

How the Crash Will Reshape America - ksvs
http://www.theatlantic.com/doc/print/200903/meltdown-geography

======
Spyckie
This article is well worth the read.

This is a perfect example of what makes history fascinating - its ability to
make sense of the present and the future.

His conclusion, for those who can't get through it: housing is a dead end
investment. It's a liability, not an asset in economic terms because it
discourages mobility and doesn't have good (any?) returns. We should abolish
policies that promote each man his own home, encourage renting, and come up
with housing infrastructure solutions that are economically stimulating (in
terms of mobilizing the workforce and bringing talent together).

The housing market seems ripe for technological innovation. Any ideas?

~~~
gaius
Renting _from whom_?

Unless you're proposing the government operates a People's Barracks, then
housing must be able to make a return _for someone_ or there won't be any
liquidity. Which will mean that renters will be just as immobile; they'll have
no way to rent a new place at their destination.

~~~
arebop
Renting could decouple "home" from "house," allowing everyone to behave more
rationally and giving the middle class better real estate portfolio
diversification.

This doesn't require a People's Barracks. It could be done privately, merely
by introducing a layer of indirection between individuals and housing stock.

I see a few problems with this idea. First, given the opportunity to behave
more rationally, will most people act on it? Second, it doesn't fully decouple
"home" from a physical place. It doesn't address the social environment of
family and friends, or the costs of moving one's belongings. My other worry is
acknowledged in the article but sort of dismissed: "homeownership has some
social benefits—a higher level of civic engagement is one."

~~~
gaius
Rational behaviour is, in a way, the problem. When New Labour came to power in
the UK in the late 1990s, Gordon Brown launched a raid on the pension funds to
fuel his extravagant spending plans. Workers in the UK then identified a need
for an alternative asset class to save for retirement, as the previously
sacrosanct pensions were now seen by the government as a cash cow. Property
was the preferred option, and everyone piled into that market.

But what were people supposed to do differently?

------
trominos
This is a great article.

One point (only tangentially related, at most, to the article's thrust) that
always bothers me when it comes up is this:

"On one level, the crisis has demonstrated what everyone has known for a long
time: Americans have been living beyond their means, using illusory housing
wealth and huge slugs of foreign capital to consume far more than we’ve
produced."

Can somebody explain this to me? I mean, the amount that Americans overconsume
should be bounded above by the trade deficit, right? That's the net imbalance
in flow of goods and services from other nations to us. We've demonstrated
that we can actually produce everything else that we consume ourselves. So
we're talking a maximum overconsumption of like seven hundred billion-ish
dollars a year, which is about 5% of our GDP.

Are people really worrying about removing the 5% overconsumption, or am I
missing something?

~~~
kaens
I'm no economist, but from a level-of-the-average-american perspective, this
country has had an _entire culture_ based around living ridiculously outside
of your means for the last few decades - at least in the middle to upper-
middle classes.

That's the entire point of, for example, credit cards.

Everyone knew it, and after a generation or two, people seemed to take it for
granted.

~~~
time_management
The worst thing about the culture of living outside one's means is that it
encourages, and sometimes forces, others to do the same. Wages can go down,
and prices can go up, financed by a credit time-bomb we all end up having to
pay for, collectively, in the future.

Take the housing bubble. If you bought a house in California between 1995 and
now, you paid a massive premium because you were competing against financial
morons with no sense of history, much less fiscal responsibility. It's like
the admonition about never arguing with idiots, for fear of becoming one.

------
jimbokun
This book

[http://www.amazon.com/Nine-Nations-North-
America/dp/03805788...](http://www.amazon.com/Nine-Nations-North-
America/dp/0380578859)

seems to have some connection with the content of this article. The article
mentions some cities that are key to their regions. The book breaks up North
America into nine regions with economic and cultural connections, and names a
"capital" city for each of them. For example, Miami as the "capital" of a
region including the Carribean. I think the article mentions some of these
same cities as being important centers for their regions.

EDIT: wiki page might be better for facilitating discussion:

<http://en.wikipedia.org/wiki/Nine_Nations_of_North_America>

------
fortes
> The solution begins with the removal of homeownership from its long-
> privileged place at the center of the U.S. economy. Substantial incentives
> for homeownership (from tax breaks to artificially low mortgage-interest
> rates) distort demand, encouraging people to buy bigger houses than they
> otherwise would.

He's right, but getting rid of that those deductions is a political non-
starter. There's no way it could ever pass (as he mentions, home ownership is
70% of the population, good luck with that).

If anything, politicians seem to be doubling-down on homeownership in this
recovery, trying to prop up prices in order to recover.

------
jerf
Previously: <http://news.ycombinator.com/item?id=479196>

------
christofd
has been posted previously. Fantastic article on Economics of Geography.

I've spent a lot of time trying to map out the world with data and I've come
to the same conclusions: Boston-Wash-NYC corridor (I would almost count in
Toronto and Montreal as adjacent to it; I guess, then you could just simply
call it the industrial Northeast), Pacific Northwest, Northern continental
Europe (Northern France, Belgium, Netherlands, Northwest Germany). I also like
the Southern Germany-Austria-Switzerland-Northern Italy cluster. The London
cluster is overpriced IMHO, but still has excellent public schools. California
seems overpriced and the state budget is in bad shape.

