Kind of a crazy day on Thursday with the market dropping precipitously. Some of us (myself included) are market watchers, almost out of a sense of sport or even quasi-rubbernecking. If anything, the idiocy of a blow-by-blow market analysis is good education in confirmation bias. I've always believed that watching CNBC for economic analysis is like watching Gillian on Fox NFL Sunday for climate trends. Nonetheless, I'm anxious to see what happens and if we are witnessing signs that America is moving further into that "zone" of weirdness that the coming transition will include. Time will tell. This may just be people freaking out over unemployment numbers due to be released Friday.

Enjoy the week's news.

  • I have another surprising, yet really cool, pairing for the Strong Towns blog. The website Rethinking Childhood, which is managed by a gentleman named Tim Gill, has included Strong Towns as one of only four sites they have in their blogroll. Rethinking Childhood states that Gill is "one of the UK's leading thinkers on childhood and an effective advocate for change." I continue to be amazed and gratified by the way the Strong Towns movement transcends the traditional realms of advocacy. We're so honored. Thank you, Tim, for doing all you do to build strong towns, which includes advocating for lives for our children that are (as we say here in Minnesota) above average.
  • Despite the huffing and puffing, none of the United States-licensed ratings agencies downgraded U.S. debt, but that didn't stop a Chinese ratings agency from doing so. While we may chuckle a little at this -- the same way we brush off Vladimir Putin when he calls us "parasites" for what we are doing with our reserve currency status -- it would do us well to understand why economists for our largest creditor may have some qualms about us. Sadly, you don't have to be all that good at math to understand that two years of additional debt "offset" by cuts that are phased in over ten years is a little hokey (although we seemed to have fallen for that trickery here).

Explaining its decision Dagong said the debt deal had not changed the general trend in which the increase in debt outpaced the increase in GDP and tax revenue.

Dagong said that while the increase in the debt ceiling matched the cuts, "there is an eight-year difference between the two objectives."

According to the firm, the U.S. needs to cut its fiscal deficit by at least $4 trillion within the next 5 years to maintain its current debt size.

  • Wonder what a modern-day financial panic looks like? Check out what is going on in Greece right now. It is hard to imagine them continuing in the Euro for much longer if their domestic capital is fleeing too.

In May alone, almost €5bn (£4.4bn) was pulled out of Greek deposits, as part of what analysts describe as a "silent bank run". This version is also disorderly and jittery, just not as obvious. Customers do not form long queues outside branches, they simply squirrel out as much as they can. Some of that money will have been used to pay debts or supplement incomes, of course, but bankers put the sheer volume of withdrawals down to a general fear about the outlook for Greece, one that runs all the way from the humble rainy-day saver to the really big money.

  • The only bipartisan place that Washington has agreed to cut in the latest debt deal is discretionary spending, that tiny part of the budget that is not entitlements, military or interest. It is out of this money that a lot of state activities are funded, largely as pass-through dollars. With the Federal budget in a long-term squeeze, there is growing recognition that trickle down government is not going to work well for states (or the next layer, cities and counties, either).

Congress will achieve nearly $1 trillion of those savings by cutting domestic discretionary spending – including funds for education, health care, job training – to its lowest level in over half a century, as a share of the GDP.

“State budgets are already devastated,” says Ethan Pollack, a senior policy analyst at the Economic Policy Institute. “This deal just makes it far worse and shifts a lot of the pain onto state and local governments.”

The phrase “Great Recession” creates the impression that the economy is following the contours of a typical recession, only more severe – something like a really bad cold. That is why, throughout this downturn, forecasters and analysts who have tried to make analogies to past post-war US recessions have gotten it so wrong. Moreover, too many policymakers have relied on the belief that, at the end of the day, this is just a deep recession that can be subdued by a generous helping of conventional policy tools, whether fiscal policy or massive bailouts.

But the real problem is that the global economy is badly overleveraged, and there is no quick escape without a scheme to transfer wealth from creditors to debtors, either through defaults, financial repression, or inflation.

