The great American experiment in suburban development entices communities to take on long-term liabilities in exchange for near-term cash advantages (see Part 1). But as those liabilities cost the community more than the development creates in overall wealth, the approach ultimately results in insolvency (see Part 2). To forestall the day of reckoning, more growth is induced, setting up a Ponzi scheme scenario where revenue from new development is used to pay liabilities associated with old development (see Part 3). This is unsustainable, but that has not kept us from trying desperately to keep it all going.
Much of my thinking in this post was shaped by my reading of Richard Florida's The Great Reset, as well as follow-up research I have done into the causes of the Long Depression of the 1870's and the Great Depression of the 1930's.
While these events defy simple explanation, the Long Depression included an over-development of the nation's railroad system and a corresponding malinvestment in speculative real estate associated with railroad expansion. Also, the increased access for farmers to broader markets helped create a commodity price crash, which was exacerbated by overproduction. Farmers with declining profits produced more to compensate, driving down prices. Price drops were so dramatic that some crops became more valuable for burning than eating.
The depression persisted until there was, as Florida calls it, a "spatial fix". In essence, our capital and productive capacities were redirected from farm expansion and railroad-based speculation into industrialization and building of the industrial city. The result was the Industrial Revolution, a dramatically different living arrangement than the formerly-agrarian America had known up to that point. For many people of that era, this was a painful transition.
Fast forward to the 1930's. Economists and social scientists argue over the causes of the Great Depression as well as the factors that ultimately ended it. What is clear is that the lack of fundamental growth in our real economy was made up for with an expansion in the paper economy. Industrialization had brought huge gains in productivity, production-capacity that actually outstripped our consumption-capacity. Leverage-driven speculation on continued profit gains created a financial bubble that, when deflated, proved destructive.
Years of New Deal spending failed to create enough demand to correct the imbalances. Spending for World War II provided a temporary recovery, but economists at the time were concerned that the end of war spending would send the United States back into depression. What happened next was another spatial fix; suburbanization. We redirected our capital and productive capacities to building suburban America and created the greatest economic advancement the world had ever seen. It was a very painful transition, especially for our major cities.
This is where I (humbly) depart from Richard Florida. It is not that I think he is wrong -- he argues that suburbanization has run its course and that the new, creative economy requires a spatial fix that will favor highly-connected mega-regions -- but that there is a pivot point critical to understanding our current situation.
That pivot point comes roughly one life cycle into the suburban development pattern, the time when the financial structure of the Growth Ponzi scheme starts to have outflows (maintenance costs) in addition to inflows (new suburban growth). This would have been roughly during the mid-1970's, when we were forced to leave the gold standard, had an energy crisis and experienced a convulsing economy characterized by the new term "stagflation". Another new term -- the Misery Index -- was used to measure the painful impacts of high inflation and high unemployment.
Once again, there is a ton of complexity here and I'm not trying to oversimplify things, but ours is an economy that relies on growth and, in the post-WW II era, growth has largely meant horizontal suburban-type growth with all of the related consumption. We embarked on a path that makes us reliant on new growth to generate excess wealth. When that new growth becomes old and starts to cost us money, it puts contraction pressure on the economy that counteracts the near-term, financial benefits of new growth. (See Part 3).
The critical insight today is to understand how we reacted to the end of the first life cycle of suburban development, when those maintenance costs started to come due and cut into our growth-generated wealth. This time there was no spatial shift as seen in the other large, economic corrections. Instead, we made a choice to double down on the suburban experiment by taking on debt.
We used debt to drive additional growth and sustain the unsustainable development pattern for a while longer. A lot of this debt was public debt, but we facilitated mechanisms for increases in private debt as well (for example, Fannie and Freddie early on and then subprime mortgages and securitization later). Here is a graph showing our public and private debt levels since the beginning of the suburban experiment. I have noted roughly the first and second life cycles of those initial investments.
Debt levels post WW II as compared to GDP. Note that the green line is private sector debt, which far exceeds public sector debt..The first generation of suburbia we built on savings and investment, but we built the second -- and maintained the first -- using debt. Unprecedented levels of debt.
And in the process, we transformed our industrial economy into one based on consumption. As James Kunstler has noted quite often, when you take away the suburban-growth-related jobs from our economy, what you are left with is "heart surgery and KFC workers" (his way of saying highly-skilled professionals and low-skill wage earners).
This strategy is a disaster of monumental proportions for the United States. Not only have we created an entire economy based on a growth model that can't be sustained, in the process we have highly indebted our population. The quality employment opportunities available for the masses rely solely on the perpetuation of this unsustainable model, so we can't even work our way out of this mess. We've tied up our individual wealth into homes -- homes whose value is tied to community infrastructure that we cannot afford to maintain without continued hyper-growth, which we are now powerless to induce. So as our wealth disappears and our economy painfully grinds to a halt, we're left with no options to continue on this path.
And to top it all off, we've tethered our national psyche to the suburban ideal we call the "American Dream", our auto-based, utopia where everyone gets to live a faux version of European aristocracy on their own mini-estate.
Oh, and by the way, the American Dream, as so defined, is absolutely non-negotiable.
Our national economy is "all in" on the suburban experiment. We cannot sustain the trajectory we are on, but we've gone too far down the path to turn back. None of our dominant political ideologies can solve this problem. In fact, there is no solution.
This is why tomorrow we will offer some rational responses -- ways that communities can begin to prepare for the spatial shift that is coming.
by CHARLES MAROHN
This Crash Course is a product of Strong Towns and use is authorized via a Creative Commons Attribution-ShareAlike 3.0 Unported License.
This Crash Course is a product of Strong Towns and use is authorized via a Creative Commons Attribution-ShareAlike 3.0 Unported License.
