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How Bankrupt American Cities Stay Alive - Debt [ST04] - YouTube
Channel: Not Just Bikes
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this is the fourth video in my strong
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town series
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you probably want to watch at least the
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last two videos to properly understand
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this one
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when some people see the growth ponzi
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scheme graph for the first time they may
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ask
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we've been building car dependent sprawl
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since the 1950s
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why are the suburbs still here shouldn't
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they all have gone bankrupt by now
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and it's a completely reasonable
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question of course there have been
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cities in the u.s that have gone
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bankrupt
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detroit michigan is the example most
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people think of but there have been
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several others
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such as vallejo california or jefferson
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county alabama
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and washington park illinois and moffat
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oklahoma have declared bankruptcy twice
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but before you jump on any of these
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particular examples you should know that
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only 27 states even allow municipalities
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to declare bankruptcy and of those
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15 have special conditions or
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limitations so bankruptcies are not
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telling the whole story
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nevertheless most car dependent places
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are still here so
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why is this before we get into the
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answer to that question
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let's talk about how american cities
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used to be built
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consider an early city it would start as
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a collection of shacks along a road or
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railroad like this one
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a small number of people here would make
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some bets on the future and build their
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houses and shops nearby
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many of these attempts may have failed
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but others were successful too like this
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one
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so the shacks became more permanent
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structures and they could now afford to
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build some basic road and water
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infrastructure
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as more time passed the buildings became
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made of stone and granite
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there was a permanence to it a proper
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sewage system was built and the roads
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were upgraded
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this would attract more people and the
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city would gradually grow outwards
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most importantly as this place grew it
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would build the wealth needed to sustain
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it
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a place like this is never finished some
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parts will succeed and build up
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others will fail and change their land
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use
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but in post-world war ii america this
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approach changed completely
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instead of incrementally building upon
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the places they already had
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american cities started building brand
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new places to a completed state in new
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neighborhoods on the edge of town
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and left their existing places to rot
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away
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remember this photo from earlier its
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front street in brainerd minnesota
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1871. in 1905 it looked like this
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and this is what it looks like today
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because as pro-suburbanization policies
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came into place
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it became cheaper and easier to build
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new buildings on the edge of town
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rather than to improve the places that
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already existed
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people used to be so proud of this place
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that they had built that they put it on
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postcards
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nobody is making a postcard of this
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place
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incidentally this is something that
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really bothers me when americans claim
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they can't be like european cities
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because their cities were built for the
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car
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this street wasn't built for the car it
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was bulldozed for the car
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it didn't have to be this way
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but it's true that american suburbia was
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built to be car dependent
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you need an automobile to do just about
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anything but even more important is how
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differently these places were built and
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funded
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compared to anything that had ever been
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built before
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this infrastructure was not built using
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existing wealth
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instead in order to accelerate growth
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federal and state funds were used to
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build these places
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paid for by government bonds
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chicagoans raised their share of the 92
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million dollar cost
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by a bond issue interest and retirement
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to be paid for
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by future revenue borrowing money to
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finance expansion is traditional with
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americans
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the time and money saved more than
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repays your investment
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if you wait to pay as you go you may not
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go at all
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now you could argue that debt in itself
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isn't necessarily a problem
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as long as that debt can be repaid but
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as we've discussed in previous episodes
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sprawling car-dependent places cannot
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sustain themselves
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the amount of tax revenue collected is
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not sufficient to cover the replacement
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cost of the infrastructure
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the roads electrical wires water pipes
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and waste water systems are spread out
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over a huge area
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while servicing very few people who
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actually pay for it
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this creates an illusion of wealth these
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cities and suburbs look wealthy
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because of their new infrastructure but
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in the long term
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they're financially insolvent but the
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effects of this are not seen until that
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infrastructure is due to be replaced
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which only starts to happen after about
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25 years
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when these infrastructure maintenance
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bills come due the city needs to find a
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way to pay for them
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and if the city is not growing they
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can't just sweep the problem under the
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rug
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the first reaction of many people is to
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just increase tax revenues
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but this shows a lack of understanding
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of the scale of the problem
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strong towns has several examples from
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actual real world cities and towns
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tampa florida for example needs to pay
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3.2 billion dollars to repair its water
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systems
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requiring an eight times increase in
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spending
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fun fact tampa already pays more in debt
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payments on water infrastructure
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than it spends on maintaining water
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infrastructure
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an extreme case is the small town of
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backus minnesota
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which was at the end of life of its
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wastewater system but because this town
