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Forever Hold Your Peace: Will It Be Austerity Or Expansion?

06/25/2010 02:19 pm ET | Updated May 25, 2011

The relationship between Washington and the American economy has reached a transitional moment. The tug-of-war between supporters of additional stimulus and fiscal hawks has heated up yet again, but this time is occurring with some sense of finality: there will be much argument about whether fiscal expansion or fiscal tightening was the right path, but less will be said about pursuing the alternative.

The winning side will determine the shape of the American economy for years to come. But even as this debate rages on, a subtle shift is occurring in how Americans deal with persistent economic woes.

Census data released this week demonstrate what amounts to a choice for a more economic form of living: Americans are moving back to core cities. Suburbs in 27 of the 52 biggest metros grew more slowly between 2008 and 2009 than the previous year and in 13 metros the core city grew faster than the suburbs. The urban and environmental planning professor William Lucy calls the foreclosure crisis "the last hurrah of the exurban extreme of the American dream" and notes that cities are stabilizing with "The whole pattern of metropolitan development...moving in reverse."

In many ways, this shift in where Americans choose to live is occurring despite policy, not because of it. Defenders of suburban sprawl have made much of the attention the Obama administration, and particularly its Transportation Department, have paid to principles of "livability." But, as Kathryn Wolfe describes in CQ Weekly this week, "To this point...Obama's transportation program has been long on rhetoric but short on resources...[T]he president himself has not made the political and financial commitment that would be necessary to actually change the direction of something as large as transportation policy."

In fact, Obama administration policy has propped up the very (suburban) housing market some Americans are beginning to reject. The homebuyers tax credit wasted billions without turning the housing market around and the success of the administration's other housing stabilization programs has been limited. As The Washington Independent's Annie Lowrey documented on Thursday, policymakers are only now pursuing programs that address mortgage default and foreclosure and unemployment as two sides of the same coin.

It comes as no surprise that the challenge of the American economy is one of housing and jobs. Indeed, this is nothing new for the administration: just this week, HUD Secretary Shaun Donovan identified as a "fundamental problem" with the American economy "The mismatch between where we live and where we work."

But this sentiment is relevant to the debate about fiscal expansion and contraction. The strengthening of cities - with its attendant economic and environmental benefits - is not immutable. If federal policy does not support the movement back to cities, however nascent, by focusing on job creation in urban areas and instead perpetuates an unsustainable housing market, the economy will continue to struggle. If it does support such job creation, however, the benefits will redound not only to the economy at large, but to the pocketbooks of ordinary Americans.