In the third part, Jacobs tries to look at the evolutionary cycle of cities, and in particular at how the same forces that create great neighborhoods can also destroy them.
She starts with diversity, describing with perfect accuracy a process that's happening right now in Brooklyn:
Because of the location's success, which is invariably based on flourishing and magnetic diversity, ardent competition for space in this locality develops. It is taken up in what amounts to the economic equivalent of a fad.From there follows monotony, an insufficient number of people using the area at varying times, and decline. The areas Jacobs is thinking of are all in the Village -- the Bleecker Street and 3rd Street bar strips, the decline of the 8th Street commercial strip -- and nowadays are not particularly attractive compared to more recently trendy areas. And it wasn't new then; she quotes a jingle from the 1880s:
The winners in the competition for space will represent only a narrow segment of the many uses that together created success -- Since so many want to get in, those who get in or stay in will be self-sorted by the expense -- one or two few dominating uses finally emerge triumphant, but the triumph is hollow. A most intricate and successful organism of economic mutual support and social mutual support has been destroyed by the process.
From this point on, the locality will gradually be deserted by people using it for purposes other than those that emerged triumphant from the competition'because the other purposes are no longer there. 
From Eighth Street down, the men are earning itBut we clearly haven't learned the lesson; the forces attacking neighborhoods like my own will soon make them considerably less desirable to live, and in fact this trend has already started. The New York Times wrote about the challenge facing Flatbush Avenue just this past weekend. In particular, we have the Ratner development, a clear example of Jacobs warning that the trendiness of a neighborhood makes it "profitable to build, in excessive and devastating quantity, for those who can pay the most." 
From Eighth Street up, the women are spending it
That is the nature of this great town
From Eighth Street up and Eighth Street down
So what's the solution? She recognizes that the problems are caused by exactly the same forces that created the success, but says that what's missing is a feedback function that moderates the growth once it becomes damaging. That function is missing now in our development policies just as it's missing in cancer cells. So the solution is pretty simple: instead of giving tax breaks and encouragement to developers who want to duplicate uses too intensely, do exactly the opposite. Support the diversity, and discourage the duplication.
We can do this with the tools we have now, tools currently being used to encourage these problems rather than solving them. Her prescriptions are pretty simple: Zone for diversity, meaning that you ban changes or replacements that duplicate existing uses too heavily. Cut taxes on the properties you've rendered undevelopable, not only to compensate the owner but to make it easier for the existing uses to stay. ("Raising the assessments on city property because of increased profitability of the neighbors is a powerful means today of forcing excess duplications. ... The way to raise a city's tax base is to expand the city's territorial quantity of successful areas." ) Use public development money to create diversity, meaning, don't build Lincoln Centers, but instead find neighborhoods that need cultural institutions and build them there.
In short, the problem is simple: The demand for these areas is higher than the supply. So why on earth do we pour development money into reducing these areas rather than expanding them"
The next chapter focuses on border vacuums created by things like railroad tracks, highways and massive single uses, such as big civic projects or all the disastrous big box stores being built in various areas of Brooklyn. Everything she says here is so glaringly obvious that it wouldn't be worth reading if we weren't repeating these mistakes so reliably. Go to Metrotech, or the area around Atlantic Center, or Madison Square Garden, or Lincoln Center, or Foley Square, and see what harm those projects have wreaked on their surrounding neighborhoods. Her recommendation is to see these projects for what they are -- mixed blessings at best -- and ensure that they are built in ways that work well with the surrounding area.
The next chapter is about urban renewal, and to some extent we have learned these lessons; at least we've given up on the insane idea of bulldozing thriving neighborhoods to build housing projects (indeed, we're in some cases demolishing the projects and trying to build neighborhoods). Although large swaths of my neighborhood in Brooklyn have been defined as "blighted" in order to ease the development of Rat(ner) City. The one interesting observation in this chapter is that a true slum is characterized by the desire of everyone in it to get out as soon as possible, and the forces of the 1940s and 1950s -- the rise of the auto and the subsidizing of suburban construction -- sped that process along. Another way to deal with the problem is to make the neighborhoods desirable again, through the methods she's already discussed.
