Bacon's Rebellion

Against the backdrop of the federal march to insolvency, it is fearful to see that many states are following the same path. As Indiana Governor Mitch Daniels wrote in the Wall Street Journal yesterday, “State government finances are a wreck.”

I’ve always envisioned the fiscal end game of the federal government as similar to the fate of, say, Circuit City, where creditors simply stopped lending to it because they no longer believed they would get repaid. The federal government cannot “go out of business,” however, so national leaders would have to soldier on, slashing spending to match the level of incoming revenue, regardless of the social or economic cost.

But the federal government does have options that Circuit City never had. Among those options: inflating the currency and/or repudiating the national debt. Economists are beginning to seriously explore these end-game scenarios.

One example is “Why Default on U.S. Treasuries Is Likely,” by Jeffrey Rogers Hummel, an economics professor at San Jose State University, writing in the Library of Economics and Liberty. Writes Hummel: “I believe … that the United States will be driven to an outright default on Treasury securities, openly reneging on the interest due on its formal debt and probably repudiating part of the principal.”

Hummel doubts that the government can inflate its way out of its dilemma: “Today’s investors are far savvier and less likely to get caught off guard by anything less than hyperinflation.” Unfortunately, he doesn’t fully explain the point. My argument is that financial capital is so hyper-mobile that investors will respond to any strong whiff of inflation by shifting capital to other nations that offer better risk-reward ratios. Any benefit of inflation to the federal government would be short lived. I suspect that Hummel would agree.

Regardless, as the U.S. approaches the financial end game some 15, 20 or 25 years from now, our central bankers undoubtedly will try the inflation strategy out of pure desperation. Thus, we can predict that the final meltdown will be accompanied by inflation, capital flight, a plunging dollar and skyrocketing interest rates as investors demand compensation for higher risk. However, we can be equally certain that an inflation gambit will buy only a few months or years of respite.

One other solution would be to raise federal taxes from the 20%-of-income level that has prevailed since World War II to something approaching European levels. Hummel is skeptical that will happen. Public resistance to higher taxes is so intense that politicians will follow the path of least resistance — borrowing — until investors foreclose that option. I tend to agree.

Of course, debt repudiation is a stop-gap solution, too. Repudiating principle or interest payments on our national debt might bring down the cost of carrying that debt, but it also means that no one will lend anymore money. In sum, no matter what flailing acts of desperation the federal government is driven to, the end result eventually will be the same: A drastic curtailment of the size of the federal government with all the disruption and pain that implies.

In my last blog post, “From the U.S. to Argentina in 20 Years,” I noted that interest on the national debt will amount to $829 billion a year by 2019, if we are to believe the Office of Management and Budget’s most recent 10-year budget forecast. That projection assumes, however, that 10-year Treasury bond yields increase to no more than 5.2% and stay stable for most of the decade. How realistic is that assumption, and what happens if the forecast is wrong?

To provide some perspective, let’s look at the history of Treasury bond yields. Using Federal Reserve Board data, I’ve charted the past 30 years.

As you can see, the current 10-year Treasury bond yield of 3.4% is about the lowest it has been for an entire generation. The Obama administration does allow for a slight uptick in long-term rates to a level consistent with the experience of the past decade. The question then is this: Is the last decade’s experience of low interest rates likely to persist in the future?

If we experience more of the same, Obama’s interest rate forecast is reasonable. If interest rates climb to levels seen in previous decades, the forecast is too optimistic, deficits will be worse, and the glide to insolvency will be steeper.

As far as interest rates go, I believe that we are living in the best of times. To quote Federal Reserve Board Chairman Ben Bernanke, when addressing the German Bundesbanke in 2007, the world is experiencing “a global savings glut.” He attributes that glut largely to a savings surge in large developing countries like India and China. (I have seen estimates from other sources that the Chinese save 40% of their income. As their economy has grown and incomes have soared, so have their savings.)

Far be it from me to tell Mr. Bernanke his business, but I would humbly hypothesize that this glut will dissipate in the mid-term future. Most of the advanced industrial economies in Europe, North America and the Asian Rim, as well as China, are growing old. Households save (or governments save for them) in order to provide for their retirement. When the working-age population is a large percentage of the whole, the savings rate is high. When large segments of the population reach retirement age and people begin drawing down their savings to support themselves, the savings rate declines.

Nowhere is this trend clearer than in Japan, long known for the frugality of its population. The Organisation for Economic Cooperation and Development (OECD) tracks the savings rate of member nations here (see “Saving, Household Saving Rate”). The data show that Japan, which attained a formidable household savings rate of 15.0% in 1990, has experienced a steady decline as its population has aged. (Japan has the oldest average population of any country in the world.) This year, Japan’s saving rate is a mere 3.5% — almost as pitiful as the U.S.’s rate. The savings decline has been equally marked in Korea, which also is aging rapidly.

