Strong Towns' Bottom-Up Revolution (II)

Cedar Rapids City Hall

Response to chapters 1 & 2 is here.

Chapters 3 and 4 of Charles L. Marohn's new book, Strong Towns: A Bottom-Up Revolution to Rebuild American Prosperity (Wiley, 2020) make two critical empirical arguments I'll just touch on here before I get to what I really want to write about. In chapter 4, Marohn deconstructs the case for more infrastructure spending, which relies heavily on the American Society for Civil Engineers (ASCE) to the effect that [a] our current set of roads, bridges, &c. is in poor shape (usually indicated by grades from C to F), and [b] we need to spend X amount of dollars to repair or enhance or replace it, or else [c] we will collectively suffer Y amount of dollars in lost income. (Residents of my town will notice an astonishing similarity to the school district's argument to blow up all but one of our elementary schools.) Marohn points out that X is typically greater than Y, in fact more than double Y in the case he cites, and that it includes unproven assumptions about behavior such as people would be working during the time they spend stuck in congested traffic, or that wider roads wouldn't attract more traffic.

Most of chapter 3 is devoted to explaining what Marohn calls the Municipal Ponzi Scheme (p. 50). Because governments at all levels have built to stimulate future growth instead of accommodating what's already there--discussed in the last installment--we are overbuilt, which means the economic activity in most areas does not generate sufficient tax revenue to pay for maintenance. (See Figures 3-1 and 3-2 as well as his discussion of them.) The only way to make that up is to for new areas to be developed that don't at first need maintenance, so that those real estate taxes can be used elsewhere.

For cities in need of cash, new growth provides it. In the pattern of development we're experimenting with today--one that is government-led, spread out, and mostly homogeneous across the entire continent--new growth gives a local government decades of free cash flow. That makes it easy to understand the natural reaction of city leadership, as well as American society in general, when those liabilities come due and the insolvency starts to bite: pursue more growth. (p. 54)

The discussion can get technical and mathy, but Marohn's prose is quite accessible, and it's well worth the time spent getting through it. Someone's been selling you a bill of goods, and it's good to understand that.

Marohn begins chapter 3 with the controversial proposition that cities should "run a profit" (p. 37). He takes care, after he's shocked us with that, to explain that cities aren't designed to maximize profit, as a business would be, only that in order to run out of money, they have somehow to take in more of it than they spend.

The proposition is shocking because we are used to associating profit with businesses run in the interest of their proprietors, shareholders &c.--as Adam Smith famously wrote, we get our dinner from the baker's and butcher's "regard for their self interest"--while government is attend to the public's wishes and needs with something like the "benevolence" Smith pooh-poohed.

Governments act where there is identifiable market failure--an economic term with a fairly precise definition, although it's applied rather pliably in the real world. At the risk of offending any economist who has read this far, market failures in practice fall into two broad categories:

• situations where the prerequisites for market behavior do not hold, such as competition among sellers (and buyers), sufficient information for buyers to make a good choice, and excludability i.e. there must be something that can be transferred from the seller's control to the buyer's control for a price. Those prerequisites do not apply in cases of monopoly, complex or changing information about products, or non-excludable things like clean air, national security, and roads. In those cases we can expect government to step in with regulation or direct provision of services.
• situations where the outcomes of an efficiently-operating market are not politically acceptable, either because everyone is seen as deserving of some good regardless of ability to pay (merit good), or because production or use of something causes harm to other people not involved in the transaction (externalities). Obviously this could apply to almost anything, which alarms political conservatives and should alarm the rest of us, but it traditionally has included things like K-12 education, parks, and libraries. Current controversies over housing, health care, and public broadcasting revolve over whether they are merit goods; controversies over energy production and marijuana legalization focus on their externalities.

Whatever the problem, if there were profits to be made from addressing it, some private actor would have responded to the incentive. So how can governments be expected to run profits responding to political demands the market has certified to be insufficiently profitable?

Marohn isn't, however, expecting cities to maximize value for shareholders (p. 37), only "to endure"(p. 40) which requires it remain financially solvent. Even that is a challenge given the range of tasks local governments take on. Yet, as he pointed out at the outset of the book, cities have been meeting that challenge throughout human history. "Places that were not successful in harmonizing competing interests went away, their failures adding to a reservoir of cultural wisdom on how to build great places" (p. 41). The solution is to take a cautious approach, both to the range of tasks undertaken, and the scope of each task. It is not sufficient to say "people want it" (p. 50)--there must be a reasonable expectation that there will be revenue to meet it.

Because cities, unlike private businesses, cannot normally cease to exist, their behavior should be risk-averse. A business that takes a huge risk might achieve huge success, or it might spectacularly fail, in which case the owners will declare bankruptcy, its employees will eventually get new jobs, and the world will go on pretty much as it had been. Maybe it's true that businesses "will all eventually fail and be replaced by new upstarts" (p. 40). A city that takes a huge risk cannot fail; it can only "linger on, performing its functions poorly, failing to serve--and in some instances, doing harm to--the people that form the community it governs" (p. 38). Remember that next time someone in your town is promoting some "game-changer" scheme.