Question:
What is the average cost of a home in suburbia?
What is the average cost of an apartment in Manhattan?
The growth Ponzi schemes of clickbait artists: Join FR; post clickbait; profits.
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Most American cities find themselves caught in the Growth Ponzi Scheme.
We experience a modest, short term illusion of wealth in exchange for enormous, long term liabilities.
We deprive our communities of prosperity, overload our families with debt and become trapped in a spiral of decline.
This cannot continue.
The Growth Ponzi Scheme
by Charles Marohn
We often forget that the American pattern of suburban development is an experiment, one that has never been tried anywhere before. We assume it is the natural order because it is what we see all around us. But our own history — let alone a tour of other parts of the world — reveals a different reality. Across cultures, over thousands of years, people have traditionally built places scaled to the individual. It is only in the last two generations that we have scaled places to the automobile.
How is our experiment working?
At Strong Towns, the nonprofit, nonpartisan organization I cofounded in 2009, we are most interested in understanding the intersection between local finance and land use. How does the design of our places impact their financial success or failure?
What we have found is that the underlying financing mechanisms of the suburban era — our post-World War II pattern of development — operates like a classic Ponzi scheme, with ever-increasing rates of growth necessary to sustain long-term liabilities.
Since the end of World War II, our cities and towns have experienced growth using three primary mechanisms:
1.Transfer payments between governments: where the federal or state government makes a direct investment in growth at the local level, such as funding a water or sewer system expansion.
2.Transportation spending: where transportation infrastructure is used to improve access to a site that can then be developed.
3.Public and private-sector debt: where cities, developers, companies, and individuals take on debt as part of the development process, whether during construction or through the assumption of a mortgage.
In each of these mechanisms, the local unit of government benefits from the enhanced revenues associated with new growth. But it also typically assumes the long-term liability for maintaining the new infrastructure. This exchange — a near-term cash advantage for a long-term financial obligation — is one element of a Ponzi scheme.
“Over a life cycle, a city frequently receives just a dime or two of revenue for each dollar of liability.”
The other is the realization that the revenue collected does not come near to covering the costs of maintaining the infrastructure. In America, we have a ticking time bomb of unfunded liability for infrastructure maintenance. The American Society of Civil Engineers (ASCE) estimates the cost at $5 trillion — but that’s just for major infrastructure, not the minor streets, curbs, walks, and pipes that serve our homes.
The reason we have this gap is because the public yield from the suburban development pattern — the amount of tax revenue obtained per increment of liability assumed — is ridiculously low. Over a life cycle, a city frequently receives just a dime or two of revenue for each dollar of liability. The engineering profession will argue, as ASCE does, that we’re simply not making the investments necessary to maintain this infrastructure. This is nonsense. We’ve simply built in a way that is not financially productive.
We’ve done this because, as with any Ponzi scheme, new growth provides the illusion of prosperity. In the near term, revenue grows, while the corresponding maintenance obligations — which are not counted on the public balance sheet — are a generation away.
In the late 1970s and early 1980s, we completed one life cycle of the suburban experiment, and at the same time, growth in America slowed. There were many reasons involved, but one significant factor was that our suburban cities were now starting to experience cash outflows for infrastructure maintenance. We’d reached the “long term,” and the end of easy money.
It took us a while to work through what to do, but we ultimately decided to go “all in” using leverage. In the second life cycle of the suburban experiment, we financed new growth by borrowing staggering sums of money, both in the public and private sectors. By the time we crossed into the third life cycle and flamed out in the foreclosure crisis, our financing mechanisms had, out of necessity, become exotic, even predatory.
One of humanity’s greatest strengths — our ability to innovate solutions to complex problems — can be a detriment when we misdiagnose the problem. Our problem was not, and is not, a lack of growth. Our problem is 60 years of unproductive growth — growth that has buried us in financial liabilities. The American pattern of development does not create real wealth. It creates the illusion of wealth. Today we are in the process of seeing that illusion destroyed, and with it the prosperity we have come to take for granted.
