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The world is a big and complicated place, hard to understand. It's particularly hard to understand the world if you don't understand population density and its effects on culture and the economy. For example, in last week's Times Magazine, David Frum claimed:

You’ll hear a lot of partisan roostering from Democrats about the superiority of the Clinton over the Bush economy. But the difference owes little to the policies of either president.

That is false. He goes on to say,

Between 2001 and 2008, the amount that employers paid for labor rose impressively, at least 25 percent. Yet almost all of that money was absorbed by the costs of health insurance, which doubled over the Bush years. In the 1990s, thanks to the advent of H.M.O.’s, health-care costs rose more slowly, so more of the money paid by employers could flow to employees.

I have no reason to doubt that. I can almost hear the exclamations, "Wait, what?" Follow me over the flip and I'll explain everything. Buckle up, because it's quite the journey; Mr. Frum's misunderstanding is tangential to a much, much bigger issue.

There is a give and take in land use. Low-value (per acre) economic activity such as farming can only take place on low-value land, and low-value land doesn't attract much economic activity. Low-value land usually becomes high-value by being close enough to someplace else, until eventually it might develop enough economic mass to be attractive in its own right.

It's a reinforcing feedback loop with population density, too. The more valuable the land, the more stress people are willing to put up with to live and work there; and the more people are willing to be squashed together in a place, the more valuable the land to those who would build there.

This all has significant economic effects. A dollar is literally worth less in New York City than in Banks, Oregon. It certainly won't buy as much land, and since everything else takes place on land, it probably won't buy as much of anything else, either.

Since central banks work so hard to prevent price deflation, I will ignore deflation here, except to briefly explain why they fear it so much. If the value of your money is going up risk-free while sitting in a coffee can, that makes it much less attractive to risk your money for a merely possible gain. Banks and investors then hold back on funding business ventures -- especially those that typically have low risk-adjusted returns anyway, such as farming -- and the economy crumbles (as in Great Depression crumbling).

That said, not only does the dollar's current value vary from place to place, so does the rate of decrease in its value (price inflation). A low population can easily grow faster (percentage-wise) than a big population, if something changes to make it more attractive; but otherwise (i.e. all else being equal), the same factors that keep prices down will keep inflation down.

The technical term here is "selective attachment." The richer you are, the more people want to do business with you. The bigger your city is, the more likely it is to be someone's destination. Thanks to selective attachment, the greater the population density, land values, and prices of goods and services in a place, the more likely it is that more people will come and drive all those stats up even more.

The disparity also has important cultural effects. For example, growing up riding BMX-style bicycles over hill and dale, the whole point was pushing my limits until I fell, which I taught myself how to do safely (it being soft dirt and grass and all). I have never worn a bike helmet in my life, and I can't picture myself starting now. If that doesn't sound "important" to you, then please consider that it's precisely that attitude that stirs such resentment about regulatory meddling -- if it isn't important, then you should stay off of my head.

There's actually a compelling public interest in bike helmets because of emergency room expenses borne by the public. (My own refusal is purely emotional, not ignorant, and I have more important things about myself to work on at this time.) Thing is, high-density living requires a lot of instinctive accomodation of invasions of your personal space by random sounds, smells, and even physical contact. So, people immersed in high-density culture can easily fail to perceive the importance of self-determination and the subsequent need for at least making the argument that a regulation is, in fact, even more important than that.

At the intersection of economics and culture, there's a third pervasive effect to talk about, related to both geographical dollar value variation and the culture of self-determination. Where population density and land values are low, there's always more productive work that could be done than hands to do it. Where population density and land values are high, it's the opposite: always more people looking to feel useful to society than activities that add enough value to be worth the dollars per square foot per month.

Let me make that concrete. Handicrafts such as canning and knitting are leisure activities in the big city, movie theater substitutes that scratch that adult itch to be generative. They produce less value than what they burn just by taking place on such valuable land.

What this means is that people immersed in low-density culture cannot understand people immersed in high-density culture and vice-versa. When the only excuse in your world for your hands not being busy is if you're on your death bed, good high-density public policy looks like coddling the shiftless. When the independently wealthy are the only people in your world who aren't dependent on others to obtain work worth the value of the land under it, good low-density public policy looks like declaring war on the middle class.

