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JakilaTheHun (99.94)

Laying the Foundations for a Post-Oil Age Economy

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July 14, 2009 – Comments (22)

For years, Americans allowed themselves to be convinced by mistruths parroted by politicians and the National Association of Realtors that an economy based on home building and sprawl could thrive permanently.  Just like the deluded investors in the Roaring Twenties who convinced themselves that stocks could go up forever, people became convinced that home values could see dramatic appreciations in value for the rest of time, with no negative side effects.  However, the myth of American economic infallibility has been destroyed over the past two years.  Now, Americans suddenly find themselves reexamining the situation.  In truth, this might only be the beginning of America’s economic decline as this nation is not built to thrive in a resource constrained world.

You may believe I’m another doom and gloom prophet.  Maybe I am in one sense as I believe the American economy is poorly equipped to deal with the challenges of the 21st Century.  At the same time, I do believe there are solutions to our economic malaise and the longer we fail to deal with the underlying problems in our economic structure, the more we’ll fall behind the rest of the world.  It’s just a matter of convincing people to change the way things work; which if history is any indication, is always difficult, but never impossible.

In 1776, Adam Smith wrote The Wealth of Nations, an economic treatise arguing in favor of “free market” principles and in opposition to the mercantilistic views that were dominant at the time.  Smith’s work has been quoted, misquoted, cited, and distorted numerous times in the 233 years since its publication.  I have no intention of discussing the nuances of Smith’s views or providing detailed thoughts on his analysis in this piece; rather, I simply point to the one guiding principle behind Smith’s work: increasing economic efficiency.  That should be the ultimate goal, since greater economic efficiencies will result in greater wealth for the most people.  While we have numerous economic problems right now, we have almost completely ignored one of the greatest inefficiencies in our society: sprawl.

The Sprawlipolitan Nightmare

If you’ve ever taken a look at maps from some of Europe’s greatest cities in the 18th and 19th Centuries, you’ll notice the very thorough urban planning almost immediately.  The great European cities that were at the center of world power were not haphazardly put together; nor were the early American cities.  Baltimore, one of the thriving American cities from the late 18th Century all the way into the mid 20th Century, is a great example of an American city were one can still see a planned out design and structure.

New York City, 18th Century

However, the nature of American metropolitan planning changed dramatically after the 1950s.  Suburbs began to sprawl dozens of miles outwards from major city cores with little coherence or thought-out design, eventually dramatically reducing American efficiency.  The reasoning as to how sprawl creates inefficiencies is quite simple: greater distances between housing centers and work centers results in a greater use of resources.  Greater uses of resources create economic inefficiency.

Due to our development patterns, we use more oil to travel to work, the grocery store, friends’ houses, and go out to the movies.  We use more energy to power the infrastructure to build and sustain the sprawled out suburbs.  In fact, the average American uses nearly twice as much energy as the average European.

However, if you believe it stops there, you’d be dead wrong.  Sprawl raises our costs of living in many other ways that we don’t often think about.  Sprawl means we have to pay more taxes to construct and maintain the road and highway system needed to service these suburbs.  We pay more taxes for emergency services that are spread out over a larger area.  We pay higher prices for goods as an indirect result of higher energy costs that drive prices upwards.  We may not notice these things on a day-to-day basis, but it stands to reason that sprawl imposes significant costs on a societal-wide scale that hinders America’s ability to compete with the rest of the world.

If that were not enough, sprawl has helped destroyed one of the things that previously defined America: a sense of community.  Sprawled our suburbs isolate us and make it more difficult for us to develop close friendships with many people.  It makes it more difficult to sustain major cultural institutions. It leaves us alienated from the world around us.  If sprawl imposes very real economic costs on our society, it also creates significant quality-of-life issues and creates considerable constraints on the liveliness of our own culture, which was envied by everyone around us.

America’s Advantages

Fortunately, despite these major issues, America’s advantages have helped us overcome our disadvantages over the past half century.  There are very few societies on Earth as free and open as ours and, undoubtedly, that has helped foster a spirit of creativity and ingenuity that has made the American economy the strongest in the world and has lured countless number of dreamers from foreign lands onto our shores.

We originated a system of public financial reporting (via the SEC Acts of 1933 and ’34) that has helped decrease the level of uncertainty for investors and has helped drive costs of capital down.  It made America the safest country in the world to invest in and a haven for capital in the latter part of the 21st Century.