The major European economies are maintaining high savings rates right now (with Finland a bizarre exception — it seems to be dis-saving). But, if my conjecture is right, as their working-age populations begin retiring in large numbers, their savings rates will decline. Most importantly, the same is true of China, which, with its one-child policy, may be aging the most rapidly of any society on the planet.

These trends will take 10 or more years to become manifest, but they are more or less inevitable. So, in the year 2019, just as U.S. budget deficits are growing by $1 trillion a year or so, the world will be transitioning from Bernanke’s global savings glut to Bacon’s global savings gap.

The Obama administration understands the implications of the domestic Age Wave for the purpose of forecasting U.S. spending on entitlements, but it has ignored the implication of the global Age Wave on savings and capital formation. I’m not singling out Obama here — almost everyone has overlooked it. But Obama is the one making the 10-year forecast. For the past 20-30 years, every major industrial and developing economy in the world has been injecting savings into the global pool of capital. Within 10 years, every major economy will start drawing down that savings to support an aging population. And that draw-down will accelerate with each passing year.

Bacon’s bottom line: It takes a collosal act of faith to believe that the interest rate picture 10 years out will resemble the interest rate environment of the past decade. It takes an ostrich mentality to believe Obama’s OMB forecast that 10-year Treasuries will remain stable at 5.2% for the next decade. If my analysis is correct, the U.S. interest rate burden will exceed the $829 billion a year in the official forecast by a wide margin. If yields return to the 8.0% level seen as recently as 1991, interest payments could well consume $1.3 trillion a year. At that stage, the debt burden will grow uncontrollably, taking on a life of its own.

The U.S. cannot long continue down that path before foreign lenders stop lending to us and the final fiscal crisis consumes us. How will Virginia be positioned to weather that final crisis? Will we follow the example of California in its slide into the abyss, or will we remain a rock of fiscal rectitude? Do either of our candidates for governor even recognize the magnitude of the challenge?

Sometimes commentators scold our political leaders for running up deficits that will have to be repaid by our children and grandchildren. I suspect that many politicians would gladly foist our nation’s obligations onto the next generation if they thought they could get away with it. But they can’t. Our nation’s profligacy will come back to haunt us while most of us are still alive. The day of reckoning — the day the U.S. federal government can no longer fund its programs through taxes and borrowing and is forced into making cataclysmic cuts — is at most 20 years away.

I am not making a prediction based on partisan prejudice. There is plenty of blame to go around. With Vice President Dick “Deficits Don’t Matter” Cheney providing cover, the Bush administration ran up the national debt from $5.7 trillion to $10.6 trillion during an eight-year recess from fiscal responsibility. Having castigated President Bush for saddling future generations with a massive debt, Barack Obama is now on pace to double the rate of debt accumulation. After less than eight months in power, Obama has increased the national debt to $11.8 billion. And his Office of Management and Budget has just issued a revised forecast stating that the federal government will add another $9 trillion to the national debt over the next 10 years.

Of course, that $9 trillion number assumes no significant changes in taxes and spending (Quick, someone call Nancy Pelosi!), and it assumes an up-beat economic scenario: a strong economic rebound, no recession over the next 10 years, low inflation and stable interest rates. (To review those assumptions, click here and go to the “economic assumptions” tab.) I think we can safely describe that $9 trillion number as a “best case scenario.” A worst-case scenario would be too hideous to contemplate.

A look at the graph above from the Office of Management and Budget (OMB) shows how deficits continue ballooning in the out years. By then, Baby Boomers will be retiring en masse. To pay for Boomers’ pensions, the Social Security Administration will have started drawing down the big pile of Treasury bills it accumulated when it was running a surplus. To pay for Boomers’ health care, Congress will have to do something not contemplated in the Obama forecast. According to Medicare’s trustees, the program is scheduled to run out of money by 2018. As long as the federal government is still solvent, however, Congress will find some way, by hook or crook, to keep the program afloat.

Projecting beyond 2019, the deficit numbers get even uglier as more Boomers retire and entitlement spending ramps up rapidly. A $1 trillion budget deficit will be a good year.

Of course, the Obama forecast depends upon a number of rosy assumptions. Let’s look at just one: interest rates. The Obama administration assumes that 10-year Treasury notes will creep up from 3.6% this year to no higher than 5.2% at the peak of the next economic cycle. In other words, even with the Treasury Department borrowing ever more massive sums and with the economy growing at annual rates of between 4.5% and 6.1%, with all that implies for private-sector borrowing, 10-year T-bills will remain stable at 5.2% for eight straight years. Do you believe that? I don’t.

Moreover, I will make the case in a future post that the U.S. is the beneficiary of a global capital surplus, which keeps interest rates low, but that the world economy will shift over the next 10 years to a global capital shortage, which will push interest rates higher. You can agree or disagree with me on that point, but there is one thing beyond dispute: Changes in interest rates will become a prime driver of government expenditures.

