http://www.economind.org/
Thanks!
Tuesday, February 24, 2015
A BRAND NEW WEBSITE FOR ECONOMIND!
This is an exciting news! I would like to inform you, my dear readers, that our Economind website has been published officially. Please visit the link below:
http://www.economind.org/
http://www.economind.org/
Wednesday, February 11, 2015
Need For Space, featuring Sub-urbanization
Note: As always, I have not re-read the whole article yet. Mistakes might pop up here and there. I'll go through the article again and correct them, if there is any. For now, I am out of gas.
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The followings are the 4 important points I want to highlight, 3 of which were mentioned in the introduction to Economics of Space as written in our previous articles:
1. Space is a medium in which we live. Space is everywhere.
2. Space is 3D. It has width, length, and height/depth. Space is a broader term if compared to land. Building a house might occupy all the land under it, but not all the space above and under it.
3. The employment of space is both the presence and absence of stuffs (buildings, cars, people, etc) on it. In other words, having a downtown area full of buildings is just as important as having a dedicated open space for recreational activities. Both contributes to social welfare.
4. The need for space will introduce new positives and negatives to the economic and social landscape.
I will dissect the entire article into 4 parts, based on these 4 points which will now act as my premises. We will go through each point and make sense of what it means from the development perspective.
Need for Space, Forget about Speed
When we think about factors of production, we tend to think of all the traditional economic variables such as labour, capital, technology and LAND. Land has been one of the foci in most of my economic courses. Not that it surprised me. What surprised me is that little did we talk about space.
Space is usually conceived to be "Outer Space" that cannot sustain life. However, we must never forget that earth, our home, is a tiny dot in relative to the gigantic, ever expanding galaxy. Complicated stories aside, earth also stations in space. That is why, we are actually living in space. Space is a factor of production. It is a stage that all economic activities are built upon.
Space is everywhere. Literally everywhere. You go to school? Space. You go to bed? Space. Doesn't feel too good and need a bathroom break? Space!
Ubiquitous and boundless as it is, space is sadly not a public good, at least that's not how I see it. In our article about Market Failure: The Flaws of Capitalism and Laissez Faire Economics, we discussed the definition of public goods which were described as having two primary characteristics:
non-rivalrous and non-excludable. Surprisingly, space does not match with this definition.
The use of space is non-excludable, meaning no one can be excluded/banned/kept out of space. We all exist and occupy a certain amount of space to begin with, so the very idea of excluding someone from using space is absurd. Even a person dies, he/she will inevitably uses up some space in whatever form the corpse may be. However, as perfectly matched with the first characteristic of public goods as it appears to be, space is not non-rivalrous. There is a limit to how many people can occupy the same space at any one point in time. You cannot possible fit 100 people in a 4mx4m room. For the same reason, access to nightclub is sometimes reserved for girls. Suck being a guy. So, my friends, space, as depicted in Star Wars, might be infinite, but space on earth is definitely not.
Not to mention, there are certain parts of the earth that are inaccessible to a majority of people due to harsh weather conditions, unfavorable geographical location, etc. And there are also certain parts of the world preserved for the sake of our environment.
Then, shouldn't Space be regarded as scarce? Probably yes. Because of the scarcity of space and the increasing demand for it, we see that Space continues to rise in price. "That is insane! Space's price?" you might think. Well, people do buy or rent space. When you buy a 10th floor apartment, are you buying the land or the apartment? The latter it is. What does the apartment give you? Space! When you park you car, you are also renting space. As population becomes denser due to urbanization and richer due to economic growth, everyone needs more space for, say, comfort and privacy. Thus, people compete for space. Price then begins to rise. Have you ever heard someone say "I am running out of space!"? No wonder!
But hey, isn't Space 3D? So that means we can always build higher building and more underground floors. Advanced technology has allowed us to go higher and deeper. We start to use space both horizontally and vertically. Humans have become more creative in terms of how they employ the available space. For instance, when outdoor recreational activities demands too much horizontal space, people then invented many indoor activities that can take the advantage of the ability to tap into the vertical space.
