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How cities should be designed must be in relation to the general era you are referring to. In the 1700's, there were no automobiles, so cities naturally had to be quite dense and compact (to be walkable). Similarly, thought had to be put into where the loud, pollution generating factories had to be relative to residential areas, public parks, and so on.

In 1950's America, the automobile not only existed, but was affordable and commonplace. In that era, cities were designed around a massive network of freeways and a new culture of drive through conveniences, suburban neighborhoods, and so on.

In modern times, traffic congestion is a real problem and the idea of a car per person in a city of endless freeways is no longer wise. Compounding this is the relatively new awareness that the combustion of fossil fuels is causing environmental problems. Furthermore, the cost of gas is skyrocketing and will only continue to do so. Thus, the idea of a daily 50 mile round trip commute is no longer financially viable for many people.

As a result, a modern city should be designed to allow people of all levels of income to have freedom to travel about the city, not rely on ownership of a car and ability to pay for gas. This requires a dense city (walkable) and/or the development of an intelligent mass transit system (bus routes, light rail trains, subways, etc). A unique problem is how to convert sprawled out cities to have a walkable transit system. One solution to this is the concept of "transit oriented development". In this kind of system, a city would have mass transit that brings people between various nodes. Each node would be a dense area of mixed use developments within walking distance (say, .25 to .5 miles) to a transit station.

A larger more philosophical approach to urban design is put forth by the principles of "smart growth" and "urban growth boundaries".

I think you will find that the principles of smart growth sum up how a city should be designed quite succinctly.

To answer your question "how cities should be designed" - I would say they should be designed to allow freedom of movement for all social and economic classes that does not harm the environment, a range of options for living accommodations for all social and economic classes, plentiful areas of parks and green space, and generally avoiding clustering functions (work, live) too extremes.

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