In reference to the analogies presented in my previous article, please have a look at this article:
While reading it, replace
- “forest fire” with “recession”
- “fire cycle” with “business cycle”
- “ecosystem” with “economy”
- “fire suppression” with “stimulus”
The following passage is so directly relevant to my point, I will reproduce it in its entirety (my highlights in bold):
As development has extended, or exploded as it has in some areas, into the chaparral environment, residents and government agencies have had to respond to the hazards associated with living in the urban/wildland interface. The majority of urban settlers who moved into these wildland areas are ignorant of the environment they are moving into and ill equipped to live in this wildland environment. Too often home buyers fail to realize that fire protection agencies may not be able to save their home from fire, and that agencies charged with building and safety and flood control may be powerless to save them from floods, mudflows, and landslides.
The primary response from government has been to initiation aggressive fire suppression and management in an attempt to eliminate fire from native lands. In spite of these aggressive fire suppression efforts large wildfires continue to consume vast acreages of chaparral in Southern California. After nearly a century of suppression, there has been increasing debate that fire control efforts have altered chaparral fire regimes in ways that magnify the threat of burning, erosion, sedimentation, and flooding at the urban/wildland interface (Pyne 1982). Fire suppression in Southern California appears to be producing older growth stands of chaparral which result in larger more intense fires. Younger chaparral stands (less than 20 years) are less likely to burn due to lower ratios of dead fuel to live fuels and reduced horizontal and vertical continuity of fuels. In northern Baja California where fire suppression has not been practiced to the extent it has in Southern California a mosaic pattern of differing age stands of chaparral appears to have developed resulting in smaller fire events of less intensity. Minnich (1983) comparing the chaparral fire regimes in southern California and Baja California found that in Baja California numerous small fire events fragment stands into a fine mixture of age classes, a process which appears to help preclude large fires. While the pattern of large fires in Southern California appears to be an artifact of suppression.
Fire suppression is extremely effective at the ignition stages of a fire and where climatic conditions are favorable. Therefore, fires occurring in Southern California in the summer during periods of higher humidity, lower wind speeds and temperatures are much more easily controlled. Most of Southern California’s major fires occur in the very late summer and fall periods during off shore wind conditions (Santa Ana Winds) which are characterized by high temperatures, low humidity and very high wind speeds. Fires in this type of severe weather conditions are extremely difficult and in many cases impossible to control. This type of weather scenario in conjunction with extensive areas of older chaparral stands result in fire magnitudes so great that entire watersheds are completely denuded of vegetation. This intense type of fire can even consume young moist stands of chaparral.
The extent of burned watershed can magnify flash-flood runoff behavior and high sediment yield in an exponential fashion (Minnich, 1989). Higher regional fire intensities may also result in more extensive hydrophobic soil impermeability and high runoff (Minnich, 1989). These adverse watershed impacts can be moderated by implementing a sustained-yield program of small to medium size planned burns to produce the stand mosaic similar to the Baja California chaparral model.
Prescribed burns adjacent to the urban wildland interface can present some challenging problems. The common complaints voiced by residents of these areas are the annoyance and potential health effects of the smoke, reduced visibility and potential danger of the controlled fire escaping and endangering their residences. Furthermore, air quality regulations, particularly in Southern California, severely limit the time of year these burns may occur. Given these constraints the prescribed burning near the urban wildland interface can be carried out only on a very limited basis. However, even on a limited basis prescribed burning in the urban wildland interface can be a valuable cost effective fire management tool for protection agencies.
The proximity of the Malibu/Santa Monica Mountains to the Los Angeles metropolitan region coupled with it’s coastal location, breath taking views, access to undisturbed natural areas, and sense of rural living make this a very desirable area. With proper land use planning, site planning, building codes and vegetation clearance it is possible to significantly reduce the threat of fire in the Chaparral community. However, the problem in the Santa Monica Mountains is there are literally thousands of existing legal undeveloped parcels comprising hundreds of acres of land area that are located in very remote, topographically constrained, and environmentally sensitive areas. These factors make it quite difficult to mitigate the threat of fire and adverse environmental impacts.