According to the Obama administration’s forecasts, interest payments on debt in 2009 will be $173 billion. By 2019, the administration says, interest payments will soar to $829 billion. Remember, that’s assuming 5.2% interest rates. But what happens if interest rates return to the level prevailing in 1990 when the 10-year note yielded 8.08%? Under those circumstances, interest rates would be roughly 60% higher and the interest on national debt would grow by an $500 billion a year over and above the forecast.

Using the Obama administration’s own numbers, we can reasonably conclude that the federal government will reach a state of chronic budget crisis within 10 years. Beyond the OMB’s 10-year time horizon, growing entitlements, the ballooning debt burden, the impending global capital shortage and an inevitable recession will push the federal government toward insolvency. At some point, the U.S. will reach the ultimate crisis in which foreign investors are no longer willing to purchase our sovereign debt at any price. When the federal government can no longer fund its spending, the fiscal crisis will precipitate the greatest political and economic upheaval since the Great Depression. We will have become Argentina.

Have a nice day!

(Chart credit: Wall Street Journal.)

Until The Washington Post’s revelation of Bob McDonnell’s rather Cro-Magnon views of homosexuals, family and women, Virginia’s gubernatorial race had been a snoozer.

CREATIVE OBFUSCATION OF SOLUTIONS TO THE MOBILITY AND ACCESS CRISIS WILL BE THE KEY TO WINNING THE FALL POLITICAL FOOTBALL CHAMPIONSHIP

The political football season is upon us. As it now stands, the championship match up between the Elephant Clan and the Donkey Clan will be decided by which team is best at playing Hide-The-Ball on Mobility and Access for one more election cycle.

So far one team is playing Hide-The-Plan. The other team has surfaced a grab bag of schemes that were rendered irrelevant 35 years ago. They are proudly calling this smokescreen a “plan.” They hope not one notices that it is an AntiPlan Smokescreen.

If the 15 Theses for purifying the ‘family’ by the politician at the top of the Elephant Clan ticket does not turn off the majority of voters, the fantasies about paving the way to Jobs, Mobility and Access should.

The Elephant Clan ‘plan’ prints out at 9 pages of small print. When the political rhetoric is pruned out, there is not ONE idea that is relevant to the economic and physical reality of September 2009. Jim Bacon in his recent posts has outlined many aspects of the new reality.

Most of the ideas in the AntiPlan Smokescreen have not been relevant since the 1973 OPEC oil embargo. The embargo SHOULD have awakened everyone about the resources and strategies needed to support survivability of a technology driven democracy with a market economy.

Lets look under the hood: The Elephant Clan AntiPlan is headlined by a scheme to sell off the ABC stores to raise money. Please do not step in the elephants droppings!!

If an intelligent investor had an asset that would only bring $500 million on the open market but was a $100 million-a-year cash cow, would they SELL it? That is 20 percent a year ROI! OH! You are going to sell it to a friend, well THAT is different …

Every other component of the ‘plan’ is just as ill conceived because the AntiPlan has nothing to do with the future needs of Virginians’ with respect to Mobility and Access.

Let us start with where the plan was announced:

Arlington County is a fine place to launch a forward looking Mobility and Access plan. A location in the Core of the largest economic engine in the Commonwealth will get a lot of attention.

The Elephant Clan spin masters needed, however, to move the announcement site about two and a half miles South. If anyone in a Clan leadership position understood the topic of Mobility and Access they would have selected a spot overlooking Columbia Pike not I-66.

The light rail line Arlington County is hoping to build in the Columbia Pike corridor is the type of transportation infrastructure that will be needed to address the Mobility and Access Crisis. The last thing Virginia needs is more roadways for more Large, Private Vehicles.

Shared-vehicle systems will provide Mobility and Access to serve the functional settlement patterns necessary to support prosperity in the emerging economic, social and physical context.

In the March 2009 Atlantic, Richard Florida ( the author of The Creative Class and other best selling books) published “How the Crash Will Reshape America.” The article (and the supporting materials published on Florida’s Blog since march of 2009) documents the forces that will drive economic prosperity in the 21st century.

Florida suggests that to preserve prosperity – and move beyond unsustainable Mass OverConsumption – the settlement patterns that support – and are required if citizens rely on Autonomobiles for Mobility and Access – will need to be restructured. Aka, Fundamental Transformation.

Florida calls these new patterns and densities of land use “a new spacial fix.” SYNERGY calls it functional human settlement patterns and documents that this ‘future’ vision is in fact the settlement pattern that has been favored by the market for at least the last 50 years.

