This model has functioned beautifully since…well, since forever, in one form or another.  The wealthy Roman’s latifundia had workers who produced everything in what was virtually a small city needed from food to harnesses, from wine to clothing, or traded for what could not be grown or manufactured.  The same was true on feudal estates during the Dark Ages; the serfs produced, using the local Baron’s resources, what was needed to sustain life and such comforts as the period afforded.

Just as England was getting too crowded, the colonies provided room for the expanding population to move to an area that offered living room.  Germany has been seeking “lebensraum,” which means the same thing, for centuries.  In general America was settled by westward expansion as each area reached sustainable population.  When the land and population reached a good balance the more adventurous or those wanting more than was available moved on.  The main thing wrong with earth is that interplanetary travel has not evolved!  Malthus was right, although it is taking longer than he expected, and government land grabs have tied up vast chunks suitable for establishing new self-sufficient social units.

It is only in the last hundred years that vast metroplexes have sprawled across America breeding crime and problems that never existed before.  Instead of the increased population becoming self-sufficient in small cohesive groups, as had been the norm since colonial days, people now huddle in cities selling things to each other.

Is the salvation of America deactivating urban and suburban sprawl in a vast migration to the country?  That “solution” simply will not work:  the housing is not there, the jobs are not there, the schools and water systems are not sufficient, and room for gentle growth is not there.  If it were, the young would not go off to the big cities.  Starting a small town from scratch isn’t plausible, either.

The usual small town of about 2500 has two grocery stores, two feed stores, a couple of veterinarians, a “good” restaurant, a burger joint and a Mexican restaurant, a beauty shop, a lawyer or three, an insurance agent, a hardware store, and a pharmacy.  You might find a nail salon and a movie house that is open Friday and Saturday nights.  It can’t absorb many newcomers because everything is already in balance, sufficient for the needs of the area, but neither lacking nor needing to expand.

Has spreading the sprawl to the country on purpose been tried?  Yes, it has.  Consider Roundrock, a charming little Texas town until a very few years ago when Dell decided to locate there to build computers.  It would be easy to get excited and think of a large corporation bringing new jobs, new commerce, and an increased tax base, envisioning a gentle absorption process whereby the Dell people became part of the community and the indigenous population  benefited from increased trade opportunities.

WERE new jobs created?   Yes, jobs were brought in but personnel was imported to fill them.  Very few of the jobs were available to locals.

Well, there had to be an increase in commerce, didn’t there?  Absolutely.  The new workers and management needed housing, groceries, gasoline, and some professional services such as a CPA or title company.  However, this did not lead to expansion by established businesses in the area; like Ford deciding there was a 5% market niche for the Edsel, Chili’s et al. decided Roundrock was now big enough (or was becoming big enough) to justify opening franchises.  Local restaurants did not see a vast influx of customers.  In very short order Roundrock has become indistinguishable from New Braunfels or San Marcos (absorbed as the ‘burbs reach out from San Antonio towards Austin, and vice versa)  or innumerable small towns in the DFW area that have been surrounded and overrun.  Large chain grocers moved in, rather than the newcomers patronizing Godwin’s and  Brookshire Brothers.  An army of ants dumped “civilization” on a nice place to live in very short order, and very soon afterwards it stopped being a nice place to live.

Housing?  Oh, yes.  The newcomers have their own–”ghetto” is too harsh–enclave where the sort of housing they are accustomed to is being built.  There are now billboards advertising “homes from the 110′s to the 190′s!” in an area where the median house value was more on the order of $50,000.  The newcomers huddle together in their own separate area, doing their own separate things…and criticize how Roundrock is and most residents would much have prefered it to stay.

“They said this was progress and to live with it,” a small business owner said in angry   frustration.  “I told them to progress elsewhere!”

The newcomers have banded together and are running their own candidates locally!  An office seeker whose slogan is “efficient…sustainable…environmentally friendly” is not the descendant of those who have lived in Roundrock since 1843.  (That phrase, with “green” for the last clause is to be found in the G-20 report, a classic of the C. North Parkinson school which was written before the meeting took place and is couched in such terms that the few who were responsible for content can claim it covers anything they want to do, and then claim success, in the unlikely event they have any.)  Roundrock was actually living that way and didn’t need outsiders clamoring for new services to solve problems expansion brought.

Locals are bitter over losing a quarter-mile swath of prime farmland to build the large highway Dell requires to do business.  The land is gone, fields are cut up badly, and all the long time residents get out of it is increased traffic (they had been blissfully ignorant of rush hour traffic heretofore) from a lot of people they didn’t want there in the first place.

For the most part there will be two Roundrocks from now on:  the old guard, and the newcomers.  They have almost nothing in common and little to cooperate on even if either side wanted to.  The Dellians want to recreate the cities from which they came, and the Roundrockians for the most part want the good old days back.  They can’t have it.

