Is “Economic development” bad for the economy?

In our free-wheeling, “democratic” nation with our belief that capitalism solves all problems, we seem to have let Adam Smith’s “invisible hand” deal us a whopper of a punch. All of a sudden, property values are dropping like a rock, causing tax revenues to drop, causing local and state governments who are mandated to have balanced budgets to go into crisis mode. The federal government has jumped in to “bail out” the major players throughout this crisis- by extending super-low-interest-rate loans, grants, and a lot of “stimulus investment” in construction and infrastructure projects.

Yet, what if they have it all wrong? That the real disaster was too much “economic development” and not enough investment in “social capital.” Had we invested more in education than the war on drugs, national health care instead of the military-industrial complex and public transit instead of more off ramps and cul de sacs where would we be today? Did oversupply of new housing, new office space and new developments lead to the disaster? And was it mostly fueled by politicians who love to have their picture taken with a shovel in hand at a groundbreaking?

A real estate lawyer in Florida, Ms. Lesley Blackner seemed to think so- and is taking on the culture of construction with an amendment to Florida’s constitution to put the brakes on builders gone wild:

the real estate crisis is not just the fault of Wall Street, Washington or misguided borrowers; it is also the back-scratching bond between elected officials and builders — a common source of frustration in weak real estate markets around the country wherever developers are still fighting to add more housing.

In Florida, at least, Ms. Blackner hopes to put an end to the chronic oversupply with a ballot initiative she has labeled “Hometown Democracy.”

Amendment 4, as it is officially called, would give Floridians a vote on changes to state-mandated plans for growth in every county and municipality. Much of the potential impact of the measure is up for debate, with important details most likely to be decided by the courts.

But if it is added to the state’s Constitution — which would require 60 percent approval on Election Day — critics and supporters envision revolutionary change.

Leaders of the Yes on 4 campaign, including Ms. Blackner, say it would end a culture of freewheeling development

via In Florida, Battle Over Growth Goes to the Voters – NYTimes.com.

When I first entered politics I had no idea who the power brokers were, or what their agendas were. One that I kept running into, which seemed odd, was the HBA- the Homebuilders Association. They were one of the primary backers of Mike Turner in his first run for office as Dayton mayor, and the money was substantial. Considering Dayton had shrunk by about a third, it would seem that the city had an oversupply of housing already, and “home building” wouldn’t be high on the list of priorities- how wrong I was.

Bankers like home builders too- because construction loans, and then the mortgages that go with them are a constant source of revenue. Heavy construction people like home builders, because we then need new roads to carry the sprawling suburbanites to and from their cul de sacs. Automakers love new homes too- because they are generally built further and further out- on pristine farmland- instead of in core cities. And because the density of new construction has been lower over the last thirty years- shopping malls and “town centers” like them as the ideas of walkable communities falls apart in our mad rush to build, build, build.

In Florida, a ridiculous  glut of new homes is now causing the real estate market to fall apart. There is such an oversupply that when the rose-colored glasses come off, the landscape is pretty grim. The state had decided that “growth” was a goal – instead of sustainability and the results have been a disaster. Whether a constitutional amendment is the right solution or not, judging by the amount of money the Homebuilders are throwing up against it (considering many of them had to ask for a bailout from the feds) one should be able to infer it’s a shot in the right direction.

While Montgomery County’s population hasn’t grown substantially in the last 40 years, our footprint has spread out at a ridiculous pace. The Miami Valley Regional Planning Commission has the numbers and show that we’re overbuilt between 20 and 45% depending on type of development- from housing to office space to retail, yet the politicians keep banging the drum for builders to build.

What would happen if government got out of the “economic development” business altogether? What if there were zero incentives for new construction, instead, only offering incentives on projects that either reuse and adapt, or increase population density? What if there was a premium impact tax on expansion? Isn’t this what Portland, Oregon, did with its development limits? But, let’s also realize that we’ve let our state and local governments’ preoccupation with “economic development” take center stage instead of focusing on delivering top-notch, low-cost public services. The Ohio taxpayer is supporting a whole legion of people who do nothing except spend our tax dollars on diluting the value of our housing stock, our existing infrastructure and add overhead that makes doing business even more expensive.

