Friday, 19 March 2010

When a City Downsizes

Back to the Future

Ghost towns used to be quaint historical relics. Most often towns emptied out and became a mere shell of their former vibrancy when the source of the original boom failed. Usually the boom had been caused by discoveries of gold, silver, or other minerals; once the discoveries played out, the towns died.

Given reasonably consistent economic and population growth, it is rare to see modern ghost towns. But it is likely to become more common as the great debt-deflation winds its way through--particularly in the case of cities which have been long subsidised by government through protective tariffs for industry, subsidies, and entitlements. As governments come under fiscal pressure and reduce spending, or as dying industries finally downsize or expire due to relentless economic and competitive pressure, once thriving cities are becoming ghost towns.

Detroit in the US is one such city. Long propped up by the automotive industry, it has now fallen into an inevitable decline as the US auto industry moves away from the subsidised "Big Three" of General Motors, Ford and Chrysler. Like its shrinking industries, Detroit is now actively planning to downsize, according to a recent article in the Washington Times. The plan is to turn Detroit, once a mighty industrial city, into a semi-rural town.
Detroit, the very symbol of American industrial might for most of the 20th century, is drawing up a radical renewal plan that calls for turning large swaths of this now-blighted, rusted-out city back into the fields and farmland that existed before the automobile.

Operating on a scale never before attempted in this country, the city would demolish houses in some of the most desolate sections of Detroit and move residents into stronger neighborhoods. Roughly a quarter of the 139-square-mile city could go from urban to semi-rural.

Near downtown, fruit trees and vegetable farms would replace neighborhoods that are an eerie landscape of empty buildings and vacant lots. Suburban commuters heading into the city center might pass through what looks like the countryside to get there. Surviving neighborhoods in the birthplace of the auto industry would become pockets in expanses of green.
Since the decline of Detroit is now regarded as permanent, the issue becomes one of planned downsizing, versus haphazard declension. The city wants to downsize in an orderly fashion.
Politically explosive decisions must be made about which neighborhoods should be bulldozed and which improved. Hundreds of millions of federal dollars will be needed to buy land, raze buildings and relocate residents, since this financially desperate city does not have the means to do it on its own. It isn't known how many people in the mostly black, blue-collar city might be uprooted, but it could be thousands. Some won't go willingly.
The city simply cannot continue to service neighbourhoods and houses that were built to accommodate twice its current population. Whole city blocks are going to have to become turned into rural land once again.
Now, a city of nearly 2 million in the 1950s has declined to less than half that number. On some blocks, only one or two occupied houses remain, surrounded by trash-strewn lots and vacant, burned-out homes. Scavengers have stripped anything of value from empty buildings. According to one recent estimate, Detroit has 33,500 empty houses and 91,000 vacant residential lots.

Several other declining industrial cities, such as Youngstown, Ohio, have also accepted downsizing. Since 2005, Youngstown has been tearing down a few hundred houses a year. But Detroit's plans dwarf that effort. The approximately 40 square miles of vacant property in Detroit is larger than the entire city of Youngstown.

Faced with a $300 million budget deficit and a dwindling tax base, Mr. Bing says the city can't continue to pay for police patrols, fire protection and other services for all areas.

The current plan would demolish about 10,000 houses and empty buildings in three years and pump new investment into stronger neighborhoods. In the neighborhoods that would be cleared, the city would offer to relocate residents or buy them out. The city could use tax foreclosure to claim abandoned property and invoke eminent domain for those who refuse to leave, much as cities now do for freeway projects.
The lesson for cities is adapt or die. If successive federal, state and local governments had not sought to protect Detroit's industries from competition from the outset, the American auto industry would have adapted far sooner, and probably would have survived much longer. In the end, no city or country can shut out secular economic reality. The quicker adaptation takes place, the more sustainable the future going forward.

But this is too much to ask in the case of nations which have required their governments to be partial to the economic well-being of their voting citizens. Such nations become subject to a predominant culture of bribery and the inevitable corruption and waste that comes with it.


CrisisMaven said...

Will I would agree that cities going bankrupt will eventually lead to some being deserted, I wozldn't call debt gone bust "deflation". This "fear of deflation" is largely nonsensical. Deflation does not keep people from spending – they always spend what's necessary. And money NOT "spent" is then saved which means it is credit to someone who invests it for capital goods etc. thus it is again being spent, only not for consumption. Money never lies completely idle to any extent whether there's inflation, deflation, stability or a solar eclipse. For deflation to seriously happen, not only the current extreme credit expansion by the central banks and states (through "quantitative easing", stimulus packages, monetising and then spending national debt etc.) but also the money that was released into the economy PRIOR to the collapse would have to be "mopped up" again. This is nowhere to be seen nor would it be technically possible (confiscation aside) so we will rather see inflation than deflation.

John Tertullian and Contra Celsum said...

If the expansion of credit is inflationary the contraction of credit must be deflationary. We would not not argue that the US or any Western nation thus far is in the thrall of a universal deflationary contraction. As you point out, there has been too much monetary expansion in other ways.
But that it not to say that deflation has not occurred in specific sectors of the economy and in particular geographical areas. House prices in California, for example, have deflated. Detroit, as a city, has experienced deflation. New Jersey is heading into it, as the state government turns off the money spigots. Whilst hard, it is not necessarily a bad thing. There will need to be a lot more of it to put Western nations upon a sound economic footing.