Regardless, the total surface area of earth determines the total horizontal space we have at ground level. Of course, we can always utilize the vertical dimension to expand, not just vertical space, but also horizontal space. Running out of space to run around on the ground floor? Why not go to the first or second floor?
Still, there is a limit to how high and deep you can go. You cannot go too high beyond the outer layer of the earth's atmosphere (unless you are an astronaut of course). You can not go to deep because you might either be suffocated, burned or squeezed. All spell death. As far as I am concerned, our ability to exploit space is still very limited at the present time. I, however, don't know what the future holds.
Well, folks, that is why it is of utmost importance that we, humans, allocate the right activities to the right space.
Due to the finite amount of space we have available, we want to put as many things on it as we possibly can... probably a room under rooms and with a private nightclub under it. We want to have larger space for a comfortable lifestyle and to give our family (which normally includes a dog or a cat or deer... heck, I've seen people keep a deer or two as their pets) the peaceful and quiet living environment they deserve. That is not all. We want shopping malls, gyms, and convenient stores at every corner. This sounds like a plan. At the same time, however, we also need open space with nothing on it so they can be used for parking, walking, running, skateboarding, and probably for putting some green on it (something we call a park).
Out of all the wants and needs, we have to understand that everything is either positively or negatively or neutrally connected to everything else. You wouldn't want a casino building next to high school. You wouldn't want a house next to night club. However, certain things are best presented in a cluster, and that certain cluster repels other things that are negatively correlated to it.
The center of a metropolis is best accompanied by restaurants, parking lots, malls, larger roads, police stations, etc. However, all these create externalities such as noise and air pollution that drives away residents. Not just that, as more and more amenities of life can be conveniently accessed at any one place, renting or buying a space at that same location will cost you a fortune. It is best kept for businesses that can generate substantial amount of profit to offset the cost of occupying that particular space. Consequently, intra-migration happens.
Intra-Migration
Intra-migration? Yes, and I believe the full term should be intra-national migration (which also means migration across provinces or states, but let's not go that far). This is a local movement of people into and out of certain areas. In our case, we are focusing on the residential movement out of the central part of the city. As a city develops and matures, its inner space becomes less affordable and less convenient for living. That is why residential areas will sooner or later move towards the suburbs. We can see this pattern in almost every large city of every developed nation around the world.
I strongly believe that developing countries will go through the same experience. As people get wealthier, they will demand more space. Even if they don't, they will be forced out due to price differentials, network effect and other economic stuffs... Price differentials can be in the form of less affordable goods and services available in the city, or the exciting opportunity to sell owned space at high capital gain. People opt for the best option presented to them. Furthermore, as city grows and expands, grocery stores will get bigger with more parking spaces. This allows people to make large purchase at once, without having to visit the store daily. It all makes suburbs more attracting. The network effect also causes more people to emigrate from the city center because as more leave, the remaining is affected by the lower number of residents (kinda feel lonely) and the greater number of disturbances (businesses) surrounding them, which in a way, force them to move out as well.
The great migration out of the city is definitely not exaggerated. You might, of course, disagree. For instance, you might think that urbanization, as witnessed in Phnom Penh, Cambodia, is absorbing more rural population into the city, creating a vigorous urban-bound migration. Factories are buying up space at the city's outskirts, leaving less for residential areas. This is, however, only the first stage.
Space is becoming more and more difficult to acquire. Traffic congestion is getting worse day by day (less space for vehicle per capita) causing more and more aggregate loss for the economy and environment. It is becoming more expensive to rent office space in the central part. You might have also witnessed the steep increase in land price, or to be specific, space price. More and more super markets are now built outside of the crowded middle area. More schools are moving out. More people are buying home further away from the center of the city. Sooner or later, the goods and services that are migrating to the peripheries will make life at suburb more and more convenient.