“Increased tax base!” proponents might cry.  “What about THAT?  You can’t deny that there is more tax money to do good.”  Ah…that’s one of the major problems.  The big city’s idea of “good” isn’t that of the local populace, and the problems the Dellians want to solve weren’t problems until they got there.  Worse, there are now or will be big, new bond issues to fund increased school facilities, a hospital, expansion of water lines (bear in mind that Roundrock is bordering on the Hill Country and water is in less supply than areas with more rainfall), and buses.  There aren’t in bus routes in small town America because they are neither needed nor wanted!  Bureaucracy is on the rise, of course, which will necessitate more building and more taxes.  A large sign urges donating because “There were 558 cases of child abuse here last year!  Five children died.”  Old Roundrock didn’t have child abuse.

Dell built an arena/stadium/gathering center…which the newcomers no doubt enjoy.  Small town Roundrock was perfectly happy watching the kids play baseball, football, and soccer outdoors and basketball in the school gym.  Watching the kids play is far more thrilling to small town dwellers than the Super Bowl is.  Utter excitement is having the HS football team make it to the playoffs even if the division is AA.

A financial professional weighed in, “Yes, I have some new clients, but it isn’t worth what it cost us having Dell here.” It isn’t, either.  Dell won by getting cheaper land and a lower cost of living that their presence will raise, and it was downhill from there.

Those who work for Dell got a chance to see how the other half lives and didn’t want any part of it.  They want their strip malls, big movie theaters, and all the comforts of their former cities.  They tend to be contemptuous of the locals and “life in the sticks.”  Perhaps that means they want a tattoo parlor and a porn bookstore, but it also conveys that they aren’t comfortable with life in the slow lane.  They don’t understand an unhurried  lifestyle and think Roundrockians need stirring up to become “useful members of society.”  The long-time residents still think low crime, low unemployment, traditional schools (ever harder to hold on to), helping their neighbors because they want to, and a stable, “efficient” and “sustainable” life are what America is all about.  They already had those.

The locals lost most of all.  Against their will, their traditional lifestyle is being destroyed.  They have to fight traffic, hunt for parking places, stand in lines, hear what they were proud of denigrated, and attempt to battle the “progress” the invaders are determined to have.  Chances are the kids are whining, “Jimmy has…” and “Susie’s mom lets her…”

They’re back to the same old issue that has plagued mankind since the Saxons and the Normans:  those who are tied to the land and their communities, and those who believe in conquest and commerce.  Big government vs. small, a leisurely life vs. the rat race, the “good” of anonymous, idle others vs. standing on our own two feet and offering a deserving neighbor an occasional steadying hand.

If you get a chance, visit Roundrock while the flavor is still there.  The natives are friendly, sensible, and outgoing.  If you are able, find a similar small town and move there yourself.

Just don’t take a corporation with you.

Regards,
Linda Brady Traynham

April 10, 2009

The Inherent Sustainability of the Small Town was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

While I share these concerns — there’s no question Murdoch has a history of using some of his media outlets to push his neoconservative world view and others to advance his own business interests — I looked at the front page of Wednesday’s paper and thought to myself a Murdoch-driven Journal couldn’t be much worse than the current iteration.

Two stories stood out, both on topics familiar to Whiskey & Gunpowder readers: the housing bubble and tightening world energy supplies. Let’s look at the housing one first, for that got the most prominent play — 2,800 words, above the fold, headlined “LENDING A HAND — How Wall Street Stoked the Mortgage Meltdown: Lehman and Others Transformed the Market for Riskiest Borrowers.”

We actually have two stories in one here, one of them pretty good, the other just awful. The good one is an examination of how Lehman Brothers was first to the post among Wall Street’s high rollers when it came to taking junky subprime mortgages and packaging them in investment-grade bonds — the sort of bonds that blew up in the face of Bear Stearns last week. There were tales of employees at Lehman’s in-house lending unit being pressured to push through dodgy loans to bolster volume — leading to unorthodox practices such as altering documents with scissors, tape, and Wite-Out. (Lehman’s response was a classic, amounting to, “We’ve done nothing wrong, and we’ll never do it again.”)

Oops, Better Put the Story in Context for the Masses

It could have been good story about one company’s role within a major economic trend, but no, Journal editors couldn’t leave well enough alone. It looks to me as though they pushed the reporter to make it a “bigger” story, to live up to the first part of the headline — “How Wall Street Stoked the Mortgage Meltdown.”

Thus, a sidebar summarizing the story was largely a rehash of the self-evident:

And the little-picture Lehman story was larded down with big-picture background such as this:

“A generation ago, housing finance was different. Bankers took in deposits, lent that money to homebuyers, and collected interest and principal until the mortgages were paid. Wall Street wasn’t much involved.

“Now it plays a central role. Wall Street firms provide working capital that allows thousands of mortgage firms to make loans. After lenders sign up consumers for home loans, investment banks pool the income streams from these loans into bonds known as mortgage-backed securities. The banks sell them to yield-hungry investors around the world.

“Before the mid-1990s, mortgage-backed securities consisted mostly of loans to borrowers with good credit and cash to make ample downpayments. Then investment banks found they could do the same with riskier loans to borrowers with modest incomes and flawed credits. Pooling the loans created a cushion against defaults by diversifying the risk. The high interest rates on the loans made for bonds with high yields that investors savored.”

