16 ms·

The Growth Ponzi Scheme

281 points by jseliger 5y ago

benrbray 5y ago
The Not Just Bikes [1,2,3] YouTube channel also has an excellent series of videos based on work from Strong Towns. I link to these videos whenever a friend asks why I chose to leave the United States. :) [1] https://www.youtube.com/watch?v=XfQUOHlAocY https://www.youtube.com/watch?v=XfQUOHlAocY [2] https://www.youtube.com/watch?v=ORzNZUeUHAM https://www.youtube.com/watch?v=ORzNZUeUHAM [3] https://www.youtube.com/watch?v=CCOdQsZa15o https://www.youtube.com/watch?v=CCOdQsZa15o
- HungSu 5y ago
  Could you share which destination city you chose and/or why?
  - benrbray 5y ago
    Tokyo! I'm not sure if I'll stay here forever, but so far I really enjoy life here. I had many reasons, including: * Car culture was really grating on me. Before I moved to Tokyo, I lived in Atlanta, a city carved up by I-75/85, where getting almost anywhere takes a 15+ minute drive on the highway. Highway traffic regularly spills onto neighborhood streets, and I felt like I was risking my life every time I went out walking / biking. I've also lived in downtown Seattle and suburban Michigan, and the situation was slightly better, but with the same car-first paradigm. * As I've gotten older it started to dawn on me how isolating American cities can be, especially without the community structure imposed by a school / university. People talk about America losing its "third place", and with permant-WFH we now seem pretty eager to get rid of our "second place" as well. * By comparison, Tokyo is designed at human-scale. I have everything I need within a 5 minute walk, which means I regularly run into the people who live near me. When I want to go farther I can always choose the appropriate mode of transportation for the journey: feet, bicycle, train, car, all in perfect harmony. For this reason, I also found it easier to maintain and build friendships -- no need to organize transport, just hop on a train. * I'm still young with few obligations and I want to learn more about the world before I choose a place to settle down. I know what life in America looks like. I'm learning about Japan. I hope to spend some time in Europe, eventually. * The political situation in the US concerns me. I'm not confident the US will be a nice place for me to live/retire 40 years from now. So for me, choosing to stay put seemed at least as risky as moving somewhere unfamiliar. Even if I eventually decide to return, I'd like to know that it was my own choice and not just inertia.
    - laurent92 5y ago
      The tax strings which tie me to every former country I’ve lived in is what keeps me from changing again… This, and retirement which is tied to a country, I can’t spend 4 decades in 4 countries and hope to have enough retirement at the end.
      - tharkun__ 5y ago
        Interesting. Do you mind if I ask which countries? I did hear that the IRS 'gets you' where ever you are but I assumed it was sort of unique in that. Aren't most countries either no longer interested in you once you leave (tax wise) or have tax treaties with one another? Including government pensions in the treaty?
- CalRobert 5y ago
  He recently did a great interview on the strongtowns podcast! Just got my EU citizenship and considering Utrecht. The US is a horrible place to try to raise an independent kid.
  - benrbray 5y ago
    Indeed! I grew up in a typical suburb where my agency as a child was strictly limited by my parents' ability / willingness to drive me places. Most parents don't realize how hard this is for their kids, mine certainly didn't. It's no wonder kids trapped at home end up spending so much time on the internet. I'm not old enough to really be thinking about kids, but I would never, ever inflict the suburban lifestyle a child of my own.
    - foreigner 5y ago
      Counterpoint: I moved to England to a walkable town, but my kids still want to spend all their time on the internet. When I limit "screen time" they just want to hole up in their rooms and read the same books over and over again.
    - CalRobert 5y ago
      I grew up in suburbia, but starting in high school just rode my bike everywhere. In retrospect it's hard to believe I survived, taking the lane on 55 mph roads (around northeastern Sacramento suburbs) was really dumb, in retrospect.
    - refurb 5y ago
      Sounds like your parents? The suburbs were great childhood for me. Lots of families so other kids to play with, lots of big parks, with a bike you could go anywhere.
      - benrbray 5y ago
        Yeah, you're right there are other factors. My neighborhood had busy roads on both ends, and was mostly empty-nesters. There are certainly worse places to grow up, but I don't think we should be satisfied with the baseline set by suburbs either. In places like Germany and Japan, children walk themselves to school as young as 6 years old! I only experience that freedom after getting a license at 16!
schleiss 5y ago
Somehow I found the article missing the solution, the organisation argues that "placemaking" [1] helps. They also argue that "Will this public project generate enough tax revenue to sustain its maintenance over multiple life cycles? Try asking that -- you will be amazed." is the question to successful public projects. But, I don't know if that holds true universally. [1] https://www.strongtowns.org/journal/2011/6/16/the-growth-ponzi-scheme-part-5-finale.html https://www.strongtowns.org/journal/2011/6/16/the-growth-pon...
- burlesona 5y ago
  The strange thing is that people don’t normally ask the question. It’s just assumed that all infrastructure generates positive economic returns, which is far from true. You asked “where’s the solution.” This post is one bit of a large volume of Strong Towns material, and this series is only meant to explain one particular problem cities face. The best source of Strong Town “solution” material is the “Action Lab,” https://actionlab.strongtowns.org/hc/en-us/categories/360004219212-Connect-to-Examples https://actionlab.strongtowns.org/hc/en-us/categories/360004...
  - nine_k 5y ago
    I think solutions should be somehow concentrated around making less infrastructure serve more taxpayers. One obvious way to do that is to build denser cities.
jSully24 5y ago
Thread on this article from May 2020: https://news.ycombinator.com/item?id=23222191 https://news.ycombinator.com/item?id=23222191
mikewarot 5y ago
This is an example of an embedded growth obligation, and they exist in almost every institution in the US. Eric Weinstein has been talking about them at length over the past year or so.
- deleted 5y ago
  [deleted]
- heinrichhartman 5y ago
  further reading: https://theportal.wiki/wiki/Embedded_Growth_Obligations https://theportal.wiki/wiki/Embedded_Growth_Obligations
29athrowaway 5y ago
When you have a period of high prosperity, you get used to it, making adjustments to your lifestyle. When that period is over, it's hard to accept it. In the 50s, you could have a modest job, provide for your entire household with one salary, buy a nice house, a car, send your kids to college. The government made massive investments on infrastructure, defense, science, space, etc. How was all of that paid? From 1945 to 1971, the economic reality was: "It costs only a few cents for the Bureau of Engraving and Printing to produce a $100 bill, but other countries had to pony up $100 of actual goods in order to obtain one." That system was known as the Bretton Woods system. Since its end in 1971, America has been struggling to adapt with its new economic reality. It is much harder to make a living in the US, buy a house, a car, raise kids and send them to college. Or even retire.
- benrbray 5y ago
  Relevant: https://wtfhappenedin1971.com/ https://wtfhappenedin1971.com/ (disclaimer: I don't agree with the authors of this site that Bitcoin is the solution (: )
  - 29athrowaway 5y ago
    The answer to "wtf happened in 1971" is the Nixon Shock, which marks the end of the Bretton Woods system.
- lotsofpulp 5y ago
