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Who’s better off, ‘Paris of the Plains’ or ‘Stumptown’? A cost-of-living puzzler

Brad DeLong, professor of economics | March 23, 2015

Each time I go directly from Kansas City, Mo./Kan. to Portland, OR — or from Portland, Ore. to Kansas City, Kan./Mo. — I am struck by cognitive dissonance.

There is a very large gulf between what I see around me and what, say, the charts people put up on the screen for relative levels of real cost-of-living adjusted income in Kansas City and Portland. The numbers seem to say that the Kansas City, Mo./Kan. metropolitan area is about 10 percent richer than the Portland, OR metropolitan area. But my eyes tell me that Portland is about 20 percent richer than Kansas City.

Kansas City

Kansas City, Mo. (MoBikeFed via Wikimedia Commons)

There are a number of possible resolutions:

Perhaps the Portland income distribution is more sharply peaked: The average dollar spent in Portland is, therefore, spent by somebody considerably richer than is spending the average dollar in Kansas City. What my eye sees does thus does not reflect the average, let alone the median.

Perhaps we have public affluences and private squalor in Portland: Perhaps people in Portland are affluent in public while people in Kansas City are affluent in private. Thus in Portland we see a certain degree of conspicuous consumption and a great deal of hipster twee, while behind the closed private doors of the suburban mcmansions of Kansas City are the well-appointed furnishings and sous vide cookery on granite countertops.

Perhaps it is financial regulation: Perhaps the sheer number of signs one sees for more-than-usurious auto-loan and check-cashing shops in Kansas City has hypnotized me into thinking everyone in Kansas City is on the edge of bankruptcy: on the point of pledging their car to borrow a small sum at 10%/month interest so they can avoid the unpleasant conversation with their spouse for a few more months. But perhaps this is not true: perhaps people in both metropolitan areas are equally close to the edge, but Pacific northwest consumer financial regulation keeps it from being so wrong.

Portland, Ore.

Portland, Ore. (Steve Morgan via Wikimedia Commons)

Perhaps the numbers are wrong : Kansas City has larger houses located much further from the center of things and thus relatively far from the interesting places — even the other suburban interesting places — that one might want to be. The statistical agencies value large houses, and they value conveniently-located residences, but the hedonic adjustments in order to properly value each and balance off the two are very difficult and very delicate. Perhaps the numbers think that the low cost of housing in Kansas City relative to Portland gets you more value than it, in fact, does.

Other suggestions, anyone? I am finding this a strangely difficult puzzle to solve — either to satisfy myself that the numbers are wrong, or to figure out a way to reconcile my perceptions with the numbers.

 Cross-posted from Equitablog, published by the Washington Center for Equitable Growth.

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