It would be nice if we could all understand each other; it will not ever happen and wishing won't change that. As a country boy who moved to the suburbs and then went to college in the city, I understand all those worlds now, but I don't fit anywhere; I will always be a little bit strange to everyone, in one respect or another.

Now to explain our monetary system. The purpose of money is to facilitate exchange; by also serving as a store of value, it facilitates intertemporal exchange, where we can hold onto it and exchange it for something else later. There needs to be enough money for all the trades, where "enough" depends on its velocity. The faster a dollar gets turned around and re-spent by the receiver, the fewer dollars there need to be.

The fastest money is the local small-business economy: they might have high revenues, but they have to turn around and spend most of it right away for their operating expenses. Whatever they spend on their fellow local small businesses gets turned around right away too, and so on.

With fractional reserve banking, bankers increase the velocity of money by loaning out all but some fraction of their deposits, which they keep as a reserve (ergo the name). However, rich people generally have a low velocity of money; you don't get rich by spending it all right away. I suspect that one of the reasons why the Republican tax cuts for the wealthy always go along with deficit spending is that to keep the economy from crashing, they have to somehow make up for the low-velocity money of rich people rapidly becoming a larger share of the money supply.

However, selling all that Treasury debt to foreigners distorts the exchange rate, giving their goods an artificial price advantage. In effect, instead of trading real stuff for real stuff, we borrowed the money from them to buy their stuff, in a kind of currency-wide vendor financing. And, that effect is only magnified by the Republican disdain for environmental and labor protections, so that they actually encourage the "race to the bottom" by deliberately promoting "free trade" over "fair trade," giving foreign-made goods even more of an artificial cost advantage.

With the central bank desperate to prevent deflation and the prices of importable goods going down, the money supply will be expanded until the prices of other things go up enough to make up for it. That means high inflation in non-importable things such as land, and especially in those markets for non-importable things where the suppliers have high bargaining leverage over the customers...such as health care, which combines both factors (low-leverage customers squeezed into a high population density environment). Like, duh.

So, I'm convinced that it's not just a coincidence that health care expenses exploded under Junior. According to my economic reasoning, his borrow-and-squander conservatism would've inevitably contributed to that. However, I think that it's among the least interesting of the side-effects of population density on our economics and culture, compared to the other things I discussed.

But wait, there's more! You see, there's another way that land can be worth a lot of people aside from the land being valuable, and that's if the people aren't. Trailer parks, inner-city ghettos, and third-world slums are all examples of high population density driven by the low value of the people instead of the high value of the land.

And, oil is distance and heat. With inexpensive energy, you can heat a bigger home and you can live farther away from your work, so you can buy more land where it's cheaper. Energy is space.

As the inflation-adjusted price of oil goes up -- as a person becomes worth fewer barrels of oil -- people will become worth fewer acres of land, too. They will move closer to where they work, either moving in with other people or at least into smaller places, not only reducing their commute but also increasing their population density.

We need massive investment in alternative, renewable energy generation, to make energy cheaper...to keep lives from becoming worth less. However, we also need for communities to work at making their land worth more people, so that more of the necessary increases in population density can be achieved voluntarily and without destruction of community wealth.

That means investing in planning. Oh sure, you'll need public transit and mixed-use zoning and city centers and whatnot, but you can figure that all out if you know how to plan right. The important thing is developing a consensus vision of investing in your community's future and having the know-how to regulate it into being. Without sufficient vision and competence, you'll get pushed around by property developers, and land use regulations will be driven by near-term, narrowly-conceived private interests. That's just the way the world works.

Originally posted to SciVo on Sat Sep 13, 2008 at 11:37 AM PDT.

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Comment Preferences

  •  Tip Jar (16+ / 0-)

    This one was my hardest yet. Typing things out exposed flaws in my thinking that I had to reason through anew. I probably learned as much from it as you did.

    John McCain won't protect your kids.

    by SciVo on Sat Sep 13, 2008 at 11:37:24 AM PDT

    •  damn shame (8+ / 0-)

      damn shame it's so busy this morning that diaries are just flying off the front page. This was great. I suggest you do another diary on this paragraph alone:

      With fractional reserve banking, bankers increase the velocity of money by loaning out all but some fraction of their deposits, which they keep as a reserve (ergo the name). However, rich people generally have a low velocity of money; you don't get rich by spending it all right away. I suspect that one of the reasons why the Republican tax cuts for the wealthy always go along with deficit spending is that to keep the economy from crashing, they have to somehow make up for the low-velocity money of rich people rapidly becoming a larger share of the money supply.

