Form and Function: The Shape of Cities and Economies
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Form and Function: Visualizing the Shape of Cities and Economies

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Form and Function: Visualizing the Shape of Cities

Visualizing the Shape of Cities and Economies

The Industrial Revolution changed the form and function of cities. New patterns of work resulted in massive wealth and distinct advantages for certain regions. Urbanization emerged as a defining characteristic of this age.

During the latter part of the Industrial Revolution, Cambridge School economist Alfred Marshall looked at a particular question: why did certain industries concentrate in specific places?

Marshall argued that the local concentration of industry created powerful economies promoting technical dynamism and innovation.

This Chart of the Week highlights the spatial patterns and business relationships created at the urban scale. Marshall’s insights from the past help us understand present-day tech and media economies and the massive growth of urban regions.

The Logic of Concentration

Marshall observed that industrial concentration led to long-term tendencies such as increasing returns on capital and compounding regional advantages.

The heart of this observation is that knowledge resides within the companies that make up a particular industry. Over time, these companies can accumulate even more information and direct the flow of new and innovative ideas. This creates local specialization and increasing profits, while also concentrating success, knowledge, and wealth into one key locale.

He defined this pattern as a Marshallian Industrial District.

An Evolving Landscape: Four Patterns

Marshall’s work would later influence the work of Ann Markusen, who created a typology of three additional industrial patterns. The patterns identify what makes a city attractive or repellent to income-generating activities.

District Type: Description: Example:
Marshallian Industrial District This is a clustering of firms in a similar industry, operating within a certain geographic area. Social media marketing companies in San Francisco
Satellite Platform District A set of unconnected branches with links beyond regional boundaries, each part of its own globally oriented supply chain. Suburban neighborhoods
Hub and Spoke District An industrial sector with suppliers clustering around one, or several, dominant firms. Airplane manufacturer Boeing and the region of Seattle.
State-anchored District Industrial activities are anchored to a region by a public or non-profit entity, such as a military base, a university, or a concentration of public laboratories or government offices. Madison, WI and Columbus, OH are examples of university towns, as are many cities with large defense installations such as Pearl Harbor in Hawaii.


There are both benefits and problems—called “externalities”—associated with the spatial agglomeration of physical capital, companies, consumers, and workers:

Advantages Disadvantages
  • Low transport costs
  • A great local market
  • A large supply of labor
  • Increased chance of supply and demand for labor
  • Lower search costs and fast matching of products and labor
  • Knowledge spillovers between firms
  • Strong environmental pressures
  • High land prices
  • Bottlenecks in public goods (e.g. poor/overburdened infrastructure)
  • Corruption
  • High competitive pressure
  • Economic inequality

Clusters for a Digital Age

In the past, the physical constraints of an area defined the structure of cities. Now that so many companies are free from the shackles of producing physical goods, does geography still matter?

Researcher Marlen Komorowski re-examined the concept of clustering with this question in mind. Here are five types of media clusters identified in her research.

The Shape of Media Clusters

District Type: Description: Example:
The Creative Region A metropolitan region that provides advantages due to readily available infrastructures and institutions, and encourages the development of face-to-face interaction and collaboration networks. Berlin, Singapore, Amsterdam
The Giant Anchor A location defined by the activities of one or several large media institutions, which attract complementary firms to agglomerate. Similar to the hub-and-spoke cluster model. Seattle, (Microsoft, Amazon), and Cambridge (Harvard, MIT)
The Specialized Area A media cluster that is located either in a neighborhood within a big metropolitan area or in a small urbanized area. The Specialized Area is marked by a readily available, large pool of employees from a specialized field. Soho (London), Silicon Valley
The Attracting Enabler Determined by the location of certain facilities or resources that can be shared that enable media activities. Movie studios are a prime example. Los Angeles, Vancouver
The Real Estate This type of cluster is centered around office space, sometimes purpose-built for media and creative companies. This space can also include incubators / accelerators. Dubai Media City, Dublin’s Digital Hub


Four rationales drive these patterns: agglomeration, urbanization, localization economies. and artificial formation.

