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Report from Orlando: The Spirit Rocks On

Richard Reep — Wed, 28 Oct 2009 00:28:35 -0400

By Richard Reep

“In hard times, people turn to God or alcohol” jokes Bud Johnson of Constructwire, a database that tracks planning and construction projects nationwide. Johnson, 50, is an industry veteran and has never seen a recession like this in his career. “This is an exceptionally broad-based downturn,” he says, “and Orlando has been hit harder than most in the South, what with your only real industries being housing and tourism.” Both industries have been trapped like mammoths in a glacier as the credit market stays stubbornly frozen in a modern banking Ice Age.

At the bottom of the glacier, however, the meltwater continues to flow, and bars and liquor stores seem to be thriving. With 10 new ABC stores open this year, this privately held Orlando-based liquor retailer is doing just fine, enabling many of us to stay sane, if not sober, while waiting for The Recovery. The alchoholic spirits are not the only mood-shifting business doing well in these hard times. Sacred space may not be exactly booming, but religious buildings are being built at a more comfortable pace than nearly any other building type in Central Florida.

“Ecclesiastical architecture is falling at a rate close to that of a paper airplane, while my other building types have the glide ratio of a rock,” says Peter Kosinski, the architect responsible for the renovation of St. James Cathedral in downtown Orlando. With most other projects on hold, including a share of churches, Kosinski Architecture has still seen most of his religious work proceed, despite the Great Recession. Funding largely comes from donations, and for secular not-for-profits cultural outfits like United Arts, giving has evaporated. Spiritual needs, however, seem to be drawing a steady stream of money to expand or add to temples, churches, synagogues, and other sacred spaces to meet a growing demand in the Central Florida area.

If the credit Ice Age is a part of a great karmatic rebalancing, it was long overdue and has hit especially hard in our overheated, consumer-driven culture. The cynics, who knew the cost of everything and the value of nothing, drove sacred space largely underground as new subdivisions engorged Orlando with not a square inch reserved for community worship. Religious uses simply don’t fit the profit model of late capitalism, and while our older neighborhoods are dotted with small, walk-to churches, not a cross can be found in the landscape of most newer developments. To the development industry, collective religious worship represents someone else’s unprofitable land sale.

Cobbling together 15 or 20 acres therefore became a new art form for many evangelical pastors as the late 20th century saw the rise of the megachurch. These huge, Sunday-traffic-nightmares offer sophisticated audio/visual Christian themed entertainment in an arena setting, a perfect way for many to fulfill their spiritual needs. Others, stuck in these vast residential tracts devoid of sacred space, use the house-church method, gathering in groups of 8 or 10 at a member’s residence, taking heart in what Pope Gregory the Great (an early leader) stated: “The real altar of God is the mind and the heart of the just.” And some do both.

Either way, the religious needs of the people of Central Florida are expanding, and the sanctuaries, temples, synagogues, and mosques are noticeably busier. The 2-year-old Guang Ming Temple, housing the local Renzai Humanist Buddhists, is experiencing a surge in attendance locally. Temple Director Chueh Fan confirms that there is a strong need for a communal spiritual facility. “We feel the hardship of people right now,” she states. “Although the Asian community here is stable, we have been growing over the last 2 years. And we are a middle-sized temple; there are some much bigger in other states.” Guang Ming offers Dharma classes in Spanish, English, Vietnamese and Chinese, and class enrolment is growing quickly.

Other clerics, such as Reverend Reginald Dunston, also see a need for more religious-based education, and are planning new schools as well as sanctuaries. “Agape Word Ministry is planning a bible-based school,” he explains, “as an alternative to the schools in the area.” Other pastors, such as Jeff Cox of Salem Lutheran Church in Bay Hill, agree that it is important to expand their offerings to include a religious-based education. Education is the one tangible asset that a community is willing to purchase from a house of worship, and while most religions in America struggle for relevance, their schools remain in demand.

Christianity, exploding in a pluralism not seen since the Reformation, is especially sensitive to its status as the dominant American religion. While over 4,000 new churches open nationwide annually, another 3,700 close, according to David T. Olson in his 2008 book “The American Church in Crisis.” This is near status quo, despite population growth, suggesting a shift away from collective religious worship for many. Hispanics, traditionally more observant, are building megachurches at a far faster clip than non-Hispanics, pointing to a loss of interest in collective Christianity for the majority of the population.

Locally then, the house of worship is entering a phase of experimentation as new forms, such as megachurches, are tried; it is discarded altogether by the house-church movement; and it is growing in some religions such as Buddhism, with their new temple, and Judaism, with the construction of the new JCC South Campus on Apopka Vineland Road. The mainline Christian denominations that dominate downtown’s skyline serve less and less as a model for new buildings as malls are repurposed, warehouse buildings are adapted, and more novel programs and designs are tried.

Hindu, Jain, and Muslim traditions are also represented in Orlando, and generally playing to full houses. The Masjid Al-Haqq mosque on West Central Boulevard on a Friday afternoon was brimming full, with more worshippers arriving by car and by foot. Collective spiritual worship of all forms is clearly a rising force within Orlando, and space on pews, benches, chairs and prayer mats are at a premium.

Missing from many lives, crucial to others, religion is at an odd crossing in Central Florida’s history. To balance empty pocketbooks, some people are filling their cups with booze but others are also imbibing a perhaps long-delayed return to spirituality. This return, however, is marked by a mosaic of multiple religions, rather than a return to the few mainstream denominations that characterized early Orlando’s growth. If Bud Johnson is right, and this surge in spirituality lasts through The Recovery, Orlando will see a boom in new religious architecture that might make up for lost time, creating a revival in sacred space in the Central Florida landscape.

Richard Reep is an Architect and artist living in Winter Park, Florida. His practice has centered around hospitality-driven mixed use, and has contributed in various capacities to urban mixed-use projects, both nationally and internationally, for the last 25 years.

Let Freedom Ring: Democracy and Prosperity are Inextricably Linked

Joel Kotkin — Tue, 27 Oct 2009 00:28:49 -0400

With autocratic states like China and Russia looking poised for economic recovery, it's often hard to make the case for ideals such as democracy and rule of law. To some, like Martin Jacques, author of When China Rules, autocrats seem destined to rule the world economy.

A columnist for the Guardian, Jacques predicted that by 2050 China will easily surpass America economically, militarily and politically. The belief in the power of autocracy even extends to such leading American capitalists as Warren Buffett and Bill Gates, who have nothing but high praise for what Gates enthusiastically describes as a "brand-new form of capitalism."

Fortunately a new study released Monday by my colleagues at the Legatum Institute refutes the notion that the road to worldly riches lies in autocracy and repression. In a careful study of everything from economic opportunity, education and health to security, freedom of expression and societal contentment, the Legatum "Prosperity Index" makes a powerful case for the long-term benefits of democracy, free speech and the rule of law.

Some of this stems from how Legatum measures prosperity. The survey takes into account both wealth and well-being, and finds that the most prosperous nations in the world are not necessarily those that just have a high GDP, but that also have happy, healthy, free citizens.

The top of the list, which ranks 104 countries, is dominated by flourishing democracies. The only exception in the top 20 is No. 18's Hong Kong, which ranks first in economic fundamentals and continues to be ruled, if not quite democratically, under a far more permissive system than the rest of mainland China. The next semi-autocratic state on the list is Singapore, at No. 23 – another Confucian-style autocracy with great economic and human capital fundamentals.

This linking of democracy and prosperity with well-being is by far the most significant aspect of the study. But what else determines the success of nations in the modern world?

1. Small democracies do best.

The denizens of the Greek city-states or their Renaissance counterparts would have recognized something of themselves in the small, well-managed countries that dominate the top of the list. The top five, Finland, Switzerland, Sweden, Denmark and Norway – as well as the Netherlands at No. 8 – certainly fit this description. These countries rank highly on the quality of life measurements, and, not surprisingly, their main cities also tend to dominate the most-livable-cities lists. With the exception of Switzerland and the Netherlands, these places do not perform as well in terms of basic economics, scoring between 10th and 18th. Although some might ascribe these rankings to successful social democratic policies, virtually all these mini-states have instated significant market-oriented reforms in recent years.

Other top players Australia (No. 6) and Canada (No. 7) are far larger than their European rivals. And though their citizens are not as socially coddled as in Scandinavia, they enjoy strong democratic institutions, high levels of social well-being and good governance and education.

And in purely economic terms Australia and Canada boast better economic fundamentals than the Scandinavian countries. One reason may be their enormous stockpiles of natural resources, now in high demand from countries like China and India. These countries also benefit by a large and often skilled migration from these and other Asian countries.

2. Among the mega-countries, the U.S. is still way ahead

Don't cry for me, America. In terms of the large countries, both in population and size, no one comes close to the No. 9-ranked U.S. Indeed there's not another country with over 100 million people on the list until you get to Japan at No. 16.

Like all big countries, America is a complicated place, with distinct areas of strength as well as disturbing weaknesses. The U.S. leads all countries in entrepreneurship and innovation and ranks second in the stability of its democratic institutions – the Swiss are No. 1. Less than optimal health and safety rankings, however, push America from the top. Its economic fundamentals are also sub-prime, ranking only 14th, which isn't surprising in light of persistent current account and now government deficits.

Despite its problems, the U.S. still outperforms its other large rivals, not only Japan but also the U.K. (No. 12), Germany (No. 14) and France (No. 17). Yet judged within the ranks, all four of these economies have to be considered successful in terms of delivering prosperity and a reasonably high quality of life to their citizens.

3. Breaking down the BRICs

The Index's most fascinating findings can be found a bit further down. The focus of the world's economy has been shifting to countries that have been – and in some cases remain – governed by Communist, military or single-party dictatorships.

Democracy's efficacy can be seen clearly in success enjoyed by the former European Communist states – the Czech Republic, Poland, Latvia, Estonia, Slovakia and Hungary – all of which land in the first third of the ratings. Similarly, Taiwan (ranked 24th) and South Korea (26th), long ruled by military-dominated dictatorships, show how democratization and rising prosperity can flourish together.

This pattern can also be seen among the "big boys" of the economic upstarts – the so-called BRIC countries. Here the leaders of the pack are both functioning democracies, Brazil (No. 41) and India (No. 45). These rapidly growing economies are kept out of the top tier by significant shortcomings in vital fields such as education, health and public safety.

The other two BRIC powers, China and Russia, neither of which can be considered anything close to open societies, lag behind. Russia's mineral wealth gets it a respectable 39th in economic fundamentals, but a lack of democracy, personal freedom and personal safety – as well as poor governance and corruption – drags it down to a paltry 69th. China, ranked a disappointing No. 75, also performs admirably on economic fundamentals, clocking in at No. 29, but is hammered for glaring shortfalls in democracy, personal freedom and governance as well as health and education.

4. Autocracy may seem to pay, but not in the long run

Throughout modern history, autocracy has proved effective in sparking fast growth, but a pervasive democratic deficit, poor governance and lack of personal freedom seem likely to constrain long-term progress. For one thing, the ruling elite in the dictatorship is under no strong compulsion to adjust to the needs of its population. Short of forestalling outright rebellion, nest-feathering tends to gain the upper hand.

As you get to the bottom of the list, the price of dictatorship rises higher still. In this nether-region, there is nary a democratic state. Some of the low-ranking Third World countries are obvious – like Cameroon (No. 100) or Yemen (No. 101) – but some potentially rich but despotically ruled nations do poorly as well.

Take, for example, No. 94 Iran, a country with enormous natural resources, a well-educated population and a rich cultural heritage. A reasonably enlightened Iran would likely sit in the top third of the list instead of skipping toward the bottom.

Even the bottom-ranked country, Zimbabwe, left its colonial period with a thriving agriculture sector and great mineral wealth. Here again despotic rule has shown itself an adept destroyer of economic promise.

In these times of acute self-doubt not only in America but across the democratic world, the Legatum ratings validate the idea that if democracy is not the inevitable wave of the future it represents by far the most efficient way to manage a society. In the end, democracy and prosperity prove not two distinct elements, but, in fact, inextricably linked to each other.

This article originally appeared at Forbes.com.

Joel Kotkin is executive editor of NewGeography.com and is a distinguished presidential fellow in urban futures at Chapman University. He is author of The City: A Global History. His next book, The Next Hundred Million: America in 2050, will be published by Penguin Press early next year.

Executive Bonuses: The Junta In The Boardroom

Matthew Stevenson — Sun, 25 Oct 2009 23:38:02 -0400

Public companies and their management boards are run with all the democratic coziness of banana republics. The object of the junta is to transfer the wealth of the shareholders into the bonuses and stock options of the management. As they used to say in China, “business is better than working.”

Amidst the outcry over excessive executive pay, it is worth noting that, in the caudillo management culture of many public corporations, there is nothing more annoying than a shareholder with an interest in the company that he or she partly owns. The most dreaded corporate day of the year is that of the annual meeting, when outside consultants are hired to screen bothersome questions and choreograph the happy gathering.

During the meeting itself the greatest scorn is reserved for nosy shareholder questions about executive compensation and board composition, neither of which is deemed to be in the sphere of shareholder influence.

The annual meeting ends with the appointment of outside auditors, a few planted questions, and — for those meetings held at some remote subsidiary, to keep activist shareholders from showing up — a trip to a regional airport.

Archaic company by-laws explain why it will be nearly impossible for various regulators to cap the amounts that companies pay to executives. In short, the shareholders work for the managers, not the other way around. (If Goldman Sachs has so much extra cash, why don’t they raise the dividend?)

Start with board composition, which is usually the domain of one executive: the chairman and chief executive officer. In a functioning system of corporate governance, the jobs would be separate. Chief executives would not also be assigned the job of monitoring their own performance, which is now the case in most public U.S. companies. Good European companies have a supervisory board, which oversees the performance and pay of the senior management.

In the U.S., not only do foxes run the chicken coops, they get to eat most of the eggs and then write off the meals on their expense accounts.

Most chairmen/CEOs stack their board and compensation committees with party-line stalwarts, who vote in favor of excessive pay packages in the hope that the recipient or one of his friends will not forget the favor. To break such a back-scratching system should be relatively easy, especially in companies regulated by the Securities and Exchange Commission. Simply mandate that management cannot sit on its own board of directors.

Cumulative voting or proportional representation of the shareholders is another way to start breaking the management oligopoly of board composition. Board seats could also be allocated to representatives of retired personnel (who built the company) and those who now work in the company.

Another way to limit excessive pay packages is to impose a binding ratio that caps executive pay based on the compensation of the company’s lowest paid workers. At the moment, CEOs in big public companies have packages that pay them more than a thousand times that of their employees’ lowest wages.

J.P. Morgan thought the boss should only be paid twenty times the salary of the average company employee. Such an idea might not cap fat cat bonuses, but it would certainly improve the minimum wage.

How then to claw back executive pay when the big bosses bet the ranch on something like sub-prime mortgages and lose?

For starters, boards independent of management self-interest will be less forgiving when executives ruin a company or even turn in mediocre results. That so few banking executives were fired after the Great Collapse of 2008 is testament to the lack of shareholder representation on most boards of directors. Who fires the CEO when he reports to himself?

Next, mandate that incentive compensation like stock options only be paid into segregated retirement accounts, which ought to align performance with long-term success.

In financial services, the reward for failure should be just that: failure. In the recent crisis, deposed chairmen and chief executives were marched into the sunset with multi-million dollar severance packages. Remember the $64 million sayonara given to Citigroup’s Charles Prince, about the time the company’s shares lost $275 billion in market capitalization?

A side affect of the government bailouts was to comfort bad managers. But while these corporate executives were pinning medals on their own chests (very much in the tradition of Latin strongmen), the reason given for the sweetheart loans, especially to banks, was to protect depositors. Under this variation of mutual assured destruction, financial institutions with a large depositor base can never be put to the wall, which gives them an effective government guarantee.

To replace this kind of dependence on bankers who can gamble with deposits without consequences, there needs to be a mechanism that will protect depositors while allowing the larger financial companies to fail.

For example, depositors could be given the option of buying deposit insurance — privately funded insurance, unlike that offered by the Federal Deposit Insurance Corporation — much in the way that air travelers buy accident insurance. That the FDIC caps out at $100,000 is neither here nor there. Under this scheme, insurance would be available for all amounts, large and small. It would be paid for in the market, not given as a government gift.

When customers deposited money somewhere, they would decide if they wanted to insure the deposit or not. Those that wanted coverage would pay for it. Those that wanted to reply on their bank’s full faith and credit would leave their money uninsured and hope they have not found the next Lehman Brothers.

Publishing rates on deposit insurance, much like posted interest rates, would be yet another indicator of a company’s financial health, much like the credit default swaps that are traded in institutional markets.

The goal is to alert customers to good banks and bad ones, and to make clear that the bad ones will be allowed to fail, which is nature’s way of telling executives that they are overpaid.

My last modest proposal is to encourage reconstituted boards of directors to auction off the positions of senior management.

At the moment, managers justify their self-worth with a lot of encomiums about how big salaries and bonuses are necessary to insure that “we get the best people.”

From what I can see, all that the big salaries insure is that companies keep a lot of mediocre executives, many of whom, judging by recent performance, then spend their time buying wine and sprucing up their vacation homes. Remember what was said, in Henry Ehrlich’s book of business quotations, about the compensation policies of Harold Geneen at ITT: “He’s got them by their limousines.”

Under my revised system, top executives would be required to show the board that they have, in writing, a comparable offer from a competing firm (baseball works like this). As well, under the auction system, boards could entertain bids by senior executives to fulfill the roles of senior management.

Clearly, chief executives have a good time in their corporate jets and swank hotel suites, which might lower what other senior managers would need every month to handle the top jobs.

My guess is that a number of competent executives could be found willing to do the jobs of Fortune 500 CEOs, and for a lot less than what the current occupants charge the companies for their services (the average is over $10 million). Something tells me that Citigroup could have found a CEO for less than the $38 million that it paid to Vikram Pandit in 2008. Maybe it should have looked on eBay?

Matthew Stevenson was born in New York, but has lived in Switzerland since 1991. He is the author of, among other books, Letters of Transit: Essays on Travel, History, Politics, and Family Life Abroad. His most recent book is An April Across America. In addition to their availability on Amazon, they can be ordered at Odysseus Books, or located toll-free at 1-800-345-6665. He may be contacted at matthewstevenson@sunrise.ch.

Property Owners Pay for City’s Dysfunction Under L.A.’s New Graffiti Ordinance

Jerry Sullivan — Sat, 24 Oct 2009 23:04:46 -0400

Graffiti is a bane of urban life, a form of vandalism that demoralizes entire neighborhoods and invites worse crime.

Graffiti is an art form and an outlet for expression amid the jumble and obvious strains of urban life.

You’ll hear arguments from both of those viewpoints, depending on who you talk to about graffiti.

The Garment & Citizen is of the firm opinion that anyone is free to consider graffiti an art form – but all should be mindful that such status doesn’t give anyone the right to express themselves by painting, etching or otherwise tagging someone else’s property. Pablo Picasso himself would not have had any right to create his “Guernica” on the side of someone else’s building, as far as we’re concerned.

It would have been a loss to the world, of course, if Picasso had gone through life with no canvass for his genius. The world needs Picassos, and it’s important to remember that such talent sometimes grows on tough corners.

It would be an ideal situation if we had a school system that could consistently engage such talented individuals…and parents with the time to nurture youngsters inclined toward art...and an overall outlook as a society that values art as something more than a commodity to be marketed.

We’re lacking to some degree or another on each of those counts.

Consider what goes on before some kid decides to emblazon graffiti on someone else’s property.

First, there’s been some breakdown in the family unit. Sometimes it’s a parent or parents who don’t care enough to warn their children off such behavior. Other times they are too busy trying to feed and clothe their kids, leaving little time to teach them right from wrong.

You can bet that many cases also involve a school that has failed to engage and educate the youngster.

There’s probably a lack of after-school resources, too, leaving kids to find camaraderie with mischief makers while their parents are still working.

All of these factors come into play on graffiti in our city. They all point to the dysfunction that has found a cozy spot in Los Angeles for decades.

We live in a city where the minimum wage is $8 an hour, which will bring $320 for a 40-hour week – hardly enough for rent. Is it any wonder that folks at the bottom end of the pay scale might have to spend more time working and fewer hours on their child’s upbringing?

Everyone knows that the drop-out rates at Los Angeles Unified School District (LAUSD) campuses are sky high in general, and higher still as you move down the socio-economic ladder. Yet not much ever changes when it comes to expectations of how well the organization teaches our children.

Then there’s the Los Angeles Police Department (LAPD), which recently came close to a roster of 10,000 officers, the highest mark in the agency’s history. Compare that to other major cities in the U.S. and you’ll see that we still don’t have enough cops. We have never had enough cops. And now there’s talk of trimming staffing levels for LAPD because the city is short on money.

These are the pillars of the dysfunction that we have lived with for years in Los Angeles. How does a city go so far down a path of ignoring all these problems and allowing the ground for graffiti vandals to grow so fertile?

Look no further than City Hall. That’s where members of the City Council recently passed an ordinance that will require any new commercial or residential buildings to include anti-graffiti coatings on the structures. The only exception comes if a property owner signs a lifetime contract to remove any graffiti within a week.

There you have it – this problem rolls downhill. Failure upon failure leads to the doors of property owners. They must, under the ordinance, join city officials in giving up on any thoughts about directly addressing graffiti vandalism. They must, our elected officials say, pay good money to prepare to be vandalized.

The new ordinance is one way to raise revenue, but it also raises a white flag of surrender – a de facto confirmation that our elected officials lack the governmental skill and political will to face up to graffiti vandals and address the various factors behind the crime.

That’s a dictionary definition of dysfunction – and it passed the Los Angeles City Council unanimously.

Jerry Sullivan is the Editor & Publisher of the Los Angeles Garment & Citizen, a weekly community newspaper that covers Downtown Los Angeles and surrounding districts (www.garmentandcitizen.com)

Fixing the Mortgage Mess: Why Treasury’s Efforts at both Ends of the Spectrum Are Failing

Peter Smirniotopoulos — Fri, 23 Oct 2009 23:37:09 -0400

To get a better idea why the Obama Administration’s efforts to stem the home foreclosure crisis have failed at both ends of the problem, you need only go back to that great scene in Frank Capra’s classic, “It’s A Wonderful Life,” where protagonist George Bailey (Jimmy Stewart) is on his way out of Bedford Falls with his new bride and high school crush, the former Meg Hatch (Donna Reed). The newlyweds are heading toward the train station to leave on their honeymoon when Meg notices a commotion outside the Bailey Bros. Building & Loan Association, founded by George’s revered but now deceased father, Henry, and Henry’s bumbling brother, Billie.

The “commotion” is actually a run on the bank. George – bless his heart, and with the full encouragement of the new Mrs. Bailey – hops out of Ernie’s cab to see if he can quell the growing crowd assembling outside the locked doors of the Building & Loan. With his usual calm George assesses the situation, asks Uncle Billie to unlock the doors to let the gathering mob into the Building & Loan, and then proceeds to talk (most of) them out of closing their accounts and being refunded the value of their shares.

George patiently explains to his anxious Association members that he can’t give each of them 100% of the value of their Bailey Brothers Building & Loan Association shares because the funds from those shares have already been loaned out to worthy borrowers so they can afford to build or buy houses in the community. States George from behind the teller counter:

“…you’re thinking of this place all wrong. As if I had the money back in a safe. The, the moneys not here. Well, your money’s in Joe’s house…that’s right next to yours. And in the Kennedy’s House, and Mrs. Macklin’s house, and a hundred others. Why, you’re lending them the money to build, and then, they’re going to pay you back as best they can. Now what are you going do? Foreclose on them?”

Just as George appears to be making progress, however, a now former Association member comes running into the Building & Loan pronouncing that Old Man Potter (Lionel Barrymore), who owns the bank and every other business in Bedford Falls, is offering to buy Bailey Brothers Building & Loan shares at 50 cents on the dollar (in an obvious effort to take advantage of the situation by running George Bailey out of business). Saving the day, and confirming that George has indeed made a life-changing decision in his choice of mates, the new Mrs. Bailey, with $2,000 in cash in her purse for their honeymoon, offers the money to the anxious Association members filling the building lobby. George then adroitly parses out their honeymoon money in the smallest increments he can persuade folks to accept under the circumstances.

The scene tells us much about what went wrong with the residential real estate market nationwide. It is more than merely nostalgic to long for such elegant simplicity in the manner in which deposited funds were invested in things such as home mortgages. However, the only thing quainter than that scene in “It’s a Wonderful Life” is the idea of a bank or other financial institution originating, owning, and servicing the same mortgage. And therein lies the rub for efforts by the Treasury Department to help right the residential mortgage ship of state through the Making Home Affordable mortgage modification program and the Legacy Asset Recovery program.

The root the problem lies with the complete disconnect between those who actually own the notes secured by the vast majority of residential mortgages in this country and those who “service ” those mortgages. Right now there is little if any incentive for those servicers to participate in the Treasury Department’s mortgage modification initiative (the Making Home Affordable mortgage modification program or “MHAP”), originally projected to foster the modification of 2.5 million mortgages but having resulted in only a fraction of that number in modified mortgages. This is at least in part because the fee structure under the existing servicing agreements does not adequately compensate the servicer for the amount of effort required to accomplish a mortgage modification. Further, there’s no clearly and easily identifiable “owner” of the notes that are secured by the underlying mortgages putting pressure on the servicers to modify these mortgage

The national mega-banks that have received the lion’s share of Treasury’s multi-trillion bail-out of the banking industry have been, by far, the worst offenders in not embracing and implementing this program. And the problem can’t easily be fixed because it is structural in nature, the by-product of a system ironically intended to keep credit flowing into the residential sales market. For example, in Treasury’s recently released Servicer Performance Report through September 2009, Bank of America had modified under the MHAP only 11% of its approximately 876,000 home mortgages delinquent by 60 days or more (thereby making them eligible for modification under MHAP).

The structural problems prevail at the investor-end of this morass as well. After much Congressional rhetoric and even more Wall Street teeth-gnashing over mark-to-market legislation late in 2008 that would have forced the holders of mortgage-backed securities (“MBS”) to mark down the value of their mortgage loan portfolios based on reductions in the underlying collateral value, Congress declined to take such action. The Legacy Asset Recovery program (so-called by Treasury because, quite honestly, who wants to invest in “toxic” assets), the investment component of Treasury’s Public-Private Investment Program or “PPIP,” pairs private capital with Treasury capital and then makes up the difference with federal low-cost debt. This program is intended to mitigate potential risks and rewards for these new equity participants by halving the amount of private equity that must be raised (since half of the total equity is provided by the government) and providing all of the required debt. As with any program whose purpose is to encourage private investments in bad debts – recalling the RTC program from the early 90s – potential profit is directly correlated to discounting the Legacy Asset purchasing entity can achieve in negotiations with the MBS holders.

Regrettably, the assumptions underpinning the theory quickly prove not to be reasonable. At its core, the problem is that, in order for this initiative to work, the MBS holders need to do that one thing they’ve absolutely refused to do thus far: Take any losses.

MBS holders are betting on their ability to hold onto their mortgage pools for as long as it takes for the excess housing inventory in the marketplace to get absorbed. They are also waiting for the end of the recession (perhaps around the corner but perhaps not) to turn into a full-fledged economic recovery, so that underlying real estate values start to catch up to portfolio values.

Will this strategy work? Likely not if there’s a slow, largely jobless recovery that doesn’t support the housing market. As of now, the most recent projections for economic recovery in the real estate sector are looking to 2013. In the meantime, Treasury’s programs at both ends of the mortgage crisis will have done very little to stem foreclosures or stabilize capital flows to the housing market.

Compounding the structural infirmities of these two “recovery” programs is that job growth is most likely to come first in states that have relatively few problems (Washington, D.C.-Metro Area; Great Plains; Texas) and will be far slower in many of the most troubled states, notably California, Michigan and Ohio, and parts of the Northeast. Hindsight being 20/20, rather than focusing so much attention and so many resources on helping the financial industry, which has been by far the largest recipient of Washington’s largess, the focus should have been on job preservation and job creation. The links, after all, between mortgage performance, housing values, and employment are undeniable.

Peter Smirniotopoulos, Vice President – Development of UniDev, LLC, is based in the company’s headquarters in Bethesda, Maryland, and works throughout the U.S. He is on the faculty of the Masters in Science in Real Estate program at Johns Hopkins University. The views expressed herein are solely his own.

Home-Based Businesses: Residential Zoning and The Cyber Village

Rick Harrison — Thu, 22 Oct 2009 23:37:57 -0400

Currently in the United States about 27% of all homes have some form of a home based business. These businesses can be key to conservation efforts that lower our carbon footprint by reducing transportation needs, eliminating redundant facilities, and consolidating equipment. They provide significant opportunities for two solutions to problems that face today’s growth issues.

My software company was founded in Dallas, where I worked from the dining room table in an apartment. I yearned for the day my business could operate out of a real office. After the business started generating a positive cash flow the apartment was left behind, and my office moved to a location in the newly built Dallas Galleria. My 104 square feet of office space was complimented with a separate meeting room, receptionist, and a parking space in the garage. All this cost me $600 a month. After the initial six month lease was up the rent skyrocketed and parking was no longer free; however, the 104 square feet remained the same.

Oh, how I yearned for a nice dining room table to work from!

Soon I decided that the money spent on rent — both apartment and Galleria office — could build a really nice home. In 1982 I built a home specifically designed for a residence and my business. With about 4,000 square feet, of which about one third was dedicated business space with a separate office entrance, we had a viable base from which to live and work.

The IRS allowed us to write-off one third of the total housing expenses without question. By not having to pay office rent we could double the home payments, and the 30 year mortgage was paid in full in less than 10 years.

Maple Grove, the lakefront suburban Minnesota community where we had built, allowed a home business occupation via ordinance limited to one non-family employee. At first we complied, but the business grew. At times there were up to 6 employees at the home, but neighbors did not complain.

I was not the only lake front home operating a big business. Across the lake, a major manufacturer of car radar warning units operated out of the basement of a house. This was a husband-and-wife business, but it was no small operation. The company had full page ads in leading automotive magazines. I sometimes visited; I'd hear the phone ring with an order, and the wife would say 'I’ll see if we have any in stock at the warehouse, can you hold?' She would then call down to the basement and ask if they could make an A-50 unit for shipping. Nobody but the UPS man would know the truth!

Solution #1: The Residential/Business
The Residential/Business (RB zoning) would be an entirely new land use, sort of a morphing of an office center and a neighborhood of luxury single family homes. Office complexes typically have a higher degree of landscaping and architectural detail than single family developments. In the RB neighborhood, homes would be large and impressive with heavily landscaped commons that serve as pedestrian access to the businesses that are located within the home structure.

Family members and employees would park in the rear, with multiple garage spaces and outside parking for the employees. From the arterial streets abutting these developments it would be an impressive sight, giving a sense of wealth to the neighborhood and municipality. The types of businesses would be restricted to low traffic professional services, including medical services, but also could include very light manufacturing. The RB zones would be an excellent transition (buffer) from commercial centers to residential ones. The RB residential structures would house the entire business and home, serving as the main hub for all of the business needs.

Below, a Residential/Business community

There could be some overlap of business functions into the residential elements of the home. For example, a conference center with an 80 inch screen for presentations could be used for Monday night football on occasion. From a financial standpoint, for a small to medium sized business owner this is a win-win situation. It delivers the advantages that I had experienced in my own situation in a comprehensive, specifically designed development plan.

Solution #2: The Cyber Village
George E. Van Hoesen, of Global Green Building, LLC, has developed an alternative solution, the Cyber Village.

The proliferation of computers and cell phones, as well as video conferencing and express delivery, has made the notion of the at-home cyber office an excellent solution for growth issues. New definitions of work, recreation, and education have brought the family home again. Residential design and community planning can begin to address the increasing needs of these new households while keeping the neighborhood's primarily residential character.

Unlike the Residential/Business solution, homes in the Cyber Village need not be as business intensive or change the character of a neighborhood. A main component of the Cyber Village is the Cyber Office, serving as the community foundation for business activity. This facility, complete with offices, reception services, mail services, meeting rooms, board rooms, reference libraries and office equipment, would serve subscribers (businesses within the neighborhood) for their out-of-office and administrative needs. This Cyber Office location could serve as the hub for deliveries, recycling, storm shelter, resource center, rideshare, and other community resource needs. Subscribers would choose the level of access to the facility based on their own individual business needs. The features of the cyber office would lend credibility and added professionalism to a residence-based business without breaking the bank.

Below, a Cyber Village

The neighborhood Cyber Office could be managed as a for-profit business, providing services for a fee. Communities could also manage a Cyber Office as a part of the homeowners association. A mix of services could be provided, depending on the needs of the community. The overall concept reduces the carbon footprint of the home-based business and addresses the needs of the changing work place.

Zoning Both Solutions
Both solutions fall outside the scope of conventional zoning. The Cyber Village may comply more easily with existing regulations, especially those that allow a home to operate a business with a few employees. If a city's regulations are flexible enough, it may be possible to design and implement a Cyber Village that complies with city code now. The Residential/Business solution, with its more aggressive business size, would compete with — or make obsolete — office complexes. Office “use” is often taxed at a higher rate than residential use. Since cities do not like to lose tax revenue, it is likely that municipalities would require a new basis to tax the RB residents.

Creating a new zoning class and tax classification is not difficult, but it might be time consuming. The current slow market allows cities to restructure their zoning and tax codes, so now is the time to act.

Both solutions would have a significant reduction on the carbon footprint of land development. They offer alternatives to the Smart Growth solutions in which shop owners are encouraged to live over their stores in high density developments. Both the Residential/Business and the Cyber Village alternatives curb traffic and sprawl...and at the same time, provide residential settings with enough space for family enjoyment.

Rick Harrison is President of Rick Harrison Site Design Studio and author of Prefurbia: Reinventing The Suburbs From Disdainable To Sustainable. His website is rhsdplanning.com.

The Limits of Transit: Costly Dead-End

Wendell Cox — Thu, 22 Oct 2009 00:45:23 -0400

The proposed Chicago Transit Authority (CTA) fare increase and service cuts for next year are indicative of transit’s recurring budgetary problems, and not only in Chicago but nationwide. But in the Windy City, these moves have elicited an understandably negative public reaction since the city of Chicago depends on transit about as much as any city besides New York.

CTA, like other transit agencies around the nation routinely, claim that fare increases and service cuts are necessary due to under-funding. Transit budget crises seem to come as often as Presidents day in many places and more often than February 29 (every four years) virtually everywhere.

If under-funding were the primary problem, then an examination of historic trends would indicate that the money available to transit had declined (after adjusting for inflation) relative to ridership. But in nearly all cases, including both the CTA and the national data, this is far from the truth.

Cost Escalation at CTA: Despite its storied history as one of the nation’s premier transit agencies, CTA has suffered heavy ridership losses since its modern peak in 1979. A principal reason for this decline was a series of devastating fare increases that would not have been necessary if costs had been maintained within inflation. In 2007, CTA spent 13% more (inflation adjusted) to run its buses and trains than in 1979. That would be fine if ridership had risen 13% (or more), since then both riders and taxpayers could feel that they had obtained value for money. However, ridership dropped by more than 2 percent. If CTA had kept its costs per passenger within inflation, it would have at least $400 million more each year, and would have no need to consider fare increases or service reductions.

National Transit Cost Escalation: Between 1982 (the last year before the federal gas dedicated gas tax for transit) and 2007, national transit ridership (passenger miles) rose 44% percent. At the same time, transit expenditures, adjusted for inflation, rose 100%. This means that each new inflation adjusted $1.00 for transit delivered $0.44 in new value (additional ridership). If transit had kept expenditures growth within inflation, there would have been in excess of $13 billion in 2007 (See Note).

In contrast, the price (or cost) of most products and services rise about with the rate of inflation or slightly more or less. Over the same period of time, automobile and airline costs per passenger mile have declined, producing more than $1.00 in value for each new inflation adjusted dollar. Food costs have declined 3 percent relative to inflation, energy costs have declined 2 percent relative to inflation and housing costs have risen 1 percent relative to inflation.

Transit’s Intractable Fiscal Problem: Transit is incapable of producing ridership increases that coincide with its funding increases because of its structure. Transit is a monopoly, and an unregulated monopoly incapable of managing itself effectively. Private monopolies, such as electric utilities, are routinely regulated. Economic theory generally holds that monopolies are to be avoided, because of their power to violate the interests of consumers by passing on higher than necessary prices and substandard service. No responsible government would think of granting a monopoly to a private company without exercising regulatory control to ensure that the company does abuse its position of power.

Before the wide availability of subsidies to transit, there were private companies, which could not raise fares or cut service without regulatory review and approval. It was not the best possible system, but it was designed to principally serve consumers. But government is different. There are no commissions set up to regulate government monopolies, like transit.

Competitive Incentives: The antidote to monopoly is competition, and transit costs cannot be controlled without it. There is a successful model. Transit agencies can competitively bid and competitively contract bus routes for limited periods of time, requiring firms to supply services they specify. The public agency continues to draw the routes, establish the timetables and set the fares. In a number of cases, competitive contracting has lowered costs and reduced the rate of cost increase.

In Los Angeles, our efforts led to carving a new transit district (Foothill Transit) out of the old public monopoly (the Southern California Rapid Transit District). Other services were transferred from the public monopoly to be administered by the city of Los Angeles. In each case, the transferred services were competitively contracted, and evaluation reports put the savings at more than 40%. Similar results have been achieved in Denver and San Diego, where approximately 50% of bus services are now competitively contracted. In Denver, the competitive contracting program was established by state legislation, while in San Diego, local officials introduced the program to gain control of rapidly escalating costs. More than a decade ago, my report for the Metropolitan Transit Association showed that substantial savings could be achieved at CTA through competitive contracting without requiring employee layoffs or give-backs.

Competitive contracting has even spread to commuter rail systems, such as in San Diego, Dallas-Fort Worth, Miami, Boston and Los Angeles. However, for all of these savings, competitive contracting accounts for only a small share of transit services in the United States.

The Antithesis of Cost Effectiveness: There remains strong resistance by the special interests that control transit, from the managers to the employees to vendors. Within a couple of years, the California legislature caved to lobbying from transit interests, including the transit unions, and outlawed the kinds of cost reducing reforms that had created Foothill Transit. This is despite the fact that not a single penny in wages or benefits had been taken away from a single transit worker.

Perhaps the most brazen case was when the Denver transit agency approached the state legislature in the early 1990s seeking repeal of the competitive contracting bill, claiming that it was costing the agency more than if the services were provided by its own employees. It later was revealed that the analysis had compared the internal costs of operations with the competitively contracted costs of operations and capital (buses and facilities). It was even worse than that. The cost of the competitively contracted buses was amortized at a rate more than double the normal accounting standard. After this misleading initiative, the legislature expanded the competitive contracting requirement.

The resistance of monopoly transit interests to competitive contracting is understandable. People and organizations generally tend to look out for their own interests first and unregulated monopolies can do so with a vengeance. Without the countervailing force of competition (or, less effectively, regulation) their financial demands prevail over the interests of the riders and taxpayers, without whom there would be no reason for transit to exist.

One result is that when major transit expansions are chosen, the approaches that cost the most per passenger are often selected. The classic case is the selection of rail technologies over bus technologies, which are usually far more cost-effective given the modest transit volumes in the United States. Instead we often choose rail systems that cost more on an annual basis than it would cost to lease each new transit customer a car in perpetuity. Sometimes the cost equals that of an economy car, other times it could be a Lexus.

Another contributing factor has been transit wages and benefits, both for managers and operating employees. These have risen far faster than in competitive markets, whether unionized or not. Other costs have risen as well, from capital costs to the costs of administration. The present monopoly situation effectively establishes a public policy objective of maximizing transit costs per passenger. The focus should be on maximizing ridership by minimizing expenditures per passenger.

Internal Reforms Do Not Survive: There is always the potential for internal reform. One of the most sweeping of such programs was implemented by Chicago’s Mayor Jane Byrne in the early 1980s. She forced major cost reductions at CTA. However, after she left, costs resumed their upward trend. It is difficult, if not impossible, to sustain the political will to control transit costs without the incentives of competition.

Overseas: Perhaps surprisingly, the conversion to competition has been widespread overseas. Virtually all of the world’s largest public bus systems take this approach. Transport for London (formerly London Transport) is competitively bid. Between 1985 and 2000, the costs per mile of service declined more than one-half, adjusted for inflation. Much the same has occurred in Socialist Scandinavia. All Copenhagen bus service is competitively bid. Stockholm not only bid its bus service, but also saved money by competitively bidding its metro (subway) system. Commuter rail lines are being competitively bid in Germany, as are entire bus systems in Adelaide and Perth in Australia. In all of these cases, the public has gained by lower costs, expanded services and generally lower fares than would have otherwise been the case. In the United States, however, the surviving public monopoly structure skims more than half of the new money off the top, leaving less than half for the riders and taxpayers.

Why This is Important: All of this is relevant because there is a sense that transit will play a much larger role in the future. Virtually none of the analysis exhibits any understanding of the dynamics that rule transit expenditures. For example, the contentious Moving Cooler presumes that transit expenditures will rise within the inflation rate and, as a result, expects romantically unachievable increases in ridership.

This is wishful thinking of the worst kind. Congress, the state and the nation’s transit agencies have studiously avoided any sort of analysis that would compare transit costs to inflation. They cannot be relied upon to set things right since they will not confront the special interests that control transit.

Instead, American transit agencies spend more without a corresponding increase in ridership. New money made available to transit loses value like the depreciating currency of a hyper-inflating economy. Washington, state governments and local governments can throw a lot more money at transit. They seem incapable however of producing a corresponding increase in ridership.

Note: National expenditures calculated from the governments database of the United States Bureau of the Census. Ridership from the American Public Transportation Association. Chicago ridership and operating cost data from the American Public Transportation Association and the US Department of Transportation Federal Transit Administration National Transit Database. Financial data adjusted to 2007$ using the Consumer Price Index.

Wendell Cox was appointed to three terms by Mayor Tom Bradley to represent the city of Los Angeles on the Los Angeles County Transportation Commission (LACTC), which was the principal transit and highway policy body in the nation’s largest county. As the only LACTC member who was not an elected official, he chaired the Service Coordination Committee, which established the procedures that led to the establishment of Foothill Transit. He also chaired two American Public Transit Association national committees (Governing Boards and Policy & Planning).

Stimulate Yourself!

Joel Kotkin — Tue, 20 Oct 2009 00:18:52 -0400

Beltway politicians and economists can argue themselves silly about the impact of the Obama administration's stimulus program, but outside the beltway the discussion is largely over. On the local level--particularly outside the heavily politicized big cities--the consensus seems to be that the stimulus has changed little--if anything.

Recently, I met with a couple of dozen mayors and city officials in Kentucky to discuss economic growth. The mayors spoke of their initiatives and ideas, yet hardly anyone mentioned the stimulus.

"We didn't see much of anything," noted Elaine Walker, mayor of Bowling Green, a relatively prosperous town of 55,000 in the western part of the state. "The money went to the state and was siphoned off by them. We got about zero from it."

Ironically, Walker does not seem overly upset about the lack of federal assistance for Bowling Green. Instead, Walker--a self-described supporter of the president in a part of the country largely resistant to Obamamania--seems more disposed to taking matters into her own hands. Rather than waiting for Obama, Bowling Green is looking to stimulate itself--and other communities would do well to emulate this grassroots approach

Bowling Green's "self-stimulation" is part of a concentrated effort at diversification for the city, which has long depended on its General Motors plant, which produces the Corvette. Other single-industry-dominated regions, notably Detroit, have made much noise about moving into other fields, but their emphasis has frequently revolved around high-profile, highly subsidized projects such as "green" industries, entertainment or tourism.

Instead, says Walker, the first step in diversification lies with boosting small local businesses.

A primary vehicle for this has been the successful Small Business Accelerator located at an abandoned mall. Buddy Steen, who runs the program in conjunction with Western Kentucky University, claims it has fostered some 38 companies and created over 700 jobs. Blu Pharmaceuticals, developed by Small Business Accelerator, for example, currently employs five but expects to add another 40 workers at its new plant in nearby Franklin. The program's other firms specialize in everything from electronic warfare to robotics.

Kentucky may seem an unlikely spot for such ventures, admits local entrepreneur Ed Mills, but things are changing in the Bluegrass State. Mills, a former General Motors executive, and his twin sons, Clint and Chris, founded a Web-based software firm, HitCents, in 1995 when the boys were still in high school.

Today the company, which develops software for retail and other applications, has over 50 employees and customers from across the country, including GM, as well as a host of local companies, unions and public agencies. "We hope to build a $100 million company, and we think we can do it." Mills says. "You don't have to be in California. People think you can't do this in Kentucky but plainly you can."

With its strategic location on Interstate 65 connecting the old industrial heartland to the emerging one along the Gulf, Bowling Green enjoys many advantages. It's slightly over an hour to Nashville and two hours to Louisville, the area's two major consumer and cultural marketplaces.

Other small communities in the state have also realized that any green shoots would have to come from local grassroots. Russellville, a rural community of some 7,200 in the southwest part of the state, is looking at a "back to basics" economic development plan that stresses the export of local food products and crafts.

"You can ride down the highways and smell the hams smoking," notes one local economic developer. "We are looking on how to export those hams to the rest of country."

Mayor Gary Williamson of Mt. Sterling, a town of 6,000 located in Montgomery County, in the generally more impoverished east, has been pushing a different strategy. His region is dotted with industrial plants of varying sizes. The city is also 45 minutes from Georgetown, site of a large Toyota factory.

These employers require a steady stream of skilled industrial workers, particularly in such fields as machine maintenance. Williamson and other officials in the area see training such workers--starting at the high school level--as a way to not only keep people employed but to attract other firms to the area. "We want to keep people here, and they will do so if they have jobs after school," he explains.

It's significant that such grassroots-based development--geared to unique local conditions--is taking place in Kentucky. For generations, the state and the rest of the surrounding Appalachian region has been the brunt of both jokes and patronizing attention from the nation's academes, policy circles and media.

Most Americans, observed Newsweek in 2008, "see Appalachia through the twin stereotypes of tragedy (miners buried alive) and farce (Jed Clampett)." One prime reflection of that approach can be seen in a CNN report last year that painted a decidedly dismal portrait of the region.

For generations, Appalachia's seeming backwardness has led to the creation of numerous federal programs aimed at lifting it into the national economic and cultural mainstream, notes University of Kentucky historian Ronald Eller. In his excellent Uneven Ground: Appalachia Since 1945, Eller describes how these efforts reflected the region's "struggle with modernity." Progress has been often associated with efforts to undermine what the late Michael Harrington described as a "separate culture, another nation with its own way of life."

Yet, this unique culture also could provide some of the basis for a regional recovery. There's a growing sense, notes longtime Kentucky League of Cities President Sylvia Lovely, that the region's fundamental assets--its natural beauty, resources and traditions of craftsmanship--could constitute a distinct advantage in the coming decades.

More important still could be less tangible values, Lovely notes. "Modernity" in its current unadulterated form--with a lack of community, homogeneity and disconnect from the natural world--could be losing its allure for millions of Americans. In terms of what matters, she suggests, Appalachian towns may possess "if not more information, perhaps more wisdom than those who hold themselves out as experts. "

Looking at the statistics, the news is not all grim. Despite its still glaring problems, particularly in its rural hinterland, Appalachia has been gaining steadily compared to the rest of the country. In 1960 one-third of Appalachia residents lived in poverty, compared with 1 in 5 nationally; by 2000 the poverty rates had fallen to 13.6%, just a tick higher than the national 12.3%. The region's continued struggle with the gap between rich and poor, Eller notes, now more reflects broader national trends as opposed to something unique to the region.

Perhaps the most dramatic changes are illustrated by migration patterns. By the end of the 1960s one out of every three industrial workers in Ohio came from Appalachia. Young people studied, notes Eller, "reading, writing and Route 23," referring to the main highway to the industrial north.

Since 2000 Kentucky, as well as Tennessee and West Virginia, have enjoyed positive rates of net migration. Although some parts of the region continue to suffer horrendous poverty and continued out-migration, many other communities--such as Bowling Green, Lexington and Louisville, as well some more rural areas--have attracted more newcomers than they have lost. Overall Appalachian states' migration statistics look a lot healthier than Ohio and Illinois, not to mention New York or California.

Walker--who moved to Kentucky from Los Angeles shortly after the 1992 race riots--sees this new migration as part of what will sustain a recovery in the region. Like many newcomers, Walker came to Kentucky not for bright lights but for a good place to raise her children. "Everyone still waves and says hi," she observes. "That makes a lot more difference to people than many think. In the end, people come here because it's a better place to live and also to raise your kids. It's all about families."

Ultimately, a combination of folksiness and access to the world brought by technology could spark a continued renaissance not only in Bowling Green but across the region. The fact that the resurgence seems to be the product of largely local efforts not only makes it all the sweeter, but could inspire similar approaches among those communities still waiting for Washington to rescue them.

This article originally appeared at Forbes.com.

Downtown Bowling Green photo courtesy of OPMaster

The White City

Aaron M. Renn — Mon, 19 Oct 2009 00:04:18 -0400

Among the media, academia and within planning circles, there’s a generally standing answer to the question of what cities are the best, the most progressive and best role models for small and mid-sized cities. The standard list includes Portland, Seattle, Austin, Minneapolis, and Denver. In particular, Portland is held up as a paradigm, with its urban growth boundary, extensive transit system, excellent cycling culture, and a pro-density policy. These cities are frequently contrasted with those of the Rust Belt and South, which are found wanting, often even by locals, as “cool” urban places.

But look closely at these exemplars and a curious fact emerges. If you take away the dominant Tier One cities like New York, Chicago and Los Angeles you will find that the “progressive” cities aren’t red or blue, but another color entirely: white.

In fact, not one of these “progressive” cities even reaches the national average for African American percentage population in its core county. Perhaps not progressiveness but whiteness is the defining characteristic of the group.

The progressive paragon of Portland is the whitest on the list, with an African American population less than half the national average. It is America's ultimate White City. The contrast with other, supposedly less advanced cities is stark.

It is not just a regional thing, either. Even look just within the state of Texas, where Austin is held up as a bastion of right thinking urbanism next to sprawlvilles like Dallas-Ft. Worth and Houston.

Again, we see that Austin is far whiter than either Dallas-Ft. Worth or Houston.

This raises troubling questions about these cities. Why is it that progressivism in smaller metros is so often associated with low numbers of African Americans? Can you have a progressive city properly so-called with only a disproportionate handful of African Americans in it? In addition, why has no one called these cities on it?

As the college educated flock to these progressive El Dorados, many factors are cited as reasons: transit systems, density, bike lanes, walkable communities, robust art and cultural scenes. But another way to look at it is simply as White Flight writ large. Why move to the suburbs of your stodgy Midwest city to escape African Americans and get criticized for it when you can move to Portland and actually be praised as progressive, urban and hip? Many of the policies of Portland are not that dissimilar from those of upscale suburbs in their effects. Urban growth boundaries and other mechanisms raise land prices and render housing less affordable exactly the same as large lot zoning and building codes that mandate brick and other expensive materials do. They both contribute to reducing housing affordability for historically disadvantaged communities. Just like the most exclusive suburbs.

This lack of racial diversity helps explain why urban boosters focus increasingly on international immigration as a diversity measure. Minneapolis, Portland and Austin do have more foreign born than African Americans, and do better than Rust Belt cities on that metric, but that's a low hurdle to jump. They lack the diversity of a Miami, Houston, Los Angeles or a host of other unheralded towns from the Texas border to Las Vegas and Orlando. They even have far fewer foreign born residents than many suburban counties of America's major cities.

The relative lack of diversity in places like Portland raises some tough questions the perennially PC urban boosters might not want to answer. For example, how can a city define itself as diverse or progressive while lacking in African Americans, the traditional sine qua non of diversity, and often in immigrants as well?

Imagine a large corporation with a workforce whose African American percentage far lagged its industry peers, sans any apparent concern, and without a credible action plan to remediate it. Would such a corporation be viewed as a progressive firm and employer? The answer is obvious. Yet the same situation in major cities yields a different answer. Curious.

In fact, lack of ethnic diversity may have much to do with what allows these places to be “progressive”. It's easy to have Scandinavian policies if you have Scandinavian demographics. Minneapolis-St. Paul, of course, is notable in its Scandinavian heritage; Seattle and Portland received much of their initial migrants from the northern tier of America, which has always been heavily Germanic and Scandinavian.

In comparison to the great cities of the Rust Belt, the Northeast, California and Texas, these cities have relatively homogenous populations. Lack of diversity in culture makes it far easier to implement “progressive” policies that cater to populations with similar values; much the same can be seen in such celebrated urban model cultures in the Netherlands and Scandinavia. Their relative wealth also leads to a natural adoption of the default strategy of the upscale suburb: the nicest stuff for the people with the most money. It is much more difficult when you have more racially and economically diverse populations with different needs, interests, and desires to reconcile.

In contrast, the starker part of racial history in America has been one of the defining elements of the history of the cities of the Northeast, Midwest, and South. Slavery and Jim Crow led to the Great Migration to the industrial North, which broke the old ethnic machine urban consensus there. Civil rights struggles, fair housing, affirmative action, school integration and busing, riots, red lining, block busting, public housing, the emergence of black political leaders – especially mayors – prompted white flight and the associated disinvestment, leading to the decline of urban schools and neighborhoods.

There's a long, depressing history here.

In Texas, California, and south Florida a somewhat similar, if less stark, pattern has occurred with largely Latino immigration. This can be seen in the evolution of Miami, Los Angeles, and increasingly Houston, San Antonio and Dallas. Just like African-Americans, Latino immigrants also are disproportionately poor and often have different site priorities and sensibilities than upscale whites.

This may explain why most of the smaller cities of the Midwest and South have not proven amenable to replicating the policies of Portland. Most Midwest advocates of, for example, rail transit, have tried to simply transplant the Portland solution to their city without thinking about the local context in terms of system goals and design, and how to sell it. Civic leaders in city after city duly make their pilgrimage to Denver or Portland to check out shiny new transit systems, but the resulting videos of smiling yuppies and happy hipsters are not likely to impress anyone over at the local NAACP or in the barrios.

We are seeing this script played out in Cincinnati presently, where an odd coalition of African Americans and anti-tax Republicans has formed to try to stop a streetcar system. Streetcar advocates imported Portland's solution and arguments to Cincinnati without thinking hard enough to make the case for how it would benefit the whole community.

That's not to let these other cities off the hook. Most of them have let their urban cores decay. Almost without exception, they have done nothing to engage with their African American populations. If people really believe what they say about diversity being a source of strength, why not act like it? I believe that cities that start taking their African American and other minority communities seriously, seeing them as a pillar of civic growth, will reap big dividends and distinguish themselves in the marketplace.

This trail has been blazed not by the “progressive” paragons but by places like Atlanta, Dallas and Houston. Atlanta, long known as one of America's premier African American cities, has boomed to become the capital of the New South. It should come as no surprise that good for African Americans has meant good for whites too. Similarly, Houston took in tens of thousands of mostly poor and overwhelmingly African American refugees from Hurricane Katrina. Houston, a booming metro and emerging world city, rolled out the welcome mat for them – and for Latinos, Asians and other newcomers. They see these people as possessing talent worth having.

This history and resulting political dynamic could not be more different from what happened in Portland and its “progressive” brethren. These cities have never been black, and may never be predominately Latino. Perhaps they cannot be blamed for this but they certainly should not be self-congratulatory about it or feel superior about the urban policies a lack of diversity has enabled.

Aaron M. Renn is an independent writer on urban affairs based in the Midwest. His writings appear at The Urbanophile.

The Compromise by the Lake

Daniel Jelski — Sat, 17 Oct 2009 21:10:04 -0400

Toronto is a nice city.

If that seems like faint praise, then so be it; I'm not a great Toronto fan. Don't get me wrong. It is a wonderful city for the tourist, and temporary residents I know swear by the place. But it's not my kind of town.

I spent much time in Toronto in the 1980s and 90s. My first visit must have been in 1970 or so, and I was last there on a very cold, January day in 2003.

The city used to be known as "Tidy Toronto." Indeed, that was the impression I got from my first visit - it all seemed very British, very clean, very orderly. In the 1970's the Blue Laws were strict - it wasn't possible to buy a cup of coffee on a Sunday morning. For the tourist (as I was then) it made for an unpleasant stay. These rules have weakened over the years, but as far as I know, many shopping malls and large stores are still closed on Sunday.

In contrast to the United States (Life, Liberty & the Pursuit of Happiness), Canada was founded as British North America on the principles of Good Government & Good Order. The Blue Laws are of a piece. There are some nice things about this: Canadian parks, including Toronto city parks, are much nicer and better maintained than their American counterparts. Toronto supports one of the largest public library systems in North America (an expensive anachronism?). They have street cars. The streets are (or at least were) cleaner. Canadian hotels and motels are fantastic – and apart from boring Sundays, Canada surely is one of the best countries in the world for the tourist. By all means, visit Toronto.

But compared to American cities of comparable size – Boston, Atlanta, Seattle – Toronto is stifling, provincial, and culturally unimportant. This, I believe, is why.

The city is situated on the northwest shore of Lake Ontario. The street system is oriented by the lake, which means E-W streets roughly parallel the shore. Thus, going east on Bloor will put you on a 75 degree heading. North-south streets are perpendicular – Yonge Street heads north at 345 degrees.

The lake is the city's geographical feature of note, and serves as a transportation artery. Both the railroad and the Gardiner Expressway run right along the lakefront, thus cutting the city off from the water. City planners have tried mightily to rectify this fundamental error in design: they have built as many urban attractions as they can on the water side of the tracks, beginning with Queen's Quay. This is nice enough, but is not easily accessible for pedestrians (one has to cross both the expressway and the tracks to get there). And then it is a synthetic cityscape, such as Manhattan's South Street Seaport or Chicago's Navy Pier: seen one, you've seen them all. Off shore are the Toronto Islands, now mostly used as park space. I'm ashamed to admit I've never been there.

I've always thought of the center of town being the corner of Yonge and Bloor Streets, for that surely is the busiest subway stop. It is an impressive corner, similar to Chicago's Michigan Ave (though on a much smaller scale).

South of Bloor, Yonge Street is the city's major promenade, where young people go to see and be seen. They strut by on wheels and on foot, in hot rods and hot clothes. It's a great place to walk on a Summer evening.

A half mile (Toronto's streets were designed long before Canada went metric) south of Bloor is Dundas Street, a street that doesn't follow the grid (probably an old Indian trail). Yet another half mile south is Queen Street, the main E-W pedestrian thoroughfare and location of Eaton Centre – a huge, indoor shopping mall (apparently now open on Sunday). Further south are King Street, Front Street, Union Station, and then the Gardiner Expressway at the foot of Yonge Street. Yonge St. becomes less lively south of Queen St.

Walking west on Queen Street (highly recommended) one comes first to Nathan Phillips Square, location of the justly famous Toronto City Hall. The old city Hall, a beautiful red brick building to the east, is just as impressive. In the summer there are fountains, and in the winter ice skating. Beyond this is Osgood Hall, a judicial institution and a lovely building surrounded by a marvelous garden. Go inside if you can. En route you will cross Bay Street, Canada's financial center. The heart of the financial district is Bay & King Streets.

Continuing west brings one to University Avenue, a broad, visually spectacular boulevard. It is full of institutions: Ontario Hydro has its headquarters here, as do large insurance companies. It is not a shopping street. About a mile north, University Ave. divides to surround Queen's Park, the location of the Ontario Provincial Legislature. It is a beautiful park and an interesting building. "At Queen's Park today," begins many a news cast, "Premier McGuinty announced..." North of Queen's Park, University Avenue turns into the redundantly named Avenue Road.

Continuing west on Queen brings one to Spadina Avenue, a major N-S traffic thoroughfare. Spadina and Dundas is the center of the traditional Chinatown. North of that, between Spadina and Queen's Park, is the University of Toronto – the center of the campus is surrounded by King's College Circle, and a pleasant walk.

Beyond Spadina, Queen Street is Toronto's version of Greenwich Village, known as the Gallery District. Here are nice cafes, bookstores, small shops. I believe this used to be the center of the Italian district, and Italians still live on the West End and in Etobicoke. But West Queen St. has outgrown the ethnic identity.

Bathhurst, about a mile west of Spadina, forms the outer edge of the city center. Beyond this Queen Street looked like a slum, at least when I was last there.

East Queen Street, east of Jarvis, is skid row.

North of Bloor, between Yonge and Avenue Road, is an area called Yorktown – a mostly pedestrian area with narrow streets, small shops, and sidewalk cafes. Just to the east of Yorktown is Rosedale, a very elegant neighborhood of beautiful homes. Both are worth exploring on foot.

So that brings us back to the corner of Yonge & Bloor. Next time we'll start again from there.

And what happens if you go east on Bloor?

Daniel Jelski is Dean of Science & Engineering State University of New York at New Paltz.

Wikigovernment: Crowd Sourcing Comes To City Hall

Rick Cole — Sat, 17 Oct 2009 11:19:00 -0400

Understanding the potential role of social media such as blogs, twitter, Facebook, You Tube, and all the rest in local government begins with better understanding the democratic source of our mission of community service. The council-manager form of local government arose a century ago in response to the "shame of the cities" — the crisis of local government corruption and gross inefficiency.

Understanding what business we are in today is vital. It drives the choices we make and the tools we use. Railroads squandered their dominance in transportation because they defined their business as railroading. They shunned expansion into trucking, airlines, and airfreight. While they were loyal to one mode of transportation, their customers were not. Similarly, newspapers are in crisis because they defined their trade as the newspaper industry. Today's readers don't wait for timely news to arrive in their driveways. They have digital access on their computers and hand-held phones. Guess where advertisers are going?

Most local governments suffer similar myopia. Many managers define our core mission as delivering services. But that overlooks the history of why local governments deliver those services. We deliver police services in the way that we do because Sir Robert Peel invented that model in response to the public safety challenges of industrializing London.

We deliver library services because Ben Franklin invented that model in response to the need for working people in Philadelphia to pursue education and self-improvement. Governments didn't arise to provide services; services arose from "government of the people, by the people, and for the people."

Our core mission is not to provide traditional services, but to meet today's community needs. To do this, we can learn more from the entrepreneurial risk-taking of Peel and Franklin than from public management textbooks.

We face these new dangers and opportunities:
• Transitioning from unsustainable consumption to living in sustainable balance with planetary resources.
• Overcoming an economic crisis that is slashing our capacity to maintain traditional services and meet growing community needs.
• Embracing growing diversity while dealing with increasing fragmentation marked by divergent expectations about the role of local government.

During a similar period of historic upheaval, the young Karl Marx wrote that "all that is solid melts into air."

Of course, it's possible to underestimate the emerging crisis from the perspective of local government in many American towns and suburbs. The local voting population seems stable, though declining in numbers. The "usual suspects" still populate the sparse audiences at council and commission meetings. The budget is horrendous, but we've seen these cycles before.

In reality, this overhang is typical of the lag between action and reaction, the inertia Thomas Jefferson identified when he wrote, "Mankind are more inclined to suffer, while evils are sufferable, than to right themselves by abolishing the forms to which they are accustomed."

In California, we're confounded by the seemingly endless crisis in political leadership that is squandering our state's credit rating and capacity to deliver vital services. Members of our political class resemble cartoon characters who dash off a cliff, then momentarily hang in the air before abruptly plunging. As the economist Herb Stein wryly observed, "If something cannot go on forever, it will stop."

Global Communication Tools
In the current tough times, we all pay lip service to civic engagement and we all pursue it, with varying degrees of enthusiasm and success. But if we want to avoid plunging into the vortex like the state of California (and Vallejo, California, its bankrupt local counterpart), we will need to reassert and reinvent government of the people, by the people, and for the people in our communities.

The textbook model puts the elected governing board squarely between us and the public. Elected officials interpret the will of the people. They're accountable to the public. We report to those who have been elected. But in the modern world, professional staff cannot hide behind that insulation. We cling to the old paradigm because we lack a better one.

That's where the real significance of social media comes into focus. These aren't just toys, gizmos, or youthful fads. Social media are powerful global communication tools we can deploy to help rejuvenate civic engagement.

The Obama presidential campaign lifted the curtain on this potential. "Nothing can stand in the way of millions of people calling for change," he asserted at a time when conventional political wisdom doubted his path to the White House. MyBarackObama.com wasn't his only advantage, but he deployed it with stunning effectiveness to raise colossal sums from small donors, pinpoint volunteer efforts in 50 states to the exact places of maximum leverage, and carry his campaign through storms that would have capsized a conventional campaign.

It remains to be seen how this translates into governance at the federal level. But it has direct application to local democracy. Crowd sourcing is a new buzzword spawned by social media. It recognizes that useful ideas aren't confined to positional leaders or experts. Wikipedia is a powerful success story, showing how millions of contributors can build a world-class institution, crushing every hierarchical rival. "Wikigovernment" is not going to suddenly usher in rankless democratic nirvana, but it's closer to the ideal of government of the people, by the people, and for the people than a typical local government organization chart.

"To govern is to choose," John Kennedy famously said. Choices must be made, and citizens will increasingly insist on participating in those decisions. As citizens everywhere balk at the cost of government, we can't hunker down and wait for a recovery to rescue us. Like carmakers suddenly confronted by acres of unsold cars, we are arriving at the limits of the "we design ‘em, you buy ‘em" mentality.

A crowd-sourcing approach to local government resembles a barn raising more than a vending machine as a model for serving the community. Instead of elected leaders exclusively deciding the services to be offered and setting the (tax) price of the government vending machine, a barn raising tackles shared challenges through what former Indianapolis mayor Stephen Goldsmith calls "government by network."

Citizen groups, individual volunteers, activists, nonprofits, other public agencies, businesses, and ad hoc coalitions contribute to the designing, delivering, and funding of public services. The media compatible with this model are not the newspapers such as — for example — the local newspaper that reports yesterday's council meeting. The new media are the instant Facebook postings, tweets, and YouTube clips that keep our shifting body politic in touch.

The Dark Side
It's not hard to conjure up the dark side of all this. Web presence is often cloaked in anonymity. This isn't new in political discourse; the Founders engaged in anonymous pamphleteering. But the Web can harbor vitriol that wasn't tolerated in the traditional press (at least until recently).

The Web also tends to segregate people. One study concluded that 96 percent of cyber readers follow only the blogs they agree with. This self-selection of information bypasses editors trained in assessing the credibility of information. Opinion is routinely passed off as fact.

But it isn't surprising that the cutting edge of digital communication is full of both danger and promise, nor should it keep us from using these new media in our 2,500-year quest for self-government. The atomization generated by a zillion websites also breeds a hunger for the community of shared experience. Both the election of Barack Obama and the death of Michael Jackson tapped into that yearning.

We can foster that yearning by deploying these exciting new tools in the service of building community. Yes, it's risky to be a pioneer, but in a rapidly changing world, it's even riskier to be left behind.

This is part two of a two-part series. A slightly different version of this article appeared in Public Management, the magazine of the International City/County Management Association; icma.org/pm.

Rick Cole is city manager of Ventura, California, and this year's recipient of the Municipal Management Association of Southern California's Excellence in Government Award. He can be reached at RCole@ci.ventura.ca.us

E-Government: City Management Faces Facebook

Rick Cole — Thu, 15 Oct 2009 23:37:41 -0400

Does a City Manager belong on Facebook?

Erasmus, the Dutch theologian and scholar, in 1500 wrote, "In the country of the blind the one-eyed man is king." I feel this way in the land of social media — at least among city and county managers. Inspired by the first city manager blog in the nation, started by Wally Bobkiewicz in Santa Paula, California, I began posting back in 2006. Although most bloggers strive for frequent, short blurbs, I've employed blogging to provide a place to get beyond the sound bites (and out of context quotes) in the local press. I seek to provide background, explanation, and context for the stories in the news, along with the trends that don't make the news.

I tried MySpace and Facebook initially out of curiosity. For my first six months, I had only six friends on Facebook. Now I have more than 400, and few days go by when I don't review requests for more. I post at least once a day, usually links to intriguing articles on public policy and photos of my three kids.

While I was finding my way as a boomer in cyberspace, I resisted Twitter...until an invitation arrived from a friend 30 years older than I. If someone in his 80s was interested in tweets from me, I figured the time had come to join the crowd. And although I've never made a YouTube video, several videos of me are floating in cyberspace.

For local managers, all of these social media offer new tools to work on one of democracy's oldest challenges: promoting the common good. What local governments can't do is fall hopelessly behind. The fate of railroads, automakers, and newspapers shows what happens to the complacent. It's time to get online — and reach far beyond the initial step of a city website with links — to lead the effort to build stronger communities and a healthier democracy for the 21st century.

Civic Engagement and Social Media: The Ventura Case Study

Ventura has a civic engagement manager position, but civic engagement is considered a citywide core competency, like tech savvy and customer service. It's not something we do periodically; it's how we strive to do everything.

One of our key citywide performance measures is the level of volunteerism in the community. We look not just at the 40,000 volunteer hours logged by city government last year, but at the percentage of the population that volunteer for any cause or organization: 50 percent versus 26 percent nationally. We strive to raise awareness, commitment, and participation by citizens in local government and their community.

Reports by Council staff not only list fiscal impacts and alternatives, but document citizen outreach and involvement in each recommendation. There are obviously different levels; they recently ranged from a stakeholder committee that held four facilitated sessions to produce rules governing vacation rentals, to a citywide economic summit cosponsored with the chamber of commerce that drew 300 businesspeople and residents to develop 54 action steps unanimously endorsed by the city council at the conclusion.

Effective engagement requires aggressive, fine-tuned, and immediate communication. We address traditional media with a weekly interdepartmental round table that reviews what stories are likely to surface and identifies other stories we'd like to see covered. We encourage city staff to quickly post comments to online newspaper postings to set the record straight, respond to legitimate queries, and direct citizens to additional information on our website.

We have two public access channels — one for government, one for the community — and actively provide both with programming. Our most direct access comes from a biweekly e-newsletter that goes out to 5,000 addresses, linking directly to website resources, including the city manager's latest blog post.

Slow at first to embrace Facebook, Twitter, and YouTube, we're closing the gap. One councilmember is a prolific blogger, and another uses Facebook for interactive community dialogue. We make judicious use of reverse 911 to get public safety information out quickly to residents. We've also pioneered "My Ventura Access", a one-stop portal for all citizen questions, complaints, compliments, and opinions, whether they come by phone, Internet, mail, or in person.

Not Your Grandfather's Democracy

Twitter, which allows just 140 characters – including spaces and punctuation – per "tweet", gets a disproportionate share of the social media chatter. After a Republican member of Congress was ridiculed for tweeting during the State of the Union address this past February, Twitter usage exploded 3,700 percent in less than a year. By the time you read this, U.S. Twitter users will outnumber the population of Texas, or possibly California. In just five years, techcrunch.com reports, Facebook users have zoomed past 250 million. A Nielsen study estimates that usage has increased by seven times in the past year alone.

Yet as blogs, tweets, Facebook, YouTube, and text blasts reshape how America communicates, few local governments — and even fewer city and county managers — are keeping pace. E-government remains largely focused on websites and online services. This communication gap leaves local government vulnerable in a changing world. "Business as usual" is not a comforting crutch; it's foolish complacency. Just look at the sudden implosion of General Motors, the Boston Globe, and the state of California.

It would be equally shortsighted to thoughtlessly embrace these new communication media as virtual substitutes for thoroughgoing civic engagement. We're part of a 2,500-year-old experiment in local democracy, launched in Athens long before Twitter and YouTube. Local democracy operated long before the newspapers, broadcast media, public hearings, and community workshops familiar to today's local government managers.

We may live in a hi-tech world, but the basis of what we do remains "high touch," involving what some of the most thoughtful International City/County Management practitioners call "building community." Social media offer new tools to build community, although they aren't a magic shortcut.

This is part one of a two-part series. A slightly different version of this article appeared in Public Management, the magazine of the International City/County Management Association; icma.org/pm.

American Agriculture’s Cornucopia of Opportunity and Responsibility

Delore Zimmerman and Matthew Leiphon — Thu, 15 Oct 2009 02:00:48 -0400

A complex agriculture, along with urban culture, is one of the fundamental pillars of human civilization, and one of the fundamental bulkwarks of American prosperity. For families and communities involved in farming and ranching it’s also a way of life that is cherished, oftentimes passed on through generations, taking on reverential if not religious overtones.

At the same time in today’s overwhelmingly urban culture, cooking has become prime time entertainment, dining a social event, and what a person eats is increasingly associated with a healthy body and mind – sometimes a sort of spiritual well being. This elevates agriculture to an important issue even among those who have never spent a day on a farm.

Sadly, recent years have seen mounting efforts to discount the value, in particular, of the industry’s productive core. A just published feature story in Time magazine – Getting Real About the High Price of Cheap Food – makes the following claim. “With the exhaustion of the soil, the impact of global warming and the inevitably rising price of oil — which will affect everything from fertilizer to supermarket electricity bills — our industrial style of food production will end sooner or later.”

Yet it is industrial, highly commercialized agriculture that first transformed America – and increasingly such countries as Australia, Brazil, Argentina and Canada – major forces in the world economy. The trend towards smaller-scale specialized production is indeed a welcome addition to our agricultural economy, but it is principally large-scale, scientifically advanced farming that produces the vast majority of the average family’s foodstuffs and accounts for all but a tiny percentage of our exports.

The attack on “industrial” agriculture reflects a growing trend by environmentalists to subordinate all productive industry to their own particular agenda. Some extremists in the local food movement would discourage cold climate inhabitants from the luxury of a midwinter tropical fruit because of the energy used in shipping. Others propose elaborate schemes for urban farming so that land can be left to nature instead of cultivation.

For others agriculture is guilty of producing a calorie-heavy, protein-rich diet that has made Americans unhealthy. In this lexicon ranchers, corn, and wheat farmers are not far removed from Afghan poppy growers or coca cultivators in South America.

The assault on agricultural production and the food system as we know it is certainly not limited to the United States. Farmers in Great Britain, where the often well-heeled advocates of bucolic romanticism hold great sway, have faced withering criticism. The National Farmers Union recently stated that the pressures on land use and practices could seriously damage the agricultural economy, with serious global and moral consequences.

Farming, they argue, depends “crucially on the productive core business remaining profitable. Without this core, British agriculture would “wither on the vine”, reducing both the global supply of food and making the UK ever more dependent on imports.

When applied to the United States, the world’s largest food exporter, the consequences could be devastating. By 2050 the population of the planet will reach around 9 billion people with more than 85 percent of the world’s population located in developing countries. Roughly half will live in developing-country cities. In the United States the population is expected to grow by another 100-milion people by 2050.

In this context, taking steps to reduce large-scale efficient production does not seem to be either a practical or humane choice. Certainly, better production and stewardship practices should be implemented and consumers can and could do more to drive these practices by making better nutritional decisions and choosing more responsible lifestyles.

But these concerns should not obscure the fact that American agriculture stands at the core of meeting the challenge of feeding the world’s expanding population. It does this not only by producing a staggeringly diverse array of crops with amazing efficiency, but also by leading the world in the export of the agricultural technology that helps other countries, notably in the developing world, feed their own people.

Greater Food Security and a Stronger Economy
America’s agricultural producers have never been more productive and efficient than they are today. In 1953, the nation had a total of 5 million farms, working a total of 1.2 billion acres of land – the peak in production at that time. Over fifty years later, the number of farms in America has fallen by two-thirds, and the amount of land in use by producers has dropped by 25 percent, to around 900 million acres. Of the 2.2 million remaining farms, almost 96% are family owned. Even among the largest two percent of farms, 84% are family owned, challenging the commonly held perception of corporate domination.

The US food industry is now the biggest in the world. In 2006, it was a $1.4 trillion sector, accounting for 12.3 percent of gross domestic product (GDP) and 17 percent of the country's workforce – the second largest U.S. employer behind government. In some regional economies such as the Midwest and Upper Great Plains the demand by farmers here, and now increasingly abroad, for sophisticated machinery and equipment has spawned entire new industry sectors in electronics, wireless networks, and new material fabrication. The continual demand for new and improved practices in both crop and livestock production and processing has created new opportunities in the life sciences and biotechnology.

This represents both an economic achievement and a great environmental benefit. Inputs of capital, labor, and materials have remained nearly steady, yet overall output has increased over two and one half fold over the same period of time. At the same time, efficient agriculture has returned to nature – forests, wetlands, prairie – millions of acres, far more than the land that has been devoted to housing and other urban needs.

Like successful industrialists, American farmers and ranchers have taken advantage of the latest advances in engineering, technology, and science to do more with less, creating “arguably the most productive, efficient, and technologically advanced production agriculture sector in the world”. Indeed as many American manufacturing industries have fallen behind their foreign competitors, agriculture has remained in the forefront, a bastion of American competitiveness.

These increasing levels of productivity have allowed American agriculture to become a powerful player in world agricultural trade. As the nation has seen overall trade deficits mount to record levels in recent years, the agricultural sector has proven a notable exception. American farms, able to “produce far beyond domestic demand for many crops,” have looked to the world market to absorb their output. In 2008, the United States exported over $115 billion worth of agricultural products, a record high.

For the year, agricultural products made up ten percent of overall American exports, and the nation enjoyed an agricultural trade surplus of 35 billion dollars. While high commodity prices played their part in driving 2008’s export values higher, the agricultural sector has consistently shown export surpluses over the past 15 years, with the nation’s “share of the global market for agricultural goods,” averaging slightly over 20%.

On the domestic front, production agriculture – and the wider world of agribusiness – provides not only food, fuel, and fiber for Americans, but also a source of employment. Roughly 4.1 million people are directly employed in production agriculture as farmers, ranchers, and laborers; but up to 21 million Americans work in jobs that are tied in some way to agriculture –approximately one out of six participants in the U.S. workforce.

According to the USDA, the agricultural export industry supported as many as “841,000 full-time civilian jobs,” including “482,000 jobs in the nonfarm sector,” as of 2006. Production of food, fuel, and fiber involves support industries to supply the necessary inputs, and handle the product output, spurring economic activity in associated industries, including the “manufacturing, trade, and transportation sectors.”

The continual adoption of advanced technologies and methodologies by American farmers and ranchers also creates demand for advanced research and development activity, from both the public and private sectors.These, in turn, spawn educational and entrepreneurial opportunities in a multitude of scientific and engineering fields. USDA research suggests that “each dollar spent on agricultural research returned about $10 worth of benefits to the economy.”

Scaling Up Sustainable Agriculture

None of this suggests that there is not room as well for what is known as sustainable, usually smaller scale, agriculture. Organic agriculture, where farmers minimize external inputs and are not permitted to use artificial fertilizers, pesticides or herbicides, is the most widely recognized segment of the sustainable farming industry. U.S. sales of organic food and beverages have grown from $1 billion in 1990 to an estimated $20 billion in 2007, and are projected to reach nearly $23 billion in 2008.

This is clearly a growing industry, with organic food sales anticipated to increase an average of 18 percent each year from 2007 to 2010, according to an Organic Trade Association Manufacturing Survey. Yet organic foods and beverages account for less than 3 percent of all food sales in the United States – hardly enough supply or demand to feed a nation, much less a growing, hungry planet.

The same technology that drives commercial, large scale agriculture – and is largely paid for by its profits – could expand the role of this specialized sector. This includes a greater role for what is commonly called precision agriculture. With the aid of technologies such as global positioning (GPS), sensors, satellites or aerial images, and geographic information management tools (GIS), every input can be applied optimally to meet the exact needs of the crop, and can be tracked and tailored with precision. Precision agriculture can be used to reduce energy usage and environmental effects of production agriculture.

Precision agriculture builds on the strengths of America’s fundamental edge in innovation on the farm and in the factory. In the past, technology has been a major force in driving the shift of agricultural activities of the farm into the agribusiness input industries. Precision agriculture creates new and higher-value opportunities for agribusiness but also enables the farmer to apply the technology right in the field, thereby increasing the competitiveness and viability of farm operations of any size or ownership structure.

This suggests that there is, in many cases, a false dichotomy between industrial and sustainable agriculture. American agriculture now competes in a truly global marketplace with a cornucopia of opportunities that extend to both systems. Technology and a focus on productivity can help sustainable farming expand, but this should not be at the expense of the larger, commercial sector that not only funds most new research but will continue to play a dominant role in both feeding the world and sustaining that most endangered of species – the American economy.

Delore Zimmerman is the President of the Praxis Strategy Group an economic research and development strategy consulting company. Matthew Leiphon is a Research Associate with Praxis Strategy Group. Delore grew up in a small farming community in North Dakota, hauling bales and picking rocks for local farmers and ranchers. Matthew is from a North Dakota farm family and spends his fall weekends harvesting small grains and canola.

Eros Triumphs…At Least in Some Places, Mapping Natural Population Increases

Richard Morrill — Wed, 14 Oct 2009 00:02:35 -0400

As with other advanced capitalist societies, the US population is aging. About 30 percent of US counties experienced natural decrease – more deaths than births – in the 2000-2007 period.

Nevertheless, the most exceptional feature of the United States remains its unusually high level of natural increase, and significant degree of population growth. This is often attributed to the high level of immigration, especially from Mexico, illegal as well as legal, and their high fertility. This process is indeed critical, even though most of the migration is in fact legal, and the share from Mexico is not as high as commonly perceived. Also most of the Hispanic population in the United States is native, not immigrant.

Perhaps a more important feature of US society contributing to a smaller decline in fertility than in most other advanced countries is the extraordinary cultural traditionalism of perhaps half the American population. This is reflected in the so-called “culture wars”: a more educated modernism, pejoratively dubbed as “secular humanist,” versus a more traditional, religion-observing “moral majority.”

Conservatives campaign against abortion and even contraception, and maintain an amazingly high level of religiosity and skepticism of science, creating a climate favorable to a level of fertility above replacement levels (2.1 per female). The super pro-child Mormon Church alone claims millions of members, and evangelical groups boast even more. This creates a fascinating, future-influencing tension between a younger-growing, more educated population choosing lower fertility on average, and a more traditional population more successful at reproducing themselves!

Natural increase, then, can be expected in the following kinds of areas. One is heavily Hispanic areas. Those with more recent immigrant stock have higher fertility, but above replacement fertility seems to persist for several generations. Another lies in Native American Indian areas. The explanation here is controversial, but there is perhaps a sense of the need for more children as a reaction to a perceived threat of loss of identity.

For areas with more vibrant economic growth, attracting and maintaining young workers constitute another focal point for natural increase. These are overwhelmingly urban, even metropolitan. Note that these areas may not have above replacement fertility, but will have natural increase, simply because of the younger age structure of the population.

Other strong candidates for natural increase include military base areas, because of the prevalence of young families. Likewise Mormon areas, and fundamentalist religion areas, at least where there remain sufficiently young populations.

Seventy percent of counties had natural increase, differing from counties with natural decrease by higher immigration, much higher levels of urban population, a much younger population, and far higher levels of racial and ethnic minorities, especially Hispanics.

A little more than half (1193) of counties with natural increase had net domestic out-migration – more people leaving than moving into the county, and of these the majority (702) lost population, while in the other 492 natural increase was greater than the out-migration loss, resulting in population gains. Out migration counties differ from in-migration counties ONLY because of the markedly higher ethnic and racial minority shares, obviously reflecting much weaker economic performances. The population losing counties had especially high African American population shares and were more rural.

The net in-migration counties (1093) are usefully separated into those in which natural increase exceeded the net in-migration (only 272 counties) and those in which net in-migration was dominant (821). The former had slightly higher minority shares, and were somewhat more urban.

Geography of Natural Increase

Figure 1 maps natural increase by five levels, with cooler colors having a small natural increase (here in the simple sense of the excess of births over deaths as a share of the base population), and warm colors indicated high levels of natural increase. Rates of over 10 percent are really startlingly high.

Natural increase prevails over much of the country, with the exception of much of the Great Plains, from Texas to Canada, and northern Appalachia. High levels of natural increase, over 6 percent (orange and magenta on Map 1) occur in five kinds of areas that are really highly predictable.

