Rationality vs. Historicism in Political Economy of Cities

Robert Frank had an interesting article in the NYT  on March 29 about Detroit’s fine art collections. Frank argues quite simply that the best value proposition for the city is to sell the expensive works, rededicate its facilities to local and emerging artists, and pursue a comparative advantage strategy that maximizes return and minimizes costs. I like Frank’s work on the middle class and his evaluation of “smart for one, dumb for all” implications of rational individualism in Falling Behind, which I’m teaching to my students in a course on the American Middle Class. And anyone whose book is called “unfortunate” by the Mises Institute is generally OK with me. Which makes the “smart for all” implications of his argument tough to take.

It’s tough to argue that point on the surface, but among the points made a week ago by George Galster at the Urban Affairs Association meeting last week, as well as in his book Driving Detroit, is that the political-economic predicament of Detroit is more political than economic. And a major part of that politics is the extraction of resources across the city and county line to suburbs that are not simply competitors of Detroit, but often actively hostile. Nonetheless, residents of these suburbs are willing to use the city as a repository for big-ticket entertainment and cultural venues. These days, it usually means convincing city governments to enter into scams schemes infrastructure development partnerships for sports stadiums and arenas (for hockey, in Detroit’s case) for the short-term amusement of the suburban fringe.

And that’s where the rational utility argument for selling the art falls off. As Frank writes:

One way to think about the decision is to imagine Detroit as a new municipality about to build a museum stocked and operated at taxpayer expense. Which paintings should it display?

Perhaps the most important principle of economics is that an action should be taken only if its benefit, broadly construed, exceeds its cost.

This quote is such a target-rich environment that it’s hard for me to know where to begin, so I’ll just go in order.

First, imagining Detroit as a new municipality is an absurd counterfactual. In American metropolitics, new cities don’t form on the moon. They form where they can take advantage of certain “sticky” attributes of metropolitan agglomeration to benefit from the concentration of industry, culture, knowledge, and institutions, while deploying their boundaries to externalize undesirable costs. A city like Detroit is so intrinsic to the very formation of any hypothetical new municipality that to recast Detroit as the new municipality renders the whole exercise ridiculous.

Second, such new municipalities overwhelmingly incorporate along highly limited and even privatized models of governance, both because their affluent homeowner constituents want to minimize tax obligations and because they take advantage of sporting, artistic, entertainment, judicial, commercial, and transit facilities outside their jurisdiction, the costs of which are frequently borne by central cities with sunk costs invested in things like art museums. The notion that New Detroit would choose not to open an art museum is entirely contingent on the assumption that Old Detroit has already been operating and maintaining one for years, offering a collective benefit to the region while locally absorbing the costs imposed by the museum’s property tax exemptions and policing the streets for the benefit of nervous suburban residents.

It’s thus hard to be satisfied with the argument that, having been reduced to bankruptcy by internal and external political leadership with the able assistance of extractive financial industry, that Detroit should sell off the china, as it were. Those works of art are fruits of the public, they’re irreplaceable, and their sale to private hands would result in the diminishment of all of southeastern Michigan’s access to the arts.

Frank does acknowledge this, and the distasteful nature of the choice. He offers a reassurance that the buyers of Detroit’s fire-sale masterpieces will respond benevolently:

If fewer museums owned them, the rich would have good reason to lend them more often for public display, as indeed many already do, thus preserving and enhancing their value. If sold, many of the institute’s famous works would return as loaners, along with such works from other collections.

As an Ivy League management professor, Frank may have more insight than I do into the behavior of the art collector class. But even assuming that the average Michigander’s ability to view these pieces will remain the same, why should we accept the transfer? If owning the art has value to the collector/purchaser, why should we not assume that it has a rational value (or a no less irrational value) to the city? Why not ask the wealthy suburban collector to contribute directly to both the display of the artwork and the institution through taxation? There’s an unbalanced political situation in which money, property rights, public access, and operating costs are in conflict. That conflict could be resolved in any number of ways other than privatizing resources.

I’m not saying this won’t prove both politically and economically expedient, if temporary solution. But this kind of cost-benefit analysis ignores a century of metropolitan history through the facile assumption that all cities operate under the same independent conditions and avoids wrestling with the difficult fact of non-reciprocity. The “choice” of suburban municipalities to operate austere minimal cities is dependent on nearby large cities that have maintained public investment in the kinds of cultural amenities that most suburbanites enjoy to some extent but dislike paying for.

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