Is it time for a referendum in Ohio, or perhaps nationwide? Florida may be leading the way if Amendment 4 passes this November.

If you enjoyed this post, make sure you subscribe to my RSS feed! If you wish to support this blog, please head over and use our services at The Next Wave Printing for all your printing needs. We have 4 Color Business cards starting at just $13.50.

6 Responses

  1. Jesse September 30, 2010 / 8:23 am
    David,
    Funny that you initially complain that the invisible hand of the market and capitalism punched us when you then spend the entire article describing how politicians and voters dominate every aspect of the economy.  It isn’t capitalism…it is government that causes these distortions.
  2. joe_mamma September 30, 2010 / 8:38 am
    “In our free wheeling, “democratic” nation with our belief that capitalism solves all problems, we seem to have let Adam Smith’s “invisible hand” deal us a whopper of a punch.”
     
    I’m not sure we as a society, and definitely not our political leaders, believe that capitalism solves all problems.  It’s more like we believe government SHOULD solve our problems.   Or at last we’ve been seduced by the idea.  Perhaps the citizenry is finally sobering up from the government pedaled binge of easy money, spending and entitlement policies.   I highly doubt our political leaders are sobering up.  Sure Adam Smith’s “invisible hand” has smacked us around a bit, but it should.  After all contrary to what the big government, elitist,  technocrats think you can’t mute the market.   As Milton Friedman was fond of saying   “…it’s a profit and loss system.  The loss part is even more important than the profit because it’s what gets rid of poorly operated companies” and of course bad ideas….  The bigger sucker punch though was delivered to us courtesy of the very visible hand of government and their cronies.
  3. truddick September 30, 2010 / 9:34 am
    Adam Smith, like most great thinkers, has suffered from gross oversimplification of his ideas.
    Smith was plain that there were some functions of society that should be managed by the government (e.g., limited socialism) while the forces of supply and demand would guarantee the best economic conditions in a free and perfectly competitive marketplace.
    We have allowed government to intrude in the free marketplace, promoting certain industries instead of maintaining perfect competition–while we have seen great clamor for government to quit providing the things it does best.
    A good re-read of Adam Smith might be in order (or is re-read the wrong term, since so few seem to have read any of him in the first place?).
  4. Greg Hunter September 30, 2010 / 9:58 am
    The bigger sucker punch though was delivered to us courtesy of the very visible hand of government and their cronies.

    I would not invisible at all if you voted for turner, husted or joined the chamber then you supported the cronies that brought us this government.  In addition the passage of the TID along with a tax break for home ownership were very visible and the outcome was obvious.  Now the country elected “change” and all we received was more of the same…the people in power (voted in and supported by FIRE (financial, insurance and real estate) economy received a bailout and the working class picked up the check (not really as we issued debt that the Chinese purchased that working Americans cannot pay back, nor should they…tax revolt) .

    Those in power have been placed there by these factions and these factions still retain power and it does not matter Democrat or Republican from the local town council all the way up.  It is nice that Dayton has Nan to do the job of tearing down Dayton housing so those in the suburbs can increase in value.  Until the people that make the sure the skimmers (FIRE and Lawyers get a percentage ala the Mafia) are gone or their pay is relegated to the working class then there is no hope for us dopes.

  5. Bald Man September 30, 2010 / 12:03 pm
    It would seem that ours is a “broken window” economy, where the incentives geared toward production instead of sustainability. I think a big part of this has been a reductionism in public discourse that boils everything down to dollars and cents. I don’t mean to imply that money isn’t an important part of the equation, but it ought not be the sum and substance of the conversation.
  6. Jill October 3, 2010 / 9:57 pm
    When you don’t have clean water or enough to eat, money is inconsequential.

Leave a Reply

Your email address will not be published. Required fields are marked *