First, areas of high Hispanic population, mainly from Texas to southern and central California, but also in parts of eastern Washington and southwestern Kansas.
Second, Native American Indian reservation areas, most obviously in Alaska, New Mexico, South Dakota, Arizona but also Montana and North Dakota.
Third, the Mormon “culture belt,” spreading from the “Zion” of Utah to Idaho, Nevada and Wyoming.
Fourth, rapidly growing suburban and exurban counties, most notably around Houston, Dallas, San Antonio, Austin, Atlanta, Washington DC, Chicago, Minneapolis, Charlotte and Denver, and
fifth, in counties with military bases, for example, in North Carolina, Georgia, Kansas, Oklahoma and several other states.

Above average natural increase, from 4 to 6 percent, is typical of many modestly growing metropolitan areas, both central and suburban and exurban counties, and in a scattering of rural-small town counties, especially in the west (western Colorado is notable). Low natural increase, under 2 percent, is very widespread across both urban and rural areas, and is often indicative of slow-growing economies with out-migration (please see Map 2), and in areas moderately attractive to older migrants, thus depressing births, but not enough to cause natural decrease.

Map 2 sorts counties according to in or out migration, population gain or loss, and the role of natural increase versus net in-migration. Four basic types are mapped, but then divided into high or low natural increase. Rapidly growing counties with net in-migration even greater than high natural increase (dark pink) are especially typical of suburban and exurban counties of large metropolises, and of fast-growing smaller metropolitan areas. Lower natural increase is more common for rural and small town amenity areas, as well as far exurban counties. Natural increase greater than in-migration (yellow) is not very common, and tends to occur in rural-small town counties, including several counties with high Mormon shares. Counties with out-migration but enough natural increase to permit overall population growth (green) are common in three kinds of areas. First are large central metropolitan counties – such as those containing Los Angeles, Houston, Dallas, and Miami – with high non-Hispanic white out-migration, but high Hispanic in-migration. The second type are border region counties with high Mexican in-migration, and the third are Native American Indian areas. Those counties experiencing population loss (purple) are much more like counties with natural decrease: dominantly rural or declining rust belt metropolitan areas.

Finally, what areas have the highest rates of natural increase? These see increases of 16 to 19 percent from the base population. They are Wade-Hampton, Alaska (west of Bethel); Webb, Texas (Laredo); Utah (Provo); Hidalgo, Texas (McAllen); Loudoun, Virginia (Leesburg, northwest of Washington DC); Starr, Texas (Rio Grande City); and Madison, Idaho (Rexburg). Three are Hispanic, two Mormon, one Alaska native, and one fast growing suburban.

Natural increase has remained higher than forecast 40 years ago due to far higher immigration, above replacement fertility even among the affluent and educated, and high teenage pregnancy in connection with constraints on abortion – i.e., America’s very high religious traditionalism. The unknowns ahead include the rate of future immigration, whether 2nd and 3rd generation Hispanics will reduce fertility markedly and whether education and modernism will reduce the power of tradition.

See Richard's similar piece on natural decreases in US population.

Richard Morrill is Professor Emeritus of Geography and Environmental Studies, University of Washington. His research interests include: political geography (voting behavior, redistricting, local governance), population/demography/settlement/migration, urban geography and planning, urban transportation (i.e., old fashioned generalist)

Our Euro President

Joel Kotkin — Tue, 13 Oct 2009 00:30:38 -0400

Barack Obama's seemingly inexplicable winning of the Nobel Peace Prize says less about him than about the current mentality of Europe's leadership class. Lacking any strong, compelling voices of their own, the Europeans are now trying to hijack our president as their spokesman.

There's a catch, of course. In their mind, Obama deserves the award because he seems to think, and sound, like a European. In everything from global warming to anti-suburbanism to pacifism, Obama reflects the basic agenda of the continent's leading citizens--in sharp contrast to former President George W. Bush.

Indeed it's likely that if Obama wanted to run for presidency of the E.U., he could mail it in. Unfortunately for him, he presides over a country that faces a very different future from that of Europe.

This is not to say we cannot learn from Europe in certain areas--namely fuel economy and health care. Republicans dropped the ball on both of these issues, and as a result both our health care system and automobile efficiency pale next to those of the continent.

Still, the reality is that America and Europe are very different, which would necessitate disparate policy approaches. Our growing divergence with Europe spans everything from demographics to economic needs and basic values. In all these areas, the gap is likely to increase over time.

This is why the Obama Administration's Europhilia, now likely to become more pronounced, represents a dangerous temptation. For one thing, Europe's generally ultra low birth rates--compared with those in the U.S.--imposes structural limits on how their economies can grow and even if they even need growth.

If our core problems come from over-consumption and irrational financial-sector exuberance, Europe's sluggishness stems from the lack of an expanding workforce and consumer base. This means Germany--by far the most important E.U. country in terms of population and gross domestic product--must rely on exports to maintain its generally slow growth rate. More important, as the current generation in their 50s retire, the workforce is likely to shrink dramatically in almost all European countries, making even modest growth difficult.

In a rapidly aging society like Germany's and those of other E.U. countries you can make a case for slow growth, limited work hours, early retirement and a strict regulatory regime. But for America, with its growing workforce and population, slow economic growth simply is not socially sustainable.

More broadly, we are talking about two different mindsets. As one writer puts it, Europeans "emphasize quality of life over accumulation" and "play over unrelenting toil." In contrast, most Americans seem ill-disposed to relax their work ethic, which has been central to the national character from its earliest days.

Of course, the European approach is celebrated by some Americans, particularly those who already have achieved a high level of affluence. It plays very well in "little Europes" of America, cities like San Francisco, Portland and Boston, places with relatively few children and generally slow-growing populations.

But most Americans do not seem ready for a lifestyle buffeted by regulations and limitations. Still attached to their aspirations, they seem no less satisfied with their way of life than do Europeans. Even amid the recession, 70% of Americans still embrace the idea that they can get ahead through hard work.

There are other critical differences. Americans remain more religiously minded. One analyst, David Hart, has spoken of Europe's "metaphysical boredom." Half or more of Europeans never attend church, compared with barely 20% in the U.S.

Among younger Europeans, the loss of traditional Christian identity--with its focus on long-term commitments, sacrifice and responsibility--is virtually complete: According to one Belgian demographer, barely one in 10 young adults in the E.U. maintains any link to an organized religion. In contrast roughly 60% of Americans, according to a Pew Global Attitudes survey, believe religion is "very important," twice the rate of Canadians, Britons, Koreans or Italians and six times the rate of French or Japanese.

Some observers, both in America and abroad, see this spiritualism, particularly among evangelical Christians, as reflecting a kind of social retardation. Yet belief in America is remarkably varied, extending beyond groups that are easily classified as liberal or conservative. In America, a broad "spiritual" focus--dating from the earliest founders and continuing through the transcendentalists and Walt Whitman--persists as a vital force. Even President Obama, whose base tends to be secular, has made much of his religious ties.

In Europe, the only truly rising faith appears to be the secular religion of the environmental zealots. Often almost theocratic in its passion, the green movement tends to be hostile to even modest population growth and economic progress. It's no coincidence that the last American to win the Nobel Prize was the climate change high priest himself, former Vice President Al Gore.

To be sure, Americans also care about the planet, but they seem more disposed to see technological innovation, not abstinence, as the best way to confront ecological problems. The kind of highly restrictive regulatory environment common in Europe--and sadly in such places as California—simply is not well-suited for a country that must produce much more wealth and millions more jobs in order to sustain itself.

Even though they may espouse secular ideals, this more growth oriented mentality also attracts a sizable number of talented and ambitious young Europeans to the U.S., as well as Australia and Canada. Although influential social commentator Richard Florida has claimed that the bright lights and "tolerance" of Europe are luring large numbers of skilled Americans, actual migration trends tell quite the opposite story. By 2004 some 400,000 E.U. science and technology graduates were residing in the U.S. Barely one in seven, according to a recent European Commission poll, intends to return.

Perhaps the president should speak to these young Europeans. They still buy the notion of America as a country open to innovation and striving for upward mobility. Europe, in contrast, perhaps as the result of two debilitating wars in the last century, understandably craves peacefulness and social stability over all else.

When he goes to Oslo next month, Obama should remember that America's future is not to become a bigger version of Norway, a tiny country fat with fossil fuels that can afford its air of moral superiority. We are also not latter day versions of Britain, France, Germany or Russia--all of them worn empires exhausted by history.

Ultimately America is about hope and aspiration. It is, if you will, a country based on an ideal, not a race or cultural legacy. As the British writer G. K. Chesterton once put it, the U.S. is "the only nation...that is founded on a creed." That creed is not so much religious as aspirational, and it will become more important as we attempt to cope with our own growing diversity as well as the rising powers from the developing world.

So even as he enjoys his popularity on the continent, Obama must be careful not to succumb to those who urge him to reshape America in Europe 's image. Take this prize, Mr. President, and then shelve it.

This article originally appeared at Forbes.com.

Official White House photo by Pete Souza

Go to Middle America, Young Men & Women

Wendell Cox — Sun, 11 Oct 2009 17:16:20 -0400

A few weeks ago, Eamon Moynihan reviewed economic research on cost of living by state in a newgeography.com article. The results may seem surprising, given that some of the states with the highest median incomes rated far lower once prices were taken into consideration. The dynamic extends to the nation’s 51 metropolitan areas with more than 1,000,000 population (See Table).

There is a general perception that the most affluent metropolitan areas are on the east coast and the west coast. Indeed, 8 of the 10 metropolitan areas with the highest nominal per capita income in 2006 were on the two coasts. These included San Francisco, San Jose and Seattle on the west coast and Washington, Boston, New York, Hartford and Philadelphia on the east coast. Middle-America is represented by Denver and Minneapolis-St. Paul. However, as anyone who has lived on the coasts and Middle America knows, a dollar in New York or San Francisco does not buy nearly as much as a dollar in Dallas-Fort Worth or Cincinnati.

Per Capita Income: Purchasing Power Parity
US Metropolitan Areas over 1,000,000 Population

		2006 Per Capita Income
Rank	Metroplitan Area	Purchasing Power Adjusted	Nominal	Nominal Rank
1	San Francisco	$46,287	$57,747	1
2	Washington	$45,178	$51,868	3
3	Denver	$44,798	$44,691	8
4	Minneapolis-St. Paul	$44,326	$44,237	9
5	Houston	$42,815	$43,174	11
6	Boston	$42,571	$50,542	4
7	Pittsburgh	$41,716	$38,550	20
8	St. Louis	$41,613	$37,652	27
9	Milwaukee	$41,572	$39,536	19
10	Baltimore	$41,451	$43,026	12
11	Seattle	$41,448	$45,369	6
12	Kansas City	$41,329	$37,566	28
13	Hartford	$41,104	$44,835	7
14	New Orleans	$40,935	$40,211	16
15	Philadelphia	$40,725	$43,364	10
16	Dallas-Fort Worth	$40,643	$39,924	17
17	Cleveland	$39,997	$37,406	30
18	Indianapolis	$39,843	$37,735	26
19	Chicago	$39,752	$41,591	14
20	Richmond	$39,282	$38,233	22
21	New York	$39,201	$49,789	5
22	Birmingham	$39,057	$37,331	31
23	Cincinnati	$38,691	$36,650	36
24	Nashville	$38,680	$37,758	25
25	Detroit	$38,670	$38,119	24
26	Charlotte	$38,632	$38,164	23
27	Miami	$38,555	$40,737	15
28	San Jose	$38,505	$55,020	2
29	Jacksonville	$38,413	$37,519	29
30	Louisville	$38,262	$36,000	41
31	Oklahoma City	$38,156	$35,637	42
32	Las Vegas	$37,691	$38,281	21
33	Salt Lake City	$37,381	$35,145	45
34	San Diego	$37,358	$42,801	13
35	Rochester	$37,066	$36,179	38
36	Columbus	$37,058	$36,110	39
37	Atlanta	$36,691	$36,060	40
38	Memphis	$36,501	$35,470	44
39	Tampa-St. Petersburg	$36,260	$35,541	43
40	Portland	$36,131	$36,845	35
41	Buffalo	$36,091	$33,803	48
42	Norfolk (Virginia Beach metropolitan area)	$35,418	$34,858	46
43	Raleigh	$35,087	$37,221	32
44	San Antonio	$34,913	$32,810	50
45	Providence	$34,690	$37,040	34
46	Austin	$33,832	$36,328	37
47	Phoenix	$33,809	$34,215	47
48	Sacramento	$32,750	$37,078	33
49	Los Angeles	$32,544	$39,880	18
50	Orlando	$32,095	$33,092	49
51	Riverside-San Bernardino	$25,840	$27,936	51

Source:
http://www.bea.gov/scb/pdf/2008/11%20November/1108_spotlight_parities.pdf

Purchasing Power Parity: Things change rather dramatically when purchasing power is factored in. Some years ago, international economic organizations, such as the Organization for Economic Cooperation and Development, the World Bank and the International Monetary Fund began using costs of living by nation to compare national economic performance, rather than currency exchange rate. This practice, called “purchasing power parity” is based upon the recognition that there may be substantial differences in the cost of living between nations.

This can be illustrated by comparing Switzerland and the United States. For years, Switzerland has had a higher per capita GDP than the United States on an exchange rate basis. Switzerland’s gross domestic product per capita was $53,300 in 2006, nearly 30% above that of the United States ($42,000). However price levels in Switzerland are so high that incomes do not go nearly as far as the exchange rate would suggest. Once adjusted for purchasing power parity, the Swiss GDP per capita in 2006 drops to $39,000, well below that of the United States. Much of the difference has to do with regulation. The more liberal economy of the United States produces a lower cost economy than in Switzerland, or for that matter most of Western Europe. The US economic advantage would be even greater measured on a household basis, since US households include nearly 10% more members (generally children) than those in Western Europe.

The same concept was applied by the Department of Commerce Bureau of Economic Analysis researchers in their review of purchasing power parities between US metropolitan areas in 2006. When purchasing power is factored in, five of the top metropolitan areas in nominal per capita income (not adjusted for purchasing power) drop out and are replaced by other metropolitan areas rarely thought of as among the nation’s most affluent.

Among the three west coast nominal leaders, San Francisco remains as #1, in both nominal and purchasing power adjusted per capita income. Seattle dropped from 6th to 11th position. However, the real surprise is San Jose, which dropped from 2nd position to 28th.

The east coast regions ranked among the top 10 metropolitan areas in nominal income also were decimated by their high costs, with only Washington (which rose from 3rd to 2nd) and Boston (which fell from 4th to 6th) remaining. New York fell from 5th to 21st, Hartford from 7th to 13th and Philadelphia from 10th to 16th.

The two non-coastal metropolitan areas in the nominal top 10 remain, with Denver rising from to 3rd and Minneapolis-St. Paul rising from 9th to 4th.

It can be argued that Middle-America replaced the five metropolitan areas dropping out of the top ten. Houston, long one of the most disparaged metropolitan areas among urbanists, occupies the 5th position (compared to its 11th ranking in the nominal list). Three of the new entrants are confirmed members of the Rust Belt: Pittsburgh (7th), St. Louis (8th) and Milwaukee (9th). Finally, there is a new east coast entrant, blue-collar Baltimore (10th).

The Impact of Taxes: But that is just the beginning. Taxes also diminish the purchasing power of households. Unfortunately, there is virtually no readily available information on state and local taxation by metropolitan area. There is, however state and local government taxation data at the state level. If it is assumed that this data is representative of metropolitan differences (weighted proportionately by state in multi-state metropolitan areas), there would be changes in rank among the top 10. Denver would displace Washington in the number two position, closing more than one-half the gap with San Francisco. Even more surprisingly, St. Louis would move ahead of both Boston and Pittsburgh to rank 6th. Kansas City would leap over #11 Seattle, Baltimore, Milwaukee and Pittsburgh to rank 8th, trailing #7 Boston by $25, not much more than the price of a Red Sox standing room ticket. Pittsburgh would occupy the #9 position and Milwaukee #10 (See Figure).

More than Housing: The largest differences in purchasing power stem from housing, with east coast and west coast metropolitan areas having generally higher housing costs. As a result of the housing bust and the larger house price drops in those areas, purchasing power adjusted incomes could recover relative to those of Middle America. However, the high cost of living on the east and west coasts extend to more than housing prices. Generally, according to proprietary (and for sale) ACCRA cost of living data, the west coast and east coast metropolitan areas have higher costs of living even without housing. These differences are largely in grocery costs, which probably reflects the anti-big box store planning regulations and politics that exist in many of these areas. Grocery costs in the more affluent middle-American metropolitan areas tend to be lower.

Other Surprises: Outside the top 10 most affluent metropolitan areas, there are other surprises. Urban planning favorite Portland ranks 40th, just above Buffalo. Rust Belt Cleveland ranks 17th, a few positions above New York. Kansas City, with its highly decentralized civic architecture, ranks 12th, just behind Seattle. Indianapolis (17th) is more affluent than Chicago (18th) and both are more affluent than New York.

Five of the bottom 10 metropolitan areas are in the south, including Virginia Beach, Raleigh, Austin, San Antonio and Orlando. But perhaps the biggest surprise of all is that four of the five lowest ranking metropolitan areas are in the southwest: Phoenix (47th), Sacramento (48th), Los Angeles (49th) and Riverside-San Bernardino (51st).

The Dominance of Middle America: But among the 10 most affluent metropolitan areas in the nation, six or seven may be counted as Middle-America (depending on how Baltimore is classified). Only three are from the original group that supplies 8 of the top metropolitan areas when purchasing power is not considered.

Photograph: Pittsburgh

Wendell Cox is a Visiting Professor, Conservatoire National des Arts et Metiers, Paris. He was born in Los Angeles and was appointed to three terms on the Los Angeles County Transportation Commission by Mayor Tom Bradley. He is the author of “War on the Dream: How Anti-Sprawl Policy Threatens the Quality of Life.”

Obama's Home Town

Daniel Jelski — Sat, 10 Oct 2009 19:07:58 -0400

Hyde Park, in Chicago, is where President Obama called home before moving to Pennsylvania Avenue.

I once called 5118 S. Dorchester home.

Hyde Park is a college town surrounded by – but not really part of – a big city. The University of Chicago, founded in 1890, is the heart of the community. The campus was built of Indiana limestone, fake Gothic, and made to look old from its very inception. Some people like it.

In 1893, Hyde Park hosted the World's Columbian Exhibition (a year late). This showcased the new campus, and also what is now the Museum of Science & Industry, at the northern edge of Jackson Park. The Midway Plaisance – as in carnival midway – then a canal traversed by Venetian gondolas, now marks the southern boundary of Hyde Park.

The tradition continued with Robert Maynard Hutchins and Mortimer Adler – the latter founder of Encyclopedia Britannica, and both authors of the Great Books model of liberal arts education. Subsequent residents have included Muhammad Ali, William Ayers, Saul Bellow, and Barack Obama.

The community is bordered on the east by Lake Michigan, on the west by Washington Park (as in green grass – where few white residents dare to picnic), on the south by the ghetto community of Woodlawn, and to the north by Kenwood – also mostly a ghetto. The formal northern boundary is Hyde Park Blvd (51st St.), but really the neighborhood extends a couple of blocks north into Kenwood. Including this (say to 49th St.), Hyde Park is less than two square miles, and has about 30,000 people.

To preserve its integrity as a college town, the area is separated as much as possible from the surrounding ghetto. As a result, public transportation to and from Hyde Park is poor to anyplace besides the Loop. It is difficult to get to Hyde Park from nearby communities. This is what gives it the feel of a separate village. It takes half an hour to get to the rest of Chicago.

The Illinois Central tracks bisect Hyde Park along Lake Park Ave. East of the tracks is a lakeshore community, traditionally Jewish. Here are high-rise condos such as one would find on the North Side. The famous and impressive Shoreland Hotel has become a college dormitory. Hyde Park Blvd. turns south, east of the tracks, and is a very impressive avenue leading to the Museum of Science & Industry. A pedestrian tunnel leads under Lakeshore Drive to the marvelous Hyde Park Point – a peninsula jutting out into the lake. This offers the very best view of the Chicago skyline from anywhere in the city. Drive to the very end of 55th St. and you're there.

The town-gown divide runs right along 55th Street: south is gown (and mostly white), north is town (and majority Black). The entire community is racially integrated – one of the defining features of Hyde Park. Nevertheless, east of Woodlawn and south of 55th Street is mostly faculty and graduate student housing. Conversely, the northwest part of town is predominantly Black.

55th Street itself is very boring – the victim of urban renewal in the 60's and 70's. The only interesting place is the Lutheran School of Theology at Chicago, a modern but very satisfying building. (On my last visit the building looked to be in disrepair).

The commercial main street is 53rd Street from Woodlawn to Lake Park. I am pleased to say that while individual businesses have come and gone, the character of this street is mostly unchanged over the past 30 years. Half white and half Black, half university and half blue-collar, the street is a great place for people-watching. The center is a small shopping area known as Harper Court. When I last visited, the Valois Cafeteria (53rd and Blackstone) was still there – great place!

Four blocks south is 57th Street, the main street of the campus neighborhood. This used to be justly famous for fantastic bookstores, and probably still is. Please visit the Seminary Co-op Bookstore at the corner of 58th and Woodlawn. (It's inside the Chicago Theological Seminary building, in the basement; there are small signs.) A less interesting branch is along 57th Street. A small used bookstore on 57th Street just before the tracks is still there (called Powell's, but probably unrelated to the Portland store). I'm certain all the other independent bookstores are gone.

The university proper starts at Woodlawn and extends west. The impressive Rockefeller Chapel is on Woodlawn south of 58th Street. Frank Lloyd Wright's justly famous Robie House is at 58th and Woodlawn. The main quad of the university extends from 57th and University all the way to 59th and Ellis. It is well worth exploring. If you can, go into the Harper Library. And walk past the Divinity School. The unforgivably ugly Regenstein Library is across 57th Street – classic brutalism.

West of Ellis is a huge medical complex: the University of Chicago hospitals. This neighborhood is very different still, as neither nurses nor patients live in Hyde Park. The academic core of the university extends west of Ellis as well, and now includes a Science Quad.

By the time one gets to Cottage Grove – the western boundary of Hyde Park and the eastern limit of Washington Park – one is actually in the ghetto. I never felt safe walking along Cottage Grove. Indeed, except for the university campus, I rarely ventured west of Ellis. Otherwise I walked around town at all hours of the day or night.

The campus has crossed the Midway Plaisance, and now includes a row of large buildings along 60th Street – notably the law school. This is a wall against impoverished (and increasingly uninhabited) Woodlawn.

I understand that one additional building needs to be built in Hyde Park: the Obama Presidential Library. Please let the White House know where you think they should put it. The matter is of some urgency.

I'm hoping they can start construction no later than 2013.

Daniel Jelski is Dean of Science & Engineering State University of New York at New Paltz.

There’s No Place Like Home, Americans are Returning to Localism

Joel Kotkin — Fri, 09 Oct 2009 23:35:33 -0400

On almost any night of the week, Churchill's Restaurant is hopping. The 10-year-old hot spot in Rockville Centre, Long Island, is packed with locals drinking beer and eating burgers, with some customers spilling over onto the street. "We have lots of regulars—people who are recognized when they come in," says co-owner Kevin Culhane. In fact, regulars make up more than 80 percent of the restaurant's customers. "People feel comfortable and safe here," Culhane says. "This is their place."

Thriving neighborhood restaurants are one small data point in a larger trend I call the new localism. The basic premise: the longer people stay in their homes and communities, the more they identify with those places, and the greater their commitment to helping local businesses and institutions thrive, even in a downturn. Several factors are driving this process, including an aging population, suburbanization, the Internet, and an increased focus on family life. And even as the recession has begun to yield to recovery, our commitment to our local roots is only going to grow more profound. Evident before the recession, the new localism will shape how we live and work in the coming decades, and may even influence the course of our future politics.

Perhaps nothing will be as surprising about 21st-century America as its settledness. For more than a generation Americans have believed that "spatial mobility" would increase, and, as it did, feed an inexorable trend toward rootlessness and anomie. This vision of social disintegration was perhaps best epitomized in Vance Packard's 1972 bestseller A Nation of Strangers, with its vision of America becoming "a society coming apart at the seams." In 2000, Harvard's Robert Putnam made a similar point, albeit less hyperbolically, in Bowling Alone, in which he wrote about the "civic malaise" he saw gripping the country. In Putnam's view, society was being undermined, largely due to suburbanization and what he called "the growth of mobility."

Yet in reality Americans actually are becoming less nomadic. As recently as the 1970s as many as one in five people moved annually; by 2006, long before the current recession took hold, that number was 14 percent, the lowest rate since the census starting following movement in 1940. Since then tougher times have accelerated these trends, in large part because opportunities to sell houses and find new employment have dried up. In 2008, the total number of people changing residences was less than those who did so in 1962, when the country had 120 million fewer people. The stay-at-home trend appears particularly strong among aging boomers, who are largely eschewing Sunbelt retirement condos to stay tethered to their suburban homes—close to family, friends, clubs, churches, and familiar surroundings.

The trend will not bring back the corner grocery stores and the declining organizations—bowling leagues, Boy Scouts, and such—cited by Putnam and others as the traditional glue of American communities. Nor will our car-oriented suburbs replicate the close neighborhood feel so celebrated by romantic urbanists like the late Jane Jacobs. Instead, we're evolving in ways congruent with a postindustrial society. It will not spell the demise of Wal-Mart or Costco, but will express itself in scores of alternative institutions, such as thriving local weekly newspapers, a niche that has withstood the shift to the Internet far better than big-city dailies.

Our less mobile nature is already reshaping the corporate world. The kind of corporate nomadism described in Peter Kilborn's recent book, Next Stop, Reloville: Life Inside America’s Rootless Professional Class, in which families relocate every couple of years so the breadwinner can reach the next rung on the managerial ladder, will become less common in years ahead. A smaller cadre of corporate executives may still move from place to place, but surveys reveal many executives are now unwilling to move even for a good promotion. Why? Family and technology are two key factors working against nomadism, in the workplace and elsewhere.

Family, as one Pew researcher notes, "trumps money when people make decisions about where to live." Interdependence is replacing independence. More parents are helping their children financially well into their 30s and 40s; the numbers of "boomerang kids" moving back home with their parents, has also been growing as job options and the ability to buy houses has decreased for the young. Recent surveys of the emerging millennial generation suggest this family-centric focus will last well into the coming decades.

Nothing allows for geographic choice more than the ability to work at home. By 2015, suggests demographer Wendell Cox, there will be more people working electronically at home full time than taking mass transit, making it the largest potential source of energy savings on transportation. In the San Francisco Bay Area and Los Angeles, almost one in 10 workers is a part-time telecommuter. Some studies indicate that more than one quarter of the U.S. workforce could eventually participate in this new work pattern. Even IBM, whose initials were once jokingly said to stand for "I've Been Moved," has changed its approach. Roughly 40 percent of the company's workers now labor at home or remotely from a client's location.

These home-based workers become critical to the localist economy. They will eat in local restaurants, attend fairs and festivals, take their kids to soccer practices, ballet lessons, or religious youth-group meetings. This is not merely a suburban phenomenon; localism also means a stronger sense of identity for urban neighborhoods as well as smaller towns.

Could the new localism also affect our future politics? Ever greater concentration of power in Washington may now be all the rage as the federal government intervenes, albeit often ineffectively, to revive the economy. But throughout our history, we have always preferred our politics more on the home-cooked side. On his visit to America in the early 1830s, Alexis de Tocqueville was struck by the de-centralized nature of the country. "The intelligence and the power are dispersed abroad," he wrote, "and instead of radiating from a point, they cross each other in every direction."

This is much the same today. The majority of Americans still live in a patchwork of smaller towns and cities, including many suburban towns within large metropolitan regions. There are well over 65,000 general-purpose governments, and with so many "small towns," the average local jurisdiction population in the United States is 6,200, small enough to allow nonprofessional politicians to have a serious impact.

After decades of frantic mobility and homogenization, we are seeing a return to placeness, along with more choices for individuals, families, and communities. For entrepreneurs like Kevin Culhane and his workers at Churchill's, it's a phenomenon that may also offer a lease on years of new profits. "We're holding our own in these times because we appeal to the people around here," Culhane says. And as places like Long Island become less bedroom community and more round-the-clock locale for work and play, he's likely to have plenty of hungry customers.

This article originally appeared in Newsweek.

Too Big To Fail Needs to Go

Bill Watkins — Thu, 08 Oct 2009 23:38:46 -0400

One of the causes of last year’s financial collapse was the adoption of the concept, 'Too Big To Fail'. Washington decided long ago that some firms are so large and so integral to the economy that the failure of one of these firms would put the entire economy at risk. So, the government insures them at no cost.

The problem with free insurance against failure is that it encourages excessive risk taking. This is the much-talked-about moral hazard problem, and it was a serious contributor to how we got to September 2008 in the first place. Since then, we’ve merged big bad financial institutions with big good financial institutions to create even larger financial firms. This has to stop.

Why would a firm grow to the size we observe?

Often, the firms’ managers tell us they merge to diversify. It is not true. Research I did with Bill English while I was at the Fed showed that large banks really didn’t diversify after they merged. They merged with firms much like themselves in similar markets.

Besides, the argument for diversification is flawed on its face. Financial theory is clear. The investor can diversify more efficiently than the firm can diversify on the investor's behalf.

Firms also claim that they are merging to obtain economies of scale. That is not true either. A reasonably large literature is available on economies of scale. This literature is clear. Economies of scale are fully exploited when firms are much smaller than the ones that are currently considered Too Big To Fail. Indeed, diseconomies may exist at the size of our largest financial firms.

Are there other reasons firms might want to become the size we see? Sure, but the participants are not likely to advertise those reasons. Firms constantly strive for market power, and size can help them achieve that market power. Of course, when firms have market power, the consumer loses.

Firms might also merge to get the free Too Big To Fail insurance. That is clearly not in the best interest of anyone except the insured firm.

The two most believable reasons that firms become Too Big To Fail are counter to the public’s interest. That’s worth repeating more forcefully. Firms that are Too Big To Fail serve no public interest. Since the public is funding the insurance, it needs to go.

Washington’s response has been counterproductive. The preferred model seems to be fewer and even larger firms subject to more government regulation. This makes no sense. There is no evidence that regulation prevents financial collapse. The firms that were involved in last September’s nightmare were all heavily regulated. Indeed, they are among the most heavily regulated firms in the world, and we still saw the most devastating financial collapse since 1929.

Additional consolidation and regulation is not only counterproductive, it approaches criminal insanity. It guarantees that we will see something like September 2009 again.

We can only speculate as to why policy makers are responding to the financial crisis by increasing regulation of a consolidated financial sector. The most generous speculation is that fewer larger firms are easier to regulate effectively. Easier, maybe, but not more effectively.

We would all be better off if there were no firms that were Too Big To Fail. So, let’s provide a strong incentive for them to voluntarily split themselves up into little, more efficient pieces. The easiest way to do this is to apply an onerous tax on any firm considered Too Big To Fail.

This would be equivalent to overpricing the Too Big To Fail insurance. If the insurance is overpriced, no one will buy it. Instead, they will divide themselves up into several smaller, hopefully more specialized, firms.

Implementing such a tax would be very easy to do, and it would be far cheaper than the alternatives. We need to get on with it before another crisis comes our way.

Bill Watkins is a professor at California Lutheran University and runs the Center for Economic Research and Forecasting, which can be found at clucerf.org.

Central Banking: Feds Rule The Game

Matthew Stevenson — Thu, 08 Oct 2009 00:01:01 -0400

In mid-September President Barack Obama mounted Theodore Roosevelt’s bully pulpit and railed against market greed to an audience of corporate tycoons. The objects of his derision included, and were limited to, bankers, financiers, and speculators in the 'private' financial community. Notably absent from the enemy bankers list were quasi-government banking corporations and America’s central bankers.

Needless to say, the Wall Streeters convened in New York’s Federal Hall sat on their hands, perhaps wondering what had happened to the options that they underwrote for the Obama presidency when they passed around his campaign contribution hat to chip in $700 million.

To hear President Obama’s version of recent financial history — echoed both by demonstrators and summiteers at Pittsburgh’s G20 jamboree — rapacious speculators and freebooters hijacked otherwise innocent American investors, stuffed their portfolios with inflated or worthless mortgage-backed securities, paid themselves huge bonuses for the effort, and then left the mess to be cleaned up, to use a George Bushism, by “the good folks in Washington.”

The September New York meeting should have made for a compelling prime-time encounter session: Progressive president takes on the robber barons. After all, voters are leery of health care reform partly because they feel that, despite good intentions, their government has already bet the ranch by bailing out the banks.

Such are the mixed metaphors of the Obama presidency that there is a constituency that cannot tell if he is a creeping socialist (too many public options) or a Wall Street front man (making the world safe for Goldman Sachs). Nor is there much consensus around the proposals to cap the bonuses of corporate hierarchs, even those who bled their companies dry.

Certainly it seems odd that, after a global collapse of so many markets, President Obama cannot ignite a bonfire of the vanities at the head of Wall Street. After the recent speech, the corporate Medicis dismissed the need for comprehensive financial regulations and justified their bonuses much the way Babe Ruth once explained why he was paid more than the President (“Well, I had a better year”).

The reason the U.S. administration does not get more traction with the panegyric of financial outrage is that many Americans now see little difference between the speculators on Wall Street and those running the government in Washington.

After all, the biggest bets on sub-prime were made at two quasi-government corporations, Fannie Mae and Freddie Mac, and many of the bailed-out corporations earn their daily bread floating and trading U.S. government securities. In that sense, Wall Street treats President Obama as a cranky client, someone who often complains about the fees and commissions, but who has few alternatives to discount his paper.

Teddy Roosevelt was able to take on corporate interests because, during the early 20th century, the U.S. government wasn’t in the banking businesses. President Andrew Jackson had driven a stake through the heart of the Second Bank of the United States, and throughout the 19th century the economy was in private, non-governmental hands.

That private oligopoly was broken with the Federal Reserve Act of 1913, which put the U.S. government in the money game of issuing and regulating the currency.

After 1913, it wasn’t just railroad speculators like Daniel Drew who could water the stock. The regional branches of the Federal Reserve System were also in the business of manipulating prices and values in the American economy. But that does not mean that the regulators always got it right.

One way to read the history of the Great Depression is as a cautionary tale on the fallibility of central banking and the risks of government intervention in a market economy.

That is a thesis of Liaquat Ahamed’s Lords of Finance, an account of the European and American central banks that “regulated” their economies into the failures of the 1930s. He makes the compelling case that the central bankers of Britain, France, Germany, and the United States fiddled with exchange rates, gold parity, currency issuance, and interest rates until the market crash of 1929-30 became the Great Depression of the 1930s.

Central banks are, he asserts, above all political and not economic machines, and that for much of the early twentieth century, the government bankers never had “much of a year.”

Leading up to the Great Depression, Britain pegged its currency to gold at too high an exchange rate, which led to collapse as traders relentlessly exchanged weakening pounds for Bank of England gold. France (like China today) played the game of low exchange rates, and subsidized its exporters with a cheap French franc, which undercut the European competition and hampered Germany’s re-integration into Europe.

For its part, the United States insisted that France and England repay its war loans, which, indirectly, kept the economic pressure on Germany, which owed billions in reparations to the former Allies. And the German central bank, at various moments, chose to lessen its debt load with runaway inflation, which wiped out not just interest payments, but savings accounts and democratic government.

In many ways, in steering the U.S. economy away from Great Depression, Part II, the Obama administration is facing the same dilemmas that confronted the Bank of England, if not the German government, after the 1929 Crash. Although the U.S. dollar is not pegged to gold, it is fixed to an artificially high standard of American living, which is supported with massive debt at all government and household levels.

To pay off these obligations, the government can let the dollar sink, which will subsidize exporters, but infuriate foreign creditors, such as China. This route would also prime the pump of inflation, which is a tax on savings and a gift to debtors, such as the indebted U.S. government.

Or Washington can push a strong dollar policy, which our allies and creditors would prefer. But that will make the United States a poorer nation, as national wealth and assets will need to be transferred to pay off the borrowing binge.

Little did President Obama acknowledge, when he stood at Federal Hall in the shadow of George Washington’s first inaugural, that the speculator he should have been denouncing was none other than the government that he heads. This does not excuse the self-congratulatory bonuses of Wall Street punters or the failures that they engineered, and which President Obama papered over with bailout money and stimulus packages. But it does suggest why few in the crowd, or the electorate at large, cried “bully” when he was finished. They are in the same game.

Can Silicon Valley Attract the Right Workforce for its Next Turnaround?

Tamara Carleton — Tue, 06 Oct 2009 23:37:56 -0400

In less than 30 years, Silicon Valley has rocketed to celebrity status. The region serves as the top magnet for innovation, often occupying the coveted #1 position of global hot spot rankings. More of an informal shared experience than a physical place, Silicon Valley capitalizes on being centrally located in the San Francisco Bay Area, a broader regional zone that is an economic powerhouse.

Keeping this leadership position requires constant transformation. The region has weathered and reinvented itself through previous downturns. These next few years, in the wake of what some have termed the Great Recession, will provide another test of economic recovery and relevance.

Based on a recent in-depth research study of global innovation networks, several elements will be essential to the future success of the Bay Area. Two critical but often overlooked factors are specifically community colleges and local demographics. Both are tied directly to people.

Almost any conversation of innovation assumes that the top research institutions are prerequisites. Boston has MIT and Harvard; the Bay Area has Stanford University and the University of California at Berkeley. One university professor said frankly, “Stanford is part of what the outside world sees as part of the Silicon Valley secret.”

These tier-one universities do play a critical role within the local economy, receiving the greatest doses of federal research dollars and enjoying their pick of top young talent. They also soak up the spotlight, so much so that the tiers below them are often ignored by local policymakers.

This elitist mentality dominates the top of the Bay Area food chain. An eminent faculty leader of a biotech institute was astounded when asked about the role of the other local schools for regional growth. He remarked, “We are more focused on the entrepreneurs than the foot soldiers. We kind of believe that [latter] part will take care of itself.”

This kind of thinking is delusional. In truth, community colleges provide the bedrock for the region’s university ecosystem. They channel bright students up the local educational chain, helping train and transfer them to the upper tiers. Within the Bay Area, the Foothill-De Anza Community College has served a diverse student body, which includes a combination of younger, older, and re-entry students, for over 50 years.

In particular, community colleges serve as a gateway to ambitious foreign-born talent. Foothill-De Anza admits more international students than any other community college in the U.S., notes Peter Murray, Foothill’s Dean of Physical Sciences, Mathematics and Engineering. Many of these students from outside the U.S. seek a natural entry to Silicon Valley. Once on a student visa, they aggressively pursue their career interests, often transferring to another state school, such as Stanford or the University of California system, to finish their degrees and join the local workforce. Others gain critical technical skills – such as in database management or bioinformatics – critical to operating sophisticated, technology-based companies.

The community colleges also learn to do more with less. Although state-assisted, Foothill-De Anza funds students at a relatively low rate of $4019 per student, even compared to other national community colleges that average $8041 per student, according to Community College League of California statistics. This is far below what it costs to send students to Berkeley or Stanford.

Most recently, the school’s administration has faced painfully deep state budget cuts, re-juggling curriculum priorities and teaching staff loads. They adjust by being flexible. The community college system recently announced a partnership with the University of California at Santa Cruz with ambitious plans to build a new billion-dollar multi-university campus at the NASA Ames Research Center. Carnegie-Mellon University in Pittsburgh and San Jose State University in San Jose, Calif., have joined the unique venture that mixes private, public, and industry spheres.

The new campus will include a new School of Management, major science laboratories, engineering facilities, classrooms, and homes for 3,000 people on 75 acres. The backers are hopeful that this will lead to a “sustainable community for education and research.” If all goes accordingly to plan, this university will offer a new model of education that combines the best of a local community college, local metropolitan school, two universities at a distance, and a strong industry partner.

Education constitutes only one part of the region’s human capital outlook. Local population trends can reflect the overall strength of the workforce and its ability for continued growth. On a more fundamental level, innovation efforts rest on people who start and grow new ventures. By understanding current demographics, you garner strong hints for future gaps and issues.

Looking just at Silicon Valley, the area’s population grew modestly by 1.6% to a total of 2.6 million residents for 2008, according to the latest Silicon Valley Index. Compared to California and the U.S., Silicon Valley’s population consists of fewer children and more people between working ages (25–64). This combination bodes well for work productivity, but also indicates that many who start families soon drift to other states to raise the next set of young workers.

Silicon Valley does better attracting and retaining foreign talent, who seek new opportunity and prosperity. AnnaLee Saxenian, a dean at the University of California at Berkeley, considers this global migration and circulation to be critical in maintaining regional advantage. Foreign immigration has driven Silicon Valley’s population growth. Looking solely at U.S. Census data estimates for the period of 2000 and 2003, foreign migration to the metropolitan cluster of San Francisco, Oakland, and Fremont rose by 10 percent each year, while domestic migration dropped by nearly 14 percent on average.

Another good sign is that foreign students, particularly those receiving degrees in science and engineering, continue to stay higher in Silicon Valley than other U.S. regions. Unfortunately, when the student visas end, many of these bright workers, who would otherwise stay in the area, take their skills and dreams back home.

More worrying, college graduates – both foreign and domestic – are leaving the region on their own volition. No city in the greater Bay Area sits in the top 20 list of places to work after college. If American youth are relocating to other areas, then the region may be destined to simply age in place. Local parents in my recent research study simply did not make the connection that nearly all their grown children lived elsewhere – and what that implication entailed for long-term regional vitality.

Part of this difference in understanding can be explained by generational biases. Each generation brings a dominant set of traits that shape the tone and direction for local innovation. Baby Boomers (born 1943–1960) are focused on their own pursuits. Even when retired, Boomers stay active as consultants and independent contractors, partly to offset decreased life savings as well as enjoy a self-sufficient lifestyle. Often criticized for being narcissistic, they can help to influence innovation activities for others through policy and funding decisions. A senior research policymaker said emphatically, “What are we going to do for the generations out ahead of us? That’s what I care more about than anything.”

Generation X (born 1961–1981) is the most entrepreneurial generation in U.S. history, but the smallest in size, so policymakers easily overlook them. Certain tensions exist with the prior generation. Research from Neil Howe and William Strauss show that the Boomers are increasingly resisting the decisions made by Gen X to the point of overlooking their contributions in favor of the next generation.

This is a drastic mistake for two reasons. First, the average age for a U.S.-born technology entrepreneur to start a company is 39, which sits squarely in Gen X. This generation has already become the primary engine for Silicon Valley. Second, this generation has the best academic training and international experience in American history. They may be small in their weight class, but Gen X packs a hefty punch overall. The challenge will be for the Bay Area to retain this population group, as their family and career needs shift.

In contrast, the Millennials (born 1982–2005) are generally focused on social bonding, authority approval, and civic duty – attributes that may make parents happy, but do not usually drive new economic growth. As the largest generation in American history, they are proving to be massive consumers of technology and social advocates. By and large, Millennials steer away from high-risk ventures, preferring community-oriented activities, and they bring a different set of demands to the Bay Area.

In the innovation lifecycle, if Boomers serve as advisors and Gen Xers as the entrepreneurs, then the Millennials could provide potent networkers. Each plays an essential role in regional growth, and all frequently vote with their feet. The critical question is whether the Bay Area is positioned to retain the right workforce mix to harness its next turnaround, or whether the dynamism will shift to other regions both in America and abroad.

Tamara Carleton is a doctoral student at Stanford University, studying innovation culture and technology visions. She is also a Fellow of the Foundation for Enterprise Development and the Bay Area Science and Innovation Consortium.

Mexico's Real War: It's Not Drugs

Joel Kotkin — Tue, 06 Oct 2009 00:35:52 -0400

Balding, affable and passionate, Uranio Adolfo Arrendondo may not be a general or political leader, but he stands on the front lines of a critical battle facing Mexico in the coming decade. This struggle is not primarily about the drug wars, which dominate the media coverage--and thus our perceptions--of our southern neighbor. It concerns the economic and political forces stunting the aspirations of its people.

For the past 36 years, Arrendondo's small family-owned school, Liceo Reforma Educativa, where he is principal, has served as an incubator for Mexico City's aspiring middle class. Modest and reasonably priced, the school has offered small-business owners, professionals and mid-level managers a way to propel their children up the economic ladder.

Yet today Arrendondo finds many parents lacking the resources for even a modest alternative to Mexico's troubled state-run schools. "The middle class in Mexico is going down," Arendondo told me in his office by the courtyard of the brightly painted school in the largely lower-middle-class Iztacalco, one of Mexico City's 16 diverse delegaciones, or boroughs. "The middle class is predated by both the super-rich and the criminal poor. We are squeezed in the middle of the sandwich."

This predicament is not unique to Liceo Reforma, which has some 245 students. Data from the Asociacion Nacional de Escuelas Particulares estimate that as many as 400,000 people have pulled their children out of small private schools over the last few years, placing them instead in the generally much inferior public ones.

This is just one sign of a worrisome trend toward downward mobility, greatly exacerbated by the economic crisis. And it is all the more painful, as it represents a reversal of progress toward an expanding middle class in the 1970s and 1980s. In those decades, Mexico--spurred by its energy wealth and an expanding industrial base--was finally beginning to break away from its age-old pattern of being a society dominated by a few rich and many very poor.

To be sure, Mexico City's sprawling expanse still exhibits this legacy of upward mobility. A good number of the capital's 20 million people can be seen crowding elegant shopping centers, driving late model cars and eating in crowded restaurants. With the elegant Polanco, not far from the central district, lovely Lomas de Chapultepec, or sprawling, ultra-modern Santa Fe, Mexico City can seem very much a first-world city.

At the same time, however, much of it--including lower-middle class Iztacalco--needs considerable repair. The root of the problem lies in demographics. Although Mexico's population growth has slowed, labor-force growth still outpaces economic fecundity. Victor Manuel, director general of a leading high-tech institute in Mexico City, estimates the country's gross domestic product needs to grow at 7% annually to produce the 2 million new jobs needed each year to keep up with labor-force growth. Over the past decade, that growth has been roughly 3%, and last year declined by as much as 7%.

In the immediate future, many economists expect Mexico's recovery to lag that of both the U.S. and its Latin neighbors, particularly Brazil and Peru. The most recent survey of expectations among industrialists conducted by Canacintra, a leading national business chamber of manufacturers, found more than half expected conditions to get worse, 10 times as many who expressed optimism.

The sluggish economy has had its most dramatic impact on the poor, who constitute upward of 25% to 30% of the population. In contrast to earlier decades, their ranks may now be growing, suggests Alfonso Celestino, a social scientist who works for the government of the sprawling Districto Federal, which includes Mexico City. "Mexico is a first-world city, but large parts are like third-world African cities," he asserts

Particularly notable has been the growth of the so called "misery suburbs" or pueblos nuevos, sprouting in the outer periphery of the city. In these areas, as well as poor inner city neighborhoods, unemployed young people are being "absorbed," as Celestino puts it, into the illicit economy. This burgeoning criminal infrastructure preys directly on the super-rich through kidnappings and their bloody feuds that discourage both investors and tourists.

Yet it is perhaps more dangerous, as violence has grown and poverty increased, that the middle class has begun to recede. Unlike the very poor and the elderly, such families receive little public assistance and often make do by working in the massive "informal economy" that, by some estimates, constitutes as much as 40% of the entire country's gross product.

Even before the economic crash in 2007, large percentages of educated Mexican workers were finding it difficult to get placed in high-skilled jobs. Miguel Angel Juarez Noguez, a junior-high math instructor, graduated with a degree in computer science in 2006, but says few of his friends have found employment inside the information sector.

He believes his parents, both mathematics instructors, enjoyed far better prospects than he and his family--including two children--now face due to a weak job market and rising cost of living. "Today" he suggests, "you need more education to get less."

These problems have been exacerbated by the deep recession in the U.S., whose market created many relatively high-paying industrial and technical jobs. Meanwhile, workers remittances from Mexicans in the U.S., the second-largest source of income for the country after oil, have begun to dry up.

Many discouraged Mexican immigrants have returned home, notes Celestino, but they find few employment opportunities. And Mexico's border boomtowns, which once offered considerable opportunity, are now suffering not only from the American recession but from the shift of production to China. Coastal communities have been decimated by a decline in tourism, a result not only of the recession but also of concerns over violence and swine flu epidemic.

Ultimately, many concede that the basic problem lies not in the outside world but in Mexico itself. Although much can be said for greater transparency and economic liberalism under the current PAN government, most believe the entrenched system of crony capitalism has been barely affected by the political change.

This system--where bribery is commonplace and connections are necessary to build even a small business--stymies growth by undermining innovation, notes technology entrepreneur Victor Manuel. "People come back from schools, or from the United States, with all sorts of skills and money," he notes, "but there's no system here to create an economy they can contribute to."

Such frustrations are heightened by a sense that other countries--notably the BRIC nations of Brazil, Russia, India and China--are rushing ahead while the once-promising Mexico falls behind. These countries appear to be tapping their human and material resources more efficiently and strategically than Mexico. "There is no vision from the state," Manuel says, echoing a common refrain.

Edgar Moreno, a 37-year-old M.B.A. who currently works for Hewlett-Packard at the ultra-modern Santa Fe district southeast of the city, agrees that political dysfunction is the main impediment to progress. Corruption and inefficiency hamper the development of the nation's potentially huge energy resource, and that's one reason why Mexico lacks the capital to develop new enterprises. Real interest rates for entrepreneurial ventures start at 12%.

Moreno's own ambition, to develop renewable fuels based on sugar, corn and other crops, is also held back by bureaucratic obstacles that discourage such ventures. "It's not the location of the country that keeps us from developing the way we should," he points out. "It's the laws, the framework, how the government does things. Mexicans have lots of ideas and a lot of interests, but the system is stacked against us."

The surge in drug violence--over 7,000 died just last year--adds to the perception that Mexico may be on the verge of becoming a "failed state." Mexican author Enrique Krauze believes the crime wave constitutes Mexico's "most serious crisis" since the bloody 1910 Revolution, an upheaval that cost more than 2 million deaths.

Yet, however terrible the violence, Arrendondo believes the decline of the middle class and upward mobility presents Mexico with a more lethal, long-term threat. The parents of the Liceo's students, he argues, may not "take up a pistol" like their forebears a century ago but might embrace a return to the anti-American authoritarianism and protectionism of the past.

This would not be good news for America. Mexico stands as our second export market, well ahead of China. Mexicans are also our closest cousins in terms of blood--four in 10 claim to have relatives in the U.S.--and our tastes in food, music and culture increasingly converge.

This suggests that what happens to the kids and their parents at Liceo Reforma Educativa matters to us as well. A thriving Mexico would need to send us less of their poor and could buy more of what we produce. Mexico's fate has at least as much relevance to our future as developments in Iraq, Afghanistan, Europe or even China, where our media and politics focus most of their attention.

"These kids' parents are struggling with opportunities lost and destroyed," Arrendondo told me. "We have to change that. Mexico has to become a place where opportunities are created for kids like these. That's the most important thing to determine the future."

This article originally appeared at Forbes.com.

On Cities, GHG Emissions, Apples & Oranges

Wendell Cox — Mon, 05 Oct 2009 00:40:33 -0400

Every day or so a new greenhouse gas emission report crosses my desk. Often these reports are very useful, other times they add little of value to the subject. The problem is separating the “wheat” from the “chaff.”

This dilemma is well illustrated by a paper called “Greenhouse Gas Emissions from Global Cities,” authored by 10 academics. I had received notification of the paper from Science Daily, a useful website that provides notification of new research on a wide range of scientific subjects.

The Science Daily article indicated that Denver produces the most greenhouse gases per capita annually, while Barcelona produces the least. I am always interested in reports that compare the performance of “cities,” both out of general interest and because of the gross errors that often are the result of invalid comparisons. So, immediately I ran down the report, and to my surprise the report dealt with only 10 “cities.” This seems rather a small number, since the smallest in the sample, Geneva, is not even among the top 700 urban areas in the world. This seems to be a rather incomplete sample: 10 out of more than 700.

That was just the beginning. There were serious problems of comparison between the 10 “cities.” Whenever someone starts talking about “cities,” it is best to ask what they mean. The word “cities” has so many meanings and is subject to such confusion that I generally avoid using it.

“Cities” might be municipalities, such as the city of New York or the ville de Paris.

Cities could be urban areas (urbanized areas or urban agglomerations), which are the urban footprints one observes from an airplane on a clear night.

“Cities” could be metropolitan areas, which are labor markets and are generally larger than urban areas, because people commute from rural areas (outside the urban footprint) to work in the urban area.

In nearly the entire world, with the exception of China, urban areas and metropolitan areas are larger than municipalities.

Or, “cities” could be used in the sense of Chinese prefectural, sub-provincial or provincial level cities, which tend to be far larger than any reasonable definition of a metropolitan area. Nearly all of China is divided into cities, in the same way that most of the United States is divided into counties.

These Chinese “cities” themselves often contain county level “cities” that are separate from the principal urban areas.

These differing definitions of municipalities make any international comparison of these entities difficult and often misleading. The ville de Paris represents barely 20 percent of the Paris region. The “city” of Atlanta represents barely 10 percent of its metropolitan area. The “city” of Melbourne represents only 5 percent of its metropolitan area. Yet, other “cities” are larger than their metropolitan areas, such as Chongqing, China, which has at least five times the population of its genuine metropolitan area (the “city” covers an area the size of Austria or Indiana). The city of San Antonio, with its vast stretches of suburbanization is surely not comparable to the city of Hartford, which is dominated by an urban core.

Any genuine comparison of “cities” must be at the metropolitan area or urban area level. These definitions both represent the city as the organism it is, rather than simply the happenstance of municipal boundaries. Of course, comparisons must be either between metropolitan areas or urban areas to be valid. It will not do to compare metropolitan areas with urban areas; they are as apples and oranges. Moreover, there are no international standards for delineation of metropolitan areas, which makes metropolitan comparisons more complex.

All of this raises the principal problem with the “Global Cities” paper. There is no consistency to the city definitions the paper uses and its results are thus meaningless (though “headline grabbing”). For example, “Global Cities” uses the geographic areas of the following barely comparable “cities”:

The municipality of Barcelona, which represents less than one half of the urban area and excludes the expansive suburbs that stretch in every direction but the Mediterranean.

The municipalities of Bangkok, Denver and New York, which are only parts of their respective metropolitan or urban areas.

The municipality of Cape Town, which could be considered a metropolitan area because of the large expanse of rural area under its jurisdiction.

The canton (province) of Geneva might probably qualify as a metropolitan area, except that it excludes the suburbs in France, from which virtually free movement of labor is permitted.

The Greater London Authority which is nearly co-existent with the London urban area, while Prague as the report defines it is somewhat larger than its urban area.

The Greater Toronto Area which meets none of the “city” definitions above and is larger than both the metropolitan area and the urban area as defined by Statistics Canada.

Los Angeles County, which meets none of the “city” definitions and is part of the larger Los Angeles-Orange County metropolitan area.

All in all, as charitably as it can be put, the “Global City” compares four municipalities, three metropolitan areas, two urban areas, one area larger than a metropolitan area and one that is part of a metropolitan area. Put another way, it tries to make comparisons between four apples, three oranges, two peaches, one banana and one sweet potato.

Granted, the paper indicates the geographical definitions it uses. That, does not, however, change the fact that treating apples and oranges as comparable is simply invalid.

There are other problems with the “Global Cities” paper, but one more is enough. In the obligatory fashion, the authors stress how important it is to adopt “smart growth” policies in North America. They cite a US Department of Transportation study to indicate that a doubling of density reduces vehicle miles traveled by 40 percent.

A bit closer reading would have indicated that the study says doubling density would reduce new vehicle miles by 40 percent, where population densities are already 6,000 to 7,000 per square mile. Only two large urban areas in the United States have densities that high, San Francisco and Los Angeles (which the authors characterize as having urban densities at least 40 percent below the US Bureau of the Census number for the Los Angeles urban area). A 40 percent reduction in “new” vehicle miles means that overall vehicle miles traveled increase 60 percent when the population is doubled, rather than 100 percent. Thus, even with the high density qualification in the US Department of Transportation study, vehicle miles would increase 60 percent as population densities double.

Maybe tomorrow will bring a better report. One can always hope.

Photograph: The “city” of Chongqing (part of its vast rural countryside)

Germany's Role in the Green Energy Economy

Fri, 02 Oct 2009 21:37:59 -0400

Germany likes to brag about its green credentials. It is a source of pride and it is justified to a certain extent. The country, which is located on the same latitude as Canada, had the largest number of installed solar panels as of 2007.

The key to growth clearly has not been abundant sunshine, but massive subsidies. Germany sponsors its solar industry with generous tax credits that take the form of feed-in tariffs, i.e. payment above the going market rate for energy from renewable sources like solar panels, it can run anywhere from twice to three times the market rate for a conventionally produced kilowatt. These tariffs can run high. They are being lowered slowly but perhaps a bit too slowly. As we have recently seen with the disasters impacting Spain’s renewable energy industry, dependence on subsidies can create a potential catastrophic downturn once the spigot is turned off.

Would a similar model be appropriate for sponsoring renewable energy in the US? Probably not, in large part the technology is already developed. The Germans and now the Chinese have already subsidized their industries. The legwork has been done and anti-greenhouse legislation will sustain the market without massive subsidization.

The first factor is that most of the investment in research and development has created the pre-conditions for grid parity within the next few years for southern countries. Even Germany will achieve it by 2012 according to the German business newspaper Handelsblatt. The economies of scale are sinking unit costs dramatically and production technologies like thin film are allowing solar cell manufacturers to produce ever more efficient panels with less and less silicon. Several silicon production plants are set to come on line in China soon.

The US, whose fiscal situation is parlous compared to China and even Germany, wants to waste years developing already available technologies from scratch. It could try the European approach but would probably be much better off to follow the same path that it followed with the automobile or the motion picture: allow other countries to get the basic technology in place and concentrate its exceptional energy on marketing and scaling up the technologies from abroad.

China’s entry into the market seems destined to create a dramatic collapse in the price of what was until a few years ago essentially a cost plus industry. China has low labor costs and inflation busting economies of scale. China’s entry into the silicon wafer market already has depressed prices for the once dear raw material. They are also working on a massive power plant with First Solar of the United States.

Some are predicting that China’s entry into the renewable energy market will have the same effect as its entry into the consumer electronics market, i.e. it will make the expensive affordable and then cheap. German solar cell production companies have suffered much like its chip producers but to the general benefit of the economy. China will drive production costs further down. Germany is still coming to terms with this.

A recent article in Die Zeit illustrates the growing discrepancy between renewable energy policy and the market potential. The feed-in tariffs have the perverse effect of making solar energy far more expensive than it actually needs to be. The government subsidies are essentially shielding domestic producers from China making the consumers pay the higher rates. Germany needs to focus on its traditional strengths in producing industrial machinery and carve a niche for itself. The US would be better off to maintain trade relations with China and let Adam Smith’s invisible hand work its magic. It would be far cheaper than trying to use protectionist measures to protect domestic manufacturers.

All this is predicated on the assumption that the price of oil will only increase in price in the coming decades as China and India motorize their masses. This in turn will drive up conventional power costs. Even at its current price of around $70 a barrel, oil is still 7 times more expensive than it was just a decade ago. Some are predicting that that last year’s prices of almost a $150 a barrel represent a taste of what will confront the world when the economy begins to grow again

This, however, will be a gradual process, based on undulating prices. The hysterical claims of Peak Oil have been delayed again and again by technological improvements. The latest finds off of Brazil and the Gulf of Mexico represent dramatic examples. Massive new gas reserves in North America represent another countervailing force. In the end, fossil fuels will be more expensive, but they will make renewable energy more competitive only at reasonable price points.

Politics will also play a role. Climate change and the perceived need to combat it has gained enormous currency among world leaders including German Chancellor Angela Merkel. Regardless of what one thinks of the arguments calling for action, we will probably see some sort of carbon tax in the future, whether it be cap and trade or some other means of increasing the costs of carbon emissions. Conventional fuels like coal, oil, and natural gas are only going to get more expensive for political if not economic reasons. The growing consensus, regardless of its veracity, is set to create huge costs for non-renewable sources of energy.

Over time, this will make renewable energy more attractive and unit costs will shrink as economies of scale start to kick in. The European cheerleaders of climate legislation are not doing it out of the goodness of their heart. They want to see a return on the billions spent on developing renewable technology. The US would be ill-advised to simply try to create technologies that are already up and running. Take the technology, commercialize it and thank the Europeans for footing the bill.

The US would be well advised to keep their renewable energy markets open. The Europeans will come and are coming. The solar energy trade fairs in Germany focus on the immense potential available in the US market. Several large German producers are expanding aggressively on the American market bringing with them the technologies that they have created. China will also start to flood the market with cheap silicon wafers and further reduce solar panel costs. The US does not need to subsidize this technology lavishly. It simply needs to allow the companies that have it to sell it on their market. The initial support provided by countries like Germany was more than enough to get the technology to the point where it is ready to survive on the free market.

Kirk Rogers resides in Bubenreuth on the outer edges of Nuremberg and teaches languages and Amercan culture at the University of Erlangen-Nuremberg's Institut für Fremdsprachen und Auslandskunde. He has been living in Germany for about ten years now due to an inexplicable fascination with German culture.

Crash in High-end Real Estate or a Roller Coaster Recession? :

Fri, 02 Oct 2009 01:20:13 -0400

During the first ten days of October 2008, the Dow Jones dropped 2,399.47 points, losing trillions of investor equity. The Federal Government pushed TARP, a $700 billion bail-out, through Congress to rescue the beleaguered financial institutions. The collapse of the financial system was likened to an earthquake. In reality, what happened was more like a shift of tectonic plates.

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In September 2009 the Fed proclaimed “The Recession is Over.” President Obama said his Stimulus Package saved the US economy and his international actions have “brought the global economy back from the brink.” Vice-President Biden declared, “The Stimulus Package worked beyond my wildest dreams.” I feel so much better. Living in California, I must have missed these events.

If the recession is over, why is unemployment in California 12.2%? (Functional unemployment, the real number, is closer to 16%). In decimated areas like the Central Valley, unemployment is at Great Depression levels of 26%. If the economy was saved, why do our homes continue to lose value? And it is not just “our homes” that are impacted. Treasury Secretary Timothy Geithner was forced to rent out his Larchmont, N.Y., home after it failed to sell. President Obama’s Chicago home, purchased for $1.65 million with a $1.3 million jumbo mortgage at the height of the real-estate bubble is now worth less than $1.2 million according to an estimate by Zillow.

The recession may be over but Americans are now experiencing The Roller Coaster Recession. Like a roller coaster chugging its way up to the top, home values climbed between 2002 and 2007. Beginning in the fall of 2007, home values declined, first slowly but inexorably until they bottom out and began to climb again. Have we bottomed out? The Atlantic screamed, “Home sales soared 11% in June”.

Not so fast. Like the cars in a roller coaster, the first cars will begin to climb out while the last cars are still screaming downward at top speed. The Commerce Department reported sales in August rose a tepid .07% in August. What they did not highlight is that new home sales of 429,000 are at historical off the chart low compared to the last 50 years (see chart below).

Such is the case with the Roller Coaster Recession. In California’s roller coaster ride the first car, The Inland Empire, crested the top in 2007. When pink slips were issued, these homeowners did not have deep pockets to sweat it out. All of their savings had been plowed into their down payment. When values declined, they had no staying power. They were gone in the first wave of foreclosures.

Meanwhile, the rear car, Coastal California, continued to climb in value seemingly immune to the problems inland. The reason was staying power. The residents of tony Corona Del Mar were able to dump their third car, the Range Rover to keep solvent. When that ran out, Coastal California tapped their savings and finally used their equity lines to maintain their high mortgage payments while they waited for a buyer. But it is 2009 and the buyers have not materialized. More Jumbo Loans are falling behind in their payments. Watch the 60-day delinquency rate on prime Jumbo Loans. According to First American Core Logic, Jumbos in default jumped to 7.4% in May versus 4.9% for conforming loans

Like our proverbial roller coaster, now it’s the turn for the first cars to rise. As the Inland Empire seems to have bottomed, Coastal California is still racing downward. There are 200 homes for sale between $1.5 and $3 million in ritzy Corona Del Mar. Even with a hefty 25% down payment, a $2 million property will require a $1,500,000 mortgage. Today’s lenders will require proof that the borrower can afford the $7,500 per month mortgage payment. They will demand a W-2 or 2008 tax return showing at least $22,500 per month in income to support a 30% housing expense ratio.

The reality is there simply are not enough buyers earning $250,000 per year to buy up the 200 homes in Corona Del Mar. The current inventory will take 17 months to sell out but, as the recession continues, more homes are posting For Sale signs each month. Coastal California has not yet seen their bottom and they are still heading down at a rapid pace.

Our national leaders may proclaim the end of the recession, but Californians have no reason to party. The Stimulus Package that shipped $50 billion to California was a one-time windfall that delayed but did not end California’s structural $26 billion budget deficit.

Add to that the “Mortgage Armageddon” that is scheduled to hit next February. As the sub-prime mortgage defaults subside, the Option ARMS (adjustable rate mortgages) and Prime ARMs will begin to reset in early 2010 (see chart). This is not a working class but primarily a middle and upper-class problem. It is more a coastal than inland crisis; in New York terms, more Larchmont and less exurbia.

There is a problem, however, with dinging the rich. They are the very folks expected to spend in our consumer-driven economy and invest in new ventures. If they have to re-route more dollars to mortgage payments, they not going to be able to help the economy.

The Roller Coaster Recession will see more rises and dips before a sustainable recovery comes to California and other high-priced marekts. Those in the first car, like The Inland Empire, have nearly completed their ride. Any remaining dips will be minor in drop and brief in duration. But the genteel folks in the last car, in places like Coastal California, have another precipitous drop in front of them. This may come as a surprise to those believing the headlines that the recession was over. The wild ride for many is hardly over yet.

***********************************

This is the fourth in a series on The Changing Landscape of America. Future articles will discuss real estate, politics, healthcare and other aspects of our economy and our society.

Robert J. Cristiano PhD is a successful real estate developer and the Real Estate Professional in Residence at Chapman University in Orange, CA.

PART ONE – THE AUTOMOBILE INDUSTRY (May 2009)
PART TWO – THE HOME BUILDING INDUSTRY (June 2009)
PART THREE – THE ENERGY INDUSTRY (July 2009)

Homebuilding Rebound… Or Boredom in the Burbs?

Rick Harrison — Thu, 01 Oct 2009 00:48:56 -0400

The economy might come back – but will the housing market return? And in what form?

Right now, builders are jumping into the low end of the market because of the $8,000 first time home buyer tax credit. This tax credit cannot survive indefinitely. Compared to homes sold in 2006, today's are bare bones in size, materials and finishes in response to current, temporary market conditions. But the scrimping only makes the homes built in yesterday’s developments more attractive to potential buyers. The next wave of home buyers will have a choice: stay where they are, move to a more recently built (devalued) home, or buy new.

Here's a rundown on the major factors — and the forces on them — that will guide home buyers in their decisions. It's also a rundown for any community, planner or developer — government or private sector — who would like to see the market rebound.

Lot Size: Will buyers want to be shoehorned into new compressed development, or will they prefer to remain in the larger lot suburbs, where there are plenty of bargains today with usable yards and at least some views?

The administration is pushing for compact (very dense) development, something the home buying market historically finds less desirable. If one hundred residents of a subdivision were asked the square footage of their lot, few would know the answer (more would be aware of their house's square footage). Homes placed close to the street guarantee a claustrophobic feeling of space. Space is defined by that object that stops viewshed – typically a home, wall (fence) or low vegetation.

Density is increased by the creation of narrower lots (and homes). When the lot narrows either the square footage of the house must plummet, or the home must get deeper. Assuming that facing directly into the home next door is not a quality view, the percentage of wall space that allows windows with a good view becomes very small as the home narrows.

To illustrate, take a business card and look especially at the long edges. The shape emulates the rectangular perimeter of a typical suburban home built in the past few decades. Now imagine nice front and rear yard spaces with plenty of wall surface for windows, even with a garage taking up a portion of the front.

Along comes the anti-sprawl movement pushing narrower lots, and making those on City Councils and Planning Commissions feel guilty about destroying the planet. Across America over the past two decades lots have been getting smaller – in some cases much smaller. Now take that business card and rotate it 90 degrees. This would represent the shape of a typical suburban home today.

Huh. Wouldn’t all those side windows now look into the neighbors home? Well, windows now are placed along the short side of the home. What about the garage? Well, typically that’s still along the front, but since cars did not suddenly get 33% narrower, occupants just lost quite a bit of precious viewing area. Density went up by 33% but useable yards went down by 33%.

Today we are building with much less width than we did during the past few decades. Yet the environmentalists and press do not seem to have taken notice.

What is most likely coming down the road?

Miniscule, very narrow lots combined with vertical growth. To illustrate, cut that business card in half. OK, so there goes the square footage right? Take one half and place it on top of the other. Well, it’s likely that the home was already two story, so that means three stories right? How much do you like climbing stairs? Better buy stock in residential elevator companies. So how do you park cars in this very narrow lot? If you do not want the street to appear as a solid wall of garage doors, then the only way to provide garage space is a single width garage, two stalls deep — another inconvenience — or a two car garage in the rear… but there goes any attempt for quality rear yard space.

Architecture: Suburban homes have been looking pretty bland for the past few decades. Slapping on a front porch (most are the size of a stoop) really doesn’t make that much difference.

Blame architects? An AIA registered, certified, artistically talented architect was not likely involved in the design process of the mass market home. It's far cheaper to let Harry down the street (nephew of what’s his name) to draw up plans. How do you think many small home builders get financed? If they go to a lumber yard and select from a series of home plans, they can get a package deal; materials and financing furnished by the same source, standard packages from which to choose. Any wonder why 30 home builders in the same town seem to all build the same character-free house?
Did the lumber yard hire a talented architect to gain advantage in the local market? What incentive do you think the supplier of the materials would have to actually be efficient in the drafting of the home? Excess material means increased profits!

Homes in suburbia lack character and devalue a community as a general rule, but it's not always the case. For example, in many areas in Texas, housing is affordable and full of architectural character with great landscaping. Builders in the major Texas markets know that if they shortcut curb appeal, nobody will clamor to their door. The local home buying market is astute… and today's strongest home market.

National large home builders? Most of the nationals expand into an area by buying out a local builder that showed signs of success (see above).

Green: Ask your banker how much green means to the value of a home. Ask the appraisal company, does green add any value? Green certification is commonly messy and difficult, requiring builders to chase points instead of building wisely. Most green standards were inspired by a social engineering agenda. My own certified green home earns me lots of points because I’m near a bus stop and walking distance to a coffee shop. No wonder the financial people don’t take the movement seriously. My residential elevator? Not listed on the “points” system. Home designed to maximize quality viewsheds? No points! We had intended to place a 1 ½ inch foam insulation fill around the entire foundation surface, but a 2 inch minimum was required to earn points . That increased the cost of construction by $900. I’m not an expert in insulation, but it seems I spent 30% more to get a 0.1% benefit on my utility bill – hell of a deal! That $900 extra added to my payments – let’s see with interest, that cost me $5.25 every month… got my point though.

Will the home market flourish when the economy returns?

In the last few weeks I was Keynote Speaker at the Western States Planning Association Annual Meeting and at the North Dakota American Institute of Architects.

Planners and Architects are very different groups. Ever wonder why the neighborhood plan and the architecture of the homes within it rarely seem related to each other? Nobody looks at mass market housing from a perspective of combined architectural spaces as a main component of the overall neighborhood design. The merging of planning and architecture on housing for the masses was well received by both groups.

How will we bring the housing market back?

Not by scrimping and reducing value, but by increasing value through a combined effort of architects, planners, and engineers to create a new era of sustainable communities that increase living standards affordably. Density is not a solution. A revolution in design is.

Rick Harrison is President of Rick Harrison Site Design Studio and author of Prefurbia: Reinventing The Suburbs From Disdainable To Sustainable. His website is rhsdplanning.com.

When Thanatos Beat Eros, Mapping Natural Population Decreases

Richard Morrill — Wed, 30 Sep 2009 01:47:29 -0400

For an advanced capitalist society, the United States has a quite high birth rate, and substantial natural increase. Yet despite this, almost a third experienced natural decrease, an excess of deaths over births, over the recent 2000-2007 period. Some counties with natural decrease still grow in population because of sufficient in-migration, but more typically, natural decrease is associated with high levels of out-migration and with long term population decline.

My first map, Figure 1, depicts counties with natural decrease at five levels, with warm colors marking the higher "rates" (actually here, simply the share that natural decrease is of the base population in 2000), and cool colors lower rates, blue being closest to a balance of births and deaths.

The Great Plains, the part of the country most dependent on agriculture, has led this trend as it has been since probably 1960, with counties from Texas to North Dakota, Montana (and beyond into Canada) experiencing among the highest levels of natural decrease. Others include central Florida, Appalachia, and some interior parts of New England, the upper Michigan to northern Minnesota iron range, and a sizable scatter of counties across the west.

What causes natural decrease? First is a pattern of long term out-migration of the surplus young, who could not be supported by the limited rural economy and other natural resource based industries. Second is the growth of the elderly population from selective migration to amenity retirement areas. Florida is the “flagship” case, but to a lesser degree it occurs in favored local environments in most of the country. Third would be a situation of natural decrease because of unusually high mortality. Fortunately, there is no example of this in the United States.

The geography of natural decrease

First there is a small set of counties with natural decrease, more deaths over births, but still net positive growth due largely to net domestic in-migration (magenta and yellow on the county types map, Figure 2). The bulk of these counties are retirement amenity areas, mostly but not entirely in the Sunbelt, and mostly but not entirely in the south and west. Another even smaller group is characterized by long term declining industry and mining based economies, but also offers affordable housing stock for second homes and later retirement. We see this especially in Appalachia.

The largest cluster of the first type of places covers a swath of central Florida, including such cities as St. Petersburg, Sarasota, Port Charlotte, Melbourne, Daytona Beach, followed by southwestern Oregon, northwestern Arizona (Prescott, Lake Havasu City), central Colorado (west of Colorado Springs), parts of rural Northern California, Wyoming, South Dakota, Montana and Washington state.

The main cluster of the second type, areas with industrial decline that have become amenity retirement destinations, are in Appalachia, especially the North Carolina - Tennessee border area (Great Smokies), selected counties in northern West Virginia and exurban counties around Pittsburgh. A prominent cluster is the Scranton-Wilkes-Barre, Hazleton area of east central PA. Scattered Midwestern examples include places like Hot Springs, Arkansas, 3 counties in Southeast Illinois, along with areas along Lake Superior, parts of Arkansas as well as on the Texas Gulf coast.

The more rural natural decrease counties with net in-migration (215 counties, yellow on the map) tend to occur in the same regions. The two main “belts” of such counties are retirement and resort counties extending from the central Texas hill country through Ozark plateau and lakes, and again parts of Appalachia. Virginia has the largest number of such counties, some just beyond the commuter zone of Washington. Similar areas occur across the far north, characterized by recreation and retirement as well as ex-logging or mining. A third area includes areas in western Montana, popular with California retirees, and a fourth is far northern CA.

Then there are counties losing population from natural decrease and net internal out-migration. Two-thirds (576) of counties with natural decrease experience this expected pattern of long term decline of resource-based economies. Of these 105 have at least a 50 percent urban population (green on the map), but most (471 of all 861) natural decrease counties are predominantly rural (blue on the map).

The Great Plains, from Texas though Dakotas and eastern Montana to Nebrasla represents the largest region for natural decrease and populatiob loss. represents the largest region for such losses. This is quintessential high plains farm belt, which continues to experience mechanization, loss of local businesses and out migration of the young for at least 80 years now. But although the large majority of rural counties with net out-migration (blue on the map) are in the Great Plains belt, significant numbers also occur in the forest and mining counties in Maine, Michigan, eastern Oregon, northeastern New York, and northern Appalachia.

This leaves an interesting scattering of counties from Texas, northern Louisiana, Arkansas, Alabama, and the North Carolina-Virginia border region. These are mainly farming areas, often with significant (35 to 60 percent) Black population shares, largely elderly, areas somewhat “left behind” in the growth of industrialization and urbanization of the south. This is where young Blacks have left for city opportunities, just as young whites have from the prairies and the mines.

What will the future bring?

I examined maps of counties with 0 to 1% natural increase, or with high shares of the population between 45 and 64, which are plausible candidates for a shift to natural decrease, but also looked at counties with 0 to 1 % natural decrease, which are candidates for a shift to natural increase.

The most likely future areas for a shift to natural decrease include many in a wider Appalachian belt, within the greater Mississippi valley from Louisiana to Canada. Hundreds of these counties have the potential to shift to natural decrease by 2025, as the vanguard of the Babyboomers reach 80. The likelihood of the shift does depend on the proximity of the county to vigorous urban and metropolitan areas and on counties’ relative success or failure at attracting retirees. Other commentators have talked of the “slowdown” of migration to and growth of Florida, and the spread of retiree settlement to many other parts of the country. This is already evident on the map, but it is premature to write off Florida’s appeal to retirees, particularly as house prices there have plunged.

There are also forces that may slow, or even reverse, natural decrease. Northward expansion of the Hispanic population will have the contrary effect of raising birth rates and a shift to natural increase. Some areas that have attracted affluent retiree migrants also could experience sufficient investment to foster more general growth.

At the same time, the retirement geography of the massive Baby Boomer cohort has the potential of redrawing the map. But overall, I believe we will see more counties experiencing natural decrease.

This process has now reached around 800 counties. But we will see more of this when the nation approaches ZPG, zero population growth, perhaps after 2050, in many counties

References:
Morrill, Richard, 1993, The spread of natural decrease, FOCUS,43- 30-33
Morrill, Richard\, 1994, Aging in place, age specific migration and natural decrease, Annals of Regional Science, 28- 1-26
Cromartie, John and Kandel, William, 2008 Rural population and Migration-Trend 4,Natural decrease on the rise. Economic Research Service,USDA \
Cromartie, John and Nelson, Peter, 2008, BabyBoomer migration and socioeconomic change in “no growth’ counties. Paper, Rural Sociological Society.
Frey, William,, 2004, Generational Pull, American Demographics
Johnson, Kenneth and Beale, Calvin, 1992, Natural population decrease in the United States, Rural Development Perspectives, 8 , pp 8-15
Johnson, Kenneth
Hull, Victor, Retirement choices stretch beyond Florida. 2006,

Purple Politics: Is California Moving to the Center?

Joel Kotkin — Tue, 29 Sep 2009 00:28:40 -0400

You don't have to be a genius, or a conservative, to recognize that California's experiment with ultra-progressive politics has gone terribly wrong. Although much of the country has suffered during the recession, California's decline has been particularly precipitous--and may have important political consequences.

Outside Michigan, California now suffers the highest rate of unemployment of all the major states, with a post-World War II record of 12.2%. This statistic does not really touch the depth of the pain being felt, particularly among the middle and working classes, many of whom have become discouraged and are no longer counted in the job market.

Even worse, there seems little prospect of an immediate recovery. The most recent projections by California Lutheran University suggest that next year the state's economy will lag well behind the nation's. Unemployment may peak at close to 14% by late 2010. Retail sales, housing and commercial building permits are not expected to rise until the following year.

This decline seems likely to slow--or even reverse--the state's decade-long leftward lurch. Let's be clear: This is not a red resurgence, just a shift toward a more purplish stance, a hue that is all the more appropriate given the economy's profound lack of oxygen.

There is growing disenchantment with the status quo. The percentage of Californians who consider the state "one of the best places" to live, according to a recent Field poll, has plummeted to 40%, from 76% two decades ago. Pessimism about the state's economy has risen to the highest levels since Field started polling back in 1961.

Inevitably, this angst has affected political attitudes. Though still lionized by the national media, Gov. Schwarzenegger's approval ratings have fallen from the mid-50s two years ago into the low 30s. The 12% approval rate for the state legislature, according to a Public Policy Institute of California survey in May, stands at half the pathetic levels recorded by Congress.

Moreover, voters now favor lower taxes and fewer services by a 49-to-42 margin--as opposed to higher taxes and more services. Support for ultra-green policies aimed to combat global warming has also begun to ebb. For the first time in years, a majority of Californians favors drilling off the coast. Californians might largely support aggressive environmental protections, but not to the extreme of losing their jobs in the process.

Remarkably, state government seems largely oblivious to these growing grassroots concerns. The legislature continues to pile on ever more intrusive regulations and higher taxes on a beleaguered business sector. Agriculture, industry and small business--the traditional linchpins of the economy--continue to be hammered from Sacramento.

Agriculture now suffers from massive cutbacks in water supplies, brought about in part by drought, but seriously worsened by the yammerings of powerful environmental interests. Large swaths of the fertile central valley are turning into a set for a 21st-century version of Steinbeck's Grapes of Wrath.

At the same time, the state's industrial base is rapidly losing its foundation. Toyota recently announced it was closing its joint venture plant in Fremont, the last auto assembly operation in the state, shifting production to Canada and Texas. Even the film business has been experiencing a secular decline; feature film production days have fallen by half over the decade, as movie-making exits for other states and Canada.

Most important, California may be undermining its greatest asset: its diverse, highly creative and adaptive small-business sector. A recent survey by the Small Business and Entrepreneurship Council ranked California's small-business climate 49th in the nation, behind even New York. Only New Jersey performed worse.

Regulation plays a critical role in discouraging small-business expansion, a new report from the Governor's Office of Small Business Advocate suggests. Prepared by researchers from California State University at Sacramento, the report estimates that regulations may be costing the state upward of 3.8 million jobs. California currently has about 14 million jobs, down 1 million since July 2007.

Ironically, the regulatory noose is now slated to tighten even further as a result of radical measures--from energy to land use--tied to reducing greenhouse gases. Another study, authored by California State University researchers, estimates these new laws could cost an additional million jobs.

Many in the state's top policy circles, as well as academics and much of the media, dismiss the notion that regulations could be deepening the recessionary pain. Some of this stems from the delusion--always an important factor in this amazing state--that ultra-green policies will actually solidify California's 21st-century leadership. Few seem to realize that other states, witnessing the Golden State's economic meltdown, might not rush to emulate California's policy agenda.

Internally, discontent with the current agenda seems particularly strong in the blue-collar, interior regions of the state. Brookings demographer Bill Frey and I have described this area as the "Third California." In the first part of the decade, this region expanded roughly three times as rapidly as Southern California, while the Bay Area's population remained stagnant.

Today the Third California represents roughly 30% of the state's population, compared with barely 18% for the ultra-blue Bay Area. The most conservative part of the state has skewed somewhat more Democratic in recent elections, largely due to migration from coastal California and an expanding Latino population.

But the intense economic distress now afflicting the interior counties--where unemployment rates are approaching 20%--may now reverse this process. The ultra-green politics embraced by the Democrats' two prospective gubernatorial nominees-Attorney General Jerry Brown and San Francisco Mayor Gavin Newsom--may not appeal much to a workforce heavily dependent on greenhouse-gas-emitting industries like farming, manufacturing and construction.

Eventually, the Democrats may rue their failure to run a pro-business, pro-growth candidate, particularly one with roots in the interior region. This oversight could cost them votes among, say, Latinos, who have been far harder hit by the recession than the more affluent (and overwhelmingly white) coastal progressives epitomized by Brown and Newsom. Along with independents, roughly one-fifth of the electorate, Latinos could prove the critical element in the state's purplization.

This, of course, depends on the Republicans developing an attractive pro-growth alternative. In recent years, the party's emphasis on conservative cultural issues and xenophobic anti-immigrant agitation has hurt the GOP in the increasingly socially liberal and ethnically diverse California.

