Last month I tried to put some explosive data we’re working with into some context, to test out ways of explaining the problem so that people could get their minds around it. I put forth the notion that a private investment to public investment ratio of 30:1 was stable, that 10:1 was fragile and that anything approaching 1:1 or lower would result in traumatic contraction. This was in the spirit of The Foolproof City, the notion that having slack in the system is an important step towards being antifragile.
When presented with a $200,000 house supported by $400,000 of public infrastructure, some of you tried to figure out whether the payments would work, whether or not it was possible to tax enough cash flow out of the property to pay to sustain the infrastructure. The notion is so bizarre to me that I hadn’t anticipated it and, subsequently, have spent a great deal of time trying to understand the suggestion.
I was stuck because I was trying to find a way to demonstrate even more clearly that you can’t have a city where the public investment is double the private investment. It won’t work mathematically, but I realized that is not the most important thing.
The most important thing is that it will not work socially.
If someone is affluent enough to purchase a $200,000 house, they are going to make some rational decisions about where they choose to live. If it can be avoided – and they have the affluence to avoid it – they are not going to live in a place where it costs twice as much to sustain their investment than their investment is worth (and here’s the key) even if they could. Such a place would be a really bad investment and, faced with the early stages of such a development, an affluent person will move. They’ll find somewhere where their money will be more secure and put to better use.
Unless you stop people from moving (good luck with that), people who can will abandon the place entering decline and find a new place that is either (a) in an earlier stage of the Ponzi scheme or (b) somewhere closer to being stable. This will, of course, accelerate the decline; property values will go down while maintenance is deferred and the cost of repairs increases. Add in economic development initiatives to help struggling places build more stuff they can’t maintain and you can see why trends are for increasing our staggering wealth gap.
So while some of you were trying to figure out whether or not you could find a way to maintain a city with twice as much public investment as total private investment, the right thing to ponder is whether or not you would.
If I bought a car for $20,000 then was forced to put $40,000 in repairs into it to keep it running, there is a point where I’m going to walk away from that car and get a new one. The wealthier I am, the earlier that point is. The poorer I am, the longer I hang with it and the more likely bankruptcy forces my hand.
There are many – my current governor among them – whose instincts are to simply find a way raise the money needed to make things work. This is often considered bold, even visionary, leadership. It’s not. When we don’t do the math, when we allow our cities to become insolvent, when we embrace short term solutions to long term problems, we destroy people’s lives. We trap them in bad situations. We rob them of options.
Resist the impulse to try and smooth over these massive distortions our development pattern has created. Start seeking a way to find equilibrium on your own terms and in the least destructive way possible.