The Era of Foreclosed Possibilities

The 2007 recession marked the end of the era of Mass OverConsumption. Suburban sprawl is over. It’s time to think about what comes next – and to adapt state and local government policies to new realities.

By James A. Bacon

The United States reached a historic inflection point during the Global Financial Crisis of 2007-2008. Many politicians and pundits anticipated that the economy would quickly right itself, as it had after every other recession since World War II. But it didn’t. From massive deficit spending to “quantitative easing,” federal authorities have tried stimulating the economy through time-tested methods of pumping up aggregate demand and lowering interest rates. But the economy shows no sign of returning to normal – and the future doesn’t look any brighter. The national debt, now surpassing $15 trillion, has grown so enormous that the dead weight of interest payments will constitute an increasing drag on the economy for years to come.

Historians will look back upon the recent recession as a bookend on an epoch in American history, the period beginning after World War II in which politics and the economy were organized around a bipartisan consensus to promote mass consumption or, as E M Risse prefers to call it, Mass OverConsumption. Politicians of both political parties competed on their ability to deliver economic growth, an expanded safety net and material comfort. Every American should own his own home. Everyone should be able to go to college. Everyone should own a car filled with cheap gas. Everyone should have high quality medical care. Everyone should enjoy a long and comfortable retirement.

The problem, simply put, is that we are running out of money. That’s not an easy truth to accept. Since the recession, politics has been marked by political gridlock in the nation’s capital and the search for scape goats in the hinterlands. The populist Tea Party and Occupy Wall Street movements have aimed their ire upon ruling elites who plunder the nation by manipulating a corrupt political system. They have ample reason to do so. But in their more reflective moments, most Americans would admit that they have brought some of their troubles upon themselves by living beyond their means, both individually and collectively. Consumers maintained living standards by borrowing more than they could afford. Government maintained spending by borrowing more than it could afford.

Consumers were the first to collide with reality. The debt-fueled, consumer-driven economy came crashing down in 2007 and it cannot be reconstituted. The party is over, the hang-overs are throbbing, and someone has to mop up the puke on the floor. Meanwhile, it is increasingly apparent to all that the debt-fueled, government-driven economy is headed for the same fate, if not worse.

While the fall’s raucous presidential debate has focused the electorate’s attention on the fiscal constraints of the federal government, similar currents are running through state and local governments. States, cities and counties, too, are grappling with a structural budget gap stemming from chronically weak revenues and the public’s unremitting demands for more services. Local governments are more restricted in their ability to borrow to pay for spending, so their financial plight is more immediate and more pressing. To date, the primary fault line has formed over the issue of public-employee pensions and benefits. But other changes taking place at the level of cities, counties and towns are even more profound and unsettling.

Core state-and-local institutions invented or perfected in post-World War II Epoch of Unlimited Possibilities are rusting, rattling and running on fumes. Schools are graduating illiterates. Four-year college tuitions are the size of house mortgages. Health care inflation is pushing citizens, businesses and governments to the brink of insolvency. And the nation’s infrastructure, once the envy of the world, is crumbling all around. Call it the Era of Foreclosed Possibilities.

Across the country, states, cities and counties are ill equipped to deliver their contribution to the American dream. Nowhere is the crunch more evident than in the cluster of issues associated with “growth management” – the ability to accommodate growing populations with affordable housing supported by roads, transit, water, sewer, fire, police, schools and other public services. Just as Americans had come to expect an endless list of benefits from the federal government without fully paying for them, they developed entirely unrealistic expectations about what state and local governments could afford. Middle-class Americans wanted to live in neighborhoods of detached, single-family houses set on big lots. They wanted untrammeled mobility, meaning a car for every, and they wanted “the government” to build a road network that would allow them to drive anywhere, anytime, without undue congestion. And they wanted to keep taxes low.

The paradigm that guided growth and development for six decades has hit a dead end. State and local governments can no longer afford to build infrastructure for and deliver services to a population scattered over hundreds of millions of acres in scattered, low-density, disconnected human settlement patterns – commonly referred to as “suburban sprawl.”

Decades of experience have demonstrated that “sprawl” is fiscally unsustainable. The communities that have arisen from sprawl aren’t even what people prefer. Americans tolerated dysfunctional settlement patterns because they seemed preferable to the high taxes, troubled schools and horrendous crime in the core cities. But urban flight is a spent force. In healthy metropolitan areas, there is ample evidence that household preferences are changing and the flow of people out of the urban core is more than matched by a migration back into it. Jobs, especially the best paying ones, remain clustered within a relatively tight radius of the metropolitan core. Cultural attractions such as the arts, museums and restaurants loom larger as lifestyle magnets for the growing ranks of empty nesters. Frightful crime rates that once repelled middle-class households are showing marked declines.

