Ok, from the start, I want to make it clear, I am giving Krugman an A for this lesson. He probably deserves only a B+ but it is so much better than his other lessons I am giving him a semi-deserved break.
In this lesson, Krugman discusses "economic geography." His points are correct but I just don't think he is a great clear presenter of ideas.
He starts off by noting that before Silicon Valley became such a powerful tech sector, it was known as being a major apricot growing sector.
He then asks, so why has it bloomed into such a major tech sector? And he answers by discussin positive feedback loops, blah, blah blah, and he is correct but he fails to make his point understandable.
He could have, as an example of feedback loops, said that if the first software engineers were located in Silicon Valley, then it would make sense for other high tech firms to locate where there would be a ready access pool of such engineers, as opposed, to say, Hollywood.
But it would explain why anyone who wants to make it in movies ends up in Hollywood because that's where the movie production studios are. And it is why production studios end up in Hollywood because that is where the acting talent and behind the scenes production people are. Positive feedback loop.
Krugman also points out that there seems to be a great pull toward the creation of major metropolitan areas because people find these attractive, with all they offer, compared to rural areas.
He then hits a home run by saying that, given this desire for large metropolitan areas, he would lean more free market with regard to San Francisco building regulations then exist now because a lot of people want to live there and if you don't go up [taller buildings], it is only going to be a city for the very wealthy.
All hail Paul Krugman as future San Francisco central planner!
-RW
Links to discussions of all Krugman's Masterclass lessons are here.
It is this proximity principle that is leveraged when governments subsidize industries for exported product. As these subsidized products gain market share domination the places where they are designed and made become the epicenter for them. Similar products are then dragged along as well. It's not just a 'gift', a transfer from say Chinese taxpayers to American customers as many libertarians see it, it's a play to start that positive feedback loop.
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