The pre-dawn hours of last Sunday morning found me sitting in the grass outside an Indianapolis liquor store.  My reason for being there was not as it might seem—though after four years of this economy, one might suspect the worst.  Sorry to disappoint, but I was there with my family to watch the demolition of Keystone Towers and expose my kids to the accompanying big bang.

This Keystone explosion (or implosion as my 5^th grader so often reminds me) was most interesting and accompanied by a carnival atmosphere.  The only disappointment of the whole affair was the discovery that the detonator button was pushed by the 6-year-old daughter of the engineer supervising the event.  This led my 2^nd grader to comment unhappily upon my career choices.  Alas I am an economist and the event drew my mind to the functioning of markets and public financing.  

The demolition of a vagrant apartment building is common fare in American cities.  It is part of the urban renewal that is much needed in many U.S. cities.  This demolition does not mark decline, but rather recovery.  The severest forms of urban blight and decay occur during the long period between the time property values dwindle to near zero, and when it begins to rise again.  In many places this lasts a generation or more and is the low point of city life, attracting crime and social collapse.

Easing neighborhoods out of this condition often requires local government to support the demolition.  While markets will eventually restore these communities (if we evince a half century of patience), local government typically has a role.  It is an unpleasant truth, but bare land is often of higher value than that with a blighted structure on it; hence the need for dynamite at Keystone Towers.   

Of course there is often a bitter debate over which properties should be preserved.  I prefer to err on the side of preservation (for full disclosure, my first home purchase was a restored home in Savannah, Ga., and I spent graduate school renting a restored 1820s log cabin, sans heat).  Unfortunately, enthusiasm for historic preservation is rarely accompanied by a solid understanding of market forces. There are abundant examples of $100,000 government grants for restoration resulting in homes worth $35,000. Historic preservation cannot be the first or only urban investment.  Schools matter more, as does basic infrastructure.  When these are attended to, the much needed private sector will participate as well.  

Detroit is the largest city to face this challenge on a widespread basis.  The city is carefully shrinking its footprint to sustainable levels.  This requires triage of neighborhoods, some of which will die.  Inevitably these choices are shadowed by the racial and ethnic ghosts that haunted the last century, making Mayor Dave Bing’s leadership all the more remarkable.  

 In the end, few will debate the aesthetics of Keystone Towers, which despite past glories retained all the beauty and grace of East Berlin circa 1974.  I enjoyed watching both implode.