Although he has proved a poor chief executive, Gov. Schwarzenegger did at least show such a political approach could work. The recent emergence of three attractive Silicon Valley-based candidates, including former eBay CEO Meg Whitman and State Insurance Commissioner Steve Poizner, as well as the likable libertarian-leaning former congressman Tom Campbell, could score well at the polls.

This political course-correction should be welcomed not only by Republicans but by California's moderate Democrats and Independents. However blessed by nature and its entrepreneurial legacy, California needs to move back to the pro-growth center if it hopes to revive both its economy and the aspirations of its people.

This article originally appeared at Forbes.

How Smart Growth Disadvantages African-Americans & Hispanics

Wendell Cox — Mon, 28 Sep 2009 01:54:33 -0400

It was more than 45 years ago that Dr. Martin Luther King, Jr. enunciated his “Dream” to a huge throng on the Capitol Mall. There is no doubt that substantial progress toward ethnic equality has been achieved since that time, even to the point of having elected a Black US President.

The Minority Home Ownership Gap: But there is some way to go. Home ownership represents the core of the “American Dream” that was certainly a part of Dr. King’s vision. Yet, there remain significant gap in homeownership by ethnicity. Rather than a matter of discrimination, this largely reflects differing income levels between White-Non-Hispanics, African-Americans and Hispanics or Latinos. Today, approximately 75% of white households own their own homes. Whites have a home ownership rate fully one-half higher than that of African-Americans and Hispanics or Latinos at 47% and 49% (See Figure).

Setting the Gap in Stone: A key to redressing this difficulty will be convergence of minority household incomes with those of whites, and that is surely likely to happen. However, there is another important dynamic in operation: house prices in some areas have risen well in advance of incomes, so that convergence alone can not narrow the home ownership gap in a corresponding manner. It is an outrage for public policy to force housing prices materially higher so long as home ownership remains beyond the incomes of so many, especially minorities.

The Problem: Land Use Regulation: The problem is land use regulation. The economic evidence is clear: more restrictive land use regulation raises house prices relative to household incomes. This can be seen with a vengeance in the house price increases that occurred during the housing bubble. As we have previously described, metropolitan markets with more restrictive land use regulation (principally the more radical “smart growth” policies) experienced house price escalation out of all proportion to other areas in the nation. In some cases, they topped out at nearly four times historical norms. On the other hand, in the one-half of major metropolitan area markets where land use regulations were less severe, house prices tended to increase to little more than historic norms, at the most.

How Smart Growth Destroys Housing Affordability: This difference is principally due to the price of land, which is forced upward when the amount of land available for building is artificially limited, as is the case in smart growth markets. At the peak of the bubble, there was comparatively little difference in house construction costs per square foot in either smart growth or less restrictive markets. However, the far higher land prices drove house prices in smart growth markets far above those in less restrictively regulated markets. Where house prices rise faster than incomes, housing affordability drops as prices rise at escalated rates.

Wishing Away Reality: It is not surprising that the proponents of smart growth undertake Herculean efforts to deflect attention away from this issue. Usually they pretend there is no problem. Sometimes they produce studies to indicate that limiting the supply of land and housing does not impact housing affordability, which is akin to arguing that the sun rises in the West. Even the proponents, however, cannot “walk a straight line" on this issue, noting in their most important advocacy piece (Costs of Sprawl – 2000) that their more important strategies have the potential to increase the cost of housing.

The Assault on Home Ownership: Worse, well connected Washington interest groups (such as the Moving Cooler coalition) and some members of Congress seek to universalize smart growth land rationing throughout the nation, which would cause massive supply problems and housing price inflation that occurred in some markets between 2000 and 2007. Even after the crash, these markets experienced generally higher house prices relative to incomes in smart growth markets than in traditionally regulated markets.

House Price Increases and Minorities: House price increases relative to incomes weigh most heavily on ethnic minority households, because their incomes tend to be lower. This is illustrated by an examination of the 2007 data from the American Community Survey, in our special report entitled US Metropolitan Area Housing Affordability Indicators by Ethnicity: 2007. The year 2007 was the peak of the housing bubble, but represents a useful point of reference for when future “smart growth” policies were imposed nationwide.

Median Priced Housing: The data (Table) indicates that median house prices were 75% or more higher for African-Americans than Whites, however that African-Americans in smart growth markets require 84% more to buy the median priced house. The situation was slightly better for Hispanics or Latinos with median house prices at least 50% more relative to incomes than for Whites. House prices relative to Hispanic or Latino median household incomes were 86% higher in smart growth markets than in less restrictively regulated markets.

SUMMARY OF HOUSING INDICATORS BY
LAND USE REGULATION CATEGORY
Metropolitan Areas over 1,000,000 Population: 2007

HOUSING INDICATOR	Less Restrictive Land Use Regulation Markets	More Restrictive Land Use Regulation Markets	All Markets	More Restrictive Markets Compared to Less Restrictive Markets

MEDIAN VALUE MULTIPLE
All	3.1	5.8	4.5	1.89
White Non-Hispanic or Latino	2.7	5.1	3.9	1.90
African-American	4.9	8.9	6.9	1.84
Hispanic or Latino	4.2	7.9	6.1	1.86

LOWEST QUARTILE VALUE MULTIPLE
All	2.1	4.2	3.2	2.01
White Non-Hispanic or Latino	1.8	3.7	2.8	2.01
African-American	3.3	6.5	5.0	1.95
Hispanic or Latino	2.9	5.7	4.4	1.98

MEDIAN RENT/MEDIAN HOUSEHOLD INCOME
All	13.8%	17.1%	15.5%	1.24
White Non-Hispanic or Latino	12.1%	15.1%	13.6%	1.25
African-American	21.9%	26.1%	24.0%	1.19
Hispanic or Latino	19.1%	23.0%	21.1%	1.20

LOWER QUARTILE RENT/MEDIAN HOUSEHOLD INCOME
All	10.8%	13.1%	12.0%	1.22
White Non-Hispanic or Latino	9.4%	11.6%	10.5%	1.23
African-American	17.0%	20.0%	18.5%	1.17
Hispanic or Latino	14.9%	17.5%	16.2%	1.18

NOTES
Median Value Multiple: Median House Value divided by Median Household Income
Low Quartile Value Multiple: Low Quartile House Value divided by Median Household Income
2007 Data
Calculated from American Community Survey (US Bureau of the Census) Data

“More restrictive” land use regulation markets (generally "smart growth") include those classified as "growth management," "growth control," "containment" and "contain-lite" and "exclusions: in "From Traditional to Reformed A Review of the Land Use Regulations in the Nation's 50 largest Metropolitan Areas" (Brookings Institution, 2006) and markets with significant large lot zoning and land preservation restrictions (New York, Chicago, Hartford, Milwaukee, Minneapolis-St. Paul, and Virginia Beach). Less restrictive" land use regulation markets (generally "traditional") include all others, except for Memphis, where urban growth boundaries have been drawn far enough from the urban area to have no perceivable impact on land prices and Nashville, where the core county is exempt from the urban growth boundary requirement in state law.

Lower Priced Housing (Lowest Quartile): I recall being told by a participant at a University of California–Santa Barbara economic forum organized by newgeography.com contributor Bill Watkins that, yes, smart growth increases house prices, but not for lower income residents. My challenger went so far as to say that lower income households were aided economically by smart growth. The facts are precisely the opposite. Comparing the lowest quintile (lowest 25%) house price to median household incomes indicates that minorities pay even a higher portion of their incomes for lowest quintile priced houses than the median priced house. African-Americans in smart growth markets needed 95% more relative to incomes to afford the lowest quartile house. Hispanics or Latinos needed 98% more.

Rental Housing: The problem carries through to rental housing. There is a general relationship between rental prices and house prices, though rental prices tend to “lag” house price increases. In the smart growth markets, minorities must pay approximately 20% more of their income for the median contract rental in smart growth metropolitan areas than in less restrictively regulated markets. Similar results are obtained when comparing minority household median incomes with lowest quintile contract rents, with African-Americans paying 17% more of their incomes in smart growth markets and Hispanics or Latinos paying 18% more.

Moreover, it is important to recognize that all of the above data is relative, based on shares or percentages of incomes. Varying income levels are thus factored out. Minority and other households in smart growth markets face costs of living that are approximately 30% higher than in less restrictively regulated markets, according to analysis by US Department of Commerce Bureau of Economic Analysis economists. Some, but not all of the difference is in higher housing costs.

Social Costs of Smart Growth: In 2004, the Tomas Rivera Policy Institute, which focuses on Latino issues, noted concern about the homeownership gap in California, which has been ground zero for land use regulation driven house price increases for decades:

Whether the Latino homeownership gap can be closed, or projected demand for homeownership in 2020 be met, will depend not only on the growth of incomes and availability of mortgage money, but also on how decisively California moves to dismantle regulatory barriers that hinder the production of affordable housing. Far from helping, they are making it particularly difficult for Latino and African American households to own a home.

Examples of the restrictions cited by the Tomas Rivera Policy Institute are restrictions on the supply of land, high development impact fees and growth controls.

California has acted decisively, but against the interests of African-Americans and Hispanics or Latinos. The state enacted Senate Bill 375 in 2008, which will impose far stronger state regulations on residential development, increasing the likelihood that minorities in California will always be disadvantaged relative to White-Non-Hispanics. At the same time, State Attorney General Jerry Brown has forced some counties to adopt more restrictive land use regulations through legal actions. California, which had for decades been considered a state of opportunity, is making home ownership and the pursuit of the “American Dream” far more difficult, particularly for its ever more diverse population.

Stopping the Plague: In California, the hope to increase African-American and Latino home ownership rates to match those of white-non-Hispanics may already be beyond reach due to the that state’s every intensifying radical smart growth policies. However, the “Dream” continues to “hang on” in many metropolitan markets. Hopefully Washington will not put a barrier in the way of African-Americans and Hispanics or Latinos that live elsewhere in the nation.

US Metropolitan Area Housing Affordability Indicators by Ethnicity: 2007 includes tables with data for each major metropolitan area in the United States

Photo: Starter house in Atlanta suburbs (by the author)

The Crisis of Academic Urban Planning

The New City Journal — Sat, 26 Sep 2009 23:37:38 -0400

A wide gulf has opened up between mainstream Australian values and the prescriptions of our urban planning academics. So much so that the latter are at risk of degenerating into a cult. While it’s usually unfair to criticise a group in generalised terms, there are ample grounds in this case. Anyone who doubts the existence of an urban planning “establishment” in and around the Australian university system, and that it’s in thrall to ultra-green groupthink, should revisit some recent correspondence to our newspapers.

A perfect example appeared in the Australian Financial Review of 31 July 2009. On that day, the paper carried a joint missive penned by no less than eight leading-lights from various urban and planning related faculties, along with two others from like-minded institutions.

Stirred by the perennial bugbear of residential development on the urban fringe, the authors wrote to denounce the Victorian Government’s plans to develop 40,000 hectares of new suburbs.

The signatories included the Dean and the Chair of Melbourne University’s architecture faculty, leaders of the university’s Nossal Institute for Global Health and Eco-Innovation Lab, the Director of Curtin University’s Sustainability Policy Institute, a Professor of Planning and the Dean of Global Studies at Royal Melbourne Institute of Technology (RMIT), and the Director of Urban Research at Griffith University.

They were joined by two holders of non-academic posts, one in the City of Melbourne’s Design and Urban Environment Department, the other at the Melbourne Sustainable Society Institute.

Since they’re all attracted to some variant of the command economy, let’s call them “the ten commandants”.

Their letter opens with the standard formula of green urbanism. The Victorian Government’s plans are “unsustainable - environmentally, economically and socially”. This highly abstract phrase, a mainstay of the urban planning literature, implies a seamless and mutually reinforcing compatibility amongst the three dimensions of sustainability. In the real world things aren’t so simple.

The formula conceals far more than it reveals. It’s not at all clear that environmental sustainability, as conceived by the commandants, is compatible with economic sustainability. More than likely, it isn’t. As most prescriptions for environmental sustainability include measures to suppress economic activity, including regulations and cost imposts, the more likely outcome is economic stagnation.

Economic stagnation may well be compatible with environmental sustainability, at least in the eyes of ultra-green academics, but it’s hardly compatible with social sustainability. A society without economic opportunities will descend into division and conflict.

In this regard the commandants’ agenda is ominous. “[W]e will have these [new fringe suburbs] to deal with”, they complain, “when we finally commit to a low carbon economy”.

This paternalistic tone pervades the whole letter, even when the public are offered apparent choices. Having spilt a lot of ink on how, in the sustainable future, “developments will be denser than the surrounding suburbs”, the commandants still claim “we will live with … more choice of housing type”. And the false choices keep coming. Consider this intriguing paragraph: “Not everyone wants or needs to live in an activity centre or on the tramline, but a sustainable city is one where you can get there without a car”. You can live wherever you like, as long as you don’t need a car. Plenty of choice there.

“This is a future”, they say of their vision, “where we will be fitter rather than fatter”. This is a future, more accurately, where intellectuals treat people like laboratory rats.

What it all means, of course, is that the public won’t have a say, let alone a choice. “The fear of a suburban backlash is unfounded”, say the commandants, “and attitudes will become more supportive when imaginative design visions and construction projects demonstrate what is possible”. Behind the condescending verbiage lurks a strategy of imposing a fait accompli. Indeed, they end up hoping that the federal government will intervene.

There’s one good thing about the letter. It concedes that releasing more land does improve housing affordability. Planners have tended to argue that it doesn’t work, since nobody wants to live on the fringe. Still, the commandants question the benefits, arguing these are “short term” and “outweighed by the long-term costs in capital expenditure and car-dependency”. Such criticisms underestimate the substantial and positive ripple effects of affordable housing on disposable incomes, consumer demand, job creation and ultimately state revenues.

Green platitudes usually get a pass in the media, but on 3 August the AFR published a valiant letter in reply from Alan Moran of the Institute of Public Affairs, aptly titled “Planners’ patrician arrogance”.

Moran makes two powerful points. First, had the commandants bothered to canvass public opinion, they would have discovered that “consumers around the world overwhelmingly prefer [separate houses to apartments] … One United Kingdom survey showed that only 2 per cent of people prefer to live in apartments”. Second, despite all the guff about the “sustainability” of denser development, the Australian Conservation Foundation found that “emissions from inner city households are a third greater than those on the fringe”.

Leading up to the global financial crisis, demand for residential property was subdued, especially in Sydney. Buyers baulked at the combination of rising interest rates and developer costs, together with inflated prices linked to stymied land supply. Commentators speculated about a cultural shift away from outer suburbia. But things changed.

Since the crisis, plummeting interest rates and government incentives have unleashed a new wave of demand. Buyers, including a substantial proportion of first home buyers, have flocked to new fringe suburbs. According to one report “[p]roject-home builders are reporting a boom in new house sales in parts of Sydney that were until recently green pasture.” NSW Department of Planning figures show that in the current financial year building on Sydney’s fringe made up just under 20 per cent of all construction, compared with 10 per cent in 2005-06.

Things are no different in Melbourne. The city’s fastest growing area is the outer western suburb of Werribee.

Where does that leave the commandants? They would agree that urban planning should alleviate socio-economic disadvantage. If so, they and the planning establishment need to acknowledge that most low to middle income Australians reject their vision of a compact ecopolis. These Australians cherish their lifestyle, and sense that the social and economic costs of planning fetters will far outweigh the environmental benefits.

The suburbs have spoken. Unless planners ditch their utopian dreams and integrate academic research with social reality, they face increasing alienation from the policymaking process.

This article first apeared at The New City Journal

Perspective on G-20: Don’t Trip on those Green Shoots

Susanne Trimbath — Fri, 25 Sep 2009 23:37:21 -0400

Everywhere you look – from the White House to Wall Street – they are painting a sunny picture of recovery, free from any gloomy ideas. Bernie Madoff is in jail, Goldman Sachs is repaying their bailout money, and everywhere they look they see “green shoots.”

Yet according to the Congressional Budget Office (CBO), the US economy and federal government are headed for doom. We are on a completely unsustainable path economically and financially. The CBO updated their forecasts after our June piece on the State of the Economy. In their updated Budget and Economic Outlook, CBO clearly concludes that the current rate of high spending and low revenues has the nation on an unsustainable fiscal course. Unemployment won’t drop below 5% until 2014. As a result, according to the latest country risk rankings by Euromoney magazine [http://www.euromoney.com, subscription required for full access] Canada, Australia and most of Scandinavia have passed the US as safer places to invest in business.

These predictions of doom are, in fact, based on the best-case scenario of 3 percent economic growth next year and 4 percent the year after that; plus the expiration of tax cuts and no new stimulus or bailout packages. Whether we call it a Panic, a Depression, a Recession or a Downturn, it all means the same thing. The nomenclature has been softened over the decades to remove that ever so gloomy feeling folks get when things are bad. If you still have a job, you know someone who has been laid off, had their hours cut, etc. I just received my first new piece of business since February. Things are tough everywhere you look.

GDP this year ($14,143 billion) is about where it was two years ago in actual dollar terms ($14,180 billion, third-quarter 2007). Accounting for inflation in consumer prices, our economy is closer to the level it was at the end of March 2006 or even back to the end of 2005. Actual dollar GDP peaked in September 2008 but I prefer the regular “real” GDP, adjusted for changes in what a dollar will buy you, which peaked in the third quarter of 2007 – we live in the real world, using real dollars to pay for real things.

The importance of changes in the real-dollar economy become most obvious when we consider international trade, which has been on the minds of the leaders of the G-20 nations in Pittsburgh this week. The fact that US consumers sustained and even increased their demand for imported goods until the onset of the global recession and in the face of a declining dollar lends credence to President Obama‘s plan to discuss what the world, not just what the US, can do to “lay the groundwork for balanced and sustainable economic growth.”

On the one hand, our consumption of imported goods contributed to ours and the world’s economic growth. This fuels concern over whether or not the US can keep the promise to not impose new trade barriers before the end of 2010 and the world’s willingness to continue to buy our debt in the form of US Treasury bonds. At the same time, as Kansas City Federal Reserve Bank President Thomas Hoenig said last week in a speech I attended in Omaha, we need the world’s consumers to continue buying US goods in order to maintain our position as the “industrial leader of the world.” It’s a delicate balance, at best.

The late 2007 nose dive in the “real” economy exposed the trouble brewing on the housing front, when we became aware of the explosion in credit derivatives, and when many of us started warning people about the insanity taking place in U.S. bond markets. No matter how you measure it, we would need about a 3 percent increase in GDP by next summer just to get back to where we were the last time everyone felt good about their money.

Data from Bureau of Economic Analysis; author’s calculations

So, why are we hearing such a positive spin on the economic news? One reason is the lack of understanding among reporters – most of them probably studied literature or journalism in college – not finance or economics. New York Times economics reporter Edmund L. Andrews is a perfect example. He just published a book describing “how he signed away his life for a toxic loan to buy a house in Silver Spring that he couldn't really afford.” The Washington Post reviewer called the book “bright and breezy.” No gloom there!

At the same time that he was signing the papers for an outsized mortgage, Andrews was writing articles like this gem from September 1, 2007 – just as the real economy was perched on the edge of the cliff – where he reports on Federal Reserve Bank Chairman Ben Bernanke saying he will “prevent chaos in the mortgage markets from derailing the economy.” The stock market climbed nearly 1 percent that day to close at 13,357.74 – it closed at 9,820.20 last Friday. Yet, Mr. Andrews still has a job with the New York Times – unlike millions of his readers – writing about topics like troubled mortgages.

Data from Bureau of Economic Analysis and Census Bureau. Per employee divided by 2 for scale.

But what about the recent stock market rise? We should not be surprised if business profits are up: fewer people working means that the output per worker has been increasing since the end of 2008. GDP per capita (per person in the population), on the other hand, has been decreasing since the end of 2007 – an indication of a falling standard of living.

The next few months are a time to focus, concentrate, plan, and follow-through. We are at a turning point comparable to the beginning of the Industrial Revolution and the system of capitalism that financed it. By frantically printing money and creating credit through bank bail-outs, the Federal Reserve and the Treasury are boosting the stock market by pumping in about $150 billion a month into corporate securities, increased auto sales (with government rebates) and home sales (with government first-time buyer tax credits).

The problem is that these three pieces – banking, cars and homes – are not the whole economy, and, since they depend on government debt, none of these “green shoots” are sustainable on their own. Keep your eye on the big picture (the Kiplinger Recovery Index is a handy one-stop) – and don’t relax until all the indicators are green.

Susanne Trimbath, Ph.D. is CEO and Chief Economist of STP Advisory Services. Her training in finance and economics began with editing briefing documents for the Economic Research Department of the Federal Reserve Bank of San Francisco. She worked in operations at depository trust and clearing corporations in San Francisco and New York, including Depository Trust Company, a subsidiary of DTCC; formerly, she was a Senior Research Economist studying capital markets at the Milken Institute. Her PhD in economics is from New York University. In addition to teaching economics and finance at New York University and University of Southern California (Marshall School of Business), Trimbath is co-author of Beyond Junk Bonds: Expanding High Yield Markets.

Pittsburgh Renaissance?

Aaron M. Renn — Thu, 24 Sep 2009 23:13:16 -0400

In the third of a three part New Geography series on Pittsburgh for the G-20 summit, Aaron Renn assesses Pittsburgh’s value as a model region for other cities suffering decline.

As the G-20 leaders prepare to convene in Pittsburgh, expect the recent chorus of praise for that city's transformation to reach a crescendo. Pittsburgh, once the poster child for industrial decline and devastation, is now the media darling as an exemplar of how to turn it around. The New York Times talks about how “Pittsburgh Thrives After Casting Steel Aside” while the New York Post informs us that “Summer in Pittsburgh Rocks”. The Economist named Pittsburgh America's most livable city. This emerging reputation for cracking the code on revitalization is prompting struggling burgs like Cleveland and Detroit to ask what lessons the Steel City holds for them.

But does reality live up to the hype? Has Pittsburgh really turned the corner? For the most part, a look at the data suggests otherwise:

Population Is Shrinking. The city of Pittsburgh has lost over 50% of its population since its peak and it is still declining. Just since the 2000 census Pittsburgh has lost nearly 25,000 people – over 7% of its population. The metro area is shrinking too, making Pittsburgh one of only a handful of large metro areas with the dubious distinction of population decline. Others on that list: Buffalo, Cleveland, Detroit, and New Orleans. Since 2000, metro Pittsburgh has actually lost a greater percentage of its population than metro Detroit.
People Are Leaving. Part of Pittsburgh's population loss is a result of a rare case of more deaths than births. But the region has net outmigration too. Few other stats are so telling about a city. Is this a place people are voting with their feet to move to or leave from? They may come to school or an internship at a local hospital, but, more often than not, they are not putting down roots. With more people moving out than moving in, Pittsburgh is clearly not a destination city
International Immigrants Are Staying Away. Metro Pittsburgh's foreign born population percentage was 2.6% in 2000 – very low. The Pittsburgh Technology Council summed it up best when it said, “Our region has negligibly grown its foreign born population.” Contrast Pittsburgh with the national average for foreign born population of 5.7%, and regions like Boston (11.2%), Denver (9.3%), and even Detroit (6.1%).
Poverty Is High. Pittsburgh's economic area poverty rate is worse than all cities benchmarked against it by Pittsburgh Today at 11.6% versus 9.3% in Milwaukee, 9.9% in Cincinnati, and 10.5% in Cleveland among 14 comparison cities.
The City Is in Debt - Bigtime. Pittsburgh is buried under a mountain of liabilities. Its unfunded pension liability is over $1 billion. Its annual interest on its debt is $352 per capita, far higher than peer cities. Pittsburgh Quarterly is very direct: “Put simply, compared with all the benchmark regions, Pittsburghers have been saddled by their governments with relatively huge amounts of public debt.”

Still, by other measures Pittsburgh is, if not thriving, certainly outperforming both the Rust Belt and the nation as a whole. Its July metro unemployment rate of 7.8% is well below the national average. In the last 12 months, Pittsburgh lost 2.8% of its jobs, which is a much better performance than regions like Chicago (-4.5%), Atlanta (-4.9%), and Portland (-5.8%). Its housing market, having never boomed to begin with, has not experienced the declines of most of the rest of the country, making it a Rust Belt outpost of the “zone of sanity”.

Pittsburgh has a large “eds and meds” sector, led by the University of Pittsburgh, whose medical center employs over 25,000 people, and Carnegie-Mellon University. Pittsburgh was early to the game in this approach, with steel fortunes powering the development of these institutions starting in the 1950s. There are now seven universities within a five mile radius of downtown.

Eds and meds employment is quasi-public sector. It can be a source of stability, but it's not proved to be the source of dynamism that you see in Silicon Valley, around Boston or even Madison. Sure, there have been some high tech successes in Pittsburgh, but the city is far from a hub of the innovation economy.

Pittsburgh's downtown remains an employment center with a density uncommon in a Rust Belt full of cores defined more by parking lots than vital streetscapes. Pittsburgh has long had a rich fabric of dense, urban neighborhoods, and many of those are strengthening. The city's geography retains its charm, and a lot of former industrial areas along the three rivers have been repurposed for recreational use.

The truth is that the Pittsburgh story is still being written. It’s still more “green shoots” than a true renaissance so far. Until its migration statistics change course, and it demonstrates sustained and growing economic dynamism, the city cannot claim to have truly turned itself around. Still, the signs of progress are better than in places like Cleveland and Detroit.

What accounts for this? A few success factors come to mind:

Passion for the City. Older river cities like Cincinnati and New Orleans tend to have strong provincial cultures, with all the good and bad that implies. You see this in Pittsburgh in the unique local “yinzer” dialect, traditions like the cookie table at weddings, and of course the Steeler Nation. There's a strong attachment to the native soil in Pittsburgh, even for those who left.
Starting Early Into the Cycle. Jane Jacobs pegged Pittsburgh's economic stagnation to 1910. The steel industry collapsed decades ago. Pittsburgh had troubles before other cities, so it is figuring out how to deal with them before other cities. It takes a long time to recover from a hundred years of status quo thinking.
Shrinkage. There's no longer a need for a Fort Pitt to project military power. The steel industry is gone and with it the need for thousands of steelworkers. Part of the issue in the Rust Belt is that there is no longer any economic raison d'etre for some of these big cities. Pittsburgh long was too big for its role in today's economy, so shrinkage was good. This also created the rather unique institution of the Pittsburgh diaspora, best known through the Steeler Nation. Like the Indian and Chinese diasporas, it's a network of people who went out, made connections in the world, built new skills, etc. that Pittsburgh can now tap into, as tirelessly documented by Jim Russell.
The Totality of the Collapse. On Wall Street they call it “capitulation”, where the markets hit bottom and there is no positive sentiment. You have to hit that bottom to start back up. Pittsburgh went through a civic devastation when the steel industry collapsed the likes of which few American cities have seen. This shock to the system created the conditions necessary for change that a more gradual decline would not have.
Dramatic Educational Improvements. The Chicago Fed reported that Pittsburgh's national rank for percentage of adults who were high school grads went from 55th to 3rd. And for college grads it went from 69 to 37. These are amazing numbers.

Is the Pittsburgh model transplantable elsewhere in the Rust Belt? In the short term, no. Pittsburgh's successes of today are rooted in 30 years of steel industry collapse, shrinkage, and boosting its brain power. The auto industry restructuring eventually might bring a needed jolt to Detroit and other Rust Belt cities, but recovery is a long term game that requires sustained commitment over many years to things like education. Pittsburgh has achieved some of this, perhaps not as spectacularly as the media suggests, but in ways that are still useful for other Rust Belt cities to ponder.

Aaron M. Renn is an independent writer on urban affairs based in the Midwest. His writings appear at The Urbanophile.

Hyping Pittsburgh: With the Global Economy in Dire Straits, Hell with the Lid Blown Off Never Looked Better

Wed, 23 Sep 2009 23:36:20 -0400

As host of the G-20 summit, Pittsburgh briefly will sit in the global spotlight. In this second article of a three part series featuring Pittsburgh, rust belt observer Jim Russell digs into migration and education trends and what it may mean for the region.

Chris Briem (the blogger behind Null Space) jokingly called it the “Mystic Order of the Yinzerati”. He would later take the idea about the influence of Pittsburgh expatriates more seriously. I’ve referenced talk about a conspiracy theory involving the diaspora and how the current US President seems to favor the Steel City. How else does one explain the location of the upcoming G-20 economic summit?

Site Selection magazine is the latest conduit for Pittsburgh’s aggressive image makeover. By now, the narrative is polished. As an active consumer of all media about Pittsburgh, I find the story stale. The lines are well-rehearsed and remind me of an article I read last year in the New York Times or a decade ago in the Wall Street Journal. More often than not, I would discover that the writer of the glowing review has a Pittsburgh connection.*

Recently, a journalist from Forbes interviewed me about the Pittsburgh renaissance. I mentioned the positive press the city has received and how the Burgh Diaspora seemed to be behind it all. At that point, she confessed that she was from Pittsburgh. The result? Pittsburgh is an archetype for the thriving 21st century city.

I’m an avid Pittsburgh booster and I would bet that this round of rebranding will finally take root. However, that doesn’t mean I believe everything I read. Left out are all the challenges the region faces. Local bloggers fret about the city pension crisis getting swept under the rug, pointing out that the many myths used to promote Pittsburgh are disingenuous. Some natives have gone so far as to suggest that all the propaganda is nothing more than gilding a turd. After all, the population of Pittsburgh is still in decline. What about the brain drain?

Ironically, the brain drain from Pittsburgh is the reason why I’m so bullish on this region’s future. Taking notice of the prolific Yinzerati, I began to see talent out-migration in a different light. Not every Rust Belt city could marshal the kind of sustained campaign that has benefited the New Pittsburgh. The more fantastic the fabrication, the more impressive the media blitz would seem. Surely expatriates from other shrinking cities could do the same. I’ll tell you why they haven’t.

As brain drain is commonly understood, every region suffers from the same affliction. But the exodus from Pittsburgh was exceptional. Chris Briem charted the difference between unemployment rates in Pittsburgh and the national average from 1970 to present day. You might note that right now, never has the job market looked relatively better. What should really stand out is how bad the economy was in the early 1980s. It was a remarkable period of out-migration for young talent, robbing Pittsburgh of almost an entire generation.

As I began to understand the connection between educational attainment and geographic mobility, I speculated that Pittsburgh’s brain drain was the result of a substantial investment in local human capital. The chronic decline in population is the result of successful workforce development policy. At least, that was my theory.

Bill Testa, who works for the Federal Reserve Bank of Chicago, provided the evidence I was seeking. Compared with other Rust Belt cities and the nation over the period 1969-2006, Pittsburgh has anemic total employment growth. Strangely, Pittsburgh is a cohort outlier (in positive respects) if we consider gains in per capita income.

Testa hints at the reason behind the surprising statistic:

While Pittsburgh ranked low in college attainment in 1970, its gains in this metric since then have been the most rapid. Perhaps not accidentally, Pittsburgh’s growth in per capita income also outpaced other cities in the region.

Pittsburgh did a great job of educating its populace. This policy would betray the region during the hard times of the early 1980s. Dynamic labor mobility found expression in the only avenue available, relocation. The Mysterious Order of the Yinzerati was born.

Pittsburgh hasn’t been able to cash in on the diaspora dividend until the last decade. As I noted above, positive spin about Pittsburgh isn’t anything new. During the early 1990s, the work of urban planner Paul Farmer was nationally admired. Cities such as Minneapolis hoped to mimic Pittsburgh success. Former mayor Tom Murphy, not remembered fondly in Pittsburgh, enjoys a strong reputation as a wizard of downtown revitalization almost everywhere else. I imagine the Burgh Diaspora actively evangelizing their hometown’s dramatic transformation. But if anyone was listening, they didn’t move there on the advice of these expatriates.

The demographics quietly improved. What little immigration there was tended to be highly educated. Furthermore, the numbers of college educated residing in Pittsburgh are becoming more concentrated. All the while the population continues to decline and that’s what makes the front page, which brings me back to positive publicity push leading up to the G-20.

Pittsburgh is finally ready to take advantage of the spotlight. With the global economy in dire straits, hell with the lid blown off never looked better. The underlying numbers, such as unemployment, are relatively strong. Pittsburgh is a place of brain gain, not drain. When national growth returns, people will begin to move again. Pittsburgh will be one of the places they will consider.

Thanks to the considerable influence of the Yinzerati, historic federal expenditures will rain down on the land of Three Rivers. Chris Briem can tell you how many Yinzers end up in Washington, DC. Or, ask the head coach of the Washington Redskins. The point is that even if you don’t know much about Pittsburgh, many people inside the beltway do. The G-20 is just the tip of the iceberg.

*For the record, my Pittsburgh connection is through my wife who grew up in the North Hills.

Read Jim Russell's Rust Belt writings at Burgh Diaspora.

Pittsburgh Didn't Volunteer for G20

Bill Steigerwald — Tue, 22 Sep 2009 23:36:09 -0400

As host of the G-20 summit, Pittsburgh briefly will sit in the global spotlight. With this article by longtime Pittsburgh resident and columnist Bill Steigerwald, New Geography opens a three part series looking at this intriguing metropolis from the point of view of planning, demography and economic performance.

Pittsburgh didn’t volunteer to host the G-20 Summit that is coming here next week to inflict so much civic pain and disruption.

It was entirely President Obama’s call. He apparently thought it would be a good idea to have the finance ministers and central bankers of the world’s top 20 economies hold one of their city-disrupting conferences in downtown Pittsburgh on Sept. 24-25.

Perhaps Mr. Obama, who will chair the G-20, thought he was doing the financially strapped city of Pittsburgh a favor by sending 4,000 foreign bureaucrats and media folk here to spend their Euros and Yen on Steelers T-shirts and game jerseys.

Maybe he thought placing the G-20 meeting in Western Pennsylvania – a disproportionately Caucasian and socially conservative corner of America where his 2008 vote totals were disappointing – would pay him political dividends in the 2012 election.

In either case, the president was sadly mistaken.

Except for the local booster & tourism sector – who’d welcome a Category 8 hurricane to Pittsburgh as long as the international media covered it and said nice things about their no-longer smoky city – it’s safe to say everyone in this town who doesn’t work in the homeland security industry wishes they had never heard of the G-20.

As months of local media stories have made plain, the conference is not only going to be a huge public annoyance, it’s going to be a lose-lose situation for everyone – especially the city government.

Any economic benefits to the local GDP from the arrival of 4,000 visitors with fat expense accounts will be outweighed by the cost of protecting property from the tens of thousands of leftist protestors, angry anarchists and professional window-breakers who stalk G-20 meetings around the world.

To maximize security and minimize destruction, the Secret Service and local authorities will fortify most of the Golden Triangle, the photogenic downtown business district squeezed between the Allegheny and Monongahela rivers as they meet to create the Ohio River.

Barricades will be erected. Cars and mass transit will be diverted. Several major construction sites will be sealed off to deny protestors dangerous things to throw. Most downtown businesses probably will close. City schools and colleges will shut down.

The predicted cost to local public coffers for hiring, feeding and equipping additional police and paying overtime will be at least $20 million, most of which will be reimbursed by the federal government.

Whatever the final bill is, hosting the G-20 is an “honor” the city of Pittsburgh and its taxpayers didn’t need and can’t afford. The city is already bankrupt and in state receivership because of the generous pension deals it’s promised but won’t be able to pay for.

The city of Pittsburgh looks fabulous and robust when its skyline and riverbanks are shown on TV during Steelers home games. But it’s really the capital city of an economically stagnant, over-taxed, over-regulated, steadily depopulating metropolitan region that has been horribly governed for 60 years.

The private-public power-brokers who’ve run the city have wasted billions on a never-ending series of destructive urban renewal projects, redevelopment boondoggles and wasteful mass-transit projects.

Almost nothing has been built in downtown Pittsburgh or on its riverbanks in the last 20 years without being handed millions in public subsidies – whether it was PNC Financial Service’s almost completed downtown skyscraper, a gorgeous Lazarus department store that went bust in the ‘90s or the shiny new homes for the Pirates, Steelers and (soon) the Penguins.

If curious G-20 attendees have time to stroll around the city’s abandoned downtown streets on Thursday and Friday, they will have no trouble finding evidence of City Hall’s current crop of fiascoes-in-the making.

Right in front of fancy Fifth Avenue Place, for example, is a deep trench where busy Stanwix Street should be.

It’s not where a Scud missile hit during the first Gulf war. It’s the construction zone of one end of the local mass transit system’s infamous “Tunnel to Nowhere.”

The 1.2-mile light-rail extension goes from Gateway Center downtown under the Allegheny River to the North Shore, where its other end has been tearing asunder the wasteland of former parking lots between the subsidized new homes of the Steelers and Pirates for several years.

The twin light-rail tunnel – cleverly built under a river in the “City of Bridges” so as to maximize the cost and provide unions and construction companies with six or seven years of high-paid make-work – will allegedly carry 4.2 million riders a year in the distant transit future.

That impressive but fraudulent projection comes out to about 11,000 “riders” a day – which actually represents only 5,500 human commuters making a (two-ride) round trip commute. A large proportion of those annual riders, by the way, will be baseball or football fans.

All that socially correct “mass transit” will end up costing at least $650 million, with federal and state taxpayers picking up about 97 percent of the tab. Except for yours truly and the conservatives on the Pittsburgh Tribune-Review’s editorial page, virtually no one in local politics or the media questioned or challenged the lunacy of building the transit tunnel.

Another wasteland in the middle of downtown that G-20-goers might visit is the flattened construction site that used to be Market Square.

Once upon a time, before City Hall planners began demolishing and rebuilding huge chunks of downtown in the 1950s; it was what urbanists are supposed to encourage: an actual square with markets.

Then, in the 1960s, the city took it over and transformed it into a poorly designed, commerce-free urban park with trees, grass and heavy city bus traffic. The public space delighted crowds of lunching office workers at midday but the rest of the time it was a lawless playpen for about 100 homeless people, drunks and drug pushers.

Today the area around Market Square, last refurbished in the 1990s, hardly has a live store or restaurant left standing. It is waiting to be turned into its next reincarnation – a $5 million European-style piazza with no vehicles piercing its heart and no low walls and green spaces for social misfits to reside.

On one edge of battered Market Square is Fifth Avenue, which has been tortured constantly by City Hall for about 25 years.

In the early 1980s, its street surface was torn up for several years so the city’s rinky-dink light-rail subway could be built beneath it. Not long after that, Fifth Avenue was rendered virtually impassable to shoppers for a couple years while the city slowly redid its sidewalks and curbs.

Then, in the late 1990s, Fifth was targeted by City Hall for a preposterously stupid and destructive redevelopment scheme.

The crude 1960s-style renewal project would have misused eminent domain power to clear-cut Fifth Avenue and Forbes Avenue, wipe out nearly 100 businesses and build what amounted to an outdoor suburban mall anchored by a Nordstrom store.

Fortunately, that plan was miraculously stopped by an alliance of preservationists and property rights defenders. But is it any wonder that after a quarter century of torture by city planners Fifth Avenue became “dilapidated” and in need of serious redevelopment?

As G-20 attendees will learn if they bother to walk a few moments from their hotels, the nightmare on Fifth Avenue continues. Its northern end is currently being torn down, fixed up, blocked to pedestrians or under construction.

PNC Financial is putting the final touches on its new 23-story, $178 million headquarters – which received $48 million in state and local subsidies and wiped out half a block of retail storefronts. Meanwhile, up the street, the lovely stone tomb the city erected in the late 1990s for Lazarus has been all but given away to a local developer who’s converted it into a pricy condo and office space that still has 32 of its 65 units to sell.

Whenever the national media rediscover the glories of Pittsburgh’s clear skies and affordable livability, which they seem to do every four years, they never stick around long enough to note the failings of its governments and politicians.

Taxes on property and people and businesses are too high. The city schools are absurdly expensive and ineffective. The roads and 1950s parkways are old, narrow and crumbling. Public services are often poor or costly. Unions and Democrats wield the sort of uncontested political power that’s never good for a municipality.

Yes, it is still true, as the national media and local booster sector never tire of repeating, that the “City of Champions” and its suburbs are a great place in which to live, raise a family, grow old and die peacefully.

With its famous three rivers and hills and bridges and skyscrapers and hillside homes and urban neighborhoods and spectacular views and historic downtown buildings, Pittsburgh is rich in natural and man-made charm.

Toss in a cost of living 17 percent below the national average and low crime rates, lots of good affordable housing, major-league super-teams like the Steelers and Penguins, great museums like the Carnegie and top universities like Carnegie Mellon and Pitt – Pittsburgh does deserve to be ranked highly on those meaningless most-livable city lists.

It’s also true – as some in the national media latched on to earlier this year – that compared with many other parts of the country, Pittsburgh has not suffered greatly in the current recession.

Pittsburgh has an unemployment figure lower than the national average, a very low home-foreclosure rate and stable-to-slightly-rising housing prices.

But Pittsburgh’s good fortune was not, as out-of-town media claimed, because its wise leaders had figured out how to dodge a severe economic downturn. Or because – as President Obama has been led to believe – the region’s post-industrial “eds and meds” service economy is particularly healthy or even resilient.

Pittsburgh’s relatively impressive economic statistics are pretty much the 30-year norm for Pittsburgh – in times of national booms or busts. They probably won’t change for the better unless the spectacularly rich Marcellus shale natural gas deposits lying underneath western Pennsylvania are exploited, which may not happen for decades or ever happen at all.

There’s one thing about Pittsburgh’s future that is a near certainty: It’s going to have fewer residents next year than it has today.

Since the mid-1990s, Pittsburgh has had more deaths than births each year. Between 2000 and 2006, in fact, it had 21,045 more deaths than births, earning it the distinction of being the largest metropolitan area where deaths outnumber births.

That negative ratio wouldn’t be so bad if immigrants from anywhere else were flocking to Pittsburgh. But they aren’t. Metro Pittsburgh has the lowest percentage of foreign-born residents of any major city – 3 percent – compared to 12.5 percent nationally.

Pittsburgh has only about 7,000 immigrants from Latin America – second to the 7,800 who hail from India. Only 16,000 international immigrants arrived in metro Pittsburgh between 2000 and 2006, dead last among the 25 largest cities.

Post-industrial decline, out-migration, too many older people, more deaths than births, too few immigrants from Mexico and Georgia – they’ve all contributed to Pittsburgh’s incredible six-decade population decline.

In 1950, Pittsburgh was the country’s 12th biggest city. It had 676,806 citizens in a metropolitan area of about 2.5 million.

Today the metro population, ranked 22nd, is down to 2.35 million and Pittsburgh’s surviving population of 310,000 live in the country’s 59th biggest city – right behind Aurora, Colo., a growing municipality that will never have to worry about getting stuck with hosting a G-20 summit.

Photos by Bill Steigerwald.

Bill Steigerwald, a free-lance libertarian writer who recently retired from daily newspaper journalism, loves his native Pittsburgh but hates the political and corporate power brokers who've been damaging the city for 60 years. His columns are archived at the Pittsburgh Tribune-Review and his 2000 article for Reason magazine on the city's abuse of eminent domain powers is here.

Play It Cool at the G-20, Mr. President

Joel Kotkin — Tue, 22 Sep 2009 00:35:40 -0400

Barack Obama goes to this week's Pittsburgh G-20 with what seems the weakest hand of any American president since Gerald Ford. In reality, he has a far stronger set of cards to play — he just needs to recognize it.

Our adversaries may like our new president, but they don't fear him. And, on the surface, why should they? The national debt is rising faster than the vig for a compulsive, debt-ridden gambler. And our primary rivals, the Chinese, continue to put the squeeze on American producers by devaluing their currency, subsidizing exports and penalizing imports.

When the Chinese threaten to call in their debts, they can count on Timmy Geithner to kowtow like an obedient vassal. Some of Obama's most important supporters — like Warren Buffett and The New York Times' Thomas Friedman — have discovered what Friedman calls "the great advantages" of autocracy over our cockamamie, boisterous democracy.

From Virgil, Maecenas and the court of August to Hitler-admirers Henry Ford and George Bernard Shaw, as well as Stalin-fan Max Eastman, imperial scribes and money lenders have long demonstrated a weakness for even the worst autocrats. But our bedraggled democracy may have a lot more aces to play than many recognize.

Just look at the other players around the table. French President Nicolas Sarkozy, when not worrying about his (lack of) height, tells his countrymen to stop worrying about gross domestic product. Productivity, one presumes, doesn't mean as much as a good baguette, long vacation or wet kiss from a former model.

Across the channel, Prime Minister Gordon Brown seems determined to take the Good Ship Brittania further underwater. According to Tony Travers of the London School of Economics, Britain, with the exception of London, is already well on its way to becoming "a second- or third-tier country." And as my colleague Ryan Streeter points out, New Labour's response to the economic crisis — basically raising taxes and doubling down on regulation — doesn't seem a formula for a vibrant economy.

Germany, Italy, Spain and the rest of E.U. face equally daunting problems. These "progressive" role models suffer from unsustainably low birthrates, and many face a future more Islamic than European. Their "green" rhetoric may thrill some fans in the U.S., but these economies still run largely on oil and natural gas, which makes them ever more dependent on the autocrat of all — Russia.

And Japan, once considered the mega-tiger of the future by American policy wonks, is transforming itself into something of a post-modern pussycat. It won't take immigrants even as its population begins to shrink. Largely dependent on exports, its new government does not like globalization and wants to expand its welfare state. Moreover, Japan seems to be wobbling toward a future as a quiescent vassal for the Greater Chinese East Asian sphere.

So how does America compare? Let's start with the basics. The U.S. is the only major advanced country that enjoys a steady population increase. Yes, immigrants are driving much of that growth, but our newcomers are generally very different from the largely alienated and isolated Muslim communities now nesting in Europe. America's Mexicans, Chinese, Indians, Armenians, Caribbeans and Africans — and more pointedly Arabs and Iranians — do not constitute a hostile "them." Instead they are the ones redefining us by adding new dimensions to what Nathan Glazer once described as "a permanently unfinished country."

Of course, it helps to be the only serious global military presence in the world. A strong military represents an invaluable asset in a world dominated by autocrats and lunatics. That doesn't mean Obama should swagger like a Viagra-enhanced neo-con. He just needs to follow Teddy Roosevelt's dictum: Speak softly, but keep a hold on that big stick.

A powerful military and better demographics represent just part of America's strong hand. Compared with the E.U., Japan, China or even India, the U.S. remains phenomenally rich in resources.

Take our most basic need: food. The U.S. has the most arable land in the world and is its largest food exporter. Our $1.4 trillion food sector accounts for 12% of our economy, and prospects for expansion are enormous. By 2050, the population of the planet will be around 9 billion people — up from 6 billion today. More than 85% of the world's population will reside in developing countries, most in cities, and they will constitute a gigantic future market.

Equally important, the U.S. is sitting on huge energy resources. Of course, renewable fuels should become a major, even dominant, factor, but in the short- and maybe mid-term, oil, gas and even coal will continue driving the economy. The Great Plains and even the Northeast, particularly Pennsylvania, have enough natural gas to become a junior Abu Dhabi.

Furthermore, despite its many weak links, our industrial base remains the most advanced in the world. If mindless "green" policies don't force us to dismantle it, we could produce, through the use of new technology and a better-trained workforce, virtually everything we buy from the Chinese and the Europeans.

This is not to argue for strict protectionism. But right now we buy almost $4.50 from the China for every $1 we sell there. China's trade with us is worth 13 times to its economy what our trade with them is worth to us.

Fundamentally, this means that the Chinese are more exposed to a potential trade war than we are. Without rising exports to the U.S., China's leaders could face massive unemployment and internal unrest. For us, reducing Chinese imports means somewhat higher prices at Wal-Mart — and perhaps more vigorous business with better partners such as Mexico, whose future prosperity is directly tied to ours.

All this suggests that Obama has more leverage to demand better trade terms than some might think. There's nothing in the Constitution that mandates that Americans be the world's trade chumps. So you want trade war, President Hu? Give him a little Clint Eastwood. Make. My. Day. Then give them a wink or a chance to think about it.

How about the $1.5 trillion that the Chinese are holding? Well, they could call in their $1.5 trillion for yen or euros, ruining those economies by inflating their currencies. Polish zlotys? Iranian rials?

Of course, losing Chinese investors and cheap products would hurt in the short term, but it could prove beneficial in the long run. After all, during World War II, we learned to thrive without German machinery or Southeast Asian rubber. Best of all, a Chinese withdrawal could force Washington to live on a budget, just like the rest of us.

None of this suggests that Obama should discard his charm and morph into a svelte Dick Cheney. America's preeminence rests on far more than missiles, resources, land or machines. The U.S. is more than a geographic place, or the home of a race, but, as Lincoln noted, the great human experiment about self-government and individual aspirations.

Whatever his faults — and there are plenty — Obama epitomizes this ideal with his very being. When he arrives in Pittsburgh, our president should play the American hand like the guy who knows he holds aces in the hole.

This article originally appeared at Forbes.

Photo: White House Photo/Pete Souza

Baseball Goes For Broke

Matthew Stevenson — Sun, 20 Sep 2009 23:18:40 -0400

Other than the banking business, is there an industry more dependent on government handouts, sweetheart tax breaks, and accounting gimmicks than major league baseball?

What other than a baseball depletion allowance explains the economics of a team like the New York Yankees, which is paying Alex Rodriguez $275 million over ten years while building a new $1.3 billion stadium and charging front row season tickets holders $800,000 for a box of four seats?

If the rules of baseball included free enterprise, the Yankees would be playing on a diamond in Central Park, and skyboxes (which would not be deductible business expenses) would be limited to nearby apartment buildings.

What accounts for all the growth in baseball economics — the salaries, the extortionate ticket prices, the new stadiums — is that the game varies little from some nineteenth century oligopoly trust, not unlike J.P. Morgan’s railroads or Andrew Carnegie’s steel mills.

Let’s start with the basics: Since 1922, baseball has enjoyed anti-trust exemption, which means that league owners (best understood as robber barons) cannot move teams about willy-nilly. At the same time, the law makes it nearly impossible for competitors to establish rival competing franchises.

The Yankees coughed up $1.3 billion for their new Yankee Stadium (of which local and state government are in for about $520 million) with the knowledge that neither the Royals nor the Pirates are allowed to move their home games to the Bronx or Brooklyn.

The reason state and municipal governments — not just in New York, but all over the country — put taxpayer money into stadium white elephants is because voters identify more passionately with their professional teams than they do with their local politicians. Imagine the vote in New York if the choice was between Derek Jeter and Governor David Patterson?

Just because modern baseball is fixed with more precision than the 1919 World Series was does not mean that the game (or at least a number of its teams) will not someday go bankrupt.

Anti-trust exemptions, Tammany Hall municipal bond financings, and incestuous cable franchise awards may explain why teams like the New York Mets feel that they can spend $12 million a year on pitcher Oliver Perez. But it does not mean that they will be able to cover their obligations when the economy goes O-for-August (as once happened to Darryl Strawberry).

To best understand baseball economics, think of the sport as similar to the investment banking business: a few large market firms (that have monopoly pricing power and cozy government relations) and then a lot of boutique establishments betting the franchise on some out-of-the-money option (Milton Bradley, Alfonso Soriano, and Alex Rios come to mind). The 2009 payroll for the Yankees is $201 million; for the Florida Marlins, it’s $36 million.

To close the gap between rich and poor teams, municipalities from Philadelphia ($173 million) to Seattle ($392 million) have subsidized new stadiums, on the hope that sky-boxed, sellout crowds will allow team owners, usually mayoral pals, to pay for free agents. In turn, winning teams are to do for the local economy what the stimulus money may fail to achieve, namely, provide faith in the political system and interest cover for outstanding municipal bonds.

Keep in mind that the baseball season is shorter than that for gladiolas. Many teams are out of the playoffs by July 4th, which means that the big, revenue-paying crowds must be attracted in the first three months of the season...when Kansas City fans still believe that they have a chance. Not long ago a double header between the Reds and Pirates started and ended with about seventy-five, yes that's 75, fans in the stadium.

Is it any wonder that the players union and many team managements, the Yankees included, turned a blind eye to steroids in order to pump up their products? In banking, executives went into sub-prime, hedge funds, and pyramid schemes to cover their bonuses. In baseball, the clear and the cream explain how the owners figured they would be able to afford the likes of Manny Ramirez.

No one quite knows the precise debt figures of major league baseball, but the liability side of the balance sheet looks something like this: the league itself funds money-losing teams with a revolving line of credit, drawn against anticipated television rights. That’s like borrowing against next year’s equity in a house that has yet to be built.

As for team debts, some franchises backload free agent contracts in order to defer liabilities until a new general manager may be on the job or the team has won a wild card game. Plus many teams have huge debts on new stadiums and skyrocketing payrolls. Even the Detroit Tigers, who play in a ghost town, run up $115 million per year.

By my calculations, the Tigers would have to attract an average of about 40,000 fans per game, paying $35 a ticket, just to break even. In 2008, they averaged 25,000 fans a game, and I bet a lot of the unemployed autoworkers who attended didn’t pay $35 a ticket. Some of the debt service for the new Detroit stadium needs to be covered with casino money from an Indian reservation. (Pete Rose’s problem was that he played in casinos but did not own one.)

To be sure, the plug figures in major league baseball’s finances are the local and national television contracts, not to mention the intramural luxury tax that has rich teams helping out the poor. National television revenue amounts to about $400 million per year, much of which is shared with the teams. That’s another attraction of anti-trust exemption; it limits supply. Why share the pie with, say, a hundred owners?

Total revenue in the sport is about $6 billion, or an average of $200 million per major league team. Overall, baseball economics would work only if fans were prepared to spend $200 per game on warm beer and cold hot dogs, and renew cable television subscriptions to get games that have little meaning after July.

The model is also predicated on the assumption that corporations can write off $800,000 in season ticket subscriptions, that the Internet does not blow away TV ads, and that Mariners fans will show up in September to watch their $99 million team wallow 10 games out of first place.

If I had to bet on an MLB franchise going broke, my action would be on the Mets, who after all play in the House That Sub-prime Built, “Citi Field.”

Not only did the owners, the Wilpon family, bet the ranch with Bernie Madoff, but they also spent $850 million on the new ballpark, and $25 million (over four years) on the likes of second baseman Luis Castillo. Attendance is down about 20 percent from 2008, and that’s before the team collapsed in the standings or bankrupt ex-Met Lenny Dykstra started sleeping in his car.

Of course, baseball is no more exposed to the vagaries of the free market than is the banking business. Federally-funded banks, for example, can discount government-granted cable contracts, and pump money into the sport. Or a city like Washington can bailout another failing franchise, as it did with the Expos, and tax dollars can build a second $611 million stadium near the Potomac.

Anti-trust exempted owners can even mothball a few teams (as they tried to do to the Twins a few years back), and boost the revenue share in that manner. Think of Commissioner Bud Selig’s office as a variant on the Texas Railroad Commission.

Nevertheless, financial failure is nothing for baseball to dread. The only reason the Yankees could acquire Babe Ruth from the Red Sox in 1919 is because the Boston owner needed cash to invest in the Broadway show, “No, No, Nanette.” Maybe if they are squeezed, the Wilpons can swap Oliver Perez for some of their Madoff paper? At the very least they could get behind the sure hit, “Bye, Bye, Bernie.”

Losing Touch With the Changing Definition of "Community"

Owen McShane — Sun, 20 Sep 2009 00:11:08 -0400

Mathew Taunton opens his review of “The Future of Community – Reports of a Death Greatly Exaggerated” (Note 1) with the observation that:

“Community is one of the most powerful words in the language, and perhaps because of this it is frequently misused. A profoundly emotive word, it is also a coercive one, and a key political buzzword in modern times. That community is being eroded in modern Britain is a matter of cross-party consensus, and it is also widely agreed that one of the state’s roles is to devise means of counteracting the decline of communities.”

It is refreshing to see a writer prepared to use ‘community’ and ‘coercive’ in the same sentence. Taunton reminds us that practically all urban architecture now attempts to force social solidarity into existence, and, by definition, condemns those who do not conform for daring to exercise their choice.

Unfortunately many of these attempts to coerce community into existence tend to repress or subvert the informal processes through which people interact of their own free will.

So why do so many influential people in the UK, the United States, and other countries of the New World, hold this ‘consensus’ that communities, like morality, are in decline, requiring government interventions to restore them to good health, within some reborn urban village?

In the past, communities were primarily place-based, if only because people could not travel very far or communicate over any great distance. But as civilizations have developed, this interaction between transport and communication has reshaped the prevailing structure and meaning of communities, as each reacts with each other. The printing presses of Renaissance Europe enabled the development of scientific and religious communities, as well as a host of “communities of ideas” both conservative and revolutionary.

Last century the establishment of national broadcast networks and television helped constitute national communities of listeners or viewers, which in turn reinforced the communities of “us” and “them” through the great global conflicts of that century.

The Internet has now created a whole new class of virtual communities or tribes. Many wage their tribal wars with considerable venom.

However, these internet tribes, too, simply build on the superior transportation technologies that have enabled us to physically flee to find more friendly groupings of associates, or to avoid the ‘neighbours from hell’. Of course, place remains important to communities based on activity – people continue to visit their golf course, football field, church, beach, or shopping mall. Modern transport has gifted us with ready access to them all.

Similarly, communications technology plays an important role in communities of shared interests or ideas – the blog site, the book club, talk-back radio, and the specialist channels on cable TV or YouTube.

However, rigidly place-based communities can also be coercive traps.

In the late sixties I wrote a paper at U.C Berkeley drawing on surveys that showed that “neighboring” was more intensive in mobile-home parks than in most suburbs or inner city areas, precisely because the residents felt that if they fell out with their neighbors they could always move on. Neighboring is not without risk.

Similarly, people in camping grounds felt free to share coffee, drinks and dinners around the barbecue, precisely because they know they need not meet again.

Many retirees have discovered the pleasures of the summer nomadic lifestyle spent driving from location to location in a well-appointed motor-home.

One retired couple (my American god-parents) were keen “rock-hounds” during the seventies and spent their summers driving their motor-home from one rock-rich territory to another, attending gatherings of rock-hounds along the way. They combined technological mobility, with place-based communities, and communities of common interests within the one retirement experience.

However, these contemporary communities, no matter how plentiful and rewarding, fail to meet the expectations of urban planners trapped within their general theory of architectural or spatial determinism. They remain convinced that urban form and places determine our behaviour. Yet in reality, our behaviour and preferences actually determine how and where we chose to live, work and play.

They may also be responding, in their reflexive way, to a genuine loss of sense of political community, a loss that may be more deeply felt that we think.

For the last forty or fifty years, through most of the New World jurisdictions, ‘reform’ of Local Government has meant ‘amalgamation’ on the presumption that ‘bigger is better’, probably because this coincided with the management theories of the sixties, which presumed conglomerates were the way of the future, and that all corporate mergers would benefit the shareholders and customers alike.

The track record of such local government ‘reform’ has given scant support to the theory. Forced amalgamations in particular have proved to be disastrous. And many of the voluntary ones – i.e. those driven from the bottom up – have fared little better.

These reform programs have generally been prepared to dilute or even ignore the traditional emphasis on ‘community of interest’ in favor of ‘economies of scale’ or the benefits of ‘regional integrated planning.’ In the end citizens have generally, and genuinely, lost contact with their Mayors and Councilors. They used to meet the Mayor in the street and have a chat about their concerns. Now they have to phone, leave voice messages and wait for the return call that never comes.

Political authority, now often housed in some distant place, is more remote than ever. You can’t meet it, let alone beat it.

Citizens may know their ward councilor but their ward councilors explain they are always outvoted by a majority who has no interest in any ward but their own. This is why large councils are actually less effective at delivering satisfaction than small ones. A small council is likely to be serving a single community of interest. But if one neighborhood wants to build a municipal swimming pool, all those who live more than an hour’s drive away understandably wonder why they should pay for a pool they will never use.

This bias towards larger and larger local bodies – enhanced by the rapid population growth in many peripheral areas and regional towns – has been given a massive boost in recent times by ‘Smart Growth’ planning theory. This approach necessitates large areas of regional governance so that people cannot escape from the planned densification that most independent areas would likely reject.

The Metro planners also often seek to extend their boundaries into the rural areas so as to prevent people and businesses locating where they prefer. Instead it is all determined by where the planners say people and business should go – for their own good, of course.

It may well be that when the central planners try to create “place-based communities” they are responding to a genuine problem, but have chosen the wrong tool-box to fix it. Community can not be imposed from above and large government is clearly the wrong way to nurture it.

A better approach may be to create a new system of local governance controlled by smaller, truly local councils, based on identifiable communities of interest, which are able to freely associate with other organizations if they believe it will provide services and infrastructure beyond their financial means.

We should learn to define the services we need, and then match them to the appropriate organization, rather than trying to find the one or two magic sizes that can cope with all our needs.

We no longer need to accept being re-organized from above; the internet allows even smaller units access to sophisticated information. We have a wonderful opportunity to take control of our destiny through a new world of local government in which the people themselves decide on their common communities of interest and set up novel and innovative joint-management entities where economic efficiency and common sense demand such arrangements.

Note 1: The Times Literary Supplement, July 31, Mathew Taunton’s review of a collection of essays “The Future of Community – Reports of a Death Greatly Exaggerated”, by Clements, Donald, Earnshaw and Williams, Editors.

Owen McShane is Director of the Centre for Resource Management Studies, New Zealand.

Traffic Congestion, Time, Money & Productivity

Wendell Cox — Sat, 19 Sep 2009 00:19:57 -0400

It is an old saying, but true as ever: “Time is money.” A company that can produce quality products in less time than its competitors is likely to be more profitable and productive. An urban area where employees travel less time to get to work is likely to be more productive than one where travel times are longer, all things being equal. Productivity is a principal aim of economic policy. Productivity means greater economic growth, greater job creation and less poverty.

Congestion Costs: This is why such serious attention is paid to the Texas Transportation Institute’s (TTI) Annual Mobility Report, which estimates the costs of traffic congestion, principally the value of lost time as well as excess fuel costs. The fundamental premise, long a principle of transportation planning and policy, holds that more time spent traveling costs money, to employers, employees and shippers.

Mobility & Productivity: Groundbreaking Research: Yet, until fairly recently, very little research was available to document the connection between travel times and the productivity of urban areas. The pioneering work has now been done by Remy Prud’homme and Chang-Woon Lee at the University of Paris. From reviewing French and Korean urban areas, they showed that productivity improves as the number of jobs that can be reached by employees in a particular period of time (such as 30 minutes) increases.

Focused US Research: US reports on mobility’s role in reducing poverty came to similar conclusions. A middle 1990s report for the Federal Transit Administration found that low income households in inner city Boston were at a particular disadvantage in obtaining jobs in the fast growing suburbs because transit service was either spotty or non-existent. Margy Waller and Mark Allen Hughes noted in a report for the Progressive Policy Institute that “In most cases, the shortest distance between a poor person and a job is along a line driven in a car”. Steven Raphael and Michael Stoll at the University of California found that access to an automobile nearly halved the difference between African American unemployment and that of non-Hispanic Whites.

New, Comprehensive US Research: But it was only last month that the Prud’homme-Chang research was broadly replicated in the United States. The Reason Foundation published “Gridlock and Growth: The Effect of Traffic Congestion on Regional Economic Performance” by David Hartgen and M. Gregory Fields, which looked at job accessibility in 8 US urban areas (Atlanta, Charlotte, Dallas, Denver, Detroit, Salt Lake City, San Francisco and Seattle, ). Hartgen and Fields chose a 25 minute commute period (the approximate national average one-way work trip) to evaluate accessibility and found, generally, that each 10 percent increase in the number of jobs accessible in that period resulted in a 1 percent increase in productivity, as measured by the Gross Domestic Product of the urban area. They also found that if free-flow traffic conditions could be established, considerable improvements in urban productivity would be achieved, because employees could get to more jobs in less time. At the same time, they show that traffic congestion will worsen considerably by 2030 under present plans as adopted by metropolitan planning organizations.

Hartgen and Lee looked at five sample work destinations in each urban area, the central business district, the airport, a university, a mall and a major suburb. The results by sub region were surprising:

“Contrary to conventional planning wisdom, the research suggests that regional economies might be more dependent on access to major suburbs, malls and universities than on access to downtowns or airports. Not only are models of productivity somewhat stronger for these sites than for CBD accessibility, but access to them has a stronger effect on regional productivity.”

The research indicates that achieving free flow traffic conditions to major suburbs, universities and malls would increase gross domestic products by from 6 to 30 percent. The gain in central business districts would be between 4 and 10 percent, while airports showed the least potential for adding to urban productivity, at 2 to 8 percent. These productivity gains are far from unachievable. Hartgen and Fields find that there is more than enough transportation funding in each of the urban areas to remove severe traffic congestion by 2030. These conclusions find fault with the growing emphasis by many in Washington to force people out of cars and into transit. Transit is simply not viable for the non-downtown markets, which have the greatest potential for improving job creation and economic growth.

Hartgen and Fields also show that achieving free flow operations in the studied urban areas would generally produce more in increased tax revenues by 2030 than the costs associated with reducing it.

American Urban Areas: Superior Productivity and Mobility: American urban areas are among the most mobile in the world. When compared to international urban areas of similar size, work trip travel times in the United States tend to be less. That is one of the reasons that US metropolitan areas are the most productive in the world.

For example, the Japanese megacity of Osaka-Kobe-Kyoto has somewhat fewer people than the New York consolidated (metropolitan) area and slightly more than the Los Angeles-Riverside consolidated area. Osaka-Kobe-Kyoto has perhaps the world’s second most heavily patronized transit system (after Tokyo), which carries at least 50% as many riders on its rail lines alone as all of the transit systems in the United States. Yet, in Osaka-Kobe-Kyoto, workers spend 20 percent more time traveling between work and home each year as New Yorkers. They spend 40 percent more time commuting than workers in Los Angeles, despite its having the worst traffic congestion in the nation. The difference between Osaka-Kobe-Kyoto and New York and Los Angeles lies in the fact that in the two American metropolitan areas, most workers travel to work by car, to destinations throughout the areas (Note 1).

Naïve Proponents of Poverty: However, not everyone understands that time is money. Some members of the US Senate and House of Representatives and Washington special interests would seek to restrict highway funding, making traffic congestion even worse. They would seek to reduce the number of miles that Americans travel by car in an attempt to achieve marginal greenhouse gas emission reductions (that is before the higher greenhouse gas emissions that occur in slower, more congested traffic is factored in). Secretary of Transportation Ray LaHood has indicated a desire to coerce people out of their cars.

Transit: Inherently Less Productive and Expensive: One common claim is that transit will provide alternative mobility. However, transit trips tend to be twice as long as car trips and no transit vision has ever been put forward that would replicate the efficiency of the automobile. There is good reason for this, since such a transit system would cost on the order of a metropolitan area’s entire income, each year, to operate and amortize. And, transit is expensive. The recent compact cities policy lobbying paper, Moving Cooler, shows that transit is far from a cost effective means for reducing greenhouse gas emissions, costing 20 times the maximum $50 per ton guideline as established by the United Nations Intergovernmental Panel on Climate Change.

None of this is to deny the inestimable value of transit in serving the nation’s largest downtown areas (such as Manhattan, Brooklyn, Boston, Philadelphia, Chicago and San Francisco). However these locations are commercial hyper-density aberrations in much larger low-density seas and are exceptional among America’s more diffuse metropolitan areas. Rather, the problem is overselling transit in markets that it cannot competitively serve. Disinvesting in highways (forcing people into transit) makes no more sense than to require the injection of blood clots into the bloodstreams of patients under the guise of improving the health and livability of patients.

It’s the Economy, Stupid: The United States has had enough recent experience with rising unemployment and falling economic performance. It hardly needs public policies that would increase travel time, reduce productivity and increase poverty, no matter how fervently and sincerely held are the misconceptions of the proponents. Hartgen and Fields have provided an invaluable work that could not have come at a better time.

Note 1: Calculated from United States Bureau of the Census American Community Survey and Japan Statistics Bureau data.

California Golden Dreams

Joel Kotkin — Fri, 18 Sep 2009 10:57:53 -0400

California may yet be a civilization that is too young to have produced its Thucydides or Edward Gibbon, but if it has, the leading candidate would be Kevin Starr. His eight-part “Dream” series on the evolution of the Golden State stands alone as the basic comprehensive work on California. Nothing else comes remotely close.

His most recent volume, “Golden Dreams: California in an Age of Abundance, 1950-1963,” covers what might be seen as the state’s true Golden Age. To be sure, there is some intriguing history before—the evolution of Hollywood in the 1920s, the reaction to the Depression and the fevered buildup during the Second World War—but this was California’s great moment, its Periclean peak or Augustan age.

“It was a time of growth and abundance,” Starr writes in his preface, and provides the numbers to prove it. In 1950, California was home to 10.7 million, making it a large state to be sure, but hardly a dominant one. By the early 1960s, the population passed 16 million, slipping by New York state in population.

Yet it was not a mere matter of numbers that made California so appealing or important. It was the idea of California as not only a part of America, but also something more. To millions in America and around the world, California grew to mean opportunity, sunshine and innovation.

The state’s business elite, for example, did not identify with the button-down hierarchy that sat atop teeming New York, and its second-tier competitors like Chicago. The leaders of Los Angeles would never consider it a second city, but simply a different, and generally, better one. There was no need for the excessive Manhattan penis envy that led Chicago to keep trying to build higher buildings than Gotham.

In a different way, San Francisco’s top executives also did not crave that their city be New York—it was always more beautiful, nuttier, freer and more creative than Gotham. What they shared with their downstate rivals was a sense of superiority over the old part of the country. If anything, they felt a mixture of contempt—particularly the conservatives—and condescension about an older, decaying society that fixated on tradition, order and breeding.

“California,” Cyril Magnin, scion of one of San Francisco’s great families, told me back in the late 1970s, “has recaptured what America once had—the spirit of pioneering. People in business out here are creative; they’re willing to take risks.”

Geography also plays a role here. Leaders in California, starting at least by the turn of the last century, looked out across the Pacific and saw themselves as part of an emerging shift from Europe to Asia, a process that continues and will dominate the rest of this century. This connection, suggested Pete Hannaford, a public relations executive and partner of Ronald Reagan’s Svengali, Michael Deaver, took on an almost Spenglerian inevitability. “Out here there’s a sense of being where the action is,” Hannaford believed, “with Japan and the Pacific.”

Starr captures these attitudes, which already had become deeply entrenched by the late 1950s and early 1960s. There was, as he writes, “a conviction that California was the best place to seek and attain a better American life.” However, it was more than money or power. It was about the quality of life. Success in California was not a matter of living by the rules, sheltered in a dark Manhattan apartment, but about the seduction of the physical world. In California, Starr writes, “Eros vanquished Thanatos.”

Yet Starr’s book is not merely about the rich, the powerful, and even the culturally influential. He finds his primary muse not in the Bohemian realms of San Francisco or the mansions of Beverly Hills, but in that most democratic of everyman’s places, the San Fernando Valley, the place author Kevin Roderick aptly dubbed “America’s Suburb.”

To see long excerpts from “Golden Dreams,” click here.

“The Valley” lies over the Santa Monica Mountains from the Los Angeles Basin. As late as the 1930s, it was largely an arid district of ranches, citrus orchards and chicken farms. The area’s postwar expansion was rapid, even by California standards. Between 1945 and 1950 alone, the Valley’s population more than doubled to nearly 500,000. By 1960, it had doubled again.

This growth was far more than the mindless bedroom sprawl often depicted by aesthetes and urban intellectuals. People in the Valley did not depend largely on the old part of Los Angeles the way, for example, Long Island lived off Manhattan. Most of the Valley’s growth was homegrown—driven by local industry such as aerospace, entertainment, electronics and until the 1960s automobiles.

Even today, the Valley has very much its own economy and sense of separation from Los Angeles. However, more important, the Valley was, first, a middle-class phenomenon. A cosmopolitan of the first order, Starr manages to chronicle California’s artistic and literary elites, but does not see in them the essence of the state’s appeal. Instead, he explores the everyday wonders of the Valley’s families, single-family homes and swimming pools—6,000 permitted in one year, between 1959 and 1960!

As a Valley resident myself, I can still see the basic imprint of that culture, what Starr calls its “way of life.” Compared to the tony Westside and hardscrabble east and southside of Los Angeles, the Valley has remained a relatively safe “child-oriented” society, with a big emphasis on restaurants, malls, ball fields, churches and synagogues.

The single-family tracts, of course, have changed hands, and the majority of the owners have changed. The primarily WASP and second-generation Eastern European Jews are still there, but they have steadily been augmented, and sometimes outnumbered, by others—Armenians, Orthodox Jews, Israelis, Persians, Thais, Chinese, Mexicans, Salvadorans, African-Americans and at least 10 groups I somehow will neglect and no doubt offend.

Yet the essential way of life forged in the 1950s and 1960s has remained a constant, and that remains the source of California’s attraction. Of course, it is no longer just a “Valley” phenomenon. As California has grown, there are many such places, outside San Diego, in Orange County, the Inland Empire, outside Sacramento, Fresno and scores of other towns. Almost all have the same imprint—an auto-dominated culture, dispersed workplaces, pools and a culture of aspiration.

In the ensuing decades, perhaps to be covered in Starr’s next book, this archetype evolved mightily. The San Gabriel Valley, once a plain vanilla suburban appendage, has morphed into the country’s largest Asian suburbia, complete with a shopping center jokingly referred to as “the Great Mall of China.” The often-monotonous housing tracts between San Jose and Palo Alto, on the San Francisco Peninsula, also attracted hundreds of thousands of Asians but also produced something equally astounding—the Silicon Valley, the world’s leading center for technology.

These suburban developments long ago surpassed in importance the urban roots of California metropolises. A serious corporate center during the time covered by Starr’s volume, San Francisco has devolved in a ultra-politically correct, hip and cool urban Disneyland for Silicon Valley, providing good restaurants and housing for those still too young to crave a house on the Peninsula. The San Gabriel Chinatown long ago replaced the older one in downtown Los Angeles as the center of Asian culture and cuisine.

These places grew before the current malaise infected the state. As Starr points out, California based its ascendancy on two seemingly contradictory principles: entrepreneurship and activist government. Under Gov. Earl Warren, but also Goodwin Knight and finally Pat Brown, the state made a commitment both to basic infrastructure—energy, water, roads, schools, parks—and expanding its economy.

By the early 1960s, this system was hitting on all cylinders. New roads, power plants and water systems opened lands for development for farms, subdivisions, factories. Ever expanding and improving schools produced a work force capable of performing higher-end tasks, and capable of earning higher wages. New parks preserved at least some of the landscape, and gave families a place to recreate.

For Pat Brown, arguably the greatest governor in American history, this was all part of California’s “destiny.” Starr describes Brown’s California as “a modernist commonwealth, a triumph of engineering, a megastate committed to growth as its first premise.” Yet within this great modernist project was also stirring opposition, on both left and right, that would soon place this Golden Age at its end.

Many of the objections were legitimate. The Sierra Club and its many spinoffs rightfully saw the Brown development machine as threatening California’s landscape, wildlife and, in important ways, the appeal of its way of life. More careful controls on growth clearly were needed. The battle over the nature of those controls continues to this day.

Some more angry voices, then as now, targeted the very existence of suburbia, the dominant form of the state’s growth, and eventually sought its eradication. This struggle goes on to this day with a religious fervor, led, ironically, by the former and perhaps future governor, Jerry Brown, currently attorney general and leading Torquemada of the greens.

Minorities also began to stir amid the celebrations of the 1950s and early 1960s. Woefully underrepresented in the halls of power and the corridors of business, Asians and Latinos remained largely passive politically. However, by the early 1960s acceptance of exclusion was giving way to more assertive attitudes. Ultimately the massive immigration that swelled both their numbers in the 1970s and beyond would ensure these groups far more influence both on the politics and in the economy of the state.

Yet it was the African-American who would really upset the balance of the golden era. Never discriminated against as in the South, black Californians felt the lash of a thousand, often-informal exclusions. As the civil rights movement grew, with it less deferential attitudes, particularly toward the police, a powder keg was building. In 1964, the first year after the era chronicled in “Golden Dreams,” Watts blew up, shattering the comfortable assumptions of a progressive, post-racial state.

Finally, as Starr reports, there was mounting thunder on the right. The business elite and the middle class were financing the ever-expanding California state. They saw their money go to the poor, to minorities and state employees. Particularly annoying were the university students, many of whom were in open revolt against the state, in the mind of much of the public that had nurtured them.

By the early 1960s many of these latter Californians also were angry, but their rage would express itself not in riots, but at the ballot box, ushering in the age of Ronald Reagan. The period that follows “Golden Dreams” emerges as one of conflicting visions, between greens, students and minorities, on the one hand, and largely suburban middle-class workers and business owners on the other.

These two groups would battle over the next generation, with the advantage oscillating over time. Today the heirs of the protesters—greens, minority activists and former ’60s radicals—hold the political advantage, although the state they dominate has fallen on parlous times.

In retrospect, the golden era before these conflicts does indeed seem like a high point. The question now is whether California, down on its luck, will find a way to rebound, much as imperial Rome did after the demise of the Julian dynasty, or fall, like Athens, into ever more squalid decline. Does the state have a bright “destiny” ahead or only more ruin?

This, of course, will be the basis for another historical epoch. Let us hope Kevin Starr be around to chronicle it for the rest of us.

This piece originally appeared at Truthdig.com

Golden Dreams: California in an Age of Abundance, 1950-1963 at Amazon.com.

Olympics the Chicago Way

Fri, 18 Sep 2009 00:31:18 -0400

Most American cities chose not to bid on the 2016 summer Olympics and with good reason. With the exception of the 1984 Los Angeles games, the Olympics has proved a big time money loser in city after city. More often than not, it has been staged more for the prestige – think of Berlin in 1936 or China in 2008 – it brings to regimes, particularly autocratic ones.

In Chicago, prestige is important, but graft is the real king. In Chicago, one of the most corrupt big cities, the Olympics represents, more than anything, a grand chance for a giant heist.

Economists have a technical term for profiting from the political process: it's called rent-seeking. Chicago's politically favored businesses, unions, and insiders with ties to Mayor Daley and Alderman Burke have perfected this activity. The Olympics just provide another opportunity to clean up at the public expense.

This is how it works. On Chicago public works projects, those on the inside hope to get overpaid at the expense of Illinois and federal taxpayers. Now throw in the Olympics where opportunities for such activities have long been rife with corruption and you can understand the glee in the Chicago machine’s eyes.

Right now there isn’t any financial guarantee from the federal government. But Chicago's power elite hopes Rahm Emanuel, Valerie Jarrett, David Axelrod, and others can convince the Congress at some point to help with Chicago's Olympic sized costs if they get the 2016 games. They can always call it a “stimulus”!

Yet is the average Chicagoan thrilled at this prospect to get reamed? A recent Chicago Tribune/WGN poll shows a slide in public support:

Nearly as many city residents oppose Mayor Richard Daley's Olympic plans, 45 percent, as support them, 47 percent. And residents increasingly and overwhelmingly oppose using tax dollars to cover any financial shortfalls for the Games, with 84 percent disapproving of the use of public money.

The poll comes a month before the International Olympic Committee selects the host city for the 2016 Olympics. Chicago is competing against Tokyo, Madrid and Rio de Janeiro.

The new results show slippage from the 2-to-1 support found in a Tribune poll in February, and experts said the findings could hurt Chicago's chances.

But fading public support in Chicago could be overwhelmed by political factors. With 107 votes on the International Olympic Committee(IOC), the African votes are considered the swing votes. President Obama made a special appeal to the African IOC voters. WLS TV reported:

European IOC members may be inclined to support Madrid. Asian members may back Tokyo. There is one continent whose members are not aligned: Africa. Chicago's bid team traveled to Abuja, Nigeria, to meet with Africa's 16 IOC members, who may hold the swing votes.

The fear of cost overruns, a history of bloated union contracts, and fraud has tempered enthusiasm for the Olympics. Mayor Daley has had to promise tighter oversight on the whole Olympics process. Yet this has not prevented an effective grass roots opposition organization from springing up. No Games Chicago has been instrumental at raising questions of money and accountability, dampening public support for the games. No Games Chicago spokesman Thomas Tesser explains:

The City Council voted to give oversight of the City's Olympic commitments to Ald. Ed Burke, chairman of the Finance Committee. This is the final cruel joke played by the Council on the taxpayers. Burke has become a millionaire doing deals with firms that have business with the city and has collected millions in campaign contributions from firms doing business with the city. Pat Ryan, the chairman of the 2016 effort, contributed $3,000 to Burke. Burke didn't mention that he has ten clients who are major donors to the 2016 Committee, giving a total of at least $1 million in cash and services, and likely much, much more.

But, Alderman Burke isn't the only insider benefiting from the Olympics. Real Estate developer Michael Scott also stands to gain. The Chicago Tribune reports of Scott: "A member of Mayor Richard Daley's team working to bring the Olympics to Chicago has quietly arranged to develop city-owned land near a park that would be transformed for the 2016 Summer Games, potentially positioning himself to cash in if the Games come here."

Michael Scott is also President of the Chicago Public School board. The Chicago Sun-Times reported that Scott

has been subpoenaed to testify before a federal grand jury investigating how students are chosen for admission to some of the city's most elite public schools.

This new scandal might put in to question Secretary of Education Arne Duncan's leadership as CEO of the Chicago Public School system.

All the recent skepticism of the cost of the games couldn't stop Chicago insiders from getting the stunning vote of support from Chicago's City Council. This is still a one-party, all-machine, all-the-time town. In a vote of 49-0, the City Council showed that there is not a single vote to back the nearly fifty percent who oppose Mayor Daley's plans.

Michelle Obama will lead a Chicago delegation for the last pitch for the games in Copenhagen next month. Some speculate that President Obama will make a dramatic last minute appearance to make Chicago's case in front of the International Olympic Committee. No one knows for sure whether Chicago will get the 2016 games but if it does, it will be a grand feeding time at the trough for the insiders and ever bigger burdens on the less well-connected businesses and individuals who inhabit Chicago.

Steve Bartin is a resident of Cook County and native who blogs regularly about urban affairs at http://nalert.blogspot.com. He works in Internet sales.

Cap And Trade And The Smog Market Ripoff

Wed, 16 Sep 2009 23:53:00 -0400

Now that Senators have reconvened from summer hiatus, one of their first tasks will be to contemplate the greenhouse-gas cap-and-trade carbon market that President Obama would like to institute to blunt global warming. Their necks better be limber. Partisans of Keynesian, market-based regulations will undoubtedly point to the Midwest's federally run "acid rain" program to reduce harmful power-plant emissions as proof that giving industry profit incentives in cleaning up their operations can be successful. Regulation skeptics will wave that example off dismissively, urging Senators to swivel their heads for a look across the Atlantic, where the European Union’s Emissions Trading System has registered lousy results.

Whatever those markets do or don't foreshadow, if the American Clean Energy and Security Act of 2009 and its mandated cap-and-trade become law, a glimpse of an unintended — and unsavory — future may reside in the tale of the inscrutable businesswoman from smog-bound Southern California who scammed the area’s pollution exchange...twice (see my site, www.chipjacobs.com, for the newest revelations of a second scam). Rather than a tale of a dreamer’s demise, Anne Sholtz’s story is a bracing reminder that to create a market, no matter its aim, is also to inspire a class of people determined to game it.

If Wall Street traders can commodify sub-prime mortgages with impunity, and the Enrons of the world can manipulate energy markets like a pinball machine, imagine a future when tradeable permits for carbon dioxide and other heat-trapping gases are auctioned and swapped over the public’s head. A Heritage Foundation economist expects the action to hit $5.7 trillion in value, and many experts say it all adds up to an irresistible buffet for chicanery.

Few in Washington ever heard of Sholtz, 44, before last spring, when the former Caltech economist was sentenced in federal court to a year of home-detention and five years of probation for defrauding the nation’s first air pollution cap-and-trade market. Sholtz was cozy with the RECLAIM program and the bureaucrats who run it at the South Coast Air Quality Management District (AQMD). That’s because in the early-1990s she had helped design the concept as an adviser.