The reasons Florida gives for this Fundamental Transformation make sense from the perspective of maintaining prosperity and increasing economic metabolism and quality of life. (Also see Sugrue, Thomas J. “The New American Dream: Renting” in The Wall Street Journal 14 August 2009, (see Blog posting “The American Dream Amended” 18 August 2009) and Chapters 3,4 & 5 of The Cul-de-Sac Syndrome: Turning Around the Unsustainable American Dream by John F. Wasik (2009)

While shared-vehicles such as METRO and Arlington County’s Light Rail are a step in the right direction, there is a Mobility and Access axiom that has been validated over and over since before chariot congestion gridlocked Imperial Rome:

It is not possible to build ANY Mobility and Access system so that all residents of a functional Urban Agglomeration can go were the want, when they want IN A VEHICLE and arrive in a timely fashion.

Over the last 2,400 years the Mobility and Access technology has evolved. With each improvement of the technology has come an increase in the scale and complexity of functional Urban systems. The greater the area required to drive and park (stable) the vehicle, the faster any Mobility and Access system becomes congested. There is much to learn from humans use of the horse in this regard. See Chapters 13 and 14 of The Shape of the Future (especially Chapter 13, Box 9 The Carriageless Horse) and PART THREE – THE PROBLEM WITH CARS in TRILO-G.

There is a corollary to the overarching Vehicle Mobility and Access Axiom that deals with Autonomobiles. Those who are familiar with the past work of SYNERGY know all about the Myth that obscures this Autonomobile corollary, it is the Large, Private Vehicle Mobility and Access Myth. Autonomobile advocates work to perpetuated this Myth:

Citizens can drive Large, Private Vehicles wherever they want, whenever the want AND with this demand pattern it is possible for Agencies to provide a roadway system to serve these vehicles so that everyone can arrive in a timely manner.

This is physical impossibility. But this is the tragic Myth that both political Clans hope voters will cling to at least until November. The Clans will do their best to obfuscate the fact that there is no miracle – political or economic – that will bring back the conditions that caused Autonomobiles to SEEM like a good idea to provide Mobility and Access.

The world has changed. Economic conditions that result few Households being able to afford an Autonomobile MAY well return.

However, cheap fuel and subsidies that are massive enough to make the Autonomobile appear to be a reasonable alternative for even a slim majority of citizens to acquire Mobility and Access will NOT return.

Even with cheap fuel, there is no basis for assuming that the goal of a functional Mobility and Access can be achieved by expanding Roadways for Large, Private Vehicles (aka, Autonomobiles). Building more Roadways INSIDE Clear Edges has not been an effective strategy to improve Mobility and Access since the 1920s when only a small minority of the Households could afford a Autonomobile.

Building Roadways for Autonomobiles has not improved citizen Mobility and Access at the SubRegional, Regional or MegaRegional scales in Urban areas for decades.

The higher the percentage of car ownership per Household, the less building roadways improves Mobility and Access at the MegaRegional, Regional, SubRegional and Community Scales. Since 1985 building roadways has occasionally helped some at the top of the Ziggurat who can influence the planning, design, funding and construction of roadways to meet their specific objectives but it has not helped citizens Region-wide.

At the sub-Community scale, building Roadways CAN improve Mobility and Access for those who have access to Autonomobiles in specific corridors and for short periods of time but not in the long term and not for entire MegaRegions, Regions or even large SubRegions.

The annual Urban Mobility Report by the Texas Transportation Institute (TTI) documents that in every year since the survey started in the mid-80s, congestion has gotten worse in every large urban agglomeration in the US of A.

Analysis by the Surface Transportation Policy Project has shown that in those large SubRegions and Regions where MORE lane miles of roadway per capita were added, the congestion grew FASTER than in those SubRegions and Regions that built FEWER lane miles per capita and effectively employed other Mobility and Access strategies. (See “The Physics of Gridlock” and “Priority Transport Improvements” two PowerPoint presentations on The Shape of the Future – 4th Printing CD for a summary of the TTI data and findings through the early 00s. The TTI reports since that time, including the one just released based on data through 2007, confirm these trends.)

It turns out traffic congestion is NOT driven by the need for new Roadways. The “problem” is the Large, Private Vehicles themselves – that is why they are called Autonomobiles.

The land area needed to drive and park Autonomobiles disaggregates human settlement to the point of dysfunction at the scales of Urban agglomeration that are effective in supporting the economic, social and physical well being of citizens. Functional settlement patterns are necessary to achieve sustainability of a contemporary, technology and competition driven civilization.

It is not just a matter of economic structure, it is not just a matter of social stability, it is not just a matter of environmental sustainability, it is a matter of physics, PERIOD. This fact is validated by the market decisions of those who have a choice. This reality is spelled out PART THREE – THE PROBLEM WITH CARS in TRILO-G .

The cost of using Large, Private Vehicles has gone up and will go up further. In addition, programs, policies and regulations that begin to fairly allocate location-variable costs – including the full cost of Large, Private Vehicles – will cause the cost of their use to go up even more.

