Wednesday, May 5, 2010

Headless chickens


By JOHN REMBER

When I was young, my family kept chickens. We raised them, gathered their eggs for breakfast, and when they got to be a certain age, killed them, boiled their feathers off, and ate them. I'll spare you the gory details, but I learned long ago that a chicken with its head cut off can still run around and act like a chicken, except for being easier to catch.

Headless chickens came to mind when I read about Ketchum's decision to annex 138 acres at the base of Baldy into the city, enabling Sun Valley Co. to build, at some future date, a giant hotel-and-housing complex.

It's not as if Ketchum was suddenly acting out of character. Building, developing and selling real estate has been Ketchum's main industry since Bill Janss hit town in 1964. People have spent their entire working lives turning Ketchum into a place where old rich people can buy a second or third home in the expectation that they can spend the little time they have left in a beautiful place and that their heirs can sell that home for more than was paid for it.

Skiing, good restaurants, nearby wilderness and world-class artistic events are all secondary to a half century of rising real estate values. For Ketchum, money coming out of real estate took the place of silver coming out of the ground or sheep coming off the mountains. For 50 years, that money hasn't been chicken feed, although in an existential sense, it's served the same purpose.

Here's how the head has become detached from the chicken:

Ketchum is, for better or worse, a geographically isolated enclave, buffered by distance from national trends. But even excluding vacation homes, there are 14 million empty housing units in this country, and 5 million more foreclosures on the way. The likely eventual victory of the Paul Volker faction in our national financial debate will result in a sharp rise in interest rates. Add in felony fraud convictions for a few investment bankers, and you'll see further declines in real estate values, even in Ketchum.

The oil streaming upward from British Petroleum's well off the coast of Louisiana may not be the Black Swan event that ushers in a permanent and extreme rise in oil prices, but it's yet another indication that air and highway transportation won't be getting cheaper over time.

Geographical isolation goes from an asset to a liability in a world where oil-based transportation gets expensive. It's a non-governmental tax on the Wood River Valley's economy. Money spent on transport doesn't get spent somewhere else. Vacations become staycations, in the absence of secure 401(k)s. Hotel rooms get discounted. Local businesses fall into the hope-and-bankruptcy cycle. Giant projects that were once sure things don't pencil out.

What do local governments do when the foundations of their world threaten to melt away? Often enough, they pretend that those foundations are just fine. They approve hotels when there are no guests, promote commerce when there are no buyers, and plan highways and airports when there won't be cars and planes using them. They believe growth projections from the Bill Clinton era. It's headless chicken behavior, more or less normal until you look directly at it. Then it's a grotesque and pointless and blind parody of normalcy.

Too harsh, you say? Maybe it won't be that bad. Maybe there are enough wealthy people in this country to sustain the Wood River Valley as an armored outpost of high civilization in the middle of an American West strip-mined for its coal, natural gas and oil shale.

But even if that happy condition were to come to pass, the valley won't ever have an economy strong enough to resist the contingency plans of Sun Valley Co. The recent annexation threatens to push competing hotel or housing projects off the drawing board, simply because Sun Valley Co. can match them room-for-room and still offer discounted services. Investors notice these things.

Sometimes I think that Sun Valley Co. wields its axe just to watch Ketchum run around flapping its useless wings and running into the walls and fences.




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