on. This proximity to wealth may be a symptom of some third factor or it may be the driving factor. That's why I appreciate it when smart, hard-working people take their time to figure it out for me.
- antisthenes 10y ago
  The problem is, as often in economics, defining the terms and building a model that approximates life. It's not as trivial as a sorting algorithm or a simple 1 parameter regression. How do you define wealth concentration, for example? If your definition is flawed, you can throw out the entire model.
  - Paul-ish 10y ago
    I suppose that is why people spend their entire academic career looking at these things.
- glibgil 10y ago
  > bars and restaurants, museums and the opera, high-paying jobs And these would actually be rent seeking activities? Is that the idea?
  - startupdiscuss 10y ago
    That wasn't what I was thinking of. I was just contrasting two different types of reasons for why people cluster in those cities. Type I, the optimistic theory Information is more efficient and trust is better when people meet in person. Industries need to co-ordinate trust and information flow through lots of people, so they have to be in the same place. They produce a lot of value, which produces wealth and increases productivity. That wealth pays for all these great things. This causes a happy cycle of smart and educated people being attracted to the "good" things in life coming to the cities, and providing labor for the companies and so on. Type II, the pessimistic theory In order to get industries going (tech startups, new Oil and gas company etc) you need capital, and the capital exists in these enormous clusters. So the people who want to fund the industry has to go to these clusters of existing capital and convince them to invest them. The returns from the success of the industry go back to the same place and so on. The existence of the bars, restaurants and museums are compatible with both, but only have causal power in the first type of theory.
    - CPLX 10y ago
      It's not all that complicated. People go to where resources are. Sometimes resources are grasslands with plentiful wild animals that you can spear and eat. Sometimes it's gems or petroleum buried underneath the rocks. And yes, resources are things like museums or pretty views or available five star restaurant meals. But the dynamic throughout human history is reasonably understandable, you can observe the same basic concept in a Petri dish. The biggest resource of all in modern society is financial wealth. So people go to places that have it. Unlike the grassland, where new arrivals quickly deplete the available resource, in this modern scenario the result tends to be the creation of more wealth, and the cycle reinforces itself.
  - acchow 10y ago
    Is that a typo? Rent seeking refers to a specific kind of behavior https://en.m.wikipedia.org/wiki/Rent-seeking https://en.m.wikipedia.org/wiki/Rent-seeking
- closeparen 10y ago
  It takes relatively wealthy people (or at least big spenders) to make trendy upscale bars and restaurants work. Museums, opera, symphony, most theater, etc. are kept alive by the philanthropy of the local rich. High salaries are paid by rich VCs looking for return, or companies with more cash than they know how to handle commissioning prestige projects. (How many people at Google actually work on revenue generation? That doesn't happen at Joe's Computers in Nowheresville). Concentrated wealth is the reason cities can have these things.
  - jethro_tell 10y ago
    It should be noted that the vast majority of the IT industry isn't startups. Lots of the drive of rent is not funded by VCs.
    - Mtinie 10y ago
      I'd argue that what you're identifying as those businesses in the majority were at one time, startups themselves. Without the previous generation of concentrated wealth those businesses would not be in the position they are. I do, however, also agree with your counter-point to the previous comment.
    - aplomb 10y ago
      Prices are driven on the margins - that is the last transaction
  - andruby 10y ago
    If you've ever played city building games like Rome, Anno, The Settlers, Banished this will be familiar. They encoded the dynamic of number of people, increasing needs and critical mass well imho.
- figers 10y ago
  A large share of units in Boston rent to mostly college students who's parents pay the ever increasing rent. Harvard, MIT, BU, etc aren't going anywhere...
olalonde 10y ago
> Wealth is basically self-concentrating. Our political systems tend to end up with a few capital (and often Capitol) cities where the spoils from the plundering, both metaphorical and literal, end up. Plundering, seriously? Isn't HN supposed to be a community of entrepreneurs?
- sqeaky 10y ago
  We might not be the plunderers, we might just be their tools.
- CPLX 10y ago
  Yes, seriously. Next time you're in London take a detour to the British Museum if you remain confused on the subject.
- moomin 10y ago
  Just because we believe there are people who accrue wealth by adding value doesn't mean there aren't people who do the opposite. If you recall Atlas Shrugged, James Taggart makes an awful lot of money and can't understand why Dagny still doesn't approve. To further complicate matters, both behaviours can be exhibited by the same person.
Retric 10y ago
A huge missing part of this discussion is Tech is not that concentrated in 'The Bay Area' people are. More people live in 'The Bay Area' than Maine, Montana, Delaware, North Dakota, South Dakota, Alaska, Vermont, and Wyoming combined. The Bay Area plus NYC metro area are 8.5% of the total US population so yes they are a significantly larger chunk of GDP and wealth. But, they are large enough that the differences are smaller than you might think.

protomyth 10y ago

It also provides a place with interesting signals. You could tell shale oil was going to take off when Minot ND suddenly had direct, daily flights from Houston.

ikeyany 10y ago

Are you serious? That's Students choose to attend "good schools" because of the networks and resources. Immigrants flock to the US because of our resources. Increasing your chances of prosperity is the reason why anyone moves anywhere (unless a family member is in need).

sgron 10y ago

The reference that I posted elsewhere in this thread is pretty thorough: http://web.stanford.edu/~diamondr/jmp_final_all_files.pdf http://web.stanford.edu/~diamondr/jmp_final_all_files.pdf

yblu 10y ago

I first read about this connection in Paul Graham's essay "How to be Silicon Valley" [1] [1]: http://www.paulgraham.com/siliconvalley.html http://www.paulgraham.com/siliconvalley.html

jlewis7272 10y ago

A good resource that is still in use today by many urban planners is a book called "The Death and Life of Great American Cities" by Jane Jacobs. She explores among other things the growth, decline and renewal of urban centers. Even though this was written in the 60's most of her ideas are still considered when city urban planners make decisions.

ghaff 10y ago

In industrial industries like Oil & Gas, there are also a lot of advantages to having clusters of suppliers and service industries together. When I worked in the drilling business (not in Houston but in another city fairly nearby), pretty much all the overhaul, fabrication, part suppliers, etc. were all in the general area and we could visit them to review plans, oversee tests, etc.

Spooky23 10y ago

Remember that you have consolidation happening too! Places like Albany, NY were regional banking centers as recently as 30 years ago. In Albany's case, that was an artifact of the city's role as a transportation hub for canals and railroads. As the role of banking has changed and the market has consolidated from a highly distributed model, its harder and harder to do business outside of large areas. If you're a midsize business, it's hard to get lines of credit simply because nobody wants to travel to talk to you. Even within large organizations like government and Fortune 50 companies, consolidation drives centralization. Big places used to have regional administrative services (HR, Finance, etc). You could make a career working in some regional field office. Now, centralized functions mean that you work at HQ, a regional center, or you're a task worker in the provinces.