Hitting the ceiling

No, I'm not talking about the debt ceiling, I'm not talking about getting angry, and I'm not talking about a real ceiling. I'm talking about economic recovery.

As I wrote yesterday, our economy has the short-term capacity to put everyone back to work, thereby bringing income and sales taxes back to earlier levels. We have factories and workers sitting idle because demand is low, and executives aren't driving production because they can park their money in bonds without worrying about inflation eating their principal.

There's a reason why Paul Krugman wants the Federal Reserve Bank to commit to an inflation target of four percent. If executives knew that their cash reserves would be worth 82% of their present value in five years, they would do something else with them, like hiring people to make trains. Those people would buy more stuff and pay more taxes, and the economy would recover.

Some of it would, at least, and that's where we get into the problem. There are sectors of the economy that are not healthy, and those are the ones that brought us down in the first place: transportation and housing. If you remember, the housing bubble depended on "drive 'til you qualify," people buying houses with really long car commutes, and no transit alternative. It was popped by the peak in gas prices. When people couldn't afford to pay for those long commutes, they stopped buying houses in the sprawl and SUVs to drive to them, and the whole thing came down. The credit-default swaps were awful, but they were mostly a sideshow.

When economic activity declined, people used less oil to get to work, but also to ship things (because people were buying less stuff) and to run oil-fired power plants. The price of oil came down, and road congestion eased.

The stimulus was a little crazy: roads and bridges, cash for clunkers, government mortgage guarantees. When the economy started to recover, thanks to the stimulus, people immediately started buying sprawl houses and SUVs again. The price of gas started to go up. Then we had a mini-crash and the whole thing stopped.

This is absurd, and I'd be laughing my ass off if it weren't so serious. It's like a comedy where a guy on an airplane stands up too fast and bumps his head on the luggage compartment. He sits down dazed, and then as soon as he recovers he stands up again and hits his head. There may even have been a scene like this in Airplane!. Will he ever learn to stand up slowly, partway, and move sideways?

That's kind of the question for us. As long as we keep trying to run our housing sector on sprawl houses, and our transportation sector on roads, cars and oil, we'll keep crashing as soon as we start to recover. We could rezone our cities for dense, transit-oriented development, use the stimulus funds for rail and the housing guarantees for renters (say, that the government will pay your rent for six months every ten years if you can't make the payments), and reform the Federal Railroad Administration regulations for railroad cars. Any recovery that happens after that would be more stable.

Of course, any measures designed to encourage sustainable development will take time, and in the meantime we've still got all this sprawl infrastructure, with people living and working in it. To the extent that economic activity increases, some of it will take place with cars and trucks in these sprawl areas, and thus contribute to global warming and oil depletion. I've often wondered recently whether it wouldn't be better to let our economy stay depressed until the Baby Boomers die and we can forge a national consensus in favor of transit and urbanism.