Saturday, April 4, 2009

Sustainable growth.

“This crisis did not come about because we issued too little money but because we created economic growth with too much money and it was not sustainable growth,” Merkel said. “If we want to learn from that, the answer is not to repeat the mistakes of the past.” German Chancellor Angela Merkel

This quote sort of caught my eye, because she's saying what I've been thinking about Bend from the beginning.

It was never growth, per se, that I was concerned about. Too little, too much. Or just right.

It was sustainable growth.

It's as if we built a good solid first floor of a building, and it took us forever to do it, so we skimped a bit on the second floor, but it seemed pretty solid and people liked it and we had an immediate need for a third floor, so we skimped a bit more, on the fourth floor and the fifth floor, as it got progressively shakey.

A few of us who had been through hurricanes or tsunami's or earthquakes before saw the dangers, but most didn't seem to be paying attention. No excuse, really. We just forget the basics. 'Nothing's free.' 'You have to work for the money.' 'If it looks too good to be true...' 'You get what you pay for...'

But as long as the building still stood, no one cared.

The thing about losing the top floor -- as we all know to our sorrow -- is the next floor down is taken out, as well, and so on.

The trickle down theory only works in reverse, evidently.

There is a comment on the Portland Housing Blog that I sort of hope is made up.

"Spoke to a wealthy Bend doctor. He said that most of the down draft you are seeing are the marginally employed and the (hard boiled, institutional, consistently) poor, and the foolishly overleveraged.

For the folks in his socio-economic bracket, things are pretty much the same as they ever were. Sure, some people have delayed purchases, procedures, etc. but that has been an over reaction to the news, not b/c they personally were somehow worse off.

Much Ado About Nothing, was his statement. Bend inhaled a bunch of wannabe jokers and now is exhaling them. Utlimately, it wasn't really that big of a deal if things settled back to where they were 5 years ago. Life was just fine in Bend in 2002-2003 for him and he could do just as well if prices reverted."

Nevermind the "Let Them Eat Cake" morality expressed here, it's just plain foolish and shortsighted. (And as someone immediately pointed out, it was also a 'wealthy' doctor who got caught up by the Shire....)

I also agree with Ms. Merkel in this comment, if you'll allow the stretch, as it relates to Bend.

"German Chancellor Angela Merkel warned bankers to maintain sustainable growth once the global economic crisis subsides, adding that the pace of any recovery would be far slower than the rapid decline."

P.S. Before anyone points out that Merkel was referring to arcane money supply issues, I'm aware of that. But that was just the mechanism; it was the idea that we could grow past our actual production of basic goods and services, that was dubious.


Anonymous said...

There's no shortage of explanations as to why the growth might have been "sustainable".

It was because of large increases in population . . . where are all these people going to live?

It was because of new technological advances . . . People don't need to live in a big city -- they can telecommute from home in a more-desirable small town.

It was because of rapid increases in productivity in developing countries . . . they buy more of our stuff, and we can buy their cheap stuff -- freeing up our dollars for discretionary things . . . .

There's no shortage of explanations as to why the growth of the 90s and 2000s has been "sustainable". Many of these factors are still there.

As for Merkel -- the Germans are famously very worried about the sanctity of their currency. I believe due to extreme hyper-inflation in the 20s. That was why they were so reluctant to give up the Mark for the Euro.

Duncan McGeary said...

I fixed on the word sustainability, because it's been a bee in my bonnet for a long time.

The commercial aspect of this downturn still is a little lagging; we built too many store, too many restaurants, too much retail of all kinds.

And Bend did even more.

tim said...

Funny what the wealthy Bend doctor says. There are some wealthy Bend doctors who are painfully less wealthy now due to "buying into" the fake growth.

tim said...

Much historical advancement depended on unsustainable growth. It's called infrastucture build-out. Society benefits from it. Everything from railroads to fiber optic networks worked that way.

Duncan McGeary said...

And, in a sense, that is what 'credit' enables.

Until it goes all crazy.

tim said...

>>Until it goes all crazy.

The railroad companies lost tons of money. They "went crazy." And we've been benefitting from them for decades as a result.

Duncan McGeary said...

But the railroad builders made tons of Money -- from the government.

Sound familiar?

RDC said...

Some made lots of money on railroads, a few even managed to keep it, a lot went broke.

Very similar to other bubbles. Very often bursts of growth do not benefit the original investors, but instead support follow-on waves. The people that brought into the housing bubble are losing, but there will be lots of affordable housing for others.

Many stores will not survive, but the buildings will be used by others at lower expense.

The .com bubble resulted in massive amounts of fiber being installed, enough to support almost 10 years of growth after the .com collapse.

tim said...

I'm 100% with RDC here, EXCEPT that we build the wrong kind of housing. Way too big, and built way too cheaply.

As a result, we'll have to see a lot of rezoning and rule changes and construction work done to make these behemoths into multifamily houses.

No doubt we'll see a lot of teardowns due to mold, poor upkeep, and vandalism.

It's too bad that smaller, classier houses weren't built. But it is what it is.