July 24, 2017

When Cities Get In the Way

Adam Millsap

Senior Affiliated Scholar
Summary

Cities are big economic drivers, and states need to ensure that growth is shared.

The U.S. economy is in the midst of an eight-year expansion, yet something doesn't feel quite right. Despite an unemployment rate of less than 5 percent, gross domestic product and wage growth remain anemic. At the federal level, corporate tax reform and less government regulation would provide a boost to the economy. But federal reforms can only accomplish so much. Cities drive economic growth, and right now, some local policies are getting in the way.

Cities are simply clusters of people and businesses, and this proximity makes them places of specialization and innovation. The large amount of people and firms in cities enables more specialization and better job matching, which increases productivity.

The proximity of people in cities also increases the opportunities for human interaction, which quickens the transmission of ideas and information. This collection of specialized knowledge, along with the rapid dissemination of information, fosters innovation as entrepreneurs identify and act on unexploited profit opportunities.

The density and dynamism of cities makes them incredibly productive places: America's 10 largest metropolitan areas by GDP accounted for 35 percent of total U.S. GDP in 2015. When cities aren't fulfilling their economic role as hubs of specialization and innovation, the entire economy suffers.

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