Boom and Bust in America

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Boom and Bust in America

By: John A. Baden, Ph.D.
Posted on August 21, 2013 FREE Insights Topics:

We are in the middle of FREE's last summer conference, "Boom and Bust in America".   This is the last of our summer programs.  It concludes twenty-two years of programs applying economics to contentious topics.  All featured the potentials of creativity and hazards of command.  

Soon we will begin our more focused salon series, Yellowstone Entrepreneurial Salons.  These will include a variety of highly successful entrepreneurs to explore creativity and productivity in profit and non-profit arenas.  Bozeman produces both types; it's the mother lode of Green groups.

Boom and bust is an apt topic for today's America.  One normally thinks of extractive industries when considering this theme.  Montana holds many examples.  We have scores, by some counts hundreds, of mining ghost towns.  Some are small fragments of past exuberance.  Philipsburg is one, Butte another.   Our "Boom and Bust" conference includes a field trip to Butte. 

In its 1917 peak, Butte's population was 100,000.  It had over a dozen newspapers and several dozen churches including three Jewish congregations.  It was a major city supplying much of the copper that transformed the developed world.  It also boasted spectacular architecture, much of which survives.

Today Butte is America's largest Super Fund site and a monument to glories past.  Given its spectacular location, it's vitality and prosperity may return-- not by mining the earth but rather by appreciating it.  The use of the ecology and landscape as an attraction would be a welcome but ironic economic and cultural transformation. 

Should this success occur, it will come from entrepreneurs creating a setting in which people can realize their visions of a good life.  In Wallace Stegner’s words – a society (and economy) to match the scenery. Elements permitting this transformation exist.  For a remote town, one far from population centers, to truly prosper, it must develop a civic culture not just high paying jobs.  The Bakken oil boomtowns have the latter, but by all accounts they are miserable places to live.  

Three things are requisites for rural towns to thrive: scenic surroundings, good transportation, and a viable college or university.  These are strong complements that together foster success.  When present, they constitute what my colleague Prof. Jerry Johnson calls "The Amenity Coast".

Butte has all of these.  It is in a beautiful mountain setting and has a good airport with lots of room for expansion.  Nearby lies the intersection of two Interstate highways (I-90 and I-15).  Completing the demographic trinity, it has a long established and respected college specializing in engineering.  Now a unit of the University of Montana system named Montana Tech, its former name, the Montana School of Mines, is instructive.    Its sports teams are still called the "Orediggers".  And this is not merely an historical artifact. 

Although Tech has a dozen programs ranging from business through health sciences, its best know for two things; its 98% success in placing mining and engineering graduates, and its affordability. 

"AffordableCollegesOnline.org, ...has identified the Montana colleges and universities with the greatest lifetime return on investment (RoI). Graduates from these schools enjoy the largest earnings gap between non-degree holders, over a thirty-year span. Montana Tech landed in the #1 spot, followed by Montana State University...." 

(While Tech's RoI was nearly one million dollars, $985,000, the University of Montana's was just under $400,000."  Go Griz!) 

In sum, Butte was a mining town that boomed with a 1917 peak, and then gradually declined.  The town was marked by violence, arson, and corruption.  It was the "Gibraltar of unionism"  (it had the world's first unionized Burger King), a Democrat stronghold, and held a strong entitlement orientation. Opportunistic behavior of the two major firms, "The Company", (Anaconda) and “The Power” (Montana Power Company) was legendary.  Renting legislators was standard behavior. 

 All this gradually eroded.  Both The Company and The Power went broke, union members don't have much work, and the Butte environment is greatly improved.   Butte could be on the Green Coast.  I see modest potential for revitalization. 

Causes and Implications of the New Busts

All but details of the booms and busts of America's mining towns were predictable.  People invested their time and financial resources in unrealistic anticipation of continued bounty.  Many Montana ghost towns still have solid brick buildings, testimony to the optimism of their builders. 

Municipal bankruptcies are the new "busts".  They too are built on unrealistic expectations.  And their failures are predictable.  They don't arise from geology but rather from political pathologies.  Here is a diagnosis.  Think Detroit when reading it.

Harvard’s Institute of Politics and the University of Pennsylvania Fels Institute of Government projected that counting commitments to retired government workers and money borrowed without taxpayer approval, money owed by state and local governments exceeds $7 trillion.  This is approximately one half American GNP. 

Following an outbreak of state bankruptcies in pre-Civil War America, states placed restrictions on debt and prohibitions against running deficits. Over a 15-year period, 19 states wrote debt limitations into their constitutions.  But state and local governments have exploited loopholes and employed deceptive accounting standards to run up debt. The costs of these evasions weigh on budgets.  The burden grows heavier, municipal bonds riskier, and taxpayers may revolt.

Boston University Law School professor Jack Michael Beermann characterized the result in the Washington and Lee Law Review.  He called it a “double whammy” for future taxpayers.  They are taxed for the consumption of prior generations while receiving reduced government services.  Here is what happens. 

Increased spending on retirement debt crowds out other programs; bonds become more risky and hence carry higher interest; property and other local taxes rise.  The services of police and public safety officers are reduced. 

Gradually, the more productive citizens chose exit.  These taxpayers are more resilient and mobile.  They also have higher standards on multiple dimensions.  (They would enjoy Uptown Cafe dinners.)  The bust threatens their city and they are looking for options.  How about Butte?   

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