What Tulips and Asphalt Have in Common

My wife and I bought our current Petaluma home in June 2005. If not the absolute peak of the housing market, it was darned close. As a result, we’re stuck where we are, unable to sell the home for now.

Not that we’re looking to move. It’s a fine home in a good neighborhood. We enjoy the folks living around us. There are schools within walking distance, along with a small grocery, pub, and deli. And, if the weather is conducive to a longer walk, downtown is also reachable on foot.

We both had careers in fields that gave us insights to the housing market. And we indeed expected that the market was near the top, with little room to go higher because many buyers had reached their financial limits. But we didn’t realize the extent of the misbehavior underway on Wall Street. So we didn’t anticipate the extent of the decline. Now we sit, waiting for and hoping for a recovery.

Except for a bit of pique at Wall Street, we’re not particularly angry about the housing bubble. Bubbles are the nature of free markets.  When times are good, commodities become overpriced. When reality asserts itself, adjustments follow.

Nor are bubbles a recent economic phenomenon. In the early 17th century, tulips bulbs were selling in Holland for up to ten times the annual salary of a skilled craftsman. Less than a century later, the South Sea Bubble in Great Britain, which was more about speculation in government debt than about the South Seas, caused economic upheaval and the transfer of great wealth.

So, if we can create bubbles in tulips, government debt, and housing, is it possible, as StrongTowns argues, that there can be an infrastructure bubble? Given the way in which we’ve made infrastructure decisions in recent decades, the only surprising thing would be if there wasn’t an infrastructure bubble. And the fact that infrastructure isn’t a free market doesn’t really help.  Central planning can also create bubbles. (See the USSR.)

I was recently an advisor during the scoping of an infrastructure project. The funds were coming from a federal grant. As a result, our conversations were about the best use for all the dollars in the grant. Never did anyone ask whether the resulting project was truly needed or whether its maintenance might be a long-term problem for the local government.

I’m not criticizing the result of the scoping process. I think we reached reasonable and appropriate decisions. And I believe that the infrastructure will serve well. I’m just astonished that at no time during the process did anyone, myself included, even question whether spending the entire federal grant was appropriate.

Instead, we acted as if the federal government couldn’t have possibly given us more grant funds than we truly needed. We worked on the implicit assumption that the federal government has never wasted money. It was a dubious assumption.

And if the funding mechanism for a small local improvement can make us to forget to ask fundamental financial questions, think how much worse it would be for enormous infrastructure projects with broad political ramifications. Decades of thinking that money from the federal government is "free" has distorted our financial good sense.

The question shouldn’t be whether some of our infrastructure is unjustified, but how much is. Is it two percent? Or is it 30 to 40 percent? My instincts tell me that the latter is more likely.

This isn’t an argument that infrastructure is inherently evil. That’s not at all true. Infrastructure is essential to our lives. But not all infrastructure is good. We need to return to making infrastructure decisions on a rational basis. The same way the Dutch dealt with tulips. No longer paying exorbitant amount for a single tulip bulb, but still retaining tulips as an essential part of the national character. (See the above photo of a Dutch tulip field.)

Returning to good infrastructure decision-making won’t be easy. There will people and businesses who will be harmed. But our future requires us to make the effort.

Which is all the more reason to pay attention to StrongTowns when founder Charles Marohn makes his appearance via internet in Petaluma next week.  Join us at 5:30 on Tuesday, February 12 at Work Petaluma, 10 4th Street in downtown Petaluma, to listen to and to ask questions of Marohn. RSVPs aren’t required, but would be appreciated so we have enough seating for all.

As a last thought, Alex Steffen, a known expert on sustainability, recently tweeted about infrastructure. This is what he had to say.

"Lots of U.S. infrastructure—especially roads—makes no financial sense now, even before we talk climate emissions and energy vulnerability."

"I'd put to you that having highway construction companies and sprawl developers tell us how things work is unlikely to create a true model."

I concur. Listening to a developer of drivable suburbia talk about the need for more infrastructure is akin to listening to a 17th century Dutch tulip middleman talk about the value of tulip bulbs.

As always, your questions or comments will be appreciated. Please comment below or email me. And thanks for reading. - Dave Alden (davealden53@comcast.net)

(Note: The photo of tulip fields is from a blog post on Likecool.com.)

Dave Alden is a Registered Civil Engineer. He has worked on energy and land-use projects in California, Oregon, and Washington. He was also the president of a minor league baseball team for two seasons. He lives on the west side of Petaluma with his wife and three dogs. The blog that he writes can be found at http://northbaydesignkit.blogspot.com. He can also be followed on Facebook, LinkedIn, and Twitter.