How to Stop the ‘Growth Ponzi Scheme’

Point­ing to recent rev­e­la­tions about the city of ’s ail­ing finances, Charles Marohn of Strong points out that many cities — wealthy ones like San­ta Clara, Cal­i­for­nia — strug­gle to afford basic infra­struc­ture main­te­nance.

That’s because this isn’t a wealth prob­lem, it’s a pro­duc­tiv­i­ty prob­lem. And like all pro­duc­tiv­i­ty prob­lems, grow­ing faster buys time but ulti­mate­ly makes the insol­ven­cy prob­lem worse. If you lose mon­ey on every trans­ac­tion, you don’t make it up in vol­ume, even in Cal­i­for­nia.

As Marohn explains, the under­ly­ing cause of the finan­cial cri­sis fac­ing many U.S. cities is the “aggres­sive out­ward expan­sion of cities,” which cre­at­ed a vast and unsus­tain­able net­work of infra­struc­ture that would need main­te­nance and repair. In Cal­i­for­nia, where Propo­si­tion 13 keeps prop­er­ty tax­es on exist­ing homes low, cities encour­aged out­ward devel­op­ment to expand their tax base in what Marohn calls a ‘Growth Ponzi .’

In Marohn’s view, “What we need is a more hum­ble , one that starts by rec­og­niz­ing that cities are com­plex, adap­tive sys­tems with unpre­dictable feed­back loops and untold nov­el respons­es to stress and oppor­tu­ni­ty. They are not mere mechan­i­cal devices, a of streets, build­ings, pipes, clas­si­fi­ca­tions, and finan­cial prod­ucts.” Marohn rec­om­mends five steps cities can take to make an on their local devel­op­ment and finances from the ground up, includ­ing build­ing lots of hous­ing, mak­ing streets safer, and con­vert­ing unpro­duc­tive park­ing lots to uses.

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