Implications of a Spatial Shift

Yesterday we released the Curbside Chat Companion Booklet, a powerful narrative explaining the financial reality of what is going on in our cities, towns and neighborhoods. If you have read it, you'll notice we went to great lengths to break the information down into bite size portions. Each page has a main point, a supporting graphic and a brief, but detailed, narrative. We're trying to make the Curbside Chat -- and by extension the concepts it contains -- accessible to the broadest audience possible.

Please read the report and help make yourself conversant in the finance of our places. It is a near-universal dialog we can have at a time when all the rest of our dialog seems so factionalized. We want to empower you to be an agent of positive change in your community.

Then, after you read it, please pass it on. Send it to your local officials -- even if you don't know them -- and recommend it to them as their constituent. I'd like to collect some stories by the end of the week about ways in which the Curbside Chat Companion Booklet has been shared. Please send those and any reactions or feedback to me at marohn@strongtowns.org.

Lastly today I would like to start extending our gratitude to some people that really helped us out with this. Foremost on this list would be Betsey Buchite, Nate Hood and Justin Burslie. These three donated a substantial amount of their time and intellect to help edit this document. It would not be near what it is without their assistance and for that I thank them tremendously. 

Today's excerpt is on the spatial shift we are experiencing....

As our economy grows more fragile, outside volatility matters more and more

In our quest to sustain a living pattern that is not financially viable, the United States has gone from being the world’s largest creditor nation to the world’s largest debtor nation. As individuals, our savings rate is anemic and has even been negative for long stretches in recent years. All this debt creates a system lacking resilience; we are dependent on the future being an improved version of the past.

There are reasons to believe that the key conditions that enabled America’s suburban expansion will not continue. The success of the American economy as currently configured is dependent on cheap energy, but world oil consumption is growing rapidly as supplies show signs of strain and even contraction. Dramatic price increases seem inevitable.

The United States has also enjoyed sixty years of cheap financing due to its status as the world’s reserve currency. As we get further from the financial devastation of the Second World War, successful countries worldwide are questioning why a free-spending America continues to deserve such advantage. We have also become accustomed to historically-low interest rates, particularly in the last decade, but we should have no reasonable expectation this will continue indefinitely.

The United States has grown highly susceptible to Black Swan events

It is rational for humans to envision the future as an extension of the past, even though we understand that history is filled with events that changed the course of humanity.

A wealthy individual in 1912 would have been completely justified, based on decades of history, in diversifying their fortune with investments in Britain (at the time the world’s reserve currency and most stable economy), Germany (a growing economy and proven industrial power) and Russia (an emerging market rich in natural resources). No amount of observation of the past would have predicted that these three nations would be plunged into a war that would see Britain nearly bankrupted, Germany propelled into historic hyperinflation and the Russian government overthrown by communists. This is the essence of the Black Swan, an event that may be predictable in hindsight, but difficult to foresee ahead of time because it does not fit the trajectory of observed history.

We are in the midst of an historic transformation of the United States economy. While this time may someday be condensed to a few pages in a history book, we are experiencing it in slow motion. It is not easily discernable where this transformation will take us, but it is clear that high levels of debt, limited savings, and an over-reliance on one pattern of growth has made our economy fragile and lacking the resiliency necessary to withstand a negative Black Swan event.

Learning from history: Long Depression of the 1870’s

The Long Depression of the 1870’s was a worldwide economic crisis. In the United States, the end of the Civil War brought about huge investments in railroads with thousands of miles of tracks built. Much of it was financed by government land grants and subsidies, with the speculative creation of railroad towns serving as another outlet for capital. This created jobs and economic expansion until the Panic of 1873, a Europe-based currency crisis that exposed the unproductive railroad investment and caused a long bout of deflation.

Author Richard Florida has discussed this crisis in his book The Great Reset. He explains how the economy languished in the late 1800’s until there was a “spatial fix”, a movement of people, ideas and capital away from the prevailing economic model of the time – farming and railroad-related development – into a new and more productive arrangement. The result was the American Industrial Revolution, the growth of America’s cities and the greatest expansion of the economy up to that time.

Learning from history: The Great Depression

The Great Depression of the 1930’s was another worldwide economic crisis. In the United States, the end of the First World War brought about the Roaring ‘20’s and huge investments in America’s industrial and agricultural capacity. Much of it was financed by speculation; buying on margin and leveraging of paper securities drove prices to unsustainable levels. This created jobs and economic expansion until the Stock Market Crash of 1929, which exposed bad investments and deprived America’s industrial and agricultural capacity of consumer demand.

As Richard Florida also discussed in The Great Reset, the economy languished throughout the 1930’s until World War II created enough demand to meet the productive capacity of the country. Many economists at the time were concerned that the end of the war would send the United States back into depression, but another “spatial fix” prevented that from happening. This time the movement of people, ideas and capital was away from the industrial city and into a new living arrangement: the suburban experiment. Only through the deployment of resources in building this new living arrangement was the United States able to sustain the demand needed to stabilize prices and grow the economy.

America’s current economic condition is not cyclical but a correction demanding a spatial shift

The mechanisms we have used to sustain suburban growth in America – government transfer payments, transportation spending, debt and the Growth Ponzi Scheme – are waning. This is exposing the fact that the suburban pattern of development cannot be financially sustained. Local governments are being forced to absorb the cost of maintaining their own infrastructure systems. This cannot be accomplished in the current pattern of development without significant tax increases and significant cuts in services.

The answer is not to continue to pour America’s remaining wealth into suburban development which is not sustainable. The answer is another spatial shift; a change in the pattern of development moving away from mass-suburbanization and towards an arrangement with a higher public return on investment.

If you would like to support Strong Towns and the Curbside Chat program, you can make a tax-deductible donation from our web site.