As use and utility of Large, Private Vehicles winds down, MegaRegions, Regions, SubRegions, Communities, Villages and Neighborhoods will need new transport infrastructure for efficient vehicles to provide Mobility and Access for functional and sustainable human settlement patterns.

If the Regions within Virginia are to be competitive in the provision of goods and services and in attracting those citizens who will be needed to support economic prosperity, they will require transport infrastructure to support functional human settlement patterns.

The simple minded delusion that there is a ‘NEED’ for a new roadways to carry ‘increased future traffic, especially ‘commuter’ traffic, is based on projecting past trends forward without regard to the current and probable future reality with respect to the affordability and utility of Large, Private Vehicles within the context that Florida, Bacon, SYNERGY and others foresee:

1. There will be less and less ability to have Job in Core of SubRegions or Regions (where 85 percent of the citizens now work) and live somewhere else

2. Agencies will be forced to provide Mobility and Access with more efficient shared-vehicle systems rather than subsidizing Large, Private Vehicles.

3. Agencies will not be able to afford to provide “commuter services” to those who live in scattered Urban dwellings

4. There will be diminishing ability to truck goods long distances. Long distance trucking would have atrophied years ago but for gross subsidies. Truck fees and taxes now pay for only about 10 percent of the heavy goods vehicles impact on Roadways and almost nothing toward the impact on air and water resources.

How did Virginia get to this place? VDOT’s ancestor was chartered to build roadways. For 85 years VDOT and its predecessors (VDH&T and VDH) have been faced with an ever expanding tide of cars. That this tide will ebb is not yet on the VDOT or political Clan radar based on their actions and public pronouncements.

There is a colloquialism oft repeated by residents of islands in the eastern Carribean: “Little bird, he build nest one stick at a time.” Roadway Agencies have built traffic congestion one roadway project at a time.

Citizens / voters will have to tell governance practitioners that times have changed.

What would a REAL plan for Mobility and Access look like? Here are some elements of a Commonwealth Mobility and Access Plan which will enable Regions and SubRegions to obtain a sustainable tranjectory:

Set up a democratically elected body to carry out the following steps:

Step One: Determine the area needed for current and future (at least 50 years) Urban land uses in functional and sustainable patterns and densities. This total will be between 5 and 10 percent of the land area in the Commonwealth.

Step Two: Allocate the area for future development by Region based on the carrying capacity of the Regions and SubRegions. Allocation of the total Urban area in each Region to be based on an intelligent, democratically determined criteria. Provide for a review of the allocation every five years.

Step Three: Draw a Clear Edge around all Urbansides to indicate the boundary between the Urbansides and the Countryside. The total area within the Clear Edges would provide for each Regions allocation in Step Two. The area within the Clear Edges would ALSO include Openspace at all scales (Dooryard, Cluster, Neighborhood, Village, Community, SubRegional, Regional) equal to half the total area within the Clear Edges.

Step Four: Inside the Clear Edges around the Core of New Urban Regions and large Urban agglomerations in Urban Support Regions, design shared-vehicle systems to serve station areas that have a Balance of J / H / S / R / A.

These four steps would provide Mobility and Access to support economic, social and physical activity.

Within New Urban Regions:

The excess roadway capacity within the Clear Edges that results from the creation of Balanced and functional settlement patterns supported by shared-vehicle systems can be devoted to Openspace and Recreational uses.

In the Countryside – outside the Clear Edges around Urban agglomerations of all sizes – there is already adequate roadway capacity when relative Balance is achieved within the Urbansides.

Inter Regional Mobility and Access:

To conserve energy; move freight and some long distance passenger service from truck and air to rail.

Implement interregional weight distance fees to pay the cost of maintaining InterRegional facilities.

A fair allocation of the full location-variable costs and a carbon tax on transportation fuel will result in a Balance of Urban systems, Conservation of resources and reduced need for travel and infrastructure without lowering quality of life / health safety and welfare / happiness and safety of citizens.

The questions is:

Will citizens hold those who seek public office to a realistic standard of honesty with respect to what is possible in the future?

It is daft to think that after years of subsidizing dysfunctional human settlement patterns there is some way to improve Mobility and Access (or provide Jobs) without Fundamental Transformation of settlement patterns and Fundamental Transformation of governance structure that results in a fair allocation of location-variable costs.

EMR

The starting point for the discussion of public policy in the United States and the 50 states today is the looming insolvency of the federal government at some point in the next 20 to 25 years. By “insolvency,” I mean we are heading toward an Argentina-style financial crisis that will lead to the radical truncation of the size of the federal government, the collapse of the American welfare state, a retrenchment of the American empire and a devolution of power to the states.

There are some in the blogosphere who discuss such talk as scare mongering on the part of partisans unalterably opposed to the Obama health care plan. My response to them is, fools, you are short-sighted beyond belief. Instead of agitating for an expansion of the welfare state and acceleration of deficit spending, you should devote your energy to avoiding the fiscal cataclysm that will reduce America’s social safety net to tatters and cause incalculable pain for those who rely upon it.