The Shadow of the Industrial Revolution

Alfred Marshall made the argument that local concentration of industry can offer powerful economies and technical dynamism and innovation.

We now see this pattern with the emergence of megacities that accrue the majority of the financial and knowledge returns. These megaregions set the perfect stage for dynamic economic exchanges between skilled labor, technology, and networks.

What does your city look like?

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Interest Rate Hikes vs. Inflation Rate, by Country

Inflation rates are reaching multi-decade highs in some countries. How aggressive have central banks been with interest rate hikes?

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Interest Rate Hikes vs. Inflation Rate, by Country

Imagine today’s high inflation like a car speeding down a hill. In order to slow it down, you need to hit the brakes. In this case, the “brakes” are interest rate hikes intended to slow spending. However, some central banks are hitting the brakes faster than others.

This graphic uses data from central banks and government websites to show how policy interest rates and inflation rates have changed since the start of the year. It was inspired by a chart created by Macrobond.

How Do Interest Rate Hikes Combat Inflation?

To understand how interest rates influence inflation, we need to understand how inflation works. Inflation is the result of too much money chasing too few goods. Over the last several months, this has occurred amid a surge in demand and supply chain disruptions worsened by Russia’s invasion of Ukraine.

In an effort to combat inflation, central banks will raise their policy rate. This is the rate they charge commercial banks for loans or pay commercial banks for deposits. Commercial banks pass on a portion of these higher rates to their customers, which reduces the purchasing power of businesses and consumers. For example, it becomes more expensive to borrow money for a house or car.

Ultimately, interest rate hikes act to slow spending and encourage saving. This motivates companies to increase prices at a slower rate, or lower prices, to stimulate demand.

Rising Interest Rates and Inflation

With inflation rates hitting multi-decade highs in some countries, many central banks have announced interest rate hikes. Below, we show how the inflation rate and policy interest rate have changed for select countries and regions since January 2022. The jurisdictions are ordered from highest to lowest current inflation rate.

JurisdictionJan 2022 InflationMay 2022 InflationJan 2022 Policy RateJun 2022 Policy Rate
UK5.50%9.10%0.25%1.25%
U.S.7.50%8.60%0.00%-0.25%1.50%-1.75%
Euro Area5.10%8.10%0.00%0.00%
Canada5.10%7.70%0.25%1.50%
Sweden3.90%7.20%0.00%0.25%
New Zealand5.90%6.90%0.75%2.00%
Norway3.20%5.70%0.50%1.25%
Australia3.50%5.10%0.10%0.85%
Switzerland1.60%2.90%-0.75%-0.25%
Japan0.50%2.50%-0.10%-0.10%

The Euro area has 3 policy rates; the data above represents the main refinancing operations rate. Inflation data is as of May 2022 except for New Zealand and Australia, where the latest quarterly data is as of March 2022.

The U.S. Federal Reserve has been the most aggressive with its interest rate hikes. It has raised its policy rate by 1.5% since January, with half of that increase occurring at the June 2022 meeting. Jerome Powell, the Federal Reserve chair, said the committee would like to “do a little more front-end loading” to bring policy rates to normal levels. The action comes as the U.S. faces its highest inflation rate in 40 years.

On the other hand, the European Union is experiencing inflation of 8.1% but has not yet raised its policy rate. The European Central Bank has, however, provided clear forward guidance. It intends to raise rates by 0.25% in July, by a possibly larger increment in September, and with gradual but sustained increases thereafter. Clear forward guidance is intended to help people make spending and investment decisions, and avoid surprises that could disrupt markets.

Pacing Interest Rate Hikes

Raising interest rates is a fine balancing act. If central banks raise rates too quickly, it’s like slamming the brakes on that car speeding downhill: the economy could come to a standstill. This occurred in the U.S. in the 1980’s when the Federal Reserve, led by Chair Paul Volcker, raised the policy rate to 20%. The economy went into a recession, though the aggressive monetary policy did eventually tame double digit inflation.

However, if rates are raised too slowly, inflation could gather enough momentum that it becomes difficult to stop. The longer high price increases linger, the more future inflation expectations build. This can result in people buying more in anticipation of prices rising further, perpetuating high demand.