The merits of that system should become clear when we see scandals involving highly secretive, private investment firms such as the one run by Bernie Madoff.  Madoff was able to perpetrate his Ponzi scheme for decades largely because there was no significant public oversight.  In a sense, our public reporting system is like an accounting version of “open source” software, and while there will be bugs in it occasionally, so long as it’s out in the open, people will find it, inform others, and try to correct the situation.

We are also a nation blessed with diverse and plentiful resources and we have a highly educated population.  With the exception of China, there are not too many nations that could sustain themselves even in a worst-case scenario where all imports were cut off.  We have agriculture, we have minerals, we have manufacturing, and just about anything else we could possibly need in a jam.

Despite these advantages, the rest of the world is catching up to us quickly.  As tends to be the case throughout history, when one society has success, others try to mimic it.  Inevitably many succeed.  It’s no surprise that people in certain parts of the globe, notably Eastern Europe and China have admired America and have sought to learn from us.  If we want to maintain our position in the world, it will be necessary to orient our economy towards the future and evidence suggests we are heading towards a resource-constrained world with higher and higher extraction costs.  Minimizing energy usage, waste, and maximizing efficiency will be the keys to improving the quality of life.

Minimizing Energy and Resource Usage

If the problem is limited resources and increasingly higher costs of extraction, then the logical solution is to find ways to minimize usage of those resources.  America’s great dilemma is that over the past 60 or 70 years, we have built our infrastructure based on the flawed assumption that cheap oil would be plentiful for the foreseeable future.  That myth was briefly shattered in the 1970s, before America seemed to have revived the tall tale of eternally cheap oil once again in the ‘90s and ‘00s.

In the late ‘90s, motorists were able to find gasoline as cheap as 80 cents per gallon at one point.  Even the greatest demand destruction event in most of our lifetimes was only able to beat the price back down to about $1.50 per gallon at the height of the market collapse in November ’08.  Given this, it’s probably safe to say we won’t be revisiting the heyday of the late ‘90s any time soon.  At $50 – $60 per barrel, most of us believe that oil is relatively cheap.  When you consider that oil can manage to stay that high despite extremely suppressed demand levels, it becomes clear just how costly our heavy usage of this fossil fuel has become and it’s only going to get worse as emerging economies such as China and India continue to increase their oil consumption.

At this point in time, the American economy might be facing a giant Catch-22.  It can only thrive over the long-run with inexpensive oil.  Yet, oil is only inexpensive when demand is suppressed in a depressionary or severe recessionary environment.  The only real solution is to free ourselves from this paradigm and decrease our energy consumption.  The question is, how do we best achieve that?

There are several areas where I believe the nation can begin to promote more efficient energy usage and my goal with this blog will largely be to explore many of these areas.  My primary targets are:

(1) Expansion of public transportation and high-speed rail systems

(2) Transportation policies that reward the most efficient users

(3) Economic policies that promote upward, urban development

There are certainly other areas where we can decrease energy consumption and alternative energy technologies can allow us to reduce dependence on foreign oil, but I want to focus on the areas that I believe provide the most significant advantages that are often overlooked.  In fact, many of the issues I wish to highlight deal with things that are simply taken for granted.  With that, let’s explore some of these issues.

 

 

Due to the limitations of the Fool's blog service, please visit theupwardsociety.wordpress.com to read more.  Links are also included at that site.

- Jakila

22 Comments – Post Your Own

#1) On July 14, 2009 at 12:39 PM, chk999 (99.97) wrote:

The problem with high density living is that your neighbors get on your nerves and you can't get away from them. I've only met a few people that actually like living in an apartment building. Necessity may force our hands, but it won't be pleasant.

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#2) On July 14, 2009 at 12:39 PM, jatt22 (45.51) wrote:

excellent  stuff  u  wrote  .  totally  agreed  

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#3) On July 14, 2009 at 12:51 PM, JakilaTheHun (99.94) wrote:

Chk999,

There's some truth to that, but it's a trade-off. And part of the reason you "can't get away" has to do with sprawl.  Otherwise, there would be more rooms for parks, recreation, and things to "get away" to.  

I've lived in apartments and condos for most of the past 8 years and I've only lived in a few with noise problems.  Soundproofing is a great concept and I almost always make sure that sound is not too much of an issue before moving.  The great thing about the modern world is that you can actually find information on most communities online, so you're not going in as blind as you would, in say 1980.  