A more accurate, if less reassuring, term for the ongoing crisis is the “Second Great Contraction.”

  • Speaking of contraction, it is with some fascination that I watch Detroit -- which is one of only a handful of cities that I am aware of that has acknowledged the need for contraction -- struggle to figure out the next steps. Again, the planning community sometimes mocks them for their ineptitude, but they are doing something that has not been done in modern memory and many smug places will follow in their footsteps soon enough. We would all be well-served by learning what we can from their successes and failures.

In the months ahead, [Detroit Mayor Dave] Bing must juggle several tasks: implement the short-term plan while continuing to develop a long-term plan, appropriately handle foundation dollars and federal funds targeted in demonstration areas, forge relationships with community development advocates already working in the city and continue developing a long-term plan that incorporates short-term outcomes. 

Bing must also convince gun-shy residents that this process is different from past efforts by previous mayors to align city services and neighborhoods.

  • Detroit has proven what traffic engineers have long postulated; that it is possible to build your way out of congestion. Detroit has turned so much of its public realm over to cars that it no longer has a congestion problem, and if the zealots from the propaganda wing of the American Society of Civil Engineers have their way, the rest of the country will soon follow. I'm going to take on this insanity next week, but for now, here's some news coverage on their latest missive about how the sky is falling unless we buck up and give the engineers even more cash.

Deteriorating surface transportation infrastructure will cost the American economy more than 870,000 jobs and suppress the growth of the country’s gross domestic product by $3.1 trillion by 2020.

That’s according to the report “Failure to Act: The Economic Impact of Current Investment Trends on Surface Transportation Infrastructure,” released July 27 by the American Society of Civil Engineers.

The report finds that, in 2010, deficiencies in America’s roads, bridges, and transit systems cost American households and businesses more than $129 billion. That includes vehicle operating costs, delays in travel time, and safety and environmental costs.

  • And all of my friends who advocate for biking and walking should understand, you are going to be used as part of the propaganda machine to promote huge spending on highways and efforts to promote more suburban-style growth. If you insist on getting what you want from Washington (instead of within your own community), the cost is going to be a disproportionate amount of what you don't want. Check out that link for a textbook example of what I speak.

The federal Transportation Enhancements (TE) program, first established in 1992 as part of the surface transportation law known as ISTEA, is the major source of dedicated federal funding to create bicycle and pedestrian projects. Given the needs of today’s communities, a robust TE program must be a critical component of any comprehensive surface transportation bill. Since its inception, the TE program has provided communities across the country with dedicated funding to design and construct bicycle and pedestrian projects.  But clearly more is needed. 


When Congress returns from its recess in September, it must immediately return to “crisis mode” and focus its attention on crafting a well-balanced surface transportation policy that can repair our nation’s crumbling infrastructure and meet the present-day needs of the citizenry, all while spurring economic development and creating much-needed jobs. A final bill must include policies and programs that promote the efficient movement of cars and other motor vehicles, invest in transit, and strengthen our bicycle and pedestrian networks.

  • The county road system is a topic I have on a long list of topics I want to talk about here, but MinnPost beat me to one of the major observations: What are we doing spending hundreds of millions annually (just in Minnesota) to get marginal gains in travel time and provide unneeded increases in capacity in remote, rural areas? In my neighborhood, we have wide, immaculate country roads that get trickle down funding with the only discernable benefit being that people can live 15 miles from town on the lake and commute in quickly and without getting their car dirty. You still want the U.S. Congress to divvy out transportation dollars?

The system for distributing county aid dates back to 1956, when the constitutional amendment was approved. Each county was asked to designate roads for the CSAH system. Some counties designated virtually all of their roads for the system, while others were more selective. In any case, their designations were largely heeded by the state.

The distribution formula that was established gives considerable weight to the miles of CSAH roads in each county. Of the 30,552 total miles, all but 2,085 are in Greater Minnesota.

"The amount of money you receive is directly related to the aggressiveness of your county engineer in 1956," says one legislative observer.