  >From 1945 to 1971, the economic reality was: "It costs only a few cents for the Bureau of Engraving and Printing to produce a $100 bill, but other countries had to pony up $100 of actual goods in order to obtain one." Is this not true after 1971? I would be surprised if it costs even $1 to produce a $100 bill today. Why would the cost of physical currency even be relevant when the government can digitally increase money supply?
  - 29athrowaway 5y ago
    The premise was that each dollar was backed by a fixed amount of gold. The only problem was: there was no way to audit how much gold the US had. So when it became clear that the US was spending too much, France announced they wanted to cash out their gold and the US responded by suspending convertibility of dollars into gold (the Nixon shock). Since then the US has a floating value instead of a fixed precious metal-based exchange rate.
BrissyCoder 5y ago
I'm pro-roads personally. Most of this article seems fairly unsubstantiated to me. Where are the citations?
- ajmadesc 5y ago
  Its not just anti-road. Its non-dense development. The more spread out services the more resources it takes to maintain them. The fact of the matter is that we've been accumulating "debt" to build suburbs by ignoring the costs of C02 emmisions and letting the gov subsidise construction w/o plans for upkeep You should watch (Growth Ponzi Scheme)[https://www.youtube.com/watch?v=7IsMeKl-Sv0 https://www.youtube.com/watch?v=7IsMeKl-Sv0] from not just bikes
  - chroem- 5y ago
    This is precisely why San Francisco is so expensive relative to the rest of the country. SF's infrastructure seems expressly designed to prevent people from commuting from cheaper, outlying areas. This effectively limits the housing supply by forcing everyone to live in the city proper. There is a tradeoff to be made here, which I feel is being ignored.
    - ajmadesc 5y ago
      Sorry for the late response. I think the solution is clearly to make more places like San Francisco. Not to make SF more like everywhere else.
- danielheath 5y ago
  As someone who has lived in places where you really don’t need a car, it’s hard to explain how fundamentally different they are. I don’t live in one anymore, and it was awkward when friends visited (hardly any parking), but some aspects of it were profoundly pleasant in ways that I couldn’t have understood before I tried it.
  - quickthrower2 5y ago
barbazoo 5y ago
> our traditional pattern of development, one based on creating neighborhoods of value, scaled to actual people. Aren't they just talking about density here? Denser neighborhoods pay more to the city in taxes and charges than big-lot single family suburbia I would imagine.
- zucker42 5y ago
  It's not just density, though that's part of it. A big part is walkability (and otherwise making the city not just car accessible). That can be done without increasing density, by for example, adding wide sidewalks and bike lanes, eliminating maze-like cul-de-sac-heavy street layouts, and decreasing speeds in commercial areas (i.e. enforcing a stronger divide between low speed streets meant for people and high speed roads meant for cars). Another part is mixed-use zoning, where small businesses are intermixed with homes instead of people relying on driving to megastores in shopping centers far from where they live. By decreasing the necessity of the car you decrease the cost of road maintenance and by making places more walkable you make businesses more accessible and therefore more successful. I would suspect that many neighborhoods could be kept at the same density and be significantly rethought in line with the Strong Towns ethos to be more comfortable places to live. Density increases might be necessary in high COL areas because those places are in high demand, but there's plenty of bad city design in places outside uber-expensive metropolitan areas. And there might be strong demand for missing middle[1] housing if only it were legal and frictionless to build it. [1] https://youtu.be/CCOdQsZa15o https://youtu.be/CCOdQsZa15o
  - nine_k 5y ago
    Walkability is of course nice, but is much less practical if wherever you go, you need to walk a mile or two to reach it.
    - tromp 5y ago
      Add bikeability. Anything to help getting people out of their car. There's something perverse about people using vehicles weighing 20x their own weight to move around such distances, where a vehicle weighing 1/5 their weight will do. Not to mention the ease of parking a bike.
8bitsrule 5y ago
'Have it now, pay for it later' has been writ large all over the past half-century. Call it 'Ponzi' or what you will, some people raked in a lot of money when it was worth a lot more. That brand-new publicly-funded infrastructure did yeoman service for that approach.
- lotsofpulp 5y ago
  Worked pretty well as long as people were having 3+ kids and resources had not been claimed/mined. I suspect post WW2 US was in the middle of the S curve, and in recent decades, has entered the top of the S curve.
flaque 5y ago
For those unfamiliar with Strong Towns, here’s a best-effort summary of what they do: Strong Towns is a non-partisan non-profit that advocates for governments to build financially solvent towns. Many cities are perpetually broke because they owe more money in maintenance burden (fixing roads, pipes, etc) than they bring in through tax revenue. This happens because towns in North America tend to build out large neighborhoods all at once (think: suburbia). At the start, the developers pay for all the infrastructure, and then “give” it to the city to maintain. At first, everything seems fine. The city gets plenty of new tax revenue! But come 20 or 30 years later, it turns out that the tax revenue of the new development is not enough to replace the roads, fix the pipes, and so on. And so to pay for the repairs, the city then builds yet another neighborhood in the same strategy to collect the initial tax revenue and use it to pay for the repairs of the previous neighborhood. It’s effectively a Ponzi scheme (as referenced in the article). The gist is that many low-density spread-out suburban neighborhoods with expensive infrastructure are a huge cost center for a city. And since most North American cities build this way, we have a lot of cities that are “functionally bankrupt” or will be soon. If you're a systems thinker who lives in a town that can't seem to fix it's potholes, you may want to check out the book they've published with the same name: "Strong Towns". (Adapted from a previous Strong Towns post)
- newaccount2021 5y ago
  cities broke the contract. They were supposed to keep dense neighborhoods clean and safe. They failed. In LA, people living in the heart of downtown must contend with crazy levels of homelessness and garbage. In Portland, you must contend with nightly riots. Crime. Car theft. Old women getting sucker punched. Needles. Human waste. Move to the sticks and let the cities fail.
- refurb 5y ago
  How does this jive with say the Van Ness expansion in SF? It’s taken way longer and gone way over budget because the work is being done in a high density corridor with numerous utilities and such that have to be relocated. Apparently they’re finding stuff they never knew was there. The same road widening would be cheap in a less dense area.
vmception 5y ago
We are not at the end of easy money. International tolerance of our dollar and bonds show the perpetuation of easier money. The Federal Reserve can bail out every municipality if Congress got scared or convinced enough. The pandemic relief was prewritten and had nothing to do with the pandemic, almost no Congressperson read it. The extension of “credit”/unconditional Main Street bailouts was already pre analyzed to prevent private sector freezing of credit. Anything and all is possible as has been demonstrated. Econ majors have their university streaming subscription on pause because their professors have no idea anymore.
- throw63788 5y ago
  》International tolerance of our dollar and bonds I see opposite, dollar may loose its status as sole reserve currency. It may take couple of years, but US is no longer perceived as bastion of stability. Countries are diversifying and dumping dollar assets. For example Russia recently: Russia's $186 Billion Sovereign Wealth Fund Dumps All Dollar Assets