Regardless, my complaint isn't so much that people live in the suburbs.  I live in a suburb, too (Fairfax, VA).  My complaint  is the that governmental policies have exacerbated the problems by shifting the costs to the general tax base and making it appear as if sprawled out suburban living is cheaper than it is in reality.  I believe if there were no significiant distortions in the market, we would see more urban living and less suburb-building. 

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#4) On July 14, 2009 at 12:51 PM, anchak (99.85) wrote:

Jakila.....very well written.....

As someone with a sort of an outside-in view , these are some basic issues I noticed when I first came to the US.

However this is a major life-style change - you are talking in-migration....it would be interesting to see how it plays out.

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#5) On July 14, 2009 at 1:09 PM, Tastylunch (29.21) wrote:

AWESOME post

would say that Homebuilders are screwed becasue of this...Most are dependent on sprawl to survive. SOme obviously will transition into condo makers but a lot won't.

most people are completey unaware of the indirect costs of big box parking seas and sprawl in general.

It's a human perception limitation unfortunately.It's a trait I notice often at my job. People are very very bad at mental math/stats.

I agree with chk999, given the choice I think most people would prefer space as they've clearly shown but like you I don't think that exurb lifestyle is going to be feasible much longer.

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#6) On July 14, 2009 at 1:10 PM, Bamafan68 (92.03) wrote:

You make some very interesting and valid points.  One area that you didn't address regarding sprawl, is that suburban public school districts tend to be better than their urban counterparts.   No program to help renew urban communities is going to succeed long term without addressing the inadequacies of many of our public school systems.

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#7) On July 14, 2009 at 2:32 PM, JakilaTheHun (99.94) wrote:

Bamafan,

It does depend on the location to a large extent, but I agree there is a general problem in that urban schools are not as high quality as some suburban schools.  However, this is an issue directly related to the "flight of capital" (so to speak) as wealthy residents have fled the inner cities and moved to the suburbs, taking tax monies with them. 

Part of the problem is that the inner cities got greedy and imposed increasingly high taxes, while suburbs offered much lower taxes.  That is one of the major issues my blog focuses on because we should be promoting efficient living rather than encouraging inefficient living via tax policy.

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#8) On July 14, 2009 at 2:51 PM, AllStarPortfolio (23.72) wrote:

Jakila, We need a blogfor the MSN Top Stocks site. I wonder if you are familiar with it. My recent blog would put you on the trail. Let me know if you are interested. I hope so, because i consider you quite competent to do so.

-solaris

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#9) On July 14, 2009 at 2:51 PM, devoish (98.59) wrote:

Nice post Jakila.

As a denizen of Long Island, which is facing the limits of sprawl, I can testify that is incredibly inneficient to have not planned better.

In 1930 -50 Robert Moses planned and built a system of parkways to get NY city residents access to Long Island beaches and open spaces. From 1950-60 that investment caused the population here to grow from 500,000 to 1 mil people, and gave business's such as Grumman access to inexpensive land. Since that time we have built no limited access highways and have 3 rail lines that all pass through one station ("change at Jamaica" is a phrase all long Islanders can identify with) on their way to NY City.

Once the roads were in place, "planned" communities sprung up around them. Planned meant a housing subdivision (levittown) and its 1/4 acre plots and roads, not a planned community with industry, farming and housing.

Over time ALL the space from NY City to Suffolk County was filled in with housing subdivisions, and stores and industry, filled in between them.

There were varied small, failed attempts at regional planning along the way.

We now have 3 million people all squeezing on to the same transportation sytem.

The trip to Manhattan at 3:00am from Suffolk County takes 20 minutes. At 5:30pm it takes 2 hours. At 8:30am it takes 2 hours. The trains are full and more expensive than driving.

As I sat in traffic next to delivery trucks and employees not moving on their way to work and the pure waste of time and money, I could not help but think of the daily expense incured from having NOT planned.

And then it got worse. A fire on the Throgs Neck bridge closed it for a day. I was caught in seven hours of traffic for a round trip to attend a three hour meeting in NYC.

Now in order to correct the problems of traffic congestion we would need to trample the property rights of homeowners and business's to get the space needed to build out the mass transit or expand a highway. Or dig 30 mile subways, and still have trouble finding places to surface.

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#10) On July 14, 2009 at 2:59 PM, SkepticalOx (99.45) wrote:

Paul Krugman (the favorite economist of Fools... *cough*) mentioned something about this in his blog on the Times. He was in Hong Kong, and quirked that HK is representative of what "the future" was suppose to be to people decades ago.

Seriously though, sprawl, surburbia, are just not that pleasing aesthetically. Gimme nature or gimme the wonders of architecture and engineering!

