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The "Economy" Scare
30/12/2002
Over the past couple decades, our focus on the importance of the economy has grown to the point where we all know that "it's the economy, stupid". Unfortunately, this acknowledgement has left us vulnerable to the increasingly common "damage to the economy" scare. It seems that any sort of progress that may threaten a particular business special interest will frequently lead to warnings about the dire consequences for the economy... And, since we all know it's the economy (stupid), then these threats frequently are effective. Now, sometimes a valid concern is being raised about a high price to pay for a particular reform. Other times we are being misled, and this can occur in a variety of different ways. A recent Detroit News special report has dealt with the topic of sprawling growth. The Detroit area is a particularly bad example of suburban sprawl, driven not only by car-oriented subsidies and regulations, but also a severe race-based divide. Governor-elect Jennifer Granholm has promised to implement a "Smart Growth" plan:
The unplanned, uncontrolled consumption of open spaces not only impairs the quality of our land, water and ecosystems, it also threatens our social and economic well-being if not met with strong leadership and vision.
The battle against sprawl is a battle for quality of life, but it is also an economic one. However, the simplest expression of the economic impact of "Smart Growth" plans is the one that makes its way into the Detroit News headlines, "Developers, others warn economy will suffer". A typical example of The Economy Scare, used as a anti-progressive tactic:
...the Michigan Association of Home Builders has long argued the real risk to Michigan's economy is "strident" efforts to curb development. "Twelve thousand members of MAHB will get very active in the Michigan Legislature," if Smart Growth proposals gain momentum, said Lynn Egbert, the group's chief executive officer. "We have a tremendously powerful message: protect private property rights. There's too much at risk. What will it cost the local economy? Local construction is a huge part of that economy."
The threats raised here are demonstrably inappropriate. The fact that sprawl-construction is a part of the economy does not mean that our economy is operating optimally. In fact, it is clear that government initiatives toward smarter growth should benefit the economy in both the short run and (especially) the long run. First, in the most basic and fundamental way, sprawl is a heavily-subsidized form of development that does not represent the direction of the free market:
Sprawl is the result of over five decades of subsidies paid for by the American taxpayer. These range from the obvious to the obscure and include big projects, like the billions we spend on new roads, as well as smaller ones, like the tax-breaks that encourage businesses to move to the edge of town. We've subsidized sprawl at such a basic level for so long, that many people believe the status quo is actually fair and neutral. This is false-what we think of as a level playing field is tilted steeply in favor of sprawling development.
Secondly, sprawl damages the economy in a more serious way by reducing quality of life. Attracting and keeping talented people is key to developing and continuously-redeveloping a vibrant local economy.
Such (smart growth) reforms are important to Michigan's competitiveness, said Michael Scholl, executive director of a new, anti-sprawl group called 1,000 Friends of Metropolitan Detroit. "We're going to continue to lose young people to Chicago, Boston, even Cleveland," Scholl said, "because this is not a real vibrant place with a vibrant urban core."
And, third, at the most abstract level, sprawl exists in part because our economic decisions are made without considering externalities such as environmental damage or global politics. Remember, externalities do count towards our real well-being, even if we haven't found a way to account for them within our economy yet. Now, we do know that it is, in fact, the economy, stupid. However, we need to remember to not be stupid about the economy. This includes not rolling over on every suggestion simply because a particular business association says that it is going to damage "the economy". Sometimes they might be right. Other times the truth may be that the suggested reform actually improves the economy by correcting an anomaly that benefits a particular special interest.
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