That is now our greatest immediate challenge. We’ve actually embedded this experiment of suburbanization into our collective psyche as the “American dream,” a non-negotiable way of life that must be maintained at all costs. What will we throw away trying to sustain the unsustainable? How much of our dwindling wealth will be poured into propping up this experiment gone awry?
We need to end our investments in the suburban pattern of development, along with the multitude of direct and indirect subsidies that make it all possible. Further, we need to intentionally return to our traditional pattern of development, one based on creating neighborhoods of value, scaled to actual people. When we do this, we will inevitably rediscover our traditional values of prudence and thrift as well as the value of community and place.
The way we achieve real, enduring prosperity is by building an America full of what we call Strong Towns.
Looks like part of the “sustainability” crowd.
I can’t put my finger on it but I smell liberal progressivism.
“The Growth Ponzi Scheme”
by Charles Marohn
Whatta Maroon.
This is a interesting issue I have not seen argued before. My initial reaction is to let the free market decide what needs to be done. As long as the players pay the true price of what they are using free markets have the remarkable ability of honing in on the optimal solution.
The whole article presumes an authoritarian/bureaucratic utopian mindset. The author also admits that we have survived one genration of this. The suburbs started in earnest in the post WWII era, and kicked into high gear with the Interstate highway system that was largely in place by the late ‘60s. It has been largely paid for by the folks who use the same highway system in the form of gasoline and excise taxes.
Seventy years later, it is perhaps the MOST sustainable of our system, much moreso than health care, prisons, and “education”. It works better than all three, too.
The guy who invented this is not a liberal, and he makes some valid points about declining tax base.
However, he leaves out the factor that as suburbs age, inner city scum move in and bring their sick culture with them.
The buildings don’t change. The evil people destroy the neighborhood and the property values drop.
Extortion was the #1 reason. #2 was Excessive regulations. #3 was high taxes.... the top 3 reasons to move to the suburbs. The #1 reason to stay: Plentiful labor supply
Patronage employees and contractors of the City of Chicago, and to a lesser extent Cook County, Sanitary District, and State, would tell the factory owners that they would hate to see the health inspector, saftey inspector, fire dept, the building inspector and on and on ad infinitum .
It only took a couple years and the extortionists came to the suburbs, chasing the factories out of country. Extortion in Mexico is much cheaper than in Illinois and almost non-existent in S Korea or Taiwan.
The flip side of the coin is that labor supply disappeared. City dwellers wanted to leave the city for the same reason as factories, too much extortion, hassles. The factories, the banks, and developers like Centex conspired aka planned an integrated solution. They built beautiful schools in the planned developments like Elk Grove Village. But they did not consider the quality of education inside those schools. Factory labor is visible as as machine operator. But more than anything, factories depend on the Tool & Die maker and the Machinist who make the parts for the machines. That requires skill in math, logic and 3-dimensional thinking. Neither the city nor suburban school systems provided kids who were educated. They had degrees. The schools were designed to produce kids with degrees, not kids who knew math. Thus the factories in the suburbs could not staff where they needed it. The Tool & Die and Machinist jobs went to Asia first, before the unskilled factory labor. But the factory labor soon followed.
The above is a description of some factories, not all. In addition to Trump reducing excessive regulation at the federal level, Red states need to reduce excessive regulation. There is a need for a small amount of regulation. As seen in the regulation of the medical industry during the coronavirus season, regulations get in the way of efficiency and a good civilization.
Then there is education. That is a separate rant.
Blog pimps are thieves.
You want us to read you liberal garbage?? You’re on the wrong site, child.
The whole western civilization economy is a Ponzi scheme. Without growth, it will die. The reason is simple. It is based on credit and depends on production and consumption ever increasing, monetizing the debt.
The author leaves out an important initial step:
0. Taxpayers fund local, state, and federal governments to use on their behalf for "common use" projects.
-PJ
Charles Moron, Author