  - vmception 5y ago
    Pennies. Stop reading Zerohedge and come back to reality. Its good to diversify, its also true that the Federal Reserve is the biggest market whale in the universe. The gravitational pull towards the dollar is unavoidable because there isnt enough liquidity for any other form of value that exists. The signal to watch for is US Treasury yields being unsupportable by the Fed’s purchasing program due to a greater market consensus of selling. As this does not happen and the macroeconomic trend is for US Treasury yields to also flirt with negative rates, like the rest of the planet’s major economic unions, it shows the opposite of your view.
- visualradio 5y ago
  Centralization of money creation at the national level is not ideal. There are 3142 counties in the United States. If during the process of national credit allocation we forget to send money somewhere, we could accidentally destroy a small town or create a slum. An alternate solution would be to establish state-owned public mortgage banks, which collect interest payments on publicly held real estate loans over land areas roughly the size of a federal congressional district, that spend the interest payment revenue back into circulation on state and local infrastructure. Public mortgage banks could also be strictly limited to issuing real estate equity loans and mortgages at 100-200% of the replacement cost of improvements whenever that is lower than the sales price. When banks lend against the present value of future rents the property owner is pledging the surplus labor of future generations of residents as collateral and encouraged to lobby for artificial land scarcity so that rents keep going up. Capping loans in reference to the replacement cost of existing capital would help reign in this dangerous incentive while still creating liquidity for asset holders and publicly capturing interest payments that would otherwise leak out to global financial system to generate additional revenue for local infrastructure reinvestment.
punnerud 5y ago
Almost dropped reading it because the page hides the scrollbar
- dang_is_3r3ct2 5y ago
  Thanks for letting us know! I almost stopped reading your comment because you misspelled “stopped”. I finished though.
temp8964 5y ago
If we really want to use the term "Ponzi scheme" this way, shouldn't we declare: - national debt is Ponzi scheme - social security is Ponzi scheme - everything involve complex finial instruments is Ponzi scheme So basically claiming something is Ponzi scheme means almost nothing.
- lotsofpulp 5y ago
  Ponzi scheme is being used as another term for a system that needs exponential growth to keep working.
  - quickthrower2 5y ago
    The mentioned scheme is kind of acquiring negative value assets with short term positive cash flow … without it actually being debt. Akin to the programmers “technical debt”
- ivalm 5y ago
  But that’s not the case: 1. National debt is USD denominated thus only requires repayment in nominal terms (eg you can always print, you can set arbitrary interest rates, etc). In fact, there is a lot of precedent for negative real returns on sovereign debt (see current US treasuries and multiple years in EU). 2. Social security is a pay as you go system. Current workers pay for current retirees. Future workers will pay for future retirees. Benefits can/will be scaled to cash flow. Just because there was surplus and that surplus was used for other purposes doesn’t really mean much. All government has to do is raise retirement age and the system will remain solvent. 3. That makes no sense
  - rufus_foreman 5y ago
    >> All government has to do is raise retirement age and the system will remain solvent. So the difference between a Ponzi scheme and SSI is that in a Ponzi scheme, the person who sets up the scheme is required to keep his promises to investors, but SSI is not? To the young people out there in their 20s, what ivalm is saying is that for people like me who are nearing retirement age, the money is going to start coming out of your pocket and going into my pocket, but when you get to be my age, the government will just raise the retirement age and keep taking the money out of your pocket. But it is totally, totally, totally not a Ponzi scheme. Part of my income will soon depend on you believing that. Godspeed, ivalm!
ajmadesc 5y ago
The most import thing to take from this is that American pattern of suburbanization was a government choice. Highways, suburbs, and car domminance would not exist anywhere near the scale that they do without massive government subsidies, or turning a blind eye to future expenses. Theres also discounting the negative externalities of fossil fule emmissions on the planet and human health. Ironically the libertarian types tend to prefer the type of development that 90% couldn't afford without subsidy. Just like we shouldn't have bailed out the banks in '08 or junk bond holders in '20, we shouldn't bail out municipalities that borrowed too much from the future.
- xyzzyz 5y ago
  > Just like we shouldn't have bailed out the banks in '08 or junk bond holders in '20, we shouldn't bail out municipalities that borrowed too much from the future. I agree. Alas, it is the public employee pension obligation that the municipalities will want a bail out on, infrastructure is peanuts compared to that.
charles_f 5y ago
I always have trouble with essays using accumulation of debt as the proof of systemic unsustainability. Debt is a construct made up on an agreed upon monetic system and the associated trust placed in its repayment, it's not a physical dimension that can be used to derive proof of sustainability beyond system itself. It can easily be changed, notably by printing money or forgoing debt.
- chii 5y ago
  > notably by printing money or forgoing debt. debt is a promise made by some entity to another entity. Any forgiving is going to require the promise to be broken, or altered. So somebody gets the short end of the stick. Printing money is similar, but instead of the entity lending the money taking the hit completely, the "loss" is spread out through all money users. Neither is good - but sometimes it might be the only good option.
- akamaka 5y ago
  While that is true on a higher level, individual cities don’t have tools like printing money or ultra-low interest rates available to them. If you have a look at how municipal debt is rated, you’ll see that the rating agencies rely on projections of growth to determine how creditworthy a city is. It’s of paramount importance to spend borrowed money in an efficient way if the city expects to borrow more in the future. https://www.fitchratings.com/research/us-public-finance/fitch-upgrades-detroit-downtown-development-authority-series-1998-bonds-to-bbb-stable-23-07-2019 https://www.fitchratings.com/research/us-public-finance/fitc...
nkssy 5y ago
Today I learned that roads are mind bogglingly expensive to build and maintain. But without any clues to the reasons why. Labor? Materials? Something seems off somehow.
- throwaway346434 5y ago
  Labor here also includes: - planning - safety - certification For example; you are paying for a crew of 10 people to do a minor repair - people to manage traffic, people to do the planning and legal legalwork to shut down the road, people to assess the appropriate fix, people to do the actual implementation, potentially different people to redo any line marking; the running costs of the equipment, transporting it to and fro; etc etc. A simple pothole patch might take a lot less; but is only temporary and you end up doing a bunch of them. Resurface a stretch of road or a kerb? Whole different set of people and tools. Arguably we can make this cheaper, safer through automation in the long run, but simply having less to maintain is also a simple valid solution. Worse, because its driven by weather events, you tend to get all of you bigger issues at once - ie, here, high rainfall took out roads in the hills; due to instability. To fix it became a much, much bigger engineering process than normal maintenance; and it happened to three critical roads in a short time frame; so various authorities had to scale up quickly; and presumably paid for that.
