1. Market Failure and the Possibilities of Community Economic Development

Robert Leiberman, Shifting the Color Line: Race and the American Welfare State (Cambridge: Harvard University Press, 1998), 14–17, 70–71; Gerald E. Frug, City-Making: Building Communities Without Building Walls (Princeton: Princeton University Press, 1999), 42–48.

Paul A. Samuelson, “A Pure Theory of Public Expenditure”, The Review of Economics and Statistics, Vol. 36, No. 4 (Nov., 1954): 387–389; Paul A. Samuelson, “Diagrammatic Exposition of a Theory of Public Expenditure”, The Review of Economics and Statistics, Vol. 37, No. 4 (Nov., 1955): 350–356; Richard A. Musgrave, The Theory of Public Finance (New York: McGraw-Hill, 1959).

Mancur Olson, The Logic of Collective Action: Public Goods and the Theory of Groups (Cambridge: Harvard University Press, 1965), 13–15; David R. Reynolds, “The Geography of Social Choice,” Alan D. Burnett and Peter J. Taylor (eds.) Political Studies from Spatial Perspectives (New York: John Wiley, 1981), 93–94.

The American South from the end of the Civil War through the next 50–75 years is a case in point. At the beginning of the New Deal, senior policy-makers readily acknowledged that the South was economically and socially backward and overwhelmingly agricultural, with a comparatively primitive industrial base. Furthermore, the Southern system of agriculture was organized in the post-slave economy into a highly fragmented tenant farm system where land was leased on a highly exploitative basis to former slaves and their descendants, a system that more resembled feudalism than a market economy and was furthermore highly inefficient. Politically, the South was, as V.O. Key emphasized, a “one-party” state that systematically disenfranchised African-Americans and ruled formally through the elaborate system of Jim Crow laws and was sustained by ruthless, intermittent terror by ostensibly non-state actors. On the backwardness of the Southern economic system, see Gunnar Myrdal, An American: Dilemma: The Negro Problem and American Democracy (New York: Harpers, 1944); Robert W. Fogel and Stanley Engerman, Time on the Cross (Boston: Little, Brown, 1974). On the character of Southern politics in the post-Reconstruction era, see V.O. Key Jr., Southern Politics in State and Nation (New York: Alfred A. Knopf, 1949). New Deal policy-makers (the President most prominent among them) cut a Faustian bargain with Southern Democrats that controlled nearly all important committees in Congress: the federal government would facilitate economic development of the South through extensive public works, especially in transportation and water control, as well as enact social welfare programs (most notably the Social Security system), but only so long as the implementation of these programs would devolve to local government in the South, and take other steps to assure that public policy would do nothing to challenge the racially exploitative Jim Crow system of governance in the South. See Ira Katznelson, Fear Itself: The New Deal and the Origins of Our Time (New York: Liverwright, 2013).

Oliver P. Williams, Metropolitan Political Analysis (New York: Free Press, 1970), 12–19.

Roberton C. Williams, Jr. “A Logit Model of Demand for Neighborhood,” in David Segal (ed.) The Economics of Neighborhood (New York: Academic Press, 1979), 17.

Dick Netzer, “Federal, State, and Local Finance in a Metropolitan Context”, in Harvey S. Perloff and Lowdon Wingo, Jr. (eds). Issues in Urban Economics (Baltimore: Johns Hopkins, 1968), 438–458.

Werner Z. Hirsch, “The Supply of Urban Public Services” Perloff and Wingo, Jr. (eds.), 477; David R. Reynolds, “The Geography of Social Choice,” Alan D. Burnett and Peter J. Taylor (eds.) Political Studies from Spatial Perspectives (New York: John Wiley, 1981), 91–92.

David Harvey, Social Justice and the City (Baltimore: Johns Hopkins, 1973), 58; Gordon L. Clark, “Democracy and the Capitalist State: Towards a Critique of the Tiebout Hypothesis” in Burnett and Taylor (eds.), Political Studies from Spatial Perspectives, 124–126.