And as less wealthy people are finding it more expensive to live in the city, and wealthier people are looking for more space, the development is now trending toward satellite cities to ease the outflow. Suburban areas will pop up one after another. Space at the edge of Phnom Penh will be capitalized and occupied. It won't be long till this happens.
4.1. The negatives (Because I like to keep the best for the last):
Such movement can be difficult and costly, and when I say costly, I mean both implicitly and explicitly. Family will have to spend more money and time on transportation, more on services like childcare, more on stuffs that make it easier for them to live further away and make life less boring. In Japan, for example, there are people who actually live miles away from their workplace and have to travel by bullet (high-speed) train called the Shinkansen everyday to work. So, these are explicit costs (of course, there are more, but let's keep it here for now).
Implicit cost can be huge as well. Commuting far from home everyday can build stress and fatigue. Greater demand for transportation will impose upward pressure on gas price for everyone, and this will lead to higher prices of goods and services in general. Less population density is basically more people spreading over a larger area, and this will inevitably require more public services like public transportation and more local police to maintain security. It will definitely lead to higher national budget demand, and thus, higher taxes.
These are, not the ultimate doom, but the shortcomings that will surely worsen if there is no proper management. My point is we will eventually need a more robust and effective public institutions that can well balance and facilitate such movement. We need rails, but before that, we need a bus system that can provide on-time service and does not charge too high, yet not too low that it cannot sustain itself and having to impose higher taxes on those who use the system less regularly. We need larger roads, stricter and enforced traffic laws. We need policemen that are well-paid and have strong moral base. We need cheaper utilities like water and electricity, all of which will be achieved at the expense of environment and space (Trust me on this one). We need to prepare our urban population for the next phase of development, but more than that, we need city planners who are capable of earmarking areas that are potentially good for residential settlements. Physical and soft infrastructure will need to be in place before or at the same time of the settlement to populate and retain the new residents. Having means of transportation and easy access to a variety of services will keep people connected to the inner city, and this helps balance people's lives. We need to make sure that every step does not lead to depopulation because without people, the local economy is dead, and since one local economy is linked to others, the impact will ripple and be felt in more than one place. Thus, Public Private Partnership is crucial in making sure that the needs and wants of the suburban population are met, thus ensuring that depopulation does not happen.
4.2. The positives:
Gloomy, doesn't it? Well, let me tell you something. Sub-urbanization is actually desirable for growing and stagnating economies alike. Why?
While the need for space deconcentrates population via sub-urbanization, sub-urbanization creates more space, and not just the physical space. What does it mean?
As the urban population moves toward the suburbs, so does the demand for various goods and services. It creates new space or opportunities for investment. First, sub-urbanization spurs up demand for goods and services because your can fit more into larger space (larger house, larger garage, larger garden, larger park...). This is good because your spending will make businesses more profitable and employ more people. Second, sub-urbanization means more labour in reasonable distance for large manufacturing facilities that need huge space at the outskirts to operate, and likewise, it expands the options for people seeking jobs. Sub-urbanization allows more businesses to operate because economies of scale (click to learn more) advantage is less likely as the potential customers are now scattered.
What do I mean by that last sentence? You see, as business expands, they experience economies of scale, meaning per unit cost becomes cheaper. However, as population scattered, so does potential customers. It will be harder to reach everyone no matter how good your restaurant is. This alone gives the chance to other restaurants already in operation to survive and new ones to pop up. In other words, if your potential customers are now far away, it is harder for them to reach you, and thus, restaurants that are closer can now find it easier to take a share of the profit. Second, let's talk about economies of scale. If your business is small and relies on delivery, having more distant customers means you have to cover a larger space. Thus, expanding your business by simply enlarging the existing compound will not reduce cost (because you have to deliver to greater distance), and thus, economies of scale won't happen. What you need to do to be efficient is, instead, expanding by creating branches all over different areas. This will require more new staff and capital to operate. And hey, if people live far away from their workplace and don't go home for lunch, restaurants around the workplaces will hit the jackpot!
