A couple weeks ago I started getting emails from a guy in Maine named William Basford. Now I get tons of email, a lot from some very nice and sincere people, but (I apologize in advance here) the vast majority of it I simply don't have the time to get real deep into. I've (mostly) gotten over my guilt on that thanks to some therapy. Anyway, the stuff that Bill sent me caught my eye because of its simple, straightforward yet powerfully provocative nature.
In essence, he is asking the questions that Jane Jacobs asked fifty years ago, about import replacement, the nature of local economies and how to build a resilient place. He modernized it though -- instead of furniture and bicycles he talks about automobiles and oil -- which makes it an even better read.
I asked his permission to share it here with you. I'm going to simply cut and paste his stuff. Hopefully we can encourage him to write some more and expand on this conversation in the near future.
Part 1 (Previously published here June 24)
Economists apparently think that rising new cars sales are a sign of a good economy, even when this happens in a state like Maine where there are no auto assembly plants, and very few auto parts plants. For example, the Morning Sentinel, published in Waterville, ME, carried an article on Sunday, June 23, titled “Retail sales rise spurs hope of growing recovery”, with the subtitle, “Automobile sales driving increase”. http://www.onlinesentinel.com/news/Sales-up-economy-promising-capital-area-retailers-report.html
But to my way of thinking, rising auto sales in Maine are NOT good for Maine’s economy, and are, in fact, very bad for Maine’s economy. The big problem, of course, is that we don’t make any of the new cars here, and very few of the parts that go into new cars, so how can rising new car sales be good for the local economy?
As I see it, every new car sold in Maine is, in effect, an imported car, and probably 85% of the sale price for each new car is almost immediately drained out Maine’s economy. How can this be good for the local economy?
Maine also has no oil wells, no oil refineries, no tire manufacturing plants, no battery manufacturing plants, etc. Therefore, most of the money spent on these products also leaves the state in a matter of days. How can this be good for the local economy?
Maine has roughly one million registered motor vehicles. AAA has estimated the average annual cost of owning and operating a motor vehicle at roughly $9,000 per year. So, if we multiply these two numbers together, the total cost for owning and operating all the automobiles in Maine is in the range of $9 Billion per year.
If 80 to 85% of all this spending leaves the state within days, that means at least $7 Billion per year is drained out of Maine each year. How can this be good for Maine’s economy?
None of the professional economists in Maine appear to be even remotely aware of this problem. So I’d like to hear your thoughts on this problem. Am I missing something important here? Or is it the Ph.D. economists who are wearing the blinders?
I sometime wonder if one of the requirements for getting a Ph.D. in Economics is for candidates to unlearn the basic mathematics they learned in grade school, including addition and subtraction.
Here is another email, to follow up on my Sunday email about the economic costs of rising new car sales in Maine, and to respond to some of the comments posted on your Strong Towns blog. Perhaps we should call this Chapter Two.
First I’ll point out that the message in the original newspaper article was a bit muddled. In several places it said that rising new car sales are a sign of an improving economy, which I can’t argue with. But in at least one other place it said that rising car sales are good for the local economy, which is the message that I strongly disagree with.
Also, I’m well aware of the assumption by economists that each state or region should produce what it does best, and that everything will presumably balance out across the country. This is sometimes called the Theory of Comparative Advantage, as administered by The Invisible Hand. But if we look under the surface of these facile assumptions, it turns out that the flows of money between regions don’t always balance out so well.
Over the past 90 years, and especially the 65 years since the end of WWII, the predominant pattern of development all across this country has been suburban sprawl. After 65 years of building everything to suit the automobile, we have become very auto dependent. In most of the US, every responsible adult is now expected to own and operate a car, and to pay all the costs of this near mandatory car ownership.
Over the past few decades, the auto industry has centralized operations in the middle of the country. There are NO auto assembly plants left in New England, or eastern NY or PA either for that matter. The combined effect of these two changes have worked to the advantage of the places that make cars and car parts, but has been an economic disaster for all the places that don’t.
If you look at the Maine economy over time, our golden age was the period from about 1880 up through the 1920s. From the 1920s on, we've been losing ground compared to other states. This relative economic decline has reached the point where Maine is now often described as “one of the poor states”.
I don’t think it is any coincidence that this decline started in the 1920s, the same time that automobile ownership became common in Maine. Furthermore, this relative economic decline accelerated after WWII, when suburban sprawl and auto dependence because the normal way of life in Maine. It seems obvious to me that this relative economic decline is due primarily to the enormous amount of money we spend on cars, and all the fuel and other things needed to keep them going, nearly all of which come from outside the State.
To give a more local perspective of the problem, consider the small city of Waterville, ME, with a population of roughly 15,800. The entire city budget, including school costs and county taxes, is roughly $37 Million. However the local costs of auto dependence are far higher. With roughly 7500 automobiles registered in the city, the total cost of owning and operating all these vehicles is roughly $67 Million per year, with more than $50 million of the total leaving both the City and State. So this amount, roughly 1/3 greater than the entire city budget, is drained out of the local economy each year. Much to my puzzlement, the city government is nearly oblivious to this problem.
The next part of my essay, which could be called chapter three of The Economics of Car Dependence, will address what, if anything, state and local governments could do about this huge economic problem.
Maine and the other New England states are not the only states suffering huge economic losses due to their dependence on imported automobiles and the fuels to run them. As more and more of the auto industry is centralized in the middle of the country, a growing number of states now find themselves with the same economic problem that has plagued Maine for decades.
I had a little time to look up some information about Minnesota and Wisconsin this morning. Apparently both the Twin Cities Assembly plant in Minnesota and the Janesville Assembly plant in Wisconsin have been closed since the start of the Great Recession in 2008. So neither Minnesota nor Wisconsin now has any active auto assembly plants.
I could not find any information on auto parts plants in these two states, but typically when assembly plants close, any nearby parts suppliers are suddenly at a competitive disadvantage due to the increased distances to other assembly plants, and will have trouble surviving for long.
As far as I can determine, there is little or no oil production in these two states, although there are apparently a few small oil refineries.
Minnesota has roughly four time the population of Maine, so I would estimate that the amount of money drained out of Minnesota due to dependence on imported cars and fuels, is at least three times the amount lost from Maine, or at least $20 Billion per year. So now I’m wondering if anyone in the Minnesota state government paying any attention to this problem? Is anyone even watching their long range scanners?