Meanwhile suburban counties have developed intractable problems of their own: traffic congestion, overcrowded schools and increasing pressure on tax rates. Even before the 2007 recession, few Americans would have described life in “suburbia” as idyllic.

The biggest driver of change is an economic one: the rising cost of automobile ownership. According to the New Vehicle Index, the average cost of a new car surged 86.4% between 2000 and 2010, far outpacing the 26.6% increase in the Consumer Price Index over the same period. The Internal Revenue Service mileage reimbursement, a broader measure of the cost of ownership that includes insurance, maintenance, gasoline and other factors, increased almost as rapidly, from 32.5 cents in 2000 to 50 cents in 2010 –  or 53%. The mileage reimbursement has climbed even higher in the past year, to 55 cents per mile. After housing, transportation is the biggest component of the household budget. With incomes stagnant, Americans are finding the auto-centric lifestyle of the suburbs increasingly unaffordable.

Although gasoline is a relatively small segment of automobile ownership, it is one that people fixate on. Todd Litman, director of the Victory Transport Policy Institute, has developed a fascinating metric for tracking the affordability of gasoline: the number of miles a person can drive on one hour’s worth of earnings. The calculation works like this: In 1967 annual median income in the United States was $2,464, gasoline cost $0.33 per gallon, and vehicles averaged 12.4 miles per gallon. An hour of work could buy you enough gasoline to travel 46 miles. In 2000, median incomes were $22,346, gasoline cost $1.51 per gallon and vehicles averaged 17 miles per gallon, meaning that an hour of work could buy you enough gasoline to travel 126 miles.

After peaking in the late 1990s, travel affordability has declined precipitously. Wages have stagnated, fuel economy has improved only marginally but gasoline prices have risen. In 2010, an average work-hour could purchase enough fuel to take you 83 miles. (Remember, that’s gasoline only, not the full cost of car ownership.)

All of these trends – increasing congestion, fiscal stress in county governments, demographic changes, falling crime rates and the rising cost of car ownership – were evident in the 2000s but they were obscured by the real estate bubble. Low interest rates maintained by the Federal Reserve Board, the scrapping of traditional lending standards engineered by Washington politicians, and Wall Street’s mass syndication of mortgage loans without regard to credit quality all combined to induce a fever of rising housing prices and real estate speculation. Flush with credit, developers did what they’d always done: They built new subdivisions and shopping centers where land was cheap and red tape minimal on the metropolitan periphery.

The spasm of development in the 2000s was the last hurrah of the Epoch of Unlimited Possibilities. The bubble burst, housing prices collapsed, the economy tanked and millions of Americans lost their jobs. After two decades of accumulating debt, Americans realized they had been living beyond their means and resolved, with varying degrees of discipline, to mend their ways. This new frugality, bolstered by banks’ tightening of lending standards, led to a loss of buying power. Americans had no choice but to re-engineer their lifestyles not only to live within their means, but to pay down debt and save for the retirement. Spending on housing and transportation, which constitute half of total household spending, plummeted as families re-engineered their lifestyles.

There is no returning to the way things were. Banks will not renew the reckless lending of the 2000s any time soon. State and local governments will experience fiscal stress for years to come. The cost of automobile ownership will continue rising. The suburban growth model of the post-World War II, based on scattered, low-density development and segregated land uses, is shattered beyond mending.

Americans now are stuck with trillions of dollars of houses, shopping centers, office parks, roads, utilities and other amenities that are arrayed geographically in a matter ill matched to the economic, technological and demographic realities. Reconstructing these human settlement patterns to better serve the future will cost trillions more, which means that the process will take decades under the best of circumstances. Creating a new urban fabric – a process I call the Great Retrofit -- is one of the great challenges facing America today.

Unfortunately, public policy in Virginia has not yet adapted to the new paradigm of consumer frugality and constrained government spending. The commonwealth is borrowing billions of dollars to expedite construction of road projects conceived during the heyday of suburban sprawl and locked into place through a bureaucratic process known as the Six Year Improvement Program. There has been no re-examination of the priorities set years ago.

Instead of repeating past mistakes, we should be thinking creatively about how to adapt to new realities. In future essays, articles and blog posts, I hope to explore a new path forward. 

By James A. Bacon


This article was made possible by a sponsorship of the Piedmont Environmental Council.


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