Werner Z. Hirsch, “The Supply of Urban Public Services”, 503, 519.

Kenneth T. Jackson, Crabgrass Frontier: The Suburbanization of the United States (New York: Oxford, 1985), 128–137, 172–189; John R. Logan and Harvey L. Molotch, Urban Fortunes: The Political Economy of Place (Berkeley: University of California Press, 1987), especially chapters 1–2; Neil Brenner, “Is There a Politics of ‘Urban’ Development: Reflections on the US Case”, in Richardson Dilworth (ed.) The City in American Political Development (New York: Routledge, 2009), 129–130.

David Harvey, “Labor, Capital, and Class Struggle Around the Built Environment in Advanced Capitalist Societies,” in Kevin R. Cox (ed.) Urbanization and Conflict in Market Societies (Chicago: Maaroufa Press, 1978), 12.

Albert Hirschman, Exit, Voice, and Loyalty: Responses to Decline in Firms, Organizations, and States (Cambridge: Harvard University Press, 1970).

Kevin Fox Gotham, Race, Real Estate, and Uneven Development, provides a vivid account where white homeowners in Kansas City are victims of the actions of their neighbors, 103–107; see also Beryl Satter, Family Properties: Race, Real Estate, and the Exploitation of Black America (New York: Henry Holt, 2009), 111–116 and the classic journalist account: Norris Vitchek [who, some believe, was Beryl Satter’s activist lawyer and father, Mark Satter], “Confessions of a Block-Buster,” Saturday Evening Post, 235, 15–19, July 14, 1962.

Nelson D. Schwartz, “Can a Mortgage Crisis Swallow a Town?” New York Times, September 2, 2007. Schwartz relates the story of Charles and Tammi Eggleston, who owned a home with a conventional mortgage, yet nearly every house on their block in Maple Heights (a Cleveland suburb) had been financed with questionable, predatory mortgages, and was subsequently foreclosed by their lenders, and then abandoned and boarded up. See also Ira Goldstein, Lost Values: A Study of Predatory Lending in Philadelphia (Philadelphia: The Reinvestment Fund, 2007), 53–64.

David Harvey, Social Justice and the City, 58–59, 88; Larry S. Bourne, The Geography of Housing (New York: John Wiley, 1981), 182–184; see also William H. Simon, The Community Economic Development Movement (Raleigh: Duke University Press, 2001), 43–44.

James C. Scott, Seeing Like a State: How Certain Schemes to Improve the Human Condition Have Failed (New Haven: Yale University Press, 1998).

Jesse H. Jones, Fifty Billion Dollars: My Years with the RFC (New York, Macmillan, 1951), 22–23.

The conditions were hardly inconsequential. This federal deposit insurance program was only established as a temporary measure to be in effect from January 1, 1934 and to expire in just two years, on December 31, 1935, during which time the FDIC was also only to be a temporary agency. These provisions were changed in the Banking Act of 1935, which made bank deposit insurance and the FDIC permanent. Additionally, the Banking Act of 1935 created a deposit insurance program for savings and loan associations and the Federal Savings and Loan Insurance Corporation (FSLIC).

At its first meeting on December 19, 1933, FDR, who frequently attended the twice monthly meetings of the NEC, remarked: “This is a very exclusive little organization”, NARA, RG 44, Entry 2, Box 12. Members included Frank Walker (FDR’s most trusted political advisor), Harold Ickes (Interior), Frances Perkins (Labor), Henry Morgenthau (Treasury), Henry Wallace (Agriculture), Harry Hopkins (Emergency Relief Administration), Lewis Douglas (Budget), John Fahey (Federal Home Loan Bank Board [FHLB] and Home Owners’ Loan Corporation [HOLC]), Marinner Eccles (Treasury), and Winfred Reifler (Federal Reserve).

Kenneth T. Jackson, Crabgrass Frontier, 193–194.

