Wednesday, October 10, 2007

Debunking the Growth Myth, Part 2

Myth Number 2
We have to grow to provide jobs for people in the community

Reality Check: We can't grow our way out of local unemployment problems. Growth makes the problem bigger.

The overly simplistic logic goes like this: Everybody agrees that people need jobs, therefore, anything that creates jobs must be good. If you oppose growth, then "you don't care about people who need jobs." According to University of California, Santa Barbara Professor Harvey Molotch, "A key ideological prop for the growth machine, especially in appealing to the working class, is the assertion that local growth 'makes jobs.' This claim is aggressively promulgated by developers, bankers, and Chamber of Commerce officials. "
The real question is not whether growth creates jobs, but whether it reduces local unemployment. Presumably, if growth reduced unemployment, a fast-growing city would tend to have a lower unemployment rate than a slow-growing one. To test this, Molotch examined two decades of census data on growth rates and unployment. He compared unemployment rates in the 25 fastest growing cities in the U.S. with the 25 slowest growing. He found no statistical correlation between the growth rate and the unemployment rate. Faster-growing cities are undoubtedly creating new jobs, but, it seems they are also attracting new residents who don't find jobs. The faster-growing city ends up being a bigger city, with a similar unemployment rate and a larger number of people unemployed.

Economic booms may provide temporary relief from unemployment woes, but experience clearly indicates that growth is not the long-term solution to unemployment.

Click here for the rest of the argument against Myth Number 2.


Chris Schnurr said...

Chris -

Do you think that part of the problem is that uncontrolled growth of the public sector, requires new sources of funding to maintain the public sector? ie, hiring staff with ever-increasing wages/benefits etc.

Rather than increasing property taxes, cities look toward new development to fill their coffers - short term economic gain. Therefore, the quicker they grow, the more development fees they collect etc.

I remember someone once describing to me a different method of property taxation - less in the core, higher the further you move away from the core. Not sure I have it right, but perhaps you would know?

Chris Holt said...

I think this would be a tough one to pin solely on the public sector. True, a growing public sector requires more funds to operate (and ever-increasing property taxes is a political non-starter) and there is only limited opportunity for a municipality to raise the required funds. Yet, the evidence is in abundance (as you will see in the rest of this series) that unbridled growth is a net drain on the local economy. I'm no genius - so if I can find this evidence, anyone can. So, one would hope that our public administration wouldn't rely on a totally unsustainable method of raising funds. But...we ARE talking about the City of Windsor now, aren't we.

As far as the different method of taxation of which you speak, I think you are talking about the Georgist model of Land Valuation Taxation, which is described as;

Current property taxes are based on the value of property, reflecting both the land and structure value, as determined by local property assessors. Assessments are based on the sales of comparable property or, if commercial property, on revenue streams. Decisions to reinvest or remodel currently result in higher assessment valuations and thus higher taxes. Conversely, there is no penalty to undermaintain your property. In fact, if your property value goes down because you refuse to paint, maintain or upgrade your building, you are "rewarded" with reduced property taxes.

A Georgist land tax would not include the value of the structure and so the tax would not be applied to the individual efforts to improve the property. If entire neighborhoods were improved, over time land values would also rise, reflecting higher community amenities, and the tax would capture the collective efforts of the community at improving their properties. In this way, reinvestment would not be discouraged and property owners would be encouraged to maximize the use of their properties.

James Howard Kunstler goes on to describe our current method of taxing land this way;

Our system of property taxes punishes anyone who puts up a decent building made of durable materials. It rewards those who let existing buildings go to hell. It favors speculators who sit on vacant or underutilized land in the hearts of our cities and towns. In doing so it creates an artificial scarcity of land on the free market, which drives up the price of land in general, and encourages ever more scattered development, i.e., suburban sprawl...