More businesses, more vibrant economy, more expense, more income, more tax to sustain public expense. So you see, all these are conducive to economic growth and to narrowing the income inequality gap. Space is more than it sounds. Knowing how to use space will certainly make a difference for the economy. There is more to what I wrote, but I will call it a day for now. New topics related to space will be posted sooner or later. Anyway, hope you enjoy the article.
All the best!
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The followings are the 4 important points I want to highlight, 3 of which were mentioned in the introduction to Economics of Space as written in our previous articles:
1. Space is a medium in which we live. Space is everywhere.
2. Space is 3D. It has width, length, and height/depth. Space is a broader term if compared to land. Building a house might occupy all the land under it, but not all the space above and under it.
3. The employment of space is both the presence and absence of stuffs (buildings, cars, people, etc) on it. In other words, having a downtown area full of buildings is just as important as having a dedicated open space for recreational activities. Both contributes to social welfare.
4. The need for space will introduce new positives and negatives to the economic and social landscape.
I will dissect the entire article into 4 parts, based on these 4 points which will now act as my premises. We will go through each point and make sense of what it means from the development perspective.
Need for Space, Forget about Speed
 |
| Space? Space like this one? NO! |
When we think about factors of production, we tend to think of all the traditional economic variables such as labour, capital, technology and LAND. Land has been one of the foci in most of my economic courses. Not that it surprised me. What surprised me is that little did we talk about space.
1. Space is a medium in which we live. Space is everywhere. The entire space is infinite, but space available on earth is finite.
 |
| This is Space! It is everywhere! |
Space is everywhere. Literally everywhere. You go to school? Space. You go to bed? Space. Doesn't feel too good and need a bathroom break? Space!
Ubiquitous and boundless as it is, space is sadly not a public good, at least that's not how I see it. In our article about Market Failure: The Flaws of Capitalism and Laissez Faire Economics, we discussed the definition of public goods which were described as having two primary characteristics:
non-rivalrous and non-excludable. Surprisingly, space does not match with this definition.
The use of space is non-excludable, meaning no one can be excluded/banned/kept out of space. We all exist and occupy a certain amount of space to begin with, so the very idea of excluding someone from using space is absurd. Even a person dies, he/she will inevitably uses up some space in whatever form the corpse may be. However, as perfectly matched with the first characteristic of public goods as it appears to be, space is not non-rivalrous. There is a limit to how many people can occupy the same space at any one point in time. You cannot possible fit 100 people in a 4mx4m room. For the same reason, access to nightclub is sometimes reserved for girls. Suck being a guy. So, my friends, space, as depicted in Star Wars, might be infinite, but space on earth is definitely not.
Not to mention, there are certain parts of the earth that are inaccessible to a majority of people due to harsh weather conditions, unfavorable geographical location, etc. And there are also certain parts of the world preserved for the sake of our environment.
2. Space is 3D. It has width, length, and height/depth. Space is a broader term if compared to land. Building a house might occupy all the land under it, but not all the space above and under it.
Then, shouldn't Space be regarded as scarce? Probably yes. Because of the scarcity of space and the increasing demand for it, we see that Space continues to rise in price. "That is insane! Space's price?" you might think. Well, people do buy or rent space. When you buy a 10th floor apartment, are you buying the land or the apartment? The latter it is. What does the apartment give you? Space! When you park you car, you are also renting space. As population becomes denser due to urbanization and richer due to economic growth, everyone needs more space for, say, comfort and privacy. Thus, people compete for space. Price then begins to rise. Have you ever heard someone say "I am running out of space!"? No wonder!
 |
Regardless, the total surface area of earth determines the total horizontal space we have at ground level. Of course, we can always utilize the vertical dimension to expand, not just vertical space, but also horizontal space. Running out of space to run around on the ground floor? Why not go to the first or second floor?
Still, there is a limit to how high and deep you can go. You cannot go too high beyond the outer layer of the earth's atmosphere (unless you are an astronaut of course). You can not go to deep because you might either be suffocated, burned or squeezed. All spell death. As far as I am concerned, our ability to exploit space is still very limited at the present time. I, however, don't know what the future holds.