But the blind defenders of fiscal Business As Usual will be swayed by nothing other than the reality of the insolvency itself, and I do not write for them. Nor do I write in the hope of forestalling the disaster, for the trajectory of federal spending and deficits has been set and is politically irreversible. I write for the practitioners of government at the state and local levels, for they are the ones to whom society will turn when the federal government fails.

The most important thing that the commonwealth of Virginia can do over the next two decades is prepare itself for the day the federal spigot runs dry: when Medicare, Medicaid and Social Security payments are drastically curtailed, when the flow of military dollars into the state can no longer be supported, when discretionary federal spending on everything from schools and housing to earmarks and corporate welfare are not merely hacked to the bone but amputated outright.

Those are not topics that our two gubernatorial candidates, our congressmen nor anyone else in a position of power wish to talk about. Therefore, the job falls to the citizenry. We can see the hurricane coming. We have a choice. Like our political leaders, we can sit on the front deck of our beach house, pop open a cool one and remark upon the rising wind and waves. Or we can start nailing the plywood over our windows and moving the furniture to the upper floors.

In the next post, I will explain how unsustainable U.S. fiscal policies will inevitably bankrupt the federal government and why, when things unravel, they will do so with surprising speed.

Professor Sugrue’s “The New American Dream: Renting”(The Wall St Journal 14 August 2009) is a must read for anyone interested in shelter or in solving the Affordable and Accessible Housing Crisis or shelter in general. The article can be accessed at http://online.wsj.com/article/SB10001424052970204409904574350432677038184.html#mod=article-outset-box

Sugrue makes it very clear that:

1. The emergence of,

2. The overwhelmingly dominate run of, and

3. The crash of

What the real estate industry likes to call “The American Dream,” and

What many others call “The 50 Year American Nightmare,”

was NOT the result of free market decisions by well informed consumers.

It was NOT citizens voting with their dollars for what they love and want to experience with respect to human settlement patterns. That is especially true over the last 36 years.

The so-called “American Dream” is the vehicle that the real estate industry and land speculators have fashioned to make the most money fastest and will have a devastating long term impact on economic prosperity, social stability and environmental sustainability of contemporary society.

Sugrue argues that The American Dream / Nightmare has been made possible by the misunderstood and largely hidden role of Federal Agencies. Further, the Federal role did not start with the New Deal and did not end with The Fair Deal or The Great Society. It was a major component of The Ownership Society.

In Sugrue’s view Single Household Detached Dwellings would not be “The American Dream” but for Federal Agency intervention in the shelter and land markets. In addition, there would not have been repeated housing / land development bubbles without Federal Agency initiative and resources.

“Land Development Bubble?” Yes! You may recall the REIT Crash and the Savings and Loan Crisis. They cost investors and tax payers billions.

The most recent of these recurring housing / land development bubbles has caused the current Global Financial Meltdown. The Meltdown was caused by the fabrication of fraudulent securities based on bad mortgages. But the underlying factors – loans to poor credit risks, crooked appraisals, illegal lending practices, out of control compensation schemes, faulty regulation and Wrong Size House, Wrong Location dwellings – that fueled the BOOM and the BUST were all part of a grand scheme to drive Mass OverConsumption and speculation in shelter.

As EMR noted in the comments to the “Ignoring the Real Issues” post, Sugrue has put together great quotes, interesting data and a narrow perspective to come to a faulty conclusion. (As also noted in that string, Larry Gross gets a hardy vote of thanks for providing the link to the Journal coverage.)

Sugrue comes to the wrong conclusion because of three major discontinuities in his shelter-centric Conceptual Framework:

1. Without massive Federal (and state) Agency subsidies of the Autonomobile, most of the disastrous cumulative consequences of The American Dream / Nightmare would never have occurred.

In other words Federal Agencies can be blamed for dysfunctional human settlement patterns due to TWO mutually reinforcing Agency strategies. Sugrue blames dysfunctional a human settlement pattern on shelter strategies but that is only half the story. We will return to this point below.

2. It is NOT citizens owning a DWELLING that is the ROOT cause of the problems Sugrue cites but the configurations of the lots upon which the vast majority of the dwellings were built. We will return to the ownership issue, but first the third discontinuity.

3. Widespread use of rental housing is NOT a ‘solution’ to the shelter problem or to the Affordable and Accessible Housing Crisis.

Most shelter professionals agree there is great economic, social and physical value in ‘ownership.’ However, as RH points out in the earlier string, a nation-state of landlords would be no ‘dream.’ He also notes that landlords could write off the cost of money as an expense of doing business and so they would have an advantage when the mortgage tax deduction goes away as it must. (Even if Federal Agencies had more money than they knew what to do with it, the mortgage tax deduction should be limited to those at the bottom of the Ziggurat as noted in Chapter 22 – Without Shelter: The Affordable and Accessible Housing Crisis of TRILO-G.)