Biologist123 5y ago
An awful lot of things these days get called Ponzi schemes these days which aren’t really, although they share some superficial characteristics of a Ponzi. This isn’t a criticism of Strong Towns so much as a call for a better development of terminology to describe a whole array of economic arrangements which privilege insiders and early adopters at the expense of everyone else. As an environmental economist trying to write a book on the exploitation of nature to the benefit of a few at the expense of many - I feel the dearth of commonly accepted language on the topic acutely!
- prox 5y ago
  That’s sounds like an interesting topic for a book. Is there no terminology yet or is the current terminology inadequate? Also do you have place to find out about the book ince it is ready? I am currently reading “The Value of Everything” which is great.
  - Biologist123 5y ago
    I don’t think so! What I’m looking for is a sort of taxonomy of scams. Ponzi sits within that taxonomy but is only one species! I’ll advertise on HN once done. Thanks for your encouraging feedback.
    - skybrian 5y ago
      It’s not about coming up with a taxonomy but you might get some ideas from this book: Lying for Money: How Legendary Frauds Reveal the Workings of Our World <https://www.amazon.com/Lying-Money-Legendary-Frauds-Workings-ebook/dp/B078WFT5JV https://www.amazon.com/Lying-Money-Legendary-Frauds-Workings...> (Among other things the author specifically criticizes the loose use of “Ponzi Scheme”)
      - Biologist123 5y ago
        Thanks for flagging that - I look forward to having a deeper read. What Stronger Cities describe is probably closer to a control fraud.
shele 5y ago
You certainly can build more than you can reasonably maintain, but as in cities live humans workforce and ability to maintain follows. So something else must be the concern: inefficient patterns (urban sprawl) or imbalances in the wealth and liability distributions. The latter can be fixed at any moment in a functional society but can’t be fixed easily in a flawed democracy with powers hugely profiting from the imbalance So I see the concern
- lcpriest 5y ago
  It's almost always a case of too low density - providing services to suburbs costs more per capita due to the area needing to be covered. http://newclimateeconomy.net/content/release-urban-sprawl-costs-us-economy-more-1-trillion-year http://newclimateeconomy.net/content/release-urban-sprawl-co...
reilly3000 5y ago
A solution that seems novel to me may be assigning higher property tax rates for parcels further from core services. If the city’s cost basis is higher to maintain services, why not align incentives to encourage infill?
- quickthrower2 5y ago
  Not sure about the US but normally your property taxes are linked to the property value or land value (I guess as an estimate of both how much you can afford and how much services you’ll use). This seems more progressive than saying “well you can’t afford to live centrally so we’ll charge you more for that sewer connection maintenance”
  - mikewarot 5y ago
    Actually, that is what happens. Initially you maintain your own water (well or cistern) and sewage system (a septic field), and when town grows out to you, you get hooked to the sewer/water systems.
- pseudo0 5y ago
  It gets a bit tricky when those parcels also often have lower quality or fewer services. For example, no city water, 30+ minute fire and police response times, no local parks or libraries, etc. A fair formula would also have to take that into account somehow.
  - dang_is_3r3ct3 5y ago
    It’s not tricky at all. The fairness is already baked in. By choosing to live in a low density area far away from existing services, you’ll be paying more. A lot more.
  - mikewarot 5y ago
    The property will be less desirable, and thus have a lower value, and lower tax assessment. You'll lose some of those savings by having to drive everywhere any time you want goods or services.
jl2718 5y ago
This ‘Ponzi scheme’ (bond issuance) is the most efficient funding mechanism by far, and is proven to work sustainably within limits. That limit is the marginal point where the expenditure equals the net asset value gain resultant from it, such as real estate prices. How can you know this limit? You can’t, but the bond market can guess at it. Let’s say that you have a nice picket fence suburb with no police department and lots of robberies. You float a bond for your first police officer (not that this will help, but, run with it…). People buy it for nearly the risk-free rate. Why? Because they know that they will get paid back by the next bond, which will also get funded. Now the cop floats a bond for a Lamborghini. The demand is much lower, and the interest is unsustainable, so it doesn’t get funded. Now here’s where it goes wrong. The mayor sees that nobody wants to pay for the Lambo, and solves the problem by packaging it up with everything else. This works for the first Lambo, but they want 10 Lambos, so the bond interest rate is unsustainable. So what now? Taxes. They put a bunch of taxes on the residents, and then tell the investors that the Lambo bond will now get paid by tax revenues, which they have ultimate authority over. Now the calculus is different. The value of the expenditures is almost irrelevant. The only thing that matters is the marginal point where an additional dollar in tax reduces the net asset value by the inverse of the tax rate (e.g. $1 in tax revenue at 1% => $100 value destroyed). Notice we’re no longer talking about increasing values by large multiples, but destroying value by large multiples. Now the Lambo bond goes out supported by tax revenues. The casual observer might note that the people of the town are now paying the bond holders for their right to exist on the land that they ‘own’. The major innovation from feudalism is that now the peasants actually pay for the land up-front too, and they pay for any improvements on it, and then higher rent for the improved property. But that’s only an illusion of sustainability created by forceful extraction of resources. It’s like a strip-mining operation on middle class wealth. Profits are great until the resource runs out. So what is the solution there? Growth. Bring in more people to extract resources from. This is a requirement of the extractive funding model. Market forces create sustainable economies. Any use of force distorts away from sustainability, toward finite extraction, and extractive models require expansion.
- aledthemathguy 5y ago
  Great post, thank you! and also - wow!
raverbashing 5y ago
I wonder how will that match up with the current inflation in real estate (especially suburban areas) A recent video by Rossmann https://www.youtube.com/watch?v=1phS3AVQ6G0 https://www.youtube.com/watch?v=1phS3AVQ6G0
Proven 5y ago
The recipe is wrong. TFA establishes that root cause is local government's involvement and recommends fixes that have nothing to do with fixing that and would result with even more government involvement. Don't let the government borrow money, and solve the problem.
giantg2 5y ago
Remember, it's not a ponzi scheme if the government is the one doing it (it's stupidity, not fraud).
danielschonfeld 5y ago
Not to take away from the MO strong towns publishes on their front page. And the topic at hand. One has to remember that strong towns origins are from a yarning to building human scale towns and not machine scale ones. I think any conversation about investments in our cities should be framed in that context as it paints a personal investment lens through which this overall topic of the success of our cities can be hashed about. Irrespective of whether you believe infra costs are 10% or 100% or other minutia details. We simply aren’t building cities in America for humans. We’re building space for seclusion bunkers and advertisement and shopping Meccas.
dave333 5y ago
The difference between a legitimate investment and a Ponzi scheme is just profitability. Suburbs should increase revenue by promoting reinvestment in the form of backyard tiny houses with the side benefit of low income housing.