None of this is news to you, because Mish Shedlock has done a bang-up job of informing Whiskey readers about an impending housing crisis for the better part of two years now. Other alternative media outlets have also enlightened their readers, including our sister publication The Daily Reckoning.

But for the ordinary financial news consumer, these things have to be spelled out in painstaking, mind-numbing detail — because the mainstream financial media did such a poor job alerting their readers and viewers about the dangers you and I saw coming. The thought process of Journal editors likely ran along these lines: We’ve got all this good investigative stuff on Lehman, it’s passed muster with our lawyers, and it’s ready for publication, but we need to put it in context now that Bear Stearns caught everyone by surprise. Hence, the effort in remedial education.

If the Journal were serious about illuminating the root causes of the subprime meltdown, it might have examined the role of the Federal Reserve recklessly expanding the money supply in recent years — fueling the housing bubble at all levels from subprime to super-luxury. But that’s asking too much of an organization that barely batted an eye when the Fed stopped reporting M3 last year.

Peak Oil? What Peak Oil?

Our next sorry exhibit is headlined: “Exxon, Conoco Exit Venezuela Under Pressure: Host Nations Escalate Demands on Oil Firms; ‘Some Tough Decisions.’”

Here, too, we witness an attempt to take a micro story — Exxon Mobil and ConocoPhillips giving up their projects in Venezuela, rather than put up with any more guff from President Hugo Chavez — and turn it into a macro story about the troubles international oil companies are having as more and more governments around the world nationalize their oil and gas reserves. In this instance, the likely motivation is that for whatever reason, the Journal was a day late to this story. Reuters had sources who confirmed the two companies’ decision to take their marbles and go home late last Monday — in time for publication in many papers on Tuesday.

Whenever a media outlet gets spanked on a big story like this, one way it tries to recover is to attempt to place the immediate developments in a larger context. So the story had all sorts of background on not only Venezuela, but also Russia. And that’s fine — I don’t fault the financial media for being asleep on resource nationalization nearly as much as I do for being asleep on the housing bubble; it’s a more complex phenomenon.

Still, this story gets into trouble early on — the third paragraph, to be precise:

“The companies feel they won’t get adequate value from the Venezuelan government, so they may pursue arbitration rulings that, even if favorable, mean a long wait for compensation. But the need to replace significant holdings could intensify exploration and result in new finds elsewhere, as happened after the last widespread purge of Western majors from developing nations.”

This rather oblique passage is explained further down in the article:

“One response is to move aggressively to find opportunities in politically stable nations. The wave of nationalization that swept the Middle East in the 1970s led to the development of the giant fields in Alaska and Europe’s North Sea. Conoco pursued a similar path by creating a joint venture to tap Canada’s heavy-oil deposits, which hold enormous reserves of oil, but are expensive to produce.”

The subtext here is subtle, but unmistakable: “Don’t worry about the stability of the world oil supply. And don’t worry about Peak Oil. Even if Chavez and Russia’s Vladimir Putin make it hard on the Western oil majors, they’ll rescue us with new finds in “politically stable nations.”

Readers given to paranoia might think this is part of some diabolical conspiracy to suppress awareness of Peak Oil. But that’s giving the financial media too much credit for ingenuity. After all, Peak Oil is already out of the bag — as I explained last month. It’s being debated openly on CNBC. BusinessWeek is giving space to guest columnists who take Peak Oil seriously. But among those in the media who’ve been familiar with Peak Oil for a while, the comfortable mind-set still prevails that further exploration, or new technology, or some other panacea will assure the continued steady supply of oil for the foreseeable future — because that’s how it’s always worked in the past. Trust me on this — there’s no grand scheme to squelch the truth; there is a collective consciousness that’s unreceptive to new ideas, developed by mere force of habit. But the dereliction of duty is nonetheless a serious one.

Could Murdoch Do Worse?

So there you have it. A head-in-the-sand approach to Peak Oil, and a day-late, dollar-short attempt to educate readers about the genesis of the subprime mess. Ignore crises while they’re forming, and do hand-wringing coverage once the crises break. Turn on the Fox News Channel’s business coverage, guided both on-camera and behind the scenes by the heavy hand of Neil Cavuto, and you’ll see a dumbed-down version of the same. (The market’s up? Celebrate with an “expert” panel. The market’s down? Let’s talk about a recently jailed hotel heiress!) Could a Murdoch-owned Wall Street Journal do its readers a worse disservice than under the paper’s existing sclerotic leadership?

Regards,
Dave Gonigam

[Full disclosure: This author was employed by one of News Corp.'s TV stations for eight years. While I objected mightily to Fox News Channel's editorial bent, I observed no conscious design during my tenure to impose that template on the local Fox broadcast outlets, and I left in early 2007 on friendly terms. Just thought I should get that on the table.]

July 2, 2007

Rupert’s New Rag was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.