Years ago, I was taking a tour of the ruins at Pompeii when our tour guide stopped us at some stones arranged in neat lines. He explained to us how this was the house of a working class family. It was small -- very small -- and was split into two rooms. The room next to the street was the store where they apparently sold food kept warm in little oven-like structures. It was the Pompeii version of fast food. In the back was the family's personal space where they slept, kept their belongings, etc...
What I was looking at in this collection of 2000 year old ruins was the quintessential building block of community prosperity. Clearly recognizable was the way working class families bootstrapped themselves to some degree of upward mobility for thousands of years. There it was in all its time-tested glory.
Bootstrap: To get oneself or something into or out of a situation using existing resources.
Imagine the family from Pompeii (and please excuse the male-dominated narrative while I make a larger point). The husband probably worked outside the city walls, maybe as a laborer on a farm. He would leave the home in the morning and the wife and children would stay behind. The wife had a doubly difficult task. She would need to look after the children while also managing the store. This configuration provided the best opportunity to do that; the store in front and the kids in back, each just a few steps away when needed.
Economically, this was pretty resilient for a hard working couple. If the husband couldn't find work that day, they would at least have the income from the store. If the store was sluggish, hopefully that was because there was a lot going on outside the city walls. If both had a good day, maybe they'd have a little bit extra they could save. You didn't need daycare. You didn't need transportation. This was an existence with a pretty low burn rate.
Let's say this family experienced success. The husband became a foreman and made good wages. Or perhaps the store was in an advantageous location that experienced growth over time. Now they have options. Sell the store and use that money to start over but in a better situation. Add on to the store and expand your capacity. Move and rent out the store thus joining the class of people with investment income. In investment terms, this arrangement gave the family good upside potential with limited downside risk. There's a reason these kind of buildings are found everywhere.
Everywhere, that is, except the modern United States.
When the federal government decided it was going to enter the housing market in the 1930's, it put us on a path that has slowly transformed what it means to bootstrap. We tell ourselves that anyone in American can make it big, but yet the rate of business startups has declined dramatically, median household net worth is at 1960's levels (despite massive increases in productivity) and household credit has grown 12x faster than incomes. I believe no small part of this is that we've made the framework for bootstrapping -- that traditional mixed-use building -- very hard to do.
We are nostalgic over Bill Gates and Steve Jobs starting multi-billion dollar companies in their garage yet fail to acknowledge that they would be violating zoning regulations in most cities today. And that's in a garage! Imagine trying to do that in the front part of your house.
These federal regulations we've been highlighting this week create a huge marketplace, with lots of capital, for single family homes on suburban lots. For a long time, that was great for the American economy and, even when housing finance started to become parasitic, it still was the principle mechanism for households to accumulate wealth.
Still, in our pursuit of growth and jobs, we've lost something subtle, yet critically important. We've made it really, really hard for people to bootstrap themselves to a better life.
I'm not talking about becoming insanely rich. I'm not talking about going from destitute to a mansion. You want to gamble on the stock market? Anyone can now do that. You want to take on huge amounts of debt to go to college? Pretty much anyone can do that too.
I'm talking about the ability of individuals to incrementally build wealth. To work hard filling a want in their community, serving their neighbors in some needed way. Then being able to take their earnings and, instead of paying a wealthy person who owns property, be able to save that in the value of their own building. Their own home. To someday own that property outright and experience the liberation that comes from building their own wealth.
Today that experience is restricted to a very small proportion of Americans. It used to be a universal. If we want a strong America, we should make it universal again.