George Alger, Report on the Operation, Conduct, and Management of Title and Mortgage Guarantee Corporation (Albany: Moreland Commission Report No. 38, 1934); Price Fishback, Jonathan Rose, and Kenneth Snowden, Well Worth Saving: How the New Deal Safeguarded Home Ownership (Chicago: University of Chicago Press, 2013), 25–30.

Fishback, et al., Well Worth Saving, 12–17; C. Lowell Harriss, History and Policies of the Home Owners Loan Corporation (New York: NBER, 1951), 7–9; Marc A. Weiss, “Marketing and Financing Home Ownership: Mortgage Lending and Public Policy in the United States, 1918–1989”, Business and Economic History, Second Series, Vol.18, (1989): 109–118.

Marriner S. Eccles, Beckoning Frontiers (New York, Alfred A. Knopf, 1951), 149–151.

NEC, “A National Program for Modernized Housing” 19 March 1934, NARA, RG 44, Entry 2, Box 6. The housing experts on the NEC had a very poor opinion of the quality of American housing. This memorandum emphasized that housing construction during the boom of the 1920s was “in the main shoddy” and “the great bulk of our people had become accustomed, almost as a matter of course, to sub-standard housing.” Editors of Fortune magazine, Housing America (New York: Harcourt, Brace, 1932), had just two years earlier, before FDR’s election, estimated that nearly 75 % of the housing in the USA was “substandard.”

Federal Housing Administration, Underwriting Manual: Underwriting and Valuation Procedure Under Title II of the National Housing Act (Washington: GPO, 1935, 1936, 1938).

NEC, NARA, RG 44, Entry 2, Box 6 “A National Program for Modernized Housing”, ibid.

Kevin Fox Gotham, Race, Real Estate, and Uneven Development (Albany: SUNY Press, 2002), 11–13.

Rose Helper, Racial Policies and Practices of Real Estate Brokers (Minneapolis, University of Minnesota Press, 1969), 188–198.

David M.P. Freund, Colored Property: State Policy & White Racial Politics in Suburban America (Chicago: University of Chicago Press, 2007), 133.

David M. Smith, Human Geography: A Welfare Approach (New York: St. Martin’s Press, 1977), 83–84. David Harvey, Social Justice and the City, 157–160, 237–240; Richard Walker, “The Transformation of Urban Structure in the Nineteenth Century and the Beginnings of Suburbanization”, in Kevin R. Cox (ed,) Urbanization and Conflict in Market Societies (Chicago: Maaroufa Press, 1978), 168–171.

Erik F. Gerding, Law, Bubbles, and Financial Regulation (London: Routledge, 2014), 77–79. The classic treatment is Aaron M. Sakolski, The Great American Land Bubble (New York and London: Harper & Brothers, 1932).

Homer Hoyt, One Hundred Years of Land Values in Chicago: The Relationship of the Growth of Chicago to the Rise of its Land Values, 1830–1933 (Chicago: University of Chicago Press, 1933), 372–375.

Oliver P. Williams, Metropolitan Political Analysis: A Social Access Approach (New York: Free Press, 1971), 24–31.

David Harvey, The Urbanization of Capital (Baltimore: Johns Hopkins, 1985), 13–16, 144–148.

David Ward, Cities and Immigrants: A Geography of Change in Nineteenth Century America (New York: Oxford, 1971), 106–121.

Douglas W. Rae, City: Urbanism and its End (New Haven: Yale, 2003), chapter 4. Nearly identical outcomes occurred in Gary, Indiana, which was a corporate-owned and planned city, especially after the rupture of the corporate labor relations following the strike of 1919. See Raymond A. Mohl and Neil Betten, Steel City: Gary, Indiana, 1906–1950 (New York: Holmes and Meier, 1986).

Robert A. Beauregard, When America Became Suburban (Minneapolis: University of Minnesota Press, 2006), 14–28. Indeed, Beauregard, a geographer, emphasizes that these changes represented a permanent “rupture” in the history of American metropolitan development and labels this uniquely American twentieth-century process “parasitic urbanization,” where outlying suburban areas have grown in terms of both population and economic activity at the expense of central cities consistently since 1940, xii, 2.

