Why we need a bigger Seattle

 The sources prioritize output (productivity, accessibility, and high incomes) over nominal prices when defining affordability, particularly in the context of "Bigger Seattle".

Core Argument: Output > Affordability (Prices)

The central argument is that affordability is not merely about nominal prices, but rather implicitly reflects both prices and incomes. The author adopts a "provocative hypothesis" suggested by Scott Alexander—that building lots of housing might make a city bigger and potentially more expensive—to illustrate why output is better than "affordability" (where affordability is incorrectly equated with nominal prices).

The argument contends that average people tend to equate affordability with nominal prices. However, even if building massive amounts of housing made prices go up, the housing would actually become more affordable. This counter-intuitive finding is rooted in the structural changes driving the cost and productivity of large cities.

The Context of "Bigger Seattle"

The thought experiment assumes that metro Seattle doubles its housing stock, pushing its population from approximately 5 million to 10 million, becoming America’s third-largest metro area.

In this scenario:

1. Increased Productivity and Income: A larger Seattle would likely become a highly productive place with very high-paying jobs due to the concentration of highly educated workers and tech companies. This increased productivity is driven by factors like network effects (similar to Silicon Valley) and cultural amenities.
2. High Prices as a Response: If nominal housing prices were to rise, this would be a response to structural changes in Seattle’s economy that made the city more productive.
3. The Role of Incomes: The primary reason housing prices are high in big cities is that incomes are high because workers are more productive.

Affordability Defined by Accessibility

Even if prices increase as the city doubles in size, the sources conclude that the outcome is greater affordability because the city becomes accessible to more people. If Seattle doubled its population, it would have gone from being "affordable to 5 million people to being affordable to 10 million people. That’s more affordable".

Therefore, affordability should be thought of as accessibility to more people, and affordability is (mostly) output. The construction boom itself, even if resulting in higher prices, may signify the creation of new real wealth, suggesting that continuing to build is beneficial. Furthermore, doubling the population would almost certainly cause Seattle’s poor population to increase in absolute terms, making the city more accessible across different economic strata.

The sources use the thought experiment of "Bigger Seattle" to explain why output (productivity and accessibility) is a superior metric for affordability than nominal prices in a growing city. The central impact of doubling Seattle's size, based on the assumption that it leads to higher nominal prices, reveals a fundamental shift in how affordability should be understood.

Impact of City Growth (Seattle Example)

The sources assume a specific scenario: metro Seattle doubles its housing stock, leading to a population increase from approximately 5 million to 10 million.

1. Increased Productivity and High Incomes: The primary impact of this massive growth is that the newly expanded Seattle would likely become a highly productive area featuring very high-paying jobs. This surge in output is attributed to several factors:

• Network Effects: Similar to Silicon Valley and Boston, large size leads to network effects that make big cities more productive.
• Cultural Amenities: A larger size also creates cultural amenities that are appealing to highly productive people, mirroring cities like New York and London.
• Response to Structural Change: If nominal housing prices were to increase following this growth, it would be a response to structural changes in Seattle’s economy that made the city more productive. The fundamental reason why big cities are expensive is that their workers are more productive, leading to higher incomes.

2. Increased Affordability through Accessibility: Despite the assumption that nominal housing prices might rise, the sources argue that the city becomes more affordable because it is accessible to more people. By doubling Seattle's population, the city transforms from being "affordable to 5 million people to being affordable to 10 million people," which is considered "more affordable". The growth makes the city inherently more accessible to more people, which is how affordability should be conceptualized—as (mostly) output.

3. Distributional Effects (Impact on the Poor): The sources address the potential concern that the poor might be driven out by the growth and rising prices. However, historical city patterns suggest the opposite: large cities like New York and Los Angeles do not just have more people, they also have more poor people than smaller cities. If Seattle's population increased from 5 million to 10 million, it is projected that Seattle’s poor population would increase in absolute terms, even if their share of the total population shrank slightly. This means the city growth would increase accessibility across different economic strata.

