What happens when a bubble bursts? Behold the urban prairie

No, the picture above isn’t the Old West, or Kansas in the 1930s, or a movie set. This ruined house is in urban Buffalo, 2008.

Stephen Dubner of Freakonomics fame asks the question: why is it that major macroeconomics texts books gloss over the fact that periodical economic crises are endemic to capitalist accumulation? The discipline of macroeconomics came into being as a reaction to the Great Depression of the 1930s. Its purpose as an academic endeavor was to minimize or eliminate the business cycle.  The promise of macroeconomics tells us, if we’re smart enough we can think our way out of what looks like a permanent feature of capitalism.

The financial crisis of the last month has given the ultimate lie to the thought that economies can grow without also shrinking. (With two small exceptions in 1990 and 2002 the US has had sustained growth for 25 years. The unwinding of the current asset bubble in housing is the final end of that growth period.) Conservatives fear the business cycle because in a crisis the people look to the government to keep them from starving, and that, they feel, is socialism. This essay by Murray Rothbard puts the free market fundamentalist case eloquently. Liberals are hoping Obama can turn disaffection over jobs into votes, though liberals also are wary of being too gleeful about the impending crisis.

But in the long term, no one presidential administration will be able to mitigate the effects of boom and bust in the capitalist system. In truth the specialization inherent in capitalist economies mixed with capitalism’s hunger for technological innovation creates highly profitable but ultimately inefficient (that is, unsustainable) living conditions. When technologies change or capital sloshes to some other side of the globe (or both) the result is urban prairie. Buffalo is a perfect example. It grew like a mushroom from less than 100,000 people at the end of the 19th century to just over half a million by midcentury. After the opening of the St. Lawrence Seaway and the migration of heavy industry first to the southern US and ultimately abroad, the population stands at just over 200,000. In 2003 the city suffered a fiscal crisis, and city employees’ salaries were frozen.

As an example of urban growth under capitalism, Buffalo should attract our special attention. It’s fungal expansion was predicated on a few major forms heavy industry (steel and lumber) and its location on the Niagra river. Its economic base needed a large quantity of labor, but it wasn’t diversified, so when its economic base became obsolete (as any specialized industrial task must under the capitalist precepts of growth and innovation) there was nothing for the residents to fall back on. The richer residents moved to the suburbs or out of town. The poorer ones got poorer. The contraction was economy wide, with the loss of manufacturing jobs leading to a devaluation of real estate, a loss of service jobs, and ultimately empty shelves unobserved by non-existant customers.

Broadway Market, Buffalo, August 16, 2008

If ye boom, so shall ye bust

This is happening all over the United States now, but the areas hit hardest are the ones that enjoyed the biggest boom during the housing bubble: Florida, New Mexico, and Southern California for example. The media are hyperventilating to portray the severity of regular, respectable, middle-class families losing their homes. But what about Buffalo? Will Buffalo continue to decline with the rest of America during the current national finanical crisis, or has it weathered the worst of its woes? Certainly the housing market in Buffalo can’t get any worse. And most of the jobs sensative to global capital flows also dried up long before the current crisis set in.

If you ask some Buffalonians they’ll tell you that Buffalo is on the rise. (I sincerely hope it is.) But if that is the case it is so because Buffalo has contracted to the point where it has found a sustainable economy outside the massive credit bubble that has developed in the rest of the country and the world. Like Janis used to sing, “freedom’s just another word for nothing left to lose.” And who knows, maybe some entreprenurial Buffalonian will make use of Buffalo’s natural resources to start a 21st century industry that bring life to the city.

A vacant lot in Bed-Stuy, Brooklyn

That cheery scenario will not apply to the rest of the country, which will have to go through its own period of contraction before they find a sustainable bottom for their economy. Let’s hope it doesn’t last 50 years like it did in Buffalo. Meanwhile, we can be sure that city governments will need plenty of employees to manage the urban prairie that will be left in the bubble’s wake.