A financial transaction tax on suburban sprawl: if you can't finance it, they will not come ... by gimleteye

Paul Krugman writes in the NY Times: "Should we use taxes to deter financial speculation? Yes, say top British officials, who oversee the City of London, one of the world’s two great banking centers. Other European governments agree — and they’re right. Unfortunately, United States officials — especially Timothy Geithner, the Treasury secretary — are dead set against the proposal. Let’s hope they reconsider: a financial transactions tax is an idea whose time has come." I would add: let's get a financial transaction tax to discourage suburban sprawl.

According to Krugman, "The dispute began back in August, when Adair Turner, Britain’s top financial regulator, called for a tax on financial transactions as a way to discourage “socially useless” activities. Gordon Brown, the British prime minister, picked up on his proposal, which he presented at the Group of 20 meeting of leading economies this month. Why is this a good idea? The Turner-Brown proposal is a modern version of an idea originally floated in 1972 by the late James Tobin, the Nobel-winning Yale economist. Tobin argued that currency speculation — money moving internationally to bet on fluctuations in exchange rates — was having a disruptive effect on the world economy. To reduce these disruptions, he called for a small tax on every exchange of currencies."

As world economies struggle through the worst downturn since the 1930's, I am perplexed why economists fail to grasp how so much speculative investment, excess, and fraud manifested through a very specific organization of the economy around land use development that has proven so damaging to the landscape and to society: mass production home building that results in sprawl. For a financial tax to be effective, it should reach down to the level of debt instruments that caused so much grief in the first place: mortgage backed securities that package sprawl indifferent to its final social costs. Those costs, in my view, include wrecking one of the world's greatest economies. Ours.

If the financial instruments -- mortgage based derivatives-- were heavily taxed in comparison to other forms of compact, neighborhood based development, then the market for development would be steered in more socially useful directions. Conservatives, funded by big corporations, would complain this is a form of "social engineering", but that argument is a red herring. What is the current economic crisis if not a form of social engineering that has crushed the value of the dollar, pushed huge numbers of the middle class into the lower middle class and downward too?

In South Florida, the result of speculation is writ large in ghost suburbs. But politicians, who collaborate with economists in believing that sprawl is "what the market wants", are still married to the fictions of the late, great housing asset bubble.

Congress and the White House have agreed to let production homebuilders and developers write off current losses against profits stretching back to 2006, as a way of helping the industry back on its feet. For what purpose? To keep building platted subdivisions that represent, in nearly all respects, massive miscalculation of risk that benefit, in the end, only the top Wall Street bankers and vulture investors.

The lack of symmetry, or balance, in development patterns across the United States is due to the practice of plowing platted subdivisions and suburbia into areas distant from places of work. The suburban model, now essentially bankrupt, depended on miscalculation of risk, and the key actors became extraordinarily wealthy from it. Miami has its fill.

Today, large corporations-- mass production homebuilders like Lennar and their allies-- from land aggregators to subagents who are often the same forces that compel bad zoning decisions in order to promote the new tentacles of sprawl to local mortgage bankers: all are in the game still and idling until they get can their mojo back.

But it shouldn't come back. If we have learned anything from this recession/depression (it's not clear, by the way, we have), it is that certain forms of economic behavior are wrong and should be discouraged. There is growing consensus that the reformation of the built landscape in the United States needs to be both energy efficient and hew closer to the human scale, reinforcing communities and neighborhoods and public spaces. That's the direction that the conversation about the financial transaction tax should be pushing. In practical terms: taxation of financial instruments to discourage and dis-incentivize mass production homebuilding in platted subdivisions. If you don't finance it, they will not come.

The best way to achieve this would be to use GIS mapping to identify exactly where growth should be concentrated; then put the tax policies in place so that developers will have a clear incentive to build where growth should occur. In Southeast Florida, this concept has been available to policy makers for more than a decade. It is called, Eastward Ho! The premise is that steering development away from the edges of the Everglades would be beneficial for cities and taxpayers. But the premise never got very far because policy makers refused to hold back zoning and development permits in the wetlands and in farmland on the one hand, and on the other, to limit approvals for condos downtown.

In fact, a multi-million dollar planning effort in Miami-Dade targeting the protection of watersheds critical for the future stability of the local economy was rejected out of hand by farmers/speculators and the development cartel, simply for using advanced identification techniques like mapping to guide future growth. Because farmland has been priced "cheaper", and profits more easily generated, the entire apparatus of Florida's Growth Machine is turned to converting open space to new suburbs. Still. Even though suburban growth has ground to a halt, or, is only proceeding through the same issuance of mortgages "with zero down payment" and practices that lead to the disaster in the first place. During the boom, one prominent developer-- a national and state chieftain of both Bush campaigns, Al Hoffman--crowed to the Washington Post that this pattern of growth was "unstoppable".

We know differently, today. Hoffman's former company, WCI Communities, sold to vultures for a song. But at the time Hoffman was right: legislatures and the federal government had actively worked to remove obstacles-- in the form of environmental rules and regulations, for instance-- inhibiting sprawl. The question: why listen to these champions of growth who have turned our economy into such a disaster?

It would be smart and rational to consider how taxation could channel the energies of the Growth Machine. We also know, based on past practices in the United States, that the resistance to fundamental change in real estate development patterns is as fierce as big energy companies shoving back against global warming. They would rather bankrupt the nation and harpoon themselves than admit to necessary change.