4. Creation of New Real Wealth: One analysis suggests that if continuing to build housing causes the real value of the marginal unit to increase, the city has found an "economic perpetual motion machine". As long as this situation persists, new real wealth can be created simply by building more houses in Seattle. This highlights that the construction and growth itself may signify profound economic benefits. The suggested policy outcome is to maintain the regulatory environment that allows this new wealth creation to continue.

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The idea that doubling a city's size, even if prices rise, makes it more affordable is like a bakery doubling its production. Even if the price per loaf increases slightly because the quality is now much higher and the master baker moved in (higher output), the city now has access to twice as many high-quality, high-value loaves, making that good accessible (affordable) to a much larger population.

The sources utilize specific supporting viewpoints and analogies to solidify the argument that affordability, particularly in the context of expanding a city like Seattle, should be measured by output and accessibility, rather than nominal prices.

Supporting Viewpoints / Analogies

The core argument (Output > Prices) is primarily supported by four viewpoints:

1. Scott Alexander's Provocative Hypothesis (A Supporting Counter-Intuitive Claim) The entire discussion is structured around a "provocative hypothesis" suggested by Scott Alexander, which is used as a vehicle to demonstrate why output is superior to equating affordability with low prices. Alexander suggested that building a large amount of housing might not necessarily make housing cheaper because doing so makes the city bigger, and big cities tend to be more expensive. Crucially, Alexander (correctly) noted that even if prices rose, it would still be a good thing if the new construction allowed more people to live in highly productive areas. The author accepts this hypothesis as a starting point to explain why, even in this worst-case scenario (rising prices), the city becomes more affordable.

2. Matt Yglesias's Observation (On Public Perception) Matt Yglesias is cited to acknowledge the common public misconception regarding affordability. He pointed out that average people tend to equate affordability with nominal prices. This observation helps frame the central tension in the argument: while the public views affordability through the lens of price tags, the economic reality (as explained by the Seattle thought experiment) is that affordability reflects both prices and high incomes.

3. The Economic "Perpetual Motion Machine" Analogy (On Wealth Creation) A commenter, "Chester," offered a strong analogy to describe the positive economic effect of continued construction, even if prices increase. If continued building causes the real value of the marginal unit of housing to magically increase, then the community has effectively found an economic perpetual motion machine. This analogy emphasizes that as long as this state persists, the city can create new real wealth just by building more houses in Seattle. The suggested policy outcome is to maintain the regulatory environment that allows this new wealth creation to continue.

4. The Bank of Japan Analogy (On Embracing the "Failure") Another commenter, Matthias Görgens, drew an analogy comparing the Seattle building policy to the monetary policy challenges faced by the Bank of Japan (BoJ). In the BoJ situation, when printing money did not cause expected inflation, the "failure" (low inflation) was viewed as an opportunity: keep printing money until either the country acquires global assets cheaply or inflation eventually picks up. Applying this to Seattle's housing situation, the commenter suggests that the "failure" (rising or stable prices) is better than the intended outcome (falling prices). The strategy is to:

• Keep building and building ever more new homes.
• If prices keep going up (or stay stable), the result is an unlimited economic profit and growth engine accompanied by honest construction jobs.
• If prices eventually come down, then the original goal (price reduction) is achieved and victory is declared.

This analogy strongly supports the core idea that continuing to build—regardless of short-term price effects—is economically beneficial because the construction itself generates growth and wealth (output).

5. The Children's Toys Analogy (On Real Wealth) Although not directly tied to the price vs. output debate in Seattle, the author includes a side note discussing the substantial improvement in children’s toys since the 1960s as evidence that real incomes have risen. This serves as a general reminder that focusing on nominal figures can obscure massive improvements in real living standards and output. The author notes that middle-class children today have higher living standards than the children of billionaires did in the 1960s, illustrating that focusing on the quality and accessibility of goods (output) shows dramatic progress.