Absentee ownership is an ancient and universal generator of shelter dysfunction especially in Regions with market economies. Renting dwelling units ONLY in owner occupied buildings is a solution applied in some Cluster-scale and Neighborhood-scale Institutions posing as quasi-Agencies.

Now back to the larger ownership issue raised as point two above.

The central issue is not the ‘ownership’ of the DWELLING, it is the location of the dwelling in the middle of a lot and the resulting cumulative disaggregation of human settlement patterns that raises the cost and causes most of the dysfunctions that Sugrue correctly decries.

Lewenz does a nice job of spelling out the benefits of settlement patterns that do NOT contain individual lots – and do not provide space to drive and park Autonomobiles within the Urban fabric – in How to Build a Village. The cumulative economic, social an physical impact of ANY homogeneous configuration of single Household detached dwelling is a major focus of Part Two, Chapters 5 through 14 of The Shape of the Future.

In addition, many who live on a separate lot also live with the delusion that can do what ever they want on their ‘land.’ The cumulative result is dysfunctional scatteration and disaggregation of Urban society – and 95 percent of the population is Urban.

Over the past 200 years Industrialization and application of complex technology has resulted in the collective impact human habitation to intensify exponentially. Humans now have the ability to warp and destroy Regional, Continental and Global natural systems. One needs to go no farther than the Chesapeake Bay to understand this reality. The dysfunctional scatteration caused by extensive monocultures of individual lots exacerbates the problem. On-site mitigation of some impacts – sanitation and storm water for example – only make the problem of cumulative dispersion worse.

In other words the central issue is not “home ownership” but rather human settlement pattern.

It turns out that too many well intended and thoughtful citizens have been frightened by Garrett Hardin’s 1968 essay “The Tragedy of the Commons.” There can be tragedy in commons but that is a problem of management, not of ownership patterns. Solving the over-use of the commons is just one aspect of need for Fundamental Transformation in the way land the planets resource is managed and maintained. This is the topic of PART FOUR of TRILO-G – THE USE AND MANAGEMENT OF LAND.

As pointed out in this PART, ownership, control and management are separate functions impacting land.

Some have used the existence of bad public or shared land ownership, control and management as an excuse to over sell “the miracle of private ownership.” There is an important role for private ownership. However, there is also and important role for joint ownership – for example by a husband and wife – and for a whole range of shared-ownership options.

Intelligently applying a full range of ownership options is key to evolving functional land use patterns made up of Balanced organic components of human settlement. The issue is NOT private ownership vs public ownership, it is finding the appropriate role for individual ownership within the wide array of joint ownership options and paring that option with the appropriate land management strategy.

There are many ownership options for ‘non-free-standing’ dwellings. One is attached dwellings. In Planned New Communities (Balanced components of Urban fabric at Alpha Community-scale) built between 1967 and 2000 in the US of A, the majority of dwellings are ATTACHED, not DETACHED dwellings.

Condominiums, cooperatives and other arrangements come to mind as a way to “own” a home and not have a free-standing dwelling on an individual lot. Condominiums in particular have become poster children of ineffective Cluster-scale governance and management. That is because states have failed to use their ‘reserved powers’ to evolve functional governance structures below the municipal level. Current governance structures fail to reflect the evolution from an agrarian society to an Urban society. Condominium and Homeowners Associations are notorious examples of bad governance in large part because they have no role the formal governance structure. There are, of course at this time no functional Regional / SubRegional governance structures that reflects economic, social and physical reality in the US of A.

Agencies have also – especially Federal Agencies in the West – given ‘public’ ownership of land a bad name due to bad management. This gross failure has been intentionally use to wrongly condemn all shared-ownership arrangements.

It is axiomatic that the scale of the land bay and the proximity of the Urban enclaves should determine the level of ownership, control and management of Openland. See Adirondack land use control system and PART FOUR – THE USE AND MANAGEMENT OF LAND in TRILO-G.

The importance of shared land ownership in functional human settlement patterns and in solving the Affordable and Accessible Housing Crisis is mirrored in the importance of shared-vehicle systems in solving the Mobility and Access Crisis.

Finally lets us turn to the last of Sugrue’s oversights with respect to the causes of settlement pattern dysfunction (aka, The American Dream / Nightmare):

By focusing on just the Federal role in the subsidy of scattered dwellings, Sugrue masks the problems with Federal subsidy of Mobility and Access.

The fact is that, but for Large, Private Vehicles with which to access the dispersed dwellings on individual lots, most of the problems Sugrue sites would never have arisen.

It is not just the government subsidy of the dwelling – the process of building and financing shelter – that is at the root of the problem but the Federal Agencies’s role in subsidizing the dominance of the Autonomobile as the primary option for Mobility and Access – what is good for GM is good for America.

