One of the things I am continuously perplexed by is our seemingly collective belief that there is ultimately going to be a "recovery" in the imminent future. And perhaps more to the point, I am perplexed by what people seemingly believe this recovery will entail. It is almost like we are waiting for a switch to flip where we will be magically transported back to 2005.
Last week while I was in Denver, I had conversations and attended sessions with a number of very intelligent and thoughtful people who are waiting on the recovery to happen. They appear to live in fear of new strip malls, soulless subdivisions, more lanes of traffic and decaying downtowns. I admire their passion but struggle with how to point out the obvious: there will be no recovery of the type they fear.
As I asked the leaders of one non-profit organization that has spent the past decades "fighting sprawl", "What does an anti-sprawl organization do in a post-sprawl world?" That question didn't resonate. When someone recently asked me for some "market-based solutions" to slowing sprawl, I recommended the obvious: "Recession". As James Kunstler has said a number of times in recent months, "the suburban experiment is over."
This is a beast that was slain not by the sword of the anti-suburban advocates (as right as they may be), but by the weight of its own financial folly crashing back on itself. That is not as satisfying to sprawl fighters as one might think. There is much more glory in vanguishing your enemy after a long struggle on the field of battle than watching them simply get old and die of natural causes. But that is what has happened, and it is largely due to one cogent and inescapable fact inherent in the post-WW II development pattern: It costs more to maintain than it is capable of producing in excess wealth.
Author Richard Florida has talked about the end of the suburban experiment in his book, the Great Reset (which we reviewed back in August).
Our own collapse, in the early years of the twenty-first century, is the crisis of the latest economic revolution--the rise of an idea-driven knowledge economy that runs more on brains than brawn. It reflects the limits of the suburban model of development to channel the full innovation and productive capabilities of the creative economy.
Florida talks about the spatial fix (industrialization) that got us out of the 1870's Long Recession and the spatial fix (suburbanization) that got us out of the Great Depression. Our next spatial fix is going to involve a post-suburban reset that is not likely to treat many of the places we have built very kindly.
This is because much (if not most) of it is not worth a second life cycle. We've literally built ourselves into decline as we've seen less and less return on each "investment" we've made in the current development pattern. When we first build the 35W bridge in Minneapolis it created all kinds of economic opportunity, both for Minneapolis and the Twin Cities region. When the bridge fell down and we subsequently spent hundreds of millions of dollars to fix it, there was no corresponding increase in economic activity.
The 35W bridge was worth maintaining. It is a principle artery that does serve an important economic function (although, as a few engineers have dared to utter off the record, not as much as politicians made believe). But (in the extreme), will the famed bridge-to-nowhere that served a couple dozen people at a cost of hundreds of millions be worth maintaining? In a new era of austerity, will projects like the Rogers interchange, the Stillwater bridge or the Backus wastewater project be worth it? Not likely.
And this is the real problem we face right now. It is not fighting "sprawl" in all its manifestations, it is ending this insane effort to revive something that is clearly dead and needs to be allowed to expire.
If you look back to 1950 and the beginning of the auto era, you'll see that we largely built our way to prosperity post-WW II using our savings and investment. We had very little debt and, while our standard of living was growing tremendously compared to what it had been, it was extremely modest compared to today. Constructing suburban America fueled our economy at a rapid clip for twenty five years.
Then, in the mid to late seventies, things started to hiccup. It may have actually happened earlier, but this is when the problems became too big to hide through monetary policy, abandoning agreements for stable currencies, price controls and the like. The country was in a post-suburban malaise.
At this point we could have changed our tune. We could have realized that building more and more roads, bridges, strip malls, housing subdivisions etc... to replace the ones we had built over the prior 25 years was not going to create any real wealth. We could have realized that our development pattern had generated as much prosperity as it was going to create, that we needed to rely on our prudent, American values to chart a path that could reset our economy along a different model. But that's not what we did.
What we did is borrowed money. Lots and lots of money. We essentially switched our economy from being one of savings and investment to one of leverage. We went from being a "lay away" society to a "credit card" society. And it was all done to restart the suburban project we had embarked on three decades earlier. And it was not just public sector borrowing, which we all understand and generally have come to loath. The truly amazing thing is the amount of private-sector debt we have taken on, which absolutely dwarfs the enormous public sector debt.
The truly sad thing about this is that we not only squandered all of this wealth, but we squandered our futures, our kids' futures and our grandkids' futures on projects that had ever-diminishing rates of return. Do you wonder why we have so many earmarks now and never did three decades ago? It is because many of the projects today are so ridiculous that, without the direct appropriation, they would never be funded by a system that is already being suffocated by maintenance costs. Instead of working to solve the problems, we've spent three decades and literally trillions of dollars making it worse. Incalculably worse.
There is really only one tool left -- one last hope in our current paradigm for shocking the beast off the floor and getting the American Dream, as it is currently defined, back on track. It is, in a sense, a nuclear option -- one that could blow up in our face.
That tool: the printing press.
The Federal Reserve has given all indications that they are going to soon embark on Round 2 of Quantitative Easing, which is the printing of an estimated trillion dollars out of thin air which they will use to buy the debt of the federal government. Matt Taibbi of Rolling Stone sums it up this way:
QE is difficult to understand and the average person could listen to a Fed official talk about it for two hours right to his face and not understand even the basic gist of his speech. The ostensible justification for QE is to use a kind of financial shock-and-awe approach to jump-starting the economy, but its effects for ordinary people are hard to calculate. Theoretically the entire country has some sort of stake in this program, as (among other things) U the Homeowner may see your home value stay stable or fall less than it would have thanks to this artificial stimulus. You also may be able to buy a house when you wouldn’t before, thanks to declining mortgage rates.
And jobs, I suppose, may theoretically be created by all this dollar meth being injected into the financial bloodstream – although the inflationary effect of printing trillions upon trillions of new dollars would probably wipe out the value of the money you make at that job. When it comes to calculating what QE actually does for you, or how much it harms you, that question is just very hard to answer.
Essentially, QE, by adding more dollars to the system, dilutes the value of each dollar. This makes everything cost more dollars (everything will include gas, food, clothes, etc..). It also shrinks the real cost of debt since the value of the debt doesn't change but the dollars it is written in are now worth less. Inflation gives the false impression that the economy is growing (businesses have more dollars, can spend more dollars on hiring people and buying stuff, etc...), but because everything costs more, none of it is real.
There is one truth about inflation and one fear that people should understand. The truth is that inflation robs from people that have saved money by devaluing their savings, and it gives to those who have borrowed too much by reducing the burden of their debts. That is not a tradeoff that a successful country would undertake.
The fear is that we lose control of inflation. Countries that have dabbled in creating inflation to solve their problems have seen disastrous effects. Think Germany between WW I and WW II, where a wheelbarrow of cash was needed to buy a loaf of bread. Nobody knows exactly what will happen when we start the printing press and where the line we can't cross is at. At some point, the people and nations that loan us money will demand a higher interest rate to make up for the devaluing of the dollar. When they do, because our debt is so large, we will have an even greater problem paying the interest on that debt. Printing more money at that point will only make it worse, a deadly, downward spiral for an economy.
The "sprawl enemy" is dead. The best thing that we can do collectively right now is to give it a funeral and then, instead of continuing to fight the last war, shift our energies to building a sound economy based on a nation of Strong Towns. Unless we do this, our attempts to revive a dead development model will not only be futile, it will squander our last remaining resources and any hope we have that we will be spared the tremendous pain of transforming our economy.
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