Liveability and Dysfunction
Friday 23 June 2023
Major metropolitan areas in the US are nearing a stage of crisis. One could, if one liked, call it a crisis of livability, though that sounds like a mere slogan. An Economist Intelligence Unit (EIU) report on livable cities just became available as I was writing this newsletter. While such reports must be taken with a grain a salt (I would have more confidence in an email from a friend or family member who personally visited any of the cities in question), it is possible that the EIU report might reflect some aspects of actual contemporary life. None of the top ten cities in this report were in the US (also, none of the bottom ten cities were in the US). However, Vancouver BC is in the top ten, and here I have heard mixed reports. I have not visited Vancouver BC since I was a child, but people I know have given me reports of the city as having a serious problem with drugs, and as having areas given over to homeless encampments (but not as extensive as US west coast cities). As I haven’t read The Economist in some time so I don’t know what agenda they are currently pushing, but as most of the legacy media is ideologically captured, I trust none of it. Last year a travel newsletter to which I subscribe (The Discoverer) listed Portland as one of the “cleanest” cities in the world, (10 Cleanest Cities Around the World, 26 January 2022; this list also includes Vancouver, BC), and no one who has visited Portland recently would say that. Portland was formerly a very clean city, comparable in this respect to Oslo or Stockholm, but it is no longer a clean city, and my siblings have recently compared it unfavorably to third world cities they have visited. Reports like this travel newsletter are good lessons for not taking anything at face value (including EIU reports).
The cities of the west coast, which through previous decades grew relentlessly — LA, San Francisco, Portland, and Seattle (from south to north) — are especially noteworthy failures because of their recent histories of relative success. The partisans of California never tire of telling us that California is one of the largest economies in the world; every few years there is an semi-humorous, semi-serious float of a succession plan, with the idea being that California is so successful that it might be better off on its own, separate from the rest of the US. The major cities of California have been major cities for a long time; Portland and Seattle came to loom large economically and culturally only in recent decades. Seattle’s fate has long been tired to Boeing, but Boeing was always a boom and bust industry, following the overall trajectory of the aerospace industry. There were several times when Boeing went into a slump and Seattle stumbled badly. But the appearance of technology companies like Microsoft and Amazon injected new sources of revenue into Seattle, while Portland was buoyed up by Intel and Nike (both in the western suburbs, and not within the city limits of Portland proper — much as Microsoft is headquartered in Redmond, a suburb of Seattle, and Apple is headquartered in Cupertino, outside San Francisco), as well as a variety of technology companies in the so called “Silicon Forest” west of Portland. New industries for the Pacific Northwest held great promise for the future, and the number and diversity of the companies participating in this economic transformation offered the promise of resilient economic development not tied to a single industry or a single economic Sector. So far, so good.
There is, of course, a fly in the ointment, as there always is. Even booming economies, if not especially booming economies, can experience downturns. In the second half of the twentieth century the business cycle was generally held to last about four years, with expected cyclical recessions followed by cyclical recoveries. This is the reality of an advanced industrialized economy, but there are exceptions to this rule. The initial process of industrialization can transform an economy in ways that can result in growth over decades. The initial industrialization of Europe occurred in the nineteenth century, and Europe’s economies and populations grew steadily, with recessions and financial panics not being rare, but also not being common. The initial industrialization of North America began in the late nineteenth century and extended to the middle of the twentieth century. After that, in both Europe and North America, the industrial economy was the “new normal,” and the new normal involved a business cycle. China is another obvious case in point. The industrial revolution only really began to transform China after Deng Xiaoping, and China has had, as a consequence, decades of year-over-year economic growth. And, of course, there is a temptation to attribute the economic growth to the political regimes in power during the period of growth, rather than to (correctly) understand the growth as a one-time historical process that will not be repeated.
It has become commonplace to overuse terms like “revolution” and “innovation,” hence the meanings of these terms have been cheapened, but when there is a truly revolutionary change to industry, this can support extended growth within an economic sector (and usually also within a given geographical region) that far exceeds the expected business cycle. Computing and telecommunications technology (which together constitute the internet) turned out to be just such a revolutionary technological development, and this development drove growth, especially in California, and especially in the San Francisco Bay area, far beyond what would have been the case in a counter-factual history in which the computer revolution did not take place. Thus technology companies, first in California, and then in Oregon and Washington, drove economic growth for decades on end, in a way that would never have occurred with the natural growth of local industries such as mining, fishing, lumber, tourism, and transportation. This steady economic growth has led to unrealistic expectations about sustained growth over the longue durée. But even the internet will, at some point, become the new normal and will cease to revolutionize the economy, and will cease to transform individual lives to the extent that it has done so over the recent past.