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was made up of sprawling low
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productivity car centric infrastructure
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the wastewater system was sprawling and
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wasteful as well
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this replacement cost was 27 000 per
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family
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which was the median household income in
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the town
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you can't just tax people their entire
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yearly income
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of course in any sane country a small
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low-density town wouldn't have a
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wastewater system
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each home would have its own septic tank
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maintained by the household
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but this is the problem with the
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american mentality around car dependent
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sprawl
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everybody expects urban services with
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near rural densities
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municipal water and sewage systems
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buried electrical cables
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traffic lights garbage collection fully
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paved multi-lane arterial roads to every
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neighborhood
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but they're not willing to actually pay
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for it the american dream never said
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nothing about maintaining your own
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septic tank
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so an american town placed in this
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situation takes money from federal and
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state governments
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and rebuilds the wastewater system
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here's another small town in minnesota
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that had the same problem
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and their bailout package looked like
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this this single wastewater project
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amounted to
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37 times the amount raised annually from
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property taxes
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you may think that talking about cities
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this way in terms of their finances
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is crude or excessively neoliberal after
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all cities are much more than their
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balance sheet and not everything in a
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city needs to turn a profit
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but ultimately in order to provide a
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high quality of life in your town or
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city
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you need to have the money to actually
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pay for services
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there are regular articles in the us
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about cities closing libraries
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turning off street lights overnight or
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deferring road maintenance so much
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that their roads become worse than
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belgium's
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you can't make your city great if you're
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financially insolvent
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incidentally canadian cities are
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somewhat insulated from this problem
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because there are legal debt limits for
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many cities in canada
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for example in ontario annual debt
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repayments cannot exceed 25 percent of a
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city's revenue
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though keep in mind that there's no such
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limit on provincial debt and ultimately
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the province may be paying
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for a lot of that new infrastructure
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now as we've discussed in previous
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videos a growing city can
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just build more developments on the edge
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of town
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this provides a quick influx of new tax
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revenue and this can be used to pay for
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the previous generation of
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infrastructure liabilities
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again this isn't built on the wealth of
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places that already exist
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it's building new places in the suburbs
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even as existing
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inner ring suburbs may be falling into
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disrepair
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to create this growth the city needs to
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build a new infrastructure
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and that is usually paid for with a mix
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of funds from federal and state
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governments
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as well as debt this chart shows the
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increase in u.s public sector debt since
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the 1950s
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and you can see where the first and
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second generation of suburban
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infrastructure liabilities comes due
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now when you plot this public sector
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debt against u.s gdp you might argue
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that the levels of debt seem
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proportional
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i'm not going to get into that but this
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graph is hiding something
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because while local governments take on
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their own debt to build infrastructure
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eventually somebody needs to actually
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buy the houses and businesses
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usually with debt and mortgages in the
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first generation of car dependent
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suburbia
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this private sector debt was minimal but
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look at what happens as we get into the
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second and third generation
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of the suburban experiment here you can
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start to see
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how instead of building on wealth that
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already exists in cities
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america is financing its insolvent car
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dependent sprawl by heavily indebting
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its citizens to fund that
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growth but don't worry after the 2008
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financial crisis everyone realized their
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mistake and it's all fine now
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[Music]
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of course there's way more to this than
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just suburbia
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the entire american economy is built on
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a dangerous dependence on debt and
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growth
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but that's getting far beyond the topic
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of this video or even this youtube
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channel
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so let's get back to talking about
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cities
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we need to re-evaluate how cities are
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built and financed
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for centuries cities were built by many
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people making small bets and
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as those places succeeded and generated
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wealth they were upgraded and improved
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upon
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building successful cities but that
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means taking advantage of the
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infrastructure that already exists
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instead of constantly building out new
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public infrastructure we need to densify
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the places that have already been
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created
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and build upon the wealth that's already
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there to make cities that can sustain
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themselves
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now low density suburbs in rural areas
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are fine too
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but these places can't expect the same
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level of services that you'd find in a
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major city
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in future videos in this series we'll
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discuss which parts of cities operate at
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a loss
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and which parts keep them afloat and how
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the poorest americans are subsidizing
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wealthy suburbanites
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but there are a few topics we need to
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discuss first like these awful places
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i'd like to thank my supporters on
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patreon who pay me to bore you with
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graphs
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if you'd like to support the channel and
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get access to bonus videos visit
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patreon.com
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not just bikes
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[Music]
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