The Great American Suburban Ponzi Scheme

As a friend of mine recently said on his Facebook page, “Your car is Japanese. Your vodka is Russian. Your pizza is Italian. Your kebab is Turkish. Your democracy is Greek. Your coffee is Brazilian. Your shirt is Indian. Your oil is Saudi Arabian. Your electronics are Chinese. Your numbers are Arabic, your letters Latin. …” so what exactly is American these days?

Well, for one thing, how about your suburbs? Suburbs are a uniquely American and relatively recent phenomenon. They are an experiment, if you will, that came about as the result of the simultaneous surge in prosperity with the emergence of the automobile and the availability of relatively cheap land surrounding our cities. Given the enormous growth that this suburban lifestyle has experienced, it has truly become equated with the American Way of Life.

But a number of people are beginning to question the wisdom of this outward migration. It leaves many cities on the brink of collapse after having drained the urban landscape of its inhabitants.

Are the suburbs sustainable? This was the question behind the documentary film, The End of Suburbia, which “explores the American Way of Life and its prospects as the planet approaches a critical era, as global demand for fossil fuels begins to outstrip supply.” The cost of commuting is certainly going to go up, but what else has this uniquely American way of organizing the world, with distances scaled to the automobile rather that the walking shoe, cost us?

Charles Marohn, President of the non-profit group Strong Towns writing in Grist, claims that the underlying financing scheme responsible for our current suburban sprawl, “operates like a classic Ponzi scheme, with ever-increasing rates of growth necessary to sustain long-term liabilities.”

This is because the growth of our suburban towns came about as the result of three mechanisms:

1. One-time payments from federal or state governments to the local level to fund infrastructure such as water systems or sewers, usually under the direction of growth-oriented town boards or water authorities, heavily staffed by builders and real estate developers.


2.  Similar payments made for roads, where transportation infrastructure is used to improve access to a site that can then be developed.


3. Public and private-sector debt: where cities, developers, companies, and individuals take on debt as part of the development process, whether during construction or through the assumption of a mortgage.

In each of these scenarios, there are significant short-term benefits accruing to those assuming the risk. The problem is, the long term maintenance cost of these properties is not priced into the deal. When you buy a new house, you don’t worry about the fact that it will need a new roof in twenty years. The same is true of those roads that get you home or the pipes that bring water to and from your house. You figure that you’ll be able to afford that roof when the time comes; your wages will have increased, and the value of the house will go up, and you’ll be able to borrow on the equity if you need to, or else you’ll leave and that roof will be someone else’s problem. But what if none of those things happen?

That, sadly, is the reality for millions of Americans today. And if you multiply that sadness times the millions of families affected, you have “a ticking time bomb of unfunded liability for infrastructure maintenance.” According to the American Society of Civil Engineers, that time bomb about is about $5 trillion big. And that only includes the major infrastructure projects and not the minor roads, sidewalks or the pipes that connect our houses to the system.

The reason for this dilemma is because we were duped. The true costs of this lifestyle were hidden from the buyers, both at the individual and the municipal level by the developers who made off with vast fortunes and then left town. Maybe they knew about it, maybe they didn’t. But, in order to attract residents, municipalities had to keep taxes low and thus, there was not nearly enough money available to cover the true costs. You bought the house that now needs a roof. The housing market crashed and the house is now worth less then when you bought it and so you are putting out buckets every time it rains to catch the water leaking in, because the bank won’t lend you the money to get it fixed.

This is a classic Ponzi scheme: significant long term costs are hidden behind the appearance of short term prosperity. When the first generation of suburban housing stock matured in the 70s and 80s, the economy slowed as many cities and towns began running deficits, their revenues insufficient to cover the mounting to-do list.

As with any Ponzi scheme, the only way to keep it going is by bringing in new money, more suckers, if you will, to cover a piece of the damage. So towns began to expand in order to “increase the tax base.” So, with the help of our noble banking establishment, assisted by the collusion of various shameless lawmakers, we saw the relaxation of numerous precautionary laws, such as Glass-Steagall, that were put in place after the depression to avoid a repeat performance. Now, encouraged by avaricious lenders, and going all-in, “we financed new growth by borrowing staggering sums of money, both in the public and private sectors. By the time we crossed into the third life cycle and flamed out in the foreclosure crisis, our financing mechanisms had, out of necessity, become exotic, even predatory.”

Unfortunately, the massive growth in suburbia we experienced over the past sixty years, was not productive growth. It was more like building a company that sold lots of products but every one was sold at a loss. Only a few people made money and we know who they are.

There are no easy answers or quick fixes for this and I would be suspicious of anyone who says there are. All we can do is learn from our mistakes and try to move forward using healthier models that build strong local communities based on solid financial footing and with all costs, short and long term, priced into the deal.

RP Siegel is the co-author of the eco-thriller Vapor Trails, the first in a series covering the human side of various sustainability issues including energy, food, and water.  Like airplanes, we all leave behind a vapor trail. And though we can easily see others’, we rarely see our own.

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