In the famous scene in the film 2001: A Space Odyssey, when Dave Bowman is shutting down the HAL 9000 computer, there is a telling moment when the computer reverts to an earlier stage of development, saying:
“‘Good afternoon, gentlemen. I am a HAL 9000 computer. I became operational at the HAL plant in Urbana, Illinois, on the twelfth of January 1992. My instructor was Mr. Langley, and he taught me to sing a song. If you’d like to hear it, I can sing it for you.’”
The film script was a collaboration of Arthur C. Clarke and Stanley Kubrick, and here we see how they simply assumed that future industrial growth in the US would take place in former industrial centers in the Midwest, like Urbana. This was, after all, the heartland of American industrial power, and it was reasonable to assume that future industries would supervene on this existing industrial base. But it is probably more often the case that new industries spring up elsewhere, that older industries nearing the end of their career remain in the cities where they emerged, and that, as the older industries decline, the cities in which they are domiciled decline in parallel. This has happened in the “Rust Belt.”
While the west coast was economically expanding, the formerly heavily industrialized cities of the “Rust Belt” were suffering economic contraction over a similar decades-long time scale. This process of de-industrialization of the Midwest is largely played out, although even now the full consequences of the development have not been felt. And while Midwest industrialization was failing, especially in steel and automotive production, the west coast was becoming smug over its dominance of different sectors of the economy, which were growing nicely.
Was the economic malaise that once devastated the Rust Belt, and which is now threatening the west coast, the same kind of malaise, only played out in the different geographical region? Yes and no. It depends on the degree of the abstractness of the concepts we employ in our analysis. The problems infecting major west coast urban areas is not due to automation in the steel industry, competition from Chinese and Indian steel producers, or the decline in the competitiveness of US automobile manufacturers. In this sense, the problem is utterly different. However, if we pull back and look at the big picture, we see cities tied to particular industries (as Seattle was once tied to Boeing), and the decline of these industries leads to the decline of these cities. In this sense, the malaise is the same.
The business cycle that characterizes mature industrialized economies is distinct from the cyclical character of the rise and fall of industries. In other words, there are cycles and there are supercycles. The four or eight year business cycle is a cycle; the supercycles of automobile production and semiconductor and computer production are larger supercycles which play out over many business cycles (and indeed over many decades). There are also political cycles, and economists generally don’t like to talk about political cycles — they are notoriously hard to predict, and one risks being seen as partisan rather than objective — but there was a reason that economics was once called “political economy.” The economic prospects of a geographical region cannot be assessed apart from its political fortunes or misfortunes. And this brings me to what I wanted to say today.
The US has recently experienced a technical recession (two quarters of negative growth in 2022 — US: Technical recession), but employment remained robust. The economy at present is giving mixed signals. There is hope both that growth can continue, that employment will remain strong, and that, even if there is a recession, that we will come out the other side better for it, and the major metropolitan centers of the west coast can resume their comfortable affluence and steady growth. Even those highly critical of the management of the economy will say without hesitation that these geographical regions will inevitably bounce back, because they always do. If the price point of some asset goes low enough, someone will sense an opportunity and will swoop down into even the most distressed urban core or dilapidated neighborhood. The problem is, this isn’t always true.
If one believes that the problems in San Francisco, Portland, and Seattle (here I name only the most striking examples of recent urban failure) are due to a business cycle, and one further believes that the economy will recover and these cities will improve, there is little that can be said to argue against this view. But the problem is not merely the business cycle. There is also a political cycle. And here we come to the idea of the order of causality. Business cycles can cause political deterioration, and when the economy recovers again, and tax revenues flow into government coffers, the political deterioration will be reversed, albeit as a trailing indicator of recovery. However, it can also happen that political cycles can drive economic cycles, so that political dysfunction results in a business downturn. If this is the order of causality in the problems of the aforementioned cities, then an economic recovery is not going to automatically result in improved fortunes for all. It might result in is the appearance of a recovery, and you might see investors swoop in to snap up distressed assets — but these investors can be fooled no less than the rest of us. Distressed assets may eventually become stranded assets with no prospect of future utility.
