Bad Bets
Image via Amanda Jones on Unsplash.
In last week’s episode of the Strong Towns podcast, Chuck Marohn, the founder and president of Strong Towns, talked with the economist Alison Schrager about uncertainty and risk. In this week’s episode, Chuck provides some additional thoughts on risk—and, in particular, the risks towns and cities are taking with their financial futures.
Not only are communities making bad bets by going all-in on the Suburban Experiment, they assume the government (state and federal) or the market will be there to bail them out if the worse—functional, or actual, insolvency—happens. But, as Chuck demonstrates, that’s an awfully big assumption.
For one thing, the federal government and the market are taking huge risks themselves. We can’t count on the market to bail us out; the market today is almost absurdly irrational. And the federal government is a tenuous partner at best. No one has studied just much money the feds can actually afford to borrow. How much debt runway do we have? No one knows, but we’re hurtling down it with abandon.
For another thing, because our communities are being built according to the same one-size-fits-all suburban development pattern, they’re likely to fail in the same way. We’re 100% correlated, Chuck says. In that scenario, which cities will get rescued? What will differentiate your town from the one up the road?
Drawing on the work of Tomas Sedlacek, Nassim Nicholas Taleb, and others, Chuck talks about all the assumptions the government, market, and local communities are all making about one another. Then he talks about how the truly strong towns can take their financial futures into their own hands.