Cities and channels

Yglesias spotted this gem about cities:

According to the data, whenever a city doubles in size, every measure of economic activity, from construction spending to the amount of bank deposits, increases by approximately 15 percent per capita.

A city doubles in size the Levine chain increases by one, the 15% is the gains from specialization.

Two assumptions make his analysis true. One, people everywhere measure value with the same constant uncertainty. Two, at equilibrium, distribution channels are maximum entropy. The flow of goods, disease, and sewage will tends toward coherent channels at equilibrium (the same Levine rank), create the same surprise or innovation. Hence, in equilibrium, we do not go to meetings where the same crap is expected to be discussed, rather interactions are optimized to deliver the same constant surprise.

This also explains Krugman's agglomeration. When there is redundancy in a channel (the opposite of entropy) then a production network is created to utilize the spare capacity.