America’s revival begins in its cities

For a while I’ve had a theory that the post WWII American economy developed in two phases using three main engines of growth; 1.) the building of suburbia, 2.) the post WWII manufacturing boom, and 3.) the financial/credit/service economy boom.

I will call the period from 1945 to 1979 phase 1. The main engines for growth during this period were a.) the building of suburbia, which was enabled by cheap oil, the building of the national highway system, and the mortgage tax deduction, and b.) the post WWII manufacturing boom, which was enabled by the fact that the rest of the western world’s manufacturing sector was destroyed during WII as well as our access to cheap oil and skilled labor.

Due to a series of oil shocks and the emergence of global competition in the manufacturing sector phase 1 began to slow down by the end of the 1970’s. By the late 1970’s and early 1980’s America was at a crossroads and in need of a new paradigm for growth.

(Thankfully… or not?) the 1980’s saw a return to cheap oil and the emergence of the financial/credit/service economy which was enabled by a continuous unwinding of financial and credit regulations and a tech boom. Along with this service boom, the economy was driven by a second phase of the great American suburban build-out. This phase not only included a large amount of residential construction but also a surge in commercial construction which was largely enabled by the financial/credit/service economy boom. I will call this period from 1980 to 2008 phase 2.

In light of the recent financial crash, oil shock and the possibility of peak oil and carbon emissions regulation looming on the horizon, I believe that the American economy has once again reached a crossroads and must look for a new engine of growth if we are going to continue on this path.

This leads to something that I’ve been interested in for a few years now... New urbanism and transit oriented development. I believe as things unwind over the next decade or so the prospect of living in the suburbs and exburbs will become a lot less attractive and there will be a renewed interest in small city urban life. IMO this renewed urbanism (as well as a renewed interest in local rural life) may help to act as an engine of growth moving forward over the next 30 years. (Of course this will depend to a large extent on public policy to the extent that it can encourage or discourage such activity.)

Anyway to make a long story short, this article touches on some of the things that I have been hypothesizing about over the last few years. It will be interesting to find out how things work out.

Quote :

America’s revival begins in its cities
By Edward L. Glaeser
December 30, 2010

DURING ECONOMIC downturns, we begin to fear that we are entering a permanent period of decline. But we can avoid that depressing prospect if we recognize that a revival will not come from federal spending or another building boom. Reinvention requires a new wave of innovation and entrepreneurship, which can emerge from our dense metropolitan areas and their skilled residents. America must stop treating its cities as ugly stepchildren, and should instead cherish them as the engines that power our economy.

America’s 12 largest metropolitan areas collectively produced 37 percent of the country’s output in 2008, the last year with available data. Per capita productivity was particularly high in large, skilled areas such as Boston, where output per person was 39 percent higher than the nation’s metropolitan average. New York and San Francisco enjoy similar per capita productivity advantages. Boston also seems to be moving past the current recession, with an unemployment rate well below the national average of 9.8 percent.

Since 1948, the national unemployment rate has exceeded 9 percent only one other time: the grave 1982 recession. During the 1980s, we looked at Japan and saw an economy that seemed to be surpassing our own. Today, we watch with unease as China surges.

Yet American decline is not inevitable. During the 25 years after 1982, our real gross domestic product increased by 3.3 percent per year, which was also the rate of growth during the quarter century before 1982. Our post-1982 growth involved massive economic restructuring. Manufacturing employment fell by 39 percent from its peak of 19.4 million jobs in 1979. The 1979-2009 manufacturing decline was more than offset by the 126 percent increase in employment in “professional and business services” and the 184 percent increase in education and health jobs...

...For decades, the American dream has meant white picket fences and endless suburbs. But the ideas created in dense metropolitan areas power American productivity. We should reduce the pro-homeownership bias of housing policies, such as the home mortgage interest deduction, which subsidize suburban sprawl and penalize cities. We should rethink infrastructure policies that encourage Americans to move to lower-density environments. Most importantly, we should invest and innovate more in education, because human capital is the ultimate source of both urban and national strength.

As we grope towards a brighter future, we must embrace our cities, and invest in the skills that are central to their success.

http://www.boston.com/bostonglobe/editorial_opinion/oped/articles/2010/12/30/americas_revival_begins_in_its_cities/