To fully understand what is going on in our towns and neighborhoods - in the very structure of our cities - one needs to understand economics, how our capitalist economy has changed since our founding and is in the process of changing once again. The arrangements we have grown used to -- and the social and political systems that govern them -- do not have a long history. Our cities, like our economy, are fragile and financially unsustainable.

The book of last resort in my Audible library -- the one I default back to listening to at the end of the month when everything else has been gone through -- is called Capitalism 4.0: The Birth of a New Economy in the Aftermath of Crisis by Anatole Kaletsky. It is probably a good book -- it was highly recommended to me -- but I have found it a long, hard slog. It could simply be the narration, which has a huge impact on the enjoyment level of an audiobook, so don't let me dissuade you from reading it. A section of the book inspired today's post, so I felt obligated to pause here in the second paragraph and cite it for our readers.

The history of the country and the economics that accompany it contains, as stated in Capitalism 4.0, three distinct philosophies. (Note: I don't have the written book and am not transcribing - I said it "inspired" this post so, if Capitalism 4.0 is your bible, this is fair warning that I'm about to commit heresy).

The first comes from the founders in the time of Adam Smith, the Enlightenment and those that formed our economic systems, specifically the first Secretary of the Treasury, Alexander Hamilton. In this period of time, economics and politics were looked at as two separate undertakings. Up until the New Deal, any political intervention in the economic marketplace was limited and/or done only as a last resort (including T.R's trust busting). The idea that it was the role of government to stimulate the economy or create jobs was unthinkable to our leaders for most of our history.

As capitalism began to fail in spectacular fashion with the Great Depression, a modified-capitalist philosophy emerged that started to consider economics -- and the managing of the economy -- as part of the function of government. This started with the New Deal and ran through the golden era of Keynesian thinking in the 1960's up through the election of Ronald Reagan. This period was defined by a proactive government that sought to use direct spending and market regulations to keep "full employment" and steady economic growth.

This system started to break down in the 1970's with price controls, inflation and energy shortages, and a new capitalist model emerged starting with the Ronald Reagan presidency and running through G.W. Bush and the current economic downturn. Instead of looking at economics as a part of government, this new brand of capitalism looked at government as a part of economics. We saw the same leaders talk about how the size of government is a drag on the economy while they also championed the need for government to spend to create growth. This brand of capitalism lifted us out of the stagnation of the 1970's, but with its foundation based on borrowing from the future, it has flamed out in a massive way.

Before we get into what comes next - the 4.0 from the book - stop and think about how we built cities in these first three periods of our economic development and how resilient those models were. It is striking how the path of our economic development and the path of our physical development are so similar.

In the age of Hamilton, we certainly had planning. Thomas Jefferson not only planned the layout of places like the University of Virgina but influenced the design of Pierre L'Enfant in his layout of Washington D.C. All of our cities and towns were planned in stunning detail, but not with the blunt instrument of zoning. They were planned with local economics by developers and town fathers (my apologies to our female readers for that term, however accurate it may be) using locally-adapted pattern books. There was government, to be sure, but it was hyper-local and economically very efficient.

As our productive capacity grew through the industrial revolution, our economics and our cities likewise became "industrialized". Where the social inequities and economic distortions of industrialization created the conditions that made the Great Depression "great", they also made parts of many of our cities undesirable to live in. The season we've just passed through always has a tinge of Charles Dickens for me and its visions of tenement housing under skies clouded with coal smoke. These were places one needed to escape, and so it should be no surprise that, as government began to operate in the realm of economics, it marshaled our capacities to create a different living arrangement (the suburbs).

The inability of this economic system to sustain itself is no surprise to readers of this blog. The Ponzi-scheme nature of the suburban development pattern is financially not sustainable. The need for ever-increasing rates of growth is not reality. What is interesting is how, when this breakdown became apparent in the 1970's (especially with the energy crisis and the high rates of inflation), shifting from "government influencing the economy" to "the economy influencing the government" created a condition where we took our financially non-viable living pattern and gave it steroids. We kept the same arrangement but replaced government programs and regulations with incentives, financial deregulation and bailouts.

In retrospect, we can see how we've blown up our economy. We've likewise blown up our cities, making them financially fragile to the point where few, if any, can financially sustain the systems they have created. Some type of large-scale reset is inevitable. Our macro economy today is linked to the health of our cities - and visa versa - in a way unimaginable to anyone writing our constitution in 1787.

So what happens next? I've not suffered through enough of the audiobook Capitalism 4.0 to find out what Kaletsky believes, but I'll venture my own opinion. We are in the process of transforming to a brand of capitalism that more closely resembles the original framework of the country, albeit with some modern twists. The same thing is going on with our cities. It is back to 1800.

Now, I'm not suggesting that we are going to be riding around with horses and using gas lamps. I'm also not suggesting that our government is going to devolve to be 2% of the GDP and there will be no Social Security, Medicare, TSA, etc.... But we are going to become more local, and dramatically so.

We've used this analogy before because it is a good one: we're changing from a server-based economy to a web-based economy. Envision the government as an old mainframe server, trying to keep up with the myriad of inputs and complexities that exist in the world today. It simply can't. A far more efficient model -- one described eloquently, if brutally, by Darwin in Origin of the Species and one used brilliantly by the people at SETI and Conquer Cancer  -- is one of diffused power and decision-making. A highly connected web. Crowd sourcing, if you prefer.

Of course, as we've discussed before, while such a system creates robustness through multiple resiliencies and redundancies, it is also premised on the notion that some parts will fail. When Conquer Cancer sends out packets of information to be processed by thousands of computers around the world, some don't come back. They fail. This does not bring down Conquer Cancer - they rely on thousands of volunteers and simply send the lost packets to some other PC. There is redundancy. Resiliency.

We're not starting 2011 here by making bold predictions on the time or the date of events to come. People that do such things should be ignored as too arrogant or too ignorant to the complexities of these systems. But it is clear that the multiple challenges facing our society, our government, our system of capitalism and our cities, cannot be resolved by applying more brute force to our current approach.

Our cities, like our economy, are not going to simply "recover". They are going to transform or fail, but nobody is going back to 2005. Those that abandon the current course and shift to a Strong Towns approach, building resiliency in their own communities, will be the places best positioned to thrive in a new economic order.

 

Some related reading:

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