281 points by jseliger 5y ago

The Not Just Bikes [1,2,3] YouTube channel also has an excellent series of videos based on work from Strong Towns. I link to these videos whenever a friend asks why I chose to leave the United States. :) [1] https://www.youtube.com/watch?v=XfQUOHlAocY https://www.youtube.com/watch?v=XfQUOHlAocY [2] https://www.youtube.com/watch?v=ORzNZUeUHAM https://www.youtube.com/watch?v=ORzNZUeUHAM [3] https://www.youtube.com/watch?v=CCOdQsZa15o https://www.youtube.com/watch?v=CCOdQsZa15o

HungSu 5y ago
Could you share which destination city you chose and/or why?
- benrbray 5y ago
  Tokyo! I'm not sure if I'll stay here forever, but so far I really enjoy life here. I had many reasons, including: * Car culture was really grating on me. Before I moved to Tokyo, I lived in Atlanta, a city carved up by I-75/85, where getting almost anywhere takes a 15+ minute drive on the highway. Highway traffic regularly spills onto neighborhood streets, and I felt like I was risking my life every time I went out walking / biking. I've also lived in downtown Seattle and suburban Michigan, and the situation was slightly better, but with the same car-first paradigm. * As I've gotten older it started to dawn on me how isolating American cities can be, especially without the community structure imposed by a school / university. People talk about America losing its "third place", and with permant-WFH we now seem pretty eager to get rid of our "second place" as well. * By comparison, Tokyo is designed at human-scale. I have everything I need within a 5 minute walk, which means I regularly run into the people who live near me. When I want to go farther I can always choose the appropriate mode of transportation for the journey: feet, bicycle, train, car, all in perfect harmony. For this reason, I also found it easier to maintain and build friendships -- no need to organize transport, just hop on a train. * I'm still young with few obligations and I want to learn more about the world before I choose a place to settle down. I know what life in America looks like. I'm learning about Japan. I hope to spend some time in Europe, eventually. * The political situation in the US concerns me. I'm not confident the US will be a nice place for me to live/retire 40 years from now. So for me, choosing to stay put seemed at least as risky as moving somewhere unfamiliar. Even if I eventually decide to return, I'd like to know that it was my own choice and not just inertia.
  - laurent92 5y ago
    The tax strings which tie me to every former country I’ve lived in is what keeps me from changing again… This, and retirement which is tied to a country, I can’t spend 4 decades in 4 countries and hope to have enough retirement at the end.
    - tharkun__ 5y ago
      Interesting. Do you mind if I ask which countries? I did hear that the IRS 'gets you' where ever you are but I assumed it was sort of unique in that. Aren't most countries either no longer interested in you once you leave (tax wise) or have tax treaties with one another? Including government pensions in the treaty?
CalRobert 5y ago
He recently did a great interview on the strongtowns podcast! Just got my EU citizenship and considering Utrecht. The US is a horrible place to try to raise an independent kid.
- benrbray 5y ago
  Indeed! I grew up in a typical suburb where my agency as a child was strictly limited by my parents' ability / willingness to drive me places. Most parents don't realize how hard this is for their kids, mine certainly didn't. It's no wonder kids trapped at home end up spending so much time on the internet. I'm not old enough to really be thinking about kids, but I would never, ever inflict the suburban lifestyle a child of my own.
  - foreigner 5y ago
    Counterpoint: I moved to England to a walkable town, but my kids still want to spend all their time on the internet. When I limit "screen time" they just want to hole up in their rooms and read the same books over and over again.
  - CalRobert 5y ago
    I grew up in suburbia, but starting in high school just rode my bike everywhere. In retrospect it's hard to believe I survived, taking the lane on 55 mph roads (around northeastern Sacramento suburbs) was really dumb, in retrospect.
  - refurb 5y ago
    Sounds like your parents? The suburbs were great childhood for me. Lots of families so other kids to play with, lots of big parks, with a bike you could go anywhere.
    - benrbray 5y ago
      Yeah, you're right there are other factors. My neighborhood had busy roads on both ends, and was mostly empty-nesters. There are certainly worse places to grow up, but I don't think we should be satisfied with the baseline set by suburbs either. In places like Germany and Japan, children walk themselves to school as young as 6 years old! I only experience that freedom after getting a license at 16!

schleiss 5y ago

Somehow I found the article missing the solution, the organisation argues that "placemaking" [1] helps. They also argue that "Will this public project generate enough tax revenue to sustain its maintenance over multiple life cycles? Try asking that -- you will be amazed." is the question to successful public projects. But, I don't know if that holds true universally. [1] https://www.strongtowns.org/journal/2011/6/16/the-growth-ponzi-scheme-part-5-finale.html https://www.strongtowns.org/journal/2011/6/16/the-growth-pon...

burlesona 5y ago
The strange thing is that people don’t normally ask the question. It’s just assumed that all infrastructure generates positive economic returns, which is far from true. You asked “where’s the solution.” This post is one bit of a large volume of Strong Towns material, and this series is only meant to explain one particular problem cities face. The best source of Strong Town “solution” material is the “Action Lab,” https://actionlab.strongtowns.org/hc/en-us/categories/360004219212-Connect-to-Examples https://actionlab.strongtowns.org/hc/en-us/categories/360004...
- nine_k 5y ago
  I think solutions should be somehow concentrated around making less infrastructure serve more taxpayers. One obvious way to do that is to build denser cities.

jSully24 5y ago

Thread on this article from May 2020: https://news.ycombinator.com/item?id=23222191 https://news.ycombinator.com/item?id=23222191

mikewarot 5y ago

This is an example of an embedded growth obligation, and they exist in almost every institution in the US. Eric Weinstein has been talking about them at length over the past year or so.

deleted 5y ago
[deleted]
heinrichhartman 5y ago
further reading: https://theportal.wiki/wiki/Embedded_Growth_Obligations https://theportal.wiki/wiki/Embedded_Growth_Obligations

29athrowaway 5y ago

When you have a period of high prosperity, you get used to it, making adjustments to your lifestyle. When that period is over, it's hard to accept it. In the 50s, you could have a modest job, provide for your entire household with one salary, buy a nice house, a car, send your kids to college. The government made massive investments on infrastructure, defense, science, space, etc. How was all of that paid? From 1945 to 1971, the economic reality was: "It costs only a few cents for the Bureau of Engraving and Printing to produce a $100 bill, but other countries had to pony up $100 of actual goods in order to obtain one." That system was known as the Bretton Woods system. Since its end in 1971, America has been struggling to adapt with its new economic reality. It is much harder to make a living in the US, buy a house, a car, raise kids and send them to college. Or even retire.

benrbray 5y ago
Relevant: https://wtfhappenedin1971.com/ https://wtfhappenedin1971.com/ (disclaimer: I don't agree with the authors of this site that Bitcoin is the solution (: )
- 29athrowaway 5y ago
  The answer to "wtf happened in 1971" is the Nixon Shock, which marks the end of the Bretton Woods system.
lotsofpulp 5y ago
>From 1945 to 1971, the economic reality was: "It costs only a few cents for the Bureau of Engraving and Printing to produce a $100 bill, but other countries had to pony up $100 of actual goods in order to obtain one." Is this not true after 1971? I would be surprised if it costs even $1 to produce a $100 bill today. Why would the cost of physical currency even be relevant when the government can digitally increase money supply?
- 29athrowaway 5y ago
  The premise was that each dollar was backed by a fixed amount of gold. The only problem was: there was no way to audit how much gold the US had. So when it became clear that the US was spending too much, France announced they wanted to cash out their gold and the US responded by suspending convertibility of dollars into gold (the Nixon shock). Since then the US has a floating value instead of a fixed precious metal-based exchange rate.

