“The Growth Ponzi Scheme”

More and more, I think sprawl is THE underlying problem in American cities, and addressing it as THE solution.  It’s not the only problem, nor are solutions that address it a silver bullet to all the other challenges facing cities.  But to me, it is more central to solving more urban problems than any other single issue.

Unfortunately, it’s an issue that most Americans don’t grasp very well, if they even think about it at all.  There’s a lot of educating, a lot of helping people connect the dots, to be done.  So I was excited when I came across (H/T Charlotte blogger Mary Newsom*) an organization called Strong Towns, and an excellent series called “The Growth Ponzi Scheme.”

In the series, Strong Towns Executive Director Charles Marohn demonstrates, through a number of  examples, how real estate developers’ upfront contribution toward costs are typically inadequate for long-term maintenance.  A generation later, the taxpayer foots the remainder of the bill.  Marohn concludes: “Our places do not create wealth, they destroy wealth.”

In the next installment of the series, Marohn provides a graph showing “(t)he cumulative cash flow of multiple projects in succession over two life cycles”:

The results are obvious and devastating. When the private-sector investment does not yield enough tax revenue to maintain the underlying public infrastructure, the balance can be made up in the short term with new growth. Over the long run, however, insolvency is unavoidable… First, this is actually a model of a well-run city, one that puts money away for future improvements. I’ve yet to see one that has such fiscal discipline…

Second, this model shows the impact of continuous and steady growth. In reality, that is not the pattern most cities experience. Most cities have a phase of rapid growth followed by stagnation and then decline, as described by Jane Jacobs in The Economy of Cities. Superimpose the financial underpinnings of the American model of development and the results are even more devastating – a flood of liabilities all coming due right at the time that growth is starting to wane.

In the fourth installment, Marohn ties the growth Ponzi scheme in to the debt fueled national economic disaster of the last 40 years:

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…. (W)e 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… 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.

(W)e’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.

His prognosis for the immediate future is pessimistic:

None of our public officials has ever asked the question: Will this public project generate enough tax revenue to sustain its maintenance over multiple life cycles?…

I’m astonished and more than a little depressed at the shallow nature of the public debate we are having over this crisis. Do we cut the budget or spend more? Do we raise taxes or reduce them? Does raising the debt ceiling signal fiscal responsibility or a lack of restraint? Do we build rail lines or highways? How do we restore housing values? How do we lower unemployment?…

Nobody has acknowledged that a) the bubble economies of tech and housing were not financially real, b) we can not “recover” to a condition that was not financially real in the first place, and therefore c) we need to start focusing on a transition to something close to reality, which is a long ways from where we currently are.

There’s a lot more here.  I encourage readers to bookmark the Strong Towns blog in your RSS reader of choice and to read the series in full.  I am not sure how novel Marohn’s thesis is, as he builds upon a number of ideas I’ve encountered in previous literature on sprawl and on the housing bubble.  But it’s a thorough primer, broken up and presented in a way that should be friendly to time-pressed voters, planners, and elected officials.

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4 responses to ““The Growth Ponzi Scheme”

  1. I recommend Burchell’s “Sprawl Costs: Economic Impacts of Unchecked Development” as THE book on the public economics of sprawl development. (Since you’re into THEs…) I’m amazed that the Strong Towns series doesn’t mention it, really–the book (and Burchell) are highly regarded and widely cited on the topic.

    One of the points Burchell makes effectively, which is absent from this series, is that infill development or redevelopment can actually have negative public costs: building a new house on a vacant lot in the middle of an established block, for example, uses only existing infrastructure, adding no new public costs while adding a new user-taxpayer to help carry the existing costs, reducing the price for all of the existing households.

    This is where I was totally turned off by the title of the Strong Towns series. They used the term “growth” to mean “exurban greenfield development”, which is a gross oversimplification that implies permitting any new development, anywhere, to be fiscally irresponsible public policy. A good read of their posts will show this isn’t what they mean, and that they would likely agree with Burchell’s assertion of the fiscal benefits of infill development (were they aware of it…), but their reliance on the term “growth” only feeds the uninformed knee-jerk reaction to any and all development that you discuss in your next post on AA.com comments.

  2. (I would also suggest that “exclusion” may be as good a candidate for “THE problem” as “sprawl”, whether we mean racial or, more perniciously, economic. However, sprawl probably falls within the realm of fixable issues, if far enough out at the limits, and so is a reasonable candidate on those grounds.)

  3. I agree that the choice of the word “growth” for this particular concept was unfortunate. I also agree with your second comment, that sprawl is more “fixable” than exclusion (although still quite intractable nevertheless).

  4. Pingback: Why Michigan’s roads suck | Motown To Tree Town

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