Her know-how proved dangerous. Between November 2000 and April 2001, Sholtz tried fooling one of her clients, a New York-based energy trader, into believing she could complete a fat, multimillion-dollar deal with what is now ExxonMobil Corp. when in fact she could not. Stringing executives at the client company along until she could reactivate a transaction, she emailed and faxed falsified sales documents, including phony invoices.

Pleasant, brainy and ever-hustling, Anne Sholtz was not somebody folks expected to see handcuffed. Her 2004-arrest by EPA agents on white-collar fraud charges shocked and mystified local environmental circles. She and her companies, Automated Credit Exchange and EonXchange, had boasted a heavyweight list of clients and financial partners, and had worked with the Dutch government on an emissions test-market. As one of California's rising green-entrepreneurs, Sholtz was a niche-celebrity with access to powerful politicians and regulators, and a hillside mansion, fine cars and whatnot to show for her ingenuity.

For our purposes, the reasons she’d risk all that matters less than the fact she was able to do so undetected. (You can read the entire expose here.) And that Obama’s proposed carbon market would look a lot like L.A.’s now 15-year-old smog bazaar. RECLAIM sets progressively lower emissions’ limits for roughly 330 of the Southland’s largest oil refineries, power plants and other manufacturers, and allocates credits calculated for each one. Companies that install new particle-trapping equipment or develop cleaner operations in other ways to reduce oxides of nitrogen and sulfur can sell their unused credits to peers who may exceed their allotment. Since 1994, there have been about $1 billion in trades, which brokers help negotiate, and about 40-million pounds of smog chemicals transacted.

AQMD contends that, after a languid start, its regimen has achieved its emission-cutting goals. At first, an over-allocation of credits to ease industry into the new system simply encouraged many companies to delay purchasing greener equipment. (Using the same logic, the current Obama-backed energy bill, sponsored by House Democrats Henry Waxman of California and Edward Markey of Massachusetts, would initially give away an eye-popping 85 percent of greenhouse-gas credits to cushion carbon-dependent states. This means dramatic emission reductions likely won’t happen for years.)

RECLAIM added another bold move to Southern California's environmental pedigree, a change that industry actually wanted. But in developing such an open-ended, boutique market officials essentially flaunted their gullibility to cheaters, scammers and profiteers. It took AQMD several years to learn of Sholtz’s deceit, and only then after nine of her clients complained about being cheated.

A year before that, in 2001, the air district had been blindsided by California’s electricity crisis, and the subsequent order by then-Gov. Gray Davis that power-plants run nonstop to prevent rolling brownouts. Speculators from Texas to New York with no industrial operations in the South Coast basin hoarded RECLAIM credits they knew utilities needed, later reselling them at huge markups. The market teetered near meltdown, and district brass had to yank power companies from the market.

Ironically, one reason AQMD officials were oblivious to Sholtz’s actions was because they’d nixed her very own recommendation during RECLAIM’s design phase to stamp each credit with identifying marks, somewhat akin to a bar code. Loose trade-reporting requirements added more vulnerability. As California's experience makes clear, building an incorruptible greenhouse-gas market may not be just formidable, it may be impossible, because the money and opportunities for deception are so tantalizing.

This May, two Republican congressmen skeptical of Obama’s cap-and-trade plan, Joe Barton of Texas and Greg Walden of Oregon demanded extensive answers from the EPA about the Sholtz case. Why, they asked, were so many case documents still sealed by the Justice Department? How could this have happened on regulators’ watch, and what does it portend for a greenhouse-gas market?

On their heels, AQMD executive officer Barry Wallerstein defended his market as virtually bulletproof to further criminality, while the EPA downplayed the matter as an isolated case. Those declarations occurred before documents emerged showing that Sholtz had told prosecutors during her 2005 settlement plea about “rampant” violations and graft by AQMD executives administering the market.

All of which is to say Senators should look straight forward with furrowed, “prove-it” brows when fellow members and environmental glitterati pronounce that a greenhouse gas market will operate cleanly because really smart people with nifty technology will be policing it. As the Waxman-Markey legislation stands, the Federal Energy Regulatory Commission, the EPA, and perhaps several more agencies will be patrolling for fraud, speculation, price manipulation and so-forth. Other enforcement details are hazy.

Chip Jacobs is the co-author, with William J. Kelly, of Smogtown: The Lung-Burning History of Pollution in Los Angeles. Jacobs can be reached at chip@chipjacobs.com

Vertical Urban Farming? Pull Your Head from the Clouds

Matthew Leiphon — Tue, 15 Sep 2009 21:21:05 -0400

Dickson D. Desposmmier, in a recent op-ed in the New York Times, argues that the world, faced with increasing billions of mouths to feed, will soon run out of land. According to Mr. Despommier, “the traditional soil-based farming model developed over the last 12,000 years will no longer be a sustainable option.”

Despommier’s answer to this ‘problem’: “move most farming into cities, and grow crops in tall, specially constructed buildings.” Such vertical farms, argues Despommier, would “revolutionize and improve urban life,” while also addressing issues such as agricultural runoff, air pollution, and carbon emissions.

To sophisticated urbanites with little or no exposure to agriculture, vertical farming may seem to present a sort of utopian panacea. But first one must look at the underlying problem Mr. Despommier claims to address: land shortages.

In this case, Despommier fails to show that land shortages will be a debilitating issue, rather than a manageable challenge. Desposmmier presents figures from the UN showing that the amount of arable land per person has dropped from one acre per person in 1970 to about half an acre in 2000, and may drop toward a third of an acre per person by 2050. This simply means that future generations will have less land available per person. But, does this necessarily translate into impending, persistent, worldwide food shortages?

Even prior to the time of Thomas Malthus, there have been voices warning of disaster lying just around the bend with regards to food production and consumption. Yet, over the past two centuries, those tilling the soil (full disclosure: the author comes from a long line of family farmers, and has, from time to time, taken part in some ‘soil tilling’ of his own) have continued to keep pace with ever-increasing demands for food. True, the equitable distribution of this increased productivity sometimes leaves something to be desired (often for reasons of politics, not of production), but one cannot dispute the fact that farmers worldwide have made massive leaps and bounds in productivity.

In the face of less acreage per human, the UN’s Food and Agriculture Organization continues to track increasing output per capita, and projections for the future show production levels able to meet increasing demand. One notable Dutch study showed the world’s farmers, using existing land resources, capable of feeding up to 10 billion people at least a “moderate diet,” if not an affluent one. Such projections have been supported by a “sizable literature,” some of which argues that future production of food will not be an overwhelming challenge, even at populations up to 12 billion. Between 1960 and 2000, the world’s farmers were able to increase food produced per capita, while the world’s population nearly doubled. We have now reached a point where Americans throw away around 14% of the food they buy.

Making better use of the food we already produce, including gleaning of wasted food, and shifting land away from production of non-food crops, would be common-sense steps towards combating current and future food insecurity. Making better, more efficient use of our existing arable land makes more sense, both now, and in the future.

High-rise urban farming, however, is not the solution. Even if we assume that the world will, as Despommier fears, face potential shortages of arable land in the future, the solution he proposes is far from the most feasible initial solution. In his piece, Mr. Despommier states that a prototype farm, covering one eighth of a city block and consisting of 5 stories, would cost around 20 to 30 million dollars to construct. A vertical farm of such size might mean around five acres of indoor production space (city blocks vary in size from place to place). Despommier states that one indoor acre might be able to replace 20 acres of outdoor farmland. So, giving the benefit of the doubt on cost to Despommier, for 20 million dollars his vertical farm might be able to match 100 acres of outdoor production: a cost per acre of around 200,000 dollars.

For that same 20 million dollars, Despommier could purchase nearly 7,500 acres of productive, existing farmland in a state such as Minnesota or North Dakota, (the national average cost for an acre of farmland is about $2,600) and farm it with the latest in sustainable, organic, and/or low or no-till methods, already being implemented by many American farmers. Such practices can minimize or eliminate chemical use, reduce fossil fuel use, and help prevent erosion of valuable soil. In order to match his indoor production, financed at massive cost, Despommier would only need to find a way to increase the outdoor output by very small percentages, using land that is far less costly and readily available. As an added benefit, he’d have the opportunity to protect and preserve the very land he sees as under threat.

Potentially more valuable still would be aiding farmers worldwide in the use of the most modern, sustainable, and environmentally-friendly practices in areas facing severe underutilization and degradation of valuable arable land resources. Since 1961 farmers in Asia have been able to increase their output by nearly threefold, while yields per acre in Africa have remained stagnant. Investing more resources in agricultural extension services to educate and empower local farmers in soil conservation, land stewardship and sustainable production techniques would be a common sense step towards addressing such challenges that would not require the construction of expensive towers, and would allow farmers to protect and preserve the world’s existing arable land while battling local food insecurity. In fact, according to one prominent soil scientist, protecting and restoring soil, the “most basic of resources,” offers “the chance not only to fight hunger but also to attack problems like water scarcity and even global warming.”

Unfortunately, investing resources in such plans, using existing, tenable resources, might preclude Mr. Despommier from building a shiny new building in New York City, where “everyone” could see it. The more cynical observer might also point out that it could cut off a potential revenue stream for his new vertical farm business, which he envisions being financed by “venture-capital funds.”

While vertical farms might be an interesting topic for light-hearted discussion, there is a reason we don’t farm intensively in urban areas: the land is too expensive, with costs that rise even higher building towering structures. That said, encouraging use of local agricultural products, even adjacent to or within urban areas, is a laudable goal. This supports the sort of family farmers that serve as good stewards of the land Despommier sees as under threat. Mr. Despommier need look no farther than his employer’s own Columbia University Greenmarket to find a farmer’s market supplying the very sort of agricultural product he extols and desires. Encouraging urban gardening is also a great idea, allowing people to take an active role in providing some of their own food, while making use of potentially underutilized spaces, at much less cost than “building up.”

There are, to be sure, challenges to be faced moving forward: recent commodity price spikes (which have since abated) inflicted increased food insecurity on the world’s poor. However, such populations are the least likely to be able to afford the gleaming towers of Despommier’s dreams. Despommier and those interested in sustainable agriculture, including many farmers, will be better off trying to protect our existing farmland from urban sprawl, and supporting the use of the latest in sustainable agricultural practices worldwide, to better use and protect the farmland we already possess.

On the other hand, promoting wildly expensive, Buckminster Fulleresque “leaps of faith”, while neglecting existing resources, is not the path towards long-term agricultural sustainability. Instead of pouring limited financial resources into building fields in the sky to serve as playthings for the urban elite and venture capitalists, farmers, governments and investors worldwide would be better served by plowing resources into making better, more sustainable use of the land that already exists, for the benefit of all.

Matthew is a Research and Development Analyst for Praxis Strategy Group, and a native of Crary, ND.

Hard Times In The High Desert

Joel Kotkin — Tue, 15 Sep 2009 01:59:09 -0400

The High Desert region north and east of Los Angeles sits 3,000 feet above sea level. A rough, often starkly beautiful region of scrubby trees, wide vistas and brooding brown mountains, the region seems like a perfect setting for an old Western shoot 'em up.

Today, it's the stage for a different kind of battle, one that involves a struggle over preserving the American dream. For years, the towns of the High Desert--places like Victorville, Adelanto, Hesperia, Barstow and Apple Valley--have lured thousands of working- and middle-class Californians looking for affordable homes.

Now, like other exurbs in the U.S., the area suffers from sky-high foreclosure and unemployment rates. Rather than elicit sympathy, however, these hardships have delighted a growing chorus of planners, environmentalists and urbanists who believe that such far outer-ring communities are doomed to becoming America's "next slums."

Such dismal future prospects have gained an air of plausibility with devastating speed. For much of the past century, the High Desert was a rough-hewn region of small farms and mines, its economy largely dependent on military bases.

But since the 1980s, the area has flourished, adding over 120,000 people in the first seven years of the decade. Most people came because of housing costs--as much as a third less than those closer to the coast. Today the largely middle and working class population stands at over 350,000.

You don't hear much good about people in places like the High Desert. Like many exurbanites, they do not fit the hip categories of "knowledge workers" or "creative class." They work with their hands--in construction, driving trucks, in factories and mines--or run small retail businesses. In the High Desert, 60% of residents have never attended college. Many commute over the 4,100-foot Cajon Pass to blue- and pink-collar jobs as far as Los Angeles, more than an hour and a half away.

"This is one of those places where the women have more tattoos than the men," joked one long-time resident over drinks at Chateau Chang, a well-appointed local hangout owned by Chinese immigrants.

For many, the rapid decline of housing prices since 2007 has been devastating. Newcomers bought homes at the top of the market, when median prices scaled over $300,000. Some did so with adjustable-rate mortgages. Today, the median price is closer to $100,000, leaving a large percentage of homes underwater.

The real estate collapse has also hurt employment. Construction, warehousing and manufacturing--linchpins of the local economy--all have been pummeled by the recession. Unemployment now stands over 16%.

Similarly bleak conditions plague exurbs throughout the country--from central Florida to the outskirts of Phoenix, Las Vegas, Sacramento and scores of other onetime boomtowns. Shuttered factories, empty stores and abandoned lots contribute to an often depressing landscape.

These reverses have led some pundits to assert it's time to let such places die--and the sooner the better. Greensheet Grist recently held a competition about what to do with dying suburbs that included ideas such as turning them into farms, bio-fuel generators and water treatment plants.

Such post-apocalyptic views are popular with architects, planners and environmentalists, as well as in the mainstream media. But these people never liked conventional suburbs much; many considered exurbs atrocities whose residents indulged in unspeakable acts of overconsumption.

Yet what about the residents of these places--and the many who likely would care to join them? The fact is exurbs are popular: Between 2000 and 2007, 3 million Americans moved to exurbs, and while the recession has slowed this growth, it has not stopped it. Indeed, now that housing prices have fallen, home sales have skyrocketed in some areas. In the High Desert, for example, existing-home sales more than tripled in the past year, to the highest level ever.

Most demographic estimates suggest this exurban population growth will continue; the High Desert is expected to receive another 200,000 residents by 2025. The key driving force, notes Redlands, Calif.-based economist John Husing, remains the deep-seated desire to own a small piece of ground and enjoy some privacy and a middle-class way of life that is no longer affordable closer to the urban center.

For most exurbanites, moving back to the city--the preferred option of planners and urban boosters--is not an attractive option. These people could never afford a charming townhouse in Portland's Pearl District or a loft in New York's SoHo. For them, the "urban option" means the prospect of a dreary blocky apartment complex in a noisy, crowded, less-than-genteel section of Los Angeles or another large city.

This preference should not be confused with racism, as is sometimes alleged. Like many exurbs, the High Desert has become increasingly multi-racial. Over half of the 23,000 students at the sprawling Victor Valley College, for example, are minorities--nearly 30% are Hispanic. Cruise the shopping center, and you are as likely to find a family-owned Mexican, Vietnamese or Korean restaurant as you would a hamburger chain or pizza shop.

To my mind, harboring ill will toward the aspirations of exurbanites is hardly "progressive," at least from a social democratic point of view. Yet many on the so-called left feel that what is generally considered upward mobility needs to be curbed so that the hoi polloi can better live according to the prescriptions of their more enlightened, usually higher-educated and more affluent "betters."

In contrast, a more humane, and fundamentally democratic, approach would be to find ways to help these communities thrive. The first step: local job creation. Even without the excessive prices associated with "peak oil" theories, gas prices and car expenses do place a considerable burden on many exurbanites. Developing more economic opportunities closer to these communities would relieve this financial burden, while also cutting energy consumption.

Experience shows that suburbs that develop their own economies have suffered far less from the recession than those that depend on long-distance commuters. Ontario, a suburb 40 miles east of Los Angeles where I have worked as a consultant, for example, has developed a strong airport, industrial and office economy and a thriving locally based retail sector. Average commutes there are roughly parallel to those in neighborhoods close to downtown Los Angeles.

Although hit hard by the recession, Ontario suffers a foreclosure rate that is one-third of the High Desert's. It continues to attract businesses from Los Angeles and the rest of the world by offering a more enterprise-friendly environment and a well-maintained infrastructure.

Places like Ontario could provide something of a role model for places like the High Desert, notes local real estate investor Joe Brady. Like many other local leaders, he recognizes that basic job creation--not real estate speculation--holds the key to the region's future.

But it's not all doom and gloom for the High Desert. Some prospective new industrial investment has come to the area. And Husing believes the High Desert will play an expanding role as a warehouse area for products shipped from the massive Los Angeles port complex. The converted former George Air Force Base, now the Southern California Logistics Airport, has created 2,500 jobs and could generate another 35,000 within the decade.

Yet creating many more jobs in the High Desert will not be easy. Though most local cities are pro-business, business consultant Larry Kosmont notes they are still saddled with regulations imposed by the state of California. These could discourage business attraction and development.

There's a bit of an irony here. Local job growth would save energy and cut emissions by reducing commutes and making these communities more environmentally sustainable. But some coastal "progressives" may discourage new industrial or warehouse facilities for emitting too much greenhouse-gas.

In the end, only fostering a strong locally based economy can make these places economically viable. Whatever their aesthetic and design problems, exurbs will continue to appeal to millions of Americans searching for what they define as a better way of life. That alone should make them intrinsically valuable, and definitively worth saving.

This article originally appeared at Forbes.

Smart Growth Must Not Ignore Drivers

Joel Kotkin — Mon, 14 Sep 2009 08:54:39 -0400

For the time being, battles over health care and energy seem likely to occupy the attention of both the Obama administration and its critics. Yet although now barely on the radar, there may be another, equally critical conflict developing over how Americans live and travel.

Right now this potential flash point has been relegated to the back burner, as Congress is likely to put any major transportation spending initiative on hold for at least a year, and perhaps longer. This also may be a symptom of mounting concerns over the deficit. Financing major changes in transportation, for example, would probably require higher federal fuel taxes, which would not fly amid a weak economy.

These delays could prove a blessing to the administration, providing a pause from indulging in yet another policy lurch that might thrill the “progressive” urban left but infuriate much of the country. Initial House proposals on transportation have sought to cut dramatically the share of federal gas taxes — paid by drivers — going to roads while sending more to already heavily subsidized transit. Another large chunk of transport spending would go to a very expensive, and geographically limited, high-speed-rail network.

This kind of radical shift reflects the preferences of ideologues within the administration. President Barack Obama has clustered an impressive array of “smart growth” devotees around him, including Housing and Urban Development Undersecretary Ron Sims, an early climate change “evangelist,” Transportation Undersecretary for Policy Roy Kienitz and the Environmental Protection Agency’s John Frece. Their priority is not better roads for suburbanites but, as Transportation Secretary Ray LaHood put it, to “coerce” Americans out of their cars and into a denser, more transit-dominated future.

This approach can expect strong support from the influential “green team” in the administration, including climate czar Carol Browner and science adviser John Holdren. Browner’s hand was shown during the Clinton years when as head of the Environmental Protection Agency she threatened to cut transportation funds for the Atlanta region unless it adopted a smart-growth policy. The threats became moot after the change of administration in 2001.

It is not difficult to imagine such bureaucrats intruding on how communities and families function on the most basic levels. Traditions governing local land use that have existed since the beginning of the republic would be overturned. The preferred lifestyles of most Americans would come under siege.

This agenda has been widely promoted for decades, first by the Carter administration and, more recently, by both environmentalists and new urbanists. The recent concerns over global warming have provided an additional raison d’être for a policy promoting both higher transit use and denser housing patterns. The president himself has embraced this agenda, declaring in February that “the days of building sprawl” were, in his words, “over.”

The administration can expect strong support for such policies in the mainstream media concentrated in New York and Washington. These areas boast both the highest proportion of transit riders and the largest percentages working in the central core. Many among the young, single and childless couples working in media in these communities see no reason why other Americans should not live similarly.

Politically, such a remaking of America may prove difficult to pull off. Overall less than 6 percent of Americans ride public transit, a percentage that has barely changed for decades. In many states, the transit share is only 1 percent. It’s difficult to imagine a policy that disses roads, small towns and suburbs could pass Congress, 80 percent or so of whose constituents don’t live in the favored dense urban environments. And what about the 95 percent or so of Americans who get around by car? More likely, any spate of new transit and land-use regulations will be enforced through the apparat. In one scenario, administrators at the EPA could simply oppose any transport project — for example, new roads — on the basis of carbon emissions and potential pollution. States and cities with projects not deemed “smart” enough by administrators at the Department of Transportation or HUD might be threatened with loss of funding.

Yet even this approach risks engendering a backlash. Once again, the administration could be seen as imposing a true-blue policy on a largely red, or at least purple, nation. To be successful, the administration needs to address the needs of suburban, small-city and rural residents as well as those of big-city denizens.

This is not to say the administration should not address pollution and congestion concerns head-on. But this needs to be done in ways that make both political and practical sense. Mileage requirements on cars are an excellent first step that follows this playbook, getting results without trying to remake a car-driving electorate.

In addition, the government could develop incentives for increased telecommuting and more flexible work schedules in order to reduce unnecessary driving to work. There is also room for expanded, more economical bus and jitney services that could work in some suburban and small-town locations. Instead of building light rail systems that will never get large ridership, mass transit funding should flow to successful existing systems or to a handful of dense corridors emerging in places like Houston.

All this speaks to a kind of pragmatism that may not please either the road-building zealots or the smart-growth aficionados. Such an approach would be far preferable — and more politically sustainable — than the current attempt to drive a 21st-century country back to a transportation model more appropriate for the 19th.

This article originally appeared at Politico.com.

Healthcare: The Cost Of The Greatest Wealth

Bill Watkins — Sat, 12 Sep 2009 23:37:40 -0400

This week and over the coming weeks the media and the nation will once again focus on healthcare. Before we launch into the next phase of the argument, though, we should first dismiss a couple of “Red Herring” claims that we spend too much on health care.

These claims are the ones based on a view of healthcare spending as a percentage of Gross Domestic Product (GDP), or that look at the increase in healthcare spending over time. Proponents say that spending 14 to 17 percent of gross product on health care is evidence that we spend too much. Or, they say that health care spending is increasing at a far faster rate than the economy is growing.

So what?

There is no optimal amount of healthcare as a percentage of GDP. Remember, healthcare is a good thing.

We live far healthier and longer lives today than we did just a few decades ago. The technology is constantly improving, and marginal improvement is expensive. Life expectancy, both at birth and conditional on age, is constantly increasing; our population is getting older. Our income has been increasing, at least it was prior to the recession, and I’m confident that it will eventually resume growing. All this would imply that we would expect to see increasing healthcare spending. As Virgil said, “the greatest wealth is health.”

That is not to say that there is no waste in our healthcare system today. We do way too much diagnostic testing in the United States. Our doctors work in constant fear of lawsuits. Consequently, they order far too many diagnostic tests and procedures. The problem is that in a U.S. court — long after the fact and with years to reflect — any test that would have diagnosed the problem always looks as if it would have been the right thing to do. This is true even if not one in a thousand doctors would have performed the test in the same situation.

In contrast, some countries have special courts for the medical industry. These courts are well-versed in the reasonable procedures and diagnostics that competent, reasonable doctors would perform. Consequently, there are fewer suits, smaller judgments, and less money spent on unnecessary diagnostic tests or procedures. Implementing something like this, or some other tort reform, would lead to potentially huge savings.

In addition, American healthcare is still a paper-based system. Even after just about every other sector has converted to computer-based record-keeping, the medical sector persists in maintaining paper files. There are estimates that as much as a $300 billion could be saved by digitizing medical records while improving service and health care.

Arthur Laffer, in an August 5, 2009 Wall Street Journal opinion piece, argued that the problem with US healthcare is that the payer of healthcare services and the user are not the same person or entity. He correctly pointed out that this creates a wedge that enables excessive consumption of healthcare. It's as if you had a brother-in-law who eats hamburgers, French fries and sodas when he pays his own dinner bill, but orders prime rib and wine when you purchase his meal. He may also be willing to use a generic drug if he is paying for his medicine, but will insist on a more expensive name-brand if someone else is paying. Laffer argues that a private, low-cost, high deductible, catastrophic insurance program would be more efficient. Basically, he wants to let the markets work.

That’s a great idea. But there is no way we will let markets work. Efficient markets would require that we pay for insurance or medical care or go without.

It is not going to happen. As a nation, we’re not about to let someone suffer or die because they didn’t purchase insurance, or they can’t pay the deductible, or they can’t afford insurance or medical care.

A market-driven, high-deductible catastrophic plan would work just fine for many people, but it won’t work for everyone. Some people just can’t afford medical care or insurance, and we have lots of potential ways to help them. A progressive negative income tax could provide a minimal standard of living that included healthcare and an incentive to work, but there are other ways. The government could provide medical care or insurance, or it could simply require that medical providers perform an adequate amount of pro-bono work.

The real problem lies with people who can afford to purchase insurance, but who rationally may choose to be uninsured—call them the intentionally uninsured. A healthy young person could very well elect to be uninsured, even if we were to allow him or her to suffer the consequences of an uninsured accident or disease. Knowing that we are unwilling to let him face those consequences only makes the decision to be uninsured more attractive.

How to deal with this incentive problem? Require medical financial responsibility, even though the approach would face some challenges. The result could be something parallel to the requirements California and other states have for automobile drivers. To qualify for a driver’s license, or to register your vehicle, you have to have insurance. Even with these requirements in place, I don’t know of anyone who drives without additional insurance protection for encounters with uninsured motorists.

Of course, you don't need a license to live. Knowing that medical treatment is available if needed, many would go uninsured. The question of how we should deal with the intentionally uninsured when they come into the emergency room is a real problem with important implications. These are people who would contribute more than they would consume, and cut the cost to other recipients. It would also increase total spending on health care, as the people would access service more often if they were insured.

But that’s OK… health care is a good thing.

Bill Watkins is a professor at California Lutheran University and runs the Center for Economic Research and Forecasting, which can be found at www.clucerf.org.

The Curse of my.barackobama.com

Dennis Powell — Fri, 11 Sep 2009 23:37:19 -0400

President Obama’s campaign was indeed a revolution, not one of policy, but rather a dramatic change in how candidates communicate with voters. It is a reality that helped make Barack Obama our chief executive, but now threatens his ascendancy as well.

It all started with Obama’s hiring of Chris Hughes, one of the founders of Facebook, as part of his campaign team. Hughes’ job was to develop an online community for the campaign. He was largely dismissed by seasoned political operatives more comfortable with conventional media and campaign tactics.

David Plouffe, Obama’s campaign manager, gave an honest assessment saying, "Technology has always been used as a net to capture people in a campaign or cause, but not to organize. Chris saw what was possible before anyone else. I still can't quite wrap my mind around it."

Hughes built for the Obama campaign the ability to create and manage content and conversations with vast numbers of people in mere seconds. With an entry into Facebook, video download, or link to information the Obama campaign could shape the opinions of millions of people across America, answer criticisms, and organize campaign events.

The results of Hughes work was reported on Fastcompany.com: “By the time the campaign was over, volunteers had created more than 2 million profiles on the site, planned 200,000 offline events, formed 35,000 groups, posted 400,000 blogs, and raised $30 million on 70,000 personal fund-raising pages.”

Hughes had given Obama the ability to do things in real time. He showed the inherent weakness of newspapers as they were reporting what seemed like yesterday’s news. He was out in front of network nightly news programming. He made the Obama campaign a source of news that rivaled networks like never before in history. In short, he was shaping opinion at its source.

In some ways this was a departure from the ways campaigns were waged in the past: staging huge armies and fighting battles on defined battlefields. The Obama campaign was more like a guerrilla force whose battlefield was at the time and place of their choosing. It bypassed staging. It ran lean. It organized by word of mouth and “buzz” among a new breed of political “activist” who understood the potential of new technology. Obama provided the opportunity to take the new political technology for a "test drive".

Fast forward nine months and the same technology that helped Obama win his election is now serving to undermine his policy initiatives. The ability to go viral was not proprietary of MyBO.com.

People showed how to take marketing viral, like Mark Hughes in his book “Buzzmarketing”. Hughes engineered the successful takeover of Half.com using “buzz” generated from renaming a town in Oregon. He made ads specifically for YouTube rather than networks. One ad, for the “duckbill” dust mask, went viral and sales shot through the roof. You can still find the ad on YouTube. Hughes understood how conversations were changing. He knew that sending content to someone online could quickly go viral when inserted into that person’s social networks. This is the foundation of “buzz.”

President Obama won several quick and decisive victories early in his presidency with stimulus, omnibus budget, and “cap and trade” legislation. The President’s goodwill ran high in the early months. His resounding campaign victory using new tactics to reach voters held Members of Congress in awe of both his political and fund raising abilities.

But, the same technology that Obama developed to win an election just nine months ago is now being successfully used to organize grassroots opposition to his policies. What stated as “Tea Parties” across America has developed into a broad based uprising opposing Obama’s health care initiative. The opposition has found its voice and it is spreading its word virally. These communications are quickly outpacing our political leader’s ability to spin issues.

John McCain recently commented that there was a “peaceful revolution taking place.” He went on to amplify this point by saying, “There is a grass-roots uprising the likes of which I have never seen. There’s anger; there’s concern about the future. There’s concern about the generational theft that we’ve committed by running up unconscionable and unsustainable deficits.”

The usual tactics to stem the latest grassroots tide are not working. The more politicians talk down the protesters defining them as “un-American” the more energy it provides. Sarah Palin’s post on her blog that the health care bill contained “death panels” worked virally through networks with resounding speed. The result was the Senate removed the provision (end of life counseling) from its bills rather than risk a protracted fight in cyberspace.

How is this happening? People are organizing around information in real time. Visit Drudge Report, Huffington Post and Politico every day and you can read and see politics happening in every corner of America. With YouTube you can be there at a town hall meeting hosted by Barney Frank on the left or Michelle Bachman on the right. You can take this content and send it into your social networks like Facebook, Linkedin, MySpace or hundreds of other platforms. Ordinary Americans can now instigate discussions, mold and change opinion and do it all under the radar. This is fundamentally changing our politics.

President Obama and Congress both now have to deal with the curse of MyBO.com. Social networking has enabled Americans to organize in new ways. Grassroots and community organizing are no longer the sole domain of the political left. In real time every misstep and piece of misinformation works its way into public dialogue on blogs, YouTube and websites where political thought is collected, dispersed and refined.

The days of politics as usual are over. The Obama team will have to play the game under a set of rules that have not all been written yet. This new era in politics will be much more open and subject to more public scrutiny than at any time in history.

The same communications tactics that won President Obama an election in 2008 may prove to be his greatest challenge in building public consensus for action going forward. In the age of “buzz” our young President will face challenges like none other. His greatest challenge may be in learning how to tame and control the inherently unruly politics of the information age.

Dennis M. Powell is president and CEO of Massey Powell, an issues management consulting company located in Plymouth Meeting, PA.

Cookie Cutter Housing: Wrong Mix For Subdivisions

Rick Harrison — Thu, 10 Sep 2009 23:37:00 -0400

Nobody likes the taste of “cookie cutter” development. In the forty years that I’ve been in the land planning industry, at meeting after meeting I hear planning commissioners and city council members complain about the same thing: That developers submit the same recipes to cook up bland subdivisions over and over.

But while the developers are the scapegoat, it’s those who sit on the council and planning commissions that are as much, if not more to blame. They are also the ones with the power to change the status quo.

Communities have a cookbook that tells the developer and the design consultant the ingredients that must be used; this is called “The Ordinance”. Just as one might bake cookies using clearly defined amounts of flour and sugar, the cook looks to the ordinance to see that he will need exactly 10 feet between homes, at precisely a 20 foot setback from the curb, served up on a lot no greater than 5,600 square feet.

Thus, 100 cookies baked from the same recipe have about as much in common as the 100 lots built on “Pleasant Acres”. The developer presents the plan to the council. The scrumptious, pastel-colored rendering promises a tasteful development. But the council and planning members remember the aftertaste of the promises of past submittals.

Developers do not design land developments. They hire consultants who design them. The consultants are likely to be engineers and land surveyors, who also act as land planners. A cookie cutter development is called a "Subdivision”. A really large cookie-cutter development is called a “Master Planned Community”. In the end, no matter what its size, when you look down the street on which people live, both Subdivision and Master Planned Community have the exact same feel.

Why? Because the ordinance says so.

Yes, it's true that the ordinance does not say anything about how to make creative, wonderful, sustainable communities; it only demands certain minimum dimensions and area restraints. But the key problem is that the developer, the engineer, the surveyor, and the planners think that the term “minimum” means the “absolute” dimensions.
So who cooked up these ordinances? Who determined that 5,600 square feet was the ideal lot size for the zoning in a particular city? Why does the fire department demand the public streets be 40 feet wide, when in a nearby city the public streets are just 26 feet wide? Are the buildings burning down over there, and not here?

Citizens who have the power to create the changes that are needed – the councils, the planning commission members, and the Mayors — unquestionably embrace these recipes that enforce the absence of taste in their cities. Those who write regulations are actually often being paid to boilerplate these nauseating formulas from neighboring towns, when they should be looking to create entirely new recipes for tasteful development.

It’s time to throw out the systems that don’t work. Ordinances should be more reward-based and less minimum-based. A town's regulations should ask developers to explain each element of the design and tell how it benefits the developer, the resident or business owner, and the city.

For example, most ordinances simply state: '10 foot side yard minimum (20 feet between buildings)'. What if the ordinance was written as '10 foot side yard', then went on to explain that staggering the homes could offer a better streetscape. It might go on to mention that, with windows placed along the staggered side, living areas would have better views, making the homes more marketable. In this scenario, side yards could be reduced, to, say, 5 feet (10 feet between buildings). This type of regulation guides developers by rewarding better design with denser development. Virtually every aspect of the regulations could be written in such a manner. Nobody loses – everyone wins!

The developer’s consultants also deserve some of the blame. The developer will always hope for a project that will sell better than other developments in the area...always. Yet somehow, the developer trusts that the same consulting firm that designs all the other developments in town will have some special brainstorm that will somehow set this particular Subdivision apart.

This is one reason that nothing really changes. Another is that consultants who design Subdivisions (mostly licensed engineers and surveyors) are not likely to go against the rules. To a licensed individual who places his or her reputation and stamp on a plan, challenging a rule is very uncomfortable. Conflict between the consultant and the council and planning commission is highly feared: what if the change fails? The city's representatives might view the consultant negatively on the next project. It’s far simpler to use one cup of flour and a tablespoon of sugar.

Until only six years ago I felt as if I was the only one challenging convention. At every meeting I would present plans that went beyond ordinance minimums to make sustainable and functional communities. At every meeting, typically in the back row, was the developer's engineer, paid to attend. I had to defend against every question regarding engineering that was done outside of the recipe, and offer reasons for the benefits. Never once did an engineer who was paid to back me up offer support.

Then, in 2003 at a council meeting in the small town of Amery, Wisconsin, the impossible happened. On an engineering question, the developer’s consultant, Steve Sletner, owner of TEC Design, of Eau Claire, Wisconsin jumped right in and actually defended the changes we were challenging. A Licensed Civil Engineer became my instant hero (still is).

If every engineer thought more about the quality of life of those living in the developments that they engineer, this would be a much better world. Since then, Steve and I have been winning the war against the cookie-cutters in an enjoyable, relaxed atmosphere with councils and planning commissions everywhere.

Outside of the US, I've also found similar roadblocks to successful design. While in the Middle East, I met with the young head of sales for an extremely large developer. He complained about home designs that customers simply did not care for. I asked if he let his superiors know about the problems. Fear came across his face. Fear of confrontation is perhaps the biggest problem holding us back. Confrontation should not be an issue if there is supporting proof that the new solution offers less environmental impact and higher value, or is safer, etc.

An advantage we have in the US is that the citizens who sit on planning commissions and councils have more common sense than consultants give them credit for. When they don’t like the taste of what they are getting, they spit out negative comments at public meetings.

I wish that every planning commissioner and council member in this country could get this one message: If you don’t like the taste of what you are getting, hire a different cook to write a new cookbook for your community. President Obama recently stated that we must rely on the American spirit of innovation. A rewards-based regulatory system would be a major step in innovating the way our cities operate.

The planning industry needs a massive overhaul to replace our obsolete system with one that results in sustainable development. Minimum-based regulations are recipes that guarantee that only minimal cities will be built. Cities are the foundation of our society. And remember: You are what you eat.

Rick Harrison is President of Rick Harrison Site Design Studio and author of Prefurbia: Reinventing The Suburbs From Disdainable To Sustainable. His website is rhsdplanning.com.

The Costs of Climate Change Strategies, Who Will Tell People?

Wendell Cox — Wed, 09 Sep 2009 23:37:00 -0400

Not for the first time, reality and politics may be on a collision course. This time it’s in respect to the costs of strategies intended to reduce greenhouse gas emissions. The Waxman-Markey “cap and trade” bill still awaits consideration by the US Senate, interest groups – mainly rapid transit, green groups and urban land owners – epitomized by the “Moving Cooler” coalition but they are already “low-balling” the costs of implementation.

But this approach belies a bigger consideration: Americans seem to have limits to how much they will pay for radical greenhouse emissions reduction schemes. According to a recent poll by Rasmussen, slightly more than one-third of respondents (who provided an answer) are willing to spend $100 or more per year to reduce greenhouse gas emissions. About 2 percent would spend more than $1,000. Those may sound like big numbers, but they are a pittance compared to what is likely to be required to meet the more than 80 percent reduction in greenhouse gas emissions that the Waxman-Markey bill would require. Even more worryingly for politicians relying on voters to return them to office, nearly two-thirds of the respondents would pay nothing to reduce greenhouse gas emissions.

If we do a rough, weighted average of the Rasmussen numbers, it appears that Americans are willing to spend about $100 per household per year (Note 1). This includes everyone, from the great majority, who would spend zero to the small percentage who would spend more than $1,000. At $100 per household, it appears that Americans are willing to spend on the order of $12 billion annually. This may look like a big number. But it is peanuts compared to market prices for greenhouse gas emissions. This is illustrated by the fact that the social engineers whose articles of faith requires building high speed rail to reduce greenhouse gas emissions would spend $12 billion to construct just 150 miles of California’s proposed 800 mile system.

Comparing Consumer Tolerance to Expected Costs: At $100 per household, Americans are prepared to pay just $2 per greenhouse gas ton removed. All of this is in a policy context in which the United Nations Intergovernmental Panel on Climate Change suggests that $20-$50 per greenhouse gas ton is the maximum that should be spent per ton. The often quoted McKinsey/Conference Board study says that huge reductions in greenhouse gas emissions can be achieved at $50 or less, with an average cost per ton of $17. International markets now value a ton of greenhouse gas emissions at around $20. At $2 per ton, American households are simply not on the same “planet” with the radical climate change lobby as to how much they wish to spend on reducing greenhouse gases.

International Comrades in Arms? This is not simply about Americans and their perceived differences from others who are so often considered more environmentally sensitive. France’s President Sarkozy has encountered serious opposition in proposing a carbon tax on consumers to discourage fossil fuel use. He is running into problems not only among members of the opposition, but concerns have also been expressed by members of his own party. It appears that many French consumers (like their American comrades) are more concerned about the economy than climate change at the moment.

China, India and Beyond: If only a bit more than one-third of American households are willing to pay much of anything to reduce greenhouse gas emissions, it seems fair to ask what percentage of households in China, India and other developing nations are prepared to pay anything? A possible answer was provided recently by India’s environment minister, Jairam Ramesh, who released a report predicting that India’s greenhouse gas emissions would rise from the present 1.2 billion tons to between 4 and 7 billion tons in 2030. The minister said the “world should not worry about the threat posed by India's carbon emissions, since its per-capita emissions would never exceed that of developed countries.” . At the higher end of the predicted range, India would add more greenhouse gas emissions than the United States would cut under even the proposed 80 percent reduction scheme. Suffice it to say that heroic actions to reduce greenhouse gas emissions seem unlikely in developing countries so long as their citizens live below the comfort levels of Americans and Europeans.

Lower Standard of Living not an Option: I have been giving presentations on this and similar subjects for some years. I have yet to discern any seething undercurrent of desire on the part of Americans (or the vast majority anywhere else) to return to the living standards of 1980, much less 1950 or 1750. Neither Washington’s politicians nor those in Paris or any other high income world capital are going to tell the people that they must accept a lower standard of living. Nor is there any movement in Washington to let the people know that their tolerance for higher prices could well be insufficient to the task.

For Washington, the dilemma is that every penny of the higher costs will hit consumers (read voters), whether directly or indirectly. There could be trouble when the higher utility bills begin to arrive and it could mean difficulty in delivering on the primary policy objective of virtually all governments, which is to remain in power. This is not to mention the unintended consequences of higher prices on many key industries, notably agriculture, manufacturing, and transportation.

There is an even larger concern, however, and that is the stability of society. Harvard economist Benjamin Friedman, in The Moral Consequences of Economic Growth suggested from an economic review of history that economies that fail to grow lapse into instability.

A Public Policy Collision Course? A potential collision between economic reality and public policy initiatives could be in the offing. Many “green” proposals are insufficiently sensitive – even disdainful – towards the concerns of everyday citizens. This suggests that politically there should be an emphasis only on the most cost effective strategies. In a democracy, you must confront to the reality that people are for the most part more concerned about the economy than about strategies meant to slow climate change.

The imperative then is not to ignore the problem, but to focus on the most rational, low-cost and effective greenhouse gas emission reduction strategies. Regrettably, it does not appear that Washington is there yet. The special interests whose agendas are to cultivate and reap a bounteous harvest of “green” profits or to convert the “heathen” to behaviors – such as riding transit and living in densely packed neighborhoods – that they have been advocating long before the climate change issue emerged.

Those concerned about the future of the environment also have to pay attention to reality. Reducing greenhouse gases is not a one-dimensional issue. Environmental sustainability cannot be achieved without both political and economic sustainability.

Note 1: The Rasmussen question was asked of individuals. It is assumed here, however, that the answers related to households. One doubts, for example, that a queried mother answered with an assumption that she would pay $100, her husband would pay $100 and each of the kids would pay $100, but rather meant $100 for the household, since, to put it facetiously, few households devolve their budgeting to the individual members.

Florida Drifts Into the Morass

Richard Reep — Wed, 09 Sep 2009 01:56:50 -0400

By Richard Reep

Regarding Florida’s new outmigration, “A lot of people are glad the merry-go-round has finally stopped. It was exhausting trying to keep up with 900 new people a day. Really, there is now some breathing room,” stated Carol Westmorland, Executive Director of the Florida Redevelopment Association at the Florida League of Cities. Now that surf and sand are officially unpopular, the urban vs. suburban development debate has caught developers and legislators in a freeze frame of ugly and embarrassing poses at local, regional, and state levels.

In South Florida, Miami’s city commissioners narrowly defeated a move to institute a form-based code on August 7, which would have increased regulation in the most populous city in the state. This code would have rigidly set Miami’s density levels and regulated building form all the way down to the location of the front door. It constituted a surprising hometown defeat for Andres Duany and Elizabeth Plater-Zyberg, originators of the New Urbanism movement and the prime consultants hired to create the code. Commission Chairman Joe Sanchez, worried about restricting people’s use of property, stated that Miami 21 “exposes us to tens of millions of dollars in lawsuits from loss of property value.” Not ready to throw in the towel, however, the New Urbanists are appealing the vote in two public hearings. “We’re confident that the issues can be resolved,” stated Maria Mercer, who works for DPZ. The commissioners may be worried about lawsuits. The people seem to be even more concerned about Big Brother fussing about their property, judging from the public input on the code’s website.

Of course, the press has decried this as a vote for “sprawl,” rather than a vote for common sense. By now, the language of growth management has become so riddled with red-baiting words such as “sprawl” posed against lofty ideals such “smart growth” that the public can make no real sense of development proposals anymore. It is easy to see why New Urbanism was so seductive, for it seems to solve every problem once and for all – this goes here, that goes there – and there would be no more debate...unless, of course, the Master Planner made an error somewhere. But, like most consultants, the Master Planner has moved on to the next job and isn’t in charge of living with his plan. If he labels low-cost development “sprawl”, then so be it. And if he deems high-cost development “smart growth,” then so be it. Just like Ramses in The Ten Commandments, “So let it be said – so let it be done.”

Blackballing suburbs with words such as “sprawl” is dissonant to most voters who, after all, live in these supposedly awful places; likewise words like “walkable urban cores” often conjure up the reality of parking and traffic nightmares. Then there’s something called the marketplace. Florida is becoming less about retirees, and more about families. The much ballyhooed flurry of high-density urban projects doesn’t seem to fit the lifestyle of cars and kids and soccer practice too well.

Then there’s the other downside of new urbanist growth, which is its cost. Young, single service workers and retirees – a natural market for these urban villages – cannot afford either the pricey real estate or the stiff maintenance fees. On the other hand, Florida’s upwards of about 300,000 empty single-family homes, by the Orlando Sentinel’s count, could provide a natural lure to families, more so than the 65,000 or so condominium units on the market in the state. This so-called “overhang” of 3 to 5 years of unsold inventory only serves to terrify homeowners who remain in the state and have to deal with depreciating property values for some time in the future.

Clearly more density has been no more successful than the most mindless sprawl. The New Urbanists’ often shrill rhetoric has frightened many planners into pushing density on Florida’s fleeing population. The disaster that is Miami’s downtown and beachfront may be the best known, but throughout the state Florida’s high density developers and landowners are facing foreclosures, fading credit, and loss of business on an unprecedented scale. Those who came late to the party – witness poor Hollywood, Florida, a city which finally got its act together and aggressively redeveloped its downtown – look like empty movie lots. Elsewhere in cities across the state, vast tracts have been razed, rezoned for high density and now lie fallow or unfinished, giving the face of Florida a remarkably post-apocalyptic quality.

Neil Fritz, Hollywood’s Economic Development Director, is sanguine about the dire straits of his town. “Oh, the urban areas will come back before the suburbs,” he stated recently. But in reality, downtown condominiums are a latecomer to the Florida scene, and are a forced market. They were viable largely because they compared favorably to single family detached dwellings in terms of price and convenience.

In fact, quite the opposite is likely to occur, with the single family suburb – particularly those located near jobs – rebounding first as people’s natural preference, as it has been for over a hundred years. This might chagrin the New Urbanists, who spent a great deal of effort inventing such earnest fantasies as a “sprawl repair kit”, even though safety, mobility and open space remain deeply ingrained in the American lifestyle. Also, the high-density movement was fed by investors and owners of second homes – rare commodities in this post-crash world.

Overdevelopment is easy to blame on poor government, which allowed developers to overbuild on credit, but as with the financial crisis in general, there is enough blame to go around. What municipality would not like dense urban cores full of affluent taxpayers enjoying lattes on the boulevard? This dream sadly has turned to the reality of empty storefronts, condos being converted into low-income rentals, or worse yet, empty lots being assessed at their lowest possible taxable value. The fringes of most urban areas continued to be developed at low density, and while they are suffering the same fate as the denser areas now, the effect is less profound since it is more spread out.

Florida’s government just has no place to turn for more revenue, and relies mostly on property taxes and fees. Its main economic engine is development. Local governments, increasingly unable to pay for services, naturally encouraged density as a way to levy more and more property taxes, largely ignoring the long-term economic viability of specific developments. So-called “smart growth” indeed seemed pretty smart to cities and counties needing the taxes that they believed dense urban cores might someday generate.

The best hope for Florida lies neither in the God-like precepts of the New Urbanist movement, nor in the hands of the developers, but rather in the hands of intelligent, humanistic conversation revolving around a sense of shared community and deeper values. With the internet as a tool, cities could be encouraging citizen input in advance of a proposal, rather than the old, 20th century tool of public meetings. This conversation is necessary as our legislators and developers dance their kabuki dance around imagined future prosperity. Florida seems to be drifting aimlessly, as no one at the state level seems to be concerned about the loss of population, instead congratulating themselves on creating the next boom.

The cities and counties of Florida would do well to use this interregnum to retool their public process to give people more access to the right information up front. By allowing internet-based review and participation, people can provide intelligent input into development proposals. Armed with the right information, Americans historically have made excellent decisions, and Florida can become an example in how to better manage its single most important industry. In the meantime, the leadership of Florida would do well to examine the negative connotations of “sprawl” when describing the native habitat of their voters and taxpayers, and examine the consequences of encouraging density for a market that has yet to exist, and may not exist for some time to come.

The Kid Issue

Joel Kotkin — Tue, 08 Sep 2009 00:17:49 -0400

Japan's recent election, which overthrew the decades-long hegemony of the Liberal Democratic Party, was remarkable in its own right. But perhaps its most intriguing aspect was not the dawning of a new era but the emergence of the country's low birthrate as a major political concern.

Many Japanese recognize that their birth dearth contributes to the country's long-standing economic torpor. The kid issue was prominent in the campaign of newly elected Democratic Party Prime Minister Yukio Hatoyama, who promised to increase the current $100 a month subsidy per child to $280 and make public high school free. The Liberal Democrats also proposed their own pro-natalist program with a scheme for free child day care.

Japan's predicament seems obvious. Its fertility rate has dropped by a third since 1975. By 2015 a full quarter of the population will be over 65. Generally inhospitable to immigrants, Japan could see its population drop from a current 127 million to 95 million by 2050, with as much as 40% of the population over 65 years of age. By then, no matter how innovative the workforce, Dai Nippon will simply be too old to compete.

While Japan's demographic crisis is an extreme case, many countries throughout East Asia and Europe share a similar predicament. Even with its energy riches, Russia's low birth and high mortality rates suggest that its population will drop 30% by 2050 to less than one-third of that of the U.S. Even Prime Minister Vladimir Putin has spoken of "the serious threat of turning into a decaying nation."

Russia's de facto tsar has cause for concern. Throughout history low fertility and socioeconomic decline have been inextricably linked, creating a vicious cycle that affected once-vibrant civilizations such as as ancient Rome and 17th-century Venice.

Persistently low birthrates and sagging population growth inevitably undermine the growth capacity of an economy. Children provide a large consumer market and push their parents to work harder. By having children, parents also make a commitment to the future for themselves, their communities and their country.

In contrast, a largely childless society produces other attitudes. It tends to place greater emphasis on leisure activities over work. It also shifts political pressure away from future growth and toward paying pensions for the aging. An aging society is likely to resist risky innovation or infrastructure investments meant to serve future generations.

Of course, on a global level, lower birthrates should be seen as a positive. Population growth projections made around the time of The Population Bomb, Paul Ehrlich's widely acclaimed 1968 Malthusian tract, which predicted global mass starvation, have turned out to be well off the mark. Global population growth rates of 2% in the 1960s have dropped to less than half that rate, and projections of the number of earth's human residents in 2000 overshot the mark by over 200 million.

This pattern is likely to continue: growth rates will drop further largely due to an unanticipated drop in birthrates in developing countries such as Mexico and Iran. These declines are in part the result of increased urbanization, the education of women and higher property prices. The world's population, according to some estimates, could peak as early as 2050 and begin to fall by the end of the century.

Yet in some places, like Japan, declining birthrates may already be too much of a good thing. The same is true elsewhere in East Asia, particularly in China, where the one-child policy has set the stage for a rapidly aging population by mid-century. Fertility is particularly low in highly crowded Asian cities like Tokyo, Shanghai, Tainjin, Beijing and Seoul.

Over the past few decades a rapid workforce expansion fueled the rise of the so-called East Asian tigers, the great economic success story of the late 20th and early 21st centuries. But within the next four decades most of the developed countries in East Asia, as well as Europe, will become veritable old-age homes: A third or more of their populations will be over 65, compared with one in five in the U.S.

Not that the U.S. doesn't also have to cope with an aging population and lower population growth. But comparatively speaking it maintains a relatively youthful, dynamic demographic. Its fertility rate is about 50% higher than Russia's, Germany's or Japan's and well above those of China, Italy, Singapore, Korea and virtually every country in the former eastern Europe.

The reasons for this divergence with other advanced countries likely includes such things as continuing immigration, more land, larger houses, a strong aspirational culture and a higher degree of religious affiliation. Whatever the cause, a younger demography could lead to a relatively brighter future for America than is now commonly assumed.

Additionally, in the next decade the U.S. will benefit from a millennial baby boomlet, as the children of the original boomers start having offspring. This next surge in population may be delayed if tough economic times continue, but over time it will translate into a growing workforce, sustained consumer spending and will likely spur a rash of new creative inputs.

On the surface, these trends should help America to maintain a growing economy while its main competitors fade. By 2050 Europe's economy could be half that of the U.S. But this is not inevitable. As in Japan, some leaders in European countries understand they cannot sustain prosperity with a steadily declining workforce.

Many European countries are boosting benefits for families. In some, a pro-natalist policy is also being driven by concerns about the preservation of national cultures. In contrast to America, a country defined by immigration, most European countries – as well as Japan, China and Korea – have been far more resistant to outside influences.

The rise of immigration in recent decades has led to growing European nativist movements. Many Europeans, including liberal ones, are less than sanguine about the long-term consequences of Muslim birth rates now three times higher than those of indigenous Europeans. If current trends continue, according to the Brookings Institution, the Muslim population of Europe could double by 2015 while the non-Muslims shrink by 3.5%. Without a sustained boost in baby-making among native Europeans, much of the continent may soon confront the prospect of an essentially Islamic future.

But even so, attempts to foster a revival in European birthrates will face strong opposition from environmental activists who have amassed enormous influence. Some consider procreation of carbon-belching E.U. citizens as something close to anathema. In Great Britain, Jonathan Porritt, chair of the U.K.'s Sustainable Development Commission has advocates cutting the island's population in half as a way to reduce global greenhouse gases.

For their part, some America greens have expressed concern over our country's relative fecundity. The president's science adviser, John Holdren, a longtime protégé of Malthusian prophet Ehrlich, has in the past spoken about the need to limit families to two children. On the right, nativists also fear that too much of our new population will be of Asian or Hispanic descent.

These pressures could lead to curbs on immigration, which would slow population growth. Other steps being considered by administration planners, such as cramming Americans into smaller houses in urban centers, would clearly discourage family formation. A persistently weak economy would do the same.

Yet those favoring strong steps to curb population here first should think of the consequences. As the Japanese increasingly recognize, it's better to experience some population growth than to become a giant nursing home. A somewhat youthful, gradually growing population certainly may create considerable environmental and social challenges, but a scenario of persistent decline and rapid aging seems far worse.

This article originally appeared at Forbes.

Amtrak Runs Off The Rails

Matthew Stevenson — Sun, 06 Sep 2009 23:37:00 -0400

When the United States was in the money, the Congress grudgingly voted Amtrak a $1 billion subsidy every year, and then engaged in histrionics about how it might be cheaper to send most passengers to their destinations on private jets.

Then oil went to $140 a barrel, the United States dropped into recession, and one of the answers was to vote $12.9 billion in stimulus money, over the next five years, to Amtrak, the railroads, and state-supported transportation agencies.

Even though the American freight-train business has enjoyed a renaissance in the last twenty years — companies like the Burlington Northern Santa Fe and CSX are admirable for their competitive spirit and financial results — I am skeptical that Amtrak is the company that can lead the way to the re-birth of U.S. passenger service. Freight, let's remember, only flourished when Conrail was privatized and the industry deregulated.

To be clear, the $8 billion appropriated for high-speed corridor service has yet to be earmarked, and is best understood as discretionary funding that can be doled out to the states, if not to loyal unions. For his part, Senate majority leader Harry Reid hopes to open a drawbridge to fund high-speed rail service between Anaheim and Las Vegas.

Somehow, it is hard to imagine that the U.S. can restore its economic prosperity by rushing heavy rollers to the blackjack tables in Vegas.

Now in its thirty-ninth year of operations, the government-controlled Amtrak provides good service between Boston, New York and Washington, and Los Angeles and San Diego. Elsewhere, it’s a land cruise company.

Beyond the corridors, Amtrak plies routes that were hastily drawn in 1971 to insure that they touch as many congressional interests as possible. That means meandering sleepers from New Orleans to Los Angeles, or Chicago to Seattle, which are a delight to vacationers (myself included), but inconsequential to the business of America, which drives or flies in order to get somewhere. Amtrak handles less than 1% of America’s intercity travel.

To defend Amtrak for a moment, it has been chronically under-funded, owns little of the track on which it operates, defers its schedule to freight interests, and is hostage to union rules, Congress and microwavable food. European trains get more subsidies in a year than Amtrak has gotten in its lifetime.

So will the $12.9 billion give the United States a passenger railroad network comparable to those that are now flourishing in Europe?

Before answering the question, let’s take a very quick rolling stock of what European railroads have on offer:

In Switzerland, where I live, the trains or a bus connect every village, town and city in the country. Geneva has more than 100 trains daily. Austin, Texas, a comparable city in terms of size, has two. But the railway is expensive for foreigners who visit the country. Round trip from Geneva to Zermatt for a family of four is about $600. Nonetheless, the rail network is a national asset.

The German passenger railway, Deutsche Bahn, is incomparable. Nothing matches its speed, comfort, and service. Its Inter-City Express trains (ICEs) are the best in the world for the cost, not to mention the beer that's served.

The United Kingdom, which has privatized much of what was BritRail, is a mixed bag of flash roads. Private companies are now competing for passengers, which means lovely new carriages, and better pork pies on the tea trolleys. But neither the private companies nor the government is spending what is needed on Britain’s roadbed and infrastructure, which explains some of the horrible accidents in the system.

France has its Train à Grande Vitesse (TGV), which operates on segregated, elevated high-speed track, and makes the runs from Lyon and Avignon to Paris not much longer than local commuter service. I find its seats cramped in second class (too airliner-ish), and French stations are dingy, but otherwise the TGV is a model train. A comparable system in the U.S. could reduce the trip from New York to Washington or Boston to less than two hours. But it would mean building a new interstate for trains.

Italy has some excellent trains, and fast ones too. I know this, because I've seen them speed by as I have stood on platforms in Italy. But I never seem to catch any of them. The trains I ride have dirty seats, broken air conditioning, and inexplicable delays in places like Domodossola.

Eastern European night trains — I am partial to these, I confess — include heavy sleepers that go from Ljubljana to Belgrade, or Iasi to Bucharest, with reasonable fares, starched sheets on the berths, brandy at breakfast, and the chance to visit such exotic places as Debrecen, Lviv, and Chisinau.

The Russian Railways has, remarkably, become an excellent company, with improved passenger and freight services, including trans-Siberian container shipping that can get boxes from the Pacific to Berlin in less time than cargo ships.

How does Amtrak compare, and how is it likely to improve with stimulus funds?

Amtrak already looks good on one account: Europe's international reservation system is medieval. Amtrak is miles ahead of Europe here. This summer I tried, in person and on the web, to book a sleeper from Geneva to Sevastopol, and failed.

In Europe, international travel usually requires a trip to the ticket window at the station. Even simpler journeys, when they cross borders, are either prohibitively expensive or impossible to book. Geneva to London comes in at about $400; EasyJet does it in an hour for $50.

While I am all for spending stimulus money, or any money, on American passenger service, I have yet to see anything remotely like a good strategic plan for its restoration. The glossy maps projecting new corridor services depend on the states, not Amtrak, to realize the dreams.

Nor am I sure that throwing money at the Amtrak model will do much more than refurbish some Amfleet coaches and make congressmen look good in mid-term elections. The railroad, like many in American history, strikes me as better at delivering pork than passengers. The current chairman is a former small-town, Illinois mayor, and Joe Biden’s son was a board member until February 2009.

Perhaps equally important, where is Amtrak’s passion for railroading? Why hasn’t the route map changed in forty years? Where are the car-carrying trains, the elegant stations, the sleepers that cater to business people with showers and wi-fi, or even the special tourist trains that would take travelers across America to Civil War battlefields, major league baseball games, rock concerts, or national parks?

Why do cities like Phoenix or Louisville have no trains at all? Where are the creative railroad financiers, selling sleeping cars as timeshares or condos? If it’s truly a government-run corporation, why aren’t there more investment-grade Amtrak bonds in world markets?

Here’s another irony of the railroad stimulus package: Freight companies are prospering with deregulation and private capital, but Amtrak is running late while on the dole.

Right now we're in a golden age of railroads, much of it funded with investor capital. The common stock of large American railroads is attracting serious money, including that of Warren Buffet.

Around the world, private luxury trains are crossing Russia, India, China, Tibet, the Silk Road, the Alps, and the Andes. In Asia, investors are plotting to complete the line from Singapore over the Burma Road to China. A company in Africa charges about $30,000 — and gets it — for a deluxe train trip from Cape Town to Cairo. But bureaucratic protectionism keeps these dynamic groups from operating in the United States.

After World War II, America traded in the greatest railroad system in the world for interstate highways, sleazy rest stops, and now-crowded airports. Today, GM is broke, gas is three dollars a gallon, and politicians have to kowtow to Saudi princes.

I would love to think that for $8 billion, corridor service would flourish and that German-style trains would pop up around the country. Heck, I would love to ride a Romanian sleeper between New York and Bangor, Maine.

Despite my hopes, my fear is that the transportation stimulus money is probably going to end up on a roulette wheel in Vegas.

Amtrak Empire Builder at Marias Pass, Montana. Photograph by Alex Mayes.

Positively Fifth Street

Daniel Jelski — Sun, 06 Sep 2009 03:00:00 -0400

The title of this essay is taken from a book by Jim McManus about his adventures as a poker player. The lingo for Texas Hold ‘Em mirrors Vegas geography: three cards are placed face up – together called "the flop" – and betting ensues. Then comes the "turn" card, otherwise known as Fourth Street. Finally one gets to "The River", or Fifth Street, after which it is payday for somebody.

Of course in most towns, the River is adjacent to First Street, not Fifth. And more, Las Vegas doesn't have a river; it has a railroad, which as we've pointed out in Part 1 serves as a good substitute (best you're going to get in a desert). So the analogy isn't perfect, but there is a neat connection.

As this 1952 map of Las Vegas shows, Main St. (then US 91) runs directly along the tracks. The train station was where the Golden Nugget casino is today. Parallel to Main St. are First, Second and Third Streets (should we call them "Flop Streets?"). These are followed by Fourth St. and Fifth St., and so on, as one might expect. But Fifth is significant because it is the next important N-S traffic thoroughfare.

To be a N-S traffic thoroughfare in Las Vegas in 1952 meant that you somehow had to connect up with Main St. And sure enough, in the North the two meet at Harrison (now Owens). The southern intersection occurred at St. Louis Ave., where it still is.

Now pay attention to the inset in the upper left corner of the map. Here we see the incipient "Strip" – "continuation of S. 5th St., US Highway 91, or LA Highway." A pretty pathetic Strip by today's standard, but surely it needed a better name than "continuation of S. 5th St."

Positively Fifth Street my rear end! Positively Las Vegas Blvd. (LVB) is much more like it. Payday, big time. And today, LVB runs the entire city from the Motor Speedway in the northeast, to Jean in the far south – about 40 miles. Main St., a mere shadow of its former self, only extends for about 3 miles. I don't know when Fifth Street was renamed, but it can't be long after this map was made.

There is absolutely, positively no Fifth St. in Las Vegas.

The Strip was built before the city grew up around it, and it made sense to name the major cross streets after the casinos of the day: Sahara, Sands/Spring Mtn., Desert Inn, Flamingo and Tropicana. Then comes the I-215 freeway, followed by Russell and Warm Springs. These are each about a mile apart.

At Flamingo, LVB no longer follows the railroad, but instead heads due south. For the southern half of the Valley, LVB and Main St. constitute the meridian from which house numbers are measured. North of downtown the road angles too far to the northeast to be an effective meridian. As best I can tell, Commerce St. in North Las Vegas serves that purpose.

West of Main St., the baseline is Bonanza Road, or it would be if the street went through. But Bonanza has mostly been replaced by the US 95 freeway, which is convenient. Effectively, US 95/Summerlin Pkwy serves as the baseline. East of Main St., Fremont St. is a lousy baseline downtown, but for most of the east side, Charleston Blvd. does a perfectly good job. In my own mind (since I rarely use freeways) I've always thought of Charleston as dividing north and south.

For all practical purposes, the Las Vegas zero-point is the I-15 exit 42. House numbers count from there. That's just across the tracks (west) from the corner of Main & Bonanza.

There is no rush hour in Las Vegas, there being no 9 to 5 industry of any note. However, LVB along the Strip is very busy at all times except early morning. The key to getting around by car is to avoid crossing or driving along the Strip.

Avoid Spring Mtn., Flamingo and Tropicana at all costs! Sahara, at the northern end of the Strip, works pretty well. But the best is Desert Inn, which no longer intersects the Strip, but instead passes as a viaduct underneath. It also goes under the interstate and the railroad tracks – it will take you from Paradise Road (west of the Strip) to Valley View (a mile to the east) nonstop. It's the best way across town. Otherwise take the freeway if you must.

Industrial Road, directly along the railroad tracks and parallel to the strip to the west, is an excellent thoroughfare from Charleston to Flamingo. (Quiz: why doesn't it work well south of Flamingo?). On the east side, Paradise Rd. starts at McCarran Airport (Tropicana), about a mile from LVB. Paradise goes due north, and thus would intersect LVB at about Charleston; in practice, the street ends at St. Louis. Still, this is the best way north on the east side.

On the west side, the main streets (about a mile apart) are Valley View, Decatur, Jones, Rainbow, Buffalo and Durango. They all go through except where River Railroad interferes. Hence Valley View ends at Flamingo, and Decatur won't get you past Tropicana.

On the east side one has Paradise, Maryland Pkwy, and Eastern. Boulder Highway is the main thoroughfare east of that.

The Strip is great for walking at any time of the day or night. There is a monorail on the east side of the Strip. I've never ridden it – doesn't seem to be very convenient unless you're starting at the Convention Center (Paradise & Sahara).

China Town Plaza is on Spring Mountain, just west of Valley View. We especially enjoyed Sam Woo's Barbeque – cash only. There is a good Filipino restaurant, Pinoy Pinay, on the NE corner of Sahara and Maryland Pkwy. For my money (I'm cheap) the best all-you-can-eat buffet is at Sam's Town, on Boulder Hwy near Tropicana. There are good Japanese restaurants everywhere, but we ate at one on Maryland Parkway – at Flamingo if memory serves. Bottom line: once you know your way around, there's no reason to stay on the Strip for food.

I hear that some casinos loosen their slots to attract and retain customers on certain days of the week. It is probably possible to find out which casino has the loosest slots on any given day. For this, I have a hot tip that will save you a lot of money:

Stay home.

Alaska To Stimulus Funds: Yup, We'll Take 'Em

Andrea Gregovich — Fri, 04 Sep 2009 23:37:00 -0400

Earlier this month the Alaska state legislature, in a special session, voted 44-14 to accept $28.6 million in stimulus funds that Sarah Palin had rejected in May. Sean Parnell, Alaska’s governor since Palin's resignation, says the money will be used primarily for energy efficiency improvements in public buildings.

The tale of the showdown between Palin, the state legislature, and the federal Department of Energy may ultimately reveal as much about state sovereignty under the current administration in Washington as it does about Alaska's internal politics.

Palin has more than once made her case for rejecting the stimulus money — or at least a portion of it — clear: her objection is that the American Recovery and Reinvestment Act calls for the adoption of the International Energy Conservation Code in exchange for the funds, which would set new standards for things like window fenestration and lighting equipment in new and remodeled commercial and residential buildings. Such codes, however, could be a logistical nightmare for some communities to adopt and for the state to enforce.

Alaskan buildings are architecturally diverse, each constructed for a particular climate and geography. Homeowners in Ketchikan, for example, where it rains nearly every day of the year, have different concerns than those in Valdez, where the average yearly snowfall is 325 inches. Many communities in the state are only accessible by boat or plane, so the shipping of supplies is costly and inefficient. Economic hardship and subsistence are also the normal standard of living in many of the remote, rugged Alaskan towns and villages.

Because of these circumstances, the state has always permitted local governments to set their own building codes. Most of the villages choose not to have building codes at all. All things considered, monitoring energy code compliance in perpetuity would easily cost the state more than $28.6 million. Palin also has noted that the state has hundreds of millions of dollars already budgeted for energy efficiency and renewable energy projects, so the less than $30 million in stimulus funds really aren’t a substantial addition to the state’s effort.

Her rejection of the funds sparked a debate that was carried out in press releases, official letters, and Anchorage Daily News editorials. A legislator from Anchorage claimed in an op-ed piece that Palin was “denying” Alaskans much needed funds, and that rejecting money from the stimulus package brings to mind the old saying, “two wrongs don’t make a right.” The co-chairs of the state senate resources committee wrote a letter urging Palin to consider Missouri’s proposal (accepted by the Department of Energy) which would fulfill the mandate with a 90% compliance rate on the local level, exempting communities with populations under 2,500 and structures without plumbing and electricity. There are enough major Alaska communities that have already adopted energy codes, they said, that the state either already meets or could easily meet the federal requirements in the necessary time frame.

Palin responded to these opponents with her own editorial and press releases, and an Anchorage architect agreed with her in another op-ed, suggesting that while Alaska has long built energy efficient buildings out of cold weather necessity, the two senators’ numbers for 90 percent compliance didn’t add up. The primary result of taking the money, he claimed, would be “a new regulatory requirement to verify compliance.”

The disagreement hinged on everyone’s interpretation of the DOE’s language. The initial mandate required “assurances” from the governor that local communities with the authority to do so “will implement” the codes. Because there is no statewide energy code in Alaska and the state constitution supports local self-government, Palin took the stance that this requirement would put her outside of her jurisdiction as governor. She and her staff exchanged letters with the DOE in attempt to clarify the possibility of the Missouri option, and the degree to which the state would be required to oversee code implementation and compliance.

The DOE admitted that the code mandate wasn’t appropriate for all states, but said the Missouri option was part of the Missouri governor’s “broader commitment” to “work proactively” with communities and the legislature to improve energy efficiency, implying, perhaps, that despite Alaska’s success in these areas, the governor’s personal involvement was non-negotiable. Revisions were offered, but Palin was still dissatisfied with the DOE’s language. Proponents of taking the money suggested that the DOE’s revisions required the governor to work “within the extent of her authority” to promote the building codes, not to actively enforce them. Palin didn’t agree with this interpretation, saying she didn’t want the role of dictating or influencing local policies.

As a state with a cold climate and an economy vulnerable to volatile fuel prices, Alaska has indeed taken its own steps to improve energy efficiency in recent years. In addition to independently adopted energy codes in most of the major cities and hundreds of millions budgeted for state energy projects, there has been an admirable home energy rebate program in place for several years; homeowners can have their houses audited for energy efficiency and be reimbursed up to $10,000 for making recommended improvements.

It’s hard to imagine, though, that the legislature’s motives in opposing Palin’s decision were entirely pure. Palin and the legislature had a combative relationship over budget issues for most of her tenure as governor, and this was an opportunity for them to demonstrate their clout. It's telling, too, that the legislature rejected Parnell’s proposal to extend their special session (which was held primarily to overturn Palin’s veto) by one day in order to extend a year-long suspension of the state’s 8-cent gas tax, which will now be reinstated September 1. The legislature may choose to suspend the gas tax again when the regular session begins in January, but their lack of urgency to act on the issue undermines their claim that the stimulus funds are urgently necessary to help keep Alaskans’ energy costs down.

Of course, Palin’s own stance has been calculated as well. She initially wanted to decline roughly half of Alaska’s $930 million allotment, and her vocal anti-stimulus statements garnered national attention, which helped establish her as a critic of the Obama administration in her own right, independent of her role in McCain’s presidential campaign. By the time the smoke cleared, however, she was rejecting only this $28.6 million. Critics have said that it looks like a token amount, chosen to make a strategic political statement.

In her op-ed piece, she noted that during her time as a Wasilla city council member and then mayor, the city experienced a boom in growth that made building codes an issue of great contention. Wasilla is notably missing on the list of major communities that have independently adopted energy codes, which would suggest that it would be one of the key cities that would have problems with a statewide energy code.

After the legislature’s vote, Sean Parnell wrote to the DOE accepting the funds, noting his own disapproval of the mandates. He quoted an August DOE statement that the state legislature “does not need to adopt, impose and enforce a statewide building code in order to qualify,” making clear that he was accepting the funds on the basis of that statement. He also provided the DOE with “assurances”, not that state or local codes would be adopted, but that the Regulatory Commission of Alaska “will seek to implement general policies to promote energy efficiency and maintain just and reasonable rates while protecting the public.”

Ultimately, if Alaska holds its ground and does not adopt the IECC, Palin and the legislature may have unwittingly conspired to successfully challenge the federal government’s encroaching influence on the state’s affairs. Perhaps not coincidentally, the legislature unanimously passed a 10th amendment state sovereignty resolution while they were hashing out the stimulus funds controversy, and Palin signed it weeks before resigning as governor. It will be interesting to see how the DOE handles Alaska’s obstinance...and how the Alaska legislature responds if the DOE calls their bluff down the road and asks how the codes are coming along.

Andrea Gregovich is a writer and translator living in Anchorage.

China’s Metropolitan Regions: Moving Toward High Income Status

Wendell Cox — Fri, 04 Sep 2009 00:11:39 -0400

Changsha, Hunan (China): Over the past 30 years, China has eradicated more poverty than any nation in the world’s history. The reforms instituted by Deng Xiaopeng have not only created a large, new middle class in China, but have also produced some of the largest and architecturally most impressive urban areas in the world. There is still poverty in China, but the most extreme poverty is in the rural areas. The expansive shanty-town poverty found in Manila, Jakarta, Mexico City, Sao Paulo or Mumbai is absent in the large Chinese urban areas.

While China as a nation is growing slowly, the same cannot be said of its urban areas. Perhaps the greatest migration in human history is underway, as rural residents move to the urban areas. United Nations population projections indicate that China will add 310 million people to its urban areas over the next 25 years, a figure equal to the population of the United States.

Gross Domestic Product in Chinese Cities: China has seen its incomes and gross domestic product increase markedly. Urban economic growth has been even greater than that of the country as a whole. This article contains the latest available information on gross domestic product for the largest prefectural and provincial level cities in China, derived from annual yearbooks (see Table). It needs to be understood that “cities” are much different in China than anywhere else.

The Differing Definitions of “City”: The most commonly used definition of a city in China is more akin to a large metropolitan region in the United States or Europe. Some cities, like Shanghai, Beijing, Tianjin and Chongqing are the equivalent of provinces, while other cities are “prefectural level,” administering large areas within provinces (Note 1). Each of these “cities” is comprised by smaller jurisdictions that go by at least 8 names, including city districts and “county level cities,” which are cities within the city, but not the main urban areas. Much of the land area in county level cities and even inside some city districts is rural rather than urban. As a result, analysts who should know better often make downright silly comparisons between Chinese cities and other cities in the world, simply because they do not understand the differing meaning of the term. Nearly all of China, urban and rural is broken into prefectural or provincial cities, just as nearly all of the United States is divided into counties.

The large rural areas within the cities reduce the overall GDP per capita because incomes are generally so much lower outside the urban areas.

Geographical Distribution of Wealth: China purposefully began its most significant reforms on the east coast, which is where much of the wealth of the nation is concentrated. All 25 of the most affluent metropolitan regions are on the east coast and 14 of the richest 20 metropolitan regions in China (measured by GDP per capita) are in the two river delta mega-regions, the Pearl and the Yangtze.

The Pearl River Delta: China’s richest area is the Pearl River Delta, home of formerly British administered Hong Kong, Deng Xiaopeng’s megacity Shenzhen and historic Guangzhou (Canton). The area is one of the world’s great mega-regions, with a population of more than 50 million, in 8 virtually adjacent urban areas, tied together by a modern freeway system. Altogether the Pearl River Delta urban areas have more people than the world’s largest single urban area, Tokyo, and an overall higher density.

Hong Kong, which remains outside the normal provincial governance structure, had the highest GDP per capita in the nation at $42,200 (purchasing power parity) in 2007, slightly more than 90 percent of the United States. Hong Kong and formerly Portuguese Macau have both achieved first world economic status, though Macau does not make the 1,000,000 urban area population threshold for inclusion on the present list.

Shenzhen, on Hong Kong’s northern border ranks 4th in the nation at $22,100 and Guangzhou 5th, at $19,900. Two other Pearl River Delta metropolitan regions, Foshan, Zhuhai, have GDPs per capita greater than $15,000, which by some accounts qualifies them for entry into the high income world. The remaining large Pearl River Delta metropolitan regions, Dongguan, Zhongshan and Jiangmin each have GDPs per capita exceeding $10,000.

The Yangtze River Delta: The Yangtze River Delta is another great mega-region, with more than 30 million people. It, however, covers much more land area than the Pearl River Delta and has much greater expanses of rural territory. The Yangtze River Delta metropolitan region of Suzhou, the city of canals, and neighbor of Shanghai, has the highest GDP per capita outside Hong Kong, at $25,500. One county level city within Suzhou, Kunshan has a GDP per capita of more than $28,000 (Note 2). Suzhou’s neighbor on the way to Nanjing, Wuxi, is next at $23,300. Shanghai, China’s largest metropolis, ranks 6th in GDP per capita at $18,400. Other Yangtze Delta metropolitan regions have GDPs per capita between $10,000 and $15,000, including Nanjing, Hangzhou, Changzhou and Ningbo.

The Beijing Metropolitan Region: China’s third mega-region is around Beijing, the national capital. Altogether, this region has nearly 25 million people, but like the Yangtze River Delta, the Beijing megaregion has large swaths of rural territory. Beijing itself has a GDP per capita of $16,200, while Tianjin and Tangshan (site of the 1976 earthquake, one of history’s worst, which killed at least 250,000 people) have GDPs per capita of between $10,000 and $15,000.

Outside the Megaregions: While the wealth is concentrated in the three large megaregions, prosperity has come to other metropolitan regions as well. One of Deng Xiaopeng’s original special economic zones, along with Shenzhen, was Xiamen, which is the richest metropolitan region outside the three large megaregions.

Prosperity Comes to the West: The interior metropolitan regions are now well on their way to sharing the prosperity of the east. Changsha, from where I write, is now served by the nation’s “interstate” highway system in all directions. At the end of 2008, this system had expanded to 37,000 miles. Eventually, 53,000 miles are planned, which would make it longer than the present 46,000 mile US interstate system. This national expressway system is a pivotal factor in bringing prosperity to the interior. Now, trucks can reach Pacific Coast ports such as Guangzhou, Fuzhou or Hangzhou in six to nine hours of driving. This makes it possible for manufacturing businesses to locate in Changsha, Xi’an or Wuhan and a number of other metropolitan regions that are well inland.

This should be of inestimable help as the nation seeks to decentralize its urban growth to the interior urban areas. Changsha, itself, has moved strongly into middle income status, with a GDP per capita closing in on $10,000. Moreover, local officials are planning for a near doubling of the current 2.5 million population in the next two decades. At least three major new towns under construction on the urban periphery and another will be built where the borders of three prefectural cities meet: Changsha, Zhuzhou and Xiangtan which is the birthplace of Chairman Mao Zedong (about 50 miles from Changsha, just off the Shangrui Expressway).

Chongqing (formerly known in the west as Chungking), one of the four provincial level municipalities, has low GDP per capita of less than $5,000. However, this figure is skewed low by the fact that the urban area itself accounts for approximately one-sixth of the provincial city’s population, with the bulk of the population in the far lower income rural areas. Chongqing provides the ultimate evidence that cities in China are like nowhere else in the world. The “city” of Chongqing has a population of more than 30 million, in a land area the size of Austria or Indiana. The actual urban area, however, covers less area than the Indianapolis urban area and only 1.5 times the area of the Vienna urban area.

Toward a High Income Nation: The urban areas of China still have poverty, but the commercial and residential development (both high rise and detached “villas”) make it clear that a great many people are doing “very well.”

China is moving hard toward high-income world status. I specifically avoid the term “first world,” because metropolitan China already feels first world, regardless of its income status. However, should current growth rates continue relative to the high income world, metropolitan regions such as Suzhou and others could move into the list of the world’s 100 most affluent metropolitan areas within a decade. It cannot happen too soon.

Note 1 : This includes sub-provincial level cities, which have jurisdiction over virtual prefectures within provinces, however have more administrative independence than prefectural level cities.

Note 2: GDP per capita data is not widely available for divisions within prefecture and provincial level cities

China Metropolitan (City) Regions Gross Domestic Product: 2007
Provincial, Sub-Provincial & Prefectural Level Cities
Purchasing Power Parity (US$)

RANKED BY GDP/CAPITA		GDP/Capita
Rank	Metropolitan (City) Regions	¥ (RMB)	US$ PPP
1	Hong Kong		$42,200
2	Suzhou, JS	¥91,900	$25,500
3	Wuxi, JS	¥83,900	$23,300
4	Shenzhen, GD	¥79,600	$22,100
5	Guangzhou, GD	¥71,800	$19,900
6	Shanghai, SHG	¥66,400	$18,400
7	Zhuhai, GD	¥61,700	$17,100
8	Foshan, GD	¥61,200	$17,000
9	Beijing. BJ	¥58,200	$16,200
10	Xiamen, FJ	¥56,200	$15,600
11	Nanjing, JX	¥53,600	$14,900
12	Changzhou, JS	¥52,800	$14,700
13	Hangzhou, ZJ	¥52,600	$14,600
14	Handan. HEB	¥51,900	$14,400
15	Dalian, LN	¥51,600	$14,300
16	Ningbo, ZJ	¥50,500	$14,000
17	Zhongshan. GD	¥49,500	$13,700
18	Tianjin. TJ	¥46,100	$12,800
18	Dongguan. GD	¥46,000	$12,800
20	Shenyang, LN	¥45,600	$12,600
20	Qingdao. SD	¥45,400	$12,600
22	Tangshan. HEB	¥44,700	$12,400
23	Zibo, SD	¥43,500	$12,100
24	Yantai, SD	¥41,300	$11,500
25	Huizhou, GD	¥41,000	$11,400
26	Baotau, NM	¥40,400	$11,200
26	Shijiazhuang. HEB	¥40,300	$11,200
28	Jinan, SD	¥39,300	$10,900
29	Anshan, LN	¥38,400	$10,700
30	Jiangmen, GD	¥37,800	$10,500
31	Taiyuan. SAX	¥36,400	$10,100
32	Wuhan. HUB	¥35,600	$9,900
33	Hohhot, NM	¥34,900	$9,700
34	Zhengzhou, HEN	¥34,100	$9,500
35	Changsha. HUN	¥33,700	$9,400
36	Urumqi, XJ	¥31,100	$8,600
37	Nanchang, JX	¥30,500	$8,500
38	Fuzhou, FJ	¥29,500	$8,200
39	Changchun, JL	¥28,100	$7,800
40	Hefei. AH	¥27,600	$7,700
41	Wenzhou. ZJ	¥27,500	$7,600
42	Baoding, HEB	¥27,100	$7,500
43	Haikou, HA	¥26,700	$7,400
43	Chengdu, SC	¥26,500	$7,400
45	Lanzhou, GS	¥25,600	$7,100
46	Luoyang. Hen	¥25,100	$7,000
47	Harbin, HL	¥24,700	$6,800
47	Fushun, LN	¥24,500	$6,800
49	Jilin, JL	¥23,300	$6,500
50	Xiangfan, HUB	¥22,500	$6,200
51	Xi'an, SAA	¥21,300	$5,900
52	Liuzhou, GX	¥20,700	$5,800
53	Guiyang, GZ	¥19,500	$5,400
54	Xuzhou, JS	¥19,200	$5,300
55	Kunming, YN	¥18,800	$5,200
56	Shantou, GD	¥17,000	$4,700
57	Linyi, SD	¥16,300	$4,500
58	Nanning, GX	¥15,800	$4,400
59	Datong, SAX	¥15,600	$4,300
59	Huiayn, JS	¥15,500	$4,300
61	Chongqing, CQ	¥14,700	$4,100
62	Qiqihar, HL	¥10,000	$2,800

Sources: Annual statistical reports, generally from http://www.chinaknowledge.com
GDP PPP calculated from 2007 International Monetary Fund data
Caution: In some cases, GDP per capita may exclude temporary residents
Includes all provincial, prefectural level and sub-provincial level cities and special economic regions on the mainland with a core urban area of more than 1,000,000 population (see http://www.demographia.com/db-worldua.pdf).
Note: Cities in China are substantially different in definition than in other nations. See: http://www.demographia.com/db-define.pdf.
Provincial abbreviations at db-china-abbr.pdf

World Capitals Of The Future

Joel Kotkin — Wed, 02 Sep 2009 23:43:58 -0400

For most of those which were great once are small today; And those that used to be small were great in my own time. Knowing, therefore, that human prosperity never abides long in the same place, I shall pay attention to both alike

–Herodotus, Fifth Century B.C.