BrissyCoder 5y ago

I'm pro-roads personally. Most of this article seems fairly unsubstantiated to me. Where are the citations?

ajmadesc 5y ago
Its not just anti-road. Its non-dense development. The more spread out services the more resources it takes to maintain them. The fact of the matter is that we've been accumulating "debt" to build suburbs by ignoring the costs of C02 emmisions and letting the gov subsidise construction w/o plans for upkeep You should watch (Growth Ponzi Scheme)[https://www.youtube.com/watch?v=7IsMeKl-Sv0 https://www.youtube.com/watch?v=7IsMeKl-Sv0] from not just bikes
- chroem- 5y ago
  This is precisely why San Francisco is so expensive relative to the rest of the country. SF's infrastructure seems expressly designed to prevent people from commuting from cheaper, outlying areas. This effectively limits the housing supply by forcing everyone to live in the city proper. There is a tradeoff to be made here, which I feel is being ignored.
  - ajmadesc 5y ago
    Sorry for the late response. I think the solution is clearly to make more places like San Francisco. Not to make SF more like everywhere else.
danielheath 5y ago
As someone who has lived in places where you really don’t need a car, it’s hard to explain how fundamentally different they are. I don’t live in one anymore, and it was awkward when friends visited (hardly any parking), but some aspects of it were profoundly pleasant in ways that I couldn’t have understood before I tried it.
- quickthrower2 5y ago

barbazoo 5y ago

> our traditional pattern of development, one based on creating neighborhoods of value, scaled to actual people. Aren't they just talking about density here? Denser neighborhoods pay more to the city in taxes and charges than big-lot single family suburbia I would imagine.

zucker42 5y ago
It's not just density, though that's part of it. A big part is walkability (and otherwise making the city not just car accessible). That can be done without increasing density, by for example, adding wide sidewalks and bike lanes, eliminating maze-like cul-de-sac-heavy street layouts, and decreasing speeds in commercial areas (i.e. enforcing a stronger divide between low speed streets meant for people and high speed roads meant for cars). Another part is mixed-use zoning, where small businesses are intermixed with homes instead of people relying on driving to megastores in shopping centers far from where they live. By decreasing the necessity of the car you decrease the cost of road maintenance and by making places more walkable you make businesses more accessible and therefore more successful. I would suspect that many neighborhoods could be kept at the same density and be significantly rethought in line with the Strong Towns ethos to be more comfortable places to live. Density increases might be necessary in high COL areas because those places are in high demand, but there's plenty of bad city design in places outside uber-expensive metropolitan areas. And there might be strong demand for missing middle[1] housing if only it were legal and frictionless to build it. [1] https://youtu.be/CCOdQsZa15o https://youtu.be/CCOdQsZa15o
- nine_k 5y ago
  Walkability is of course nice, but is much less practical if wherever you go, you need to walk a mile or two to reach it.
  - tromp 5y ago
    Add bikeability. Anything to help getting people out of their car. There's something perverse about people using vehicles weighing 20x their own weight to move around such distances, where a vehicle weighing 1/5 their weight will do. Not to mention the ease of parking a bike.

8bitsrule 5y ago

'Have it now, pay for it later' has been writ large all over the past half-century. Call it 'Ponzi' or what you will, some people raked in a lot of money when it was worth a lot more. That brand-new publicly-funded infrastructure did yeoman service for that approach.

lotsofpulp 5y ago
Worked pretty well as long as people were having 3+ kids and resources had not been claimed/mined. I suspect post WW2 US was in the middle of the S curve, and in recent decades, has entered the top of the S curve.

flaque 5y ago

For those unfamiliar with Strong Towns, here’s a best-effort summary of what they do: Strong Towns is a non-partisan non-profit that advocates for governments to build financially solvent towns. Many cities are perpetually broke because they owe more money in maintenance burden (fixing roads, pipes, etc) than they bring in through tax revenue. This happens because towns in North America tend to build out large neighborhoods all at once (think: suburbia). At the start, the developers pay for all the infrastructure, and then “give” it to the city to maintain. At first, everything seems fine. The city gets plenty of new tax revenue! But come 20 or 30 years later, it turns out that the tax revenue of the new development is not enough to replace the roads, fix the pipes, and so on. And so to pay for the repairs, the city then builds yet another neighborhood in the same strategy to collect the initial tax revenue and use it to pay for the repairs of the previous neighborhood. It’s effectively a Ponzi scheme (as referenced in the article). The gist is that many low-density spread-out suburban neighborhoods with expensive infrastructure are a huge cost center for a city. And since most North American cities build this way, we have a lot of cities that are “functionally bankrupt” or will be soon. If you're a systems thinker who lives in a town that can't seem to fix it's potholes, you may want to check out the book they've published with the same name: "Strong Towns". (Adapted from a previous Strong Towns post)

newaccount2021 5y ago
cities broke the contract. They were supposed to keep dense neighborhoods clean and safe. They failed. In LA, people living in the heart of downtown must contend with crazy levels of homelessness and garbage. In Portland, you must contend with nightly riots. Crime. Car theft. Old women getting sucker punched. Needles. Human waste. Move to the sticks and let the cities fail.
refurb 5y ago
How does this jive with say the Van Ness expansion in SF? It’s taken way longer and gone way over budget because the work is being done in a high density corridor with numerous utilities and such that have to be relocated. Apparently they’re finding stuff they never knew was there. The same road widening would be cheap in a less dense area.

vmception 5y ago

We are not at the end of easy money. International tolerance of our dollar and bonds show the perpetuation of easier money. The Federal Reserve can bail out every municipality if Congress got scared or convinced enough. The pandemic relief was prewritten and had nothing to do with the pandemic, almost no Congressperson read it. The extension of “credit”/unconditional Main Street bailouts was already pre analyzed to prevent private sector freezing of credit. Anything and all is possible as has been demonstrated. Econ majors have their university streaming subscription on pause because their professors have no idea anymore.

