Welcome to the Third World, Part 13: Suburbs Become Ghettos

By: John Rubino | Mon, May 12, 2014
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Not so long ago, a reasonably-presentable American could live an hour outside of a city and commute in for a government or banking job, thus getting the best of both worlds: city-level wages and a 3,000 square foot house with a big yard for the kids.

But then municipal governments ran out of money and started laying off, while banks, traumatized by their 2009 near-death experience, cut back on mortgage and consumer lending and fired the related staff. The only other jobs available were in service industries like food and retail that paid next to nothing and didn't offer benefits.

Meanwhile, the cost of living in and commuting from suburbia has been rising. The chart below shows the average price of a gallon of gas, a pretty good proxy for the cost of a daily commute, up by nearly 50% since 2005. At about $3.60 a gallon, the current national average price is 7 cents higher than it was a year ago, with no letup in sight.

Gas Prices Chart

All of a sudden our hypothetical suburbanites find themselves with barely enough income to cover their mortgage or rent, let alone their health care, food (which is also way up lately) and gas. And now the kids are about to go off to college...

The result: millions of formerly middle class families living in nice suburban houses or expensive apartments are slowly going broke. The New York Times just published a long, fascinating but very depressing article on the morphing of suburbia to ghetto in California's Inland Empire. An excerpt follows; the full article is here:

Hardship Makes a New Home in the Suburb

MORENO VALLEY, Calif. -- The freeway exits around here are dotted with people asking for money, holding cardboard signs to tell their stories. The details vary only slightly and almost invariably include: Laid off. Need food. Young children.

Mary Carmen Acosta often passes the silent beggars as she enters parking lots to sell homemade ice pops, known as paletas, in an effort to make enough money to get food for her family of four. On a good day she can make $100, about double what she spends on ingredients. On a really good day, she pockets $120, the extra money offering some assurance that she will be able to pay the $800 monthly rent for her family's three-bedroom apartment. Sometimes, usually on mornings too cold to sell icy treats, she imagines what it would be like to stand on an exit ramp herself.

"Everyone here knows they might have to be like that," said Ms. Acosta, 40, neatly dressed in slacks and a chiffon blouse, as she waited for help from a local charity in this city an hour's drive east of Los Angeles. Both she and her husband, Sebastian Plancarte, lost their jobs nearly three years ago. "Each time I see them I thank God for what we do have. We used to have a different kind of life, where we had nice things and did nice things. Now we just worry."

Five decades after President Lyndon B. Johnson declared a war on poverty, the nation's poor are more likely to be found in suburbs like this one than in cities or rural areas, and poverty in suburbs is rising faster than in any other setting in the country. By 2011, there were three million more people living in poverty in suburbs than in inner cities, according to a study released last year by the Brookings Institution. As a result, suburbs are grappling with problems that once seemed alien, issues compounded by a shortage of institutions helping the poor and distances that make it difficult for people to get to jobs and social services even if they can find them.

In no place is that more true than California, synonymous with the suburban good life and long a magnet for restless newcomers with big dreams. When taking into account the cost of living, including housing, child care and medical expenses, California has the highest poverty rate in the nation, according to a measure introduced by the Census Bureau in 2011 that considers both government benefits and living costs in different parts of the country. By that measure, roughly nine million people -- nearly a quarter of the state's residents -- live in poverty.

Not long ago, the Inland Empire, as the sprawling suburban area east of Los Angeles is known, attracted people hoping to live out that good life. Before the recession, it was booming; housing developments were cropping up all the time, quickly followed by big box stores and strip malls to cater to the new residents.

The region was -- and still is -- the fastest growing in the state. But the jobs have never really followed the people who come here looking for cheaper housing. The median home value is $325,000 and the median rent is $1,690, according to the real estate database Zillow. That compares with $462,000 and $1,860 in Los Angeles.

For many, those costs are still unaffordable. Unemployment in the region hovers around 10 percent and nearly one-fifth of all residents live in poverty, the highest rate among the largest metropolitan areas in the country. By the official federal measure, nearly one-third of all children here are poor. The number of poor in San Bernardino and Riverside Counties nearly doubled over the last decade.

"This is where poor people live now, and this is where they are going to live," said Alan Berube, an author of the Brookings Institution study. "When poverty moved out of the inner cities it didn't just go next door, it went 30 miles away. But at the time those families might not have been poor -- they were just chasing the middle-class dream. Then, boom, that evaporated."


Some thoughts

The theme of this series (the previous articles are here) is that much of what affluent people in general and Americans in particular have come to take for granted is turning out to be a delusion bought with debt, unrealistic energy assumptions and fraudulent bookkeeping, and is evaporating as those, um, mistakes come to light. Entitlements like Social Security and Medicare, for instance, only exist in their current forms because so much of their real cost is hidden in largely-unreported "unfunded liabilities." Cities have been able to offer good roads and quick police response because they pay their cops and road workers with the promise of wildly unrealistic future pensions.

The concept of suburbia, meanwhile, always depended on debt and cheap energy. For a typical American family to heat and cool four times the space of its counterparts in other countries -- and to move two tons of metal 100 miles each day just to get to a job -- is only possible as long as the rest of the world is kept poor and therefore unable to consume fossil fuels at the North American rate. But as China, India and Brazil get into the game, energy costs are rising. Combine this with the ongoing decline in finance/government jobs, and the unworkability of modern suburbia becomes obvious.

But calling suburbia's demise inevitable doesn't make it any less tragic for the victims. Anyone who's lived in an affluent suburb knows they are (or at least used to be) home to perhaps the world's highest concentration of innately happy, optimistic beings, namely kids, dogs and adults with big houses and good jobs, none of whom are guilty of anything more than a lack of attention to macroeconomic trends. So while schadenfreude is appropriate for, say, imploding law firms or investment banks, dying suburbs just deserve our pity.

 


 

John Rubino

Author: John Rubino

John Rubino
DollarCollapse.com

John Rubino is author of Clean Money: Picking Winners in the Green Tech Boom (Wiley, December 2008), co-author, with GoldMoney's James Turk, of The Collapse of the Dollar and How to Profit From It (Doubleday, January 2008), and author of How to Profit from the Coming Real Estate Bust (Rodale, 2003). After earning a Finance MBA from New York University, he spent the 1980s on Wall Street, as a currency trader, equity analyst and junk bond analyst. During the 1990s he was a featured columnist with TheStreet.com and a frequent contributor to Individual Investor, Online Investor, and Consumers Digest, among many other publications. He now writes for CFA Magazine and edits DollarCollapse.com and GreenStockInvesting.com.

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