There is a long history of Federal dominance in transport infrastructure. It started with post roads, stage routes and canals during the Confederacy and expanded after the adoption of the Constitution to railroads and then to Roadways (aka, Motorways) and finally to Air travel facilities.

A place to get a good summary of the Federal role in Autonomobile is Weyrich and Lind’s 2009 book Moving Minds: Conservatives and Public Transportation. Weyrich and Lind have taken on what they calls “the anti-transit troubadours” (including Winston and Shirley profiled in the earlier post METRO FINGER POINTING 24 June 2009, and the subject of QUACK, QUACK, QUACK 18 August 2009.)

In order to establish a base from which to attack myths about ‘transit’ (aka, shared-vehicle), Weyrich and Lind needed to destroy the illusion that “Automobiles pay their own way but public transit is ‘subsidized.’

They document that from the 1890s on, Federal Agencies were spending more to support Roadways than railways. There had been – past tense – huge subsidies, especially in the form of land grants from before the Civil War to the completion of the transcontinental railways but by the end of The Long Depression in 1896 the focus was on Roadways.

Federal Agencies never did aid Urban rail transport. In fact, as Weyrich and Lind point, out the Federal role was to hobble the privately owned Urban rail systems (subways, trolley lines, streetcars, interurban lines and commuter rail) by turning a blind eye to the municipal and state regulation and rate control.

As the Urban fabric morphed from Agrarian society ‘cities’ to Industrial Centers and then to New Urban Regions the municipal and state regulatory regimes did not allow the private suppliers of shared-vehicle services to evolve new rate structures, equipment and infrastructure to meet the changing shape of travel demand.

On the other hand, there is a Federal revenue source for support of Roadways that only recently has been extended to Agency owned shared-vehicle systems. This came long after a settlement pattern that favored Autonomobiles was dominate over the majority of every New Urban Region in the US of A.

There was also the well documented role of the Autonomobile Industrial Complex – not just the car companies but all those who benefitted from use of internal combustion engines on Roadways – petroleum, rubber, insurance and of course land speculators – to buy up and then tear up the Urban rail systems in order to promote the use of Autonomobiles and buses on the subsidized Roadways.

The bottom line is that Sugrue provides an import part of the picture, but not the whole picture. One would hope he fills in these gaps in his forthcoming book on “the history of real estate in modern America.”

EMR

“Quack, n., An untrained person who dispenses advice and expert opinions.”

First Rule of Quack Identification:

If a known Quack consistently cites a third party as a source of support for their strain of Quackery, then the third party is also a Quack.

Exception to the First Rule of Quack Identification:

If the third party suffers from an affliction that limits their ability to articulate reality, the third party may or may not be a Quack.

Case in point:

In METRO FINGER POINTING (posted 24 June 2009) Dr. Clifford Winston was cited as being an “anti-rail quack.” Upon further review Winston may just suffer from one of the common symptoms of Geographic Illiteracy:

The inability to identify the impact of dysfunctional human settlement patterns.

In the book he co-authored with Chad Shirley (“Alternative Route: Toward Efficient Urban Transportation” 1998) or in the 2007 item published in Urban Economics cited in METRO FINGER POINTING, had Dr. Winston just noted in Bold Face that:

“It is impossible to provide efficient (or functional) transport service to dysfunctional human settlement patterns.”

Then Dr. Winston could have been deemed intelligent, perceptive and not a quack – or a Quack. He would also have saved himself a lot of wasted effort and would not be widely cited by Quacks.

This does not excuse Dr. Winston from coming to conclusions about transport efficiency in the Alternative Route based on data that is unrelated to settlement patterns nor does it excuse him for transgressions in cost benefit analysis alleged by Dr. Goddard in the review of his work noted in METRO FINGER POINTING.

EMR apologies for any embarrassment, discomfort or confusion that the attribution of Quack may have caused but there is now supporting evidence for the use of the appellation “Quack.”

There is a book now available which is written to identify and discredit “anti-transit troubadours” which is in the context of the book is not far from “anti-rial quack.” The book is Paul M. Weyrich and William S. Lind’s 2009 book Moving Minds: Conservatives and Public Transportation.

Weyrich and Lind have taken on what they call “the anti-transit troubadours.” In Chapter 3 they consider anti-transit myths (aka anti-shared-vehicle system myths). They cite the work of 22 anti-transit troubadours including both Drs Clifford Winston and Chad Shirley. While Dr. Winston does not rank with Wendell Cox (13 citations) or John Semmens (8 citations) he garners a respectful three citations which ties him with luminaries in the field such as Peter Gordon and Randal O’Tool.

The Weyrich / Lind book is well worth reading for any who doubt the importance of shared-vehicles in addressing the Mobility and Access Crisis in New Urban Regions.

EMR