~~~
d13hard
_California seems overpriced and the state budget is in bad shape_

i live in california and love it...i think in so many ways it is the best
place in the world to live...but i must admit (with trepidation since i hold
so many state bonds)...that the state is doomed.

the size of the fiscal crisis here is not "state size", its "nation size". but
california cannot engage in printing money, deficits, or anything else a
nation can do to temporarily ease through. tax revenues are dropping like a
rock in every city in the state as EVERYONE lines up to get their house re-
assessed to get lower taxes.

california was crushed in the housing bubble and prop 13 makes revenue
collection even more inflexible. i personally intend to have my property taxes
cut in HALF, which is actually accurate and fair given that houses on my
street are now...half off. whatever happens i will be paying less in taxes by
some amount. now repeat for tens of millions of people...

and there's no stock market windfall to offset the gloom. google and apple are
just high-salary employers now. that won't save this state. suffice to say i
think the state finances are in doomsday mode. thankfully my kids do not go to
public schools...

~~~
anamax
> california was crushed in the housing bubble and prop 13 makes revenue
> collection even more inflexible.

Actually, prop 13 is the only reason most CA cities aren't declaring
bankruptcy.

Prop 13 has two relevant provisions - a cap on property tax rates and a cap on
the rate of growth of the taxable basis w/o a change of ownership or new
construction. (IIRC, most/all bay area cites are at the cap.) When you buy a
house, you know the most that you'll pay in taxes going forward.

When housing prices boom, Prop 13 means that tax revenues don't boom. It also
means that when housing prices crash, tax revenues don't crash.

Yes, the taxes paid by folks who bought near the peak will drop with housing
prices. However, the taxes paid by folks who bought long before the peak are
continuing to grow because their taxable basis lags the market.

Prop 13 was passed in reaction to a previous boom - property taxes were going
up 10-20% a year because that's what housing prices were doing. CA govts don't
cut rates and they don't cut revenues either.

If CA cities/counties had been able to grow their tax revenues in proportion
to the property values, do you really think that they'd be willing to let
their revenues drop with property values? Of course not - they'd increase the
tax rates.

------
tomkinsc
Fantastic article. The history really puts things into perspective.

This is interesting: "The geographic sorting of people by ability and
educational attainment, on this scale, is unprecedented."

The jab at Tom Friedman is fair. I've seen the trailing Paul Romer quote at
least three times within the past week, though. There certainly is truth to
it. Reinforcing "idea infrastructure" like internet connectivity seems
crucial.

Here's to affordable housing in talent-rich and diverse Manhattan and San
Francisco...

------
matthewer
Fantastic article... I think everyone who reads HN can relate to the theories
and thoughts the author outlined. Interesting to read when you consider where
to start your next business.

------
iamelgringo
In your geo-economic estimation, is the Bay area a separate geo-economic
region from So-Cal, or are they the same?

~~~
time_management
Crossroads between Pacific Northwest (liberal mindset, educated people) and
California (entertainment, ambition). This is why it has been so successful.

As the tech Midwest (Chicago, Minneapolis, Toronto) heats up, I'd imagine that
Pittsburgh has similar potential, being also at a crossroad between that
region and the Northeast.

~~~
jimbokun
Interestingly, he mentions Pittsburgh twice as a rare success story among U.S.
post-industrial cities. (And by "interesting," I mean in the sense of "I
happen to live here, and thus have more than a passing interest in the
topic.")

~~~
time_management
I grew up in Harrisburg. Unlike Pittsburgh, there aren't any four-year
colleges there, so most of the ambitious people left and, and after college,
ended up in New York, Philly, DC, Toronto, etc.

Western and central PA have a reputation nationwide for producing a
disproportionate number of hard-working, successful people... who don't move
back. There's definitely somewhat of a "Pennsylvania diaspora" (as well as one
for Minnesotans) community in New York.

I think Pittsburgh has a lot of potential to reverse that trend, seeing as it
has two major universities and has come a long way in terms of being a good
place to live.

~~~
jimbokun
'There's definitely somewhat of a "Pennsylvania diaspora"'

Around here we call it "Steeler Nation." :)

As for "good place to live," I was just talking to someone about the number of
cultural institutions that Pittsburgh has. Being the home of robber barons
like Carnegie, Mellon, and Frick, there were a lot of institutions and
endowments left behind to assuage their consciences for treating so many steel
workers so brutally to build their fortunes. Having kids, I'm especially aware
of the excellent Carnegie libraries, Children's Museum, Science Center, and
Phipps Conservatory. Not to mention the fore-mentioned universities, and all
of the hospitals (UPMC is the region's single largest employer). One of the
ironies for the city is that having non-profits as the largest employers means
that a large portion of the city's economic activity is off-limits for local
taxes.

~~~
anamax
> One of the ironies for the city is that having non-profits as the largest
> employers means that a large portion of the city's economic activity is off-
> limits for local taxes.

"Non-profit" only affects income taxes. You can still tax their property,
purchases, activities, and employees.

------
ojbyrne
"What will this geography look like? It will likely be sparser in the Midwest
and also, ultimately, in those parts of the Southeast that are dependent on
manufacturing." Sounds like something the Republican party will fight against
tooth-and-nail.