“There’s always a risk of going too far or not going far enough, and it’s going to be a very difficult judgment to make.” — Jerome Powell, U.S. Federal Reserve Chair

It’s worth noting that while central banks can influence demand through policy rates, this is only one side of the equation. Inflation is also being caused by supply chain issues, a problem that is more or less outside of the control of central banks.

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3 Insights From the FED’s Latest Economic Snapshot

Stay up to date on the U.S. economy with this infographic summarizing the most recent Federal Reserve data released.

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us economic snapshot

3 Insights From the Latest U.S. Economic Data

Each month, the Federal Reserve Bank of New York publishes monthly economic snapshots.

To make this report accessible to a wider audience, we’ve identified the three most important takeaways from the report and compiled them into one infographic.

1. Growth figures in Q2 will make or break a recession

Generally speaking, a recession begins when an economy exhibits two consecutive quarters of negative GDP growth. Because U.S. GDP shrank by -1.5% in Q1 2022 (January to March), a lot rests on the Q2 figure (April to June) which should be released on July 28th.

Referencing strong business activity and continued growth in consumer spending, economists predict that U.S. GDP will grow by +2.1% in Q2. This would mark a decisive reversal from Q1, and put an end to recessionary fears for the time being.

Unfortunately, inflation is the top financial concern for Americans, and this is dampening consumer confidence. Shown below, the consumer confidence index reflects the public’s short-term outlook for income, business, and labor conditions.

consumer price index 2005 to 2022

Falling consumer confidence suggests that more people will delay big purchases such as cars, major appliances, and vacations.

2. The COVID-era housing boom could be over

Housing markets have been riding high since the beginning of the COVID-19 pandemic, but this run is likely coming to an end. Here’s a summary of what’s happened since 2020:

  • Lockdowns in early 2020 created lots of pent-up demand for homes
  • Greater household savings and record-low mortgage rates pushed demand even further
  • Supply chain disruptions greatly increased the cost of materials like lumber
  • Construction of new homes couldn’t keep up, and housing supply fell to historic lows

Today, home prices are at record highs and the cost of borrowing is rapidly rising. For evidence, look no further than the 30-year fixed mortgage rate, which has doubled to more than 6% since the beginning of 2022.

Given these developments, the drop in the number of home sales could be a sign that many Americans are being priced out of the market.

3. Don’t expect groceries to become any cheaper

Inflation has been a hot topic this year, especially with gas prices reaching $5 a gallon. But there’s one category of goods that’s perhaps even more alarming: food.

The following table includes food inflation over the past three years, as the percent change over the past 12 months.

DateCPI Food Component (%)
2018-02-011.4%
2019-05-012.0%
2019-06-011.9%
2019-07-011.8%
2019-08-011.7%
2019-09-011.8%
2019-10-012.1%
2019-11-012.0%
2019-12-011.8%
2020-01-011.8%
2020-02-011.8%
2020-03-011.9%
2020-04-013.5%
2020-05-014.0%
2020-06-014.5%
2020-07-014.1%
2020-08-014.1%
2020-09-014.0%
2020-10-013.9%
2020-11-013.7%
2020-12-013.9%
2021-01-013.8%
2021-02-013.6%
2021-03-013.5%
2021-04-012.4%
2021-05-012.1%
2021-06-012.4%
2021-07-013.4%
2021-08-013.7%
2021-09-014.6%
2021-10-015.3%
2021-11-016.1%
2021-12-016.3%
2022-01-017.0%
2022-02-017.9%
2022-03-018.8%
2022-04-019.4%
2022-05-0110.1%

From this data, we can see that food inflation really picked up speed in April 2020, jumping to +3.5% from +1.9% in the previous month. This was due to supply chain disruptions and a sudden rebound in global demand.

Fast forward to today, and food inflation is running rampant at 10.1%. A contributing factor is the impending fertilizer shortage, which stems from the Ukraine war. As it turns out, Russia is not only a massive exporter of oil, but wheat and fertilizer as well.

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