Disclosure: I'm live in Suburbia. :P 

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#11) On July 14, 2009 at 3:28 PM, rofgile (99.31) wrote:

A lot of the economy in the US was probably driven by sprawl.  New home building (and a lot of that percentage in the last 20 years has been due to sprawl) drives a lot of our consumer economy.

When you buy your new house, you have to by couches, refrigerators, TVs, beds, supplies, carpeting, etc .. etc.

If we switched from new home building in sprawl to a more urban planned development, you would be talking about a radical restructuring of how the US economy works.

I would support going in this direction.  The GDP doesn't have to be 70% services/consumption and 15% investment in development by companies.

It could be 40% consumption, with large civil projects such as railways and public buildings driving 40% investment.  That'd be a much more productive (and possibly more stable) economy.  It would also allow for manufacturing to return in the US, provide fulfilling jobs (Rather than walmart jobs).  Probably inflation would occur in this system that has been absent in the consumption-of-cheap-goods economy. 

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#12) On July 14, 2009 at 5:41 PM, jstegma (29.17) wrote:

greater distances between housing centers and work centers results in a greater use of resources.

Remember back when they used to talk about how people would telecommute?  

You'll know they are getting more serious about this green stuff when they revisit that idea with incentives for companies to implement working from home.  Until then, it's just urban people trying to tax suburban people.

We don't like mass transit and rat-infested hell-hole dense living conditions and someone telling us what is or is not aesthetically pleasing or what is the most efficient use of resources.  That's why we moved out to the sticks. 

We just had $1.8 Trillion in stimulus spending that was supposed to go to infrastructure.  I don't know where it went, but I haven't seen a dime of it and the only place I expect to is on my tax bill.  That's what happens with large civil projects.  It kinda pisses me off thinking about all that money taking up space in a landfill somewhere.

And what is a public building anyway?  You mean like those 1970's high-rise housing projects that we had to pay to tear down in the 1990's?  Surely to God you meant something else.  Report this comment
#13) On July 14, 2009 at 6:21 PM, JakilaTheHun (99.94) wrote:

AllStarPortfolio,

What kind of blog?  Do you mean you want to take a blog from here and post it there?  Or do you mean, you want me to write something original (and on what)?  

You have my permission to use any of my blogs from here if that is the case :)

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#14) On July 14, 2009 at 6:26 PM, JakilaTheHun (99.94) wrote:

Devoish,

Interesting anecdote.  I don't know much about suburban Long Island, but transportation sounds pretty nightmarish there.  Of course, similar stories are playing out in different ways over most of the country.  When I lived in suburban Atlanta, that was the absolute most miserable commute I can ever remember dealing with.  I used to leave for work at 6 AM to try to miss the traffic.  It would normally take me at least 20-30 minutes to drive 8 miles (if I waited till 6:45, it would have taken 45 minutes!); then I would hop on the MARTA from there and that would take another 40 minutes to get downtown.  

Now, I live in Northern Virginia, which is no cakewalk either.  If I could afford to live in the city, I would in a heartbeat. 

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#15) On July 14, 2009 at 6:30 PM, JakilaTheHun (99.94) wrote:

JStegma,

We don't like mass transit and rat-infested hell-hole dense living conditions and someone telling us what is or is not aesthetically pleasing or what is the most efficient use of resources.  That's why we moved out to the sticks. 

Those places exist in the suburbs, too.  We can talk about "freedom" all we want --- the real issue is resources.  If we keep wasting resources, you're going to find that those suburbs begin to look an awful lot like some of the worser inner cities environments of today.  Don't believe me?  It's already happening in suburban Atlanta.  Gwinnett County already has areas that are slowly turning into crime-infested hellholes where you might get mugged walking around at night.

 

And what is a public building anyway?  You mean like those 1970's high-rise housing projects that we had to pay to tear down in the 1990's?  Surely to God you meant something else.

I have absolutely no idea what you are talking about.  I don't recall using the phrase "public building" anywhere. 

 

 

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#16) On July 14, 2009 at 6:33 PM, JakilaTheHun (99.94) wrote:

It could be 40% consumption, with large civil projects such as railways and public buildings driving 40% investment.  That'd be a much more productive (and possibly more stable) economy.  It would also allow for manufacturing to return in the US, provide fulfilling jobs (Rather than walmart jobs).  Probably inflation would occur in this system that has been absent in the consumption-of-cheap-goods economy.