In Portland and San Francisco, major hotels are going bankrupt (S.F.’s hotel pain could spread as more than 30 owners face mortgage deadlines; Downtown Portland Hilton and Duniway hotels finally go up for auction). One of San Francisco’s largest shopping malls was returned to the bank when the owner decided it wasn’t worth even attempting to sell the property (Exclusive: Westfield giving up S.F. mall in wake of Nordstrom closure, plunging sales and foot traffic). Is this due to an economic cycle? No, it is due to political dysfunction. Here the order of causality is clear: west coast cities are suffering (even as some sectors of the economy remain robust cash cows) because of their political dysfunction, and the impact to hotels, retailers, and the convention trade are not due to an economic downturn but to this political dysfunction. Economic causes can exacerbate and accelerate, or mitigate and decelerate, decline due to political dysfunction, but the political dysfunction needs to be addressed at some point for politically-triggered economic downturns to be reversed.
We know what the long term deterioration of urban centers looks like because we have seen it in the Rust Belt. Cities like Chicago, Detroit, Cleveland, Flint, Gary, and so on had politically tied their fate to particular industries and their political leadership could not see any way forward beyond the past successes they had known (Years ago I wrote about the decline of Detroit in Detroit and Babylon). These urban areas continue to suffer today. It is unlikely that Detroit is going to grow again to its former peak population of about two million. Its decaying and deserted neighborhoods will continue to decay, and urban explorers will continue to make videos exploring these ruins, uploading them to Youtube so that people like me can watch them with a sense of morbid fascination.
When I discuss civilization (which is a larger scale of analysis than economics) I sometimes employ the terminology of what I call transcendence events (yes, I know, it is an imperfect terminology) in which a civilization transcends its former state and becomes something different (what the ancient Greeks called Metábasis eis állo génos — μετάβασις εἰς ἄλλο γένος). This terminology should probably be reserved for only the greatest transformations in human history (like the Neolithic agricultural revolution or the industrial revolution), but we can also identify smaller transformations that don’t measure up to the scale of the industrial revolution, but which are nevertheless economically significant. The advent of the internet did not fundamentally change the pattern of life established since the industrial revolution, but it is a significant change nevertheless.
We have been somewhat accustomed, since the industrial revolution, to see the economy revolutionized in these limited ways — by the steam engine, the internal combustion engine, the telegraph, the telephone, the television, and now the internet. In a robust industrialized economy, it would be possible in theory to evade the business cycle and to experience ongoing economic growth if there is always some industry somewhere being revolutionized by new technology. In a limited way this is true, but the exceptions are so many and so significant, that they vitiate the idea of this state-of-affairs being called any kind of ideal. The US has had a robust economy, and there have been many industries that have arisen with new technological innovations, but, as discussed above, these innovations tend to be centered in different geographical regions. That means that growth is not evenly distributed across the land mass of the country. Some regions thrive, while other regions decline. Some regions of the US are, for all practical purposes, abandoned and have virtually no prospects for the future. The federal government can and does redistribute some wealth from other regions, but there are problems with redistribution as well. Welfare dependency is no substitute for a regional economy that provides real prospects; it produces despair and inter-generational failure, and little more.
Within economically successful geographical regions, and especially in economically successful cities, we have seen that economic growth does not necessarily mitigate social problems. One could be cynical and say that this does not ultimately matter, as long as the growth continues. Just as San Francisco can continue to be the capital of the computer industry even if the convention trade leaves for good and all the hotels shut down, New York, the undisputed capital of finance for the US, can continue to be the capital of finance even as street-level anarchy prevails. It takes about 45 minutes to go by helicopter from the Hamptons to Manhattan, which is not an unreasonable commute for many American cities. If you’re set down on the top of your building in the morning, and you retreat to your waterfront home in the Hamptons each evening, the street level dysfunction of the city need never be a concern. You may be concerned about your employees that have to ride the subway to work, but, if you pay people enough, they will risk their lives to go to work, and they will pay exorbitant rents to live in New York. But is this any better than the despair of welfare dependency? Rents in San Francisco have also been exorbitant, but people have come to California anyway with dollar signs in their eyes, like the 49ers during the gold rush. Rents are starting to decline a little in these markets, but as long as the engines of growth continue to turn, we come closer to approximating a sustainable dystopia.
