Burning the Midnight Oil for Living Energy Independence
This week in The New Republic, Richard Florida presented his vision of High Speed Rail as the central strategic point of leverage in an economic "reset" to get us out of the doldrums resulting from the failure of the 20th century growth model to deliver ongoing, sustained growth any more ... though the way he frame it is:
As dismal as housing prices continue to be, they have yet to hit bottom in some places. Unemployment remains frozen at an overall level of nine-plus percent, and job creation has been anemic. If the crisis belonged to George W. Bush, the recovery has been Obama’s—and it has been a fragile and tentative one at best. Along with billions of dollars in stimulus payments, the president has spent down most of his political capital. So what is his next step?
So ... what is the next step?
This article is dated 12 August, and given the central role that Florida paints for High Speed Rail, has of course already been addressed by a number of others, including Yonah Freemark at The Transport Politic and Robert Cruickshank at the California HSR Blog.
- The Economic Growth Engine that dominated the post-WWII US economy generated a form of geographic Keynesianism
- This Economic Growth Engine has reached its end
- We must therefore turn to a Growth Engine based on Innovation
- Innovation is fostered by clustering
- So the Economic Geography of the Next Growth Engine will be emerging national Mega-Regions
- High Speed Rail is uniquely suited to connect the distinct cities of a Mega-Region together, so High Speed Rail is the strategic linchpin of launching the Next Growth Economy
The End of Keynesianism and Beginning of Fantasy
There is much that is right and much that is wrong in Florida's argument. One of the signal failings of the story as he presents it is presenting the 20th Century Growth Engine as some kind of natural force, ignoring the substantial entrenched policies that channeled it down the particular paths it took.
And this is strategic for Florida's argument about the nature of the Next Growth Engine, since if these things are natural forces, the projection of the Next Growth Economy from the trends of the twilight of the Automobile Age is straightforward. For example, if:
Our transition from a Fordist mass production economy, based on the assembly line, to a knowledge economy, in which the driving force is creativity and technological innovation, has been under way for some time; the evidence can be seen in the physical decline of the old manufacturing cities and the boom in high-tech centers like Silicon Valley, government boomtowns like Washington DC, and college towns from Boulder to Ann Arbor. Between 1980 and 2006, the U.S. economy added some 20 million new jobs in its creative, professional, and knowledge sectors. Even today, unemployment in this sector of the economy has remained relatively low, and according to Bureau of Labor Statistics projections, is likely to add another seven million jobs in the next decade. By contrast, the manufacturing sector added only one million jobs from 1980 to 2006, and, according to the BLS, will lose 1.2 million by 2020.
This reads as if this just happened, rather than being made to happen by pursuing policies of de-industrialization, and by accepting policies with de-industrialization as a natural consequence, whether promoting the power of transnational corporations with mis-named "trade" agreements that primarily focus on the freedom of corporations to exercise corporate power across national borders, or the "fight inflation first" strategy of the Fed that biases the US exchange rate against the interest of exporters and toward the interests of importers, all the while their primary target is the prevention of full employment.
By stereotyping manufacturing as Fordist mass production, and setting it in opposition to the Knowledge Economy, Florida sets up a false dichotomy where Knowledge-Intensive Manufacturing disappears from view, and so does not have to be considered as a target for national industrial policy.
The story Florida sketches regarding the post-WWII Fordist Growth Economy is, of course, only partial, but is broadly correct.
- There was a wave of investment in Road Infrastructure by state and especially local governments in the 1920's, and its ebbing was part of the sagging national income that exposed the financial fragility of the late 1920's
- Federal Investment in Road Infrastructure picked up in the 1930's, providing part of the foundation for the post-WWII wave of suburban development
- That wave of suburban development was financed in a way that permitted the further finance of automobiles, refrigerators, stoves, furniture,
- and the income from the manufacture of that whole complex of products helped fuel the ongoing development of the suburbs.
However, Florida skips an important part of the story, which is the system of cross-subsidies that helped fuel that system by channeling income from urban and rural households into the development of sprawl suburbia. A fairly well known example is the Federal gas tax, which many Americans imagine to be a user-pays system for funding roads. In reality, all motorists pay the tax, whether or not their driving is on funded "highways". The majority of city streets are ineligible for funding while a majority of Interstate, National, State, County and Township "highways" on their periphery are eligible for funding, so that in the 1950's, this was a strong cross-subsidy from the urban and pre-WWII inner-suburban majority to the "new suburban" minority.
But this is, of course, only the tip of the iceberg. When utility hook-ups are priced by a flat rate rather than by the cost of providing the hook-up, that represents a substantial subsidy to sprawl development. When zoning imposed required minimum parking, the value taken from the property owners depends on the value of the underlying land, so the "in kind" tax imposed on landowners to subsidize cars with the parking they require is substantially higher in urban and inner suburban areas than in greenfield outer suburbs. Households living in unincorporated area (study area is Wisconsin) tend to receive more of their services from the county where they are located. Direct and tacit subsidy of logging, through undercharging for logging rights and provision of logging roads, implied an undervaluing of the value of existing durable urban structures versus new stick-frame detached housing.