If the great Greek chronicler and "father of history" Herodotus were alive today, he would have whiplash. In less than a lifetime, we have seen the rapid rise of a host of dynamic new global cities – and the relative decline of many others. With a majority of the world's population now living in cities, what these places do with their new wealth ultimately will shape this first truly urban century.

Just 25 years ago, when you walked down the Bund in Shanghai, there were few cars and no modern towers. The rough sidewalks expanded into the streets to accommodate a mass of poorly dressed pedestrians. A decade later, Moscow was in the midst of a particularly grungy interlude, filled with stolid people waiting in lines for shoddy consumer goods. You could hail a cab, and pay for it, with a pack of Kents.

Today, these two cities have emerged from their socialist shackles with scores of high-rise projects either already up or on the drawing board. This, of course, has come with a price; Moscow hotel accommodations – cheap if dingy a quarter century ago – last year ranked as the world's most expensive. Shanghai, meanwhile, has bustling traffic, a new subway and a 100-story office tower; it is about to begin construction on another that tops out at 121 stories.

Also remarkable: the rise of other great cities – Mumbai, Bangalore and Hyderabad in India; Beijing; Sao Paulo, Brazil; and Dubai – that a quarter century ago were either obscure or better known for their destitution than their rapid construction.

Of course, none of these cities' wealth or economic power have passed leading global centers like Tokyo, London, Paris, New York, Chicago, Los Angeles, Seoul, Singapore and Hong Kong. But our list of emerging global cities is clearly gaining on them – and with remarkable speed.

The main reason lies in economic fundamentals. Over the past 25 years, per capita income, based on purchasing power parity, grew by over 400% in India and a remarkable 1,500% in China. The bulk of that wealth came from urban centers like Mumbai and Shanghai, while the largest concentrations of poverty remained in the countryside. In that same period, U.S. per capita income grew by 245%; growth in most Western European nations was less than that.

The nascent recovery in the world economy will certainly amplify these trends. China, as opposed to the U.S., is leading the economic resurgence, drawing in commodities from its rising business partners in all continents.

For the most part, basic industries lead the way. Manufacturing has propelled the rise of the great Chinese cities. In Brazil, Sao Paulo's growth spans everything from shoes and aerospace to technology. The city also dominates Brazil's growing energy sector, both renewable and traditional. Energy – overwhelmingly of the fossil fuel variety – has powered the rise of Moscow and Dubai. It's not always pretty. As the old Yorkshire saying has it, where there's muck, there's brass.

Of course, the past year's drop in oil prices has set back things a bit. California real estate investor Bob Christiano notes that more than half of the construction projects in the United Arab Emirates – worth $582 billion total – were put on hold in 2008. But now that the price of oil seems back on the rise, you can expect things to perk up in places like Dubai, Moscow and Sao Paulo.

Not all our emerging cities are in the developing or former Communist world. North America boasts at least three genuine emerging world cities: Calgary, in Canada, and Houston and Dallas. These regional economies have been built around energy and expanding industrial power. They also have enjoyed rapid population growth. Last year, Houston and Dallas grew more than any other metropolitan region in the country; over the past decade, their populations have increased six times more rapidly than New York, Los Angeles, Chicago or San Francisco.

But it's not all a demographic game; cities like Phoenix and Las Vegas have similarly enjoyed rapid growth but do not fit on the rising global cities list. The key difference lies in the Texan cities' rising corporate power. Houston, with 27 Fortune 500 firms, has passed Chicago in the number of Fortune 500 companies, while Dallas, with 14, ranks third. Together, the two Texan cities account for about as many Fortune firms as New York, once home to almost a third of the nation's largest companies.

Similarly, Calgary has become Toronto's main challenger for corporate headquarters in Canada, a move sparked not only by oil wealth but lower taxes and regulation. The region now easily boasts the highest per capita income in the country. Its long-term main rival in growth may prove to be provincial cousin Edmonton, which sits closer to Alberta's massive oil sands deposits.

In Australia, Perth, located on the Indian Ocean and close to critical commodities such as iron ore, has also emerged in a big way. Australia's richest city has become a major urban threat to long-established Sydney and Melbourne, with growth driven both by domestic as well as foreign migration and development.

These emerging world cities also have survived the housing crisis much better than their national competitors. The growth of India and China has created an ever-richer market for commodities, as well as expertise residing in places like Perth, Calgary, Dallas and Houston, much of it built around commodity and resource extraction. The evolving ties between burgeoning world cities also spill over into the growing tourism industry in Perth and the expanding medical service complex in Houston.

Another group flocking to the developing world's super-stars: architects and civil engineers, many of them from more established first-world cities like New York, London, Los Angeles and San Francisco. Over the past 25 years, most of the biggest rail, road, airport and sanitation systems have been built not in Europe or America, but in East and South Asia, the Middle East and Brazil. Even as the West tries to work through its housing crisis, residential real estate prices are on the rise in cities like Mumbai, Bangalore, Beijing and Shanghai.

The lure is irresistible, particularly for the young and ambitious. Just last month, Adam Mayer, a 20-something formerly employed architect from San Francisco, relocated to Beijing. He sees the chaos around him, but has plunged into the opportunity. "As I wait for our economy to recover," he told me, "I am enjoying the ride as I witness perhaps one of the most compelling urban development stories of the 21st century."

High-rise office buildings have emerged as the biggest signs of the new order among global cities. Shanghai is already the fourth-tallest city in the world, with 21 buildings over 700 feet. Of the world's 10 tallest buildings, only one – the former Sears (now Willis) Tower in Chicago – resides in the U.S. or Europe. There are now more tall buildings in Asia than in North America, and of the tallest 10 completed in 2006, four were in China and four in the Middle East. When completed, the Burj Dubai will stand as the world's tallest.

Although less awesome, the shift in skylines can also be seen in Russia. Until recently, Moscow had no buildings higher than the 787 feet of Moscow State University. Now, the Kremlin city has 14 towers complete or on the way, including one that will replace the current Naberezhnaya Tower; it will be Europe's tallest building. Another project, a billion-dollar Chinatown, is being proposed with investors from China.

Even with their rapid growth and increasingly modern gloss, these cities don't tend to make the usual lifestyle-based "best cities" lists. Munich, Zürich, Copenhagen and Vancouver may be somnolent compared to Beijing or Bangalore, but they tend to be far wealthier, better organized, cleaner and safer – and they have far less poor people. Even our current global metropolises like Tokyo, London and New York have been able to hone the cultural amenities that make for a gracious urbanity.

In contrast, by their very nature, boomtowns often give shorter shrift to the environment, the aesthetics of place and the more important aspects of community. Shaghai's "tofu like" soil may not be ideal for massive high-rise buildings, just as some of Dubai's buildings, some believe, may be helping to erode the Persian Gulf coastline.

These upstarts are often too busy building and trying to impress the rest of the world to focus on architecture or plan niceties to make the heroic routine of everyday life more pleasant, notes London-based architect Eric Kuhne, who has worked on major projects in Moscow, Dubai and other Persian Gulf cities. Such places tend to be "abrupt and rude" in their development, but also "honest in every way" – they are the new kids on the block, with more money and power than seasoning.

Like parvenus throughout history, Kuhne adds, these burgeoning power centers harbor "a desire to be seen as relevant, as 'modern', as shockingly new. In the stampede for a shining presence on the horizon, they both have been mesmerized...perhaps hypnotized...by their own profligacy of uncontrolled development."

Yet, Kuhne reminds us, you could have said the same thing about now-reigning world capitals like New York, London, Tokyo, Chicago or Los Angeles. These cities also "experienced a similar riot-panic in the post-war boom years of the '50s. We destroyed the intricacy of centuries of urbanism [and] sacrificed community and family fabric for home ownership and autonomy."

Ultimately, the salvation for these cities may lie, Kuhne suggests, not in mimicry of Western ways but in drawing inspiration from their own ancient traditions. After all, Chinese, Arabs and Russians are not newcomers to city-building. But however they decide to build their new cities, these countries will be providing the blueprint for all of our urban futures.

This article originally appeared at Forbes.

Joel Kotkin is executive editor of NewGeography.com and is a presidential fellow in urban futures at Chapman University. He is author of The City: A Global History. His next book, The Next Hundred Million: America in 2050, will be published by Penguin early next year.

Millenial Generation Myths

Morley Winograd and Michael D. Hais — Wed, 02 Sep 2009 00:38:00 -0400

1. Young people think and behave the same at all times. One generation is just like the one before it and the one that follows. False: Each generation is different from the one before it and the one that follows. Today’s young people, the Millennials (born 1982-2003), are a “civic” generation. They were revered and protected by their parents and are becoming group-oriented, egalitarian institution builders as they emerge into adulthood. Millennials are sharply distinctive from the divided, moralistic Baby Boomers (born 1946-1964) and the cynical, individualistic Gen-Xers (born 1965-1981), the two generations that preceded them and who are their parents.

2. Millennials are narcissistic, self-indulgent kids who think they are entitled to everything. False: Millennials have a deep commitment to community and helping others, putting this belief into action with community service activities. Virtually all Millennial high school students (80%) participate in a community service activity. Two decades ago when all high school students were Gen-Xers, only a quarter (27%) did so.

3. Millennials volunteer and serve because they are "forced" to or are trying to polish their college application resume. False: Millennials volunteer for community and public service in large numbers long after their “required” initial high school experiences. In 2006, more than a quarter (26%) of National Service volunteers were Millennials, at a time when Millennials comprised no more than 15% of the adult population. By contrast in 1989 when all young adults were members of Generation X, only 13% of National Service volunteers were in this age cohort.

4. Millennials became Democrats and liberals because they are hero worshipers of Barack Obama. False: Millennials identified as Democrats and liberals well before Obama emerged as a major political force with significant name identification. In 2007, Millennials identified as Democrats over Republicans by 52% to 30% and as liberals over conservatives by 29% vs. 16% (the rest were moderate). At that time, Barack Obama’s name identification was barely 50%, well below that of Hillary Clinton and John Edwards, his chief competitors for the Democratic presidential nomination.

5. Millennials will become more conservative as they age. False: Party identification and ideological orientation are formed when people are young and are retained as they age. Prior “civic” generations, with similar belief systems to Millennials, kept that philosophy throughout their lives. The only two generations that gave John Kerry a majority of their votes over George W. Bush in 2004 were the first sliver of Millennials eligible to vote and the last segment of members of the GI Generation, all of whom were at least 80 and many of whom were casting their final presidential vote.

6. Millennials, like all young people, are apathetic and uninterested in voting. False: Young people’s proclivity to vote or not is not based upon their age but their generation’s belief in the efficacy of voting. Millennials are members of an activist and politically involved “civic” generation. They have voted heavily in the past and will continue to do so in the future. According to CIRCLE, an organization that examines youth political participation trends, 6.5 million people under 30 voted in presidential primaries and caucuses in 2008, double the youth participation rate of 2000. Fifty-three percent of Millennials voted in the 2008 general election (59% in the competitive battle ground states), up from 37% in 1996 when all young voters were member of Generation X.

7. Like Boomers and Gen-Xers before them, Millennials are cynical and disillusioned by the problems facing them and America. False: In spite of the fact that they are far more likely to be unemployed and far less likely than older Americans to have health insurance, Millennials are more optimistic than older generations. A May 2009 Pew survey indicates that about three-quarters of Millennials in contrast to two-thirds of older generations are confident that America can solve the problems now facing our country.

8. Millennials care only about what happens in their own country, community, and lives and not on what goes on in the rest of the world. False: Most Millennials have visited foreign countries and through social networking technology, are connected to friends around the world. They are open to working with people in other countries to solve the problems of the world community. Millennials are far more likely than older generations to support free trade agreements like NAFTA (61% vs. 40%) and far less likely to believe in military solutions to international concerns (39% vs. 58%). Millennials are also about three times more likely than seniors to have opinions on major international concerns like Israeli/Palestinian relations.

9. Millennials, like all generations, are rebels who are hostile to civic institutions and government. False: Millennials have significantly more positive attitudes toward government and its activities than older Americans. Millennials are much less likely to believe that if the government runs something, it is usually wasteful and inefficient (42% vs. 61%) or that the federal government controls too much of our daily lives (48% vs. 56%). They are much more likely to feel that government is run for the benefit of all (60% vs. 46%).

10. Millennials are more focused on trivialities such as celebrities than on the big issues facing America. False: Unlike some previous generations, Millennial celebrities and musical tastes are more acceptable to and compatible with their parents’ values because they reflect the generation’s love of teamwork and service to the community rather than rebellion. For example, a recent Pew survey indicates that rock music is the preferred genre of Millennials, Gen-Xers, and Boomers. Rock, the music of rebellion in the 1950s and 1960s, is now mainstream. Moreover even as early as 2006, two years before Barack Obama’s candidacy, more than twice as many Millennials had voted for president than had voted on American Idol.

Morley Winograd and Michael D. Hais are co-authors of Millennial Makeover: MySpace, YouTube, and the Future of American Politics published by Rutgers University Press.

Beijing is China's Opportunity City

Adam Mayer — Mon, 31 Aug 2009 23:35:00 -0400

“What the Western fantasy of a China undergoing identity erasure reveals is a deep identity crisis within the Western world when confronted by this huge, closed, red alien rising. There is a sense that world order is sliding away from what has been, since the outset of industrialization, an essentially Anglo-Saxon hegemony, and a terrible anxiety gathers as it goes.” – Adrian Hornsby, “The Chinese Dream: A Society Under Construction”.

One year after the conclusion of what may have been the most bombastic Olympic Games ever staged, the host city of Beijing has solidified its position as a growing influential global metropolis. While the rapid pace of change and development in China is well-documented by the Western media, the foreign consensus regarding The Middle Kingdom’s ascendancy to global super power remains decidedly ambivalent. Yet a closer look at China’s second largest city may yield a different, more promising outlook for this gigantic yet mysterious country.

Much like London was to England in the 19th Century and Los Angeles was to the U.S. in the 20th Century, Beijing is today ground zero for opportunity in China. Shanghai holds on to its reputation as the country’s most cosmopolitan city and banking center, but Beijing continues to strengthen its role as political and cultural hub of China.

To call Beijing an ‘opportunity city’ is counterintuitive based on its monumental physical characteristics and history as imperialistic capital. Home to the massive Forbidden City and the adjacent Tiananmen Square, the city is defined by a tradition of architectural pomposity. Continued today in buildings like the Olympic Bird’s Nest Stadium and the ominous CCTV Building, subtlety and grace are not Beijing’s strongest suits. Yet underlying these iconic structures is a restless population of 17 million, including many newcomers eager about the prospect of upward mobility.

As construction of new buildings came to a screeching halt in the U.S. late last year, I also heeded the call of opportunity and headed to Beijing myself. My story is not unique in this regard as the phenomenon of recent American graduates moving to China for jobs was documented earlier this month in an article from the New York Times. Now working with a young, up-and-coming Chinese architecture firm, I am bearing first-hand witness to phenomenal changes.

Problems exist of course, but criticizing Beijing or the rest of China from afar for its poor air quality or the rampant destruction of its old neighborhoods is too easy. The reality underlying these problems is much more complex, much of it depending on varying perspectives of how Westerners as opposed to Chinese view the country’s direction.

For instance, Western planners and architects lament the razing of the charming alley and courtyard Hutong neighborhoods as significant losses of urban history. Yet most Chinese people view the process of destruction and rebuilding as a necessary piece of the modernization of their country. As 21-year-old film student and native Beijinger Ashley Zhang observes, “Although the loss of the Hutongs is sad, the reality is that most people would prefer to live in modern buildings where they do not have to go outside and use a shared bathroom or live in an old structure where they are going to be cold during the winter.”

Other Beijingers have noted how owners of homes in Hutongs are more than willing to trade in their digs for large paydays. Ms. Zhang went on to explain to me that a “change in accommodations will not necessarily alter the spirit or the culture of the Chinese people”. This presents a markedly different perspective from the Western view on the relative importance of permanence in the built environment.

It could be argued that a true sense of Chinese-ness exists more in the tradition of language and cuisine than in the built form. As such, the new and prolific building and infrastructure projects of China represent more a desire to join the modern world rather than to celebrate its architectural history.

Yet to say that there is no urban planning in Chinese cities would be off the mark. As put forth by the Beijing Municipal Commission of Urban Planning in 2004, the ‘Beijing 2020 Masterplan’ calls for high intensity development eastwards towards Tianjin and low intensity development westward towards the mountains. The ‘Two Axes, Two Corridors – Multicenters’ Plan’ aims at relieving congestion towards the historic center of Beijing by strengthening outlying polycenters.

Lisa Friedman of the New York Times recently lambasted the city’s development pattern as Beijing locking itself into a pattern of Los Angeles-type sprawl. In fact, Beijing’s polycentric development can be attributed to the fact that the historic core of the city is already well defined and remains off-limits to new development.

Also, contrary to most American cities, the designated ‘Central Business District’ lies east of the center of the city. Concentrations of jobs form other business ‘nodes’ in all directions around Beijing. This is not due to any desire to copy Los Angeles per se but rather because the city is gaining tremendously in population and must ‘sprawl’ in order to accommodate these newcomers. In addition, businesses prefer to set up shop in places where land is cheaper.

Detractors of rapid urban development like to note how sprawl creates unbearable automobile traffic. Yet they forget that the first great exemplars of “sprawl” – London and Los Angeles – did so with massive commuter rail systems long before the rise of LA’s freeway system or London’s ring roads.

In fact what you have in Beijing is sprawl abetted by a Metro system that would be the envy of American public transportation enthusiasts. There are currently six subway lines operating in the city and in addition, 10 new lines which are under construction are all slated to be completed by 2015. In the end, Beijing’s rail network will constitute 350 miles of track. Compare that to Los Angeles, which destroyed its own huge rail system in favor of buses, where a planned ‘subway to the sea’ consisting of a mere 14 miles of rail is estimated to not be completed until the year 2036.

Beijing is well on its way to ‘megacity’ status. Along with the city of Tianjin, about 70 miles southeast of Beijing, the Beijing-Tianjin mega-region will be one of the largest in the world. Tianjin, as the fifth-largest city in China and boasting a population of about 11.5 million residents, is going through a building boom of its own. Acting as Beijing’s main port, the two cities together form an economic powerhouse. The marriage between the two cities was consummated a year ago with the opening of the 350 km/h (217 mph) Beijing-Tianjin Intercity Rail – reducing travel time to a mere 30 minutes. I rode this train myself recently and had to cover my eyes from the constant flashbulbs going off recording the speedometer on the monitor in the front of our car.

China has come a long way since the days of Chairman Mao’s ‘Great Leap Forward’. Although still ‘Communist’ in terms of a political system of one-party rule, traversing the streets of Beijing gives the impression that China may in fact be the most capitalist place on earth. From weather-worn women selling fruit to crafty young men hawking fake watches and pirated DVDs, no piece of the city is off-limits to commerce.

There’s a huge generation gap between the younger generations and those who were unfortunate enough to have lived through the Cultural Revolution. But I would warn Westerners to not be fooled into thinking that China will forever be just a ‘cheap place to manufacture things’. The country is still very young, and as more young people get educated and travel abroad, China will evolve into an important player in everything from architectural design to green technology and the arts. At that point in time, sadly, there will no longer be any need for ‘Western experts’ like me. But for the time being, as I wait for our economy to recover, I am enjoying the ride as I witness perhaps one of the most compelling urban development stories of the 21st Century.

Adam Nathaniel Mayer is a native of the San Francisco Bay Area. Raised in Silicon Valley, he developed a keen interest in the importance of place within the framework of a highly globalized economy. Adam attended the University of Southern California in Los Angeles where he earned a Bachelor of Architecture degree. He currently lives in Beijing, China where he works in the architecture profession.

High Cost of Living Leaves Some States Uncompetitive

Eamon Moynihan — Mon, 31 Aug 2009 01:01:35 -0400

Late this spring, when voters in California emphatically rejected tax increases to close the state budget gap, they sent a clear message to state policymakers. They were tired of California’s high taxes, which according to the non-partisan Tax Foundation, consumed 10.5 percent of state per capita income last year. This compared with a national average of 9.7 percent, making California the sixth most heavily taxed state in the nation.

But if Californians were tired of paying an additional 0.8 percent of their income in state and local taxes, what would they make of research by economists at the federal Bureau of Economic Analysis that estimated that the cost of living in California, based on 2006 data, was a whopping 29.1 percent above the national average? Obviously, from an economic point of view, the state’s high cost of living has a much greater impact on the average person’s standard of living than taxes do.

Cost of living is not an issue that we typically think about, when it comes to voting and politics. That needs to change. Cost of living estimates provide a valuable tool for making accurate comparisons of economic performance. Moreover, they provide the best available, if indirect, measure of the costs imposed by regulation. And with Congress debating potentially dramatic changes in how we regulate energy and health care, costs of this kind clearly deserve close scrutiny.

Let’s begin with economic performance, starting with California. According to 2006 census estimates from the American Community Survey, the median household income in California was $56,645. In terms of ranking, that made California the sixth most prosperous state in the nation. But how did California fare, once the cost of living was taken into account? The answer is not very well. The economists who published the 2006 data, Bettina Aten and Roger D’Souza, did not deflate income data by the full 29.1 percent when calculating the real effect of cost of living. Rather, they exempted certain components of income, such as government transfer payments. Using this attenuated calculation, real median household income in California in 2006 was $47,988. In terms of ranking, that dropped California down to 31st place. (Were the data deflated by the full 29.1 percent, the state would have fallen all the way to 48th place.)

California is not the only state afflicted with an exorbitant cost of living. Bluer than blue New York State, according to the Aten and D’Souza data, had an even higher cost of living, estimated at 31.8 percent above the national average. And not surprisingly, it fared particularly badly, once the cost of living was taken into account. Again using an attenuated calculation, the median household income in New York dropped from $51,384 in nominal dollars down to $42,744 in cost of living adjusted dollars. In terms of rankings, this dropped New York from 17th place down to 49th place. (Were the data deflated by the full 31.8 percent, the state would have fallen to last place, almost 10 percent lower than the next poorest state, Mississippi.)

What cost of living estimates taketh away from some, however, they also giveth to others. Consider, for example, Utah and Minnesota. In the case of Utah, median household income in 2006 stood at $51,309 in nominal terms. But according to the Aten and D’Souza estimates, the cost of living in Utah was 13.5 percent below the national average. Using the attenuated calculation, cost of living adjusted income in Utah was $57,147, the second highest in the nation.

In the case of Minnesota, median household income in 2006 stood at $54,023 in nominal terms. But according to the Aten and D’Souza estimates, the cost of living was 7.4 percent below the national average. The attenuated calculation put the Minnesota a cost of living adjusted income at $57,140, third highest in the nation.

As a general rule, the states with the lowest cost of living are states in the South and to a lesser degree the Mountain West. Among the states of the Old South, only Virginia had a cost of living above the national average. Dynamic states like North Carolina had a cost of living 13.1 percent below the national average. In Georgia, the figure was 12.1 percent. In the Mountain West, Idaho had a cost of living 17.3 percent below the national average. In New Mexico, the figure was 16.5 percent.

Besides affecting the true measure of economic performance, cost of living differentials have other, important implications as well. Federal taxes are one example. Consider New York. For years, it has been recognized that New York State sends more in taxes to Washington, D.C. than it receives back in the form of federal outlays. Recently, there has been some disagreement about the size of this deficit, but in the past it was generally agreed that it amounted to approximately two percent of Gross State Product. If New Yorkers were truly rich, this would not be a great burden. But as shown already, that is not the case. By failing to control its cost of living, New York ends up subsidizing other states that in real terms are doing much better.

Another implication of cost of living differentials has to do with population. All things being equal, people will live where they can maximize their standard of living. Not surprisingly, states that have seen the largest population growth in recent decades tend to be those with a low cost of living, notably in the South and in the Mountain West. On the other hand, states with a high cost of living have typically seen population growth lag. This is particularly true among certain Northeastern states that should have boomed, if nominal income were the best guide of how well a state is doing. Examples include Massachusetts, Connecticut and to a lesser degree, New Jersey, which has the second highest median household income in the nation.

In sum, the cost of living says a great deal about a state, its politics and its future.

Eamon Moynihan is the Director of the Cost of Living Project in New York. The purpose of the project is make New York City and State more competitive, with a particular focus on the costs imposed by regulation. A former government official at both the City and State level, he most recently served as Deputy Secretary of State for Public Affairs and Policy Development. An interactive website for the project can be accessed at thecostoflivingproject.org.

Local Agriculture: How To Feed The Hungry

Abby Taylor-Silva — Sun, 30 Aug 2009 01:39:08 -0400

The search for ways to feed the hungry is as old as recorded history. Can an issue this long-standing and complex be adequately addressed on small, local level? A unique California program is trying, with surprising success.

Ag Against Hunger unites farmers, food processors and nonprofit food banks in the effort to reduce hunger and promote food security as it simultaneously benefits agriculture producers. This one-of-a-kind program is changing the way fresh fruits and vegetables move through the California food system. The goal is, of course, a secure source of healthful nutrition for all, and an improvement in the health of the more than 20% of our local population that is in need throughout our community.

How We Operate - Ag Against Hunger works with large and small farmers, food processors, and distributors on behalf of food banks, to help the non-profits fully benefit from bountiful harvests. Currently up and running in Monterey, Santa Cruz and San Benito counties, the program has become an efficient model of ways to distribute perishable surplus produce.

When an influx of fresh fruits and vegetables exceeds a grower's or processor’s capacity, Ag Against Hunger picks up, refrigerates, stores and re-distributes the large quantities of newly available, highly perishable fruits and vegetables to rural and urban food banks. Being organized for a quick response is key.

The large-scale and perishable nature of the produce we collect far exceeds what a single food bank could store and distribute. Everyone involved benefits. Food bank clients receive fresh fruits and vegetables that would otherwise be destroyed. Food processors are able to donate their products, knowing that the goods will be handled quickly for optimal freshness and nutrition, and they do not incur the expense of disposing of perfectly good and healthful food into a landfill.

What We've Accomplished - Each year Ag Against Hunger swiftly moves an average of 10 million pounds of highly perishable food into food banks from fields or processing plants, using a coordinated system of refrigerated tractor-trailers and a 5,000 square foot storage cooler.

Since its inception in 1990, the organization has distributed over 154 million pounds of produce to people in need. Locally, Food Bank for Monterey County, Second Harvest of Santa Cruz and San Benito Counties, Grey Bears of Santa Cruz and Community Pantry of San Benito County make our fresh produce available to more than 260 nonprofit human service agencies, and feed over 75,000 low-income people each month.

Food and Health - Adequate and appropriate nutrition is a linchpin of well-being and health that's especially challenging with limited financial resources. The connection between chronic illnesses — diabetes is just one example — and diets poor in fruits and vegetables is well-established. The correlation is strong: The Department of Agriculture states that improved nutrition and lifestyle could reduce illness and death due to cancer by 30-40%, death from cardiovascular disease by 22-30%, and cases of diabetes by 50%.

Among children (who make up more than 1/4 of Ag Against Hunger recipients), diet patterns establish the foundation of adult eating habits. For seniors (27% of our recipients), and pregnant women, healthful eating is also critical.

The affluent enjoy the option of choosing among a range of nutritious foods and healthy lifestyles. For the poor, the only option is whatever is available and possible at the moment. This lack of healthful food choices contributes to the health disparities we see between the affluent and others, and the increasing number of low-income individuals with chronic health conditions that spring from poor nutrition.

Localism Can Stretch - Last year Ag Against Hunger was able to provide over 8.7 million pounds of high-quality fresh fruits and vegetables to over 50 rural and urban food banks throughout California and beyond. Once nearby local food banks were satisfied, it worked with California Emergency Foodlink, a statewide food distribution program, which dispersed produce to over 50 food banks and community pantries in other parts of the state. After state organizations received all the produce they needed, it worked with food organizations in Arizona, Washington, Oregon, Colorado, Utah and New Mexico to feed about three million people throughout the US West Coast states.

Ag Against Hunger also coordinates a thriving gleaning program. In 2008 volunteers harvested more than 120,000 pounds of produce that would have otherwise been disked underground. On a few weekends each month, 25 to 100 volunteers from diverse organizations — Cub Scouts to church groups — come together to harvest these crops, learn about their local agricultural community, and directly contribute to the amount of produce we pass along to our food bank partners.

If you are interested in becoming a gleaning volunteer or learning more, please give us a call at 831.755.1480, or visit Ag Against Hunger at www.agagainsthunger.org

Abby Taylor-Silva is the Executive Director of Ag Against Hunger, a Salinas-based non-profit. She is a native of Monterey and San Benito counties; her family farmed in south Monterey County for over 50 years. She lives in Salinas with her husband Paul and daughter Olivia.

Three Roads and a Railroad

Daniel Jelski — Sat, 29 Aug 2009 04:08:53 -0400

For most visitors, Las Vegas is a one-dimensional town. One either walks up the Strip, or down (though for compass-challenged tourists, even that can be confusing). An adventurous minority will go downtown to Fremont Street, a few short blocks of casinos and souvenir shops that I liked better before they roofed it.

It turns out that naïve tourists have stumbled onto the truth: there are no east-west highways in Las Vegas. And therein lies the tale.

There are three US highways: 91, 93 and 95. All run from Canada to Mexico (except for 91, which only got as far south as Long Beach). They all intersect in Las Vegas.

If you think of Nevada as a wedge pointed south, then US 95 roughly parallels the western boundary of the state, and is the main road between Reno and Las Vegas.

US 93 parallels the eastern boundary of the state, and connects Elko and Ely with Las Vegas.

US 91 is no longer marked in Nevada, and has been replaced by I-15, which really does go from the Canada to the Mexican border at San Diego. In Las Vegas, it is signed as northbound to Salt Lake City, and southbound to Los Angeles, reflecting the route of the original 91. And then there are the Union Pacific tracks, which run through town northbound heading 30 degrees, and southbound at 210 degrees. North of the city they curve to the east (45 degrees). A 1955 map of Nevada shows all of this in its original glory.

The three roads meet in downtown Las Vegas. To understand why it is the way it is, we need to go back in time and see the way it was. This 1952 map of Las Vegas is helpful.

Main St. parallels the tracks. Intersecting Main St., where the Golden Nugget Casino is today, is Fremont St., which heads 120 degrees southeast. Streets parallel to Main St. were numbered, 1st, 2nd, 3rd, etc., with the next major N-S thoroughfare being 5th St. Let’s trace the routes of the three highways through town.

US 91 is the simplest – it simply followed Main St. from north to south. South of town it was known as the LA highway.

Fifty miles north of the city (today only about 20 miles), US 91 and US 93 joined forces and shared the same road alongside the tracks to Las Vegas. They both entered Las Vegas along Main St., to the center of town. They parted ways when US 93 turned southeast along Fremont. After passing Charleston Blvd., then the southern city limit, US 93 was known as the Boulder Highway – the name it still has today – as it goes to Boulder City.

US 95 was the most complicated. It approached Las Vegas from the northwest along Rancho Drive.

The railroad tracks are like a river – for just as with a river, one needs a bridge to cross (or at least a crossing). There were only four streets that crossed the tracks in 1952: Harrison Ave. (now called Owens), Bonanza Rd., Charleston Blvd., and San Francisco Ave. (now Sahara Ave.). To avoid the tracks, Rancho Drive turned south (today it ends at Sahara, just as it did then). But US 95 headed east on Bonanza, crossed the tracks, and then joined up with 91 and 93 at Main St. For five blocks along Main St., from Bonanza to Fremont, US Highways 91, 93 and 95 all shared the same road.

At Fremont, US 95 turned east, coincident with US 93. They diverge (then and now) 23 miles south of town (about 3 miles short of Boulder City). US 93 continues on through Boulder City and then over the Hoover dam (a new road and a beautiful new bridge are currently under construction). US 95 heads due south, toward Searchlight and Needles, leaving Nevada right near the southern tip of the wedge.

So what does it look like today? US 91 has been replaced by I-15. Like its predecessor, the interstate follows the railroad, but now lying west of the tracks through the central city. I-15 is the major N-S traffic artery through town.

At exit 42 – today the very center of Las Vegas where all three highways meet – I-15 intersects a freeway that has become the primary E-W artery. The new freeway has replaced Bonanza Road as the major route across the railroad tracks. Heading west the freeway is labeled US 95 North, with signage to Reno. It goes due west for about five miles to Rainbow Blvd, and then turns due north until it intersects Rancho Drive. From there it follows the original US 95 route (the freeway ends just past Durango).

If you want to continue west past Rainbow Blvd., then you have to exit US 95 onto Summerlin Pkwy, which continues west to the mountains at the edge of the valley.

Heading east, the freeway has three labels: I-515 South, US 93 South, and US 95 South. It heads east initially parallel to Fremont, and then due east parallel to Charleston. It goes east to the mountains at the valley's rim, and then turns south, crossing Boulder Hwy, only to eventually end at Boulder Hwy south of Henderson, a few miles north of the 93-95 split.

At exit 34, another E-W artery intersects I-15. Follow I-215 South to go east towards Henderson. Follow Nevada State highway 215 North to go west (and then north) towards Summerlin.

Point proven: there are no E-W highways in Las Vegas. But it really isn’t that hard to find your way around: just ignore the compass markers on the freeways. Reno is to the west, Los Angeles is to the south, Henderson-Boulder City is to the east, and Salt Lake City is to the north. You won’t go wrong (as long as you remember the Summerlin Pkwy exit if you want to keep going west).

In part 2 we’ll talk about Vegas surface streets, and I’ll drop a few hints for tourists. In some future post, I’ll even answer the vexing question of where Las Vegas really is.

Daniel Jelski is Dean of Science & Engineering State University of New York at New Paltz.

Warning on Road to Recovery: Beware of dumbdowntown.com

Jerry Sullivan — Sat, 29 Aug 2009 00:41:09 -0400

Big cities will eventually get through the recession.

How much help they’ll get from the design-obsessed bloggers who are so anxious to shape urban life is open to question.

Consider the blogosphere in Los Angeles, which bubbled with reports of decapitated chickens turning up all around town earlier this year.

Some bloggers speculated that chickens were being killed in rituals of the Santeria cult, which has roots in Latin America. The speculation seemed on the way to becoming an urban legend.

The Garment & Citizen suggested that the bloggers buzzing around the story—a bunch that was mostly European/American —might be leaping to some wayward conclusions.

The blogosphere railed against the Garment & Citizen, claiming that we had played the “race card” by even suggesting that some white bloggers might be too quick to attribute exotica to folks a few shades darker.

Then the story died, an urban legend stopped cold. Whoever had been killing the chickens and leaving their headless carcasses in public places had apparently left town quite suddenly.

Or could it be that the whole matter had been made up by bloggers who figured that a bizarre and bloody tale with shadowy suspects would be just the thing to drive traffic to their echo chamber?

There’s no telling when it comes to the blogosphere.

That’s precisely our point.

We don’t spend a lot of time looking at blogs, but we generally get word when one of them is railing against the sort of well-reasoned reporting and analysis that readers expect from the Garment & Citizen.

That’s what happened after we noted last year’s closure of a Rite-Aid at 7th and Los Angeles streets as a sign that the red-hot run of Downtown development had ended. It wasn’t a tough call, by the way, given economic indicators at the time.

Yet A number of those who blog Downtown twisted themselves in knots over that one, claiming a greater understanding while denying that the closure had anything to do with the souring economy—which soon crashed, by the way.

Another piece in the Garment & Citizen sometime later mentioned the deterioration of the retail landscape on Broadway.

Downtown bloggers got all bunched up over that one, too, going on about the many committee meetings held by members of the Bringing Back Broadway Initiative.

Awhile later came word that the owners of Clifton’s Cafeteria on the 600 block of Broadway plan to sell the building as they fight to keep the place in business. A key to their struggles, according to reports, is the high vacancy rate for retail along the street. Fewer stores mean fewer customers coming to Broadway—and fewer diners stopping for a bite at Clifton’s, a bellwether for the thoroughfare.

There’s no telling whether local bloggers bark so loud about any point of view that diverges from their own because they lack reporting and analytical skills. It could be that some function as boosters who see the truth as optional when it comes to promotional pitches.

Keep that in mind if the Downtown blogosphere reaches you with talk about how some art galleries in the area of 5th and Main streets are closing because their landlord is ditching them in favor of higher-paying tenants. That outlook would seem to prop up the notion of a hot market for retail, as though there’s a waiting list of businesses willing to pay a premium for ground-floor space at 5th and Main despite the recession.

That just doesn’t sound right, based on a street-level view of current conditions.

Whatever is going on, watch out for bloggers who seem bent on telling a story about Downtown and the rest of our city that doesn’t match the facts on the ground.

The truth is that the economy remains very slow, the real estate market is a long way from full recovery, and it will be more than a few months before the local job market perks up.

It’s also true that our city, state and nation will eventually recover. Times are tough, but there are plenty of folks committed to getting through this downturn (see related photo and caption, “No Quit,” and Local Hero, both home page). They’ll need the accurate information and reasoned analysis—the truth, in other words—to chart a course to better days.

So look for signs of progress and silver linings, which are the building blocks of momentum and economic recovery.

Just beware of those who would show you nothing else.

Jerry Sullivan is the Editor & Publisher of the Los Angeles Garment & Citizen, a weekly community newspaper that covers Downtown Los Angeles and surrounding districts (www.garmentandcitizen.com)

New Feudalism: Does Home Ownership Have a Future?

Candy Evans — Fri, 28 Aug 2009 00:23:00 -0400

In mid August, as we were beginning to feel a pulse in the nation’s housing market, an academician and housing expert from the University of Pennsylvania named Thomas J. Sugrue wrote an article in the Wall Street Journal proposing that, for many people, the new American Dream should be renting.

Sugrue is writing a book on the history of real estate in America, a tome I cannot wait to read because it will apparently illustrate how epic events in our nation’s history have shaped and molded our real estate market, hence our lives. He quotes builder William Levitt, considered the father of affordable suburban mass housing, saying “no man who owns his own house and lot can be a Communist.”

That was said during the Cold War and McCarthy era: Levitt was marketing his wares, playing off the public’s fears like any good salesman. And for many politicians – from Herbert Hoover to Bill Clinton and George W. Bush – expanding ownership of homes remained critical to the nation’s identity.
But is all this changing? The Obama Administration seems at best ambivalent about homeownership. It seems determined to put more resources into rental housing while promulgating policies that may coerce Americans out of the suburban single family homes and back into dense, multifamily urban housing.

This would mark a major change in what we usually consider the American dream. Enabling home ownership is like crack cocaine for politicians: the impetus for the Great Recession of 2008 may well have been formed on the day President Bill Clinton launched National Homeownership Day in 1995. And I remember sitting terrified in front of the television post 9/11 when President George W. Bush reassured us that America was strong and would recover. Our housing market is strong, he said, a theme that would echo throughout his presidency. Seeing two by fours go up and mortar flying gave Americans a sense of calm, of rebuilding.

The attacks of 9/11 almost brought down our economy. The housing market helped prop it up.

Most of us still love our homes. Sugrue quotes a Pew survey that faintly echoes the national health care debate: nine out of ten homeowners view their homes as a comfort in their lives. He seems to argue we should change everything for ten percent. To be sure, as he suggests, for some home ownership has become a source of panic and despair: 53,000 people packing a Save the Dream fair at Atlanta’s World Congress Center. Georgia’s housing market has been hit hard – 338,411 homes went into foreclosure in May and June, 2009.

But it’s not just Georgia. Since the second quarter of 2006, housing values across the nation have plummeted to values roughly equivalent to post 9/11. We are not immune even here in Texas, with one of the nation’s strongest large state economies: our prices are soft, down anywhere from five to 20%, and buyers want deals. Go north to Little Elm; you might think you are in Atlanta. Homes may not be selling for thirty cents on the dollar as they are in Phoenix, but a house in the trophy community of University Park listed for $999,000 recently, sold in the mid $800s. The owner of a Preston Hollow mansion not too far from George W. Bush turned down a $38 million dollar offer two years ago, insulted. He recently sold his nine-plus acre property for $28 million.

And just one week ago I spoke with an Allen, Texas home builder who told me that current tough love lending standards were keeping a lot of people out of the jumbo market – that is, halting them from buying million dollar homes. When you have to put down 30%, he said, that’s $300,000 on a million dollar home. If homes are not appreciating, he said, smart people say, why do we want to tie up that much money in our homestead?

Yet we have been here before. Half of all U.S. mortgages were in default during The Great Depression, although it’s true far fewer people owned homes. This is when Herbert Hoover and Franklin Roosevelt created government programs to help save homeowners from foreclosure. I remember my grandmother telling me how Mr. Roosevelt saved her home in 1932 – she voted Democratic in every election because of it until the day she died in 1966. In 1938, Fannie Mae was created to buy mortgages on the secondary market, an effort to stimulate credit.

After World War II, when the government made home loans accessible for thousands of GIs returning from the wars, home ownership rates climbed like the staircases in a suburban colonial. Now more than two-thirds of Americans own their homes.

The government’s role in shaping this industry has been pretty explicit. Government programs gave us those first FHA loans that got many of us on the housing track, out to the suburbs, allowing people to leave more congested, and often dangerous, inner cities. Government is the hand that keeps the mortgage industry in motion, like a giant conveyor belt of money. But the hand might be pushing us where we shouldn’t go.

This is certainly true for many in the communities traditionally underserved in the housing market. The government tried to fix this through creation of the Department of Housing and Urban Development, and by pushing Fannie Mae to underwrite loans to “riskier” buyers. The result: in 2006, Sugrue writes, almost 53% of blacks and more than 47% of Hispanics got sub-prime mortgages.

Those were the loans that were packaged to spread the risk, and sold off as securities. Very lucrative for banks, who always make out like bandits either way, our federal government stood in the background as a silent backer. An appraiser I interviewed recently told me that Fannie Mae will now be ordering appraisals on loans before they buy them.

You mean, I said, they weren’t doing this before?

Then there’s the former sub-prime mortgage lender, now turned real estate agent. You, I scolded, how could you approve a school teacher for a loan on a $400,000 house? Shame on you. Well, he told me, if I would have denied her the loan, she could have come back at me for discrimination, or she would have just gone to someone else. So I made the loan and took my commission.

Yet for all this, I am bullish on home ownership. I think it gives homeowners a sense of security, a blanket of protection that may or may not be a mirage. Economists, who see the world in a “cash nexus”, do not understand this; planners, believing they know a better way, don’t realize that a rental apartment in a dense development does not usually provide our peaceful havens from the cruel world like a single family home or a townhouse that we have a stake in.

Homeownership may be precarious, but it does provide a greater sense of permanency for families and communities. Home ownership also stimulates the economy. Consumers never buy as much as they do the first few days in a new home – countless trips to Lowes, Home Depot, Bed, Bath & Beyond, the Container Store. A tenant or landlord may buy for their place, but perhaps never with the care and fervor that comes with homeownership. Apartments are built with, at the most, 30 year life spans. I’ve seen enough Section 8 housing to tell you – you don’t want to live in them at the end of their life-cycle. Apartments are considered temporary, places for people who are in transition or not really sure they are going to stay, one reason why they drive higher crime rates.

Homes are more permanent. Children thrive with structure and feel more secure coming home to a familiar place day after day. Children who live in homes score higher on standardized tests. They may eventually move from one home to another, but will always come back to it and show a friend – that is the house where I grew up.

Home ownership also forges financial security. Mortgages are like forced savings accounts. Pay your mortgage and in 30 years you’ll have an asset that could cushion your retirement. Either you will own your home outright, or you will have equity to supplement your income when you sell and downsize. The problems came when we started using our homes as slot machines or banks. Home equity lines of credit were illegal in Texas until 1997 as a consumer protection, and the banking industry led the charge to loosen that law with a constitutional amendment. In Texas, the total of all mortgage debt on your home (including HELOCs) is limited to 80% of the home’s fair market value, among other stipulations.

What we need now is not to move against homeownership but return to more basic fundamentals that seemed to work just fine for 50-plus years. The cost of a house should reflect more of people’s ability to pay. But do we want to be a nation of renters? My bet is no.

Candace Evans is the Editor of DallasDirt, a Dallas-based real estate blog for D Magazine Media Partners.

College Towns: High Marks For Lifestyle

Michael Scott — Thu, 27 Aug 2009 01:13:15 -0400

At a time when many cities are struggling to spur civic vitality, places that are home to major colleges or universities are percolating along robustly, often with healthy job growth, low costs of living and rising property values. Fueling this rise is the massive influence academic institutions have on their regions in terms of economic impact, civic connections, and innovative mindsets. Diverse spots — Columbia, Missouri; College Park, Pennsylvania; Raleigh-Durham, North Carolina and Chico, California, just to name a few — attract families, retirees, and the academically-minded. The migrants are drawn to the intellectual stimulation and community vibe.

Universities have long served as incubators for fresh thinking and new research. They also provide a solid economic base for area residents, allowing college towns to hold the distinction as areas of low unemployment. The economic activity trickles down into the host city, influencing the ethos of its civic life, from outdoor leisure pursuits to the performing arts.

For evidence, look at Columbus, Ohio's capital city. In "Buckeye Nation," the words 'The Ohio State University' mean one thing: football. Saturday afternoon crowds at Ohio Stadium are often in excess of 100,000; a major phenomenon. The steady fan base yields benefits for Columbus, the university's home, in economic and cultural diversity: OSU has students from all 50 states and over 100 foreign countries, making it the largest student population of any single campus in the nation.

The two-mile stretch of High Street in the university district presents an energetic cross-section of students, college professors, local residents and visitors, all drawn to the energy for which collegiate communities are known. Areas like the university district in Columbus are also robust real estate markets, as they attract steady streams of academics and students who seek housing.

Even as the state of Ohio has been ravaged economically, Columbus recorded an unemployment rate of 8.9%, according to second quarter stats released by the Columbus Chamber of Commerce. That's nothing to brag about, but certainly below the 11.2% and 9.4% rates, respectively, for the state and nation.

This fact is consistent with recent studies which suggest that cities with a university presence have lower unemployment rates than in other locales. According to June 2009 U.S. Census bureau figures, Manhattan, Kansas, home of Kansas State University, came in at an unemployment rate of 4.6%, the second lowest small city rate in the nation. Iowa City, Iowa, where the University of Iowa is located, recorded a respectable 6.2%.

University cities often experience strong job growth from start-up companies seeking to capitalize on readily available talent. The Research Triangle in North Carolina — Raleigh, Durham, and Chapel Hill – is perhaps the most striking example of a region benefiting economically from the presence of three major universities: North Carolina State University, the University of North Carolina, and Duke University. These three institutions are adjacent to regional research and technology firms that are on the cutting edge of important innovations. Emerging start-up companies in particular serve in essence as potential feeder systems for new graduates.

Toward Virginia’s eastern border lies Charlottesville, an eclectic city of 40,000 and of the University of Virginia. It has a deep historical legacy as the home of three U.S. presidents (Jefferson, Madison, and Monroe) and is the locality of Monticello, Jefferson’s residence and a heavily visited tourist attraction. The university's influence on Charlottesville is most notable in the faculty and student presence in the downtown district, which features a walkable mall as well as trendy restaurants. There's also a bustling local arts movement.

Charlottesville is also one of eighty-plus cities nationally that features college linked retirement communities: senior enclaves affiliated with education institutions that allow residents to audit classes and participate in other local learning opportunities. Students over sixty who have lived in-state for at least a year can also audit courses at the University of Virginia for free.

According to Tom Wetzel, founder and president of the Retirement Living Information Center in Redding, Connecticut, the development of retirement communities near colleges and universities is a trend that is gaining momentum nationally. “Our information suggests that learning opportunities, as well as cultural, entertainment and sporting events, are attracting growing numbers of seniors' to university cities,” says Wetzel. “These seniors tend to be intellectually curious.”

Blacksburg, Virginia, is a another example of a city whose university serves as a catalyst for community vitality and economic growth. Home of Virginia Polytechnic and State University, Blacksburg offers the quintessential small-town collegiate environment. Nestled in a picturesque pleat between the Blue Ridge and Allegheny mountains, it boasts a moderate climate, reasonable cost of living and abundant leisure activities, many derived from its natural surroundings. Outdoor enthusiasts are drawn by the easily-accessible Appalachian Trail and Washington-Jefferson National Forest. Downtown Blacksburg features brick streetscapes, and unpretentious restaurants, coffeehouses, and watering holes, all within walking distance of the college. With its unique mix of local and regional amenities, Blacksburg is often among the top-rated cities for livability and outdoor activities.

Davis, California is a college town that has formed a niche identity around its university. Known for its forward-thinking, ecologically based emphasis, the University of California Davis attracts a range of global scholar-practitioners who are committed to sustainable living practices. Recognized as one of the most educated cities in the nation (based on its percentage of residents with a graduate degree), Davis has evolved into a close-knit community of intellectuals, researchers and environmental advocates — some with official University affiliation; some not — pursuing advancements in such areas as hydrogen fuel cell technology, green building practices, and viticulture.

Davis has also played a pioneering role as a bicycling community, featuring extensive bike lanes, paths and crossings, that create the backbone of the city’s social fabric. Thousands of residents, as well as students and professors, use this alternate form of transportation, creating massive daily seas of cyclists who navigate around campus and through the city's downtown corridor.

University cities represent a key engine for our nation’s economic emergence. But perhaps more importantly, they serve as vibrant centers of livability, built upon partnerships between higher education institutes and civic institutions; between academic researchers and businesses, and between students and the community.

Michael P. Scott is a Northern California urban journalist, demographic researcher and technical writer. He can be reached at michaels@vdowntownamerica.com.

Taking the Fun Out of Fighting Global Warming

Wendell Cox — Wed, 26 Aug 2009 01:25:38 -0400

It is a rare spectacle when broadly respected national organizations and analysts condemn an initiative by some of the most influential players in the Washington establishment. Yet that is exactly what has happened to the Moving Cooler report, authored by the consulting firm Cambridge Systematics, published by the Urban Land Institute and sponsored by the American Public Transportation Association (APTA), the Environmental Defense Fund, Natural Resources Defense Council, the Environmental Protection Agency and others.

Forcible Removal: Moving Cooler proposes a radical agenda to reduce greenhouse gas emissions pushing people out of their cars, whether forcibly or by making it so expensive they can no longer drive as much as they need to. Moving Cooler would employ such measures as charging home owners up to $400 annually to park in front of their own houses, placing tolls on now-free interstate highways (up to $0.05 per mile by next year) and pushing as much as 90 percent of future development into existing urban footprints, in the vain hope that cutting driving would reduce greenhouse gas emissions by a similar amount. In fact, as traffic congestion increases in more densified urban areas, the one-to-one relationship between reduced driving and reduced greenhouse gas emissions is materially diminished.

More Huddled Masses: If this plan, endorsed by at least some in the Administration, occurs densification policies would impose urban growth boundaries and other restrictive regulations. Planning decisions would be removed from counties, cities, towns and villages to regional planning organizations forced to implement federal mandates as a condition of receiving back federal funding, most of which had been taken from their own taxpayers.

These restrictions would force up to 125,000,000 new residents into existing neighborhoods many of whose residents probably think are already crowded enough. Think of it as adding as many people as live and Mexico and Guatemala, without allowing urban areas to expand. All of this would worsen traffic congestion, lengthen travel times for those who can still afford to drive and severely intensify the unhealthful local air pollution that the nation has fought so successfully to reduce over the past four decades.

Ignoring Productivity: Alan Pisarski, author of the acclaimed “Commuting in America” series and one of the most respected names in transportation policy issued a cutting indictment on these pages. For example, Pisarski notes that Moving Cooler does not count travel times, “so shifting from a 15 minute car trip to an hour on transit or walking has no penalty.” In a world where time and productivity are inextricably associated, lost time is lost time, whether in a car, in transit or walking. In the broader economy, lost time is lost jobs, lost income and lost economic productivity.

Misleading Policymakers? C. Kenneth Orski, whose career has included assignments at the Organization for Economic Cooperation and Development in Paris and as Associate Administrator at the Urban Mass Transportation Administration (now the Federal Transit Administration) reported in Innovation Briefs that the American Association of State Highway and Transportation Officials (AASHTO), an original member of the Moving Cooler coalition, walked away from the study, saying that Moving Cooler overstates the greenhouse gas emissions that can be realistically expected from its strategies, underestimates the potential of more fuel efficient cars and telecommuting and minimizes the returns from improved transportation operations and car pooling, which are already yielding “remarkable” results. AASHTO further charged that the Moving Cooler report “did not produce results upon which decision-makers can rely.” In the polite world (really) of Washington transportation policy, these are damning words indeed.

According to Orski, researchers provided AASTHO with a litany of criticisms including findings that Moving Cooler relied on “assumptions that are not plausible,” analysis that was “flawed and incomplete” and an “invalid” peer review process. Costs were characterized as “incomplete and misleading,” greenhouse gas emission results were “not comparable or plausible” and “many assumptions are extreme, unrealistic and in some cases, downright impossible.” Moving Cooler was dismissed because of its “Heroic assumptions about land use and travel behavior and extraordinary pricing do not come close to the GHG reductions needed by 2050.”

Orski himself characterized the report as containing “flawed analysis and unrealistic assumptions that could mislead policymakers and the public and raise unreasonable expectations about how much progress can be achieved using these strategies.”

There is plenty of reason to be concerned. Already Senators Jay Rockefeller (D-WV) and Frank Lautenberg (D-NJ) had introduced legislation that would require annual reductions in how much Americans drive. The senators have confused reducing driving with reducing greenhouse gases. They are not the same thing. After all the federal government is dedicating literally billions of dollars to improving vehicle fuel efficiency. The President himself has promised 150 mile per gallon automobiles. There is significant potential for improving the carbon footprint of cars without forcing people to reduce their driving.

Land Use & Transit: Meager Returns: Orski strikes a nerve, especially with respect to the Moving Cooler coalition’s favored policies of densification and transit expansion. Moving Cooler itself produces embarrassingly modest (and probably exaggerated) estimates of the potential for densification and transit to reduce greenhouse gas emissions. According to Moving Cooler, these combined strategies would reduce greenhouse gas emissions no more than 7 percent from a 2050 base, and woefully short of any meaningful contribution. Not surprisingly, Moving Cooler ignores the fact that banning development on most suitable land around urban areas would raise land prices and thus home prices, a relationship noted by economists from the left, center and right of the spectrum and grudgingly admitted even in smart growth’s most influential advocacy document, The Costs of Sprawl --- 2000.

As the Tomas Rivera Institute said in a report decrying the barriers to home ownership that California’s similarly restrictive land use policies impose on Hispanic and Latino households: “While there is little agreement on the magnitude of the effect of growth controls on home prices, an increase is always the result.” (Note 1).

Transit and High Speed Rail? Cross Them Off the List: Moving Cooler endorses significant expansion of transit service and establishment of high speed rail systems, but its own data speaks to the contrary. The maximum necessary cost for removing a ton of greenhouse gas emissions is $50, according to the United Nations Intergovernmental Panel on Climate Change. Moving Cooler’s data puts transit expansion at more up to 20 times the $50 standard ($900) and high speed rail at 14 times the standard (more than $700). To put the matter in context, if the nation were to spend as much per ton to reach the Waxman-Markey “Cap and Trade” legislation’s greenhouse gas reduction target, the annual bill would be more than $5 trillion, more than one-third of the gross domestic product of the United States. With all of the talk in Washington about cost control and reducing the budget deficit, such extravagantly expensive strategies like transit expansion and high speed rail should be crossed off the public policy list.

And, indicative of the implausible greenhouse gas results noted by the AASHTO researchers, Moving Cooler excludes the greenhouse gases emitted in construction. This leads one to wonder if there are “good” greenhouse gas emissions (like from building high speed rail) and bad greenhouse gas emissions (like from driving). Construction emissions can be very substantial. For example, it has been reported that construction emissions from proposed high speed rail lines in the United Kingdom would offset any reductions achieved in daily operations compared to airplanes.

Incompatible Bedfellows: Pitifully, Moving Cooler attempts to associate itself with a highly respected study by McKinsey & Company and The Conference Board that concludes significant greenhouse gas reductions can be achieved by 2030 at less than $50 per ton. Moving Cooler cites itself as “companion piece” Yet, the McKinsey/Conference Board study specifically rejects the high-handed social engineering proposed by Moving Cooler, indicating that its strategies would involve “maintaining comparable levels of consumer utility,” which they defined as: “no change in thermostat settings or appliance use, no downsizing of vehicles, home or commercial space and traveling the same mileage annually relative to levels assumed in the government reference case” (Note 2).

The Mantra: Moving Cooler chants a mantra about how automobile fuel efficiency will improve, but that continued growth in driving will largely cancel out those gains. However, to do so Moving Cooler lumps automobile and other light-duty vehicle data in with railroads, trucks and buses.

In fact, the Energy Information Administration of the US Department of Energy projects a 13 percent reduction in greenhouse gas emissions from cars and other light-duty vehicles by 2030, and that is before accounting for the more stringent fuel economy standards adopted by the Obama Administration a few months ago. Further, Moving Cooler buries its laughingly ineffective and expensive policy favorites, smart growth, transit expansion and high speed rail, among a panoply of other strategies that would account for the “lion’s share” of the emission reductions it anticipates.

The Real Agenda? As Pisarski indicated: Maybe the saddest part of it all, the authors appear not to take global warming or energy security very seriously at all. Rather these public concerns are just a convenient hook, the cause du jour, on which to hang their favorite solutions. Given this apparent reality, it is probably not surprising that two of the three Moving Cooler cover pictures are from Europe, which the smart growth movement has worshipped for years.

The Moving Cooler strategies would not only force people to live in ways they would not voluntarily choose, and for scant gain and no reason. Moving Cooler’s radical measures need to be rejected forcefully. There are better, more effective and far less intrusive ways to reduce greenhouse gases.

That would, however, probably take the fun out of fighting global warming for those whose real intent is telling others how to live.

Note 1: “Growth controls” is a synonym for smart growth strategies, such as urban growth boundaries and development impact fees.

Note 2: The 2007 government reference case used by McKinsey and The Conference Board assumed that per capita driving would increase more than 50 percent between 2005 and 2030. Later estimates have reduced that figure.

Rome Vs. Gotham

Joel Kotkin — Tue, 25 Aug 2009 00:22:11 -0400

Urban politicians have widely embraced the current concentration of power in Washington, but they may soon regret the trend they now so actively champion. The great protean tradition of American urbanism – with scores of competing economic centers – is giving way to a new Romanism, in which all power and decisions devolve down to the imperial core.

This is big stuff, perhaps even more important than the health care debate. The consequence could be a loss of local control, weakening the ability of cities to respond to new challenges in the coming decades.

The Obama administration's aggressive federal regulatory agenda, combined with the recession, has accelerated this process. As urban economies around the country lose jobs and revenues, the D.C. area is not merely experiencing "green shoots" but blossoming like lilies of the field.

To be sure, the capital region has been growing fat on the rest of America for decades, but its staggering success amid the recession is remarkable. Take unemployment: Although the district itself has relatively high rates, unemployment in Virginia and Maryland – where most government-related workers live – has remained around 7% while the nation's rate approaches 10%.

The reason is obvious: an explosion of government amid a decline in the private sector. Factories may be closing in Michigan, tech jobs and farms may be disappearing in California, but the people who grease the skids of the ever-expanding federal machine seem to be doing just fine.

This is most evident at the top of the job market. The capital region now boasts the healthiest technology employment picture in the nation. Virginia has the highest proportion of tech workers in the nation. Maryland ranks fifth, and the district itself is seventh.

The area also continues to enjoy continued growth in the lucrative professional and business service jobs category. Over the past year, according to latest estimates by www.jobbait.com, the D.C. area was the only region in the nation to enjoy growth in this field.

Signs of Washington's ascent abound. The local real estate market appears to be on the mend even as others suffer continued strong declines in values and rising foreclosures. Hotel prices, dropping virtually everywhere else, look to be rising as well.

Occupancy rates, falling in most places, actually increased during the first half of 2009, as did revenues, which have taken a nosedive elsewhere. In New York prices have plunged – even the mighty Waldorf has been slashing rates.

In many ways, the economic disasters in New York and other cities have proved a boon for Washington. Wall Street's demise, for example, has been D.C.'s gain as the locus of financial power leaves New York for the Treasury, Fed, White House and the finance-related congressional committees. K Street is the new Wall Street, where you play for the really big stakes.

This shift may soon spread beyond the financial sector. Want to get into the energy business? You can bypass Houston and head to the Energy Department and Environmental Protection Agency – they are the ones handing out subsidies and grants to "deserving" applicants. Thinking of expanding your city to accommodate new middle-class families? The people at the Departments of Transportation and Housing and Urban Development have their own ideas on how your cities and regions should grow.

Manufacturing might be important to your economy, but Washington – a region with virtually no history of productive industry – generally regards factories as polluters, greenhouse gas emitters and labor exploiters. If you have enough lobbyists you might be able to hang on, but don't really expect much in the way of positive help.

Some "progressives" may like this model – after all, it originated in Europe, the supposed fount of all that is enlightened. Since the 18th century, Europe's urban history has been largely dominated by great imperial centers – London, Paris, Moscow and Berlin – that treat other cities like something akin to poor relations.

Even today European cities and localities tend to have far less control over their destiny than in the U.S. Zoning, planning decisions and even economic strategy often originate from the center, as does the power to tax and spend. For decades, Europe's legacy of ancient urban privilege – so critical in emerging out of the dark ages – has ebbed before the increasing power of the national capitals. More recently the super-capital of Brussels, like Washington, thrives in hard times that are decimating other European urban economies.

The great European capitals rose largely because they also served as the domicile of princes, bureaucrats and, until recent times, the clerical establishment. Other cities might have enjoyed a boom – such as Manchester during the industrial revolution – but, ultimately, hierarchy served to concentrate power in the great capital cities.

In contrast, American cities and communities traditionally have retained control over planning, development and other critical growth factors. Equally important, American cities, noted the great sociologist E. Digby Baltzell, were not dominated by aristocracy but were "heterogeneous from top to bottom." Urban growth came primarily not by central design but as a result of the often ruthless schemes and lofty aspirations, often ruthlessly expressed, of local political and business leaders.

For example, the quintessential American city, New York, started as a commercial venture. As early as the mid-17th century 18 languages were spoken on Manhattan Island (population of 1,000) and numerous faiths practiced. In early New Amsterdam, the counting house, not the church or any public building, stood as the most important civic building.

Even after the Dutch were pushed out by the more powerful British military, the bustling island city – renamed New York – retained its fundamentally commercial character. It served briefly as the nation's capital, but its power grew from its port and its immigrants. The city's entrepreneurial spirit and social mobility startled many Europeans. As the French consul to New York complained in 1810, "The inhabitants...have in general no mind for anything but business. New York might be described as a permanent fair in which two-thirds of the population is constantly being replaced; where huge deals are being made, almost always with fictitious capital; and where luxury has reached alarming heights."

This entrepreneurial pattern also drove the growth of New York's many competitors – first the great industrial cities such as Cleveland, Chicago and Detroit and, later, West Coast metropolises like Los Angeles, the San Francisco Bay area and Seattle. More recently, there has been a similar spectacular rise of formerly obscure places like Dallas, Houston, Atlanta and Miami.

Through much of this time Washington barely registered among the ranks of American urban centers. Despite early expectations that Washington would become "the Rome of the New World," it lagged behind other American cities through much of the 19th century. The city was widely reviled as a fetid, swampy place with atrocious cuisine – hog and hominy grits were its staples – that offered little in the way of commerce, industry or culture. Even its great buildings were compared to "the ruins of Roman grandeur."

The First World War, the Depression and then the Second World War each boosted Washington's status but hardly into the first rank of cities. Few entrepreneurs were attracted to a city dominated by regulators, clerks and lawyers. The cultural center lay in New York and Boston – and later Los Angeles. The Bay Area, Massachusetts and later Texas evolved into the primary technological centers.

Not until the 1960s did Washington begin to emerge as something like a traditional national capital, with a large permanent population of well-educated and cultured citizens as well as a robust economy based on the defense industry and the expanding welfare state.

But the financial crisis of 2008 has set the stage for an unprecedented growth of the region, with a Democratic president and majority seemingly determined to expand federal mandates into every crevice of community life. There is an eagerness to use federal authority in unprecedented ways that could bring federal influence into virtually every minute decision made in an urban area.

This concentration of power is also bad news for urban economies, including New York's. As New York University's Mitchell Moss has observed, Gotham may be losing its perch as the true national financial center. But other cities also should take note of the trend. Polycentric sprawling cities like Los Angeles, Dallas, Houston, Phoenix and Atlanta soon may find themselves forced to reorganize themselves along lines preferred by federal urban "experts." Hard-pressed industrial cities may find new environmental restrictions on ports and other key infrastructures an impediment to a much-needed renaissance.

American cities are at a critical moment. Our competitive, commercial urban tradition certainly has its flaws, but it also has produced the advanced world's most dynamic roster of modern cities and regions. Ceding the power of urban planning to Washington will cripple the American city – except, of course, for the one that reigns as locale for imperial control.

This article originally appeared at Forbes.

Live by the Specialty, Die by the Specialty

Richard Reep — Sun, 23 Aug 2009 23:37:45 -0400

By Richard Reep

Regions have a bad habit of getting into ruts. This is true of any place that focuses exclusively on one industry – with the possible exception of the federal government, which keeps expanding no matter what. This reality is most evident in places like Detroit, but it also applies to one like Orlando, whose tourist-based economy has been held up as a post-industrial model.

This has not been helped by recent diktats from DC Central Control. As reported in the Wall Street Journal, the Ephemeral City, among others, has now been branded a Sybaris. Private interests continue to book conferences in Central Florida due to its good value, but the closed circle of federal government has prudishly proscribed the family leisure capital of the world in favor of destinations like Chicago. Central Florida's chagrined congressional delegation, caught in reaction mode, will fight to remove this ban, but the damage has been done. A cold new era has firmly settled into the Sunshine State's former playground.

Since welcoming Walt Disney with open arms in 1964, Orlando proudly built its reputation as a family leisure destination. With over 116,000 hotel rooms, Orlando competes with Las Vegas in both the national and global tourism market. Indeed, Europeans, Middle Easterners, Asians, and Latin Americans make Orlando their playground, and if physical evidence is needed, the exquisitely messy honky-tonk of North International Drive testifies to this reality.

Many couldn’t fault this strategy – at least until until now. Orlando's mania for tourism, supported by local, regional and state policies, yielded growth beyond the wildest dreams of this once-sleepy agricultural town at a railroad crossing among orange groves and cattle ranches.

But in the current economy, leisure can be seen as a waste of time and money. "I think Orlando got put on the list of not to go because of the perception that it is a resort and vacation area," read a July email from a Department of Agriculture employee to an Orlando conference planner. Business in Central Florida has slowed to a trickle, anxiety is increasing and doors are closing. It seems that Orlando's tourism bubble has popped with visitorship dropping from a high of nearly 50 million in 2005, to a projected high barely above 43 million in 2009, and while civic leaders are huffing and puffing to blow it back up again, Central Florida's leisure industry is a shadow of its former boisterous self.

Corporate trainers, state and local government conferences, not-for-profits, trade associations, and incentive groups still find Central Florida a decent place to hold meetings. Airfare is cheap, the vast quantity of hotel rooms makes for competitive rates. The renewed emphasis on bringing the family along makes Orlando a natural fit for many groups seeking a destination, especially in the winter. They may book rooms in more affordable Osceola County rather than pricey Orange County, but are still a few minutes' drive from Disney's front door, the beach, and dozens and dozens of food and shopping outlets. Some hotel owners are even contemplating new meeting rooms to keep up with shifting demand.

The new mood in Washington, however, does not favor Orlando as a destination. Central Florida may be a good value, but this is irrelevant to the equation, for it is the overriding perception of Orlando that seems to worry our national government's travel planners. And this perception tells us quite a bit about the real thinking that is happening at the federal level.

If the new policy were to plan trips only to destinations under the median cost, it would send a message that government does not want to waste money. It might also send federal conferences to destinations in overlooked parts of America that could open beltway eyes to the bleak turmoil enveloping so much of the country, despite the steady drumbeat of recovery news.

Meanwhile, sellers already know that Washington is really the only game in town, as businesses turn towards grant programs, rebates, and other incentives to backfill lost private sector revenue in goods and services. But if one looks closely at the actual investment pattern, Washington seems to favor the financial market, green energy, and possibly its own future health care program – none of which plays to Orlando’s strengths. This extremely narrow set of interests belies a harsh ideology, as harsh as the ideology it replaced, and as bad for the average citizens of America.

Yet for all this, Central Florida should share some of the blame. Orlando cursed itself by growing around a single specialty, rather than a diverse set of interests. Favoring theme parks over agriculture was certainly an opportunistic decision, but reinforcing tourism and ignoring all other investment has proved a vast miscalculation. The Sunshine State could have been #1 in solar energy research by now, making it Obama's darling. So Central Florida, without any other true industry, now grovels at the government's feet to restore itself into good graces and allow a National Park Service meeting to take place at the Ramada Inn again. It is likely that Orlando will be shut out of this closed circle for some time to come.

Central Florida's best hope lies in a recovery of the private sector economy, a regained sense of profitability by corporations, and a renewed faith in the future by individuals. Lacking these now, Central Florida hibernates, its giant engines of escapism in low gear, mothballed, or abandoned.

One almost hopes The Recovery will be delayed long enough to suffer some sense into the politicians and business leaders who can diversify the economy of the region. After all many of things that attract tourists – low costs, good infrastructure, warm weather – should also lure entrepreneurs, skilled workers and capital, foreign and domestic. You wonder why our leaders have not yet thought of this, or put a plan to diversify into action.

Photo by Carlos Cruz.

Do Home Energy Credits Need A Remodel?

Rick Harrison — Sun, 23 Aug 2009 01:45:28 -0400

With the home building industry in peril, you would think that legislators would come up with immediate solutions to help foster new home construction. And there are now two well known Federal programs regarding housing: one is the $8,000 tax credit for first time home buyers, and the other is the 30% energy tax credit for a select few components of home remodeling.

The $8,000 credit for first time home buyers is a good idea, and seems to have helped at least a few buyers purchase homes. Of course, it' s not clear how many purchased bargains on previously owned homes and how many actually purchased new homes.

The 30% energy tax credits are a different matter. I’m against the current incarnation of the program for a host of reasons:

Problem No. 1: The 30% tax credit applies to only a few select items that somehow qualified, and there's no (simple) way to get on the approved list. In addition, Energy Star certification assures that the “product” has gone through some scrutiny on performance and reliability. But what of the equally important installers?

Problem No. 2: New construction gets very limited tax credits. When retrofitting existing houses, tax credits apply to the installation of efficient windows and insulation. But new construction (along with remodels) is not eligible unless it includes Geothermal, Solar Hot Water, or Solar Electricity. These benefits are meaningful only to those with enough income to make a credit of this size enticing. The middle and upper class homeowners who are willing to finance these upgrades hope that the after-tax benefits will make the investment worthwhile.

In theory, of course, the ticky-tacky downtrodden neighborhoods built after World War II can also be upgraded...to become energy efficient ticky-tacky downtrodden neighborhoods. But the energy credit will not benefit those that need it the most: those in the lower income strata that find it difficult to survive from pay check to pay check. A 30% tax credit does them no good at all. Even if the tax credit made sense for downtrodden neighborhoods, none of the older homes would ever become nearly as energy efficient as new construction.

As an example, let's say 50 homes in a low income neighborhood did take advantage of the tax credits and upgraded their windows and insulation, and added geothermal design because that was the only option approved for the benefits. This would easily add up to well over $50,000 per home – at least $2,500,000 – of which almost a million dollars is funded by you, the tax payer.

As an alternative, the 50 houses could be leveled, and excess streets abandoned to create a large developable contiguous tract of land. New home builders on the verge of bankruptcy, and even corporate national builders, could easily reinvent their business to build new urban neighborhoods using more efficient development patterns. To upgrade a new affordable home with more energy efficient windows would cost $2,000, an inch of foam insulation added to exterior walls would be another $2,000, and a high efficiency heating and cooling design just another $2,000. This highly efficient new home would use a fraction of the energy of an upgraded old home, and would add only $300,000 for all 50 homes. New neighborhoods could also have a fraction of the environmental impact of older ones, if planned using newer techniques. Low income families can live in new green neighborhoods, and the home building industry can find a new market while curbing sprawl at the same time...

Any politicians reading this? (see study).

Problem No. 3: The current tax credits promote overkill. Almost all the recent Green Certified Homes sold in the Minneapolis area had geothermal design as part of their package. Certainly a home builder increases profits by including a complex geothermal system instead of a simple, highly efficient and low cost conventional heating and cooling system. Building a new, well insulated home results in a significant reduction of heating and cooling energy needs, and the upgrade to a highly efficient system on a new home costs as little as $3,000 extra. But if the home design is not geothermal it will not get tax credits. A passive solar designed home gets free heat on sunny days — also not eligible for tax credits — but a $50,000 geothermal system is.

Problem No. 4: The current tax credits are creating a false economy for the very few businesses that manufacture approved items. Without the tax credits, these suppliers and manufacturers would need to come in at a reasonable price point/payback ratio to generate the volume of sales necessary to be profitable. In other words, they would have to invent, innovate, and deliver systems that make sense or fail in the marketplace. As soon as the tax credit ends many will not survive. An article on energy tax programs of the 1980s and the “tin men” that sold under-performing systems shows how 95% of the manufacturers of that era went out of business when the Carter era tax benefits ended. What happens to the warranty and guarantees when the company is no longer around?

So what's the solution to the problems? Either fix the tax credit program, or do away with it.

Make the program flexible enough so that new innovations can be accommodated, and make the system itself easy to access. This would encourage companies to be competitive, and give hope to start-ups that cannot right now get financing. The current application system favors well-funded, big corporations, and is far too restrictive in its scope. Have the tax credit apply to window and insulation upgrades above the "standard for code”, and include all heating and cooling systems that are above the 90% efficiency typically included in new construction. Even a tax credit limited to the price difference created by the upgrade would jump start both the green industry and new home construction.

And while we're jumpstarting...let's not forget a little history. During the dot-com crash earlier this decade, unscrupulous promoters bilked investors out of billions of dollars on false promises. These promoters did not disappear, they simply moved to the next opportunity: mortgage and real estate. Quick profits from flipping real estate created an economy that was un-policed and unsustainable. Let's not permit energy upgrades supported with a 30% tax credit to become the next unsustainable wave.

Rick Harrison is President of Rick Harrison Site Design Studio and author of Prefurbia: Reinventing The Suburbs From Disdainable To Sustainable. His website is rhsdplanning.com.

Playing with the Big Boys: The Costs of Fruitless Passenger Rail Tours

Owen McShane — Sun, 23 Aug 2009 01:42:46 -0400

In these hard times the New Zealand public is somewhat excited about the travel costs incurred by our Government Ministers and MPs. Overseas travel attracts particular rage and fury.

A particularly galling example is a proposal by Christchurch City Mayor Bob Parker, his CEO Tony Marryat, and an urban planner, to visit the US to investigate the performance of light rail in Los Angeles, San Francisco Bay Area, Seattle and Vancouver.

These cities seem unlikely to provide any relevant information, if only because their populations are many times those of Christchurch, a metropolis of roughly 370,000 and a downtown population of a mere 8000. In comparison:

Los Angeles – 13.8 million
San Francisco/San Jose – 5.3 million
Seattle – 3.3 million
Vancouver – 2.1 million

The reason the Christchurch team cannot investigate a rail system in the US serving a metropolitan area of only some 350,000 people, and with a CBD of only 8,000 people, may be that because so far, at least, even the most enthusiastic Smart Growth planners in the US are not that silly.

Randal O'Toole, who has made many studies of urban rail systems, points out in "Unlivable Strategies” that spending money on expensive forms of rail transit is fundamentally inefficient because other transportation systems cost far less to build.

Light rail, he argues, has become popular in the United States precisely because it is expensive. Congress gives transit grants to cities on a first-come, first-served basis. So the cities that build the most expensive transit systems get the largest share of federal transit funding.

Naturally, dozens of cities are in line to get their share of the pork.

But that does not prove that light rail is worthwhile. Too many cities have built expensive rail lines and then found that, due to overruns, high operations and maintenance costs, or heavy mortgages, they have to cut back bus service. The result is that rail construction has actually led to reduced transit ridership in many, if not most, cases.

The Grand Tour: My Version

Los Angeles and San Francisco Bay

Here is what the Christchurch Mayor and his team should learn from their visits to the Los Angeles and San Francisco Bay.

Los Angeles reinforces the Portland experience (a much smaller city) where cost overruns forced Portland to raise bus fares and cut bus service during construction of its first light-rail line in the 1980s. As a result, a smaller proportion of Portlanders ride transit to work and other places today than did so in 1980. A similar situation in Los Angeles led to a 17 percent decline in transit ridership between 1985 and 1995. The NAACP sued the transit agency for cutting bus service in low-income neighborhoods while building rail to middle-class neighborhoods. The suit forced the agency to scale back its rail plans and restore bus service, which led to a recovery of ridership.
In the San Francisco Bay Area, due to heavy rail debt, San Jose was forced to drastically cut bus and rail service in 2001 and lost 35 percent of its riders. The transit system had to make further cuts in 2007.

Furthermore, despite (or because of) several extensions of the BART line, transit ridership in the San Francisco Bay Area has fallen by more than 10 percent since 1982. Several transit advocacy groups, including the Sierra Club (Piper, 2004), the Bay Area Transportation and Land Use Coalition (BATLUC, 2003), and the Bay Rail Alliance (Carpenter, 2007), actively oppose a proposed extension of BART to San Jose because they know investments in other forms of transit are much more cost effective.

Overall, US urban areas with rail transit have not fared as well as areas with bus transit. Between 1990 and 2000, the number of people in regions with rail transit who commute to work by transit actually declined, while the number in regions with bus-only transit systems increased.

The saddest part of these stories is that the people who lose tend to be those most dependent on transit due to low incomes or an inability to drive, while the people who end up riding rail lines tend to have higher incomes and plenty of auto-mobility. (Winston and Shirley, 1998, p. 9).

Rail transit actually represents a transfer of resource from the poor to the well-off – Robin Hood at work in reverse gear.

Seattle

After getting voter approval for rail transit in 1996, Sound Transit began operating 31 miles of commuter rail service between Tacoma and Seattle in 1999. It also built a 1.6-mile streetcar line in downtown Tacoma at a cost of $50 million a mile, a third more than planned. As of December, 2003, Sound Transit also operates a 35-mile commuter rail line from Everett to Seattle.

Sound Transit’s Seattle-Tacoma commuter-rail line is one of the least productive in the nation, carrying less than one seventh as many passenger miles per route mile as the average commuter-rail line. As a result it has one of the highest operating costs per trip or per passenger mile of any commuter rail line. Despite starting out with free service, the Everett line has been running more than 70 percent empty.

Transit’s growth in travel and market share is almost entirely due to bus transit, not rail transit. But the growth in the region’s congestion is due to decisions made early in the decade to concentrate on rail transit rather than highway construction. Those decisions have harmed Seattle area residents in many ways, including cost overruns, congestion, transit’s cost ineffectiveness, and housing prices.

Future plans: The Sound Transit agency originally projected that the cost of building a 24-mile light-rail line from the Seattle-Tacoma airport to the University of Washington and Northgate would be $2.4 billion. Shortly after receiving voter approval, the agency increased this estimate to $3.6 billion.

After many stops and starts, last year voters endorsed an $18 billion Sound Transit plan for a 53 mile network which they hope will attract 25,000 daily riders by 2030.

Our Christchurch team should learn from the Seattle story that, once embarked upon, these rail plans tend to eat ever increasing amounts of money.

Vancouver

We can only wish them luck on getting useful information out of Vancouver. There seem to be no collections of the statistics on the performance of the transit systems as are available to US researchers here and here (Excel files).

However, we do note that in 2008 the operating cost of the Translink Sky Trains was C$773,737,000 and this was ‘covered’ by C$359,911,000 of fares and advertising, $262,298,000 motor fuel taxes,$255,741,000 property tax, parking site taxes $8,758,000 and others of $33,313,000.

So the transfers from motorists and property owners are greater than the fare revenues.

In 2008 the Long-term debt was C$1,822.7 million.

Grand Plans

Christchurch Mayor and his team are presumably looking at these rail systems as a means of supporting their Smart Growth plans for the Greater Christchurch area.
If the Mayor and his team ask the right questions, and collect the right data, it will be evident to Blind Freddy's dog that if these boondoggle systems have failed in these major cities, with their major concentrations of employment, then there is no way that light rail can provide a cost effective and efficient service to Christchurch and its environs.

Sorry about that. Enjoy the trip.

Owen McShane is Director of the Centre for Resource Management Studies, New Zealand.

Online Neighborhood: The Front Porch Forum

Pete Peterson — Sat, 22 Aug 2009 00:09:47 -0400

Last summer, Sharon Owens had a problem. The Burlington, VT mother of three was trying to satisfy the wishes of her soon-to-be 14-year old daughter who wanted to celebrate her birthday with a canoe outing with friends. The problem was that renting the necessary canoes would have cost hundreds of dollars. Interestingly, it seemed that nearly ever other house in Sharon’s neighborhood had a canoe in the backyard, or parked under a tarp next to a garage. But Sharon, like many of us, did not know her neighbors, and felt uncomfortable asking them.

The solution to this dilemma came in the form of a website called Front Porch Forum (FPF), a micro-community site geographically focused on a neighborhood within Burlington encompassing a couple hundred households. Within days of posting her situation to the site there were over a half-dozen canoes on her front yard. Problem solved. But more than that, a community built. As Sharon says, “not only did my daughter have a great birthday and I saved a couple hundred dollars, but now I have a genuine connection to a half-dozen neighbors. Why didn't I know these good people years ago?"

Front Porch Forum is the brainchild of Michael Wood-Lewis and his wife Valerie who faced a similar challenge back in 2000. Newly moved in to the Five Sisters Neighborhood in Burlington, they too had trouble connecting. When they missed word of the annual block party, a neighbor later told them: "Oh, well, I guess you gotta live here 10 years before you're really on the grapevine." Michael and Valerie weren’t about to wait around for a decade; they had an idea. They set up a simple neighborhood email list and stuck a flier in each of the nearby 400 front doors. As Michael tells it, attention grew slowly, but surely: “We live in a neighborhood full of active people with something to say. So people saw it as an easy way of being in touch.” Nine years after the “grapevine” conversation, more than 90% of Five Sisters subscribe with a recent survey indicating that more than half of them had posted an item to the service recently.

But the Wood-Lewis’ did not stop there. Actually, they had little choice. When surrounding neighborhoods heard about Front Porch Forum, they wanted in. Wood-Lewis said no, since he had a better idea: he’d build one for them. Today more than 14,000 households (all in Vermont’s Chittenden County) subscribe to FPF – each in subgroups of 200-400 households – small enough to “feel like a neighborhood/local community”, says Wood-Lewis. All told, Front Porch Forum hosts a network of 130 online neighborhood forums covering its pilot region. More than 40% of Burlington, the state's largest city, subscribes.

Some readers at this point are no doubt saying to themselves, “Well isn’t that a nice little story, but I already use Craigslist/Facebook/MySpace”. With the birth and persistent growth of Front Porch Forum, Wood-Lewis is demonstrating something quite different from those sites: the incredible power of the internet to build physical “community”, while at the same time showing the web’s effective limits. At its root, Wood-Lewis is proving two, vital axioms pertinent to all community building, online or off: size and proximity matter.

