The newspapers have been running articles about changing consumer habits since the price of gas started to reach $4 a gallon. These are either puff pieces about the benefits of public transportation (this one is about public transit in Europe), or articles lamenting the woes of people who are stuck in suburbia, unable anymore to afford the dream of The City of Tomorrow.

Since 2006 when the total population of Earth tipped from 51% rural to 51% urban, making the planet an “urban planet” for the first time, it has become increasingly clear that cities will once again become the laboratories for the next phase of human development. What might this mean for New York City?

Two immediate scenarios are getting play in the popular press, both of them rooted in classical economics, both of them hinted at in John Tierney’s NY Times blog entry, “Malthus v. the Singluarity“. On one hand eighteenth century British economist Thomas Malthus warned that resource shortages would lead to economic, social and cultural collapse. (Malthus inspired Carlyle to call economics “the dismal science.”) On the other hand, Adam Smith and his tradition argues that the invisible hand of the market will prompt individuals to find creative ways to increase wealth and consequently promote growth. These two distinct narratives are tragedy and comedy respectively. The tragedians tell us that because oil production may have peaked and there are no infrastructure alternatives to gasoline powered automobiles we are headed toward a cataclysm if public policy isn’t brought into line. This is the tone of Paul Krugman’s editorial in the NY Times. Steven Levitt’s opinion in his NY TImes blog is comedy because it posits a happy ending: high gas prices will spur private innovation and growth. Which is more likely?

Probably the truth is somewhere in between. Contrary to Levitt’s optimism, it seems unlikely that the investment necessary to retool our infrastructure will come solely from the mythical “free market”. Markets are not sentient, though freemarketeers and mainstream economists often like to describe them that way, and though they may produce innovative short term solutions, they also may produce insoluble long term headaches — like the traffic jam that happens every year when all “rational actors” decide to drive their cars to the mall on Christmas Eve to do some last minute shopping. What kind of plausible economic decisions might people make in the immediate future?

As CNN is reporting, many people may move into the city. This makes perfect economic sense. Cities generally and New York particularly already have public transit infrastructure in place that is remarkably less expensive than automobile transportation. Think about the costs: an unlimited Metrocard in New York costs $81 a month. By contrast, filling up a ten gallon tank for a car that gets twenty miles to the gallon for thirty miles a day of driving (a conservative estimate that assumes you only drive to work and that work is no more than fifteen miles from your house) is $42 a week, or $168 a month. Add insurance payments, repairs/service/maintenance, and the capital investment in the car reflected in monthly payments, and you can easily spend $400 a month or more. If you already commute into a city (rather than to an office park) it makes sense to give up your sprawling McMansion and downsize to a more efficient and cost effective dwelling.

Here’s the other side of the coin. Suburban apologists argue that real estate prices in New York City are quite high, even with the prospect that a recession might deflate real estate prices, and so you get more living space for your buck in the ‘burbs. This is certainly true. A piece in the New York Times Real Estate section last Sunday titled, “They Love the (New) Brooklyn” featured The Mynt, an upscale building on the corner of Nostrand and Myrtle (across from the Marcy housing projects), which is typical of development in the last ten years. Starting in the late 90s young whites pushed the frontiers of gentrification beyond the borders of Manhattan and into Brooklyn. Real estate speculators weren’t far behind, and soon in neighborhoods like Williamsburg they began constructing high rise apartment buildings that were almost as expensive as in Manhattan. A two bedroom in The Mynt goes for $2,550 a month, quite a bit more expensive than existing housing in the neighborhood. And at the moment the amenities that people want when they pay that much in rent are lacking in Bed-Stuy, which was one of the poorest places in America fifteen years ago. But will high prices deter immigration from the heart land?

Probably not. Ultimately high gas prices will be a more palpable and urgent motivator than more expensive square footage in the city. But the character of development won’t be the same as it was during the go-go years of the last decade.

Though it may be the case that a depressed financial industry means apartments in Manhattan could slip below the $1.4 million average, it seems more likely that people moving to the city to escape the technology trap created in the sub- and ex-urbs by high gas prices will offset slackening demand. Moreover, real estate agents who see their country brethren losing their jobs are not going to be happy about lowering prices so that ex-suburbanites can maintain their standard of living. It is more likely that real estate owners will rent rather than sell, and subdivide rather than rent at a discount. Ghettoization in the 21st century may or may not be as racially motivated as it was during the Great Depression, but it will involve the inability of immigrants to the city to get mortgages, which in turn will lead to subdividing apartments in the new luxury buildings that sprang up in the last ten years, diverting them from luxury use to, you guessed it, new ghettos.

But the upside — at least from the perspective of NYC residents — will be pressure on Albany to approve more of Mayor Mike’s green initiatives and urbanist policies that will soften the impact of extra population. Why? Because the 21st century immigrants who will be escaping the countryside with its prohibitively high cost of living, are people who already feel enfranchised and will be less likely to accept ghettoization as the price of citizenship. Congestion pricing, beefed up MTA service, and further expansion of bike friendly policies are important first steps to making city life more affordable, leaving residents more access to work and more money in their pockets. The next step will be to coordinate city planning and reign in the worst excesses of developers who are only interested in building high rises for Wall Street elites. Moreover, 21st century urbanist policy (policy necessarily comes from government) can encourage current residents of underdeveloped and neglected neighborhoods like Bed-Stuy, Brownsville and East New York to buy property to develop in an organic and market-friendly way.

A new synthesis in economics is in the air, one that accepts the fundamental tenets of Smith but understands how to coordinate individual economic decisions with government policy to promote a vibrant public sphere. Already real estate blogs disseminate vastly more information about market level opportunities to individuals than every before. The next step will be to organize citizens as a political community to make sure that growth is mutually beneficial and organic. Smith will once again triumph over Malthus if the city is allowed to develop into the logical alternative to the automobile era.

UPDATE!!!:

It looks like the NY Times is reading my blog. In this article Times reporter Peter Goodman reports that phase one of my prediction is coming to pass. He writes, “Juanita Johnson and her husband, both retired Denver schoolteachers, moved here last August, after three decades in the city and a few years in the mountains. They bought a four-bedroom house for $415,000. Last winter, they spent $3,000 on propane for heat, she said. Suddenly, this seemed like a place to flee.” High fuel prices are the catalyst for moving people back to urban centers. (Ironically, it’s not just the cost of commuting from the ex-urbs either. McMansions built for speed and not for durance cost more to heat, it seems, because they were built on the assumption of low heating fuel prices — perhaps even in disdain for economic considerations like good insulation. Taken together, American’s mid-twentieth century environmental carelessness is going to cause a lot of structural economic pain.) The really interesting part of the story is how deeply ingrained this kind of expensive living is in the popular imagination. Again, Goodman reports: “Megan Werner, 39, a mother of three, moved here five years ago from a dense suburb closer to Denver. She and her husband bought a home set on a 1.5-acre lot in the Deer Creek Farm subdivision. The space justified her husband’s 40-minute commute. ‘We wanted more than a postage stamp,’ she said, as her 5-year-old daughter walked barefoot across the driveway. It used to cost her about $30 to fill her Honda minivan with gas. Now, it is more like $50, and she coordinates her trips — shopping in town, combined with dance lessons for her children. But she has no thoughts of leaving. ‘I can open up my door and my kids can play,’ Ms. Werner said.” I’ll discuss this more in my next post.