What is the difference if we recognize these cross-subsidies of sprawl suburban development? The basic logic of cross-subsidies is to promote growth of the subsidy recipient at the expense of the subsidy payer, reducing the share of income contributing and increasing the share of income sharing the cross-subsidy. A Growth Engine based on cross-subsidy is destined to eventually run out of gas.
And then, of course, we ran out of gas ... starting in the late 1960's when we hit peak oil, the system of stabilizing US crude oil prices by manipulating production in the big Texas oil fields went by the boards, and the Automobile Age was exposed for the first time to the vagaries of the international oil market ... and after sprawl suburbia had captured over half of the US residential population, placing its flow of cross-subsidies at risk, we reached the neighborhood of global peak oil production, at a time that we consume a quarter of the world supply but only while we still produce a tenth of the world supply.
A gasoline price shock of a mere $4/gallon was one of the three forces contributing to the Panic of 2008: a serious gasoline price shock or an interruption of crude oil imports would have an even more devastating impact.
The Optical Illusion of Interstate Highways
Now, the Interstate Highway System, while not the majority of the cross-subsidy for sprawl development, were an integral part. But for passenger transport, "Interstate Highway" is a misnomer. The bulk of the passenger miles on the Interstate Highway system are local passengers, not interstate passengers.
Where the "Interstate" nature of the Interstate Highway system is dominated by interstate transport is in freight transport.
Yet, while Florida gives lip service to freight ...
That means high-speed rail, which is the only infrastructure fix that promises to speed the velocity of moving people, goods, and ideas while also expanding and intensifying our development patterns.
... it is only lip-service. The focus is on all the entrepreneurs coming into the Megaregional Hub to work out how to provide innovative services to each other and consumers, which services will somehow generate the export revenue to allow all of us to import all of the industrial and consumer goods that we require.
Fleshing Out the Skeleton
So, does HSR offer the opportunity to be the "Reset" technology to allow us to restructure our economic geography on a long term sustainable basis?
Well, any long time readers of Burning the Midnight Oil or others who know me as a long time advocate of HSR will already be expecting my answer: No, of course not. Setting up High Speed Rail as "the" answer to anything is setting it up to "fail" to meet a poorly thought through target.
On of the reasons why "Auto Uber Alles" required heavy cross-subsidy to grow is that it was a "one-size-fits-all" solution. And one size never fits everyone, and never fits many people all that well.
High Speed Rail is a useful part of the mix and, as I have long argued, is the part of the mix that we can get working on right away, given the fact that High Speed Rail has repeatedly shown its ability to generate operating surpluses, even under Automobile Age conditions. That makes HSR a strategic "leading edge" of the new transport system that we shall require for this new century.
However, we must not make the mistake of trying to "re-fight the last war": High Speed Rail corridors will not be providing the bulk of passenger transport, nor will they be providing the bulk of freight transport. Their superior capital efficiency compared to the same intercity passenger transport capacity provided by roadworks is due to the fact that HSR does not try to be a magic "silver bullet" one-size-fits-all solution, rather focuses on being the efficient solution to the problem it solves.
Indeed, despite Richard Florida's focus on innovation, one reason that High Speed Rail looms so large in his vision of the new 21st century is that in High Speed Rail, the essential technical innovations required to allow us to start building have already been made, and there is very little social innovation required. Florida is, in other words, projecting an existing technology into the future.
In local transport, more social innovation is required to reach the point of painting a compelling grand sweeping vision of how we will get from our current, obsolete, system to one that will meet the needs of our new century. So, although this is a more important challenge for our day to day standard of living in 2020 or 2050 ... it is a far less question to consider for those who specialize in painting grand sweeping visions.
And the idea that we will simply abandon making things that do useful things is a fantasy from the twilight of the Age of the Automobile. It rests on the neo-mercantelist strategy of China and others to accept lower terms of trade in return for being allowed to export potential unemployment to the US. The credit creation required to maintain a discounted ¥RMB to US$ exchange rate has been an important part of the credit creation that has been papering over the fading income-generating capacity of the post-WWII Growth Economy.
However, this is also an imbalanced and ultimately unsustainable process. In a sustainable system, our standard of living will depend not on the creation of credit in China, but in the creation of goods and services of value to our own economy and to potential trade partners overseas. Pre-emptively hobbling our capacity to produce valuable products by continuing to engage in aggressive de-industrialization is the path towar being a poorer nation in the future than we need to be.
Midnight Oil ~ Blue Sky Mine