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Tuesday
May032011

It sounds crazy, I know...

A while back I remember promising to someday explain how we are currently subsidizing the big banks but that "you would not believe it if I told you." I've yet to come back to this because the explanation is, quite literally, unbelievable. I did not want to damage our credibility by sounding crazy or conspiratorial to you, our readers. Well, it's an off-day (we typically publish here Monday, Wednesday and Friday) and I've got some backup now, so here I go.

Right now we are loaning big banks, via the Federal Reserve, billions of dollars. This is at very, very low interest rates (practically nothing). The big banks are then loaning the U.S. Treasury billions of dollars at slightly higher interest rates. The big banks pocket the difference, which is - again - literally billions of dollars. There is no risk for the banks - this is just free money.

The reason I'm revisiting this now is that I've run across this video by Marketplace.org that explains it perfectly.

Imagine if someone in Congress put together a bill to give the big banks  - Goldman Sachs, Citigroup, JP Morgan, Bank of America, Wells Fargo, etc... - billions of dollars so that they could be "recapitalized", that is, so they would have more money? It wouldn't happen because no voter would tolerate it. And rightly so, especially when these banks blew up the system, are still giving billions in bonuses to those same people that did it, still owe us money from the bailout and have done nothing to reform their practices. Talk about moral hazard!

Imagine now if someone in Congress put together a bill to finance our national debt by having the Federal Reserve "loan" the Treasury money, essentially making money appear out of thin air and then giving it to the Treasury to pay off our debts, with the Treasury providing a wink-and-nod IOU in return. Would this be tolerated? There is no chance it would be - the reckless risk of runaway inflation would simply be too great. Such a bill would have no chance in Congress.

But with no vote, no Congressional proceeding, no national debate, and with little public knowledge outside of a few places that follow the financial markets, we are doing both of these things. And yes, it is so crazy to even consider that I've actually been nervous about bringing it up here for fear of being branded a "conspiracy nut".

A financially healthy economy does not resort to such actions.

We're not bringing this up to suggest that one political party or another is to blame, that one set of politicians or another should be held accountable or that one set of policy responses or another should be adopted. Our entire point is this:

A local economic strategy that relies on the federal and state governments to create the conditions for growth so that your community can afford to pay its bills, maintain its infrastructure and attract a share of the wealth, is a strategy out of touch with reality. A local financial strategy that relies on grants and loans from the federal and state governments for either attracting growth or maintaining basic services, is likewise a fantasy. 

Is there any question that we need to start building Strong Towns?

Bonus Reading

 

 

Care to help us spread the word? We're just three guys working to save the country's towns and neighborhoods. Your donation of support would be much appreciated.

Monday
May022011

Consolidation is the wrong response

Consolidation is the current least-painful way to avoid dealing with the underlying financial problems of our cities and towns. But like consolidation in the banking sector, municipal consolidation will only amplify the underlying fragilities inherent in our development pattern. A better solution would be to embrace the innovations - and failures - that would come from thousands of local experiments in adapting to our current financial situation.

Last month we started collecting donations to cover the cost of producing a DVD version of the Curbside Chat. Our goal was to connect with 100 of our readers that would be willing to donate $25 each. We've taken quite a bite out of this so far -- we've signed up 30 -- but we still have a ways to go. If you value what you read here or what we produce in our podcast, please do what you can to help us spread this message. We thank you, especially if you are one of our 850+ Facebook connections! It was only a year ago we were still below 200. Thanks for spreading the word. 

Our state and local governments are in a bit of a pickle. The gravy train from Washington - which was not all that great, really - has stopped running. The good old days - which weren't really all that good, in retrospect - are long gone. "Recovery" seems a distant dream. And on top of it all, the electorate (that's us) seems mad as hell and unwilling to wait for any type of long-term "transformation" to take place. What's a decent local politician to do?

The first thing to try is to borrow money, spend the rainy day fund and cook the books a little hoping this whole thing will blow over soon. Been there and done that.

The next thing is to borrow seriously more money, try some "stimulus" in the form of more spending and/or less taxes, and basically inject some adrenaline into the heart of the economy to try and bring it back to life. Charging....clear.....charging....clear....