However, what's interesting about her discussion of slums is that in 1960, the regenerating slums she was examining were white ethnic neighborhoods like her own Greenwich Village, which was an Italian slum just a decade or two before. The key to regeneration is the ability for people to improve their circumstances without leaving, she says: the problem is not "bringing back the middle class" but making it possible for people to move into the middle class without having to leave the neighborhood. And she goes on to say something very prescient about what would happen to African-American slums in the 40 years following publication of her book (pardon the archaic language):
When discrimination is appreciably broken down outside a ghetto by its more successful progeny, then the old neighborhood has a great burden lifted from it. Then it is no longer, necessarily, a mark of inferiority to stay there. [She gives an example from the Italian North End in Boston.] ... the effective breaking down of residential discrimination outside a slum, and the less dramatic self-diversification within an unslumming slum, proceed concurrently. If America, has now, in the case of Negroes, reached an effective halt in this process and in general entered a stage of arrested development--a thought I find both highly improbable and quite intolerable--then it may be that Negro slums cannot effectively unslum in the fashion demonstrated by slums formed by other ethnic populations and population mixtures. In this case, the damage to our cities might be the least of our worries. The emphasis here is mine. She wrote this almost a decade before the riots, and the worst case scenario she found "improbably and quite intolerable" has indeed come to pass. Strict housing segregation against African Americans was firmly in place in 1960 -- the subsidized moves to the suburbs happened only for white people -- and would stay firmly in place for another decade and remain in place, more subtly, to this day. And the results have been exactly as she feared.
Back to the overall forces. Again the same point: None of this is inevitable. There are two ways to make money in a slum: by being a slumlord, or by getting huge federal grants to rip the place apart and rebuild. Because there is no financial incentive to do the things that help blighted areas regenerate, nobody does them. We can and should change that, and if we'd listened to her in 1960 our cities and our country would be a better place.
She moves on to a final chapter, about the difference between "gradual money" (normal mortgages and home improvement loans, then completely unavailable in most urban areas) and "cataclysmic money," the enormous floods of federal money that washed away so many city neighborhoods. This is one area that has been improved by laws requiring fair lending practices and banning housing discrimination, but these practices, and related predatory lending schemes, continue to affect mostly minority homeowners, as the Repugnants try to roll back many of those laws. But again, the combination of denying any credit to people who want to rebuild their neighborhoods, and pouring money into wholesale destruction, unsurprisingly encourages destruction. This is perhaps the clearest example of a deliberate anti-city policy, driven largely by racism, being enforced by laws and financing to yield a result that was unanticipated only by the naive. She lets the banks off the hook to some extent, saying that redlining is a natural response to government definitions of "blighted areas" and disbursement of renewal funds.
In either case, the policies make the result inevitable. You deny credit, making it impossible to improve the area and forcing people to turn to the financing black-market for money if they need it. Properties get taken over by unscrupulous owners, and the area gets worse. People being to abandon it; the only way to make money is to cut your costs as much as possible, not maintaining the property. This vicious circle goes around and around. The area gets worse, and then the government comes in, condemns what worthwhile properties are left, giving meager compensation to the owners, and pouring enormous profits into the big developers who destroy the area and build a new slum-to-be in their place.
The methods of avoiding this problem are so obvious, and so easily implemented, that one is forced to conclude that this result -- poor people pushed out of their homes, cities damaged or destroyed, and real estate developers getting rich -- is exactly what was desired. Jacobs, who tries very hard not to ascribe inimical motives to anyone, says the decline of cities "goes right down to what we think we want, and our ignorance about how cities work," but even she has to admit that "Cynics ... think that the pickings are smade so easy nowadays for exploitative money in cities because the investment shadow world represents powerful interests." [316-17]