The Solarium

President Obama Meets with Paul Volcker, Chairman of the President's Economic Recovery Advisory Board, January 2010, White House Photo

I am very excited that Paul Glastris and the good folks at The Washington Monthly have published my latest piece, co-authored with my colleague Chris Leinberger of the Brookings Institution. It's called The Next Real Estate Boom: How housing (yes, housing) can turn the economy around.

First, today's piece is really quite significant in its own right. If we are correct, there is a massive pool of private demand just waiting to be tapped, we can access this demand through a budget-neutral policy change, and such a shift would not only put America back to work, it would provide the certainty necessary to bring the $3.6 trillion in liquidity that is sloshing about on the sidelines back into the productive economy.

In and of itself, that would be a major accomplishment. But the challenge facing the United States today is greater than just getting our economic house in order.

The defining feature of the global economy is urbanization in the midst of increasing population and a depleting ecosystem. According two two recent reports by McKinsey Global Institute, China and India are together going to move 700 million people into the cities over the next 20 years. That means building homes and infrastructure, supplying energy, food and water for more than twice the entire American population. At the same time, global population is going to 9 billion while two thirds of our ecosystem services, like climate stability, freshwater cycling, nutrient cycling, fisheries, and many other life-sustaining service are overwhelmed. 

And that is a recipe for great power conflict. Without a marked increase in energy and material efficiency, an increase in production of sustainable commodities, and a rebalancing of global trade, what is now competition and high commodity prices will in short order devolve into strategic conflict.

That's if we do nothing. By taking control of our economic future and designing a more sustainable and prosperous market economy in the United States, as we articulate in today's Washington Monthly piece, we can start to lead the world in sustainable urbanization, creating the goods, services, and technologies that will drive economic growth for the coming decades. But continuing with business-as-usual while defending our interests with the three D's of national security: defense, diplomacy, and development--is simply not sufficient to the challenge. We spend about $800 billion per year on these three activities while our economy chugs along at $14 trillion. No national security strategy can make progress against that kind of head wind.

Once again, America needs our economy to do the strategic heavy lifting--as we did in World War II when we armed, equipped, and fed the Allied cause while building and deploying a 16 million-man force up from 450,000. We did it again in the Cold War when, recognizing that we could not defeat the Soviets in a short-term contest of arms, we contained them militarily so we could defeat them in a longer-term contest of economic and political systems. Ironically, it was suburban expansion that delivered the strategic heavy lifting in the Cold War. 

Leading the transition to a sustainable global economy is the great strategic challenge of the first half of the 21st Century. Though we've only just begun to explore the components of a sustainable and prosperous economic engine, make no mistake--sustainable prosperity is not only possible, it is essential and is the only prospect we have to do the strategic heavy lifting our nation requires in the coming decades.