throw63788 5y ago
》International tolerance of our dollar and bonds I see opposite, dollar may loose its status as sole reserve currency. It may take couple of years, but US is no longer perceived as bastion of stability. Countries are diversifying and dumping dollar assets. For example Russia recently: Russia's $186 Billion Sovereign Wealth Fund Dumps All Dollar Assets
- vmception 5y ago
  Pennies. Stop reading Zerohedge and come back to reality. Its good to diversify, its also true that the Federal Reserve is the biggest market whale in the universe. The gravitational pull towards the dollar is unavoidable because there isnt enough liquidity for any other form of value that exists. The signal to watch for is US Treasury yields being unsupportable by the Fed’s purchasing program due to a greater market consensus of selling. As this does not happen and the macroeconomic trend is for US Treasury yields to also flirt with negative rates, like the rest of the planet’s major economic unions, it shows the opposite of your view.
visualradio 5y ago
Centralization of money creation at the national level is not ideal. There are 3142 counties in the United States. If during the process of national credit allocation we forget to send money somewhere, we could accidentally destroy a small town or create a slum. An alternate solution would be to establish state-owned public mortgage banks, which collect interest payments on publicly held real estate loans over land areas roughly the size of a federal congressional district, that spend the interest payment revenue back into circulation on state and local infrastructure. Public mortgage banks could also be strictly limited to issuing real estate equity loans and mortgages at 100-200% of the replacement cost of improvements whenever that is lower than the sales price. When banks lend against the present value of future rents the property owner is pledging the surplus labor of future generations of residents as collateral and encouraged to lobby for artificial land scarcity so that rents keep going up. Capping loans in reference to the replacement cost of existing capital would help reign in this dangerous incentive while still creating liquidity for asset holders and publicly capturing interest payments that would otherwise leak out to global financial system to generate additional revenue for local infrastructure reinvestment.

punnerud 5y ago

Almost dropped reading it because the page hides the scrollbar

dang_is_3r3ct2 5y ago
Thanks for letting us know! I almost stopped reading your comment because you misspelled “stopped”. I finished though.

temp8964 5y ago

If we really want to use the term "Ponzi scheme" this way, shouldn't we declare: - national debt is Ponzi scheme - social security is Ponzi scheme - everything involve complex finial instruments is Ponzi scheme So basically claiming something is Ponzi scheme means almost nothing.

lotsofpulp 5y ago
Ponzi scheme is being used as another term for a system that needs exponential growth to keep working.
- quickthrower2 5y ago
  The mentioned scheme is kind of acquiring negative value assets with short term positive cash flow … without it actually being debt. Akin to the programmers “technical debt”
ivalm 5y ago
But that’s not the case: 1. National debt is USD denominated thus only requires repayment in nominal terms (eg you can always print, you can set arbitrary interest rates, etc). In fact, there is a lot of precedent for negative real returns on sovereign debt (see current US treasuries and multiple years in EU). 2. Social security is a pay as you go system. Current workers pay for current retirees. Future workers will pay for future retirees. Benefits can/will be scaled to cash flow. Just because there was surplus and that surplus was used for other purposes doesn’t really mean much. All government has to do is raise retirement age and the system will remain solvent. 3. That makes no sense
- rufus_foreman 5y ago
  >> All government has to do is raise retirement age and the system will remain solvent. So the difference between a Ponzi scheme and SSI is that in a Ponzi scheme, the person who sets up the scheme is required to keep his promises to investors, but SSI is not? To the young people out there in their 20s, what ivalm is saying is that for people like me who are nearing retirement age, the money is going to start coming out of your pocket and going into my pocket, but when you get to be my age, the government will just raise the retirement age and keep taking the money out of your pocket. But it is totally, totally, totally not a Ponzi scheme. Part of my income will soon depend on you believing that. Godspeed, ivalm!

ajmadesc 5y ago

The most import thing to take from this is that American pattern of suburbanization was a government choice. Highways, suburbs, and car domminance would not exist anywhere near the scale that they do without massive government subsidies, or turning a blind eye to future expenses. Theres also discounting the negative externalities of fossil fule emmissions on the planet and human health. Ironically the libertarian types tend to prefer the type of development that 90% couldn't afford without subsidy. Just like we shouldn't have bailed out the banks in '08 or junk bond holders in '20, we shouldn't bail out municipalities that borrowed too much from the future.

xyzzyz 5y ago
> Just like we shouldn't have bailed out the banks in '08 or junk bond holders in '20, we shouldn't bail out municipalities that borrowed too much from the future. I agree. Alas, it is the public employee pension obligation that the municipalities will want a bail out on, infrastructure is peanuts compared to that.

charles_f 5y ago

I always have trouble with essays using accumulation of debt as the proof of systemic unsustainability. Debt is a construct made up on an agreed upon monetic system and the associated trust placed in its repayment, it's not a physical dimension that can be used to derive proof of sustainability beyond system itself. It can easily be changed, notably by printing money or forgoing debt.

chii 5y ago
> notably by printing money or forgoing debt. debt is a promise made by some entity to another entity. Any forgiving is going to require the promise to be broken, or altered. So somebody gets the short end of the stick. Printing money is similar, but instead of the entity lending the money taking the hit completely, the "loss" is spread out through all money users. Neither is good - but sometimes it might be the only good option.
akamaka 5y ago
While that is true on a higher level, individual cities don’t have tools like printing money or ultra-low interest rates available to them. If you have a look at how municipal debt is rated, you’ll see that the rating agencies rely on projections of growth to determine how creditworthy a city is. It’s of paramount importance to spend borrowed money in an efficient way if the city expects to borrow more in the future. https://www.fitchratings.com/research/us-public-finance/fitch-upgrades-detroit-downtown-development-authority-series-1998-bonds-to-bbb-stable-23-07-2019 https://www.fitchratings.com/research/us-public-finance/fitc...

nkssy 5y ago

Today I learned that roads are mind bogglingly expensive to build and maintain. But without any clues to the reasons why. Labor? Materials? Something seems off somehow.

throwaway346434 5y ago
Labor here also includes: - planning - safety - certification For example; you are paying for a crew of 10 people to do a minor repair - people to manage traffic, people to do the planning and legal legalwork to shut down the road, people to assess the appropriate fix, people to do the actual implementation, potentially different people to redo any line marking; the running costs of the equipment, transporting it to and fro; etc etc. A simple pothole patch might take a lot less; but is only temporary and you end up doing a bunch of them. Resurface a stretch of road or a kerb? Whole different set of people and tools. Arguably we can make this cheaper, safer through automation in the long run, but simply having less to maintain is also a simple valid solution. Worse, because its driven by weather events, you tend to get all of you bigger issues at once - ie, here, high rainfall took out roads in the hills; due to instability. To fix it became a much, much bigger engineering process than normal maintenance; and it happened to three critical roads in a short time frame; so various authorities had to scale up quickly; and presumably paid for that.