      It DESTROYS the arguments against progressive taxation system and establishes another argument why income disparities are bad. You've synopsized the reason that income disparities kill economies. Poor people spend money faster than rich people. If there aren't enough poor people spending money to keep the economy going- the forces that FORCE a person to spend will reach up into the higher strata of income earners- and they will not be able to contribute as much money to their savings.

  •  That farming is Low value (2+ / 0-)
    Recommended by:
    SciVo, Urtica dioica gracilis

    economic activity has always been a prime example of how sick our economic system is.
      I think even republiCONS can agree that eating is good.
       A very good diary.  I hope more people try their hand at analysis of issues.
     

    There is nothing Mainstream about the Corporate media.

    by drblack on Sat Sep 13, 2008 at 12:46:56 PM PDT

    •  Farming is low-value because of fungibility. (3+ / 0-)

      If something is a freely interchangeable commodity, then you're just competing on price. Very low margin business, a common problem of source material producers.

      Oregonian farmers and ranchers have done very well lately by branding themselves. For example, the Country Natural Beef cooperative doesn't have a monopoly on beef, but it does have a monopoly on Country Natural Beef.

      The more you can distinguish yourself, the less interchangeable you are, the more people will be willing to pay. The result is called "monopolistic competition" (since similar things are still somewhat substitutable), and it improves profit margins.

      John McCain won't protect your kids.

      by SciVo on Sat Sep 13, 2008 at 01:18:32 PM PDT

      [ Parent ]

  •  I always learn so much in your diaries! Thanks! (3+ / 0-)
    Recommended by:
    JG in MD, SciVo, debbieleft

    How about adding the "teaching" tag, so this is included in plf515's Dkos University series for next week?

    You're right: there's a world of differences between remote rural and metropolitan! Give me remote rural any ol' day (as long as my satellite internet works, that is).

    Hopefully, your move went well and you're all settled in.

    Nationalize health care, petro, & other energy production & sales. Problems solved.

    by Urtica dioica gracilis on Sat Sep 13, 2008 at 03:25:05 PM PDT

  •  Oh, meh! (3+ / 0-)
    Recommended by:
    JG in MD, SciVo, debbieleft

    Now we can't laugh about the imports issue later. But I see why you took it out. My economic comprehension is slightly less than McPalin's, but I think it is very elastic, in a negative way: as wealth decreases, there's more demand on cheap imports, extending into wealthier classes (i.e. Walmart's recent boom in wealthier areas), eventually, causing imports to rise beyond the access of low and modest income earners (i.e. the slower progression of Japanese goods since WWII).  

    Nationalize health care, petro, & other energy production & sales. Problems solved.

    by Urtica dioica gracilis on Sat Sep 13, 2008 at 03:37:26 PM PDT

    •  that's e.g., not i.e. doh! n/t (1+ / 0-)
      Recommended by:
      debbieleft

      Nationalize health care, petro, & other energy production & sales. Problems solved.

      by Urtica dioica gracilis on Sat Sep 13, 2008 at 03:41:35 PM PDT

      [ Parent ]

    •  Yeah, I found a way to cut out the iffy bit (1+ / 0-)
      Recommended by:
      Urtica dioica gracilis

      ...without disrupting the flow, so I also removed the self-commentary at the bottom. The diary covered a wide enough range as it was without that distraction.

      John McCain won't protect your kids.

      by SciVo on Sat Sep 13, 2008 at 04:39:22 PM PDT

      [ Parent ]

    •  There are lots of reasons for "buying" things (3+ / 0-)

      that someone else has made that may or may not have anything to do with the usefulness of the thing itself.
      For example, you might buy a handmade basket because you appreciate the artistry, want to have a remembrance of a visit to a particular place, enjoyed talking with the artist, need a present for a friend or just like making a transaction.  You could probably think of others.  My point, I guess, is that there's no way to model this behavior and that's why economic predictions are so often wrong.