There are also a number of very poorly planned subdivisions which were divided in the late 1920s and 30s with lot sizes of less than an acre and many more typically 5,000 to 10,000 sq. ft. in size. These subdivisions were primarily designed for weekend cabin type of use. However, today the expensive homes built on these parcels are occupied on a year round basis. There are approximately 6,000 of these ill-conceived small parcels in the Santa Monica Mountains. These subdivisions have very narrow winding roads which cannot accommodate fire equipment and are for the most part very heavily wooded with both natural and exotic plant species. These types of subdivisions are disasters just waiting to happen.
Proper site design on a large parcel can reduce fire danger to some extent, however, in these small lot subdivisions it is impossible in many cases to significantly reduce the fire hazards given the very steep site topography, lack of adequate water supply, proximity to other structures and limited access for fire equipment.
Given that the threat of fire alone has not provide an adequate basis to prohibit development on these parcels and given the more rigorous requirements placed on regulatory agencies by recent court decisions regarding constitutional takings of private property, these parcels are and will continue building out. Furthermore, as most of us know today regulatory agencies are facing even more severe limitations and restrictive requirements regarding regulation of private property. Therefore, the over simplified argument, which is voiced quite often is “just deny all development of homes on these parcels” is just not realistic or legally justifiable.
In order to reduce the buildout of these subdivisions and remote environmentally sensitive parcels the California Coastal Commission developed the Transfer of Development program in the Malibu/Santa Monica Mountains Area of the Coastal Zone. Simply the Transfer of Development program requires that any time a new parcel is created through the subdivision process, the equivalent development rights on designated small lot subdivision lots or remote environmentally sensitive parcels have to be retired. In theory, the newly created subdivisions are located in areas more suitable for this type of development. To date 924 substandard lots have been retired in small lot subdivisions and some 800 acres of remote environmentally sensitive parcels have been retired. Making the Malibu/Santa Monica Mountains Transfer of Development program one of the most successful in the United States.
I enjoyed Market Talks quote of the day:
I wish free money was really free and that there was a painless way to move from severe recession and high leverage to robust and sustainable economic growth, but there is no short cut.
– Kansas City Fed President Thomas Hoenig, arguing the Fed needs to raise interest rates.
It seems everyone is looking for a painless solution. Even Felix Salmon comments about “causing unacceptable amounts of pain” in his half-supportive half-opposed article on Santelli’s righteous (and right on) recent rant.
If we let housing find its bottom naturally, true, many financial institutions will cease to exist. True, we may look back at 2008 as the “good ol’ days” before things got really ugly.
But at this point, letting things get ugly is exactly what we need for the long run. Let the fittest businesses survive.
The analogy I like to use is a technique often used in forest management, i.e prescribed burns.
Imagine a world completely fearful of the tiniest of forest fires. Whenever a fire broke out, even a mild one, the entire Federal (Forest) Reserve was called out to extinguish it. Years and even decades go by without even a single lost home due to forest fire. People started talking about a Great (Forest Fire) Moderation. Some even proclaimed that the forest fire cycle that used to be standard reading material in many, now obviously obsolete, forest management textbooks for years had been defeated by the Federal (Forest) Reserve.
The mantra became, “Let all vegetation flourish!” Never fear. If natural selection has lead certain vegetation populations to dwindle in the past, we’ll have none of that. Come one and all. Prosper in the new age of forest fire management where forest fires no longer exist.
Guess what happens? The forest floor becomes flush with vegetation (read fuel). All around, as far as the eye can see, nothing but flourishing vegetation (read fuel). Forest Rangers are happy. Politicians are happy. Everyone is happy.
But one day, there is a particularly strong wind. The Federal (Forest) Reserve has not yet figured out how to control the weather unfortunately. A fire breaks out and quickly spreads. At this point, the brush is so dense providing a never ending supply of fuel. Similar to the critical neutron mass of a nuclear reaction, the fire spreads exponentially. Soon, there is an inferno far larger than the world has ever seen.
Monetary policy should not be about avoiding forest fires at all costs. Monetary policy should be about prescribed burns. Let the vegetation that is unfit for survival perish. It is better to have a controlled burn now and then than to have an uncontrollable inferno.