The New Era of Segregation

Do you live in a “bubble?” There’s a good chance that the answer is, at least in part, a resounding “Yes.”

In our algorithm-driven world, digital servants cater to our individual preferences like never before. This has caused many improvements to our daily lives. For example, instead of gathering the kids together for a frustrating Blockbuster trip to pick out a VHS for family movie night, you can simply scroll through kid-friendly titles on Netflix that have been narrowed down based on your family’s previous viewing history. Not so bad.

But this algorithmic matching isn’t limited to entertainment choices. We’re also getting matched to spouses of a similar education level and earning potential. More productive workers are able to get easily matched to more productive firms. On the individual level, this is all very good. Our digital servants are helping us find better matches and improving our lives.

What about at the macro level? All of this matching can also produce more segregation – but on a much broader level than just racial segregation. People with similar income and education levels, and who do similar types of work, are more likely to cluster into their own little bubbles. This matching has consequences, and they’re not all virtual.

Power couples and highly productive workers are concentrating in metropolises like New York City and San Francisco. With many high earners, lots of housing demand, and strict building codes, rents in these types of cities are skyrocketing. People with lower incomes simply can no longer afford the cost of living, so they leave. New people with lower incomes also aren’t coming in, so we end up with a type of self-reinforcing segregation.

If you think back to the 2016 U.S. election, you’ll remember that most political commentators, who tend to reside in trendy large cities, were completely shocked by the rise of Donald Trump. What part did our new segregation play in their inability to understand what was happening in middle America?

In terms of racial segregation, there are worrying trends. The variety and level of racism of we’ve seen in the past may be on the decline, but the data show less residential racial mixing among whites and minorities.

Why does this matter? For a dynamic economy, mixing a wide variety of people in everyday life is crucial for the development of ideas and upward mobility. If matching is preventing mixing, we have to start making intentional changes to improve socio-economic integration and bring dynamism back into the American economy.

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Transcript

In today's world, we're tended to by an army of servants. But no, not those types of servants. I'm talking about the kind  of servants that live in code, dream in algorithms, feast on big data, and seek to please us at every turn. These kind of digital servants -- they're now appearing  almost everywhere, alerting us to a new TV show that will make us laugh, a shirt that will look just right, or the perfect restaurant for our big night out. These algorithms, they help us match to what we already like, or to what is already like us. So we're training our digital servants to find for us the familiar and the similar. Take marriage. More and more people are using  digital servants to find their perfect mate through OkCupid, eHarmony, or maybe a niche site like LawyerFlirts.com. And yes, that is a real site. These sites, they gather  information about you and they send you recommendations to whom you ought to be matched. All of this has led to a rise in what's called "Assortative Mating” -- marrying those of a similar level  of education and income. So for instance, lawyers may marry other lawyers, rather than just marrying the people they went to high school with or live next door to. These digital servants, they're also matching people at the office. They're helping  the most productive workers find the most productive firms. Think of the software algorithms as having many kinds of information about the workers. They give the firms better knowledge of who they ought to hire. This means higher productivity and that's great. But it also means that the best workers are all getting clustered into a relatively small number of firms. These are fascinating examples of how individual micro-behaviors can, at the macro level, lead to some unexpected outcomes. 

From an individual point of view, it seems like you're simply using better tools to get what you want, whether it be a more compatible spouse, or a workplace  of higher productivity or where you feel more comfortable. But what do we see at the macro level? Well, more power couples, and also this growing gulf between the most productive super companies and all of the rest. Both of these phenomena are boosting income inequality. Now at the broadest level,  these digital servants they are helping us find better matches for ourselves, but there's a complication because better matching also can mean more segregation. And when I use that word segregation, I'm not mainly talking about segregation by race, but segregation as a broader concept. I mean there's less mixing by income level, education level, and also type of work. So this change in the virtual world more and better matching, it's also leading to  an important change in our physical world, which is more segregation. And in some ways, that's problematic.

So visualize this: power couples and highly productive workers, they're flocking to cities like New York, Boston, and San Francisco. But there's a problem here there's growing demand but there are tight building restriction in those cities. And that means you have a recipe  for sky-high rents and home prices. In San Francisco, the median rent for a two-bedroom apartment, it just passed $5000 per month. So what's happening is you have an initial tendency towards segregation. The price grows up and that further reinforces the segregation. There's a self-reinforcing  dynamic here because so many people can no longer afford to live in Manhattan or San Francisco.

So the old view of segregation was often about people being pushed out. Nowadays, so often, it's about people being priced out. The cities that make those lists like "Top 10 Trendy Places to Live," very often they're among the most segregated places in the country. Part of the reason they're trendy, is that the less affluent people and the less attractive businesses, they've been neatly sorted out of sight. We like to live there because our neighbors are familiar and safe or matched to what is comfortable and predictable. Yet at the same time, we're more and more isolated from other socioeconomic classes. And yes, if you're wondering, I'm part of this problem, too. I live in a pretty  nice neighborhood. But think about yourself as well, who are you dating? To whom are you married? Where do you aspire to be? You too may be matching and segregating. Given this, should it be so surprising that so many of our elite political commentators were dumbfounded and indeed shocked by the rise and election of Donald Trump? So many of those people -- they live in the same few cities and increasingly, they are isolated from those who are truly different. What about racial segregation? 

There the data are mixed. But on closer examination, there are some worrying trends. While more Asians and Latinos are living alongside Blacks, Blacks and Whites are increasingly  living in separate places, and also attending different schools. So while overt racism might be going down, at the same time it seems that some kinds of racial segregation are going up. It's ironic that the very acceleration of information transmission  is actually decelerating, the rate of surprise and happenstance that occurs in a more mixed society. Because mixing creates economic opportunity and it boosts the chances  of new ideas. And in more integrated neighborhoods, you find more upward mobility in terms of either income or education.

So when we try to diagnose why today's partly stagnating economy is in the state of partial stasis, well, segregation is a big part of that story. So what can we do about all this? Well we can start by focusing less on credentials, giving people more second chances in life, and also making it easier and cheaper for ambitious poor people to move into America's most productive and expensive cities. We can do that by easing restrictions on building. Most generally, we should reorient our whole way of thinking away from just matching,  and safety, and protection, and more toward integration and economic dynamism.

Next up, Tyler pulls back the curtain on a disturbing trend  in the American economy. Is it really the Age of Disruption? Click "Next Video" to see the Stasis. Still here? Check out Marginal Revolution University's other popular videos.


 

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