That's what I think we need.  It's a shame the "stimulus package" paid lip service to infrastructure, but didn't really provide much other than more pet projects for legislators and mroe highway building.   Our government does not understand the concept of "Return on Investment" any more.  Polticians believe that you can simply throw money at something and it automatically works, unfortunately. 

I would really like for the US to go back to its manufacturing roots.  

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#17) On July 14, 2009 at 6:35 PM, JakilaTheHun (99.94) wrote:

SkepticalOx,

I live in suburbia, too.  Fairfax, VA to be precise.  As far as suburbs go, it's better than most.  It's got its walkable areas, there is an actual real town (as Fairfax has been around since the nation's early days), and it's not that far of a drive to DC compared to some of the other places here.  All the same, I'd take living in DC any day if I could only afford it.  It's a shame to me that we are essentially forced out to the suburbs by poor policy.

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#18) On July 14, 2009 at 7:46 PM, BigFatBEAR (29.16) wrote:

Jakila, great write-up! A personal anecdote about sprawl...

I lived in Spain for a semester, and somehow, they either PREFER to live in urban high-rises, or the government creates incentives such that it happens anyway.

The town I lived, Alcala de Henares, was a satellite city of Madrid. Here's a map of it on Google Maps. Notice the scale here - most of the city fits into maybe a 4X4 mile area (16 sqaure miles), if not less. The population is around 200,000 according to Wikipedia.

Now let's compare this to an American city or two of comparable population. At the same zoom scale as above, here's Colorado Springs, where I currently live. To be fair, Colorado Springs has about 2.5 times as many people as Alcala de Henares. But it also covers maybe 8X10 miles! The population density confirms this: 767 per square kilometer in The Springs, versus 2,250 per square kilometer in Spain!

I remember being awe-struck by how quickly these high-rise apartment buildings gave way to untouched countryside on the edges of town. You'd be towered over one block, and within a few steps be in the middle of an empty expanse - no endless homes here.

It was SO cool being able to walk/bike/train everywhere in Europe. Until we find better ways to run our cars, America is VERY tethered to the price of oil. :-\

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#19) On July 14, 2009 at 7:58 PM, BigFatBEAR (29.16) wrote:

Also, for kicks, here's Colorado Springs versus MADRID, both on the same zoom scale. SO CRAZY! I never realized just how huge the Springs was, and how compact Madrid was...

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#20) On July 14, 2009 at 8:07 PM, JakilaTheHun (99.94) wrote:

BigFatBEAR,

Thanks for the anecdote!  That's very interesting; I've never been all that familiar with Spain, but I've seen a lot of the Italian cities that fit your description of Alcala de Henares.  

Also, isn't Google Maps the greatest thing on Earth?  Occasionally, when I'm bored, I'll just "explore" cities on there; particularly the ones you can view with Google Street View.  

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#21) On July 14, 2009 at 9:47 PM, devoish (98.59) wrote:

Manhattan Island in NY City has a population density of 27,400/square kilometer (71k/square mile).

Its grid pattern of streets was planned.

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#22) On July 15, 2009 at 11:23 AM, madcowmonkey (< 20) wrote:

Jakila- Check out the book, "outliers" it doesn't deal with exactly what you are talking about, but the first 3 chapters do. It talks about a community in Pennsylvania that has no issue with heart disease until after 65 years of age. The rest of the book is pretty interesting if you are into knowledge about how and why people become great at what they do. It isn't a self motivation book though, so don't get that idea.

The main issue that I have with the urban sprawl is that people move 45+ miles away from a place that they spend 40+ hours of their time during the week. Ridiculous.

Motivation for the "Urban Sprawl" is that home builders seized cheap land...at the start and built brand new homes that people desired for a decent percentage down from homes in the cities. Makes sense until oil goes over 100 and gas is sitting at $4+. 

Personally, I lived in the Maricopa county for a while and I have decided that I will never return to a major city again in my lifetime. Two traffic lights is 2 too many in my mind. 60,000 people waiting for you at every turn is nuts.

Again, check out the book when you get a chance and see what I mean about living in small towns with a friendly community. It is all about enjoying life and living the way you want though, so obviously it isn't for everybody.

Noise Pollution Takes Toll on Health and Happiness ...

 

 excerpt:

"But study after study has found that community noise is interrupting our sleep, interfering with our children's learning, suppressing our immune systems and even increasing -- albeit just a little -- our chances of having a heart attack. It is also tarnishing the Golden Rule, reducing people's inclination to help one another."

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