With respect to the current economic pain it is elementary that:
A. If a nation-state with a democratic governance structure is going to create an economy based on consumer consumption (much less claim to lead the world in creating democracies with market economies) then:
1) Agencies of that nation-state must insure that the market benefits the vast majority who are expected to consume. The market cannot be tilted in favor of a tiny minority who have an appetite for luxury goods but consume only an insignificant fraction of the total goods and services no mater how much they waste.
2) When the economy depends on consumer consumption, Agencies cannot ask those at the top of the Ziggurat what they want, they must determine what those who are expected to consume need to be prosperous, happy and safe.
3) Agencies cannot create a system of governance that privatizes profit and socializes risk, and above all,
4) Agencies must make sure that the rate of consumption is sustainable and that consumer expectations are rational and that the vast majority benefit.
Any alternative to these Elementary Rules are unsustainable for a democracy with a market economy. The last 60 years of consumer-driven economic “growth” in the US of A has not been sustainable as evidenced by the current “meltdown.” Both political parties have violated all four Elementary Rules of governance sustainability.
Right wing nuts are harping on the transgressions of ACORN and similar groups. Illegal and fraudulent actions are wrong. However, with an obscene and widening Wealth Gap, ACORN- like groups are exactly what citizens can expect to happen. The next step is radical populism as documented by nearly a century of experience in South and Central American, Caribbean and African attempts at democracies with market economies.
No nations-state can:
1) Import energy and cheaper labor
2) Burn up natural capital, and
3) Subsist on loans from those who sell Citizens, Enterprises and Agencies the energy, goods and services they need to survive.
B. If a nation-state is going to create an economy that depends on trust, enterprise, intelligence, saving and investment then Agencies must manage the money supply such that the cost of money (interest) allows savers to can make a reasonable return from investing and are not forced into:
1) Speculating on the true value of land
2) Gambling on stock and commodity markets, or
3) Swapping valueless definitives of tangible assets.
If financial Enterprises are to have money to loan, Agencies must ensure that interest rates encourage savings not tax breaks that encourage Global short-term profit seeking, aka Supercapitalism.
C. If a nation-state desires to evolve a stable economic system it must create a system that:
1) Does not rely on unsustainable “growth”, and
2) Reflects the organic structure of human economic, social and physical activity, the first step is a Fundamental Transformation in governance structure.
There is a need for several strong, competitive Regional banks in every New Urban Region, not MegaBanks and MegaSpeculators – Enron, WorldCom, Lehman, AIG, Citi and all the rest – that have lost touch with the role of banking and investment in a society.
D. If a nation-state wants to expand dwelling ownership then:
1) The dwellings must be near Jobs and Services rather than encouraging the Wrong Size House in the Wrong Location.
2) Agencies must discourage speculation on home value.
Over the last 60 years owner occupied dwellings have increased in value at about the rate of inflation. When the current wave a write downs is complete the values will be below inflation. This means that the internal rates of return on many investment strategies are much higher than on real estate, especially owner occupied dwellings.
To paraphrase the current VW ad (“Have a baby for love, not for German engineering), “Buy a house for living, do not buy a house for speculation.” You hear about the bonanzas is house speculation hyped by real estate agents that is not what you learn from careful analysis of regional data.
While dwelling speculation is bad, far more money is lost than is made in raw land speculation. Raw land speculation loses were the major component of the REIT recession and the Savings and Loan recession. Loans on badly located and inefficient sized dwellings are the lynchpin of the mortgage meltdown. In the end citizens pay for the bail outs of speculators.
Both D 1) and 2) are directly related to that fact that there is too much land held for urban land uses and that which is developed is dysfunctional because the total location variable costs are not fairly allocated.
This is the first of four posts on Elementary Rules and Realities, the others will focus on “The Role of the Media,” “Swift Boating the Mortgage Crisis” and “The Bottom Line.”
As you can guess, all Elementary Rules and Realities relate to Agency, Enterprise and Institutional actions that generate dysfunctional human settlement patterns.
EMR