Well, folks, that is why it is of utmost importance that we, humans, allocate the right activities to the right space.
3. The employment of space is both the presence and absence of stuffs (buildings, cars, people, etc) on it. In other words, having a downtown area full of buildings is just as important as having a dedicated open space for recreational activities. Both contributes to social welfare.
Due to the finite amount of space we have available, we want to put as many things on it as we possibly can... probably a room under rooms and with a private nightclub under it. We want to have larger space for a comfortable lifestyle and to give our family (which normally includes a dog or a cat or deer... heck, I've seen people keep a deer or two as their pets) the peaceful and quiet living environment they deserve. That is not all. We want shopping malls, gyms, and convenient stores at every corner. This sounds like a plan. At the same time, however, we also need open space with nothing on it so they can be used for parking, walking, running, skateboarding, and probably for putting some green on it (something we call a park).
Out of all the wants and needs, we have to understand that everything is either positively or negatively or neutrally connected to everything else. You wouldn't want a casino building next to high school. You wouldn't want a house next to night club. However, certain things are best presented in a cluster, and that certain cluster repels other things that are negatively correlated to it.
The center of a metropolis is best accompanied by restaurants, parking lots, malls, larger roads, police stations, etc. However, all these create externalities such as noise and air pollution that drives away residents. Not just that, as more and more amenities of life can be conveniently accessed at any one place, renting or buying a space at that same location will cost you a fortune. It is best kept for businesses that can generate substantial amount of profit to offset the cost of occupying that particular space. Consequently, intra-migration happens.
Intra-Migration
Intra-migration? Yes, and I believe the full term should be intra-national migration (which also means migration across provinces or states, but let's not go that far). This is a local movement of people into and out of certain areas. In our case, we are focusing on the residential movement out of the central part of the city. As a city develops and matures, its inner space becomes less affordable and less convenient for living. That is why residential areas will sooner or later move towards the suburbs. We can see this pattern in almost every large city of every developed nation around the world.
I strongly believe that developing countries will go through the same experience. As people get wealthier, they will demand more space. Even if they don't, they will be forced out due to price differentials, network effect and other economic stuffs... Price differentials can be in the form of less affordable goods and services available in the city, or the exciting opportunity to sell owned space at high capital gain. People opt for the best option presented to them. Furthermore, as city grows and expands, grocery stores will get bigger with more parking spaces. This allows people to make large purchase at once, without having to visit the store daily. It all makes suburbs more attracting. The network effect also causes more people to emigrate from the city center because as more leave, the remaining is affected by the lower number of residents (kinda feel lonely) and the greater number of disturbances (businesses) surrounding them, which in a way, force them to move out as well.
 |
| Sub-urban area in Malaysia |
The great migration out of the city is definitely not exaggerated. You might, of course, disagree. For instance, you might think that urbanization, as witnessed in Phnom Penh, Cambodia, is absorbing more rural population into the city, creating a vigorous urban-bound migration. Factories are buying up space at the city's outskirts, leaving less for residential areas. This is, however, only the first stage.
Space is becoming more and more difficult to acquire. Traffic congestion is getting worse day by day (less space for vehicle per capita) causing more and more aggregate loss for the economy and environment. It is becoming more expensive to rent office space in the central part. You might have also witnessed the steep increase in land price, or to be specific, space price. More and more super markets are now built outside of the crowded middle area. More schools are moving out. More people are buying home further away from the center of the city. Sooner or later, the goods and services that are migrating to the peripheries will make life at suburb more and more convenient.
And as less wealthy people are finding it more expensive to live in the city, and wealthier people are looking for more space, the development is now trending toward satellite cities to ease the outflow. Suburban areas will pop up one after another. Space at the edge of Phnom Penh will be capitalized and occupied. It won't be long till this happens.
