What really has brought us to the economic state we're in? The hypotheses abound, and fingers are pointing everywhere--perhaps rightfully so, as blame is everywhere.... What really has brought us to the economic state we're in? The hypotheses abound, and fingers are pointing everywhere--perhaps rightfully so, as blame is everywhere to be encountered. Greed on Wall Street, greed in boardrooms, greed in banker's suites, greed behind loan-office desks, greed among homeowners, and irrationality everywhere, especially among mostly (but not entirely) conservative policymakers who assumed, with a religious certainty, that growth could and should go on forever, and values rise eternally and infinitely.

Many of us saw this as delusional, but as long as you could buy a house at an outrageous price (for what you got: a wooden box, often of low quality, usually in an undesirable and inconvenient location), and flip it a few years later for an even more outrageous price, everyone was happy. It was a steady diet of cocaine and ice cream.

And it made no sense.

Because at the same time as house prices and stock values were rocketing skyward, real income was dropping steadily, year by year. Unions were suppressed, minimum wage increases opposed, labor outsourced to slave-wage countries, to the point that productive workers in the 2000s were making less per hour than their parents had in the 1950s, while being more productive. Where did the money from this productivity go? To CEOs and boards, who voted themselves gigantic salaries and bonuses, which they justified by pointing to increased share prices--and to shareholders, who pushed for the wage/pay distortions that supported those prices. But these increased share prices came at the expense of productive workers--the ones who actually power the economic machine.

So they couldn't buy much, and if the majority of the people loses purchasing power, economic activity must fall. How do you prop it up?

Apparently not by paying people what they're worth. No, in this world of right-wing economic anarchy, you do it by giving them easy credit. Voila! They keep spending!

But how do they pay back the easy credit? Why with more easy credit! All based on housing prices as the supposedly rock-solid fundamental value.

Only it's not. Work is the fundamental value. Not work juggling other people's money (real or imaginary) from hand to hand and slipping some into your pocket on every round. Work making things, fixing things, or doing things that people really need done.

But that kind of work didn't pay anymore. Yet that's what most people do.

So the cost of the wooden box on the rectangle of dirt went up, and up, and up, and people kept borrowing on that increased valuation (not real value, in terms of how much you got for how much you worked for it, but "valuation") to buy other things they wanted or needed.

Couple this with astoundingly lax reserve requirements for banks, where money loaned from your deposits to your neighbor goes on the books as "different" money, and is loaned to his neighbor, and goes back on the books as "different" money, and is loaned again, up to ten times--often to people who have no chance of paying it back except by counting on the already inflated valuation of the box and the dirt becoming even more inflated--and you have the fundamental cause of our distress.

Our system is based on a doctrine of imaginary value--in stocks, in housing costs, in share valuation, in everything--everything, that is, except your labor and mine.

But we live in a real world.

What does this mean for cities?

It means trouble. Housing valuations have to drop further, or wages have to rise further, until a realistic balance is achieved. Average income looks better than it is in the US, but that's because a small number of hyper-wealthy skew the curve. It is the middle-class, however, that supports a real economy. The poor can't buy what they need; the rich can't want enough to spend all they hold, making much of their wealth dead money. The middle class citizen supports the economy. And, in the interest of inflating share valuations for investors, we have been pushing workers out of the middle class and towards the borderline of poverty. So housing and share prices must continue to fall, or wages must rise to a proportion of corporate income commensurate with that achieved in the union-dominated 1950s.

Until this happens we will continue to face disruption.

Cities and states must lead, because the Federal government is evidently now owned by the investor/speculator community. Cities and states must return to their role of protecting workers against exploitation, must support unions, and must lobby for effective and sharp-toothed legislation against criminal speculation and corporate malfeasance.

Forcing housing prices still higher, with yet more credit, without recognizing the real fundamental value of the US worker's labor, will only bring us to a harder downfall later.

Because you can't buy the real necessities of life with imaginary money. At least, not for too long.