This isn’t a mini-Craigslist, as Wood-Lewis himself says (in words that might make Craig Newmark cringe): “Craigslist is wonderful and huge. But FPF is different. We're all about helping clearly identified nearby neighbors connect, while Craigslist helps somewhat distant strangers have a single and often anonymous transaction.” Even as local as Craiglist tries to get it doesn’t begin to approach FPF’s micro-communities. For example, I live in the Los Angeles area, and even though that Craigslist page is broken down into six geographic sub-regions, the one where I live, westside-south bay is still home to well over a million people, spanning dozens of square miles. And, unlike FPF, I can venture into other geographic areas in search of, well, anything. It is not without reason that Craigslist’s two most popular “product” areas are “erotic services” and “casual encounters”. The latter phrase must seem oxymoronic to Wood-Lewis: a “casual encounter” in your neighborhood?

That’s not to say that you can’t find a good used car on your local Front Porch Forum. In fact, Wolfgang Hokenmaier recently sold his minivan to a neighbor in his FPF, noting, “We had more people… showing up to look at the van who found out through the Forum than the interest generated by the Burlington Free Press, Cars.com and Craigslist combined.” Along with cars sold, there are also cats found, block parties organized, and local council meetings advertised. Community is built not just by searching for a futon, but by checking their FPF for what is happening around them. While it is not a mini-Craigslist, it isn’t a mini-newspaper either. Requests for canoes and lost cats do not an exciting newspaper make, but as a recent survey showed, over 95% of Forum members tune in to their local edition almost daily.

FPF members are illustrating the simple truth that we’re interested in what happens around us. In part, this is de Tocqueville's oft-quoted “self-interest rightly understood”: we want to be aware of proximate things that might help (a cheap desk) or hurt (a council meeting about a big apartment complex moving in) us. But the success of the Forums also demonstrates the power of geographic closeness in creating that “glue”, which builds communities: trust. The Forums have proven to be a great place to find baby-sitters. Of course, this is because people tend to trust those within a certain geographic area; in very real ways, we are bound to them and they to us. They are our “neighbors” (our “bors” or “dwellers” who live “nigh”). We see them and they us, whether it’s in the driveway of our neighbor’s ranch house or in the elevator of our 50-story apartment building. At the same time, FPF’s methodology builds a virtual “hedge” around that neighborhood, making sure that only neighbors can participate.

This increase in social capital paired with a small daily dose of neighborhood news often results in people getting more involved in their local community. An independent survey found that 93% of respondents reported heightened civic engagement due to Front Porch Forum. Put another way, how much more likely is canoe-borrowing Sharon to help rebuild the local playground or volunteer with a local nonprofit after her experience around her daughter's birthday?

So how come we’re not seeing millions of FPF’s springing up around America? Well, it demands the two things that are often difficult to find: unremunerated time, and love for where you live. At the base of each Forum are one or two “Neighborhood Volunteers” who act as important local boosters for the site, promoting its existence and encouraging civil participation. They have no admin/editing privileges, but, interestingly, experience has shown that keeping dialogues civil is self-enforcing when neighbors know they’ll actually see each other at some point after they post. The Volunteers’ only compensation is a hearty “Thanks” from neighbors who almost unanimously appreciate the service and, of course, the benefits of living in a more connected neighborhood. As Wood-Lewis tells it, “getting folks to sign up is hard and slow work. People do NOT want to sign up for one more thing, and they procrastinate, and they hit technology hurdles, and they forget.” Still, he concludes, “FPF is incredibly successful at generating word-of-mouth neighbor-telling-neighbor buzz... this gets people to actually sign up.”

FPF is a for-profit company that, after some initial foundation funding is only beginning to see some revenues from local advertising and fees paid by municipal departments for access to the neighborhoods. With four employees and steady growth in its pilot area, Front Porch Forum is eager to expand to other regions and is open to finding other financial partners as it helps build communities one neighborhood at a time.

Google “online community”, and you’ll receive over 60 million results. From the "ASPCA Online Community" to the “children with diabetes community”, all of the participants have entered in to a group due to some affinity – common experiences, hobbies, ethnicity, religion, etc. – but most will never actually meet. Along with these “communities of support” are “communities of practice” – sites like Flickr and Wikipedia, where participants with particular skill sets or knowledge edit/critique/contribute to a particular product. What Michael Wood-Lewis is building in Vermont turns these models on their heads. He has created FPF to force interaction, and while people are free to sign up, they “qualify” only because of where they live, not who they are, or what they know. With this micro-geographic focus, Wood-Lewis is deepening community ties by bringing people together who may have very little “in common” save for their street address.

What does all this mean nationally? A couple months ago, I wrote about the White House’s well-intentioned efforts to convene “national discussions” around particular policy issues. The whitehouse website, in fact, calls itself an “online community”. While it has been focused on gaining public input on policies ranging from transparency to health care, much of the online “community organizing” has taken place over at DNC headquarters, with Organizing for America, or OFA 2.0.

Gathering local supporters to talk about the president’s policies is a far cry from the community-building of Front Porch Forums. As online gatherings get more focused on a particular subject, or expand geographically, they diminish the chances of enabling the kind of reciprocating community – the kind of neighborhood – which is most naturally found when geography is focused and interests broadened.

Pete Peterson is Executive Director of Common Sense California, a multi-partisan non-profit organization that supports civic engagement in local/regional decision-making. His views here are not meant to represent CSC. Pete also teaches a course on civic participation at Pepperdine University's School of Public Policy.

Asian Manufacturers : Is Turnabout Fair Trade?

Fri, 21 Aug 2009 01:53:40 -0400

When the British troops laid down their arms at Yorktown, Virginia, a colonial band played "The World Turned Upside Down," a popular air marking the absurdity of the occasion. Now the American economy is turned upside down, and the small businesses that once fortified it have exchanged places with Asian manufacturers that America once sought to protect. No man’s enlightenment is complete without the deepening amazement that comes with having seen such a reversal.

In the case of the US economy, it happened in a piecemeal fashion — with Fair Trade laws playing a pivotal role — that was all the more insidious for being deliberate. The national agenda that was followed was intended to prevent the fragile nation states of the world from going communist.

As a kid, I had a zoomed-in view of the transition. My father was part of it, as president of a company that attempted an end run around the nation’s Fair Trade laws, which, for those too young to remember, specified the minimum retail price at which a product could be sold. These laws were intended to protect small mom and pop businesses from being bankrupted by chain stores during the Great Depression. And they largely succeeded in their mission. Main Street thrived because outfits like Wal-Mart were prohibited from rolling back prices.

Needless to say, the Fair Trade laws weren’t fair to consumers, who were forced to pay virtually the same price for goods sold at linoleum-floored outlets like Wal-Mart as they did at marbled emporiums like Saks Fifth Avenue.

The complexity of the market, which created gray areas in the laws and made their enforcement difficult, was seized on by my father as an opportunity. He bought surplus stock from well-known manufacturers, re-labeled it, and sold it for considerably less. His private label, “Amcrest,” is still remembered fondly by smart shoppers as having been an economical way to buy everything from mouthwash and undergarments to watches and refrigerators. The brand became so big that the government sued my father and nearly put him out of business.

End of story? Not quite. Shortly after the government filed suit, someone at the State Department had a bright idea. While the government would not permit my father to continue to buy surplus output from American manufacturers, it encouraged him to do the same thing...from manufacturers in the Far East.

The State Department considered this an act of enlightened self-interest along the lines of the Marshall Plan. Experts opined that it would save Japan and Taiwan, and possibly the rest of Asia, from falling into the communist orbit. After all, China and North Viet Nam had already fallen to communism. Singapore was toying with the ideology. Who could say where it would pop up next? People like my father would bring jobs and prosperity to Japan and Taiwan, and the grateful citizenry would form vibrant democracies and become bastions of anti-communism. Nobody ever imagined that these once backward nations would someday be eating our lunch – and our dinner.

The U.S. policy further allowed manufacturers in these nations to sell their wares largely free of American tariffs. So what began as a trickle of surplus output became a flood of finished goods. At the beginning, most of the stuff was simply cheaply made. But it didn’t take long for Japan to learn the gospel of quality from the American engineer Edward Deming, whom American manufacturers shunned.

Japan moved up the value chain. My father was among the first to begin importing Sony TVs, which were leagues better than American sets. South Korea followed Japan’s arc. Taiwan, too, stepped up, though it did so with industrial policies that targeted the software and microprocessor industries.

As these trends were taking shape, the U.S. was hit with high inflation. By the 1970s, most states decided to repeal their Fair Trade laws, setting Wal-Mart on a trajectory to become the nation’s largest corporation. Later, under pressure from Wal-Mart and others, Taiwanese businessmen moved their factories to China, where they could turn out the same umbrellas and Tupperware at one tenth the cost.

Taiwan didn’t suffer. It went on to manufacture the first IBM desk-top computer, and to found Taiwan Semiconductor, whose chips run most of Dell’s products. By the mid nineties, Taiwan, no bigger than New Jersey, had a larger store of foreign currency reserves than the United States did.

Wal-Mart and other American firms that were committed to low cost production then lobbied the U.S. to permit China to join the World Trade Organization. This would allow China to sell its wares in America without tariffs. Once China was accepted as a member, American-based factories found themselves unable to compete with the cheap goods that flooded in from the Middle Kingdom. To survive, they, too, moved their production and jobs there.

By the new millennium, the government policy that had begun years earlier to prevent nations like Japan, South Korea and Taiwan from going communist had been turned upside down. The economic forces that our policies unleashed effectively mandated that all production take place in China, a communist country that has no interest in democracy, freedom or human rights. The transplantation into China of millions of American jobs and thousands of U.S. industries that once paid taxes to the U.S. Government has forced that government to borrow from China, now America's largest creditor, just to meet expenses.

Ironically, China is providing a significant amount of the money needed to bail out our sick economy. The U.S.'s high unemployment, tottering banks and vast trade and government deficits actually mirror conditions in Japan and Taiwan after World War II, conditions that our own government believed to be fertile ground for communism.

It is as if the points of the compass were reversed, and the United States was suddenly in the grip of antipodal forces intent of turning our world upside down. And what’s left of our treasure is falling fast from our pockets, and into the iron rice bowl of a communist dictatorship.

Tim Koranda is a former stockbroker who now works as a professional speechwriter. He can be reached at koranda@alum.mit.edu.

Vetting the Volt: Toward Meaningful Electric Car Fuel Consumption Ratings

Wendell Cox — Thu, 20 Aug 2009 02:15:11 -0400

The 230 Miles per Gallon Claim: The General Motors (GM) announcement last week that the Chevrolet Volt would achieve 230 miles per gallon in city driving and a rating of more than 100 miles per gallon with combined city and highway driving sadly contains more hype than reality. The Chevrolet Volt is a plug-in hybrid vehicle that GM intends to begin marketing in 2010. GM has indicated that the car will be able without gasoline for 40 miles, on its rechargeable battery. After the battery is depleted, the car would begin to use gasoline. The 230 mile per gallon figure, according to GM, was calculated using a proposed but yet not revealed Environmental Protection Agency fuel economy testing procedure. Similarly, the details of the GM calculation were not revealed.

Criticisms: Rather than the expected praise, the GM claim was met by a barrage of questions and criticism. Consumer Reports said that the 230 miles per gallon claim might be the exaggeration of the century. Automaker Nissan, facetiously responded with a claim that its forthcoming all electric (not hybrid) “Leaf,” would achieve 367 miles per gallon in a Twitter post. Nissan, unlike GM can be excused for not providing the details of its calculation, since it was “making fun.” EPA distanced itself from the GM announcement, indicating that it had not yet tested the Volt.

The criticisms and questions revolved around a single issue: How had General Motors calculated the 230 miles per gallon figure. Regrettably, General Motors has yet to provide a complete answer.

From the sketchy details released, it appears that the 230 mile per gallon rating was based upon the assumption that a driver would travel less than 40 miles each day and recharge the battery at night. Using this methodology, there would never be a reason for the car to use gasoline, so long as the daily mileage is less than the battery capacity.

A New EPA Rating System: Reportedly, the EPA’s fuel economy testing procedure for plug-in electric vehicles (whether hybrid or not) will report kilowatt hours (KWH) of electricity consumed per 100 miles. Presumably, this rating will be placed on the fuel economy window sticker on new cars, perhaps alongside some miles per gallon conversion. GM indicates that the Volt will consume 25 kilowatt hours per 100 miles in city driving.

Policy Imperative for Improving Fuel Efficiency: The impetus for improving automobile fuel economy is being driven by public policy objectives to reduce greenhouse gas emissions, especially carbon dioxide (Note 1), and away from the consumption of petroleum .

Even though the Volt will produce no greenhouse gas emissions from its tailpipe when operating in the electric mode, the electricity that drives its battery would come from power plants, many of them relying on fuels like coal, which produce high amounts of greenhouse gas emissions. In fact, coal accounts for roughly 30 percent of all electricity production in the country; other fossil fuels another 35 percent.

A Flawed EPA Fuel Economy Rating System? Neither the GM calculation nor apparently the proposed EPA rating system include greenhouse gas emissions from electricity generation. A greenhouse gas gram emitted from an electric power plant smokestack has the same impact as one from an auto tailpipe. Any EPA fuel efficiency rating system that does not take into consideration power generation emissions would be shockingly incomplete and misleading. Consumers would not be given reliable information on the greenhouse gas emissions from cars they might purchase. One would expect that a government committed to greenhouse gas emission reduction would task its implementing agency with ensuring the availability of relevant and reliable information.

Power Generation and Plug-In Cars: On average in the United States, the generation of each KWH produces 610 grams of carbon dioxide (1.35 pounds). By comparison, combustion of a gallon of gasoline emits nearly 8,900 grams of carbon dioxide. Thus, nearly one gallon of gasoline is the equivalent of approximately 15 KWH of electric power in its greenhouse gas emissions (Note 2).

Thus, if the Volt uses 25 KWH to travel 100 miles in an urban area, then the greenhouse gas emissions from generating its power will be somewhat over 15,000 grams (Note 2), or the same as 1.7 gallons of gasoline (Note 3). Under these average operating conditions, the Volt would achieve approximately 60 miles per gallon (Note 4).

Exaggeration Doesn’t Help: Now there is nothing to be ashamed about 60 miles per gallon, unless, that is, you have claimed 230 miles per gallon. Regrettably, General Motors, which could have claimed a great environmental advance, has diminished it by failing to “level” with the public. This kind of public relations will not help a company whose performance has cost it market share for well over a generation. .

The Volt (and the Leaf) Will Get Better: Of course the equivalent miles per gallon would be much higher if US power generation were more efficient. And, it will be. For example, it has been proposed that electric power generation needs to become at least 80 percent less greenhouse gas intensive by 2050. If this is accomplished, the Chevrolet Volt could indeed achieve 230 equivalent miles per gallon and perhaps the Leaf 367. But neither car will reach these plateaus in the short term.

A Better Fuel Economy Rating System: Since the EPA fuel economy rating system has not been finalized, its potential defects can be corrected. Any EPA fuel economy rating system should include a greenhouse gas emissions indicator. This should be provided for city driving, for highway driving and a combined overall figure. Moreover, such a rating must include the very real emissions that occur at the power plant. It would be appropriate for EPA to continue reporting miles per gallon and adding KWH per 100 miles, so that the cost impacts are clear to purchasers.

Regional Variations: There is another complicating factor – regions. For example, in North Dakota fuel economy would be approximately 35 miles per gallon equivalent with full electric operation, well below the average 60 equivalent miles per gallon. On the other hand, in the state of Washington, the Volt would achieve its 230 miles per gallon equivalent, nearly 7 times the North Dakota fuel efficiency. This is not because people in Washington are more environmentally sensitive than North Dakotans. The difference is in type of power generation. Nearly 80 percent of Washington’s power is generated by hydro-electric and nuclear plants, which produce virtually no carbon dioxide emissions. On the other hand, nearly 80 percent of North Dakota’s electric power is produced with fossil fuels. These differences will be moderated as electric power production becomes less greenhouse gas intensive.

The Bottom Line: Despite the exaggeration and misleading information, this story is far more positive than negative. Congratulations to General Motors (and Nissan) on the strong advances they have apparently made in vehicle technology. This is just further evidence of the potential of human ingenuity. From the 150 mile per gallon cars to which President Obama is committed to the zero emission petroleum car system demonstrated by a Georgia Tech team, the good news is that people can continue to live as they like, while admirably reducing their greenhouse gas emissions to meet whatever objectives are ultimately adopted.

Notes
1: Carbon dioxide accounts for the overwhelming share of greenhouse gas emissions from motor vehicles.
2: Calculation: 8,900 (divided by) 610
3: Calculation: 25 KWH (times) 610
4: Calculation: 15,000 grams (divided by) 8,900 grams
5: Calculation: 100 (divided by) 1.7
6: A grams per mile rating system should include “upstream” activities, such as the greenhouse gas emissions required to produce and distribute petroleum, which by various estimates increases the emissions by 20 to 25 percent. Similarly, upstream electric power production emissions should be included.

Hypocrisy? Conservative Anti-government Folks are Also at the Public Trough

Richard Morrill — Wed, 19 Aug 2009 03:04:35 -0400

Frequent news stories tell of folks who protest and rant about “socialism” and government handouts, especially recently in the “debate” over health care reform, but who turn out to live on social security and depend on Medicare, and sometimes don’t even know they are public programs! This likely tells us about the astounding power of the religious right and of the economic illiteracy of much of the population.

Statistics of possible interest and value include data on the balance between federal tax receipts and federal outlays for the states and variation in “dependency” or the shares of unearned income/transfer payments by states (social security, public assistance, etc).
Is there any evidence of more “liberal” Obama-voting in states which actually pay more in taxes than they get back, or which have lower rates of dependency?

Yes, but the relations are not strong, because there are some very confounding factors, like size of state, age of the population, or presence of federal institutions.

Still, here is a list of states that support the hypocrisy argument about the balance of receipts versus outlays.

	Get/Give Ratio	Share of Obama Vote		Get/Give Ratio	Share of Obama Vote
State	Low	High	State	High	Low
NV	65	55	MS	202	43
NJ	66	57	AK	184	38
CT	69	61	LA	178	40
NH	71	54	WV	176	45
MN	72	54	AL	166	39
IL	75	62	SD	153	45
DE	77	62	KY	151	41
CA	78	61	MT	147	47
NY	79	63	AR	141	39
CO	81	54	OK	136	34
MA	82	62	SC	135	45
WI	86	56	ID	121	36
WA	88	57	AZ	119	45
MI	92	57	KA	112	42
OR	93	57	WY	111	33

But some states are exceptions, notably the following group with both high outlays relative to receipts and high concentrations of Obama voting:

	Get/Give Ratio	Share of Obama Vote
State	High	High
NM	203	57
VA	151	53
HI	144	72
ME	141	58
MD	130	62

Except for Maine, these states have a large federal presence.

Now is there evidence of states with higher shares of the populace depending on unearned income and transfer payements voting more Republican? Again, yes, but even less strongly, and the dependency share are never really very high.

	Dependence	Obama	State	Dependence	Obama
States	High	Low		Low	High
OK	7.3	34	MD	4.1	62
AL	7.2	39	MA	5.0	62
AR	8.3	39	IL	5.2	62
KY	7.5	41	CT	4.9	61
MS	7.7	43	CA	4.8	61
ND	7.5	45	WA	5.3	57
WV	10.5	45	NJ	4.9	57
MT	7.9	47	NV	5.2	55
			NH	5.1	54
			MN	5.1	54
			CO	4.0	54

But some states are exceptions, coming in high in both categories or low in both categories, notably:

	Dependence	Obama	State	Dependence	Obama
States	High	Low		Low	High
RI	6.7	63	TX	4.8	44
VT	6.5	67	UT	4.8	34
HI	6	72	AK	3.2	38
ME	7.3	58	GA	4.5	47
NM	6.8	57
PA	7.5	54
IA	7.3	54
FL	7.8	51

These “high high” states have very high shares of the elderly.

States on both lists supporting the hypocrisy theory include the Republican voting states sitting at the trough: WV, AL, KY, MT, AR and OK on the one side, and Democratic voting states showing less dependency on various federal sources: MA, NV, NJ, CT, NH, MN, IL, CA, CO and WA on the other. HI and ME are contrary on both lists. Note that most of the other states have around average values and show no consistent patterns. They are mapped but not discussed.

The New Radicals

Joel Kotkin — Tue, 18 Aug 2009 00:40:17 -0400

America's ''kumbaya'' moment has come and gone. The nation's brief feel-good era initiated by Barack Obama's stirring post-partisan rhetoric--and fortified by John McCain's classy concession speech--has dissolved into sectarian bickering more appropriate to dysfunctional Iraq than the world's greatest democratic republic.

Yet little of the shouting concerns the fundamental economic issue facing the U.S. today: the decline of upward mobility and income growth for the working and middle classes. Instead we have politicos battling over two versions of ''trickle down'' economics.

The Democrats seem bent on installing a permanent ruling mandarinate alongside a small financial aristocracy. The Republicans, meanwhile, simply want to help the rich hold onto as much of their money as possible.

Neither approach will improve prospects for the vast majority of Americans. The Bush Administration policies of low taxes--for the upper classes--and less regulation helped engender a massive asset bubble unsupported by economic fundamentals. This ultimately drove up both the current account and federal deficits and led to the severe Great Recession.

The Obama ''trickle down'' is, sadly, not all that different from the Bush-Paulson strategy. Like its predecessor, it endorses the bailout of giant financial institutions as the linchpin of its economic policy. It is, simultaneously, profoundly anti-democratic and anti-capitalist.

Other aspects of the Obama policy seem likely to prop up Wall Street traders at the expense of the rest of us. The administration's big ''cap and trade'' proposals could prove more advantageous to well-heeled ''carbon traders'' than to the environment. The other big winners may be Silicon Valley venture capitalists, who-- increasingly bereft of their own ideas for making money--hope to cash in on Washington-subsidized energy schemes.

Of course, not all Democrats have sold out. Sens. Byron Dorgan, D-N.D., and John Tester, D-Mont., have expressed opposition to bailing out ''too big to fail'' institutions. New York Attorney General Andrew Cuomo has been fearless in unveiling the enormous Wall Street bonuses--over $32.6 billion last year-- handed out as firms suffered $81 billion in losses and almost drove the world economy to ruin.

Unfortunately, these are exceptions. Illinois Sen. Dick Durbin recently admitted that the banks remain ''the most powerful lobby on Capitol Hill,'' adding that they ''frankly own the place.''

So far in 2009 the Democrats have netted nearly 60% of all campaign contributions that have come from the financial industry, now the largest sector in terms of donations. The biggest donations have gone to such influential Democrats as Sen. Charles Schumer and his sidekick, newly appointed Sen. Kirsten Gillibrand, from New York; Sen. Chris Dodd D-Conn., and Majority Leader Harry Reid D-Nev. Schumer, the Street's leading vassal in Congress, has emerged as the rising star in the Democratic leadership. If Majority Leader Reid loses his seat--as is now possible, according to polls in Nevada--Wall Street's main man could well end up a future Majority Leader.

Some Democrats try to have it both ways, playing populists for the peanut galleries but getting cozy with the industry when it matters. Massachusetts Rep. Barney Frank, the House Financial Services Chairman, talks tough but has a history of friendly relations with financial powerhouses. One of Frank's own top assistants, Michael Pease, just went to work for the biggest winner since taking TARP bucks, Goldman Sachs. As left-winger blogger Glenn Greenwald put it recently: ''The only way they can make it more blatant is if they hung a huge Goldman Sachs banner on the Capitol dome and branded it onto the foreheads of leading members of Congress and executive branch officials.''

In the end the faux populist Democrats end up with policies that make Ronald Reagan's ''trickle down'' seem downright Leninist. Harry Truman once quipped that ''There should be a real liberal party in this country, and I don't mean a crackpot professional one.'' Sadly, it's increasingly the latter.

The hypocrisy should open a path for the Republicans as wide as the Grand Canyon. But the ill-named Party of Lincoln still seems to think that the path to power lies in the tired old formula of ultra-patriotism, guns, abortion and religious rectitude. Screaming ''socialism'' may awaken the spirits of some on the old right, but it's hard to make a convincing case when George Bush socialized banking and grew the deficit.

You certainly can't trust big-business conservatives to stop bonuses for the TARP babies, particularly the 25 financial firms deemed ''too big to fail'' by the likes of Ben Benanke. Give GOP big-business leaders higher stock prices, and they will follow you anywhere. Only a few--such as Sen. Charles Grassley, R-Iowa,--have shown they are truly serious about the free market or defending the interests of the regular taxpayer.

Given this sad political picture, the best hope now is to build an alternative perspective that focuses on the basic economic issues. This would not be the media celebrated movement of moderates--Democrats-lite and Republicans-lite--who seek kumbaya through compromise. It would, instead, require a radical third tendency--neither strictly left or right--that would draw on long-term American priorities and values.

These new radicals would focus on basic issues like improving infrastructure, and primary education and bolstering the nation's productive economy. Their inspiration would come from a long tradition of federal successes--from the Homestead Act and the WPA to the Interstate Highway and the space program. They would view the financial crisis not as an imperative for protecting the well-connected but for financial reform, decentralization and innovation.

Such an approach would address what the British author Austin Williams calls our ''poverty of ambition.'' Americans historically have rejected a future constrained by entrenched hierarchies. Most, I believe, would support spending money and paying taxes, if it was spent to achieve big things that would lead to a greater, more widespread prosperity and opportunity.

Just imagine if the upward of $1 trillion spent guaranteeing Goldman Sachs and Citigroup executives giant paydays had instead gone into roads, bridges, subways, buses, port development, skills training, energy transmission lines and basic scientific research. And imagine if instead of protecting Citigroup and Bank of America, we encouraged stronger local banks and solvent financial entrepreneurs to fill the breach left behind by gross failures.

Such an approach may seem extreme, but it might have wide appeal. We know, for example, that the TARP bailout is widely unpopular. Indeed, according to one survey taken earlier this year, Americans oppose continuing bailouts for banks by better than 2 to 1.

As I travel the country, I find anger is deepest among business owners who find securing loans increasingly difficult nearly a year after the original bailout. Even as the economy slowly recovers, this anger will become more pronounced with the coming bonuses doled out to those at bailed-out firms. As Sen. Grassley puts it: ''My people ask, 'When are these people going to be put in jail?''' Instead we're paying for them to stay at the Ritz.

This article originally appeared at Forbes.

California Disease: Oregon at Risk of Economic Malady

Joel Kotkin and Bill Watkins — Mon, 17 Aug 2009 17:25:07 -0400

California has been exporting people to Oregon for many years, even amid the recession in both states.

Indeed, the 2005 American Community Survey report shows that California-to-Oregon migration was 56,379 in 2005, the sixth-largest interstate flow in the United States. The 2000 census showed a five-year flow of 138,836 people, the eighth-largest over that time period. Until two years ago, Oregon was managing to absorb this population with mixed results, but generally as part of an expanding and diversifying economy. But that pattern has ended, at least for now.

So now what will Oregon do with a suddenly excess population? California, at least, can say its emigres over time will reduce unemployment and reduce out-of-whack property prices. The immediate net benefits for Oregon are harder to discern.

California's massive economic collapse -- which has resulted in 926,700 jobs lost from July 2007 through June 2009 and an unemployment rate of 11.6 percent -- is now becoming Oregon's problem. As Californians, largely for lifestyle and cost reasons, head north across the border, they have helped swell Oregon's ranks of both unemployed and, perhaps equally important, underemployed.

Our analysis of California migrants has shown a gradual reduction in their earnings over what they were earning in the Golden State. There also are less quantifiable impacts. Portland, a city attractive to many unemployed and underemployed younger Californians, could well be becoming the "slacker" capital of the world.

There's another major problem with the continuing California migration. Along with young people, newcomers to the state also include large numbers of the retired and semi-retired. These people generally have little interest in economic growth, whether for longtime state residents or their fellow, often younger emigres. Instead what they bring with them are political attitudes that could slow down the state's economic recovery.

Some might call this California disease. This refers to a chronic inability to make hard decisions as well as a general disregard for business and economic activity.

California's inability to plan or create new public infrastructure affects every part of the state's economy. California was once a leader in building infrastructure, but that was in Pat Brown's gubernatorial administration in the 1960s when California last planned a major infrastructure project.

There are consequences to California's inability to deal with infrastructure. Its freeways are parking lots. Its water problems are threatening the viability of Central Valley agriculture, one of the key drivers of the state's economy. Its electrical system is so bad that every summer brings the fear of interruptions in the supply of electricity. Its universities are in decline. Its prisons are overcrowded.

Another symptom of California disease is regulation and red tape that increases the uncertainty for any project and raises the cost.

California projects can be in planning for years, and at the end of that planning process they may still be denied. The long delays are expensive. And as many would-be California developers will tell you, the uncertainty is a strong detriment to economic activity and development.

We also see symptoms of California disease in tax policy. California no longer has the United States' highest income tax rate. Big deal. With a top income tax rate of 10.3 percent, sales taxes that can reach 10.25 percent and a 33.9 cents-per-gallon gas tax, its total taxes are among the highest in the country.

California's regulatory climate also reflects the disease. Even as the state endures its most brutal recession in decades, it persists in unilaterally imposing new regulation, making the state less competitive with other states.

In short, California is whistling past the graveyard, hoping that its economy will rebound, "because it always has."

Key symptoms of California disease are forgetting that quality of life begins with a job and negative domestic migration.

With all the influx of Californians, it's not surprising that Oregon shows some signs of California disease. It recently increased its tax rates so that Oregon's highest-income taxpayers face marginal tax rates that match Hawaii's for the highest in the nation. Oregon's land-use planning had been extremely centralized for some time. Indeed, Oregon's land-use planning may be the most centralized in the United States. This makes it harder for communities to control their own destinies, whether they want to grow or not.

If Oregon does have California disease, the malady is surely not as advanced as it is in California. Oregon has lower gasoline taxes and lower property taxes than California. Oregon, in contrast with California, enjoys net positive domestic migration. It is also a good sign that a significant percentage of the people moving to Oregon from California are young folks. While it seems to many that the typical California immigrant is a wealthy aging baby boomer, the data show that he (or she) is still most likely a young person in his 20s or 30s, and often married with children. They are people who, if the economy grew, could have something to contribute to the economy as well as the cultural development of the state.

But Oregon's relationship with California remains a double-edged sword. On the one hand, Oregon has benefited from the inflow of cash and skilled workers. On the other hand, Oregon's relationship with California has led to the current situation where at 12.2 percent for the month of June, Oregon has one of the highest unemployment rates in the United States.

Oregon may be at a crossroads. The state is richly endowed with many of the components of a high quality of life. People want to live in Oregon, and they are moving to Oregon even in hard times. Yet as the population swells, there's no concurrent growth in businesses and employment. Over time, this could pose serious problems. Remember, quality of life begins with a job, preferably a rewarding, well-paying job.

However, Oregon must avoid making many decisions that led to California's current situation. The costs of California disease are more than those reflected in the economic statistics. Devastated communities and families, and wasted opportunities, could infect this fair state for years to come.

Joel Kotkin is author of "The City: A Global History." Bill Watkins is director of the Center for Economic Research and Forecasting at California Lutheran University.

The New Industrial City

Aaron M. Renn — Mon, 17 Aug 2009 01:57:42 -0400

Most American urban economic development and revitalization initiatives seek to position communities to attract high wage jobs in the knowledge economy. This usually involves programs to attract and retain the college educated, and efforts to lure corporate headquarters or target industries such as life sciences, high tech, or cutting edge green industries. Almost everything, whether it be recreational trails, public art programs, stadiums and convention centers, or corporate incentives, is justified by reference to this goal, often with phrases like “stopping brain drain” and “luring the creative class”.

The future vision underpinning this is a decidedly post-industrial one. This city of tomorrow is made up of people living upscale in town condos, riding a light rail line to work at a smartly designed modern office, and spending enormous sums – with the requisite sales tax benefits – entertaining themselves in cafes, restaurants, swanky shops, or artistic events.

In contrast the factory has no place in this future city. Indeed industry is considered a blight that needs to be eliminated or repurposed. What were once working docks are to be converted to recreational waterfront parkland. Warehouses and small factories become the site for developing lofts, studios, or boutiques. This urban economy is based almost solely around intellectual work and services, not physical production.

But there is a problem with this equation. In almost any city, the bulk of the people do not have college degrees. According to Brookings, the average adult college degree attainment rate for the top 100 metro areas is only 30.6% In the many years it will take to raise this, what are the rest of the people supposed to do for a living? Younger cohorts are better educated than their grandparents, so this will improve over time. But better educated for what? Not everyone is cut out, or wants to be a stock-trader or media consultant. We have to think about those who would rather work with their hands, or are better suited for that kind of work.

The vision touted by too many urban boosters is that of an explicitly two-tier society. There are elite, well paid knowledge workers in industries like finance, law, and technology, and then there is everybody else. Programs designed to boost knowledge industries turn out to be subsidies to cater to the most privileged stratum of society. The public is called on to pay for urban amenities for the favored quarter of the intelligentsia, with the benefit to the rest of the people assumed.

But little thought is given as to how everyone else will get by, other than working in low wage service occupations catering to the privileged. In the Victorian era, they called this going “into service”. Today we might think of them better as globalization’s coolie class.

Beyond this, can we as a country prosper if we don't actually make things anymore? Some of the fear of manufacturing decline is overblown. Despite large scale job losses in the manufacturing sector, the US has continued to set industrial production records outside of recessions. However, as the chart below from the Federal Reserve shows, industrial production growth flattened significantly in the late 1990s.

Sadly, manufacturing has been hammered in this Great Recession. There will certainly be a cyclical upturn in output, but restructuring in the automobile industry portends a permanent reduction in domestic output in that sector among others. Unless carefully handled, increasing regulation of carbon emissions, along with the associated energy price rises, will encourage further offshoring to countries with few climate change obligations, such as China, India, Brazil and other developing nations.

Yet to remain both a prosperous and fair society, the United States must remain a manufacturing power. Manufacturing still provides the traditional route to middle class wages for those without college degrees. It also alone employs 25 percent of scientists and related technicians and 40 percent of engineers and engineering technicians.

Of course, the next wave of manufacturing will differ greatly from the past. Improvements in productivity and global competition mean a bleak future for large scale, low value-added, routinized production. The era where an assembly plant provided thousands of good jobs at good wages is a thing of the past other than for the lucky few. And where there are new factories, they are often in greenfield locations like the new Honda plant in Greensburg, Indiana – halfway between Indianapolis and Cincinnati – not urban centers. Polluting heavy industry like primary metals and refining really are incompatible with neighborhoods. So what is to be done?

One answer is to build a new industrial city focusing on small scale craft and specialty manufacturing with high value added. We're seeing a precursor to this in the rise of organic farming and artisanal products of all kinds. TV shows featuring hip young carpenters renovating homes or gearheads tricking out cars and motorcycles make these professions seem glamorous. Magazines targeted at the global elite like Monocle scour the world in favor of the finest handcrafted products from old school workshops, building demand for these products. The New York Times Magazine recently did an article making the case for working with your hands, and also noted how digitally oriented designers are rediscovering the use of their hands. Perhaps it is no surprise that sociologist Richard Sennett turned his attention to the idea of the craftsman. In short, making things, craftsmanship, and quality are back in fashion.

The challenge for urban economies is to develop this and put it on a sound industrial and economic footing. One key might be to inspire people to start these craft oriented businesses by tapping into people's desire to purchase ethical and sustainable products. We increasingly see with foods and other items that people want to understand their provenance, to know who made them, how, with what, and under what conditions. Often today businesses catering to this desire are small scale “Mom and Pop” type operations, but there is no reason they can't be done at greater scale, or expanded into areas like organic food processing, not just organic farming. American Apparel has done just that by manufacturing low cost, stylish clothing “Made in Downtown Los Angeles. Sweatshop Free.” at scale, for example.

Beyond craft products, reinvigorating small scale, specialty fabrication and other businesses, to rebuild an American version of Germany’s Mittlesand, creates another, often ignored option for urban economies. Quality, flexibility, responsiveness, and a willingness to do small runs are keys. These businesses can also underpin product companies higher in the value chain. They start building an ecosystem of local companies and expertise that can be useful for related or spin-off businesses. Jane Jacobs, and before her the great French historian Fernand Braudel, noted how cities could incubate many new enterprises because all the diverse products and services they needed were available locally. If you need to scour the globe looking for custom parts and services, it can quickly overwhelm a small business. That's one reason American Apparel started in Los Angeles, which already had a network of garment producing firms and expertise to draw on. What's more, these firms might be ideal candidates to take over empty strip mall or other space in decaying inner ring suburbs, helping to solve the “graybox” problem. Even Main St. locations could potentially benefit from businesses beyond traditional boutiques.

Today these types of specialty firms are often found in America's largest cities, so they stand to benefit most from this. Smaller cities also need to figure out how to build this ecosystem. The culture needs to change too. Particularly in the Midwest/Rust Belt area, industrial labor has tended towards low skill, repetitive work in larger scale mass production industries. Retraining will be needed for these newer types of businesses, but this is vocational or skill training, not necessarily a college degree. It is a much more tractable problem.

Not only could this new manufacturing base be a source of urban middle class jobs for the non-college degreed, it would do something arguably more important. It links the fortunes of the new upscale urban residents, the people who are both the customers for many of these products and potentially also the entrepreneurs making them, with that of their less educated neighbors. For many owners, managers, and workers, it might bring into daily contact people who might not otherwise ever interact if one group worked in an office and another in a warehouse. Rebuilding that sense of community and commonwealth, that we are neighbors, fellow citizens, and all in this together, is critical to building a truly sustainable, well-functioning and broadly prosperous society.

Aaron M. Renn is an independent writer on urban affairs based in the Midwest. His writings appear at The Urbanophile.

Nice Houses for Ducks

Mark Clapson — Sun, 16 Aug 2009 00:32:24 -0400

During the long hot summer of the expenses scandal in British politics, one of the most bizarre stories concerned a Conservative MP who claimed from the public purse for a second home: a place for his ducks. It wasn’t any old duck house, however, but a ‘Stockholm’ floating model, valued at over £1,500. It is over 5 feet high.

If only two ducks lived in the duck house, with its prime waterside location and spectacular views of the gardens beyond, their living space would be on a more generous specification – measured by their weight – than the hundreds of thousands of new homes that have been built in Britain in recent years. For one of the lesser-commented upon hypocrisies of the expenses scandal has been the chasm between those with two or more houses, and the many thousands who have just bought a home to find they couldn’t swing a duck around in it, let alone a cat.

The BBC recently reported some of the new homes are so small that they have been rejected by the housing associations: these are the agencies that have taken over a great deal of the rented housing in Britain since the Conservatives abolished council house building in 1980. Housing associations are empowered to purchase some homes from the private market for rent to their tenants, or for shared ownership schemes.

Good housing for those who cannot afford private ownership should be welcomed, and the housing associations congratulated for dismissing the smallest new dwellings. But the key question is: why should so much of the new housing seem to be built for birds, not people?

British new housing today is rapidly becoming a scandal, at least for those who have to live in it. The BBC report found that in some new dwellings valued at over £200,000 ($326,000), rooms were tiny, and many basic construction faults were to be found. And Britain is now building the smallest new homes in the developed world: in Holland the average size of a new build home is 115 square metres, and in Japan it is 92.5 square metres. In Britain a paltry 76 square metres is common. (BBC News, New Homes Rejected for Social Housing (16 May 2009))

The causes of this cramped and unhappy state of affairs cannot completely be laid at the door of New Labour. During the 1980s the Conservative government of Margaret Thatcher terminated the obligation of private builders to construct new homes according to the Parker Morris standards set out in the report of the same name in 1961. The Toryism of Thatcher may have been more stridently in favour of the aspirational home owner than the more ‘one-nation’ Conservatism of Harold Macmillan, who legislated them, but these guidelines should not have been revoked. Whatever their faults, those standards laid down decent room sizes, and allowed for more generous interpretations of internal uses of space. Council tenants and private home owners benefited from both.

Now, following the abolition of Parker Morris, it was possible to build new dwellings with a double bedroom that was marginally bigger than a double bed. This tendency to cram became commonplace, however, under Labour, whose housing policies mindlessly follow the idea that, when it comes to housing, tiniest is next to godliness.

This brilliant approach arose in the 1990s as part the notion that creating higher densities in British cities would stimulate urban renewal. The formula was simple, or rather simplistic, and was best articulated by the leading architect Lord Rogers of Riverside. ‘Let’s cram our city centres’ he wrote provocatively. Of course, this was not for his usual clients for whom he designed spacious office blocks and sizeable swanky houses.

Rogers was appointed as Head of the Urban Task Force, commissioned by the New Labour government. Its report entitled Towards an Urban Renaissance (1999), called for flats to populate the city centres at high densities. And as for those sprawling suburbs around the outskirts of town, so popular with English home owners, they were to be retro-fitted to utilise existing green spaces for housing.

So much for verdant England. Even little parks and large private gardens are now vulnerable to development. Interestingly, the first illustration in Towards an Urban Renaissance is a photograph of the then Deputy Prime Minister John Prescott, who, of course, has two homes and more than one car. Needless to say, he welcomed the recommendations in the report since he likely never saw it applying to him or his friends.

Environmentalism has further accelerated the trend for the shrinking of the British home. The emphasis upon the Rogers-style compact city has been trumpeted by the Green Party and other environmental lobby groups because higher densities and small build theoretically cause less carbon emissions and use up less non-renewable sources of energy.

Yet let the obstreperous commoner be a bit put off by the high priests of cramming. Some of the most outspoken advocates of environmentalism come from wealthy patrician backgrounds, for example Jonathan Porrit and Prince Charles. Buckingham Palace and High grove House are hardly exercises in low-density living.

All this leads to some doubts about the democratic future under the influence of our feudalist betters. A recent article in Regeneration and Renewal magazine by Sir Peter Hall draws attention to research led by Marcial Echenique at Cambridge University. Echenique and his team compared the ‘Richard Rogers-style compact city’ with ‘market-led dispersal, US fashion’. Their findings raise some profound questions in an urban democracy:

The compact city cut carbon emissions by just 1 percent; but there were higher economic costs in outer areas where people still want to live, and where demand was greatest. Also, any social aspects of the compact city were to some extent undermined by crowding, exposure to noise and the crush on facilities.

American style sprawl by contrast raised energy use and CO2 emissions by almost 2 percent, but engendered lower house prices, less crowding and less road congestion. (Hall, Sir Peter ‘Planners may be wasting their time’, Regeneration and Renewal, 6 July, 2009)

None of this has yet created the momentum for a radical push back on housing policies, but it should. Conservative, Liberal and Labour MPs are now guiltily paying back their sums for using their expenses to buy their own often lavish second homes. It is striking how they have enjoyed a privileged access to accommodation which they, through legislation, would make all but unaffordable to millions outside the wealthiest classes.

Once upon a time our political class understood that they ignored the hopes of less-well-off owner occupiers at their peril. Labour’s spectacular victories in 1997 and 2001 owed much to the votes of those who wanted to get on the housing ladder, or who had just clambered onto it, and naturally wanted the best home for their money. Before then, under Thatcher, the Conservatives successfully garnered the support of the same class.

Now lamentably all the parties display little interest in the aspirations of working-class, lower middle-class and immigrant wannabe homeowners for a decent space. Instead they are to be treated like water fowl by those who generally have access to one or more homes. Some may do it in the name of being “green” but there’s a better term for what they are doing: hypocrisy and class privilege.

Mark Clapson is a social historian, with interests in suburbanisation and social change, new communities in England and the USA, and war and the built environment.

The Edges of the Map

Daniel Jelski — Sat, 15 Aug 2009 09:36:40 -0400

There be dragons!

That's what they used to say at the edges of the map, where the known world became Terra Incognita.

I find map edges intriguing - I want to turn the page, find out what is on the other side, see what is just over the horizon.

In 1996 I visited Germany, and my favorite memento from that trip is an ADAC Street Atlas (ADAC is the German equivalent of the AAA). It is 211 pages of Germany, starting in the north where the Danish border meets the North Sea, and ending in the southeast, at Berchtesgaden and the Austrian border. Everything in between is depicted at a scale of 1:200,000 (1 cm = 2 km).

And not just Germany! Neighboring countries are shown as well, at least as far as necessary to include all of Germany. Thus it includes a sliver of Denmark, a slice of Poland, chunks o' Czech & Austria, half of Luxemburg, etc.

A westernmost salient of Germany juts into the Netherlands to within a few kilometers of Nimjegen. Indeed, for a kilometer or two, the main street (literally: Hauptstrasse) of the German hamlet of Wyler constitutes the border. To the west (in Germany) it is called Nimwegerstrasse (loosely: "on the way to Nim"), and to the east it's titled Oude Kiefsebaan.

To include this salient on the map, the ADAC atlas also must include the cities of Nimjegen and Arnhem. But the map does not cover Arnhem's western suburbs. I have no other map of Holland at anything approaching the same scale, so my knowledge of Dutch geography mostly ends at Arnhem. Beyond that, there be dragons!

The border with Holland is anything but simple. It twists and turns, includes this farm but not the other, this hamlet but not its neighbor, goes to the center of that canal, but only the west bank of another. It seems irrational, but what it lacks in rationality, it keeps in precision. For the names are all Dutch on one side, but German on the other. I have found only one exception: the Dutch border village of Millingen a.d. Rijn. In Holland, the Rhine River is known as the Waal. Millingen sounds German to me, and it is pointedly not Millingen a.d. Waal. There must be some history there.

I think of Paul Bunyan and his Blue Ox named Babe, who straightened the roads of Michigan. He did so by hitching Babe up to one end of the road, who then pulled mightily untangling all the curves. It's too bad Mr. Bunyan didn't travel to Germany to straighten out their borders – it would have saved the world no end of difficulty. (Even if he had thought of it, it probably wouldn't have worked: borders are imaginary lines on a map, not something tangible like a road that you can hitch a blue ox to.)

And yet, something has straightened German borders – and that something likely is war. There is a district in Hamburg named Altona. Altona never sounded German to me, so I asked my folks (who live there) where the name came from. They said it was Danish, and that Denmark used to own much of what is now the German state of Schleswig-Holstein. The border has since moved northward, but unlike the Dutch border it is relatively straight. I don't know the history, but apparently the border has moved back and forth over the centuries, and has now settled on the current truce line at the 55th parallel. Good fences make good neighbors.

Of course, since 1945 Germany's eastern frontier has been severely rationalized. The border with Poland is now along the Oder-Neisse line. That line follows the Oder to just south of Frankfurt-Oder. The Oder veers off to the east, but the tributary Neisse goes almost to the border of the Czech Republic. The last few kilometers parallel a road, with said road on the Polish side of the line. Such a boundary has the advantage that it is easily defined, but it also divides communities that were formerly single metro areas. But as everybody on the Polish side is a refugee I guess that doesn't matter.

There has been war between Germany and Holland – twice in the last century. So why haven't the Dutch "rationalized" the border in their favor? The Belgians certainly did: the district of St. Vith is Belgium's German-speaking area, and it became part of Belgium after WWI – the fruits of Flanders Fields. But while the Germans have occupied all of the Netherlands, the border has apparently never been disputed. The precision shows – and why fix something if it isn't broken? Good neighbors make good fences?

Believe it or not, there is one German border that hasn't seen a war in at least 1000 years: the frontier with Switzerland. And a more embroidered, intricate boundary probably exists no place else on earth (though lines between Indian states must come close). Germany, France and Switzerland meet at Basel in a region known as the Dreiländereck (three-country-corner). The Rhine, which to the north forms the border with France (German place-names on both sides), now veers to the east and "should" form the border with Switzerland. But the city of Basel is on both sides of the river, and there is a salient of Switzerland that looks more like the Caprivi Strip than any rational boundary. Who knows where that comes from?

The Swiss canton of Schaffhausen sticks up north of the Rhine like a polyp, only 5 km wide at the base, but widens from there. Indeed, it gets so wide that it ultimately surrounds a bit of Germany – and here my two sources disagree. To drive to the German village of Büsingen am Hochrhein you must drive through Switzerland – ADAC helpfully labels it as a Swiss Customs Area. Yahoo maps show the district as a true exclave – a bit of Germany completely surrounded by Switzerland. The ADAC Atlas, however, is different: to the east of Büsingen am Hochrhein, both banks of the Rhine are shown as Swiss territory, but the river itself is part of Germany. By this reading, the area is not an exclave but is accessible from Germany by boat.

I have no idea what the truth is. Let's just say that Paul Bunyan would be flummoxed.

And as for those dragons that be west of Arnhem? I've never seen one myself, but I have it on authority that they really are Dutch dragons.

They wear wooden shoes.

Daniel Jelski is Dean of Science & Engineering State University of New York at New Paltz.

Glimpsing the Good in Police Chief Bratton’s Goodbye to L.A.

Jerry Sullivan — Sat, 15 Aug 2009 02:34:35 -0400

Los Angeles Police Department (LAPD) Chief William Bratton’s pending departure makes now a good time to give him credit for a habit that draws scant attention amid talk of his traveling ways and unapologetic ego: The guy works very hard at every aspect of his duties.

It’s a habit that can touch other lives as a matter of course. It touched me one morning at the Los Angeles Police Academy. Bratton had invited me there to address a graduating class with a reading of a column I had written about the challenges of policing our city. I sat on the main dais with my wife, while some of my other family members were in a front row to the right, where the sun soon drew a bead on them.

At one point Bratton had finished an inspection of the graduates arrayed on the greensward and was returning to the main dais when he stopped smartly and told my family members to feel free to move back a row or two for some shade.

It was a considerate gesture amid a precisely timed ceremony – made all the more so because Bratton had no way of knowing that one of my sisters had recently been treated for skin cancer. This is a younger sister of mine, and it’s been some time since she’s needed me to look out for her, but I still do in small ways.

I took Bratton’s courtesy personally, as a helping hand. It was one of those moments when someone extends themselves without knowing the full effect of their effort. It was the residue of a solid work ethic. It was the by-product of a constant dedication to the protocol that helps inform a sense of duty.

Bratton has it – and he will be missed.

There are also plenty of very public reasons to regret Bratton’s departure. Crime has gone down consistently on his watch. Relations between LAPD and the city’s ethnic communities are better than ever, although there’s still work to be done. In any case, the agency has seen broad reform and earned a release from federal oversight.

Yet there’s an opportunity to be found in taking a break from the intensity Bratton brings to his work. This is a fellow who comprehends much more than the core of policing, taking pains to understand anything that could have a significant bearing on the job, including technology and statistical analysis. Lately he’s talked about using those disciplines in something called predictive policing, an effort to pinpoint who is likely to commit crimes, at what times, and in which locations.

I think we should all appreciate the fact that substantial individuals are dedicated to an exhaustive pursuit of new tools for law-enforcement.

We should also remember, however, that Bratton is a cop who views the world from a cop’s perspective. That is altogether appropriate for him — and it leaves us with the responsibility of considering whether a hard-charging chief who is intrigued by predictive policing could hold the potential to bring serious erosion to our civil liberties.

It’s true that we have elected officials and a judicial system to stand guard against incursions on our civil liberties, adding more than a cop’s view to the debate.

That’s a bit shaky, though, given political trends of recent years.

Bratton adds to my worries because he’s as good at politics as any politician in our city. I worry about having a police chief who not only has the ability and drive to get a grasp on something like predictive policing but might also have enough political skill to sell the notion in a way that bypasses healthy debate.

Perhaps Bratton’s departure will provide time for Mayor Antonio Villaragiosa and others at City Hall to ponder the balance of liberty and security – and to consider how much of one we are willing to trade for the other.

I thank Bratton for his dynamic approach to reshaping law enforcement in our city, and I certainly don’t intend to diminish his success at fulfilling the mission he took on in Los Angeles.

I address my concerns to our elected officials, all of whom should recalibrate their relationships with the sort of authority figures who possess the ability to make folks feel safe.

It could be downright unsafe to get in the habit of relying on a top cop to handle the whole job.

Jerry Sullivan is the Editor & Publisher of the Los Angeles Garment & Citizen, a weekly community newspaper that covers Downtown Los Angeles and surrounding districts (www.garmentandcitizen.com)

California Wastes Its Public Space

Fri, 14 Aug 2009 01:08:52 -0400

California’s favorable climate makes it a haven for outdoor activity. Enlightened and forward-looking planning has largely preserved the waterfronts for public access and set aside a lot of space for public use and activity. Yet despite this, there are few great urban gathering spaces. This is most obvious in the two largest population centers – Los Angeles and San Francisco.

As a result, potentially great urban districts are dragged down by a dearth of desirable activity, something exacerbated by an already damaging real estate slump. Although all is not lost in these cities, some of the most high profile public spaces fail to attract large numbers of visitors on a daily basis, particularly when no special events are planned.

Pershing Square, Los Angeles – Located in the heart of downtown, Pershing Square is poorly designed, both as its own project and in a contextual sense. In an already warm climate made even hotter by its CBD location, there is too much hardscape. Extensive softscape, whether flowers, grass, and/or trees, would provide a cooling effect. There are also too many symbolic structures serving no purpose. These are expensive to install and maintain; they provide very little benefit. Also, an already bad relationship to the street was made worse by restricting access points and hiding the interior space. Although some changes over the past several years have softened the space somewhat, it still lacks some basic creature comforts, such as adequate lighting and clean restrooms, to make it a daily destination for the scores of office workers within easy walking distance.

County Mall, Los Angeles – County Mall, located west of Los Angeles City Hall between Broadway and Grand Avenue, is in the unenviable position of being relatively unknown. Poor graphics and signage do little to improve its profile. Although there was extensive softscape in the design, many of the original shrubs and flowers have eroded. Further, the large space is not properly organized to allow and encourage different types of activity. Adjacent uses alone are not enough to sustain the park. Unlike in Pershing Square, the design here is not the primary issue. Instead, more programming and better maintenance would make County Mall successful, and provide for a dramatic promenade connecting City Hall and the Los Angeles Music Center.

Union Square, San Francisco – Despite an expensive redesign nearly five years ago, Union Square is still not the central urban gathering space for San Francisco. Although it does serve as an incidental focus of pedestrian activity within the immediate neighborhood, the primarily hardscaped design is too fussy and too formal to encourage casual passive use and extended stays, except, perhaps, within limited zones at the fringes. The little available seating is poorly designed, intended to prevent homeless use rather than to promote use by casual park visitors. Primarily a concrete space with grass at the corners, Union Square lacks the “warmth” that makes such spaces comfortable. Imagine a Union Square with a great lawn in the middle, rather than cold (and expensive) hardscape.

Market Street, San Francisco – Punctuated by intermittent triangular plazas along most of its downtown stretches, portions of Market Street’s public space are more the domain of homeless panhandlers than workers, residents, strollers, and the like (it should be noted, however, that some parts of Market Street, such as in the Financial District, can be pleasant at times). The plazas, quality architecture, and mix of uses create potential. But the pedestrian environment discourages extended dwell times, except by the homeless, panhandlers and drug dealers, many of whom, the city has documented, commute daily to Market Street from elsewhere in the Bay Area. The design offers little in the way of seating options and softscape. Sanitation and maintenance need to be substantially upgraded and programming is needed.

Proper seating, adequate lighting, and extensive horticultural displays would serve to populate these public spaces. Proper management and maintenance would ensure long-term success. Places such as Bryant Park in Midtown Manhattan, itself the beneficiary of a remarkable turnaround masterminded by Daniel Biederman of the Bryant Park Restoration Corporation, have shown what visionary management can do to struggling urban public spaces. [Kozloff worked for BRV Corp., Biederman’s private consulting company that is independent of the Bryant Park Restoration Corporation, from 2001-2004.] Although once run on a city budget of $200,000, Bryant Park is now managed on a privately-funded budget. Biederman turned Bryant Park – once the domain of drug dealers and other such undesirables – into Manhattan’s premier address without using public coffers.

Given the warm weather, long growing seasons, and urban renaissance occurring in adjacent portions of Los Angeles and San Francisco, even in the midst of our current downturn, there are opportunities to improve the public realm so that it serves its intended purpose, including boosting civic pride and, in turn, encouraging public stewardship. And, these improvements could be made without costly redesigns and extensive capital construction. Urban environments do not need places that drain public funds and then are shunned by the citizenry; there are enough other issues for urban mayors to deal with. Great cities need comfortable and inviting gathering places that both anchor and bolster civic pride, and simultaneously provide backdrops for special events and day-to-day activity.

Howard Kozloff is Manager of Development Strategies and Director of Operations at Hart Howerton, an international strategy, planning and design firm based in New York, San Francisco and London. Kozloff is also a lecturer on Urban Real Estate Markets at the University of Pennsylvania.

Is the Stage Set for Another Housing Bubble?

Wendell Cox — Thu, 13 Aug 2009 01:25:20 -0400

Both the world and the nation remain in the midst of the greatest economic downturn since the Great Depression. But with all the talk of “green shoots” and a recovery housing market, we may in fact be about to witness another devastating bubble.

As we well know, the Great Recession was set off the by the bursting of the housing bubble in the United States. The results have been devastating. The value of the US housing stock has fallen 9 quarters in a row, which compares to the previous modern record of one (Note). This decline has been a driving force in a 25 percent or a $145,000 average decline (inflation adjusted) in net worth per household in less than two years (Figure 1). The Great Recession has fallen particularly hard on middle-income households, through the erosion of both house prices and pension fund values.

This is no surprise. The International Monetary Fund has noted that deeper economic downturns occur when they are accompanied by a housing bust. This reality is not going to change quickly.

How did the supposedly plugged-in economists and traders in the international economic community fail to recognize the housing bubble or its danger to the world economy? It is this failure that led Queen Elizabeth II to ask the London School of Economics (LSE) “why did noboby notice it?”. Eight long months later, the answer came in the form of a letter signed by Tim Besley, a member of the Monetary Policy Committee of the Bank of England (the central bank of the United Kingdom) and Professor Peter Hennessey on behalf of the British Academy.

The letter indicated that some had noticed what was going on,

But against those who warned, most were convinced that banks knew what they were doing. They believed that the financial wizards had found new and clever ways of managing risks. Indeed, some claimed to have so dispersed them through an array of novel financial instruments that they had virtually removed them. It is difficult to recall a greater example of wishful thinking combined with hubris.

The letter concluded noting that the British Academy was hosting seminars to examine the “Never Again” question.

Among those that noticed were the Bank of International Settlements (the central bank of central banks) in Basle, which raised the potential of an international financial crisis to be set off by a bursting of the US housing bubble. Others, like Alan Greenspan, noticed, telling a Congressional Committee that “there was some froth” in local markets. Others, across the political spectrum, like Nobel Laureate Paul Krugman, Thomas Sowell and former Reserve Bank of New Zealand Governor Donald Brash both noticed and understood.

Missing the Housing Market Fundamentals: The housing market fundamentals were clear. With more liberal credit, the demand for owned housing increased markedly, virtually everywhere. In all markets of the United Kingdom and Australia, house prices rose so much that the historic relationship with household incomes was shattered. The same was true in some US markets, but not others (Figure 2).

On average, major housing markets in the United Kingdom experienced median house prices that increased the equivalent of three years of median household income in just 10 years (to 2007). The increases were pervasive; no major market experienced increases less than 2.5 years of income, while in the London area, prices rose by 4 years of household income. In Australia, house prices increased the equivalent of 3.3 years of income. Like the UK, the increases were pervasive. All major markets had increases more than double household incomes.

Based upon national averages, the inflating bubble appears to have been similar, though a bit more muted in the United States, with an average house price increase equal to 1.5 years of household income. But the United States was a two-speed market, one-half of which experienced significant house price increases and the other half which did not. In the price escalating half, house prices increased an average of 2.4 times incomes. The largest increases occurred in Los Angeles, San Francisco and San Diego, where house prices rose the equivalent of 5 years income. In the other half of the market, house prices remained within or near historic norms relative to incomes. A similar contrast is evident in Canadian markets. In some, house prices reached stratospheric and unprecedented highs, while in others, historic norms were maintained.

Underlying Demand: Greater Where Prices Rose Less: The difference between the two halves of the market was not underlying demand. Overall, the half of the markets with more stable house prices indicated higher underlying demand than the half with greater price escalation. Overall, the housing markets with higher cost escalation lost more than 2.5 million domestic migrants from 2000 to 2007, while the more stable markets gained more than 1,000,000 (Calculated from US Bureau of the Census data).

The Difference: Land Use Regulation: The primary reason for the differing house price increases in US markets was land use regulation, points that have been made by Krugman and Sowell. This is consistent with a policy analysis by the Dallas Federal Reserve Bank, which indicated that the higher demand from more liberal credit could either manifest itself either in house price increases or in construction of new housing. Virtually all of the markets with the largest housing bubbles had more restrictive land use regulation.

These regulations, such as urban growth boundaries, building moratoria and other measures that ration land and raise its price collaborated to make it impossible for such markets to accommodate the increased demand without experiencing huge price increases (these strategies are often referred to as “smart growth”). In the other markets, less restrictive land use regulations allowed building new housing on competitively priced land and kept house prices under control. The resulting price distortions leads to greater speculation, as has been shown by economists Edward Glaeser and Joseph Gyourko.

A Wheel Disengaged from the Rudder: The normal policy response of interest rate revisions had little potential impact on the price escalating half of the housing market, because of the impact of restrictive state, metropolitan and local housing regulations. These regulations materially prohibited building on perfectly suitable land and thus drove the price up on land where building was permitted. So, while Greenspan and the Fed saw the “froth” in local markets, they missed its cause. The British Academy letter to the Queen is similarly near-sighted. Restrictive land use regulation has left central bankers in a position like a ship’s captain trying to steer a massive vessel with a wheel that is no longer connected to the rudder

The Bubble Bursts: When teaser mortgage rates expired and other interest rates reset, a flood of foreclosures occurred, which led to house price declines that negated much of the housing bubble price increases in the United States. The most significant of these took place in restrictive markets, especially in California and Florida. By September of 2008, the average house had lost nearly $100,000 of its value in the more restrictively regulated half of the market, and averaged $175,000 in these “ground zero” markets. These losses were unprecedented and far beyond the ability of mortgage holders to sustain. This led to “Meltdown Monday,” when Lehman Brothers collapsed and the Great Recession ensued.

By comparison, the losses in the more stable half of the market were modest, averaging approximately one-tenth that of the price escalating half.

Can We Avoid Another Bubble? The experience of the Great Recession underscores the importance of having a Fed and other central banks that not only pay attention, but also understand. This requires “getting their hands dirty” by looking beyond macro-economic aggregates and national averages.

This does not require an increasing of authority of the Federal Reserve or other central banks. As Donald L. Luskin suggested in The Wall Street Journal, we “don’t want the Fed controlling asset prices.” All we really need is for the Fed and other central banks to notice and understand what is going on, not only in housing, but in other markets as well.

A public that depends upon central banks to minimize the effect of downturns deserves institutions that are not only paying attention, but also understand what is driving the market. The Fed should use its bully pulpit, both privately and publicly, to warn state and local governments of the peril to which their regulatory policies imperil the economy.

There are strong indications that future housing bubbles could be in the offing. Not more than a year ago, the state of California enacted even stronger land use legislation (Senate Bill 375), which can only heighten the potential for another California-led housing bust in the years to come, while reducing housing affordability in the short run. There is a strong push by interest groups in Washington to go even further (see the Moving Cooler report), making it nearly impossible for housing to be built on most urban fringe land. This is a prescription for another bubble, this time one that would include the entire country, not just parts of it.

Note: Quarterly data has been available since 1952 from the Federal Reserve Board Flow of Funds accounts

Immigrants Are ‘Greening’ our Cities, How About Giving them a Break?

Wed, 12 Aug 2009 00:56:36 -0400

Debate about immigration and the more than 38 million foreign born residents who have arrived since 1980 has become something of a national pastime. Although the positive impact of this population on the economy has been questioned in many quarters, self-employment and new labor growth statistics illustrate the increasingly important role immigrants play in our national economy.

There has also been an intense debate within the environmental community about the impact of immigrants. Yet there has been relatively little research done about how immigrants get to work and where most immigrants live. As the ‘green’ movement in the U.S. has increasingly pushed for higher-density housing and transit-oriented development in order to improve public transportation (specifically rail), few have considered how immigrants use transit and what might be the best way to accommodate their needs. In fact, all too often, “green” policies advocate transit choices – favoring such things as light rail over buses – that may work against the interests of immigrant transit riders.

Based on the 2007 American Community Survey, 117.3 million native-born and 21.9 million foreign-born individuals commuted to work. As Table (1) illustrates, a higher percentage of immigrants rode buses (5.7% vs. 2.1%) and subways (4.1% vs. 1.2%) and many walked to work (3.7% vs. 2.7%). A much smaller percentage drove to work (79.8% vs. 87.7%). Unfortunately, despite their higher usage of alternate means of transportation to work, or perhaps because of it, the commute to work time was on average longer for the foreign-born commuters than their native-born counterparts (28.8 minutes versus 24.7).

Clearly in terms of using public transportation, immigrants are a bit greener than those born here. But why? Is this habit formed elsewhere? In that case, are recent immigrants even more likely to use public transportation than those who immigrated earlier? Or is it their income that affects their transportation choices?

Table (2) provides the answer to the first question. Recent arrivals are clearly less likely to drive to work and have a higher propensity toward using public transportation, compared to all foreign-born individuals (and significantly more than the native-born). Additionally, over 6% of the immigrants who have arrived since 2000 walk to work.

Overall, more than a quarter of the immigrants who have arrived since 2000 use an alternative mode of transportation to work. If the rest of America could do the same, we’d be a bit ‘greener’ already. However, it seems that as immigrants stay longer, they eventually tend to use cars more often because automobile usage allows for access to better jobs, better shops, and better schools. For example, immigrants who arrived in the U.S. in the 1970s (which means they have been here over three decades) drive a bit more and use public transportation less.

Even so, their rates are still slightly better than the native-born (compare Tables 1 and 2). This may be in part because of their lower incomes (see Table 3) yet at every level of income they are still more likely to take transit. Table (4) illustrates this point by grouping commuters into income categories and their nativity. In every income category, immigrants use their cars less and are more likely to use public transportation, even though their car ridership increases with income.

The message from these statistics is loud and clear. Immigrants are more likely to ride public transportation than those born in the U.S., regardless of their income. The ones arriving more recently are even more likely to do so. Overall, this suggests that familiarity with public transportation, combined with the effects of income and place of residence, has made the immigrants’ lives in the U.S. a bit ‘greener’ than those of the native-born. In fact, one factor that may contribute to their higher usage of public transportation stems from their living in neighborhoods whose densities are, on average, 2.5 times higher than those of the native-born. Immigrants, in essence, are doing precisely what planners want the rest of us to do.

Moving to Southern California

Southern California still stands as the icon of immigration and multiculturalism and is home to a large number of immigrants in the urban region that extends from eastern Ventura County to the southern tip of Orange County and the Inland Empire. As Figure (1) illustrates, in a number of neighborhoods in Southern California, the foreign-born population outnumbers the native-born by large margins. For example, in areas west and south of downtown Los Angeles, immigrants are more than three times as numerous as the native-born.

A comparison of Figures (2) and (3) suggests a wide geographic difference between the native-born and the foreign-born and how long it takes them to get to work. The foreign-born population experiences much longer commutes in highly urbanized areas around downtown Los Angeles and the San Gabriel Valley. Conversely, in the more rural areas, such as northern Ventura County, the foreign-born population experiences shorter commutes compared to their native-born counterparts.

Figure (4) provides a clear comparison of average travel time to work for both populations (visually comparing Figures 2 and 3). In all areas appearing in the darkest shade of green, the foreign-born population experienced shorter commutes compared to the native-born. These shorter commutes, however rarely occur in high density areas (compare with Figure 5). Conversely, in areas such as Santa Monica, the Wilshire corridor, East Los Angeles, and southern sections of downtown Los Angeles, the foreign-born population experiences much longer commutes than the native-born.

Statistically speaking, there is a positive relationship between average travel time and density – i.e., the higher the density, the higher the reported average travel time. For the foreign-born population who live in higher density areas, this means much longer commutes, a problem caused by a number of factors, including their dependency on slower public transportation systems and the long distances they have to travel to reach job centers outside the city center.

Figure (6) illustrates the geographic pattern of bus ridership among the foreign-born commuters. As with national patterns, immigrants in Southern California are more likely to settle in high density areas and use public transportation to work, but unfortunately, they also suffer much longer commutes.

What should the policy responses be? One may be to promote increased car ownership among immigrants and low-income populations in the U.S. This may be objectionable to some environmentalists and planners, but it’s clear that those people who live by the principles of higher density and public transportation use are not rewarded and indeed suffer longer commutes.

An even more relevant question is why advocates for public transportation focus disproportionately on rail, when buses are so frequently used by low income populations, including immigrants. In California, these riders outnumber the native-born on buses. The situation is reversed on rail and subways. An intelligent policy response to public transportation planning would suggest that buses should receive much more attention. Major metropolitan areas have become polycentric in their employment patterns, and most major employment centers are located at long distances from the central city. Specially-designed buses for reverse commutes could help alleviate transportation problems while helping working immigrants reach their destinations more quickly.

This challenges the priorities of some public transport advocates, who tend to focus on very expensive rail projects designed primarily to draw more middle class, largely native-born riders who commute to places like downtown Los Angeles. Meanwhile those ‘new’ Americans who already live by a number of ‘green’ standards suffer from the misallocation of transit resources. Those who are already doing what we hope the middle class will do deserve better.

Ali Modarres is an urban geographer in Los Angeles and co-author of City and Environment.

Why The 'Livable Cities' Rankings Are Wrong

Joel Kotkin — Tue, 11 Aug 2009 00:15:50 -0400

Few topics stir more controversy between urbanists and civic boosters than city rankings. What truly makes a city "great," or even "livable"? The answers, and how these surveys determine them, are often subjective, narrow or even misguided. What makes a "great" city on one list can serve as a detriment on another.

Recent rankings of the "best" cities around the world by the Economist Intelligence Unit, Monocle magazine and the Mercer quality of life surveys settled on a remarkably similar list. For the most part, the top ranks are dominated by well-manicured older European cities such as Zurich, Geneva, Vienna, Copenhagen, Helsinki and Munich, as well as New World metropolises like Vancouver and Toronto; Auckland, New Zealand; and Perth and Melbourne in Australia.

Only Monocle put a truly cosmopolitan world city – Tokyo – near the top of its list. The Economist rankings largely snubbed American cities – only Pittsburgh made it anywhere near the top, at No. 29 out of 140. The best we can say is most American cities did better than Harare, Zimbabwe, which ran at the bottom. Honolulu got a decent No. 11 on the Monocle list and broke into the top 30 on Mercer's, as did No. 29 San Francisco. But regarding American urban boosters, that's all, folks.

To understand these rather head-scratching results, one must look at the criteria these surveys used. Cultural institutions, public safety, mass transit, "green" policies and other measures of what is called "livability" were weighted heavily, so results skewed heavily toward compact cities in fairly prosperous regions. Most of these regions suffer only a limited underclass and support a relatively small population of children. In fact, most of the cities are in countries with low birthrates – Switzerland's median fertility rate, for example, is about 1.4, one of the lowest on the planet and a full 50% below that of the U.S.

These places make ideal locales for groups like traveling corporate executives, academics and researchers targeted by such surveys. With their often lovely facades, ample parks and good infrastructure, they constitute, for the most part, a list of what Wharton's Joe Gyourko calls "productive resorts," a sort of business-oriented version of an Aspen or Vail in Colorado or Palm Beach, Fla. Honolulu is an exception, more a vacation destination than a bustling business hub.

Yet are those the best standards for judging a city? It seems to me what makes for great cities in history are not measurements of safety, sanitation or homogeneity but economic growth, cultural diversity and social dynamism. A great city, as Rene Descartes wrote of 17th century Amsterdam, should be "an inventory of the possible," a place of imagination that attracts ambitious migrants, families and entrepreneurs.

Such places are aspirational – they draw people not for a restful visit or elegant repast but to achieve some sort of upward mobility. By nature these places are chaotic and often difficult to navigate. Ambitious people tend to be pushy and competitive. Just think about the great cities of history – ancient Rome, Islamic Baghdad, 19th century London, 20th century New York – or contemporary Los Angeles, Houston, Shanghai and Mumbai.

These represent a far different urbanism than what one finds in well-organized and groomed Zurich, Vienna and Copenhagen. You would not call these cities and their ilk with metropolitan populations generally less than 2 million, "bustling." Perhaps a more fitting words would be "staid" and "controlled."

Peace and quiet is very nice, but it doesn't really encourage global culture or commerce. Growth and change come about when newcomers jostle with locals not just as tourists, or orbiting executives, but as migrants. Great cities in their peaks are all about this kind of yeasty confrontation.

Alas, comfort takes precedence over dynamism in these new cities. Take the immigration issue: Unlike Amsterdam in its heyday or London or New York today, most northern European countries have turned hostile to immigration and many have powerful nativist parties. These are directed not against elite corporate executives or academics, but newcomers from developing countries. In some cases, resentment is stoked by immigrants taking advantage of well-developed welfare systems that worked far better in a homogeneous country with shared attitudes of social rights and obligations.

Of course, these cities aren't total deadweights. After all, Switzerland has its banks, Helsinki boasts Nokia and Denmark remains a key center of advanced and green manufacturing technology. For its part, Vancouver gets Americans to shoot cheap movie and TV shows with massive tax breaks and will host the Winter Olympics. But none can be considered major shapers of the modern world economy.

The one American city favored by The Economist, Pittsburgh, represents a pale – and less attractive – version of these top-ranked European, Canadian or Australian cities. Its formerly impressive array of headquarters has shrunk to a handful. Once the capital of steel, it now pretty much depends on nonprofits, hospitals and universities.

You will be hearing a lot more about Pittsburgh – the city has a prodigious PR machine funded largely by nonprofit foundations and universities – as it gets ready to host the G-20 meeting next month. Fans claim that the former steel town has developed a stable – if hardly dynamic – economy. Its torpidity is being sold a strength; boom-resistant in the best of times, it's also proved relatively recession-proof as well.

In this sense, Pittsburgh represents the American model of the slow-growth European city. This may appeal to those doing quality-of-life rankings, but not to those who have been fleeing the Steel City for other places for generations. Immigrants are hardly coming in droves either – Pittsburgh ranks near last among major metropolitan areas in percentage of foreign-born residents. As longtime local columnist and resident Bill Steigerwald notes, since 1990 more Pittsburghers have been dying than being born. If this represents America's urban future, perhaps it's one that takes its inspiration from Alan Weisman's "A world without us."

Yet the future of urbanism, here and abroad, will not be Pittsburgh. Based on current preferences, something like 20 million – or more – people will have moved to U.S. cities by 2050. Most will likely settle in more dynamic places like New York, Los Angeles, Houston, Phoenix, Dallas, Chicago and Miami. These cities have become magnets for restless populations, both domestic and foreign-born. They also contain all the clutter, constant change, discomfort and even grime that characterize great cities through history.

But it's economics that drives migrants to these dirtier, busier metropolitan centers. Many of the cities at the top of the livability lists, by contrast, are also among the world's most expensive. They generally also have high taxes and relatively stagnant job markets.

Many U.S. cities, however, offer far more materially to their average residents than their elite European counterparts do. American cities, when assessed by purchasing-power parity, notes demographer Wendell Cox, do very well indeed. Viewed this way, the U.S. boasts eight of the top 10 – and 37 of the top 50 – metropolitan regions in terms of per capita income.

The top city on Cox's list, San Jose, Calif., epitomizes both the strengths and weaknesses of the American city. The heartland of Silicon Valley, the San Jose region has generated one of the world's most innovative – and well-paid – economies. On the other hand, its mass transit usage is minuscule, its cultural attributes measly and its downtown hardly a tourist destination.

Meanwhile, pricey and scenic Zurich, No. 2 on the Mercer list and No. 10 on The Economist rankings, comes in 74th when considering adjusted per capita income. Economist favorite Vancouver, one of the most expensive second-tier cities on the planet, ranks 71st. For the average person seeking to make money and improve his or her economic status, it usually pays not to settle in one of the world's "most livable" cities.

This is not to say that rambunctious urban centers like Los Angeles, New York or London couldn't learn from their more "livable" counterparts. Anyone who has braved the maddening crowds in Venice Beach, Times Square or London's Piccadily knows a city can have too much of a good thing. Los Angeles could use a more efficient bus system. Better-maintained subways and commuter trains in New York would be welcome by millions as they would in Greater London.

Ultimately great cities remain, almost by necessity, raw (and at times unpleasant) places. They are filled with the sights and smells of diverse cultures, elbowing streetwise entrepreneurs and the inevitable mafiosi. They all suffer the social tensions that come with rapid change and massive migration. New York, Los Angeles, London, Shanghai, Mumbai or Dubai may not shoot to the top of more elite, refined rankings, but they contain the most likely blueprint of our urban future.

This article originally appeared at Forbes.

Can Obama be deprogrammed?

Michael Lind — Mon, 10 Aug 2009 12:53:43 -0400

In my first foray into political life in the 1970s, I worked during college on the staff of a liberal Democrat in the Texas state Senate. Only a few years earlier, Patty Hearst had been kidnapped and brainwashed by the Symbionese Liberation Army, and a moral panic about cults seducing college kids was sweeping the nation. One result was the rise of a new, thankfully ephemeral profession: "deprogrammers" who for pay would kidnap a young person from a cult and break the spell, by means of isolation, interrogation and maybe reruns of "The Waltons."

A reactionary Republican state senator from the Houston area, who was heartily despised by my senator, introduced a bill granting parents the right to hire deprogrammers to kidnap adult children who belonged to what the parents regarded as cults and then confine them in motels for several weeks, subject to psychological coercion, without notifying the authorities. Needless to say, this deprogramming law was the greatest threat to the tradition of habeas corpus until another reactionary Texan was installed in the White House in 2001. The bill was laughed to death, when, during a hearing, the sponsor was asked if it could be used to deprogram young people who had joined a certain well-known cult. "Why, yes, Senator," the Republican replied, "it would apply to cults like the Unitarians."

Boy, do we need deprogrammers now, to liberate Barack Obama from the cult of neoliberalism.

By neoliberalism I mean the ideology that replaced New Deal liberalism as the dominant force in the Democratic Party between the Carter and Clinton presidencies. In the Clinton years, this was called the "Third Way." The term was misleading, because New Deal liberalism between 1932 and 1968 and its equivalents in social democratic Europe were considered the original "third way" between democratic socialism and libertarian capitalism, whose failure had caused the Depression. According to New Deal liberals, the United States was not a "capitalist society" or a "market democracy" but rather a democratic republic with a "mixed economy," in which the state provided both social insurance and infrastructure like electric grids, hydropower and highways, while the private sector engaged in mass production.

When it came to the private sector, the New Dealers, with some exceptions, approved of Big Business, Big Unions and Big Government, which formed the system of checks and balances that John Kenneth Galbraith called "countervailing power." But most New Dealers dreaded and distrusted bankers. They thought that finance should be strictly regulated and subordinated to the real economy of factories and home ownership. They were economic internationalists because they wanted to open foreign markets to U.S. factory products, not because they hoped that the Asian masses some day would pay high overdraft fees to U.S. multinational banks.

New Dealers approved of social insurance systems like Social Security and Medicare, which were rights (entitlements) not charity and which mostly redistributed income within the middle class, from workers to nonworkers (the retired and the temporarily unemployed). But contrary to conservative propaganda, New Deal liberals disliked means-tested antipoverty programs and despised what Franklin Roosevelt called "the dole." Roosevelt and his most important protégé, Lyndon Johnson, preferred workfare to welfare. They preferred a high-wage, low-welfare society to a low-wage, high-welfare society. To maintain the high-wage system that would minimize welfare payments to able-bodied adults, New Deal liberals did not hesitate to regulate the labor market, by means of pro-union legislation, a high minimum wage, and low levels of immigration (which were raised only at the end of the New Deal period, beginning in 1965). It was only in the 1960s that Democrats became identified with redistributionist welfarism -- and then only because of the influence of the New Left, which denounced the New Deal as "corporate liberalism."

Between the 1940s and the 1970s, the New Deal system -- large-scale public investment and R&D, regulated monopolies and oligopolies, the subordination of banking to productive industry, high wages and universal social insurance -- created the world's first mass middle class. The system was far from perfect. Southern segregationist Democrats crippled many of its progressive features and the industrial unions were afflicted by complacency and corruption. But for all its flaws, the New Deal era is still remembered as the Golden Age of the American economy.

And then America went downhill.

The "stagflation" of the 1970s had multiple sources, including the oil price shock following the Arab oil embargo in 1973 and the revival of German and Japanese industrial competition (China was still recovering from the damage done by Mao). During the previous generation, libertarian conservatives like Milton Friedman had been marginalized. But in the 1970s they gained a wider audience, blaming the New Deal model and claiming that the answer to every question (before the question was even asked) was "the market."

The free-market fundamentalists found an audience among Democrats as well as Republicans. A growing number of Democratic economists and economic policymakers were attracted to the revival of free-market economics, among them Obama's chief economic advisor Larry Summers, a professed admirer of Milton Friedman. These center-right Democrats agreed with the libertarians that the New Deal approach to the economy had been too interventionist. At the same time, they thought that government had a role in providing a safety net. The result was what came to be called "neoliberalism" in the 1980s and 1990s -- a synthesis of conservative free-market economics with "progressive" welfare-state redistribution for the losers. Its institutional base was the Democratic Leadership Council, headed by Bill Clinton and Al Gore, and the affiliated Progressive Policy Institute.

Beginning in the Carter years, the Democrats later called neoliberals supported the deregulation of infrastructure industries that the New Deal had regulated, like airlines, trucking and electricity, a sector in which deregulation resulted in California blackouts and the Enron scandal. Neoliberals teamed up with conservatives to persuade Bill Clinton to go along with the Republican Congress's dismantling of New Deal-era financial regulations, a move that contributed to the cancerous growth of Wall Street and the resulting global economic collapse. As Asian mercantilist nations like Japan and then China rigged their domestic markets while enjoying free access to the U.S. market, neoliberal Democrats either turned a blind eye to the foreign mercantilist assault on American manufacturing or claimed that it marked the beneficial transition from an industrial economy to a "knowledge economy." While Congress allowed inflation to slash the minimum wage and while corporations smashed unions, neoliberals chattered about sending everybody to college so they could work in the high-wage "knowledge jobs" of the future. Finally, many (not all) neoliberals agreed with conservatives that entitlements like Social Security were too expensive, and that it was more efficient to cut benefits for the middle class in order to expand benefits for the very poor.

The transition from New Deal liberalism to neoliberalism began with Carter, but it was not complete until the Clinton years. Clinton, like Carter, ran as a populist and was elected on the basis of his New Deal-ish "Putting People First" program, which emphasized public investment and a tough policy toward Japanese industrial mercantilism. But early in the first term, the Clinton administration was captured by neoliberals, of whom the most important was Treasury Secretary Robert Rubin. Under Rubin's influence, Clinton sacrificed public investment to the misguided goal of balancing the budget, a dubious accomplishment made possible only by the short-lived tech bubble. And Rubin helped to wreck American manufacturing, by pursuing a strong dollar policy that helped Wall Street but hurt American exporters and encouraged American companies to transfer production for the U.S. domestic market to China and other Asian countries that deliberately undervalued their currencies to help their exports.

By the time Barack Obama was inaugurated, the neoliberal capture of the presidential branch of the Democratic Party was complete. Instead of presiding over an administration with diverse economic views, Obama froze out progressives, except for Jared Bernstein in the vice-president's office, and surrounded himself with neoliberal protégés of Robert Rubin like Larry Summers and Tim Geithner. The fact that Robert Rubin's son James helped select Obama's economic team may not be irrelevant.

