Transactions of Decline

In Monday's post I mentioned Jane Jacobs, the influential author whose books on the economic arrangement of cities have had massive influence on the planning profession (although sometimes it is difficult to tell). Like James Belich's essay in the Natural Experiments of History, Jacobs describes a boom and bust cycle that is also followed by recovery.

As a nation, we've been through "boom". We are now in some phase of the "bust". Obviously, we would do well to move through this phase and begin "recovery", as Belich describes it, to painfully create a new economy from the shards of the old. How do we do this?

Jane Jacobs describes an additional phase for cities than Belich describes for boom towns. Between "boom" and "bust", Jacobs inserts "stagnation", a period pre-decline where an economy is hanging on, waiting for the bust/recovery to begin. Stagnation can last for long periods of time. Indeed, some cities are seemingly stuck in a period of stagnation, utilizing what Jacobs described as "transactions of decline" to forestall the pain of transition.

If we want to hasten our recovery, we need to face the hard realities of our present situation and find the will to move past the transactions of decline. As described by Jacobs, there are three transactions of decline that all empires succumb to. They are:

• Prolonged military production. Many people believe that military spending is a stimulus. This thinking is reinforced by the mad political scramble every time a base is going to be closed or a new line of fighter jet is set to be discontinued. Military spending can be a positive, financial stimulus when it is temporary. In contrast, long-term military spending is essentially taking wealth and tossing it away. The military absorbs enormous amounts of production and capital and, in return, gives back "security", an ambiguous state of existing which does not show up in measurements of GDP. Soldiers, tanks, fighter aircraft, military bases....these produce nothing.

(Note: I am sure there are a number of people who are upset by the last paragraph and may perhaps be questioning my patriotism. Don't. I served in the military, support the military and believe it has a critical function in preserving a free nation. But none of that changes the fact that military spending is just that - spending. And it is not like giving the money to Steve Jobs to create something new that everyone wants to buy and makes us all more productive. All throughout history, societies spend on the military because they have the wealth to do so, not the other way around - at least over the long-term. That is Jane Jacob's point, and she is right about it.)

• Prolonged subsidies to poor regions. Jacobs finds the same fault with these as she does with military production: the money spent is sterile. It may improve the life of the people aided, but it doesn't produce wealth or generate innovation. As an example from this blog, consider the Backus, MN, wastewater improvement project, a project that will create no return on the investment but simply allows a struggling community to hang on a bit longer. As difficult as it may be, if we want to transition to a recovery, we need to find a way to not do projects such as these.

• Prolonged advanced-backward trade. Backwards trade is the equivalent of using one credit card to make a payment on another credit card or paying the minimum payment when doing so does not even cover the accumulated interest. A physical example is when we subsidize a factory so that it can be transplanted from one place to another or we make a misguided capital investment in the name of growth. The problem is when the returns of such investments are reinvested in more of the same, the investment takes on characteristics of a Ponzi scheme that gives the near-term illusion of advancement, with declining long-term payback.

We need to see our current development pattern for what it is: wasteful, inefficient and certainly not a true representation of a market system. If we could simply quit subsidizing it, we would start to see our way through our transactions of decline and, painful as it may be, to something that can grow into a nation of Strong Towns.

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