4. The need for space will introduce new positives and negatives to the economic and social landscape.
4.1. The negatives (Because I like to keep the best for the last):
Such movement can be difficult and costly, and when I say costly, I mean both implicitly and explicitly. Family will have to spend more money and time on transportation, more on services like childcare, more on stuffs that make it easier for them to live further away and make life less boring. In Japan, for example, there are people who actually live miles away from their workplace and have to travel by bullet (high-speed) train called the Shinkansen everyday to work. So, these are explicit costs (of course, there are more, but let's keep it here for now).
Implicit cost can be huge as well. Commuting far from home everyday can build stress and fatigue. Greater demand for transportation will impose upward pressure on gas price for everyone, and this will lead to higher prices of goods and services in general. Less population density is basically more people spreading over a larger area, and this will inevitably require more public services like public transportation and more local police to maintain security. It will definitely lead to higher national budget demand, and thus, higher taxes.
These are, not the ultimate doom, but the shortcomings that will surely worsen if there is no proper management. My point is we will eventually need a more robust and effective public institutions that can well balance and facilitate such movement. We need rails, but before that, we need a bus system that can provide on-time service and does not charge too high, yet not too low that it cannot sustain itself and having to impose higher taxes on those who use the system less regularly. We need larger roads, stricter and enforced traffic laws. We need policemen that are well-paid and have strong moral base. We need cheaper utilities like water and electricity, all of which will be achieved at the expense of environment and space (Trust me on this one). We need to prepare our urban population for the next phase of development, but more than that, we need city planners who are capable of earmarking areas that are potentially good for residential settlements. Physical and soft infrastructure will need to be in place before or at the same time of the settlement to populate and retain the new residents. Having means of transportation and easy access to a variety of services will keep people connected to the inner city, and this helps balance people's lives. We need to make sure that every step does not lead to depopulation because without people, the local economy is dead, and since one local economy is linked to others, the impact will ripple and be felt in more than one place. Thus, Public Private Partnership is crucial in making sure that the needs and wants of the suburban population are met, thus ensuring that depopulation does not happen.
4.2. The positives:
Gloomy, doesn't it? Well, let me tell you something. Sub-urbanization is actually desirable for growing and stagnating economies alike. Why?
While the need for space deconcentrates population via sub-urbanization, sub-urbanization creates more space, and not just the physical space. What does it mean?
As the urban population moves toward the suburbs, so does the demand for various goods and services. It creates new space or opportunities for investment. First, sub-urbanization spurs up demand for goods and services because your can fit more into larger space (larger house, larger garage, larger garden, larger park...). This is good because your spending will make businesses more profitable and employ more people. Second, sub-urbanization means more labour in reasonable distance for large manufacturing facilities that need huge space at the outskirts to operate, and likewise, it expands the options for people seeking jobs. Sub-urbanization allows more businesses to operate because economies of scale (click to learn more) advantage is less likely as the potential customers are now scattered.
What do I mean by that last sentence? You see, as business expands, they experience economies of scale, meaning per unit cost becomes cheaper. However, as population scattered, so does potential customers. It will be harder to reach everyone no matter how good your restaurant is. This alone gives the chance to other restaurants already in operation to survive and new ones to pop up. In other words, if your potential customers are now far away, it is harder for them to reach you, and thus, restaurants that are closer can now find it easier to take a share of the profit. Second, let's talk about economies of scale. If your business is small and relies on delivery, having more distant customers means you have to cover a larger space. Thus, expanding your business by simply enlarging the existing compound will not reduce cost (because you have to deliver to greater distance), and thus, economies of scale won't happen. What you need to do to be efficient is, instead, expanding by creating branches all over different areas. This will require more new staff and capital to operate. And hey, if people live far away from their workplace and don't go home for lunch, restaurants around the workplaces will hit the jackpot!
More businesses, more vibrant economy, more expense, more income, more tax to sustain public expense. So you see, all these are conducive to economic growth and to narrowing the income inequality gap. Space is more than it sounds. Knowing how to use space will certainly make a difference for the economy. There is more to what I wrote, but I will call it a day for now. New topics related to space will be posted sooner or later. Anyway, hope you enjoy the article.
All the best!
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