  • The rural county I live in was one with the "aggressive" engineer, but now we'll also likely have aggressive police as well, at least as it pertains to speed enforcement. A bizarre law that responds to a self-created problem allows counties in Minnesota to lower speed limits on county highways that have driveways 300 feet apart. So without changing anything about the cross section of the highway but simply putting up another sign, drivers are expected to recognize that a high-speed, rural highway is now a low-speed, rural highway. Incidentally, I've tried to work with this highway department to change their design in areas like this and coordinate their land use objectives with their speed expectations. You can guess where those conversations went. It should also be pointed out that there is a sad irony in spending all the money to build these high-speed roads and then have to spend even more to slow the speed back down.

[County Engineer Dave] Enblom said his staff has checked existing speeds in these areas with a radar gun and will do follow-up speed surveys during the coming year to check whether lowering the speed limit helps lower drivers’ speeding habits.

Gary Knox, owner of Minne-Teepee Resort on County State Aid Highway 11, told the board drivers have only slowed in his area on days when officers were stopping speeding drivers. He hopes by making speed postings enforceable with ticketing, that will improve.

  • In another odd, local story, my hometown of Brainerd is looking again to tweak their rental ordinance to make things difficult for slumlords. While these measures have near-universal appeal for residents (except slumlords), they lack any sophistication in understanding what is going on. Having spent two generations degrading the property values of the city in relation to surrounding communities, city officials now want to take a club to the purveyors of the only logical remaining investment; rentals. If they instead focused on improving the real value of neighborhoods in the city, they could use market forces to drive out those same slumlords. They may complain that the city is pricing them out of business, but they'll forgive you when they sell their decrepit building at a profit to someone that actually wants to improve it commensurate with the improved value of the neighborhood. When too successful, it's called gentrification. Look it up. We got a long way to go before we have that problem.

Property owner David Pueringer said he had concerns with the ordinance. He said the existing rental property ordinance has worked well in the five years since it’s existed. He said there have been no deaths in rental properties and only two or three instances of prosecution. 

“A reward is by leaving us alone,” Pueringer said. “It seems again that the city council is being led into taking a sledge hammer to a minor problem.”

Rick Fargo, a property manager, said the intent of the ordinance amendment would be to punish property owners who don’t know what they are doing. Pueringer, he noted, was not in that group.

  • I've never been to Greenville, S.C., but this feel-good story from NPR about their success had many really cool insights about what it will take to turn a city around in the New Economy. There is a lot of Strong Towns thinking here, especially when it comes to the ability of a well-placed, well-designed park to create real financial value for a community.

The city has a beautiful, natural waterfall smack in the middle of its downtown that was hidden for decades by a concrete overpass, warehouses and boarded-up buildings. White took some political heat, but convinced the city to fund a 20-acre public garden around the waterfall and a suspension foot bridge above.

"The park cost $13 million," White says. "Within two years, over $100 million in private investment was created around the park — hotels, restaurants, condominiums, apartments. The entire, what we call the West End of our downtown, just blossomed."

  • I came across the following video on YouTube and thought it was a great primer for all of those that don't get the energy issue. I've also added it to our Strong Towns YouTube page, which you should check out if you like collecting knowledge via YouTube.

  • Chris Martenson of Crash Course was interviewed this week for the McAlvany weekly commentary. I'd not heard their podcast before but, based on this interview, have added them to my iTunes list. Definitely worth a listen.
  • Yesterday I shared a video of Nassim Taleb and, when I did, it got me hooked on his stuff for a great part of the day. Only Taleb can say with a straight face, as he does in this video, that he doesn't "believe in beliefs." I did enjoy the intellectual observation behind his observation, that being that we are too selective in our skepticism or, conversely, too selective in our faith. 

  • Finally, the president of our Board of Directors, Faith Cable, is getting married this weekend. She is a member of the CNU NextGen group and is marrying a fellow NextGen'r and great guy, Jim Kumon. I'm excited to be in attendance. If you know one or both of them, be sure and wish them a blessed day.


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