      How do you tell a predator from a protector? The predator will eat you sooner rather than later.

      by hannah on Sun Sep 14, 2008 at 03:39:37 AM PDT

      [ Parent ]

  •  Energy is Space. (4+ / 0-)

    Wow,  SciVo. I think you and I may be solar siblings.

    You have hit closer to the mark than you realize. A while back I heard that their was gonna be shift a in the way the 'unmeasurables' - the things you so bravely attempt to clarify - are valued.  Something about the price of 'water' and 'fuel' were going to be added to the price of 'food'. I was like, what?!  Now I get it - sort of.

    (It did push the wonk-o-meter.)  But I liked it, a lot.

    •  I say the part about the pricing... (3+ / 0-)

      ... not to reveal anything new, but because I think it's obvious to all - just that we don't know how to put words to it.  These guys have been saying it for years.

      PS, SciVo -  I don't fit in anywhere either.  In the city they call me "Granola" and in the country they call me "city slicker".  Same girl - different locations - totally different experiences.  

    •  By "liked it", SciVo... (2+ / 0-)
      Recommended by:
      SciVo, Urtica dioica gracilis

      ... I meant, I liked your diary.  You think fast.

      •  I know one big thing: Everything Is Connected. (2+ / 0-)

        Everything else I write is just a different light cast from turning that prism.

        John McCain won't protect your kids.

        by SciVo on Sat Sep 13, 2008 at 10:31:54 PM PDT

        [ Parent ]

        •  What to do with the city kids (1+ / 0-)
          Recommended by:
          SciVo

          I was born & raised in a suburb that has increased its density and moved outward for 50 years.

          Now I live in a unit in a complex of six-unit units connected in groups of units, 15 miles out from where I was born.

          I feel useless, as you say people do, because my salable skill is paperwork, and that don't shoe the horses or grow the rutabagas.

          What would I do in a survival economy? Keep the accounts and listen. I'm willing to let people talk to me about their troubles and I think I can help them move forward with minimal nudging and no judging.

          I can only hope that those skills will get me three hots and a cot as the chocolate moves through the propeller.

          Joe Biden: Get up! Al Gore: Pray, and use your feet! Harriet Tubman: Keep going!

          by JG in MD on Sun Sep 14, 2008 at 07:17:17 AM PDT

          [ Parent ]

          •  You asked a tough question. (2+ / 0-)
            Recommended by:
            JG in MD, Urtica dioica gracilis

            My first stab at an answer: depends on how much energy there is.

            We're really a lot more flexible than popular wisdom has it. But, failure to acknowledge the very real flexibility that the American people regularly demonstrate goes along with failure to acknowledge the equally real trauma of disattachment and re-learning. It's literally a grieving process, where neural nets in your brain have to be broken down and reconstructed in new patterns. It hurts.

            But we can do it we have to -- if the energy is there. A de-urbanization driven by an increase in the value of rural land would be one thing. (That would presumably happen if Big Farming were forced to internalize all of its costs, including waste disposal.) People would go and learn new things.

            A de-urbanization driven by a reduction in energy would be something else. That would mean a reduction in the value of people. Best-case scenario, contraception would be properly promoted, and many tears would be shed over childlessness. Alternatively, I fear that many tears would be shed over premature death.

            These are the musings of a being in a physical world with hard limitations that can sometimes be overcome by redesigning the system, but not just by wishing.

            McNasty/Barracuda '08: Eff you, we got ours!

            by SciVo on Sat Sep 20, 2008 at 12:37:26 AM PDT

            [ Parent ]

  •  Dude? (0+ / 0-)

    I am fairly certain that your brain could power a small country. You really should get that checked out. :)

    Seriously, this diary was excellent. You have an unbelievable grasp of how population density ties in and affects everything around it (and vice versa). I don't see this entry as a diary per se, but more of a personal philosophy.

    Wow. MENSA will be calling you anyday now.

    •  Thank you! (0+ / 0-)

      I think that it takes painful self-doubt to force creatives to do enough re-work to avoid sucking. I really appreciate all of the encouragement.

      McNasty/Barracuda '08: Eff you, we got ours!

      by SciVo on Sat Sep 20, 2008 at 12:41:54 AM PDT

      [ Parent ]

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