Instead of the updated Rooseveltonomics that America needs, Obama's team offers warmed-over Rubinomics from the 1990s. Consider the priorities of the Obama administration: the environment, healthcare and education. Why these priorities, as opposed to others, like employment, high wages and manufacturing? The answer is that these three goals co-opt the activist left while fitting neatly into a neoliberal narrative that could as easily have been told in 1999 as in 2009. The story is this: New Dealers and Keynesians are wrong to think that industrial capitalism is permanently and inherently prone to self-destruction, if left to itself. Except in hundred-year disasters, the market economy is basically sound and self-correcting. Government can, however, help the market indirectly, by providing these three public goods, which, thanks to "market failures," the private sector will not provide.

Healthcare? New Deal liberals favored a single-payer system like Social Security and Medicare. Obama, however, says that single payer is out of the question because the U.S. is not Canada. (Evidently the New Deal America of FDR and LBJ was too "Canadian.") The goal is not to provide universal healthcare, rather it is to provide universal health insurance, by means that, even if they include a shriveled "public option," don't upset the bloated American private health insurance industry.

Education? In the 1990s, the conventional wisdom of the neoliberal Democrats held that the "jobs of the future" were "knowledge jobs." America's workers would sit in offices with diplomas on the wall and design new products that would be made in third-world sweatshops. We could cede the brawn work and keep the brain work. Since then, we've learned that brain work follows brawn work overseas. R&D, finance and insurance jobs tend to follow the factories to Asia.

Education is also used by neoliberals to explain stagnant wages in the U.S. By claiming that American workers are insufficiently educated for the "knowledge economy," neoliberal Democrats divert attention from the real reasons for stagnant and declining wages -- the offshoring of manufacturing, the decline of labor unions, and, at the bottom of the labor market, a declining minimum wage and mass unskilled immigration. One study after another since the 1990s has refuted the theory that wage inequality results from skill-biased technical change. But the neoliberal cultists around Obama who write his economic speeches either don't know or don't care. Like Bill Clinton before him, Barack Obama continues to tell Americans that to get higher wages they need to go to college and improve their skills, as though there weren't a surplus of underemployed college grads already.

Environment? Here the differences between the New Deal Democrats and the Obama Democrats could not be wider. Their pro-industrial program did not prevent New Deal Democrats from being passionate about resource conservation and wilderness preservation. They did not hesitate to use regulations to shut down pollution. And their approach to energy was based on direct government R&D (the Manhattan Project) and direct public deployment (the TVA).

Contrast the straightforward New Deal approaches with the energy and environment policies of Obama and the Democratic leadership, which are at once too conservative and too radical. They are too conservative, because cap and trade relies on a system of market incentives that are not only indirect and feeble but likely to create a subprime market in carbon, enriching a few green profiteers. At the same time, they are too radical, because any serious attempt to shift the U.S. economy in a green direction by hiking the costs of non-renewable energy would accelerate the transfer of U.S. industry to Asia -- and with it not only industry-related "knowledge jobs" but also the manufacture of those overhyped icons of the "green economy," solar panels and windmills.

While we can't go back to the New Deal of the mid-20th century in its details, we need to re-create its spirit. But short of confining them in motel rooms and making them watch newsreels about the Hoover Dam, Glass-Steagall, the TVA and the Manhattan Project, is it possible to liberate President Obama and the Democratic leadership from the cult of neoliberalism?

This article first appeared at Salon.com

Michael Lind is Whitehead Senior Fellow at the New America Foundation and Director of the American Infrastructure Initiative.

Official White House Photo by Pete Souza.

Origins and Growth of Al Capone’s Outfit: Chicago’s First Ward Democratic Organization and its Aftermath

Mon, 10 Aug 2009 02:07:00 -0400

Barack Obama ran for President with his headquarters in downtown Chicago. Obama's election night victory speech was just blocks away in Chicago's Grant Park. To historians of organized crime both locations are located in a significant place: Chicago's old First Ward. This valuable plot of land is where Chicago's Democratic Machine and Al Capone's criminal organization both began. The connection between the two is of great historical significance. Why? Because the Chicago Mob is nothing but an outgrowth of Chicago's old First Ward Democratic Organization.

The First Ward contained not only the big office buildings of downtown Chicago but also the near south side which contained the Levee (which was America's premier vice district for prostitution and gambling) in the early part of the twentieth century. Crime researcher Ovid Demaris explains the origins of the First Ward in the first decade of the Twentieth Century:

The chain of command on the levee started at the top with committeeman Michael "Hinky Dink" Kenna and Alderman Bathouse John Coughlin, bosses of the First Ward, the wealthiest plot of real estate (it contains the Loop) in the Midwest. Their bagman was Ike Bloom, a ward heeler and proprietor of a busy dance hall. The next in command was Big Jim Colosimo, an Italian pimp and restaurateur, who started out as a street cleaner. When he married a madam with a pair of dollar houses, Hinky Dink made him a precinct captain in charge of getting out the Italian vote.

By 1912, Jim Colosimo owned 200 brothels, many located in the First Ward. Colosimo is considered by the FBI to be the first head of the Chicago Mob. His base – organizing street sweepers – presaged the powerful role of public unions in Chicago nearly a century later.

Another important First Ward Democratic precinct captain with connections to Kenna and Coughlin was Harry Guzik. Guzik, like Colosimo, was a pimp who passed his political connections on to his son, Jake. Jake Guzik, also a pimp, became the Chicago Mob's accountant until his death in 1956. Guzik (note 1) was considered the number two man in the Chicago Mob and the financial brains behind the operation until his death in 1956.

In 1909, Colosimo reached out for help in running his expanding empire. New York street gang leader John Torrio came to Chicago to help manage Colosimo's empire from Colosimo's Cafe at 2126 South Wabash Avenue at the south end of the First Ward.

In 1919, on the eve of Prohibition, Torrio wanted the operation to expand into bootlegging. Colosimo was content with the money he was making from the existing rackets. So, Torrio had Colosimo executed. Before Colosimo was executed, Torrio had brought to Chicago a street thug he mentored in New York: Al Capone. With Colosimo, out of the way, Torrio moved the operation headquarters a few blocks away to the 2222 S. Wabash. Capone acted as the underboss of the operation.

Torrio and Capone no longer needed to take orders from Kenna and Coughlin of the First Ward. Over time, as the Chicago Mob became wealthy, they began to tell Kenna and Coughlin how to operate. Jake Guzik became the de facto political boss of the First Ward issuing orders to Kenna and Coughlin.

By 1925, Torrio stepped down as boss after an assassination attempt and left Chicago. Al Capone took over. The mob extended its political influence into other Chicago wards, to the surrounding suburbs of Chicago and even downstate.

Capone's reign only lasted until 1932, but his legacy and organization were just beginning. Robert Cooley and Hillel Levin in their monumental book When Corruption Was King explain:

Oddly enough, far less is known about his successors and their grip on the city during the last half of the twentieth century. But that is when Chicago’s Mafia became the single most powerful organized crime family in American history. While Mob bosses knocked each other off on the East Coast, in Chicago they united into a monolithic force called the Outfit...By the Seventies, the FBI reported that Chicago’s Mob controlled all organized criminal activity west of the Mississippi – including and especially Las Vegas. Millions were skimmed from casinos like the Tropicana and the Stardust, and bundles of cash, stuffed in green army duffel bags, found their way back to the Outfit’s bosses.

By the 1950s, the Chicago Mob realized it would be more efficient to send one of their own "made members" to City Council (Note 2). John D'Arco was a high ranking made member elected to City Council in 1951. D'Arco also became the First Ward Democratic Committeman, the boss of the precinct captains. He got caught by the FBI meeting with Sam Gianciana near Chicago's O'Hare Airport, in 1962, and stepped down from City Council but kept his ward committeemanship until the 1990s. He was a regular visitor to Mayor Jane Byrne's office in the late 1970s and early 1980s.

In 1968, the Chicago Mob sent Fred Roti, one of their most effective high ranking made members, to the City Council. Roti grew up in the First Ward just blocks away from Capone headquarters. He was a precinct captain for John D' Arco. Roti's success on City Council surpassed John D'Arco. By 1982, the Chicago Tribune reported that Roti was Chicago's most powerful City Council member:

Roti's name is always called first during council roll calls, and he revels in that privilege. His initial response gives other administration aldermen their cue as to what Roti – and, therefore, the mayor – wants. It's often said that roll calls could stop after Roti votes – the outcome is already known. Roti, an affable fellow, controls the Chicago City Council with an iron fist.

According to the Justice Department, Roti was an important co-conspirator in turning a large segment of Chicago's organized labor movement into a racketeering enterprise.

In the 1980s, criminal defense lawyer Robert Cooley wore a wire on Alderman Roti and his boss Pat Marcy. Cooley became the star witness in a series of sensational trials from an investigation titled Operation Gambat. Roti was indicted in 1990 and "was convicted of RICO conspiracy, bribery and extortion regarding the fixing of criminal cases in the Circuit Court of Cook County, including murder cases involving organized crime members or associates, and was sentenced to 48 months' imprisonment." John D'Arco's son was also indicted and convicted of taking bribes. John D'Arco Jr. was the Chicago Mob's man in Springfield, rising to the position of Assistant Majority Leader of the Illinois Senate.

The Chicago Mob was never the same. Without Roti and Marcy, the judges could no longer be bribed into allowing the mob hitmen back on the street. The regular killings, to get people in line, stopped. The First Ward got mapped out of existence in the early 1990s. Senior FBI agent William Roemer explained the devastation to the Chicago Mob by Robert Cooley’s “Operation Gambat”:

As a result of Gambat, Tony Accardo's people were deeply wounded. For decades Pat Marcy and John D'Arco, Sr., has been to Accardo what Hinky Dink and Bathhouse John were to Colosimo, Capone, and Nitti. Since 1950 – some forty years – John D' Arco had been there. They were themselves a great one-two punch for Accardo and for Greasy Thumb...

So, the Chicago Mob has been in retreat. But, it still exists and has great access to power.

In 1999, at Fred Roti's funeral, his best friend on City Council Alderman Bernard Stone spoke. Alderman Stone, set the record straight in case there was any illusion of how important Fred Roti was in the history of Chicago:

"Our skyline should say 'Roti' on it," Stone said at the funeral. "If not for Fred Roti, half the buildings in the Loop would never have been built."

At the time of his indictment in 1990, Roti was Chairman of the City Council Buildings Committee. This is the key committee in Chicago that determines the height of buildings.

After Fred Roti's funeral, his body was laid to rest at the Mount Carmel Cemetery in the Chicago suburb of Hillside. Roti was buried in Section 34 of the Cemetery. Just a short walk from Roti's casket in Section 35 of the Cemetery is Al Capone's grave.

The man who brought down the First Ward, FBI informant Robert Cooley, is back in the news. Days after Governor Rod Blagojevich was arrested, WLS TV reported that according to Cooley, Blagojevich was bookmaker for the Chicago Mob. WLS TV did a follow up report in which a former senior FBI agent confirmed that Cooley made bookmaking allegations about Blagovich in the 1980s. This isn't the only mob tie concerning Blagojevich. His wife is related to the recently deceased Chicago Mob Consiglerie Alphonse Tornabene.

Lurking in the background of the Blagojevich criminal case is a casino license that was to be auctioned off. The license was by far the most valuable asset Blagojevich had control over. Blagojevich wanted the casino built in the Chicago Mob dominated suburb of Rosemont. The Chicago Mob also wanted the casino built there. In November of 2005, Blagojevich brought in Eric Holder to give Rosemont a clean bill of health. Holder and Blagojevich had a news conference outside the Thompson Building, which is in the old First Ward.

The mob connection extends beyond the Blagojevich case. In their drive to retain President Obama's U.S. Senate seat, the frontrunner is Obama’s friend, Alexi Giannoulis. He is so tainted by Chicago Mob allegations that Illinois Democratic Party Chairman Mike Madigan refused to endorse him in a past race for State Treasurer.

As the Senate race heats up, these connections between the Chicago machine and the mob could prove embarrassing at least for the man the machine has helped elevate to the White House.

Note 1: Jake “Greasy Thumb” Guzik earned his nickname from counting stacks of money and bribing public officials.

Note 2: In preparation for this article, a former FBI agent identified John D’ Arco Sr. as a high ranking made member of the Chicago Mob. His status was at the level of a capo in which he was allowed to run a political crew.

Steve Bartin is a resident of Cook County and native who blogs regularly about urban affairs at http://nalert.blogspot.com. He works in Internet sales.

One Step for Short-term Economic Stimulus, and One Giant Leap (backward) for U.S. Energy Sustainability

Peter Smirniotopoulos — Sun, 09 Aug 2009 01:31:32 -0400

The “cash for clunkers” (or CARS) program that was widely predicted to be extended by the Congress has been, if nothing else, a clear public relations win for the Obama Administration. It may also be, at least for the short-term, a shot in the arm for the beleaguered American auto industry (including domestic dealerships of foreign car companies, like Honda and Toyota). But the program’s extension may also be bad news for anyone who was hoping that candidate Obama’s campaign promises to fix our domestic energy policy would translate into something resembling a robust make-over.

Don’t get me wrong; I am a huge fan of President Obama. And I am generally very supportive about what the Administration is trying to do. The President’s agenda is nothing if not ambitious, or may be better described as audacious. In no particular order, President Obama is seeking to fix the environment, reform the healthcare system, overhaul banking and financial services regulations, reverse a downwardly spiraling national and global economy, repair race relations in America, and get drivers to cease texting and talking on their cell phones while driving.

And yet, one of President Obama’s greatest strengths may also be his greatest weakness: The willingness and ability to compromise, as it is the fundamental nature of compromise that the outcome will inevitably be less than ideal. This consequence of compromise can be seen clearly in the President’s efforts to secure Congressional approval of an additional $2 billion in funding for the CARS program.

The initial concept behind CARS was elegant in its simplicity: give owners of “gas-guzzlers” (i.e. automobiles with highly inefficient internal combustion engines) a monetary incentive to trade their fuel inefficient vehicles for highly fuel-efficient replacements. The auto industry – albeit more centered in Tokyo than Detroit on this point – clearly is producing numerous passenger vehicles capable of achieving a combined city/highway rating of 30 miles-per-gallon (mpg) or more. Yet there remain a number of registered motor vehicles in the U.S. with substantially less than 18 mpg ratings under the program (any vehicle with a mpg rating above that is not worthy of the “clunker” moniker).

If this was the Administration’s original goal for the CARS program, the $1 billion authorization could have had a considerable impact on fuel consumption. Assuming the maximum rebate of $4,500 on every trade-in, almost a quarter of a million (222,222 to be exact) fuel-inefficient vehicles would have been voluntarily taken off America’s roads. Great idea! Triple that program funding amount to $3 billion, coupled with the same lofty goal, and two-thirds of a million fuel inefficient cars would have been swapped out for highly fuel efficient cars. If the average driver puts 12,000 miles per year on a car, and the average improvement in fuel efficiency is 12 mpg (i.e. from 18 mpg to 30 mpg) the program would save 1,000 gallons of gas per car, per year, or 666,666,000 gallons of gas annually.

If only this purpose – to incentivize drivers to purchase only the most fuel efficient vehicles – had remained the thrust of the CARS program. However, it seems that the elegant simplicity behind the CARS concept became intertwined in the “since the government now owns GM and Chrysler don’t you think we should do something to spur domestic car sales” debate. All of a sudden, light trucks (the product type on which the Big Three hung their hats and, subsequently, on which they were hung by their collective petard) became eligible provided they are more fuel-efficient than the millions of light trucks already registered and on domestic highways. So, instead of a rising fleet of truly efficient cars we now see sales of new SUVs of all sizes and dimensions, and not just the recently introduced hybrid versions, being allowed a “cash-for-clunkers” rebate. All that is necessary is for the trade-in vehicle to qualify under CARS and the newly purchased SUV achieve a paltry 18 combined mpg.

In other words, the concept behind the initial legislation appears to have quickly devolved from “let’s incentivize the best consumer behavior possible when it comes to fuel efficiency” to “let’s get people to buy passenger cars, SUVs, and light trucks.” The Hummer H3, for example, with an MSRP of less than $45,000 (the maximum MSRP allowed under CARS), and a combined city/highway mpg of 18, could qualify for the rebate program (hoping the irony is not lost on anyone that a vehicle, the Humvee, that was the exclusive product of a publicly owned entity, the Defense Department, ended up being the product of another publicly owned entity, GM).

There’s no doubt that CARS was wildly successful in its public debut, so much so that the $1 billion in federal rebate funds were projected to run out within the first 30 days of the program’s roll-out. Car dealerships and automakers were as ecstatic in their praise for the program as they were vociferous in their clamor to seek the additional $2 billion in Congressional funding. However, the pace at which the CARS rebates were utilized strongly suggests that the cash-for-clunkers program would have been equally successful even if Congress had stuck to the original premise of the program: To get car owners to trade in the worst mpg offenders for the exemplars of fuel efficiency. Instead, Congress and the Administration have botched the chance to make a real, lasting difference, while spending $3 billion in the process.

So here are the “outcomes” of CARS thus far: According to cars.com, the top ten fuel-efficient cars sold in the U.S. range from the Honda Fit (32 combined mpg) to the Toyota Prius (46 combined mpg). However, based on statistics tracked by jalopnik.com, of the top ten new vehicles purchased using CARS rebates only two, the Toyota Prius (#1 in fuel efficiency and #4 in most-purchased) and the Honda Fit (#10 in fuel efficiency and #9 in most-purchased), are on both lists (see the table below). In fact the list of the most-purchased vehicles using CARS rebates appears to be comprised of more lower-priced cars (e.g. the Chevy Cobalt and Hyundai Elantra) and cars that were already very high-volume sellers before the economic downturn (e.g. Toyota Camry and Corolla).

Ten Most-Purchased Vehicles Using CARS Rebate*		Ten Most Fuel-Efficient Vehicles Sold in the U.S.**
1	Toyota Corolla	1	Toyota Prius 48/45/46 mpg
2	Ford Focus FWD	2	Honda Civic Hybrid 40/45/42 mpg
3	Honda Civic	3	Smart Fortwo 33/42/36 mpg
4	Toyota Prius	4	Nissan Altima Hybrid 35/33/34 mpg
5	Toyota Camry	5	Toyota Camry Hybrid 33/34/34 mpg
6	Hyundai Elantra	6	Volkswagen Jetta TDI 30/41/34 mpg
7	Ford Escape FWD	7	Ford Escape Hybrid*** 34/31/32 mpg
8	Dodge Caliber	8	Toyota Yaris 29/36/32 mpg
9	Honda Fit	9	MINI Cooper/Clubman 28/37/32 mpg
10	Chevrolet Cobalt	10	Honda Fit 28/35/31 mpg
*as posted on jalopnik.com Aug. 7^th		as posted on cars.com Aug. 7^th, city/hwy/combined mpg * also includes Mercury Mariner/Mazda Tribute Hybrid

Inasmuch as Congress has already approved the additional $2 billion for the CARS program – without improving the fuel efficiency goals the program incentivizes – then why don’t we at least be honest about it and just add the $3 billion CARS price tag to the federal auto industry bailout. Sadly, as it stacks up now, claiming that this program is all about fuel efficiency or domestic energy policy is a sham.

Confronting Street Art

Richard Reep — Fri, 07 Aug 2009 17:57:59 -0400

By Richard Reep

Street art has been around since ancient times, with the triple theme of craft, sabotage, and branding. Paris’ “Blec le rat” and New York’s Taki 183 were early pioneers in street art. Today, street art has spread into nearly every city with artists, media, and collectors. Skateboards, tattoos, stickers, and spray paint are but a few examples of the craft of the street. The adrenalin rush an artist feels in executing his work is augmented by the urban thrill of working at night, rushing to leave behind a signature before the police come. The chief aim of most street art is branding, as the artist’s main form of expression is to create a recognizable personal logotype.

On the street, the city's public space in general has slowly been eviscerated by our culture of consumption, for it provides an antiquated, nearly obsolete physical format for civic discourse. Long ago proclaimed dead by noted architect Daniel Liebeskind, physical public space has precipitously declined in value to most of the citizens of the city. In its place has risen virtual public space – first television, which was a one-way path, and then the internet, which provides a two-way path.

Yet physical public space continues to serve as medium of the new Street Art form. Stickers, tags, skateboards, and tattoos are all viewed on the street, offering a means to carry this new art form into the next century. The so-called "cutting edge" artists have retreated into their private studios to conceive their next moves in video or computers, but the street artists have taken over the city.

The elite artists may inhabit the galleries but street artists proclaim their brand of art as supreme. Globalism is achieved by hard work: Artists like Barry McGee or Banksy are no longer confined to one city; Space Invader, having successfully placed his own particular brand across the face of Paris, now has spread to London and New York, making his own global art tour as a form of civic art.

Viewing a piece of graffiti at once causes a reaction of fear and a perception of danger. Can anyone claim the same immediate, visceral reaction to anything seen in a gallery or museum? This art form reaches people at such a gut level that it trumps most of the work of other artists being exhibited and discussed in the art world. Street artists use this to their own advantage, and their craft reinforces what McLuhan described so well in his epigram "the medium is the message." The content of the piece is almost irrelevant; the viewer's reaction is the same regardless of the tag's content or author.

Street art is tied into a larger urban culture, and expresses the visual aspect of this larger milieu. As Western mainstream culture retreats from the street into the air-conditioned, connected bubbles of the suburbs, street art and its culture expands to fill the empty space. The zone emptied by the suburbanites does indeed reek of death, more so today, as public investment in the city dwindles or becomes remarkably predictable or prosaic. Budget cuts in schools, government facilities, and even basic street maintenance presage an ever higher level of decay and disrepair, of neglect and abandonment of our shared space, and those who inhabit this space are simply documenting what they see and returning it back to us. We cannot escape the messages of street art, for they are everywhere, embedded into the context. Some are more overt, and some are covert – only noticed, for example, when waiting for a red light – but they are there, reminding us that there is life amidst the emptiness.

Graffiti’s barrage of skulls, vacant-eyed cartoon children, and other signs of death and destruction are easy to ignore, but they are telling us something important about the urban environment. The sooner we stop and examine this evidence, the sooner we can begin a process to find common ground, and to seek out a shared vision that does not divide the urban world into an us-and-them mentality. Street art simply puts visual form to the voices we have so long shut out of the urban conversation.

In Orlando, the trend of giving street artists “permission walls,” or walls where they have permission to paint their work, has tamed and channeled some of the sabotage. By allowing graffiti artists to work with permission, they are free to develop their craft without fear of getting caught before completion, and the artwork becomes a colorful, mural-sized effort to which the artists can point with pride. These permission walls encourage friendly competition between teams, or crews, and there is a sense of pride among them for having created something with great exposure.

Two permission walls exist to the east of downtown Orlando, but it is the cluster of warehouses at 630 E. Central that showcase graffiti artwork at its best. Artist Robin Van Arsdol owns part of this cluster and has been sponsoring an international graffiti conference for several years, bringing in artists from Europe, the Caribbean, and North America for a weekend of painting at his studios. Driving by his property offers a study in converting urban form into art, and perhaps suggests the visual future of more than one city.

The graffiti artists have offered a philosophical change-up that should not be overlooked. The conversation about postmodern art seemed to have reached a dead end some time ago; artists
first threw out figure, then form, then color, then the frame, and then wandered into their process itself as an art form. Graffiti artists begin with the end: their signature, or tag, becomes the art,
and by using this as the starting point, and the city as their canvas, they unconsciously offer a new beginning to think about the relationship between art and the city.

We must accept the challenge that graffiti artists offer us. We need to confront this takeover of the physical urban form and push back. Street art constitutes a fresh, interesting language. It is the language of a city that is weak and divided. We must hear what graffiti says to us as a society, and retake our physical urban character as a common, broad place that offers secure, sacred, and special places for all citizens. By ignoring graffiti art, we postpone our treatment of the urban malaise. By confronting it and bringing it into the mainstream, we can better treat our urban condition and improve the city as a dwelling place for the benefit of all.

New York City Closes Shop

Steve Null — Fri, 07 Aug 2009 01:13:14 -0400

Mayor Michael Bloomberg owes 200,000 small business owners an apology.

When Michael Bloomberg was first elected Mayor of New York City in 2001, the city’s small business owners were hopeful and confident that finally a successful businessman would be creating the city’s economic policy. They hoped to see an end to powerful special interests that, through political donations, had gained control over the economic policy of the city.

New York’s small business community had been in a state of crisis ever since former Mayor Ed Koch gave the keys to the city and opened all the city’s government doors to real estate speculators and developers. His economic policy of favoring only a handful of developers and real estate speculators resulted in tens of thousands of long established small businesses being forced to close. New York City had the worst anti-small business environment in the nation, and the July, 1986 Inc. magazine headline said it all, “New York, New York the Worst Place in America to Start a Business.” This anti small business environment continued under two more Mayors, David Dinkins and Rudy Giuliani. It would be up to Bloomberg to change course and save the city’s small businesses from the “death grip” that landlords had on them.

The small business community anticipated that Bloomberg’s first change would be to appoint a small business owner as Commissioner of Small Businesses. The best choice would be a Hispanic business person with no ties to the real estate industry. This would be a major change in policy because previous policy makers were closely tied to the real estate industry, and none had ever owned a small business. A Hispanic Commissioner would be justified because Hispanics owned between 42 and 45% of all the city’s small businesses.

To the disappointment of the city’s desperate small business owners, Bloomberg appointed Robert Walsh Commissioner of Small Businesses. Walsh had never owned or operated a small business. He was in North Carolina at the time of his selection, managing the Charlotte Center City Partners, a property owners/banks organization promoting a business district in that city. His background included working for the property owners as director of a Business Improvement District, the Union Square Partnership, in New York City. Walsh’s selection would create the worst anti-small business environment of any city in the nation.

A reliable way to evaluate the stability of New York City's small business community is to examine the number of Commercial Warrants for Eviction. The majority of these warrants are issued to “holdover commercial tenants” whose leases have expired, and who can’t afford to pay the new, higher rent. The consensus of business organizations is that these warrants represent about one third of small businesses; the ones that stay and fight in court. The other two-thirds walk away without a fight. During what many consider the reign of terror for small businesses — 1986-1989, the last 4 years of Koch’s term — 17,433 warrants were issued to evict small businesses, out of approximately 53,000 total small business failures. During the last full four years under Bloomberg, 2005-2008, 27,809 warrants were issued to evict, with about 83,000 small businesses forced to close. Since the successful businessman Bloomberg took office, around 152,964 small businesses have been forced to go out of business.

The circus is not the greatest show on earth; Walsh’s Small Business Services department is. For the past seven years, on paper, the department has had numerous programs to assist small businesses. If you did not see for yourself the long established neighborhood small businesses that have been forced to close every month, and the empty stores on every block in every neighborhood, you might believe that the SBS was actually helpful. The testimony by Walsh and Bloomberg on the state of the city’s small businesses before the city council is a long list of SBS programs and their successes.

Two things happened to highlight the true state of NYC’s small businesses. The first was the decline of tax dollars generated by Wall Street. This caused a shift in the focus to NYC's 200,000 small businesses, which were now called upon to carry more of the tax burden and job creation.

The second was a survey of Hispanic small businesses (see PDF, below). A new Hispanic chamber, the USA Latin Chamber of Commerce, was recently formed in New York City and conducted a citywide survey of 938 Hispanic business owners in early 2009. Over half of the businesspeople believed they were at risk to close due to high rents. Seventy percent had been forced to lay off workers due to high rents. When they first opened their businesses in NYC, 91% believed it was the best city in the nation to invest in the American Dream. Today, 84% believe New York City is no longer a good place for immigrants to open their businesses. The main reason given, again, high rents and unreasonable lease terms. Of those surveyed, 82% would not recommend to a friend or family to open a business in the city.

One of the survey's biggest surprises concerned demands by landlords or agents for “cash money” under the table to negotiate a new lease; 31% answered yes, and business organizations have come forward to predict that the real figure is between 45-55% of mostly immigrant small businesses. The results confirmed another survey (see PDF, below), this one by the USA Bodegas Assoc., that the city’s small businesses were in a “Crisis” and in peril of disappearing completely without government protection.

Bloomberg did not follow the leadership of President Obama, who called for quick actions to save small businesses. Walsh expanded his “dog and pony show” with a citywide PR campaign which claimed that the city’s small business problems resulted from the recent decline in the economy, and by offering a series of government programs: business conferences, business forums, loan programs, initiatives, all intended to stimulate start-ups and expansions. But at a recent city council hearing, Councilman Robert Jackson asked “Does the SBS have a single program to save or keep a single small business from going out of business in New York City?” Walsh reluctantly had to answer “no”.

In March, 2009 a coalition of 67 citywide business/union/tenant organizations was formed; The Coalition to Save Hispanic Small Businesses released a final report recommending that the best solutions could be found in Jackson’s Small Business Survival Act. The bill is based upon a simple system of regulating the commercial lease renewal process. It would give tenants the right to renewal, and encourage bargaining in good faith between the landlord and tenant.

A city council hearing was finally held this past June before the city council’s small business committee. The three SBS representatives took the side of the property owners against the city’s small businesses. They testified that Bloomberg would not support the bill because it would be too costly to administer at a time when funds were scarce. When asked how costly, they admitted they did not do any actual accounting, but thought it would be costly. An attorney for the Small Business Coalition explained that there was no costs associated with administering the bill since it would be a contractual process where costs would be shared equally between the tenant and the landlord.

SBS also objected that there was no need for the bill since the rental market was weakened by the recession, and landlords were negotiating with tenants to keep them. Supporters explained that the timing was ideal because it would have no impact on those landlords negotiating in good faith.

During the recent impasse, the SBS spokespeople made clear that they did not wish to seek a compromise or alternative solution. And the apology that Mayor Bloomberg owes to New York City's hard working small business people is also nowhere to be found on the table.

Stephen Null was the owner of three small businesses in New York City during the 1970s and '80s. In 1984 he founded the Coalition for Fair Business Rents, and in 1991 he co-founded the New York Small Business Congress. He is currently Director of the Lead Free Children Foundation.

Reducing Vehicle Miles Traveled Produces Meager Greenhouse Gas Emission Reduction Returns

Wendell Cox — Thu, 06 Aug 2009 02:22:14 -0400

Senators Jay Rockefeller (D-West Virginia) and Frank Lautenberg (D-New Jersey) have introduced legislation that would require annual per capita reductions in driving each year. Another bill, the National Transportation Objectives Act, introduced by Representative Rush Holt (D-Indiana), Representative Russ Carnahan (D-Missouri) and Representative Jay Inslee (D-Washington.) would require a 16 percent reduction in driving in 20 years.

Last week, a highly publicized report by the Urban Land Institute (Moving Cooler) also called for policies that would reduce the vehicle miles traveled (VMT) by people in their cars. This report was analyzed here by Alan Pisarski). The reductions in driving would be achieved by highly intrusive land use policies that would make it impossible for most Americans to live where they want, allow for only minor expansion of roadway capacity and force almost all new development to be within existing urban footprints. It would employ such radical strategies as forcing people to pay $400 per year to park their cars in front of their own homes.

The assumption behind these initiatives is that reducing driving will produce substantial reductions in greenhouse gas emissions. It sounds like a simple enough proposition, since cars emit greenhouse gases in direct proportion to the gasoline they consume. It would seem logical that reducing their use would lower their emissions by a similar percentage. Moving Cooler assumes that for every 10 percent reduction in driving miles, there will be a 9 percent reduction in greenhouse gas emissions.

Meager GHG Emission Reductions from Reducing Driving: But things are not nearly so simple. It appears that reducing vehicle miles would not produce a similar reduction in greenhouse gases from cars.

It is well known that at the slower speeds of vehicle operation in cities, fuel economy tends to decline with speed. Further, as congestion increases, so does fuel consumption, due to longer idling periods (such as at signals or in stopped traffic), more acceleration and more deceleration. Thus, not only does fuel economy drop when average speeds drop, but it drops even further when traffic congestion intensifies. The extent to which any reduction in urban driving would reduce greenhouse gas emissions is not at all well known, simply because there has been insufficient research on the subject.

Perhaps the best indication is a comparison of Environmental Protection Agency (EPA) “driving cycles,” which are tests used to estimate some emissions (although not greenhouse gases) and fuel economy. There is considerable data for the normal urban cycle, which replicates driving conditions in most of the nation’s urban areas. There is much less information available for the “New York City Cycle,” which replicates the congested traffic conditions in New York City, which is far more congested than any of the nation’s urban areas (Note).

Under the New York City Cycle average speeds are two-thirds less than under the average urban cycle. This reduction in speed and increase in congestion results in a 50 percent loss in fuel economy, according to an Argonne National Laboratory Study. Thus, between New York City and the average urban area, fuel efficiency drops at a rate 80 percent of the lower driving rate in New York City.

On average, vehicle travel in New York City is approximately 8 miles per capita daily. In the average large urban area outside New York City (such as the Phoenix urban area, or for that matter the suburbs of New York City), vehicle travel is approximately 24 miles per day per capita. Thus, per capita driving in New York City is 67 percent less than in Phoenix. However, because of the loss in fuel consumption, the greenhouse gas emissions from cars per capita is only 31 percent less (Figure 1). Thus, the limited data indicates that nearly one-half of the greenhouse gas emissions difference between New York City driving rates and Phoenix driving rates are cancelled out by the impacts of slower speeds and increased congestion.

Shortcomings of Policies to Reduce Driving: UCLA’s Lewis Center for Regional Policy Studies Program on Local Government Climate Action Policies raised concerns about relying on VMT reduction policies in a submittal to the California Air Resources Board:

Especially in congested areas of California, VMT is an inadequate proxy for vehicle greenhouse gas emissions.

Yet it is precisely more intense traffic congestion that we can expect if federal laws and policies should force most development into present urban footprints. Between 2010 and 2030, nearly 70,000,000 residents will be added to US urban areas, an increase of more than 25 percent. This increase would mean that the legislation introduced by Congressmen Hold, Carnahan and Inslee would require a one-third reduction in per capita driving to achieve its overall 16 percent reduction. Per capita driving declines such as those envisioned by the Congressmen or Moving Cooler have never occurred before in any American (or international) urban area. By comparison, charging people $400 to park their cars in front of their houses seems utterly reasonable.

Further, higher population densities are associated with more intense traffic, both at the national and international level. Policies such as recommended by Moving Cooler would produce little additional highway capacity to handle the far higher levels of driving produced by a larger population. We could expect traffic congestion to increase markedly. It would take longer to get to work and local air pollution would be more intense (a health impact largely ignored by proponents of higher densities).

The Economic Cost: A serious economic toll would be produced by more grid-locked urban areas, because of the positive relationship between personal mobility and economic performance. Remy Prud’homme and Chang-Woon Lee of the University of Paris have shown that greater economic mobility is associated with greater economic growth. Greater personal mobility also alleviates poverty, according to a Progressive Policy Institute study):

In most cases, the shortest distance between a poor person and a job is along a line driven in a car. Prosperity in America has always been strongly related to mobility and poor people work hard for access to opportunities. For both the rural and inner-city poor, access means being able to reach the prosperous suburbs of our booming metropolitan economies, and mobility means having the private automobile necessary for the trip. The most important response to the policy challenge of job access for those leaving welfare is the continued and expanded use of cars by low-income workers.

The UCLA submission further notes that policies aimed at reducing driving could damage the economy:

… policies which seek to reduce VMT may hinder economic growth without reducing emissions.

The relationship between greater mobility and economic prosperity is also demonstrated at the national level. This is vividly illustrated in the chart from the United States Department of Energy (Figure 2).

The significant improvements in fuel economy from higher mileage cars and less carbon intensive fuels will do far more to reduce greenhouse gas emissions from cars than the meager results that can be achieved by heavy handed policies to “coerce” people out of their cars (as Secretary of Transportation Ray LaHood put it). And, critically, it would do so with far less impact on both economic and physical mobility.

Both the Economy and Greenhouse Gas Emissions at Stake: With the economic challenges facing the nation, policy makers need to steer clear of strategies that hobble the economy, like forcing people to drive less (or pay $400 to park in front of their houses) and make only minor improvements in reducing emissions. Indeed, a society with less money will have less to spend on reducing emissions through the adoption of new technologies that offer greater hope for creating a more prosperous as well as more environmentally sustainable society.

Note: The New York City refers to the City of New York, not the metropolitan area or the urban area.

People, Planet, Prefurbia

Rick Harrison — Wed, 05 Aug 2009 00:38:45 -0400

The term “sustainable” relates to a concept called the "Triple Bottom Line” (TBL): People, Planet, and Profit (the three P’s), endorsed by the United Nations in 2007 for urban and community accounting.

American suburban land planning is about the SBL (Single Bottom Line): Profit. In city after city, mindless cookie cutter subdivisions, with characterless architecture, serve cars more than people. This dysfunction is caused by the boiler-plate regulations; engineers adhere to the minimum dimensions mandated by city ordinances to gain density, which maximizes developer’s profits. City council and planning commission members are appalled by the monotonous plans developers submit. Subdivisions that meet the minimums must be eventually approved. Developers are judged as evil, but they rely on the engineer who simply follows the city rules. Everyone mistakenly trusts that the consultant whose business card says “Land Planner” is the expert who will lay out the best development. However, “Land Planning” is not a regulated profession.

What? Astonishingly there are no regulatory requirements to prevent anyone from representing him or herself as a land planner... you too can become one by simply printing the title on your business card, and everyone will assume that you, too are an expert. The suburbs have been ripe for a preferable system, one that we call 'Prefurbia'. The concept was recently featured in Environmental Protection because of its potential for urban renewal. In terms of what it can do for suburbs, compare Conventional development to Prefurbia in terms of the three P’s of sustainability:

People: Conventional Subdivision

The land planner subdivides lots into ordinance minimums. If the city requires that a percentage of the site be set aside for open space, the area likely to be chosen is one that would not be fit for construction, rather than the best open space location for residents. Streets are designed first, then lots. No attention is given to the home or townhome unit other than a “pad” size to fit the structure. The main design focus is always the street layout (also true in Smart Growth plans). If there are any walkways, they parallel the street edge. The typical suburban maze-like street pattern is often difficult to drive through, and even more difficult for pedestrians, which further encourages a drive over a stroll. Suburban Land Use Transitions (zoning) place the lowest income (highest densities) in the most undesirable places. Positioning a high concentration of families overlooking loading docks along the rear of strip retail centers is not just acceptable, it’s encouraged.

People: Prefurbia

In Prefurbia, the Neighborhood Planner designs the pedestrian system first. Destinations for the walks are targeted as a basis for the open space “system,” assuring convenient pedestrian connectivity through the developers land. This is called a Pedestrian Oriented Design (POD). In Prefurbia, the suburban desire for space reigns supreme. Each home, attached or detached, is designed to assure that living areas are placed along the best views, giving the illusion of low density. The consultants who design the Prefurbia neighborhood (architects, planners and engineers) must do something that is foreign to them: they need to actually talk to each other! The architectural floor layouts, interior walls and window locations are an integrated component of the overall neighborhood, a first for land planning. Housing is situated so that each home sculpts a unique streetscape, eliminating monotony while embracing individualism (even if the architecture is somewhat repetitive).

Prefurbia land use places higher density along the most desired site amenities without regard to residents income. In the design process, all income levels are treated as upper class. This new land use theory is called Connective Neighborhood Design (CND).

Retail in Prefurbia is called the Neighborhood Marketplace. Neighborhood congregation areas such as patios, boardwalks, decks, ponds, etc., are placed along the rear of retail centers, which are also main pedestrian destinations. Since the Prefurbia pedestrian systems are separate from streets, there are few conflict points with vehicles. When walks are situated along streets they meander gracefully as far from the street edge as possible.

Planet: Conventional

Subdivision planning sets homes parallel to the edge of the street at the exact minimum distance allowed by regulations. The land planner must stretch the street as much as possible through the site to gain density (also true with Smart Growth design). The developer is burdened with constructing enormous street and utility main lengths to achieve the greatest density. Traffic flow is an afterthought.

Planet: Prefurbia

The Prefurbia Neighborhood Planner designs something very unnatural… a plan with dimensions greater than the minimums. Using entirely new geometric theory made practical by new technologies, the Neighborhood Planner separates the street pattern from the positioning of the homes, which results in lesser street length, but maintains density. This creates more organic (non-paved) space – lots of it! It’s more art than science to create independent, meandering shapes that open up the streetscape. In this scenario, it's possible to maintain density by reducing the length of street by (typically) 25% compared to conventional planning and up to 50% compared to Smart Growth principals.

The extra landscaped area allows the Prefurbia Neighborhood Engineer to design with much lower environmental impact, and to reduce development costs. The flowing vehicular pattern reduces both time and energy when driving through the neighborhood. All of this together means that in Prefurbia, Green is affordable. Imagine the implications worldwide.

Profit: Conventional

A cookie-cutter subdivision developer relies on a price point to generate a profit. The local Land Planner is likely to design the same style for all clients with the thought that the minimum dimensions allowed by ordinance are in fact the absolute dimensions. Because of this, most, if not all, of the developments within the town will look and feel alike. Because competing developments look the same they must compete mainly on price. Selling cheaper to make a profit makes little sense. This is made worse when the Conventional (and Smart Growth) design requires the longest possible street lengths (and, therefore, costs) to achieve density. With the reduced lot values today, building excessive infrastructure from Conventional and Smart growth design can make many developments unprofitable.

Financial Sustainability: Prefurbia

Profit is not the correct word to describe the financial advantages of Prefurbia. A home is not something that is disposable after the initial sale. Subdividing land sets a pattern that continues to exist for many centuries. An average home sells once every six years. If the number of residents for each home represents just three people, a 100 unit layout will affect the lives and finances of 10,000 people over two centuries. The financial advantage of Prefurbia is based on a significant reduction of infrastructure that's needed for development, which allows more funds to be spent on curb appeal. The ability to pay more attention to character building (architectural and landscaping elements) without increasing the initial home price provides a tremendous market advantage.

Will the home buyer or renter prefer the claustrophobic garage grove subdivision over the beautiful, functional, open Prefurbia neighborhood? The advantages will continue to provide financial sustainability every time a resident resells the property.

And with a significant reduction of public infrastructure, the municipality is the big winner. A 25% reduction in streets translates into 25% less cost to maintain, yet the tax base stays the same. With the increase in open space, Prefurbia neighborhoods can justify an increase in density that reduces the effects of sprawl.

Perhaps the best news is that Prefurbia can be ideal not just to develop new suburbs and exurbs, but to redevelop urban areas... and maybe to rewrite the triple bottom line to People, Planet, Prefurbia.

Rick Harrison is President of Rick Harrison Site Design Studio and author of Prefurbia: Reinventing The Suburbs From Disdainable To Sustainable. You can view a portfolio of pictures and videos of prefurbia at his website, rhsdplanning and at prefurbia.

Green Jobs Can't Save The Economy

Joel Kotkin — Tue, 04 Aug 2009 00:21:21 -0400

Nothing is perhaps more pathetic than the exertions of economic developers and politicians grasping at straws, particularly during hard times. Over the past decade, we have turned from one panacea to another, from the onset of the information age to the creative class to the boom in biotech, nanotech and now the "green economy."

This latest economic fad is supported by an enormous industry comprising nonprofits, investment banks, venture capitalists and their cheerleaders in the media. Their song: that "green" jobs will rescue our still weak economy while saving the planet. Ironically, what they all fail to recognize is that the thing that would spur green jobs most is economic growth.

All told, green jobs constitute barely 700,000 positions across the country – less than 0.5% of total employment. That's about how many jobs the economy lost in January this year. Indeed a recent study by Sam Sherraden at the center-left New America Foundation finds that, for the most part, green jobs constitute a negligible factor in employment – and will continue to do so for the foreseeable future. Policymakers, he warns, should avoid "overpromising about the jobs and investment we can expect from government spending to support the green economy."

This is true even in California, where green-job hype has become something of a fetish among self-styled "progressives." One recent study found that the state was creating some 10,000 green jobs annually before recession. To put this into context, the total state economy has lost over 700,000 jobs over the past year (more than 200,000 in Los Angeles County alone). Any net growth in green jobs has barely made a dent in any economic category; only education and health services have shown job gains over this period.

More worrisome, in terms of national competitiveness, the green sector seems to be going in the wrong direction. The U.S.'s overall "green" trade balance has moved from a $14.4 billion surplus in 1997 to a nearly $9 billion deficit last year. As the country has pushed green energy, ostensibly to free itself from foreign energy, it has become ever more dependent on countries such as China, Japan and Germany for critical technology. Some of this is directly attributable to the often massive subsidies these countries offer to green-tech companies. But as New America's Sherraden puts it, this "does not augur well for the future of the green trade balance."

Nor are we making it any easier for American workers to gain from green-related manufacturing. Some of America's "greenest" regions are inhospitable for placing environmentally oriented manufacturing facilities. For example, high taxes and regulatory climate have succeeded in intimidating solar cell makers from coming to green-friendly California; a manufacturer from China told the Milken Institute's Ross DeVol that the state's "green" laws precluded making green products there.

Attempts to put windmills in Nantucket, Mass., the Catskills and Jones Beach in New York and other scenic areas have also been blocked by environmentalist groups. Transmission lines, necessary to take "renewable" energy from distant locales to energy-hungry cities, often face similar hurdles. Solar farms in the Mojave desert might help meet renewable energy quotas but, as wildlife groups have noted, may not be so good for local fauna.

And then there is the impact of green policies on the overall economy. Green power is expensive and depends on massive subsidization, with government support levels at roughly 20 times or more per megawatt hour than relatively clean and abundant natural gas. Lavishing breaks for Wall Street investors and favored green companies also may be harmful to the rest of the economy. A recent study on renewable energy subsidies on the Spanish economy found that for every "green" job created more than two were lost in the non-subsidized economy.

So how do we build a green economy that is sustainable without massive subsidies? First, governments need to learn how to say no to some environmentalists. Green jobs and renewable energy can not be fully developed without affecting somebody's backyard. Windmills will have to be built in some scenic places; transmission lines may mar somebody's "view-shed."

Arguably, the thing that would spur green jobs and domestic industries most would be economic growth. Environmentalists long have been cool to growth, since they link it to carbon production and other noxious human infestations. As an official at the Natural Resources Defense Council put it, the recession has "a moment of breathing room." Disaster may be still looming, but bad times add a few more moments to our carbon clock.

Long term, though, I would argue hard times may prove harmful for the environmental cause. Even with subsidies, many renewable energy projects are now on hold or being canceled across the country. Slackening energy demand, brought on by a weak economy, has undermined the case for new sources of energy generation; what looked attractive with oil prices at $140 a barrel and headed higher looks at $70 less so.

Similarly, hard-pressed homeowners and businesses don't constitute the best market for new, often expensive "green" products. A growing economy, which would drive up energy prices, could spur a more sustainable interest in alternative energy from firms that now only do so for public relations concerns. At the same time, cash-rich consumers could more afford to install energy-saving home insulation or rooftop solar panels. A strong economy would also spur sales of new energy-efficient appliances and cars.

This process would go more quickly if government relied less on mandates, which tend to scare serious investors, and turned toward incentives. With the right tax advantages, energy efficiency could become a positive imperative for companies.

There's also an unappreciated political calculus at work. A persistently weak economy undermines support for the green agenda. For the first time in 25 years, according to a Gallup poll, more people place higher priority on economic growth than on the environment.

Furthermore, more people now feel claims about global warming are "exaggerated." Early this year, Pew reported that global warming ranked last among the top 20 priorities of Americans.

Ultimately, environmentalists need to realize that the road to a green economy does not lie in promoting hysteria, guilt and self-abnegation while ignoring prohibitive costs and grim economic realities. Green enthusiasts should focus on promoting a growing economy capable of generating both the demand and the ability to pay for more planet-friendly products. After all, the economy needs green jobs less than green jobs need a thriving economy.

This article originally appeared at Forbes.

Downtown Central-Cities as Hubs of Civic Connection

Michael Scott — Mon, 03 Aug 2009 01:42:08 -0400

There's been a torrent of spirited banter lately about the reemergence of downtown central-cities. Much of this raucous debate is between advocates of urban revitalization, who offer an assortment of anti-sprawl messages as justification for this movement, and those who see suburban growth options as essential to quality of life in America. Adding to the fray are environmentalists who see housing density and alternative forms of transportation as the panacea for confronting our carbon-choked world. Downtown central-cities, they say, will incentivize citizens to relinquish their cars in favor of bikes and walking paths.

These discussions largely ignore a greater significance to the reemergence of central-cities; namely, the recognition of downtowns as the epicenter of civic and cultural activity. This represents a shift away from the traditional concept – barely a century old and now antiquated – of downtown as predominately an economic and job center hub.

This primary role for downtowns has been declining since the 1950s. According to Robert Fogelson, professor of urban studies and history at MIT and author of Downtown: Its Rise and Fall, 1880-1950, after World War II, downtowns lost their prominence as places where people “work, shop, do business, and amuse themselves." As he states in the book, "Downtowns were once thought to be as vital to the well-being of a city as a strong heart was to the well-being of a person.”

Increasingly the word “downtown” has become associated exclusively with large urban centers, fostering images of traffic, crime, homelessness and other forms of unsavoriness. A closer look, however, reveals a wide range of downtown genres – small and large, central-city and suburban, safe and sketchy, chaotic and peaceful, established and emergent. Some downtowns are situated in major urban regions while others are nestled in small-town communities. The senior demographic is prominent in some, college crowd in others.

This new assessment of downtown as primarily a center for civic opportunities makes sense and revives the ancient role of the plaza “forum” or “agora” concept–places that H.G. Wells affectionately referred to as ideal for “concourse and rendezvous.” This redefinition may bother some who wish to return to the downtown apex of the 1950s, yet the idea is both viable and sustainable.

With the traditional town-center model serving as the hub of civic activities, residents and visitors alike are frequenting dining establishments, arts and music venues, and coffeehouses in the spirit of civic connection and community. No longer a phenomenon exclusively associated with young artists, bohemians, and intellectuals, the downtown experience is also drawing unprecedented numbers of older folks who appreciate the history, cultural significance, ambiance and architecture of the old core.

Downtown planning efforts in many locales are responding to this surge of interest by creating a brand identity for their cities – Austin, Texas, has developed a vibrant music scene, with a number of entertainment venues tucked along its 6th street corridor; Indianapolis promotes itself as a spectator-sports mecca, with its downtown activity infused by a robust fan base frequenting college basketball tournaments, pro and minor league baseball games, and the nation's largest sporting event: the Indianapolis 500; Chicago touts itself as a tourist destination replete with world-class museums, city and architectural tours, and fine dining in its vast downtown core. Smaller downtowns in cities like Davis, California, Evanston, Illinois, and Iowa City, Iowa, tap into a bustling college crowd from area universities.

Traverse City, Michigan, with a population of over 15,000 (142,075 in the surrounding metro area) offers another model: the quintessential small-city downtown. Quaintly situated along the Grand Traverse Bay on Lake Michigan, the area is primarily known for boating, kayaking, and sailing, except in July, when the city hosts its annual, week-long Cherry Festival that attracts swarms of people to its historic downtown area.

According to Rob Bacigalupi, Acting Executive Director of the Traverse City Downtown Development Association, downtown traffic is driven by the office population and events. “Downtown Traverse City has somewhere in the neighborhood of 3,500 office workers. Certainly that's a small number by any measure, but for a town of 15,000, these workers provide a good base for retailers who otherwise have to rely exclusively on seasonal visitor traffic,” he says.

In terms of a niche identity for downtown Traverse City, tourism seems to be front and center. The calendar is jammed with events, many of which are designed specifically to attract locals downtown. Other cultural activities, such as the Cherry Festival, Traverse City Film Festival and Horses by the Bay, draw visitors by the tens of thousands. Bacigalupi cites a recent convention and visitor's bureau survey indicating downtown shopping as one of the main regional attractions. “There's no doubt," he says, "that regional tourist traffic is perhaps the largest driver of foot traffic downtown. This says a lot for a region that has a number of other attractions and activities to offer.”

For many city leaders the potential impact of downtown on regional economics and culture is what's creating the most buzz. Kansas City (Missouri), Roanoke (Virginia), and Asheville (North Carolina) are among a growing number of cities seeking to capitalize on their unique brand of cultural connection to generate badly needed tax revenues for their downtown areas. Some experts say this is a sound move amid tepid economic times as city and local governments look to draw customers from closer to home.

This message rings true for economically ravaged Rust Belt cities like Cleveland, Ohio. For years, downtown Cleveland has struggled to survive – beginning in 1960 when manufacturing and heavy industries began their decline and the flight to the suburbs gained momentum. In 1978, Cleveland had the dubious distinction of becoming the first American city to enter into default since the Great Depression. Despite small glimmers of promise, downtown Cleveland has been stuck in neutral, unable to build a cohesive identity and direction.

There are some successes though: Redevelopment efforts have transformed a downtown corridor along E. Fourth Street into a bustling fine dining and nightlife mecca, demonstrating the appeal that well-constituted areas have on the local populaces and tourists. And the area's rich ethnic and cultural heritage shows promise as a catalyst for change in the central core. While all of this points to some progress for downtown Cleveland, it still must overcome a heavy stigma associated with crime, poverty, and a declining population base to truly achieve civic vibrancy.

Many of our nation's suburban communities are setting the pace for downtown civic connection. Naperville, a Chicago suburb and the fifth largest city in Illinois, has established itself as a model for suburban downtowns. This city of 142,000 residents features a cornucopia of sophisticated shops, restaurants and entertainment venues that attract foot traffic to the town center-oriented central district. Open space has been integrated into the cityscape through well-maintained walking paths along the DuPage River, which flows through downtown. Thoughtful planning for the provision of abundant, free parking, train accessibility, and bike lockups enables convenient accessibility to the area both day and night.

Folsom, California, is indicative of a suburban community that fosters civic ties and activities through its historic downtown district. With a population of 70,000 this city located in the eastern portion of rapidly growing Sacramento County draws an eclectic crowd to its old town boardwalk setting replete with saloons, outdoor restaurants, and antique stores. The downtown core also serves as a gathering post for legions of bicyclists who have helped shape Folsom into one of the top bicycling communities in the nation.

During summer, downtown Folsom hums with activity generated by two weekly events: Thursday Night Market, featuring live music, food and shopping, and the Sunday Farmers Market, where frequenters can purchase fresh, locally grown food from area farmers. Plans are afoot for a street-scape improvement and a storefront restoration – projects that are designed to preserve historic elements while enhancing the city's tourism desirability. Also in the works are mixed-use housing units and a restaurant that incorporates a railroad roundabout. All of this comes on the heels of a new parking structure and ice-skating rink, which debuted last year.

In the end, downtown central-cities seem poised to reclaim some of their prominence as magnets of culture and social connection. We may not be witnessing the rebirth of the great economic centers of the 1950s, but a revival of our central space represents a positive development for communities both large and small.

Michael Scott is a researcher and writer focusing on the growth and sustainability of downtown central-cities. He can be reached at michael@vdowntownamerica.com.

“Cash For Clunkers” Doesn’t Utilize Junkyard Efficiency

Andrea Gregovich — Sun, 02 Aug 2009 01:40:12 -0400

My father owned and operated a junkyard in Tucson for a number of years, and I learned a lot about the auto recycling industry helping around the office and as a delivery driver. So as a junkyard enthusiast, the “Cash For Clunkers” program naturally caught my interest lately. Though it looks to be the product of good intentions, I don’t think the legislation understands that junkyards already comprise an efficient, well developed recycling system for salvaging vehicles, with a beneficial result for the environment overall. I’m skeptical that quickly scrapping so many government-defined “clunkers” and replacing them with new, fuel-efficient models will have a substantial environmental benefit, because the plan has the potential to waste many useful materials in these cars.

A junkyard may appear to be little more than a landfill for old cars if you’re just driving by, but in fact, to succeed, it must function as a highly efficient recycling operation. Junkyards sell parts to other junkyards, mechanics, and directly to consumers, and attempt to make as much of a profit as possible from each part on every car in their inventories.

There is also a network of scavengers who travel around to junkyards gathering large core items, like alternators and starters, and a number of precious metals in small amounts that most don’t even recognize as in our cars. (Catalytic converters, for example, contain platinum and palladium, which are quite valuable when salvaged.) But a car needs to sit on the lot for a considerable period of time for this recycling process to work itself through. Parts from a car are usually sold one at a time over a period of months or even years; scavengers work on their own schedules. A scavenger may only come by a junkyard a few times a year to core out a particular metal or gather the useful components. Meanwhile, the junkyard needs to be selling parts off the car for it to be financially worth keeping in the inventory. A car is only sent off to be crushed for scrap metal when it no longer retains enough value to justify filling the space on the lot.

If the Cash For Clunkers program is successful, it has the potential to throw a wrench into the system. The program’s rules require that the engine of a trade-in car be destroyed with an injection of sodium silicate so that the car won’t be resold and put back on the road. The rules seem to encourage the immediate crushing and shredding of the trade-in cars, but should they remain on junkyard lots, their inventory value would take an immediate hit with a non-functioning engine (the most valuable part of the car). To what degree the value decreases depends on the extent of the engine damage, the demand for the particular engine, and the age of the engine.

A genuine old clunker would be likely to have a well used, and therefore less valuable engine, but then, the “clunker” program nickname (its official title is the “Car Allowance Rebate System”) is something of a misnomer. To be eligible for the program, cars must fall into certain categories of fuel inefficiency, be less than 25 years old, and worth less than $4500. This includes a number of models from the nineties. A working engine in many of the models targeted for the program is likely to have fewer miles on it, and therefore a higher inventory value, than a more traditionally defined clunker.

But engine issues aside, if the program succeeds in taking a large number of particular models off the road, it could have an even more drastic effect on the junkyard value of those models, simply by lowering the demand for their parts. If there are only a few of a given model on the road, few consumers will buy parts for them from junkyards. Many junkyards are picky about which models they purchase for inventory, and won’t even bother with a model if there is little or no demand for its parts. So if Cash For Clunkers leaves some car models without junkyard value, those models would start going directly to the crusher, taking many of their valuable components with them. The scrap metal from crushed cars is used to make things like rebar and fence posts, so it isn’t as though the scrap winds up in the landfill. But it’s still a waste for precious metals and other valuable components to be crushed down with the low-end materials for low-end product.

And even beyond the metals, something mundane like a plastic glove box has its own environmental impact. The overall junkyard process, where cars without “street” value become parts donors for cars still in use, prevents a great deal of after-market manufacturing of glove boxes and all the other parts that wear out or get damaged in cars on the road. If entire models are abruptly taken off the road, devalued at the junkyard, and crushed, it means that many new glove boxes must be manufactured – both for the new cars replacing the model, and for any other models and even makes still on the road for which that model of glove box, or stereo, or steering column fits (and many parts are surprisingly versatile this way). That could mean a boost in manufacturing, sure – but it also means an environmental impact that offsets some of the gains from the new fuel-efficient car that replaces the clunker.

Cash For Clunkers is scheduled to end November 1, so it’s unlikely to have a long-term effect on the auto recycling industry beyond burdening it with a glut of devalued inventory. But so far the program is popular, and may be expanded or set a precedent for future programs. If this happens it could take a toll on the junkyards and their ability to recycle effectively. If there are suddenly millions of brand new car models on the road, there would be a period of hardship for the auto recycling industry, as the new cars would be running well, with any repairs done mostly under warranty at the dealerships with new parts. This whole scenario could also, by extension, tax the junkyard consumer base of low income, self-sufficient individuals whose cars are older, skillfully maintained, and perhaps most importantly, paid off.

It’s beyond my pay rate to comprehensively evaluate the net difference in environmental impact between manufacturing and selling new, fuel-efficient cars for these quick “clunker” trade-ins and letting the older models stay on the road. But a legitimate evaluation would clearly involve more complex factors than a simple comparison of fuel efficiencies. Yet it’s clear that the program doesn’t appear to insert any innovative solutions into an already dynamic and effective recycling system. Even if it has some positive outcomes, it doesn’t look like Cash For Clunkers will utilize the industry’s full potential for environmental benefit.

Perhaps its primary motive lies elsewhere, in its attempt to jump-start the auto industry with a “green” marketing gimmick. But in the process we may have reaped some unintended damage on a sometimes unsightly but remarkably environmentally resourceful industry.

Andrea Gregovich lives in Anchorage, Alaska. She has written a novel about a junkyard called Martyred Cars and is looking for a publisher.

Koyaanisqatsi Redux

Roger Selbert — Sun, 02 Aug 2009 01:14:18 -0400

I went to Hollywood one night last week to watch my favorite film of all time, Koyaanisqatsi (released in 1983). It was being shown on a big screen at the Hollywood Bowl, accompanied by orchestra playing the original score, conducted by its composer, Philip Glass. Oh, I didn't go to the Bowl; I watched it at my daughter's apartment about half a mile away (hi def DVD and digital sound system turned way up, thank you). It was much more enjoyable than going to the Bowl; after all, I didn't want to share the experience with an audience that undoubtedly would have, shall we say, a different appreciation of the art.

You see, the message and meaning most of the Hollywood crowd take from Koyannisqatsi (Hopi Indian for "life out of balance" or "crazy life") is that man has despoiled and separated himself from his natural environment. Frankly, it has always had the exact opposite effect on me. Even after what must be 100 viewings, I am continually overwhelmed, impressed and delighted by the images of what man has been able to create, invent and build to control his environment, increase his wealth, provide him his food and energy, raise his standard of living, and transport him around the planet (or across the city).

I am sure most of the Hollywood Bowl crowd has a different response, and finds the images disturbing and disgusting. This is the reactionary impulse, born of an anti-industrial, anti-development mindset. I would wager the majority of that audience has bought completely into the scaremongering of catastrophic man-made global warming, which to the properly skeptical and scientifically literate remains unproven (oh hell, it's ludicrous on its face). This is deliciously ironic, as many sequences in Koyaanisqatsi were filmed in the 1970s, when most of the same crowd were hectoring us about global cooling (doubly ironic, as a cooling may now actually be upon us).

My first review of the film, published some 25 years ago, needs only minor updating.

This truly remarkable film by Godrey Reggio has no plot, no characters, no dialogue. The images of the film are awe-inspiring: first, huge expanses of pristine nature: deserts, rivers, mountains, mesas, lakes, waterfalls, clouds. Then grand-scale technology: huge earth-moving machines, power plants (nuclear and otherwise), oil refineries, food-processing plants, space shuttles, rockets, jets, freeways, subways, skyscrapers, shopping malls, train stations (and of course the obligatory atomic bomb explosions and mushroom clouds) - all shot in fascinating slow-motion and/or time-lapse format by cinematographer Ron Fricke. The accompanying music by Philip Glass is eerie, haunting and perfect.

The film is a visual, aural and emotional feast. If it bores you, you don't understand you are looking at, in juxtaposition, the majestic indifference of nature; the supreme accomplishments of physical engineering; and some of the most awful consequences of attempts at social engineering. Some of the images that make indelible impressions, all set to a majestic, driving score:

desert rock formations unchanged through thousands, if not millions of years
huge power transmission lines stretching forever across barren desolation
the implausible flying behemoth that is a 747
the flow of vehicles on a freeway, at night, from 50 stories up, that in time-lapse photography really does look just like the flow of blood through vessels, arteries and capillaries as seen through a microscope
row upon row of huge, empty, abandoned south Bronx tenements
the razing of the Pruitt-Igoe housing project in St. Louis (the most graphic depiction of public policy failure ever committed to film, I should think)
the rush of commuters who in time-lapse photography look like ants swarming an anthill
various mass production activities: mail-sorting machines, industrial assembly lines, escalators, elevators, revolving doors, conveyor belts, money counting machines, huge bowling alleys, movie theaters
finally, the high resolution satellite photograph of a massive city grid (Los Angeles, of course) overlaid, first, on a printed circuit microchip board, and secondly, on an intricate Hopi Indian woven blanket. The matches are nearly perfect.

A very noticeable detail of the '70s-era footage from Los Angeles is the blanket of smog that covers the city; I can tell you, having lived here all of these years, that the situation is dramatically improved. (I now see far-off mountain ranges daily; in the '70s that was rare.) Environmental quality has been improving over the decades (read The Skeptical Environmentalist by Bjorn Lomborg for the statistical evidence). The solutions to the problems that technology causes often end up being more technology, sensibly and carefully applied.

The single greatest contributor to the amelioration of LA smog, for example, is the catalytic converter. Instigated and required by government, you say? Developed and produced by industry in response to marketplace demand, says I.

I find the movie very relevant today. It seems some of our new political overlords seem to think they can have a productive economy without production, without what the film depicts: heavy industry; mass processing of food, clothes, consumer and industrial goods; massive residential and commercial development; huge efforts devoted to energy extraction, production and transmission; untrammeled mobility for goods, people and vehicles. Now I'm a "new economy" guy myself, but I realize that our wealth, standard of living and quality of life - the current and future prospects for hundreds of millions of us - are dependent upon these activities, and that the health of the industries that make them possible are far more important than any particular small sub-species of bird, fish, ant or rat (the threats to which are always exaggerated anyway).

We are really talking about the role of government here, not only in protecting nature. What the film shows me is that it is in fact government's job to protect the "other” environment: the environment that encourages, promotes and allows incentives for production. Part of this environment is the need for massive infrastructure: energy systems, water systems, waste systems, transport systems, roads, dams, etc., etc., in adequate capacity and in good repair. Mass production and economies of scale bring good quality cheap to millions, and provide opportunities to generate incomes, grow wealth and lead productive, modern lives. More efficiency can also create more nature; for example, the millions of acres of non-redundant farmland turned into forest or open space.

We used to know and understand this as a society. Our political elites were devoted to it. Now, not so much. We need to relearn the basic lessons and regain that consensus again.

Dr. Roger Selbert is a trend analyst, researcher, writer and speaker. Growth Strategies is his newsletter on economic, social and demographic trends; IntegratedRetailing.com is his web site on retail trends. Roger is US economic analyst for the Institute for Business Cycle Analysis and its US Consumer Demand Index, a monthly survey of American households’ buying intentions.

Forget Second Stimulus; We Need Economic Vision

Joel Kotkin — Fri, 31 Jul 2009 10:41:43 -0400

As the American economy slowly heals, the Obama administration will no doubt claim some credit for its $787 billion stimulus — and perhaps even suggest doubling down for a second stage. Republicans, for their part, will place their emphasis on the “slow” part of the equation and persistent high unemployment, blaming the very same stimulus program.

Whatever the politics, no new stimulus should be considered unless it deals with the fundamental illness undermining the country’s long-term economic prospects. Such a stimulus would address the country’s essential problem: persistent overconsumption amid underproduction.

Neither party wants to address this issue because neither chooses to understand it. From the very beginning, the Obama administration has viewed the stimulus as a political issue, not an economic one. This became clear to me even before the election when I asked Obama’s campaign economic adviser, Austan Goolsbee, about “the goal” of the president-to-be’s program.

All I got for my trouble was vague political rhetoric about improving the economy. Though some parts of the stimulus, such as extending health and unemployment benefits, were clearly justified, the whole program never sought to address the roughly $800 billion annual imbalance between American consumption and production.

Instead, we have witnessed a grab bag of political handouts — Chicago machine politics on a grand scale — designed to placate key Democratic constituencies. Most have gone to what my old teacher Michael Harrington described as “the social-industrial complex” consisting of the education industry, social service providers and the various government bureaucracies.

As a recent New America Foundation report makes clear, precious little has gone to the productive side of the economy that determines the country’s competitiveness and creates many high-paying blue-collar jobs. Infrastructure, a critical component of any productivity-enhancing strategy, has accounted for barely 10 percent of the package.

The results have not been pretty for the productive sectors of the economy. Construction workers now have higher than 19 percent unemployment; jobs in this sector have fallen during the past year in 333 out of 352 metropolitan areas, with more than 200 plunging by double digits. Meanwhile, the hard-pressed manufacturing sector suffers more than 12 percent unemployment.

Why this disinclination to fund the tangible parts of the economy? One reason may be that those working in construction and manufacturing — both blue-collar workers and white-collar professionals — do not wield the same influence in this law review administration as college professors, Service Employees International Union-organized workers or unionized teachers.

One also senses that some militant environmentalists in the administration may be less than enthusiastic about anything associated with the entire carbon-creating part of the economy. Certainly, new factories, natural gas facilities, roads, ports and waterways don’t fit the professed passion of the president’s own science adviser, John Holdren, for the gradual “de-development” of the U.S. and other advanced economies.

Even prospects for the auto industry — the one manufacturing sector that the administration has effectively annexed — are threatened by plans to enact policies that will “coerce” Americans out of their cars. This amounts to trying to “save” an industry by destroying it.

For sectors not under government control — warehousing, fossil fuel energy, home construction and agriculture — the administration’s “green” regulatory regime could boost costs at the worst possible time. As a result, the coming recovery once again may be consumption-led and fail to improve our overall competitiveness. The biggest beneficiaries will most likely be Chinese manufacturers, German and Japanese automakers and, because of a lack of sufficient domestic alternatives, energy producers from Venezuela and the Middle East to Russia.

If they had a collective IQ over 50, the still largely discredited Republicans could run strongly against this economic scenario. Yet, for the most part, they seem incapable of putting the national interest ahead of Wall Street’s profits and corporate excess.

So no matter how much the conservatives complain, Obamanomics most likely will end up with results remarkably like those of Bushonomics: more consumption, less production, expanding public debt, asset inflation on Wall Street and a slowly declining middle-class standard of living. The only real difference will lie in who gets to rob the public — instead of pharmaceutical and oil companies, we get Gorite “renewable” energy traders and well-connected “green” venture capitalists.

Americans need to place a pox on both these flawed models. We need a totally new approach that focuses on key productivity-enhancing investments such as improved transportation infrastructure — new roads, bridges, ports and waterways to meet the demands of an expanded economy for a growing population. We should be looking at modern equivalents of the New Deal electrification program, the GI Bill, the Eisenhower highway and the space program.

Clearly, an infrastructure that is inadequate today will be utterly useless in 2050, when there are projected to be at least 100 million more Americans. Already, our energy-generating capacity in some parts sputters like that of a Third World country. Commodity exports, such as grains, unable to reach foreign markets because of a lack of rail cars and adequate waterways, are left to rot and feed rats.

This is not the way to prepare ourselves for ever greater competition from countries such as China, India and Brazil. Americans must demand a program that, while perhaps financially painful now, will make it possible for our progeny to enjoy a prosperous future rather than a declining one.

This article first appeared at Politico.

Millennials Think Globally, Act Locally

Morley Winograd and Michael D. Hais — Fri, 31 Jul 2009 01:56:23 -0400

The phrase, “Think Globally, Act Locally” has often been used by environmentalists to sum up a strategy devoted to conserving the earth's scarce natural resources at the local level. More recently, business executives borrowed the idea to emphasize the need for building capabilities at the country or regional level even as they pursue global growth. But now the Millennial Generation, Americans born between 1982 and 2003, are giving the phrase an entirely new meaning as they pursue their efforts to change the world – one local community at a time.

In contrast to the generational stereotypes many people hold of them, Millennials are very much concerned about and connected to the world around them – more so, in fact, than many older Americans. Responding to questions on foreign policy in a recent Pew Research Center survey, only 9% of Millennials were unable to express an opinion on how President Obama is doing in working with our allies, while almost a quarter of senior citizens had no opinion on the same subject. On the knotty question of Israeli/Palestinian relations, all but 7% of Millennials could tell survey researchers what they thought of American foreign policy in this area. On the other hand, 26% of senior citizens could not (see table below).

In addition to its high level of concern with international matters, the Millennial Generation's ability to make virtual friends instantaneously on Facebook or Twitter with Iranian protesters provides a unique perspective on how to deal with America’s foreign policy challenges.

Perhaps most notable is how the Millennial Generation deals with the concept of "threats". A majority of Millennials do see Al Qaeda, and the nuclear programs of North Korea and Iran as "major threats" to the United States, but by rates 15 to 20 points less than other generations. Other more intractable but less direct security concerns, such as the drug trade in Mexico, China’s emergence as a world power, or conflicts in the Mideast ranging from Pakistan to Palestine, are not considered a major threat among a majority of Millennials. To be sure, some of these attitudes may reflect the inevitable naiveté of young people, but we believe the underlying beliefs of Millennials suggest an alternative explanation.

Millennials have been taught since at least high school that the best way to solve a societal problem is act upon it locally and directly. Tired of exalted rhetoric from Boomer leaders that rarely produced results and frustrated by their older Gen-X siblings lack of interest in pursuing any collective action to address broad social problems, Millennials have embraced individual initiative linked to community action. Eighty-five percent of college age Millennials consider voluntary community service an effective way to solve the nation’s problems. Virtually everyone in the generation (94%) believes it’s an effective way to deal with challenges in their local community. No wonder one of Barack Obama’s first legislative initiatives, the Kennedy National Service Act, was in response to the desire to serve of his most loyal constituency, the Millennial Generation.

And when it comes to public service, Millennials are putting their money where their mouth is, although lack of opportunity in the private sector also could be accelerating this public service trend. Teach for America, which places new graduates in low-income schools, saw a 42% increase in applications over 2008. Around 35,000 students are now competing for about 4,000 slots. U.S. undergraduates ranked Teach for America and the Peace Corps among their top 10 "ideal employers," ahead of the likes of Nike or General Electric.

Scotty Fay, a recent University of Massachusetts graduate, typifies the continuing belief of her generation in the importance of collective action to cope with a challenging world. “If we excel and we’re able to keep ourselves working, we’ll be OK, we hope, because we haven’t experienced anything different than that,” says Fay, who worked two jobs on top of her full-time course load, and is now getting ready for her Peace Corps assignment in Guinea.

First Lady Michelle Obama, in kicking off the administration’s “summer of service” initiative, made it clear that the administration sees this belief as key to America’s future. “This new Administration doesn’t view service as separate from our national priorities, or in addition to our national priorities – we see it as the key to achieving our national priorities.” Given the likelihood of continuing employment challenges for America’s newest workers, more and more Millennials are likely to gain their first work experiences performing some type of voluntary service.

This penchant for public service shapes the beliefs of Millennials on how the United States should deal with the problems it faces around the world. In last year's contest for the Democratic presidential nomination, Millennials believed Barack Obama was right and Hillary Clinton was wrong over whether to conduct direct talks with our enemies. And they thought Sarah Palin was completely off base when she declared in her acceptance speech at the convention that “the world is not a community and it doesn’t need an organizer.” In fact, Millennials believe that what the world needs most is thousands of community organizers, working on the ground to solve their own country’s problems, linked electronically, of course, to friends around the world.

This is a trend that, appropriately, resonates outside our borders as well. Grassroots activism, led largely by young Iranians, produced protests that may yet topple one of the most autocratic regimes in the world. Activism of this type across the Mideast could result in regime changes of far greater consequence than the military conquest strategy the United States employed in Iraq. Given the distinctions Millennials make between the seriousness of direct military threats, such as terrorism and nuclear proliferation, as opposed to squabbles over power or territory, America’s foreign policy is likely to shift towards a more multi-lateral, institution-building focus as this generation assumes our country’s leadership. This will occur even as Millennials continue to express support for our military by word and deed – when that becomes the only available option.

It may take a decade or two before we know how the Millennial Generation's belief in the need to “think globally, act locally” will impact our overall foreign policy. But in the interim, the United States will surely benefit from the generation's focus on rebuilding our country, as well as the world, one community at a time.

	Total	Millennials	Gen-X	Boomers	Silent & Older
Obama favors… (6/09)
Israel too much	6%	5%	9%	6%	4%
Palestinians too much	17%	9%	16%	20%	23%
Right balance	62%	79%	62%	63%	47%
DK	14%	7%	13%	11%	26%
Compared with Bush Administration has Obama Administration made US (6/09)
Safer from terrorism	28%	40%	23%	29%	23%
Less safe from terrorism	21%	16%	20%	23%	24%
No difference	44%	38%	48%	43%	44%
DK	7%	6%	9%	5%	9%
Is each of following a "major threat" to well-being of US (6/09)
Islamic extremist groups like Al Qaeda	78%	59%	77%	86%	85%
North Korea's nuclear program	72%	51%	74%	75%	81%
Iran's nuclear program	69%	55%	67%	75%	76%
Drug-related violence in Mexico	59%	42%	55%	61%	77%
China's emergence as world power	52%	31%	51%	59%	61%
Political instability in Pakistan	50%	30%	45%	59%	63%
Israel/Palestine conflict	49%	39%	45%	53%	58%
In dealing with our allies does Obama…(6/09)
Push America's interests too hard	8%	3%	10%	6%	11%
Take account of allies' interests too much	20%	13%	18%	25%	22%
Strikes right balance	57%	76%	53%	59%	46%
DK	15%	9%	18%	10%	22%
Approve how Obama is handling foreign policy (6/09)	57%	59%	61%	52%	55%
Is Obama's approach to national security…(6/09)
Too tough	2%	1%	2%	5%	2%
Not tough enough	38%	30%	37%	42%	41%
About right	51%	64%	53%	46%	48%
DK	8%	6%	8%	7%	10%
Approve/Disapprove how Obama is handling North Korea (6/09)
Approve	51%	61%	50%	55%	38%
Disapprove	23%	15%	26%	22%	25%
DK	26%	24%	24%	23%	36%

Morley Winograd and Michael D. Hais are fellows of the New Democrat Network and the New Policy Institute and co-authors of Millennial Makeover: MySpace, YouTube, and the Future of American Politics (Rutgers University Press: 2008), named one of the 10 favorite books by the New York Times in 2008.

Rating World Metropolitan Areas: When Money is an Object

Wendell Cox — Thu, 30 Jul 2009 02:10:32 -0400

American metropolitan areas have been the subject of considerable derision. Often characterized as inferior to those of Australia, Canada, Europe and even of Japan by planners and politicians who travel abroad, there has long been a desire to reshape American cities along the lines of foreign models. Yet, despite this, American metropolitan areas generally provide a standard of living to their residents unmatched anywhere in the world. This is based upon the latest comparative economic data for the world’s most affluent metropolitan areas.

International Rankings: American metropolitan areas never seem to place near the top of “quality of living” or “livability” indexes, such as those published by The Economist and the Mercer consulting group. On the other hand European, Australian and Canadian metropolitan areas usually grab the honors, frequently led by the likes of Vancouver, Melbourne, Zurich or Vienna.

The media routinely reports these rankings without serious analytical analysis, which can lead to misunderstanding or even misrepresentation in comparing metropolitan areas on issues of living standards (Note 1). As Owen McShane pointed out on this site before, these ratings serve their purpose, which is to rank metropolitan areas based upon their “attractiveness to expatriate executives”. Not only do these lists fail to consider housing affordability, as McShane indicates, they also do not consider the overall economic performance of metropolitan areas in regard to their residents, which is not an insignificant matter. These highly publicized international listings might be thought of as “money is no object” ratings.

When Money is an Object: The problem here: money is an object for the great majority of people living in the world’s metropolitan areas. This is true in Kinshasa, Seattle, Vancouver or Vienna.

When the available measures of affluence or the standard of living are considered, the picture for US cities drastically improves. Here the US metropolitan areas dominate the list. The best available data is gross domestic product (GDP) per capita, adjusted for national level purchasing power (Note 2). Metropolitan area GDP data is now produced by the Bureau of the Census in the United States and regional data generally conforming to most metropolitan areas is available for the European Union by Eurostat (Note 3). Data for other metropolitan areas can be estimated from other national and regional sources.

In 2005 (the latest available data), The Economist top ten averaged 57th in GDP per capita in the world. Mercer’s top ten did even worse, averaging 62nd. None of The Economist or Mercer top 10 ranked was among the 25 metropolitan areas with the highest GDP per capita. Vienna ranked best, at 27th. Perennial favorites Vancouver and Melbourne ranked 71st and 72nd (Table 1). Zurich, another rating champion, ranks 74th, just ahead of Oklahoma City. In contrast, only 5 of the 51 large metropolitan areas in the United States ranked behind Vancouver, Melbourne and Zurich.

Table 1
Top 10 Economist & Mercer "Cities"
Ranked by Affluence
(GDP per Capita, Purchasing Power Parity)
Metropolitan Areas over 1,000,000 Population

City or Metropolitan Area	GDP per Capita: Rank among Top 100 World Metropolitan Areas	The Economist	Mercer
Vienna	27	2	1
Perth	28	5
Munich	40		7
Calgary	46	6
Frankfurt	51		8
Sydney	62	9	10
Toronto	67	4
Vancouver	71	1	4
Melbourne	72	3
Zurich	74	10	2
Helsinki	84	7
Auckland	84		5
Dusseldorf	99		6

100 Most Affluent World Metropolitan Areas: GDP per capita estimates for 2005 are provided for the 100 most affluent metropolitan areas in the world with more than 1,000,000 residents (Table 2).

Dominance of the United States: It is perhaps not surprising that San Jose, California ranks as the richest major metropolitan area in the world, with a 2005 GDP per capita of $78,700. Number 2, however, is a surprise: Charlotte, NC-SC, which not only pirated away San Francisco’s largest bank some years ago and has now displaced the tony city by the Bay in the runner-up position. San Francisco and Washington, DC rank third and fourth most affluent in the world. Brussels, grown fat on the largesse of its European Union taxpayers, ranks 5th.

The dominance of the United States is illustrated below.

The US has 8 of the 10 richest metropolitan areas in the world. Only Stockholm, at number 9, joins Brussels in the top 10 from outside the United States.
The US has 22 of the top 25 metropolitan areas (Figure)
37 of the most affluent 50 metropolitan areas are in the United States. By contrast, Mercer ranks only seven US “cities” in the top 50.
46 of the 70 richest metropolitan areas are in the United States

Only one of the 51 US metropolitan areas with more than 1,000,000 fails to make the top 100 in the world, Riverside-San Bernardino ($25,800), which could just as easily be considered a part of the Los Angeles metropolitan area, just as San Jose could be considered a part of the San Francisco metropolitan area.

Outside the United States: Outside the United States, the metropolitan areas of Australia and Canada perform best relative to their size. All five of Australia’s largest metropolitan areas placed in the top 100, with one in the top 50. Five of Canada’s six top metropolitan areas made the top 100, with one in the top 50. Europe placed 33 of its metropolitan areas in the top 100, with 11 in the top 50 and 22 in the second 50.

The top 100 list provides some surprises.

One eastern European metropolitan area has already entered the top 100. Prague ranks 48th, with a GDP per capita of $42,400, which is more than Frankfurt or Phoenix.
London, arguably the world’s financial capital, ranks 44th, at $42,700. Some listings show London much higher, however such rankings exclude the outer portion of the metropolitan area, which these estimates include.
Tokyo-Yokohama ranks 79th, at $35,700. This ranking is lower than others, which either ignore purchasing power or exclude most of the metropolitan area by focusing only on the high income core (the prefecture of Tokyo).
The world’s two large “city-states,” Singapore and Hong Kong also make the list. Singapore ties Louisville and Sacramento at 53rd, with a GDP per capita of $41,500. Hong Kong ranks 79th, at $35,700. Moreover, it would not be surprising if other Chinese metropolitan areas begin to break into the top 100 over the next decade.

Ranking Metropolitan Areas for People: American metropolitan areas provide their residents a superior standard of living. True enough, the mountains and water features of Vancouver or Zurich are superior to those of Oklahoma City or Charlotte. However, the average resident does not have enough money to spend much time boating in Vancouver or Zurich or taking in what may be a better cultural life. The standard of living may well be better for those with money in Vancouver, Vienna, Melbourne or Zurich than it is in an American metropolitan area. However, most people cannot afford to live like financiers and other “jet-setters.” For everyday people, the American metropolitan area remains the best place in the world to live.