Now we are at the point where we start to talk about changing the way we do things. In other words, we've come kicking and screaming into the "transformation" phase. But this is the early transformation phase, that part of the cycle of decline where we try and change without really having to actually change. And what better way to make non-substantive change than consolidation.

Consolidation is a response to the notion that our problem is essentially one of efficiency. The idea is that local governments are not efficient enough and therefore we can increase efficiency by combining them into fewer governments. Like the banking sector, fewer players means more efficiency.

And like banks, fewer players will amplify fragility.

Take school consolidation as an example. Consolidating schools is something that has been going on since the early 1900's, but it became one of the "solutions" to the budget problems of the late 1970's and early 1980's. And while there is little argument that consolidation of schools allows for greater efficiency, it comes at a cost.

Many of today's school districts are geographically huge, especially in rural areas. Increased size means more bureaucracy and more red tape, increasing the distance between teacher and administrator, between classroom and parent. Multi-million dollar bonds to construct large, centralized facilities made more sense before $4+ gas. The reality today is that, no matter how high fuel costs go, we'll be busing kids for miles each way, unable to walk away from these massive investments we've made (no pun intended). We have exploding childhood obesity and, again, no way to avoid forcing our children into hours of sedentary bus riding each day.

And most importantly, by consolidating schools, we traded innovation for efficiency. In a day when we desperately need innovation in how we educate our kids, our schools systems seem calcified, unable to change course in any substantive way, despite the fact that we are falling behind in many key areas.

The need for innovation is the key reason why we should not be seeking the consolidation of local governments.

Lack of efficiency is not our problem. Lack of innovation is. And not the type of innovation that manifests itself in saving a few dollars on paper clips. What we need is the type of innovation that provides different responses to the same stresses.

Our biggest problem as a nation right now is that our places are generally all vulnerable to the same things. That is because we have all used the same cookbook (standard zoning) and the same Mechanisms of Growth (government transfers, transportation spending and debt) to get to where we are now. Fundamentally, our cities are all pretty much the same. When gas prices rise, our cities struggle. When growth slows or stalls, our cities go into decline. When government aid goes away, our places start to implode. This lack of resilience will only be covered up by consolidation, the day of reckoning pushed off and made more difficult as a result.

Instead of consolidation, we should embrace the core strength of our system; an ability to innovate. This means loosening the controls we have placed on our cities and towns thus allowing local officials to try different solutions to the problems they face. The correct response is not to become more parochial, it is to become less.

So why can't we do this? The reason is clear: we can't deal with failure. We hear the report about the one city that does something really stupid and we rush to pass legislation to ensure it never happens anywhere again. We see a senseless policy outcome and we create all kinds of rules to deal with it. We see a city near failure and we feel obligated to bail them out. We currently have no mechanism to wring success out of failure.

But clearly, if we want innovation, we have to embrace failure. After all, what percentage of businesses fail? What percentage of species fail? Natural systems - like economic systems - evolve, adapt and create only in an environment where failure is allowed. If we want innovation, we have to allow failure.

Does this mean we have to let some cities fail? Yes, but that need not mean that a percentage of our people are condemned to live in ruin. What if we took failing cities and put them in a sort of receivership? What if we gave a bonus to the communities that were most successful if they agreed to "adopt" one of the failing communities and walk them through a restructuring? This is just one idea - there are certainly more.

Consolidation will not get at the core problems that our cities face. The near-term increases in efficiency will mask the lack of innovation and the homogeneous outcomes that make all our cities vulnerable to the same Black Swans. If we want to build resilience and find solutions to our problems, we need to embrace the chaos - the innovation along with the failure - of natural systems and create a framework where local governments can experiment with responses to the current crisis.

 

Recommended Reading

 

We're just three guys trying to make our cities stronger. Please consider supporting our blog and podcast with a monthly supporting donation of just $5 or $10. Every supporter we sign up gives us the resources and the credibility we need to reach more people with the Strong Towns message.