Sam Bass Warner, Jr., Streetcar suburbs: The process of growth in Boston, 1870–1900 (Cambridge: Harvard University Press, 1962); Sam Bass Warner, Jr., The Urban Wilderness: A History of the American City (New York: Harper & Row, 1972); Colin Gordon, Mapping Decline: St. Louis and the Fate of the American City (Philadelphia: University of Pennsylvania Press, 2008), 13–22.

Robert Bruegmann, Sprawl: A Compact History (Chicago: University of Chicago Press, 2005), chapters 4–5.

Harvey S. Perloff and Lowdon Wingo, Jr. (eds.) “Introduction,” Issues in Urban Economics (Baltimore: Johns Hopkins, 1968), 7, 18.

Eileen Zeitz, Private Urban Renewal: A Different Residential Trend (Lexington, MA: Lexington Books, 1979), 63–66.

Myron Orfield, Metropolitics: A Regional Agenda for Community and Stability (Washington: Brookings Institute Press, 1997).

Michael A. Stegman and David W. Rasmussen, “Neighborhood Stability in Changing Cities”, American Economic Review, Vol. 70, No. 2 (1980): 415–416; Harold L. Bunce and Sue G. Neal, “Trends in City Conditions During the 1970s: A Survey of Demographic and Socioeconomic Changes”, Publius, Vol. 14, No. 2 (Spring 1984): 7–19.

Sudhir Alladi Venkatesh, Off the Books: The Underground Economy of the Urban Poor (Cambridge: Harvard University Press, 2006).

James Greer, “The Home Owners” Loan Corporation and the Development of the Residential Security Maps”: 286–287.

Kenneth T. Jackson, Crabgrass Frontier: The Suburbanization of the United States (New York: Oxford University Press, 1985), 195–218; Colin Gordon, Mapping Decline: St. Louis and the Fate of the American City (Philadelphia: University of Pennsylvania Press, 2008), 88–98; David M.P. Freund, Colored Property: State Policy & White Racial Politics in Suburban America (Chicago: University of Chicago Press, 2007), 103–128.

Douglas W. Rae, City: Urbanism and its End (New Haven: Yale University Press, 2003), 263–265, astutely notes that there were a host of reasons, nearly all of which related to the type and age of the community, that determined the FHA’s reticence to offer mortgage insurance; see also, Colin Gordon, Mapping Decline, 96–97; Guy Stuart, Discriminating Risk, The U.S. Mortgage Lending Industry in the Twentieth Century (Ithaca: Cornell University Press, 2003), 54–59, provides a detailed account of the multifaceted nature of the FHA’s appraisal process, especially the amenities of the home and the neighborhood; Kenneth T. Jackson, Crassgrass Frontier, 200–208, especially his discussion of the weighting of appraisal categories; Jeffrey M. Hornstein, A Nation of Realtors: A Cultural History of the Twentieth Century American Middle Class (Durham: Duke University Press, 2005), 106–107; U. S. Bureau of the Census, Housing: Supplement to the First Series Housing Bulletins (Washington: GPO, 1943).

Guy Stuart, Discriminating Risk, 182–188.

Federal Deposit Insurance Corporation, 2011 FDIC National Survey of Banked and Unbanked Households (Washington, FDIC, 2011), 14. The percentage of households without a bank account by race and ethnicity are: African-American (21.4 %), Latino (20.1 %), Foreign born (22.2 %), and in homes where only Spanish is spoken (36.9 %).

As calculated using http://​www.​mortgagecalculat​or.​org/​.

Michael Swack, Jack Nortthrup, and Eric Hangen, CDFIs Stepping into the Breach: An Impact Evaluation—Summary Report (University of New Hampshire: The Carsey School of Public Policy, August 2014), 9.

Swack, et al., “CDFIs Stepping into the Breach”, ibid.