Biologist123 5y ago

An awful lot of things these days get called Ponzi schemes these days which aren’t really, although they share some superficial characteristics of a Ponzi. This isn’t a criticism of Strong Towns so much as a call for a better development of terminology to describe a whole array of economic arrangements which privilege insiders and early adopters at the expense of everyone else. As an environmental economist trying to write a book on the exploitation of nature to the benefit of a few at the expense of many - I feel the dearth of commonly accepted language on the topic acutely!

prox 5y ago
That’s sounds like an interesting topic for a book. Is there no terminology yet or is the current terminology inadequate? Also do you have place to find out about the book ince it is ready? I am currently reading “The Value of Everything” which is great.
- Biologist123 5y ago
  I don’t think so! What I’m looking for is a sort of taxonomy of scams. Ponzi sits within that taxonomy but is only one species! I’ll advertise on HN once done. Thanks for your encouraging feedback.
  - skybrian 5y ago
    It’s not about coming up with a taxonomy but you might get some ideas from this book: Lying for Money: How Legendary Frauds Reveal the Workings of Our World <https://www.amazon.com/Lying-Money-Legendary-Frauds-Workings-ebook/dp/B078WFT5JV https://www.amazon.com/Lying-Money-Legendary-Frauds-Workings...> (Among other things the author specifically criticizes the loose use of “Ponzi Scheme”)
    - Biologist123 5y ago
      Thanks for flagging that - I look forward to having a deeper read. What Stronger Cities describe is probably closer to a control fraud.

shele 5y ago

You certainly can build more than you can reasonably maintain, but as in cities live humans workforce and ability to maintain follows. So something else must be the concern: inefficient patterns (urban sprawl) or imbalances in the wealth and liability distributions. The latter can be fixed at any moment in a functional society but can’t be fixed easily in a flawed democracy with powers hugely profiting from the imbalance So I see the concern

lcpriest 5y ago
It's almost always a case of too low density - providing services to suburbs costs more per capita due to the area needing to be covered. http://newclimateeconomy.net/content/release-urban-sprawl-costs-us-economy-more-1-trillion-year http://newclimateeconomy.net/content/release-urban-sprawl-co...

reilly3000 5y ago

A solution that seems novel to me may be assigning higher property tax rates for parcels further from core services. If the city’s cost basis is higher to maintain services, why not align incentives to encourage infill?

quickthrower2 5y ago
Not sure about the US but normally your property taxes are linked to the property value or land value (I guess as an estimate of both how much you can afford and how much services you’ll use). This seems more progressive than saying “well you can’t afford to live centrally so we’ll charge you more for that sewer connection maintenance”
- mikewarot 5y ago
  Actually, that is what happens. Initially you maintain your own water (well or cistern) and sewage system (a septic field), and when town grows out to you, you get hooked to the sewer/water systems.
pseudo0 5y ago
It gets a bit tricky when those parcels also often have lower quality or fewer services. For example, no city water, 30+ minute fire and police response times, no local parks or libraries, etc. A fair formula would also have to take that into account somehow.
- dang_is_3r3ct3 5y ago
  It’s not tricky at all. The fairness is already baked in. By choosing to live in a low density area far away from existing services, you’ll be paying more. A lot more.
- mikewarot 5y ago
  The property will be less desirable, and thus have a lower value, and lower tax assessment. You'll lose some of those savings by having to drive everywhere any time you want goods or services.

jl2718 5y ago

This ‘Ponzi scheme’ (bond issuance) is the most efficient funding mechanism by far, and is proven to work sustainably within limits. That limit is the marginal point where the expenditure equals the net asset value gain resultant from it, such as real estate prices. How can you know this limit? You can’t, but the bond market can guess at it. Let’s say that you have a nice picket fence suburb with no police department and lots of robberies. You float a bond for your first police officer (not that this will help, but, run with it…). People buy it for nearly the risk-free rate. Why? Because they know that they will get paid back by the next bond, which will also get funded. Now the cop floats a bond for a Lamborghini. The demand is much lower, and the interest is unsustainable, so it doesn’t get funded. Now here’s where it goes wrong. The mayor sees that nobody wants to pay for the Lambo, and solves the problem by packaging it up with everything else. This works for the first Lambo, but they want 10 Lambos, so the bond interest rate is unsustainable. So what now? Taxes. They put a bunch of taxes on the residents, and then tell the investors that the Lambo bond will now get paid by tax revenues, which they have ultimate authority over. Now the calculus is different. The value of the expenditures is almost irrelevant. The only thing that matters is the marginal point where an additional dollar in tax reduces the net asset value by the inverse of the tax rate (e.g. $1 in tax revenue at 1% => $100 value destroyed). Notice we’re no longer talking about increasing values by large multiples, but destroying value by large multiples. Now the Lambo bond goes out supported by tax revenues. The casual observer might note that the people of the town are now paying the bond holders for their right to exist on the land that they ‘own’. The major innovation from feudalism is that now the peasants actually pay for the land up-front too, and they pay for any improvements on it, and then higher rent for the improved property. But that’s only an illusion of sustainability created by forceful extraction of resources. It’s like a strip-mining operation on middle class wealth. Profits are great until the resource runs out. So what is the solution there? Growth. Bring in more people to extract resources from. This is a requirement of the extractive funding model. Market forces create sustainable economies. Any use of force distorts away from sustainability, toward finite extraction, and extractive models require expansion.

aledthemathguy 5y ago
Great post, thank you! and also - wow!

raverbashing 5y ago

I wonder how will that match up with the current inflation in real estate (especially suburban areas) A recent video by Rossmann https://www.youtube.com/watch?v=1phS3AVQ6G0 https://www.youtube.com/watch?v=1phS3AVQ6G0

Proven 5y ago

The recipe is wrong. TFA establishes that root cause is local government's involvement and recommends fixes that have nothing to do with fixing that and would result with even more government involvement. Don't let the government borrow money, and solve the problem.

giantg2 5y ago

Remember, it's not a ponzi scheme if the government is the one doing it (it's stupidity, not fraud).

danielschonfeld 5y ago

Not to take away from the MO strong towns publishes on their front page. And the topic at hand. One has to remember that strong towns origins are from a yarning to building human scale towns and not machine scale ones. I think any conversation about investments in our cities should be framed in that context as it paints a personal investment lens through which this overall topic of the success of our cities can be hashed about. Irrespective of whether you believe infra costs are 10% or 100% or other minutia details. We simply aren’t building cities in America for humans. We’re building space for seclusion bunkers and advertisement and shopping Meccas.

dave333 5y ago

The difference between a legitimate investment and a Ponzi scheme is just profitability. Suburbs should increase revenue by promoting reinvestment in the form of backyard tiny houses with the side benefit of low income housing.