Friday
Apr292011

Friday News Digest

Happy Friday, everyone. I'm a little behind the normal schedule today for two reasons. First, there is a little four year old girl that has not gotten much "daddy time" this week since I've been out for much of it, so she's absorbed my attention up to this point. She's sleeping now so I'm working to get caught up. Second, I was at Target Field Wednesday night watching baseball be played in a snowstorm, but I wake up today to a glorious and sunny day. So I'm going to click "publish" on this blog post and then write so you'll actually get a rolling, unedited version if you are hitting refresh, understanding that when Girl #2 wakes up, my attention will again be diverted.

May your life be equally full of such diversions - enjoy the week's news.

  • Last November I had a chance to meet fellow New Urbanist and NextGen'r Edward Enfurt while in New Orleans. On a group walk one evening back from dinner, he was kind enough to take the time to explain a lot of the city's features to me and gave me a wonderful tour from his eyes. Since then, I've enjoyed reading his blog and following him on Twitter and find myself really enjoying his insights. This is a guy worth following, so check out the Restless Urbanist and plan to come to CNU 19 and meet and hear from bright people like Edward in person.
  • The South Dakota governor is starting a new initiative to target economic development in small towns. My initial reaction is skepticism based on an understanding that an elected official's term is much shorter than the length of time needed to see significant results, and that hunch was bolstered by the quotes in the article. But there is some hope there from the comments section from someone who gets it (third comment), although from the popular voting he ranks behind both a belief in the unicorns and abandonment as viable options. Great work, Tom.

The fact of the matter is that government policies (both State and Federal) have been responsible for the hollowing out of small towns across this country since the Modern Economy began (post WW2). For some enlightening insight on small towns, and great ideas to make them successful, check out http://www.strongtowns.org/. The ideas on that site are likely to be far more effective than whatever tax-incentive, infrastructure-subsidy program the state government has planned.

  • I also wanted to give a heartfelt thank you to the Savannah Association of the Blind for including a link to us on their website. It caught my eye because I don't look at us as advocates for the blind and so we don't typically get traffic from a source like SAB (although if we are helping blind people, that is a truly great bonus). Here is how they listed us, which is right on and absolutely made my day.

Strong Towns - Make a better community for everyone, including pedestrians.

  • On Wednesday we ran a preview of the Bernanke press conference. I found it fascinating and frustrating at the same time (and I still want to get back with my peeps in the comments section for Wednesday. If you are interested in hearing for yourself, here's the video.

As Phil Angelides, co-chairman of the FCIC, told me, “Wall Street hasn’t learned any lessons, because they paid no real price.” When historians dig through the rubble of the financial crisis of 2018 or 2020, they’ll wonder how we could have been duped again so quickly.

  • My friends in Maryland may particularly enjoy this response from the Maryland Department of Transportation to a driver upset with sharing the road with a bicyclist. It is a great analysis of the rights of non-auto travelers.

You mentioned that you’ve seen two car/bike crashes (presumably on Jones Mill Road) in three years and that even one is too much. I assume the argument is that bicyclists should be banned from Jones Mill Road because of these crashes. If true than we would have to ban motoring as well, considering the 32,000 motor vehicle fatalities occurring annually, let alone the hundreds of thousands of injuries and collisions that occur nationally. Instead of taking that extreme step as a society we determine if motoring and bicycling are reasonable risks while we continue to work on improving safety.

The quality and quantity of the transportation systems that serve rural America have been steadily eroding for many decades.  

For some reason there is no discussion of the disproportionate amount of money spent in rural areas, the fact that we have poured our wealth into rural roads, etc... The article largely presents is the same old, worn-out, woe-is-me narrative that has dominated - and stifled - discussion in rural areas for decades. Even when they list the goals that a new omnibous road slush fund bill should have, they skip right past the damage that our approach to rural transportation has done and instead equate prosperity with more funding for roads. The idea that doing more of what got us here is going to make things better truly is insanity. Come on, Daily Yonder - you guys are great. Let's dig a little deeper.

Back in a bit to finish.... 

It's Sunday now - yesterday was a combination of swimming, dance and prom and I am amazed at how sleepy one can become from all that sitting around - and I'm going to save the rest for next week. Thanks everyone.