Understanding Growth, Part 1
"We have become over-obsessed with the idea of growth. We are not exactly sure what we are growing toward, but we compensate for this shortcoming by accelerating."
-Tomas Sedlacek in Economics of Good and Evil
My hometown of Brainerd, MN, is millions of dollars in debt. We're one of the poorest cities in the state and are perpetually among the highest in unemployment. More of our budget comes from aid from the state than we raise locally through property taxes. We have untold obligations we cannot meet, from building repairs to road maintenance, and we've laid off our fire fighters and many of our police officers. Yet, despite our fragile and nearly desperate financial state, we are about to borrow another $10.7 million for a sewer and water expansion project we don't really need. Why would we do such a thing?
The one word answer: growth.
This week I'm going to be offering a Strong Towns interpretation of the insights of Czech economic Tomas Sedlacek whose book, Economics of Good and Evil, I've spent a lot of time with over the past two weeks. Let's just say that I've finally found an economist I can respect.
Speaking during the darkest days of the recent European economic crisis, Sedlacek argued that our economy is not depressed but is more correctly described as manic-depressive. The mania we collectively experience is both on the way up and the way down, although we only choose to treat the latter. The former we embrace.
During the good times, "we always wanted to grow just a little more than we otherwise could." There was always a reason why, if a little bit of growth was good, more would be even better. It was very easy to justify various kinds of mischief -- from annual deficits to artificially low interest rates -- in order to wring just a little more growth out of the economy. This is true whether your goals were motivated by left wing thinking or right wing thinking.
Very consistent with the mindset of The Patron Saint of Strong Towns Thinking, Nassim Taleb, Sedlacek suggests that our economic policy of recent decades has been to sell stability in order to buy growth. This is what I alluded to in the Brainerd example I started this piece with. We're already unstable, yet we're prepared to commit half a generation of projected revenues for the slim chance that we are going to be able to experience some growth today. I've described this concept in some detail in the Growth Ponzi Scheme series.
These policies -- nationwide reflecting down to the local level -- have the effect of amplifying growth during the good years and then accelerating downturns in the difficult years. This is why an economy can grow really fast from 2001 through 2008 and then suddenly collapse. Graphically, here is how our current growth economy tends to perform.
I'll pause here and note that we collectively call the period between 2001 and 2008 a housing bubble. From 2008 until 2010 we saw that bubble burst. Now housing is back to 2008 levels, but do we have another bubble? Of course not. We call 2010 to 2016 a housing recovery. An inflated sense of esteem is one of the criteria for the manic phase of a bi-polar disorder.
I want to contrast a growth economy with a resilient economy. The idea of a resilient economy is that we sacrifice some growth in order to gain stability. During the good years we would not grow quite as much and, in turn, during the bad years things would not decline so precipitously. Forgoing debt, buying insurance, fully funding your pensions and prioritizing maintenance are all ways to pursue a resilient strategy. Such an economy would perform more like this.
Let me contrast both of these approaches with a Strong Towns approach, embodied in Nassim Taleb's concept of antifragility. An antifragile economy is one that gains from disorder. Such a system will experience growth during the good years, although not nearly as much as the growth economy or the resilient economy. However, the antifragile approach will continue to experience some success during the bad years. As it is stressed, it grows stronger. Here's what that looks like.
Where does such a system exist? For cities, the antifragile approach is the traditional development pattern. It is the incremental way in which we built and matured cities for thousands of years all around the world. Flexible building forms, constantly maturing neighborhoods and incremental investments -- cities that continually grow up, grow out and grow more intense -- ensure that there are always positive ways to improve.
The antifragile approach does not outperform the growth economy or even the resilient economy during the good years. In times of extreme affluence such as America experienced after World War II, sticking to the antifragile approach -- especially after two decades of depression and war -- was not going to happen. Our natural human inclinations overrode our time tested wisdom. In many ways, I understand that.
What is harder to understand -- and harder yet to forgive -- is the way we accelerated our debt during those good years in order to grow just a little bit more. We traded stability for growth until now we find that we have neither.
"People say Greece is behind. It is actually the other way around. Greece is ahead. They just went bankrupt twenty years before everybody else."
- Tomas Sedlacek
Check back each day this week as I continue to elaborate on this topic. And if you'd like to chat with me directly about this or anything else on your mind, I'm going to be hosting a Slack Chat at 2PM Eastern today. If you're not already signed up for our Slack, you can do so here. And if you'd like to be part of our ongoing conversation, consider becoming a member of Strong Towns.
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