Table 2
Top 100 World Metropolitan Regions
Gross Domestic Product per Capita: 2005 Estimates
Purchasing Power Parity
Metropolitan Areas over 1,000,000 Population

Rank	Nation	Metropolitan Area	GDP per Capita
1	United States	San Jose	$78,700
2	United States	Charlotte	$67,900
3	United States	San Francisco	$65,400
4	United States	Washington	$65,300
5	Belgium	Brussels	$63,700
6	United States	Boston	$59,000
7	United States	Seattle	$57,600
8	United States	New York	$56,200
9	Sweden	Stockholm	$55,100
10	United States	Hartford	$55,000
11	United States	Denver	$54,700
12	United States	Minneapolis-St. Paul	$54,600
13	Germany	Hamburg	$53,500
14	United States	Dallas-Fort Worth	$53,000
15	United States	Houston	$51,900
16	United States	Indianapolis	$51,800
17	United States	Philadelphia	$50,100
18	United States	San Diego	$50,000
19	United States	Atlanta	$49,600
20	United States	Los Angeles	$49,100
21	United States	Chicago	$48,400
22	United States	Salt Lake City	$48,200
23	United States	Milwaukee	$47,800
24	United States	Nashville	$47,700
24	United States	Columbus (Ohio)	$47,700
26	United States	Las Vegas	$47,400
27	Austria	Vienna	$47,000
28	Australia	Perth	$46,700
29	United States	Portland (Oregon)	$46,600
30	United States	Kansas City	$46,400
31	United States	Richmond	$46,200
32	United States	Orlando	$45,900
32	United States	Cleveland	$45,900
34	France	Paris	$45,700
35	United States	Memphis	$45,500
35	United States	Detroit	$45,500
37	United States	Austin	$45,300
37	United States	Raleigh	$45,300
39	Ireland	Dublin	$44,300
40	Germany	Munich	$43,800
40	United States	Baltimore	$43,800
42	United States	Birmingham	$43,500
43	United States	Miami	$42,900
44	United Kingdom	London	$42,700
44	Denmark	Copenhagen	$42,700
46	Canada	Calgary	$42,600
46	United States	Cincinnati	$42,600
48	Czech Republic	Prague	$42,400
48	United States	Phoenix	$42,400
50	Netherlands	Utrecht	$41,900
51	Germany	Frankfurt	$41,800
52	United States	New Orleans	$41,600
53	United States	Sacramento	$41,500
53	United States	Louisville	$41,500
53	Singapore	Singapore	$41,500
56	United States	Pittsburgh	$41,400
57	Canada	Ottawa	$41,200
57	United States	Jacksonville	$41,200
59	Netherlands	Amsterdam	$41,000
60	United States	St. Louis	$40,900
61	France	Lyon	$40,400
62	Australia	Sydney	$40,100
63	Norway	Oslo	$40,000
64	United States	Rochester	$39,900
65	Italy	Milan	$39,100
66	United States	Virginia Beach	$39,000
67	Canada	Toronto	$38,200
68	Belgium	Antwerp	$37,900
68	United States	Tampa-St. Petersburg	$37,900
68	Australia	Brisbane	$37,900
71	Canada	Vancouver	$37,600
72	Australia	Melbourne	$37,100
73	Japan	Nagoya	$37,000
74	Switzerland	Zurich	$36,900
75	United States	Oklahoma City	$36,800
76	Germany	Stuttgart	$36,700
77	United States	Providence	$36,100
78	Germany	Nuremburg	$35,900
79	Japan	Tokyo-Yokohama	$35,700
79	China	Hong Kong	$35,700
81	Netherlands	Rotterdam-Hague	$35,600
82	Spain	Madrid	$35,500
83	Italy	Rome	$35,400
84	New Zealand	Auckland	$35,300
84	Finland	Helsinki	$35,300
86	Canada	Edmonton	$35,200
87	Greece	Athens	$34,700
88	Spain	Bilbao	$34,600
89	France	Toulouse	$34,500
90	Italy	Turin	$34,200
90	United States	San Antonio	$34,200
92	Australia	Adelaide	$33,500
93	United States	Buffalo	$33,400
94	Japan	Shizuoka-Hamamatsu	$32,500
95	Spain	Barcelona	$32,300
96	Japan	Fukuoka-Kitakyushu	$31,300
97	Germany	Cologne	$31,000
98	France	Marseille	$30,400
99	Germany	Essen-Dusseldorf	$30,200
100	Germany	Hannover	$29,900
(1) Purchasing power parity. Metropolitan areas over 1,000,000 population for which data is available. Based upon data from Eurostat, US Bureau of Economic Analysis and Japan Statistics Bureau.
(2) US data for metropolitan areas from Bureau of Economic Analysis. Scaled to World Bank 2005 GDP PPP figure.
(3) European data for metropolitan regions from Eurostat regional data. There is no generally accepted metropolitan area definition in Europe. Scaled to World Bank 2005 GDP PPP figure.
(4) Japan data from Japan Statistics Bureau Scaled to World Bank 2005 GDP PPP figure.
(5) London metropolitan area is Greater London plus the historic counties of Berkshire, Buckinghamshire, Essex, Herfordshire, Kent and Sussex (including unitary authorities), which are adjacent to the London green belt. Some London metropolitan region GDP estimates exclude suburban areas outside the Greater London Authority. This analysis includes these suburban areas, using GVA scaling from UK National Statistics to estimate non-metropolitan contribution included in Eurostat data (Bedfordshire, Oxfordshire, East Sussex and West Sussex).
(6) Estimates for the following metropolitan areas scaled to 2005 from 2002 estimates using the closest available change estimate (metropolitan, state/provincial or nation) of the change in GDP per capita (http://www.demographia.com/db-gdp-metro.pdf): Metropolitan areas in Australia and Italy as well as Essen-Dusseldorf, Lyon, Marseille, Dublin, Auckland, Oslo, Zurich, Vancouver, Toronto and Ottawa.
(7) Metropolitan area data for Calgary and Edmonton estimated from local sources.

Note 1: Another problem with these kinds of rankings is that can be misleadingly unrepresentative. For example, Mercer ranks more than 200 “cities,” which sounds like a significant number. By cities, Mercer appears to mean municipalities (the website is unclear and Mercer has not responded to our request for clarification of what they mean by “city”), of which there are many in all first world metropolitan areas. Some have as few as 50,000 to 100,000 residents. Mercer ranks White Plains, New York (population: 57,000), in the New York metropolitan area, but has no ranking for the many larger cities in the metropolitan area, except for New York itself. Considering that the United States alone has nearly 275 municipalities of more than 100,000 population, the Mercer list appears to be far from comprehensive.

Note 2: The national purchasing power parity conversion factor does not permit comparison of standards of living within nations. For example, anecdotal data would indicate that the cost of living is considerably higher in the San Jose, San Francisco and New York metropolitan areas than in the rest of the country. While not generally available, a purchasing power parity analysis within the United States could show metropolitan areas with lower GDPs per capita to have superior standards of living.

Note 3: The European Union does not formally delineate metropolitan areas, however provides regional data that in most cases is a rough approximation of metropolitan areas.

ULI Moving Cooler Report: Greenhouse Gases, Exaggerations and Misdirections

Alan Pisarski — Wed, 29 Jul 2009 01:34:30 -0400

Yesterday a group of environmental advocacy groups, foundations and other organizations released a report, Moving Cooler, amid much fanfare, seeking to have us believe that it is a serious study of GHG reduction options in the transportation sector. It is immensely disappointing. The world could use a dispassionate, objective and broad-based assessment of petroleum reduction options as well as their positive and negative consequences. This is not it.

As one reads one can't help but feel that you are being hit with a sales pitch, or a legal brief from advocacy groups and those who would benefit financially from the derived policy options. The main point, amidst all the array of statistics, confirms the dogma of the already convinced that the only solution to greenhouse gases is major re-structuring of society.

These notions, critically, were already on the front burner of these same groups long before the climate change issue came to prominence. “Progressive” foundations, new urbanists, planners and urban landowners long have advocated the re-assembly of urban living into high density transit-oriented bikeable/walkable communities. Even though their numbers as reported in the text don’t bear it out, the rhetoric is all focused towards that end and the pricing out of existence the automobile and all the evils it represents: suburban living and long trips.

This is a report meant to be waved rather than read as the Congress goes about its fulminations in the coming months. It understates the prospect of gaining the full potential of greater energy efficiency from the vehicle fleet – the only way to justify the wholesale reorganization of society. In fact, if the vehicle/fuel assumptions had been as comparably optimistic as the land use assumptions, with a robust and honest assessment of fuel and vehicle technological development opportunities, one wonders whether this report would be worth doing at all.

We have been here before. In the struggle to improve air quality, it turned out that the solution was not so much changing people’s behavior as it was technological – largely the improvement of fuel and vehicle technology. In the 1970s we were told we could not have cleaner air and automobiles; yet in fact that’s exactly what happened, without having to heed a sermon about our need to repent and change our suburban, car-driving ways. Some people just have a penchant for telling others how to live.

Maybe the saddest part of it all, the authors appear not to take global warming or energy security very seriously at all. Rather these public concerns are just a convenient hook, the cause du jour, on which to hang their favorite solutions. If global warming matters – and it does; if energy security matters – and it does; then early action is clearly called for, particularly given the cumulative nature of GHG gases. But somehow the things easily done and carrying with them little in the way of disruption or public costs – carpooling, telecommuting, dispersed work – are largely written off. Such immediate, low-cost actions as highway operations strategies including better traffic signalization, improved traveler information and accident response systems receive little emphasis.

Overall, the treatment of costs and benefits will leave readers gasping:

Travel times don’t get counted – so shifting from a 15 minute car trip to an hour on transit or walking has no penalty.
Transit subsidies don’t get counted – so doubling subsidies to increase ridership has only benefits.
Every possible pricing strategy is invoked – congestion pricing, cordon pricing, on-street parking fees, extreme fuel prices – in order to get people out of cars, and then the loss of their cars is counted as a benefit.

At the same time the benefits and the costs involved are so corrupted to be meaningless. It will take weeks for analysts to tease out what really was done in the way of assumptions to create winners and losers. And there is no effort to tally all the costs exacted on the average household, or the typical business or even governments for that matter. The costs would add up to a permanent recession.

I am sure the millions affected by these policies, particularly the middle and working class people who can now just barely afford a car, who would be priced out of the system by these policies, will say thank you for this “benefit”.

As we work our way through the recession, workers will be willing to travel farther and farther to find the right job – or any job. With continuing increased specialization in our society larger and larger market sheds for jobs and for workers, quality transportation will be critical to our national productivity. This is the work that transportation does and it is totally dismissed by this report. It can not be addressed adequately by rail or transit even with a complete radical reorganization of work and society.

In order to further bolster their ineffective case the proponents use a tool called “bundles” in which packages of actions are assembled for their “synergistic” qualities and either given a boost or cut based on the assertion that some things work well together. How this was done is not explained. So land use plans, which will take 30 years to come to fruition, are coupled with carbon pricing policies in a sort of horse and rabbit stew, that help make density solutions seem effective.

Those who see the solution of so many of our present ills by cramming people into ever higher densities miss the point. Residential density is one of the most fundamental choices households make. Changing residential densities to make transit work better is the smallest tail wagging the biggest dog I can think of. It puts planning dogma ahead of the most basic human needs and rights.

It is clear that most people, excepting a small but often very loud minority, opt for lower density living when income permits. As the society changes and choice patterns evolve, the marketplace must be ready to respond with development that is both responsive to household choices and to the demands of environmental needs. Any public policies that inhibit a market trend toward higher densities must be addressed. But the market place must be the final arbiter in a free society. People do not live “efficiently” in order to optimize some imposed societal goal, certainly not commuting.

The serious work that needs to be done in this area still awaits an independent and credible group to undertake this work. It can't come soon enough.

For almost 40 years Alan E. Pisarski has been involved in the national transportation policy scene, from vantage points at the original Tri-State Transportation Commission in New York, the Metropolitan Washington COG, the Office of the Secretary, U.S. DOT, or in a personal consulting capacity. In his work he has measured the transportation activities of our nation from the metropolitan, state, national and international levels. In the U.S. DOT he organized the major travel surveys of the nation and designed and managed the U.S. transportation statistical system under the Assistant Secretary for Policy, establishing programs that are still the basis of much of the U.S. transportation statistical system today.

Salinas Dispatch: A Silver Lining in the Golden State

Joel Kotkin — Tue, 28 Jul 2009 00:10:36 -0400

From a distance, a crisis often takes on ideological colorings. This is true in California, where the ongoing fiscal meltdown has devolved into a struggle between anti-tax conservatives and free-spending green leftist liberals.

Yet more nuances surface when you approach a crisis from the context of a specific place. Over the past two years my North Dakota-based consulting partner, Delore Zimmerman, and I have been working in Salinas, a farm community of 150,000, 10 miles inland from the Monterey coast and an hour's drive south of San Jose. Our work has been funded by a variety of sources, including the city, local business interests and the Chamber of Commerce.

Our goal has been to find ways to promote upward mobility in the town, which is almost two-thirds Hispanic. Poverty is widespread, and gang problems rank among the worst in California. Unemployment, devastated by the recent recession, hangs at around 15%.

These conditions are not at all unusual for inland California, and they are particularly prevalent in farm regions. In the Central Valley, over the next range of mountains, conditions are far worse, with some communities losing thousands of acres in production and unemployment rushing upward of 40%.

One liberal journalist, Rick Wartzman, recently described the vast agricultural region around Fresno as "California's Detroit." As environmentalists push to cut back on water supplies and protect fish populations in the San Francisco Bay Delta, Wartzman notes, its local workers and businesspeople "are fast becoming a more endangered species than Chinook salmon or delta smelt."

In Salinas, where water comes from local aquifers, wells and the Salinas River, death seems less imminent, but there is a profound sense that things may be deteriorating. Local growers worry about regulatory constraints that will drive up costs to meet new state greenhouse gas standards. They also fear a possible county initiative, promoted by the well-funded local greens, to ban the growing of genetically modified foods.

The growers' response to the pressure – as with other businesses in California – is not to quit but to scale down operations. Some are cutting back thousands of acres of lettuce and other green crops that have been the prime business for the area for nearly a century.

Yet we also see many reasons for hope. Salinas remains a unique place with an amazing richness in what the French call terroir, a combination of climate and soil. The city's most famous son, John Steinbeck, wrote of the Valley's unique topography:

"The high gray-flannel fog of winter closed off the Salinas Valley from the sky and the rest of the world. On every side it sat like a lid on the mountains and made of the great valley a closed pot."

Growing conditions in Salinas cannot be easily duplicated elsewhere. Its richness has created a cornucopia responsible for the predominant part of the area's private-sector employment.

But it's not just physical factors that make Salinas – and California – so productive. People matter too. The area is populated by scores of hard-driving agricultural families, people whose forebears transformed the place into the "salad bowl" of a nation. By 1952, when Steinbeck published East of Eden, Salinas produced 70% of the nation's lettuce and much of its fresh vegetables.

Salinas' growers are not hereditary gentry; talk to local farmers and you find people whose roots lay in Italy, Portugal, Ireland, Japan and, increasingly, Mexico. "People, if given opportunity, can accomplish anything," notes Lorri Kester, CEO of Mann Packing, a leading broccoli producer. "Many of the firms that lead us now were started by 'Okies' who worked the land. Now we see the same things with Latinos who started out as hands and now are foremen or managers."

What the Salinas growers do best – like their high-tech counterparts up in the Santa Clara Valley – is innovate. Working with the USDA and University of California-Davis scientists, they have led the way in creating new strains of vegetables and new ways of marketing, including the notion of "salad in a bag."

But not all the knowledge that makes Salinas such an economic powerhouse comes from entrepreneurs or PhDs. Like many agricultural communities, Salinas has had a sometime brutal labor history, particularly in the 1930s. The worst of this is now thankfully over, but farm labor remains a tough and often unrewarding profession.

Yet even the hardest-edged growers acknowledge the importance of their labor force. Although education levels remain relatively low, our research revealed an extraordinarily high concentration of people with practical skills that can be applied to growing the agricultural economy. Future mechanization may reduce the overall employee counts but will make growers even more dependent on skilled workers in the fields.

This proficiency, acquired in the fields and the processing sheds, has helped create another product for the Valley: expertise. Salinas growers, foreman, irrigation workers and marketers now sell their knowledge in other parts of California, as well as to Arizona, Mexico and, increasingly, East Asia. "I am seeing a lot of product and technical products from Salinas go to China and elsewhere," notes Frank Pierce, a local agricultural consultant.

Salinas also teaches you to avoid the great distinction made by many pundits between the "knowledge" industry and the productive type that focuses on tangible goods. A successful economy draws on information but also creates real products. There is a relationship between the two that is dynamic and has long been a critical component of California's economic vitality.

This is not just true of Salinas. I learned long ago from the founding fathers of Silicon Valley – people like Intel founder Bob Noyce and venture capitalist Don Valentine – that the practical knowledge from making circuits and chips helped create the Valley's unique engineering terroir. Similarly, the "magic" of Hollywood does not emerge full-blown from the brain storms of stars and moguls. The entertainment complex's unique abilities grow from the interplay of practical knowledge of less glamorous camera people, grips, editors, caterers and prop-managers servicing what Angelenos invariably refer to as "the industry."

Sadly, this insight largely has been lost on California's political and business leadership. Among the so-called "progressive" community, production of any kind, outside of small artisanal farms or funky software shops, is disdained.

This anti-development ethos has gained extra traction by claims that large farms and factories might add to the "carbon footprint" of a given place. Among well-funded foundations and some corporate leaders there remains an implicit sense that California can still mine enough riches in cyberspace to support the vast hoi polloi.

Yet in reality, Californians need hard jobs, even mundane ones. The farm, sound stage or electronics factory provide the employment essential to broad-based prosperity. And when those jobs leave California they usually migrate to a place – whether over the border or abroad – where wages are lower and environmental controls are far weaker.

This is not to argue that California's right has the answers either. Lower taxes are generally preferable to higher ones. But in Salinas – and California – sometimes higher taxes might be preferable to cutting services, like the critical training offered by community colleges, which make the economy work and offer hope to the younger generation.

In Salinas, Mayor Dennis Donahue, a Democrat of the Pat Brown variety, has embraced a call to raise the sales tax in order to maintain basic services. It's not an ideal solution, but in the real world of running a city, particularly one with a big gang problem, you don't want to cut back on police and libraries or add to already surging unemployment.

What California needs most now is what it's most missing: common sense and a sense of balance. This is what we learned in Salinas. California cannot be saved by ideologies – it needs to be saved from them.

To be sure, preserving the land and air quality should remain a priority; it is the basis of California's riches and unique appeal. But sustainability – the great buzzword of our time – needs to apply not only to the environment but also the economy and society. The right-wing solution of lower taxes even at the price of eviscerating the public sector and letting the infrastructure deteriorate does not constitute a program for long-term prosperity.

We prefer an approach that focuses on practical steps for private and public sectors to collaborate on restoring economic growth. In Salinas, this means establishing – through cooperation with Hartnell, the local community college – a center for the development of agricultural technology. Salinas could use its combination of intellectual and grassroots knowledge to become the Silicon Valley of the "fresh" economy. It would also serve as a center of practical research on E. coli and other diseases that threaten the entire agricultural industry.

Another step would be to expand the area's thriving wine corridor to promote the region's vintages. And there needs to be a plan to restore the historic central core into a bustling business district and to attract the predominately Latino shoppers, now lured to malls and outlet centers outside the city, back into town.

These steps will take effort and money, but neither free market ideology nor green zealotry alone will get it done. California's greatness was created not just by entrepreneurs or through its public sector, but in a clever, pragmatic melding of the two. Blessed with resources of topography, climate and human skill, our state should not allow dueling extremes to turn a global paragon into a planetary laughingstock.

This article originally appeared at Forbes.

The Dollar: Running on Reserve

Matthew Stevenson — Mon, 27 Jul 2009 02:13:42 -0400

During the recent financial crisis, I didn’t meet anyone else who was invested in stocks and bonds. I guess I was the only one. Everyone else was holding “cash,” as they often quietly boasted. But even if your money is kept under a mattress, cash is best understood as a zero-coupon bond, in most cases drawn against an overdrawn nation-state.

Cash may be king, but the sovereign looks more temporary than a Romanov heir living in a rented villa in the south of France.

The risk comes about because, in order to be held in any amount, money has to be deposited in banks, of course, which during the crisis wiped away more investor capital than did Bernie Madoff. (At the end of 2006 Citigroup had a market cap of $273 billion; today it is $16 billion. And at least it stayed in business.)

Before getting into the ability of the Obama administration to spend and borrow further, and the wisdom of those who hoard cash, a bit of perspective:

Paper money had its origins as bills of acceptance. The bearer of the circulating note could present documents at a warehouse and collect (should no cash be on hand) bales of cotton or coffee.

Subsequently, governments decided that they, too, ought to be in the wealth creation game, and they began issuing national currencies. Literally and figuratively, depending on what was stirred into the vats of the paper companies, the deals amounted to money for old rope.

In some societies, bondholders (that is, all those with folding money in their wallets) demanded convertibility of currency into silver or gold. In countries off a gold or peg standard, however, money amounts to little more than an unsecured loan to a national government, which today is the best way to think of the American dollar.

During Reconstruction, the divide in the United States was between those that demanded a currency exchangeable into gold (Wall Street banking houses) and those that wanted convertibility into silver, if not wheat, corn, or sorghum (farmers).

Not surprisingly, despite the eloquence of William Jennings Bryan, the gold interests defeated the farm lobby, which made it impossible for loans to be repaid with cheap — that is, inflated — dollars.

The American money supply became a function of gold purchases and production, if not hostage to the fortunes of price fixes, corners, and oligopolists, who loved nothing more than to squeeze the economy into periods of recession. Deflation, when general prices fall, is a banker’s best friend, as it takes that much more “real” money or hard assets to repay a loan denominated in gold-backed dollars.

The strength of the American dollar was confirmed in the 1944 Bretton Woods conference in Washington, which both fixed the international price of gold and the supremacy of the greenback. Suddenly the dollar was as good as gold. Why mine or buy gold when you can print it?

Nothing other than the U.S. government’s promises restricted the amount of dollars that could be issued into world markets. No world central bank actually monitored the ratio of circulating currency and gold reserves, and few with dollars ever went to the Treasury to swap cash for gold ingots.

The costs of the Vietnam War and the Great Society forced the dollar off the gold standard in 1971. To pay for the guns and butter, Washington increased the money supply (printed dollars). The only monetary constraint was the supply of ink and paper.

For a while trade partners continued to accept payment in dollars, believing that the U.S. economy was stronger than any other. The dollar might have “floated” in relation to other currencies, but at least it wasn’t the Russian ruble or the Argentine peso.

The problem with floating currencies is that they are susceptible to runs should the issuing country run up budget or trade deficits. Why should anyone lend money to a bad business just because the enterprise is a country with a flag?

As U.S. deficits increased, global investors edged away from the dollar into the German mark, the Japanese yen, the Swiss franc, the Euro, and more recently baskets of Asian currencies.

Which brings us to today. Only goodwill (defined both as an accounting term and as political deference to military might) now supports the U.S. dollar as a reserve currency, which is what allows the United States to issue dollar-denominated bonds in world money markets.

It is this borrowing capacity that allows the Obama administration to bailout the banking industry, offer to pay for universal health care, fight colonial wars in the Middle East, stimulate the economy, send billions to Egypt and Israel, buy out General Motors, and subsidize every windmill start-up company in Nancy Pelosi’s home district. (Madoff’s problem was that he failed to set himself up as a country. He otherwise understood deficit spending.) But the shell game requires full faith in the dollar.

For those riding out financial storms by “sitting on cash,” here is what’s under your seat: in recent months U.S. federal debt has grown to $11.3 trillion, almost equivalent to gross domestic production. About one quarter of this indebtedness, or $2.8 trillion, is held abroad, and China and Japan hold just under half of those assets (liabilities to Uncle Sam).

Elsewhere on the American balance sheet is another $11.4 trillion in household debt, an annual trade deficit of about $725 billion, and a federal budget deficit that is estimated in 2009 to be approaching $1.8 trillion. That’s if the economy grows at 3 percent.

Off-balance sheet risks, what accountants call contingent liabilities, include about $10 trillion in new bailout guarantees (Fannie Mae, Bear Stearns, Countrywide, and whatever the administration launches as its New Deal of the Day). None of the above includes the unfunded liabilities of Social Security ($41 trillion), which, by comparison, make the shares of Lehman Brothers and AIG look like Scottish bonds held for widows and orphans.

The geese laying the golden eggs of U.S. financial stability are the printing presses of the U.S. Treasury, and, for now, those collecting them in their Easter baskets include a number of countries and regions perhaps tiring of American arrogance, if not of the drop in the dollar’s value. Who would blame such popular targets of moral abuse as China, Russia, Switzerland, Arabia, or Latin America for dumping their dollar-denominated assets?

All that lies between the U.S. dollar and a financial Armageddon is the Faustian house of credit cards under which Asian economies invest their trade surpluses in U.S. Treasury instruments — to keep the dollar strong, their own currencies weak, and purchases brisk between the likes of Wal-Mart and the Asian Greater Co-Prosperity Sphere.

Sooner than we think, China and Japan, like all nervous creditors, may send the United States a letter, suggesting that, henceforward, if Washington needs to borrow money, the bonds be issued in renmimbi, yen, or a basket of Asian currencies (a Pacific Euro).

Wall Street bankers did the same to the farm interests in the late nineteenth century, when they insisted that debt be based on a gold standard, as opposed to “free silver.” President Obama may be as eloquent as William Jennings Bryan. But at that point he will need to use all his oratory for the business of selling junk bonds.

UK Green Path leads to Deindustrialization and Worsening Housing Shortage

Ian Abley — Sun, 26 Jul 2009 02:00:28 -0400

The First Secretary of State, Secretary of State for Business, Innovation and Skills, and Lord President of the Council, Peter Mandelson, together with Ed Miliband, the Secretary of State for Energy and Climate Change, have published The UK Low Carbon Industrial Strategy. They are claiming it promises an "economic revolution” but is in fact an environmentalist retreat from industrial production It is a disastrous strategy that will result in further de-industrialisation, supposedly with the aim of addressing a rather vague threat of climate change.

Mandelson and Miliband insist The UK Low Carbon Industrial Strategy “can ensure that our economy emerges from the global downturn at the forefront of the technological and social shift that will define the next century.” Yet this is typical establishment "greenwash", which many institutional and corporate leaders of the construction industry will sadly rush to endorse. It will shift us towards the laborious construction of new eco-homes, and the laborious refurbishment of the stock of mostly draughty, poorly insulated, and badly serviced housing. All this is aimed to achieve, at least on paper, a contribution to a national carbon reduction target by 2020.

Government thinks that it will be building 240,000 "zero carbon" homes every year by 2106. In fact at least 500,000 homes are needed every year to meet household growth and replace the oldest of the stock at a rate of 1% a year. Yet in reality this year new house building is down to 100,000 a year, and there is no reason why that level of production will increase even when, as is starting to happen, house price inflation returns. Instead of promoting mass production, most house builders are quite likely to follow The UK Low Carbon Industrial Strategy to become luxury eco-home builders. They will be content to build around 100,000 "green" homes a year to get through the planning system. They will build homes that show their environmental credentials by the thickness of walls and roofs – full of sheep’s wool or hemp, packed with straw bales, or made from low-fired clay blocks.

This, of course, is the approach to new house building promoted by Prince Charles and the other would be green gentry. He advocates “the use of local materials to create local identity which, when combined with cutting-edge developments in building technology, can enhance a sense of place and real community.” Just as Mandelson and Miliband claim theirs is an industrial strategy, Charles promotes green building technology.

Charles talks of building walls and roofs thickly in "volume", but what does his royal greenness know of the market? Government also imagines it can use renewable insulation materials to produce "affordable" housing. Walls and roofs will get thicker, but housing will not be built in sufficient quantity for a growing population, and will not be affordable on most British household incomes.

The green tendency will be to use greater thicknesses of less processed, more laborious-to-install insulation materials, cut-to-fit on site. This will make the walls and roofs on new eco-homes around half a metre thick, but that might be fashionable. Having more material in the walls and roof will show how little energy is used in the new and expensive eco-home.

Thick insulation is an immediate problem in the refurbishment of the stock of 26 million existing houses and flats. It is not always possible to cover the outside with great thicknesses of natural materials that, contrary to the Prince's claim, have a low capacity to insulate. Even industrially produced fibres and foams, which green purists think are too processed, must be used thickly. It is less possible to apply thicknesses of insulation inside the existing home, when most British homes are so small. A lot of filling of masonry cavity walls has been carried out under energy efficiency schemes, with little regard for why the drained air cavity was there in the first place. But no existing housing has walls with cavities of up to the 300mm that would be required for insulants that satisfy greens.

The architectural fact is that only made-to-fit insulation, prefabricated as an industrially processed product, can achieve the thermal performance being discussed with a minimal thickness.

Sheep’s wool and hemp, straw bales, and low-fired clay blocks are positioned increasingly off the scale to the right on thickness. Foam glass as an industrial product is poor as an insulant, as is cellulose fibre. The sorts of glass and mineral fibre insulation that can be bought in any builder's merchant require substantial thicknesses. Foams have better performance, and are familiar as cut-to-fit insulation. However only the use of processed vacuum insulation, as a made-to-fit industrial product reduces insulation thicknesses to the architectural dimensions required.

On behalf of New Labour Miliband boasts that Britain has produced a carbon reduction plan to 2020 that should inspire other industrial and industrialising nations. “Having been the first country in the world to set legally binding carbon budgets, we are now the first country in the world to assign every department a carbon budget alongside its financial budget,” he told the House of Commons. We seem to be the first country in the world to ignore the space- and time-saving potential of construction technologies that require energy in their production processes, but save energy in the long term operation of well serviced buildings.

Britain is retreating from industry and makes an environmental fetish out of bulky "natural" materials that don't work well. Why favour materials that are lightly processed as agricultural crops, or are low-fired but need rendering? Why not accept processing, as all timber is processed, and welcome the durability of fully fired bricks? This carbon obsessed idiocy in construction works against other great materials like concrete, glass, steel and aluminium.

For their part government is insisting that insulation must be renewable and crop-based rather than an industrially processed product. This means that small British houses and flats will be thickly walled and roofed and will be built in too few numbers to accommodate British household growth. Every existing home must be refurbished indefinitely. That is truly pitiful for an old industrial democracy like Britain.

Government abuses the words Industrial and Strategy, sharing the Prince's low aspirations for twenty-first century construction and architecture. An industrial strategy worthy of the name would promote the development of highly processed vacuum insulation, and would expect skills in design, manufacture, installation, and maintenance.

An attempt to make "green jobs" rather than raise productivity and wages, The UK Low Carbon Industrial Strategy should be seen and criticised as an environmentalist strategy of de-industrialisation, because that is precisely what it is.

Ian Abley, Project Manager for audacity, an experienced site Architect, and a Research Engineer at the Centre for Innovative and Collaborative Engineering, Loughborough University. He is co-author of Why is construction so backward? (2004) and co-editor of Manmade Modular Megastructures. (2006) He is planning 250 new British towns.

Globalization Leads to Civic Leadership Culture Dominated by Real Estate Interests

Aaron M. Renn — Sat, 25 Jul 2009 01:34:01 -0400

"Cleveland’s leadership has no apparent theory of change. Overwhelmingly, the strategy is now driven by individual projects. These projects, pushed by the real estate interests that dominate the board of the Greater Cleveland Partnership, confuse real estate development with economic development. This leads to the 'Big Thing Theory' of economic development: Prosperity results from building one more big thing."

- Ed Morrison, "Cleveland: Reconstructing the Comeback"

Ed Morrison wrote the above about Cleveland, but he could have been describing any number of other cities. Why is it that so many cities have turned to large real estate projects to attempt to restart growth, turning away from strategies that previously made them successful?

The answer possibly lies in structural economic changes resulting from the nationalization and globalization of industry. Up until the 1990s, many businesses – including retail, utilities, some manufacturing, and especially banking – operated on a regional or local basis. This meant that the civic leadership of a community was heavily dominated by businessmen, again, especially bankers, whose success was dependent on the overall macroeconomic health of the particular city or region they were located in.

But with banking deregulation, we saw large numbers of hometown banks merged out of existence. Industry after industry was subjected to national or international level roll-ups as changes in the economy and regulatory environment gave increasing returns to scale.

Why is it that "real estate interests" dominate in a local economy like Cleveland? Because, to a great extent, they are among the only ones left. Consider the local industries that were not as subject to roll-ups. Principal among these are real estate development, construction, and law. This means the local leadership of a community is now made up of executives in those industries, and they bring a very different world view versus the previous generation.

Consider the difference between a banker and a lawyer. Banks make money on the spread between what they pay for deposits or wholesale funding, and what they charge for loans. This means the CEO of a bank is making money while he plays golf at 3. He's got a cash register back at the office that never stops ringing.

By contrast, lawyers get paid by the hour for work on specific matters and transactions. The law partner is only making money on the golf course if he is closing a deal. It's similar between many other "operational" businesses that were previously prominent in communities, and the "transactional" businesses that are now often dominant.

Additionally, even where the hometown bank or company did not get bought out, it likely escaped that fate by getting big itself and making large numbers of acquisitions or otherwise expanding. This means those institutions are less dependent on the health of the particular local market they happen to be headquartered in than they are overall macroeconomic conditions. While no doubt they want the headquarters town to be successful, not least of which so they can effectively recruit talent, they can afford to take a portfolio view of local markets.

Not only has the drying up of local and regional operating businesses led to a business leadership community unbalanced in favor of transactionally oriented firms, the loss of those local and regional operating businesses robbed many of the transactional companies such as law and architecture firms of their principal local client base. Large national businesses employ national firms for advertising, law, architecture, etc. If they use local firms, it is in a subsidiary role. (Or, if a smaller firm is fortunate enough to land a contract, it is servicing a client on a national, not local basis).

Richard Florida described this in his Atlantic Monthly article on the financial crash. "As the manufacturing industry has shrunk, the local high-end services—finance, law, consulting—that it once supported have diminished as well, absorbed by bigger regional hubs and globally connected cities. In Chicago, for instance, the country’s 50 biggest law firms grew by 2,130 lawyers from 1984 to 2006, according to William Henderson and Arthur Alderson of Indiana University. Throughout the rest of the Midwest, these firms added a total of just 169 attorneys. Jones Day, founded in 1893 and today one of the country’s largest law firms, no longer considers its Cleveland office 'headquarters'—that’s in Washington, D.C.—but rather its 'founding office.'"

Where then is the source of transactions these firms can turn to in order to sustain their business? The public sector, of course.

I would hypothesize that many local transactionally oriented services companies have seen the public sector take on a greater share of billings than in the past. With the old school bankers and industrialists mostly out of the picture, the leadership in our communities consists increasingly of the political class and a business community dominated by transactional interests.

When you look at the composition of this group, it should come as no surprise that the publicly subsidized real estate development is the preferred civic strategy. Politicians get to cut ribbons. Cranes always look good on the skyline. Local architects, engineers, developers, and construction companies love it. And there is plenty of legal work to go around.

This is not to say these people are acting nefariously. And nor were old school bankers and industrialists always acting purely altruistically. Rather, the difference comes from the world view and "theory of change" that people steeped in transactionally oriented businesses bring with them.

With the current financial crisis, bigness, as a strategy, is out of favor for the moment. Also, the gimmicky financial transactions that underlie much of the crisis are calling the entire transactional model into question. There's an increasing alarm at the precipitous decline of manufacturing, particularly the auto sector. And people are questioning whether we as a country can survive simply through services, or whether we need to revitalize the concept of the operational business and actually making things. Plus, real estate deals are tougher to get done because of tight credit, and it seems unlikely that the go-go days of recent years are coming back soon.

We'll see where this leads. But if we see more local and regional scale operating businesses start to emerge again, then perhaps the urban development pendulum will start swinging the other direction again. In the meantime, large scale real estate development will likely continue to be preferred.

Aaron M. Renn is an independent writer on urban affairs based in the Midwest. His writings appear at The Urbanophile.

Moving to Reloville, America's Cross-Country Careerists

Joel Kotkin — Sat, 25 Jul 2009 01:19:30 -0400

Peter T. Kilborn’s Next Stop, Reloville: Life Inside America's New Rootless Professional Class documents an important piece of social history: the lives of relocating corporate executives. These modern-day nomads—overwhelming white, well-educated and middle-class—maintain the business machine of large companies. They include the technicians, marketing executives and professional managers who accept a rootless life in exchange for handsome remuneration.

Most of these people live in what Mr. Kilborn calls Relovilles, an archipelago of mostly newer, upscale suburban communities that includes places such as Alpharetta, Ga., Highland Ranch, Colo., Overland Park, Kan., and a series of Texas locales from Plano, outside Dallas, to the Woodlands on the periphery of Houston.

In the many vignettes he provides, Mr. Kilborn portrays these executives and their families in a dispassionate, even sympathetic manner. We meet Jim and Kathy Link, who have moved seven times in a little more than 10 years as Mr. Link pursued a career in selling employee-benefit services. The author rides along with Kathy as she shuttles the kids to soccer practice,and he tracks the buying and selling of the Links’ homes. “The basement is approximately the same size as my parents’ entire house,” says Jim, marveling at how much house his $200,000 annual income bought in Alpharetta.

We also meet Matt Fisher and his family. He’s an inventory-management specialist who, we’re told, has “averted dead-ending his career by mining his network of contacts to move from Chicago to Cleveland, to Columbus, to Houston, and finally to Flower Mound,” in Texas. Matt explains: “You can escalate your career if you want to move around. The ones who don’t move around don’t get the calls . . . because nobody knows who they are.”

Although Mr. Kilborn is clearly an advocate for the ideal of rooted, organic communities—a value shared by many of the “Relos” in his book—he evinces none of the snobbish dismissal of middle-class values and aspirations that one finds in the work of new urbanists such as James Howard Kunstler or Andres Duany. Yet despite the appealingly sensible outlook of “Reloville,” the book does not rise to the level of the great social histories, such as Herbert Gans’s “Levittowners” or even Alan Wolfe’s “One Nation.” Mr. Kilborn’s work lacks both the statistical rigor and deep historical perspective found in the best such works.

Mr. Kilborn also falls into something of the old journalist’s trap: trying to sell your story as something bigger than it is. He calls the Relos “a disproportionately influential strain of the vast middle class.” Yet in many ways they may not be as important as he suggests.

Overall, Mr. Kilborn estimates the total Relo population at around four million in 2007. The number includes something like 800,000 households that are moved every year by companies in the U.S.—not an insignificant group but hardly a major one in a country of more than 300 million people.

Despite his claims of their significance, Mr. Kilborn acknowledges that the Relos are far from “masters of the universe” who actually shape economies and societies. In fact, most are more the servants of top management than people in control of their own destinies. They are, Mr. Kilborn notes, “twenty-first-century heirs of William S. Whyte’s ‘Organization Man,’ who exchanged the promise of job security and a pension for his loyalty and toil.”

Yet it seems clear that the whole world of “The Organization Man” of the 1950s—predicated on stable employment— is shrinking, and rapidly. The days of large corporate organizations with a secure cadre of midlevel executives seems itself an anachronism. Companies routinely restructure their bureaucracies and outsource—to smaller independent firms domestically as well as to firms overseas. Relos may represent less the wave of the future than a stubborn hangover from the past.

One critical reason for the reduced need to uproot workers is new telecommunications technology. For generations, IBM was instrumental in shaping the Relo group that Mr. Kilborn describes. After all, this was a company with initials that, executives joked, really meant “I’ve been moved.” Yet today IBMers are not as mobile as in the past—not in terms of physical movement anyway. As much as 40% of the IBM work force operates full-time at home or remotely at clients’ businesses. For members of the company’s highly regarded consulting practice, the percentage is even higher—they’re logging frequent-flyer miles, and piling up points at Residence Inns, not putting down even shallow roots.

Perhaps even more important may be social changes that could make Relos less relevant in the future. For decades in the post-World War II era it was believed that “spatial mobility” would increase, hastening social disintegration. This vision was epitomized in Vance Packard’s 1972 best-seller, “A Nation of Strangers,” with its vision of America as “a society coming apart at the seams.”

But in fact, far from becoming ever more nomadic, Americans are becoming less so, as the population ages and as formerly urban amenities are more widely dispersed and accessible. As recently as the 1970s, 20% of Americans moved annually; by 2004 the number had dropped to 14%— the lowest since 1950. By 2008, barely 10% were relocating.

These days human-resource executives complain that workers are increasingly unwilling to move even for a promotion, citing family and other concerns. With the recent economic downturn, worker mobility in the U.S. has waned further. The decline in the relocation tradition seems likely to persist in good times or bad.

Even the denizens of Relovilles who bought houses under the assumption that they’d be selling and moving on after a few years are now deciding to stay put. And formerly transient communities are evolving into something more permanent. Recent interviews that I conducted in the Woodlands, near Houston—one of the Relovilles identified by the author—revealed a growing sense of community, with some three-generation families now settled in the area.

Over the past 40 years the institutions of community have emerged in the Woodlands. For example, a well-managed and expansive social-service organization called Interfaith has risen to take care of many needs, from welcoming new families to providing services to children and seniors. A well-attended cultural center has grown up in the town, as has something of a Main Street shopping district. The Woodlands is shedding its past as a generic Reloville and becoming its own place.

Urban critics might see these evolving Relovilles as too faux for their tastes, but they do hint at a more rooted, less mobile suburban world, far more human than that envisioned by many futurists over the past few decades. Mr. Kilborn’s “Reloville” may turn out to be less about America’s social future than a fair and well-written chronicle of a phenomenon that is slowly, but inexorably, relocating into the history books.

This article first appeared in The Wall Street Journal.

Follow the Money: Special Inspector General for the Bailout

Susanne Trimbath — Fri, 24 Jul 2009 01:32:51 -0400

The House Committee on Oversight and Government Reform held a critically important hearing on July 21 titled "Following the Money: Report of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP)." Sadly the mainstream media under reported the meeting. They focused on Federal Reserve Chairman Ben Bernanke telling the House Financial Services Committee “don’t worry,” but missed Special Inspector General (SIG) Neil Barofsky telling the Oversight Committee all the really sexy stuff: Conflicts of Interest, Collusion, and Money Laundering.

Bernanke likes to tell us his Federal Reserve could take on a Super-Cop role, but the truth is quite the opposite. Reviewing the SIG report, Oversight Committee Chairman Edolphus Towns (D-NY) described it as "a wake-up call to the Treasury and the Fed that our financial system cannot be run behind closed doors."

Back in October 2008, Congress passed a bill to relieve the suffering caused by the Subprime Crisis. The Troubled Asset Relief Program (TARP) gave Treasury the authority to "purchase, manage and sale $700 billion of toxic assets, primarily troubled mortgages and mortgage-backed securities." Within days, then Treasury Secretary (and former head of Goldman Sachs (NYSE: GS)) Hank Paulson unilaterally decided to take the money but to do something completely different with it – that is bail out his good-old friends on Wall Street.

Representative John J. Duncan, Jr. (R-TN) noted that the banks that got TARP bailout money didn’t use it to help homeowners but to buy other banks, increase investments in China, improve their balance sheets and, now, report huge profits. This is not merely something that bothers grousing Republicans. Representative Dennis J. Kucinich (D-OH), one of the house’s most radical left members, called the TARP bailout program “one bait-and-switch after another...This is an ongoing fraud and deception on the American people.”

We are committed to neither political party but agree that TARP has done precious little to help homeowners or the Main Street economy while performing wonders for Wall Street. There should be no surprise now that only 325,000 homeowners have been helped instead of the 4,000,000 we were promised.

Since the October 2008 switcheroo, our elected officials in Congress have not been trying to stop Treasury or even rein the TARP beneficiaries. Real-Life Super Cop SIG Barofsky told the House Oversight Committee, "Treasury takes the position that it will not even ask TARP recipients what they are doing with the taxpayers’ money." In some bizarre logic that only a Washington-insider could understand, they seem to think that if they don’t ask, they don’t have to tell.

Not surprisingly Treasury is left trying to discredit SIG Barofsky's report. According to Chairman Towns, the Rogue Treasury has “requested legal opinion from the Department of Justice challenging the Special Inspector General’s independence.” Representative Jason Chaffetz (R-UT) discretely pointed out that there is a distinct danger that the Secretary of the Treasury will try to stop Barofsky’s request for additional allocations to keep SIGTARP operations running past mid-2010. Representative Dan Burton (R-IN) called Treasury’s actions “blatant attempts to intimidate Barofsky to keep this information from the public.”

Early news reports focused on just one number from the report: the potential for the government to spend $23 trillion to fix the financial system. Sadly the media ignored the most sinister – and more obvious to anyone who read even the summary of the report or merely watched SIG Barofsky’s testimony – issues raised in the report. Here are the ones that give me indigestion:

Treasury refuses to follow recommendations requiring fund managers to gather the information necessary to screen their investors for organized crime syndicates or terrorists. (page 183). In my 20+ years in financial services, one rule sticks in my mind: “Know Your Customer.” It means that you never do business with anyone you can’t vouch for, because financial intermediaries, like banks and brokers, must stand behind every transaction they put in the system – even if their customer defaults. So why is it that we are now funneling trillions of dollars through financial intermediaries who are not required to gather enough information from their investors so we can be sure we aren’t funding terrorism?
SIG Barofsky said that “Blackrock (NYSE: BLK) may have incredible profits under contracts with both Federal Reserve and Treasury.” Representative Marcy Kaptur (D-OH) suggested that SIG Barofsky “look at the people involved, not just companies like Blackrock” because the same people who created the subprime crisis are now working for the Federal Reserve on the bailout. They have the same staff investing government programs and private money without any “separating wall” to prevent conflicts of interest.
It appears that Treasury, the New York Federal Reserve and even Presidential Economic Advisor Larry Summers may be passing information to their friends that can be used for financial gain, giving positions in bailout programs to business associates, and engaging in “too cordial relationships” with bailout recipients, according to Representative Darrell Issa (R-CA), Ranking Minority Member of the Oversight Committee.
Treasury is "picking winners and losers" in the public/private partnership programs in a completely opaque process. SIG Barofsky calls this potentially "devastating to the public’s view of government.” People are hungry for information, too: The SIG’s website has received 12 million hits by people interested in getting copies of testimony and reports.
TARP is no longer a $700 billion bailout. "Treasury has created 12 separate programs involving Government and private funds of up to almost $3 trillion...a program of unprecedented scope, scale, and complexity" according to SIGTARP’s quarterly report to Congress.
Treasury and the Federal Reserve have ignored recommendations to stop relying on rating agency determinations. (page 184) They continue to rely on rating agencies – the same ones who made tragic misjudgments over the past two years – in making determinations about the prices we will pay for the purchase of “troubled assets” or “legacy assets” or whatever name they decide to apply to the junk bonds in the hands of private banks. By relying on the rating agencies (who played a role in the crisis by rating junk bonds as triple-A credits), the bailout programs run the risk of being "unduly influenced by improper incentives to overrate."
Representative Dan Burton (R-IN) suggested that Treasury Secretary Geithner is deliberately attempting to keep information from the public. SIG Barofsky has been unable to get more than one meeting with Treasury Secretary Geithner since January 2009 – and then only for a few minutes. This arrogance is not new to the current Administration’s Treasury. Representative Issa says the Oversight Committee was twice promised data on the value of TARP assets from former Treasury employee (and former Goldman Sachs (NYSE: GS) employee) Neel Kashkari. That data was "never forthcoming."
Treasury has “repeatedly failed to adopt recommendations essential to providing basic transparency and accountability.”

Representative Issa concluded that SIG Barofsky has given us the facts; now it's up to Congress to take action. In closing Chairman Towns said that if Treasury doesn't turn over information voluntarily, Secretary Geithner will be brought before the Committee to answer. “I can now understand why the Treasury Department would like to rein in the SIGTARP. But we are not going to let that happen.”

I can think of 23 trillion reasons why the Treasury Department will fight him all the way. And just as many why we taxpayers should not like Tim Geithner and the rest of the insider crowd getting away with the murder of the American economy.

The Blue-State Meltdown and the Collapse of the Chicago Model

Joel Kotkin — Wed, 22 Jul 2009 12:15:52 -0400

On the surface this should be the moment the Blue Man basks in glory. The most urbane president since John Kennedy sits in the White House. A San Francisco liberal runs the House of Representatives while the key committees are controlled by representatives of Boston, Manhattan, Beverly Hills, and the Bay Area—bastions of the gentry.

Despite his famous no-blue-states-no-red-states-just-the-United-States statement, more than 90 percent of the top 300 administration officials come from states carried last year by President Obama. The inner cabinet—the key officials—hail almost entirely from a handful of cities, starting with Chicago but also including New York, Los Angeles, and the San Francisco area.

This administration shares all the basic prejudices of the Blue Man including his instinctive distaste for “sprawl,” cars, and factories. In contrast, policy is tilting to favor all the basic blue-state economic food groups—public employees, university researchers, Silicon Valley, Hollywood, Wall Street, and the major urban land interests.

Yet despite all this, the blue states appear to be continuing their decades-long meltdown. “Hope” may still sell among media pundits and café society, but the bad economy, increasingly now Obama’s, is causing serious pain to millions of ordinary people who happen to live in the left-leaning part of America.

For example, while state and local budget crises have extended to some red states, the most severe fiscal and economic basket cases largely are concentrated in places such as New York, New Jersey, Illinois, Pennsylvania, Michigan, Oregon, and, perhaps most vividly of all, California. The last three have among the highest unemployment rates in the country; all the aforementioned are deeply in debt and have been forced to impose employee cutbacks and higher taxes almost certain to blunt a strong recovery.

The East Coast-dominated media, of course, wants to claim that we have reached “the twilight” of Sunbelt growth. This observation seems a bit premature. Instead, traditional red-state strongholds such as the Dakotas, Idaho, Texas, Utah, and North Carolina, dominated the list of fastest-growing regions recently compiled for Forbes by my colleagues at www.newgeography.com.

When the recovery comes, job growth also is most likely to resurge first in the red states, while the blue states continue to lag behind. For reasons as diverse as regulatory policy, aging infrastructure, and high levels of taxation, blue states continue to be more susceptible to recessions than their red counterparts.

This assumption is borne out by an analysis of economic cycles by the website JobBait.com, which has found that since 1990 the states most vulnerable to economic downturns include the Great Lakes states of Michigan, Illinois, Ohio, and New York as well as Connecticut and California. Those most resistant have been generally red bastions such as the Dakotas, Nebraska, and Texas, and resource-rich states such as Alaska, Montana, New Mexico, and Wyoming.

This suggests that even the hardest-hit red states, notably Florida and Arizona, are likely better positioned in the long term for a recovery. A generation of out-migration may be slowing down temporarily due to the recession, but many people moved to places such as Arizona, Florida, Texas, and Georgia over the first seven years of the decade; in contrast, the high-tax blue states, including New York, New Jersey, and California, lost 1,100 people every day between 1998 and 2007. Most of them headed to the red states.

“When the economy comes back,” notes veteran California-based economist and forecaster Bill Watkins, “there will be a pent-up demand. People will compare and move to the places that are affordable and don’t have the fundamental tough tax and regulatory structures.”

Devolution in Blue

These demographic and economic trends will have a long-term political impact. The net in-migration states—almost all of them red—will gain new representatives in Congress after the next census while New York, Pennsylvania, Michigan, and perhaps even California could see their delegations shrink.

In fact, amidst the Blue Man’s current political ascendency, the devolutionary process is likely to continue. Its roots are very deep, and will prove more difficult to reverse than media and policy claques suggest. In historic terms, blue states’ relative decline represents one of the greatest shifts of political and economic power since the Civil War.

In the modern period that starts with the end of the Second World War, the states that are now blue were also, to a large extent, the best. They included the undisputed centers of finance, industry, culture, and education. Blue-state politicians also dominated both parties, either directly or behind the scenes.

In contrast, the Red Man was disdained. As late as the 1940s, Los Angeles—still then very much in its red period—as well as Houston, Dallas, Charlotte, and Phoenix, were all not listed on the Social Register, the ultimate list of the socialite elite. You might visit Texas or invest in its oil, buy Los Angeles real estate, or winter in Scottsdale, but these were not places of consequence. These cities were not for civilized, serious people.

Yet demographic forces changed this balance of power forever. In sharp contrast to Europe, often the preferred model for the Blue Man, the United States’ population exploded in the postwar era. This expansion could not be comfortably accommodated in the old cities.

New demographics and timing shaped America’s urban patterns in largely unforeseen ways. Urban theorist Ali Modarres notes that America’s population over the second half of the 20th century grew by 130 million, essentially doubling, while the populations of France, Germany, and Britain together increased by 40 million, or 25 percent.

In Europe slower population growth meant that planners could accommodate expansion through gradual expansion of existing cities. In contrast, America’s huge growth could only be accommodated by creating new places and vastly expanding others. This led to the growth of suburbs everywhere, but the bulk of expansion took place in vast emerging metropolitan areas such as Los Angeles, and later Phoenix, Dallas, Houston, Atlanta, Miami, and Las Vegas.

This trend held up through much of the past decade. Nevada’s s population grew at four times the national increase of 8 percent while Arizona expanded three times as much and Florida twice the average. In contrast, growth in the blue states of the Northeast and Midwest generally stood well behind the national average.

More important still, the new regions experienced a broad entrepreneurial explosion that reshaped the whole economy. In many cases, this growth came directly at the expense of the blue states. When major companies relocated they tended to leave places like New York, Pittsburgh, Cleveland, and Chicago for the burgeoning red cities.

In 1950 Atlanta did not rank among America's most important economic centers; 50 years later it stood among the most popular cities for large corporations and their subsidiaries. The same could be said for places like Houston, Dallas, and Charlotte. It was the quintessential American story, evidence, as Marxist scholar William Domhoff observed, that America’s “open class system is almost the opposite of a caste system.”

Blue Man Economics

Today two principles now drive the political economy of the blue states—and so shape the Obama administration today. The first one is the relentless expansion of public sector employment and political power. Although traditional progressives such as Franklin D. Roosevelt, Harry Truman, Fiorello La Guardia, and Pat Brown built up government employment, they never contemplated the growth of public employee unions that have emerged so powerfully since the 1960s.

Public sector employees initially played a positive role, assuring that the basic infrastructure—schools, roads, subways, sewers, water, and other basic sinews of society and the economy—functioned properly. But as much of the private economy moved out of places such as New York, Illinois, and, more recently, California, public sector employment began to grow as an end to itself.

Some blue-state theorists, columnist Harold Meyerson among them, have identified this new, highly unionized public sector workforce not so much an adjunct to the middle class but its essence. This has become very much the reality in many core blue regions—particularly big cities like New York, Chicago, and Detroit—as the private-sector middle class has drifted to the suburbs or out to the red states.

Even before the recession these public-sector unions and their lavish benefits had become a major burden for blue states and cities. In California alone state pensions are now $200 billion underfunded. San Francisco has more than 700 retirees or their survivors earning pensions in excess of $100,000 per year. In New York, despite Mayor Michael Bloomberg’s occasional utterances about the city’s expanding pension system being “out of control,” city contributions to the pension system have grown fivefold under his watch. They now consume roughly one in ten dollars in the city budget.

The only way to pay for these expenditures rests on the second key blue economic principle—the notion of an ever expanding high-end “creative economy.” This conceit is based on the notion that tangible things matter little and that, as former Wired magazine editor Kevin Kelly put it, “communication is the economy.”

New York pioneered the idea that the economy could depend totally on the efforts of the talented few, mostly those on Wall Street but also those in the media and other “creative” industries. This formula has been widely accepted since New York Mayors John Lindsay and Ed Koch allowed New York City’s public sector to expand, often with borrowed money.

Sadly this focus has tended to leave little room for a diverse economy that might employ an expanding, upwardly mobile middle class. Instead, companies and employees in these high-value industries tend to dominate almost all the attention of blue-state policy makers.

Since this class had less need than traditional industries for basic infrastructure, a confluence of interest has emerged between the post-industrial elites and the public employees. Money raised from the monied post-industrial elite would essentially buy social peace by funneling largesse not into improving the roads, subways, or ports but into the pockets of the public employees.

The Great Delusion and Its Blue-State Victims

This elite strategy has served to bifurcate most blue states into an affluent core and a rapidly declining periphery. For example, California, a state whose shift from red to blue has given some heft to “progressives” everywhere, has experienced an increasing gap between a small sliver of wealthy metropolitan residents along the coast and an increasingly marginalized interior populated largely by middle- and working-class Hispanics.

And then there is the imposition of increasingly stringent environmental regulation. This has hit hardest the essential sectors of the non-“creative class” economy such as manufacturing, warehousing, and agriculture. Basic industries depend more than finance or “creative” ones on reasonably priced energy and land, access to raw materials, and a sane regulatory regime. “In California,” notes economist Watkins, “everything has priority over the economy.”

You can see the effects clearly in California. Climate change regulations work to constrain new construction of homes, particularly suburban single-family homes. Manufacturing industries, even relatively “clean” ones, make easy targets for carbon-hunting regulators. A recent Milken Institute report found that between 2000 and 2007 California lost nearly 400,000 manufacturing jobs, all this while industrial employment was growing in major competitive rivals such as Texas and Arizona.

Trucking firms, saddled with harsh new deadlines to shift to cleaner vehicles, also are going out of business. Like manufacturers, many of these have historically been sources of upward mobility for largely Latino entrepreneurs and workers.

Perhaps the most searing disaster is unfolding in the rich Central Valley. Large areas are about to be returned to desert—due less to a mild drought than to regulations designed to save obscure fish species in the state’s delta. Over 450,000 acres have been allowed to go fallow. Nearly 30,000 agriculture jobs—mostly held by Latinos—were lost just in May. Unemployment, 17 percent across the Central Valley, reaches to more than 40 percent in some towns such as Mendota.

"We are getting the sense some people want us to die," notes native son Tim Stearns, a professor of entrepreneurship at California State University at Fresno. "It's kind of like they like the status quo and what happens in the Central Valley doesn't matter. These are just a bunch of crummy towns to them."

A similar process of secular decline can also be seen in the peripheries of other blue states such as upstate New York, which has ranked near the bottom of job growth nationwide over the past 40 years. But nowhere has this occurred more completely than in Michigan.

Under the leadership of Governor Jennifer Granholm, Michigan has sought to reinvent itself from an industrial powerhouse to a center of the “creative economy.” For much of her first term, Granholm focused on such inanities as promoting a “cool cities” program, following the notion that creating places for the terminally hip would help turn around her state’s economy.

Yet in the end, Michigan stands at the worst end of almost every calculator, with the highest unemployment and rates of out-migration, and the worst cities for business. Its per capita income, which was 16th in the nation shortly before Granholm ascended as governor, has now dropped to 33rd, the lowest since the federal government has been keeping records.

Detroit now suffers a 22 percent unemployment rate, the highest of any major city. Nearly one in three residents is on food stamps. But the pain goes well beyond Motor City. Altogether Michigan communities account for a remarkable six of the nation’s ten worst job markets, according to the most recent Forbes–New Geography survey.

Waiting for Obama

Many in the true blue states greeted Barack Obama’s election like the coming of a Messiah who would redress these serious problems. After all, it is widely believed in blue states that the red-state barbarians had looted the Treasury for their clients in the energy, industrial, home-building, pharmaceutical, and defense industries. Now the blue states, and their industries, would get payback. A vast expansion of public infrastructure, more emphasis on basic industry, and incentives for new entrepreneurial ventures could now help rapidly declining areas in the blue states.

Yet hopes that Obama would emphasize such basic infrastructure now have been dashed. Instead, the stimulus has been largely steered to social service providers, “green” industries, and academic research. One reason, as we now know, is that feminists saw such an approach as too favorable to “burly men” who might not have been among the president’s core fan base.

Sadly, many of those “burly men,” particularly the unemployed, still reside in the blue states. They might not be in the places inhabited by the post-industrial elites but they do live in the hardscrabble neighborhoods, industrial suburbs, and small towns from Michigan and upstate New York to California’s vast interior.

Another group that may be unexpectedly hurt by the Obama policies will be the middle and upper middle classes in blue states. Already burdened by high rates of taxation locally and higher costs for everything from housing to education, these hardy souls—making more than $125,000 to $250,000 a year—now are about to find themselves heaped in with the “rich.” Higher federal tax rates, as proposed by the administration, could prove disastrous for many blue-state middle-income families.

The Chicago Model: Obama’s ‘Closed Circle’

This skewed allocation of resources reflects the administration’s roots in contemporary Chicago. It derives from a pattern of rewarding core constituencies as opposed to lifting up the whole economy.

The financial bailout reflects one part of this. Money lavished on bankers and lawyers, most of them in New York and Chicago, represents relief to what is now a core Obama constituency. Indeed the whole Troubled Asset Relief Program mechanism is being run by what Simon Johnson, a former chief economist at the International Monetary Fund, has described as a “wonderfully closed circle.”

This approach, notes University of Illinois political scientist Dick Simpson, comes naturally for an administration dominated by veterans of the Chicago machine. Politicians in the Windy City do not worry much about opposition—49 out of 50 aldermen are Democrats—and follow policies adopted by the small central cadre.

Once the message is set upon, notes Simpson, Chicago Mayor Richard M. Daley operatives such as David Axelrod set about spinning things. This system is ideal for cultivating both media skill and political discipline during election season—something so evident in Obama’s brilliant campaigns against first Hillary Clinton and then John McCain, Simpson observes.

But machine politics do not necessarily work out so well for the rest of the population. “The principle problem is that the machine is not subject to democracy,” notes Simpson, who remains hopeful for the Obama presidency. “There’s massive patronage, a high level of corruption . . . There’s a significant downside to authoritarian rule. The city could do much better.”

To be sure, there has been considerable gentrification in Chicago, as in many cities. Chicago’s “revival” also has been a classic case of blue-state economics, driven largely by a now fading real estate boom, the financial industry, a growing college and university population, and tourism. But overall, from the point of view of most middle and working class residents, Chicago’s political system has proved inefficient and costly. This can be seen in demographic trends that show Chicago as the only one of few large U.S. cities to lose population. At the same time, the middle class, particularly those with children, continue to flee to the suburbs. Roughly half of all white families (as of 2005) leave when their children reach school age.

Is There Hope for Blue America?

Ultimately, waiting for Obama will not revive the blue states. Instead the best prospect lies in blue states healing themselves. Fortunately, there are some tentative signs of unrest. The same regime failure that stuck to Republicans in the wake of the Bush presidency soon may be felt by Democrats burdened with the failed legacy of Illinois Governor Rod Blagojevich, New Jersey Governor Jon Corzine, or New York Governor David Paterson. Even Illinois, the president’s home state, could go Republican, suggests political scientist Simpson, if the Republicans put up a viable, middle-of-the-road candidate.

Powerful signs of mounting resistance have emerged in the most important state of all, California. The massive rejection of the budget agreement last spring was a blow to not only its architects, Governor Arnold Schwarzenegger and the Democrats in the legislature, but the general conventional wisdom that holds increased taxes as the key to addressing the state’s budget problem.

Even in deep blue Los Angeles, the public sector machine built around onetime union organizer and current Mayor Antonio Villaraigosa has lost some recent battles, including an attempt to create a public sector union monopoly over the city’s solar industry. There is now greater appreciation of soaring public sector pension obligations as groups like the California Foundation for Fiscal Responsibility expose lists of public employees enjoying mega-pensions.

Similar efforts have started in other states, and with private-sector pensions being cut around the country, anger over the emerging privileged class of public workers may well gain traction. Ultimately, more people in blue states will begin to realize that their states need to learn again how to compete against both their red counterparts and the rest of the world.

There is no intrinsic reason blue states should continue to decline. They have created much of the industrial enterprise, technological innovation, and cultural vitality that made the United States the world’s preeminent country. The prospects for these places can certainly be brighter than they are today.

This article originally appeared at the American.

*State map courtesy of Mark Newman: http://www-personal.umich.edu/~mejn/election/2008/

The Rich Home on the Range

Candy Evans — Wed, 22 Jul 2009 00:39:32 -0400

Have your home on the range, access to a few thousand acres …without paying for it all!

By Candace Evans

Mark Lowham was raised on a ranch in Casper, Wyoming. He got away from roping steers and repairing fences to study at Stanford Business School. Lowham thought he might return to ranching one day, but he never dreamed that instead of roping steers, he’d be marketing ways to rope adults into a herd of conservation-minded land-owners.

Lowham is senior vice president of WEST*GROUP, where he works with Gerald T. Halpin, a former rocket scientist renowned for having the perfect nose for real estate deals. Halpin’s best to date, according to Lowham, was his 1962 acquisition of two dairy farms, Storm and Ulfelder, in the Washington suburbs. They became a significant part of Tyson’s Corner, now the 12th largest commercial business district in the United States. Tyson’s Corner, says Lowham, is larger than downtown Atlanta or Denver. WEST*GROUP, the company Halpin started in 1962 with partners Thomas F. Nicholson, Col. Rudolph G. Seeley and Charles B. Ewing, Jr. is the largest landowner in Tyson’s with more than thirty three city blocks still under Halpin’s sharp eye.

Though he launched in the greater Washington area, Halpin had seen the west in his extensive travels, and focused on the natural beauty of the Grand Tetons near Jackson Hole, Wyoming.

In 1989, WEST*GROUP formed a partnership called Meridian, whose mission was to develop a 1400 acre ranch in Jackson Hole, Wyoming, just minutes from the most perfect snow midway between the town of Jackson Hole and the Jackson Hole ski area.

The spread was initially zoned and approved for 1160 home sites but Halpin decided to turn what he called Indian Springs Ranch into a hybrid of private land ownership and common space sharing. Owners would hold title to a specific portion of the overall ranch – their homestead – and have access to the rest, much like a country club.

Those 1400 acres would only house 46 home sites of approximately seven acres each, enough really to be anyone’s Ponderosa. But you’d still get all the perks of ranch ownership: acres of protected ranch land, grazing cattle, horses to ride, barns, pool, tennis courts and a gathering lodge for community. The seven acre parcels of land on the ranch would be separated by several acres between homesteads, on which owners could build in their “envelope”.

This trend has been growing for a decade. Movies like the 1991 film “City Slickers” projected the romance of ranching into every movie theatre in America. Ted Turner and other significantly high net worth individuals began buying up huge land parcels in the west – Wyoming, Montana, and Colorado, “glamorizing” recreational ranch ownership. Halpin’s first vision for Indian Springs, circa 1989, was to have a small exclusive guest ranch on the order of Lost Creek Ranch & Spa, the exclusive Jackson Hole guest ranch run by Halpin’s son and daughter in law. Lost Creek is one of those places where city slickers can temporarily escape the city and play cowboy outdoors while dining indoors on lobster claw salad, Venison Rosini, and halibut stuffed with crab. Then they get to dunk boot-weary toes in the Jacuzzi after a hard day riding herd and fall asleep beneath the stars on Frette sheets.

Prominent people bought early sites: Connie Stevens, the actress; Carol and Robin Farkus, he the N.Y.C. Chairman of Alexanders Department Stores, Tom Bolger, chairman of Bell Atlantic. Buyers came from California, New York, the Midwest, the Minneapolis region. They attracted other well-heeled people, which helped sell out the homesites.

Meridian’s first venture was so profitable, Lowham led the company to develop a Texas Hill Country ranch in 1998; a new ranch in Mesquite, Nevada is currently in the works.

Though vacation home sales are now slower than they once were, they are not dead. The shared ownership ranch offers owners a shot at full home ownership while splitting the costs of the ranching operation as well as amenities. Some operations even eek out a small profit, but what these buyers are really looking for is a way to pay a fraction of the operating costs while enjoying the whole property. There’s a strong conservationist edge: most shared ownership ranches, like Indian Springs, its Texas Hill Country sibling, The Preserve at Walnut Springs (Ken Starr is an owner, as is yours truly), and Cross Pines Ranch Preserve in East Texas near Mineola, scatter a handful of homes across the vast acreage to create a true sense of isolation, leaving the majority of land to breathe.

“Ranchers are looking for a way to preserve land and conserve it while not going bankrupt,” says Dallas Addison, developer of Cross Pines, based on a conservation easement where each owner has a one-fortieth interest in the entire property. The conservation concept will soon be crossing the Pacific. Addison has partnered with fellow Texan Alan Friedman, owner of Trisept Inc., to develop Bosque Canyon Ranch at Lake Whitney in the Texas Hill Country, and a 7,000-acre project on Hawaii’s Big Island.

Other ranches cluster homesteads in one area to preserve as much raw open space as possible; the forever-open range becomes a prime selling point.

“Clustering is a much better land use process,” says Larry Corson, senior vice president with Dallas-based Hunt Realty Investments. Hunt is the developer of Cornerstone, a 6,000 acre ranch near Telluride, CO. “Our owners actually prefer it, knowing what they have preserved in perpetuity for the environment and wildlife.”

Cornerstone was once a plain Jane hunting ranch owned by Texans. It was foreclosed and sold at auction to a local investor. Corson literally spotted the site for his employer, Dallas oilman Ray Hunt, off a dirt road. After two years of working with local officials on the development plan, construction began in 2004. The property opened in 2006. Homesteads range from one to one hundred acres, starting prices at $175,000 to seven figures plus an $80,000 club initiation fee and $6,000 a year dues, which are fairly typical.

Perhaps helped by the relatively vibrant Texas economy, in 2008 the company reported $8 million in sales. The land Corson saw had full potential for a five-star plus ranch: horseback riding, an extensive trail system for hiking, riding or jeeping, fly fishing onsite and private access to the nearby Uncompahgre River, snow mobiles, cross-country skiing, snow shoeing, ice skating, toboggans, and downhill skiing at nearby Telluride in the winter months. But the best selling point of all was the art in every window – breathtaking views of the San Juan Mountain range from every angle.

It’s City Slickers roughing it on Gulfstreams.

Corson immediately saw potential for the one thing Telluride was sorely lacking: a high quality, private golf course. The spread held a natural plateau for what has become a world-class, Greg Norman-designed golf course. So there you have it – take a hike, go fish, study the migration patterns of deer and elk, saddle up for a Kamikaze ride, or golf.

The owners come from all over, but most are from Texas, like investment banker Richard Moses, who was in Telluride for all of 24 hours when he bought not one but two lots. In a tough market, says Corson, if people are going to make a real estate purchase it’s going to be a lifestyle decision: is this the place I really want to be? And of course, are there enough toys to keep me entertained for weeks?

“At Cornerstone, we once had a little bear cub one morning sitting on our outside barbecue licking the grease off the grill,” he says.

Just because it’s a ranch, doesn’t mean there must be cattle. At Cornerstone, management discovered that as soon as they stopped running cattle on the property, the songbirds returned – not a bad trade. The grazing killed off the shallow grassland savannah that the bison had once protected.

Sometimes the city slickers are more conservation conscious than the country folk, and more self-conscious and contentious. Owners at one shared-ownership ranch recently disagreed, albeit briefly, over the herd. Some owners thought keeping methane-producing Longhorns was not worth the massive carbon footprint, or hoof print, for 2,500 lbs of western eye candy. Of course, they were not as concerned over the carbon footprint etched by their private jet flights to the local FBO.

Shared ownership of course has its downside: you actually have to share – opinions, design, tastes and common areas. You may not have quite everything the way you would if the whole place was yours alone. Strong management, which can sometimes double as a counseling service, is essential.

“In this market,” says Corson, “buyers are really doing their homework to make sure the developer can deliver on all the promises.”

Or just keep peace at the ranch.

Candace Evans is the Editor of DallasDirt, a Dallas-based real estate blog for D Magazine Media Partners.

The Next Culture War

Joel Kotkin — Mon, 20 Jul 2009 23:40:44 -0400

The culture war over religion and values that dominated much of the last quarter of the 20th century has ended, mostly in a rout of the right-wing zealots who waged it.

Yet even as this old conflict has receded , a new culture war may be beginning. This one is being launched largely by the religious right's long-time secularist enemies who are now enjoying unprecedented influence over our national politics.

For all the manifest differences between these two groups, these culture warriors have much in common. Each represents an effort by a highly motivated minority to impose a particular vision of life on a population that does not share either their level of conviction or specific policy preferences.

The Christian right saw its mission as using government policy to restore family and faith to a country they saw losing adherence to both. Not content with hometown pieties, they wanted to use government power to regulate areas ranging from abortion and gay marriage to stem cell research, in ways reflecting their values and agenda.

For a while, their agenda also appealed to white ethnics in urban areas, largely Catholics, who recoiled against the crime and disorder in city streets. When they moved en masse to the suburbs, the religious right's social base narrowed further.

One critical weakness of the movement stemmed from the fact that many prominent figures like Pat Robertson, Jerry Falwell and Jesse Helms rose from the segregationist South. This limited their appeal outside the white Confederate ethnic enclaves in small towns and some Southern suburbs. They were notably less successful in the fastest-growing, more ethnically and socially diverse communities, where the future of evangelical Christianity now is being shaped.

Many of the goals espoused by Christian political activists are clearly commendable – promoting charity and respect for human life. In some areas, such as abortion, they have made real inroads on influencing broader society's attitudes. But overall, their political attempts to impose a narrow religious agenda has fallen into disrepute even among Republicans.

Today, the locus of the culture war has shifted to the secularist left, whose primary geographic base lies in our densest, most elite cities. This group has evolved into its own version of what the Calvinists would call "the elect" – those chosen to thrive amid a sinful nation. They might also be called "the cognitive elite," since their self-image comes not from religious worship but from a sense of higher intelligence, greater rationality and even superior healthfulness.

Perhaps the most honest description of this largely urban grouping was made in the Seattle alternative paper The Stranger shortly after George Bush's 2004 re-election. Shocked by John Kerry's defeat, The Stranger defined their preferred constituency as "islands of sanity, liberalism and compassion." The red regions, they concluded, were the abode of "people [who] are fatter and slower and dumber."

At the time, The Stranger's solution was to secede in spirit from the red states and build a new America hewing to what they considered humane and scientific values. Yet four years later, the self-proclaimed "islands of sanity" now dominate the government in a manner unprecedented in recent American history.

The rapid ascendancy of the new culture warriors has everything to do with class and caste. The religious right's base lay predominately in the small towns and lower middle class. They may have had more votes than the sophisticated city-dwellers, but in the end they had little influence among Bush-era policy-makers, whose greater allegiance was to Wall Street, energy and other corporate interests.

In sharp contrast, the cognitive elites rise straight from the critical bastions of Obama-era power. They draw strength from the mainstream media, the vast "progressive" non-profit community, the universities, and the professional policy elites. University and think-tank denizens, according to a recent National Journal survey, constitute 37 percent of the top 366 appointees by the Obama administration, far more than under the Bush regime.

One group, not surprisingly far less well-represented, are white Christians, whose number, according to the National Journal, has dropped from 71 percent under Bush to 46 percent. It's not that the Obamites lack faith, just that they lean less to conservative Christianity and more toward the gospel according to Al Gore.

Like their Christian right counterparts, the cognitive elite's agenda does address some important issues. You do not have to embrace the theology of global warming (aka climate change) to favor incentives for reducing energy use and cleaning up pollution. Advocating healthier outcomes through more walking, bike riding and better school lunches also make sense as public goals. And a planning approach that allows for more housing options in suburbs and better access to transit also could be useful.

The problem here, as with the Christian right, lies with overzealousness and intolerance. Whether environmentalism qualifies as a religion or ideology for legal purposes, it is clearly being embraced in a quasi-theological way. As Bjorn Lomborg and others have pointed out, any objection to the Gorite carbon emissions agenda invites scorn and denunciation for, as Paul Krugman recently suggested, "treason against the planet." Even mild skeptics can expect to be treated like a strident atheist at a mega-church – although probably with likely far less compassion or politeness.

Critically, the climate-change zealots likely will be in our faces and wallets far more than the religious fulminators. Although the public is widely skeptical of the whole climate change agenda, they will have to confront a huge new bureaucratic apparatus that could impact millions of businesses and local planning decisions down to the household level.

This desire to micromanage in the public interest also extends well beyond climate change. There is clear desire now to influence everything from how we live to what we eat. You can see the beginnings in everything from ever-higher cigarette taxes to bans on trans-fats at your local hot dog stand.

San Francisco, always ground zero for such intrusive lunacy, now has determined to find ways to shove healthy foods on the plates of city residents, preferably from urban gardens. The city is even taking steps to prevent city workers from ordering donuts for meetings. Now bureaucrats must follow guidelines from the Health Department.

City workers even have to cut bagels into quarters or halves, presumably so that workers may all look as svelte as Mayor Gavin Newsom. "We have an eating and drinking problem in America," declared Newsom, a candidate for governor with an admitted former alcohol problem of his own.

But perhaps the most intrusive changes may come in terms of planning and development. The Obama administration has already declared its desire to "coerce" people out of their cars and discourage sprawl in order to promote its health and carbon-cutting agendas.

This could evolve into a concerted attempt to force more Americans into the high-density housing as opposed to the single family suburban homes they prefer for reasons ranging from cost to privacy and safety. It may be questionable how much these steps will improve health or the environment, but this may not matter much given the current theological consensus.

What we now see is policy enacted in the name of scientific dogma, even though science's essence lies in open inquiry and debate. In the process, agendas are often conflated; reports even mildly contrary to the received wisdom of climate change are ridiculed or ignored. For some urbanists, climate change also provides a convenient excuse to reverse the dispersion to suburbs that they have railed against for decades.

What we need now is not self-interested dogma, but open, wide-ranging debate designed to find the most effective ways to achieve energy efficiency in both cities and suburbs. Amid the worst economic downturn in a half-century, we also might want to weigh the impact of some "green" policies on the employment, income and wealth prospects for middle- and working-class Americans.

The anointed secular clerisy seems destined to become very unpopular. Americans do not like to be preached to by their political leaders about how to manage the details of their lives, particularly when the preachers often fail to follow their own precepts; this was a core problem with those who aligned with the religious right. Environmental and health activists would do better to focus more on suasion as opposed to coercion and to offer incentives rather than dictates to achieve their goals.

They should also learn that problems are addressed most effectively at the local, community and familial levels. The wide access to information through the Internet undermines the very logic for relentlessly centralized solutions; the best "green" policies may be those that evolve organically and fit specific local conditions.

Basically, cultural warfare makes for stupid politics, as the Republicans should have – but likely have not – learned by now. The new culture war now developing could pose similar dangers for the Democrats, if they are not careful.

This article originally appeared at Forbes.

Housing the Next Generation with Old Shipping Containers

William H. Hudnut III — Mon, 20 Jul 2009 00:12:04 -0400

If the predictions are accurate, America will have to house some 100 million more people by 2040 to mid-century than is now the case. Despite the current round of foreclosures and rising apartment vacancy, over the long term the demand for humane, affordable, sustainable housing is going to escalate dramatically in the coming years.

In this recessionary time, it may be tempting to ignore the coming boost in housing demand. Yet eventually growth will pick up and the housing market will become re-invigorated. Nonetheless, the problem of meeting the demand for affordable housing will remain. For now, the federal government is trying to help state and local governments acquire, renovate and sell foreclosed properties, and individual homeowners to reduce their mortgage payments to 31 percent of their income. Federal efforts are also being aimed at increasing funds to redevelop public housing and at giving first-time homebuyers an $8,000 tax credit.

But these are short-term measures. Others, with more lasting impact, may be more effective. One will be the size of houses. Although some may still choose to build large lot homes and McMansions, the longer-term trend will be for somewhat more compact houses. Contrary to the visions of some urban boosters, Americans will continue to favor single family homes over apartments. But these houses seem likely to trend back to the more traditional, modest scale. Between 2006 and 2007, after years of expanding, the size of a median single-family house actually decreased slightly.

Another critical element of a housing solution lies in building workforce housing close to the workplace. For years, many moderate income Americans have been forced to “drive ‘til they qualify.” Throughout the nation’s metropolitan areas, teachers, police officers, firefighters, salesclerks, municipal workers, and young people, among others, are being elbowed out of the local housing market. In a recent survey conducted by the Urban Land Institute in cooperation with Harris interactive, of the 110 larger firms (over 100 employees) surveyed, fifty-five percent reported a lack of affordable housing nearby, sixty-seven percent of the workers interviewed (who earned less than $50,000 per year) said they would move closer to work if more housing in their price range were available, and fifty-eight percent of the companies reported having lost employees due in part to long commute times.

For most Americans, particularly between ages 30 and 70, the demand for affordable homes near workplaces will be paramount. In some areas, there may also be greater demand for apartments, even though these too are suffering due to the recession.

Many zoning and building codes are obsolete and need to be updated, because as written they restrict the construction of low and moderate income housing and segregate residential, retail, and industrial/commercial land uses. Changing zoning to permit and provide incentives for mixed use development, more intense land uses, and higher density development would make workforce housing more affordable.

The steps above do not apply only to city living. Through good design, suburban living can be made slightly more compact without sacrificing quality of life. Accessory buildings can often be added on a lot, “granny flats” can be built, large old single family homes can be converted into duplexes, empty spaces could be filled in, and other steps can be taken to meet the need for more housing when that need materializes.

But perhaps the biggest gains can come by using innovative approaches to expanding housing. One novel idea that has begun to emerge is to use old shipping containers that have been transformed into building blocks for home-building materials. Actually, one can hardly call the idea novel, because shipping crates have been used in construction for thousands of years. But today, the old practice is being revived with entrepreneurial, innovative, outside-the-box thinking.

These reconfigured containers have the advantages of being more economical and durable than conventional materials, speedier to construct, highly customizable, fire-, termite-, water-, and earthquake/hurricane-resistant, strong, safe and green, with a lower carbon footprint. Hence the name of one of the companies working in this field, one with which I am associated, SG Blocks LLC (SG stands for “safe and green”). As the company puts it, “We are in the business of converting instruments of trade into instruments of construction.”

Shipping containers are big: each weighs 9,000 pounds and measures 8 feet wide by 40 feet long by 9 feet tall. Hundreds and thousands of them are sitting empty in ports around the country. What possible use could they be, one may wonder, in building a new residential or office complex?

Consider, therefore, that these steel-on-steel containers, when used as re-fabricated “blocks,” are stronger than conventional house framing. They can be cut, fabricated, re-modeled, and turned into a basic home structure for approximately $25-$27 a square foot. Stevan Armstrong, COO of SG Blocks, has pointed out that multi-family mid-rise units built with containers cost 10 to 15 percent less than typical “stick frame” houses. When appropriate coatings are installed, says Dan Rosenthal, a principal with the Lawrence Group, “we have an envelope that reflects about 95 percent of outside radiation, resists the loss of interior heat, provides an excellent air infiltration barrier and does not allow water to migrate in. Because of the superior roof structure, it is easier to incorporate ‘green’ roof systems.”

Using shipping containers also saves energy on the front end. It takes 6,481 kilowatt-hours to make a ton of steel from virgin materials, 9,000 kilowatt hours of energy to melt down a container, but only 400 kilowatt-hours of energy to convert shipping containers into SG Blocks.

The possibilities for utilizing this type of construction – infill housing in urban and suburban communities, new construction for residential, commercial, industrial and retail buildings, single- and multi-family homes – are practically limitless. From a design perspective, SG Blocks claims that their modified containers “can be used to build virtually any style of construction, from traditional to modern and all in between...from traditional Main Street to ultra-contemporary.” In short, they can provide people with an opportunity for ownership and economic mobility in a decent community environment.

To cite a few examples:

A continuing care community for seniors on the historic Mission San Luis Rey grounds in Oceanside, CA, 340,000 square feet with 450 SG Blocks, is going up.
In Salt Lake City, the first mid-rise container building is being planned for downtown; it will be called City Center Lofts, with eight units and a ground level art gallery.
In Ft. Collins, CO, discussions are being held about creating “block” homes for 500 families as part of the city’s Homeless Shelter Program.
John Knott, the guiding light in the Noisette Community in North Charleston, SC, wants to build a six- to eight-story “container” building, retail on the first floor with residential units above, topped with a green roof. He proposes using ninety prison re-entry men to do the construction.
Work is in process on a three- to four-story student housing and recreational mixed use facility at Lubbock Christian University in Texas.
In Panama, “blocks” are being used to build four buildings that will house community and education centers for the U.S. Southern Command.
Attached to the top of this article is a photo of a house built with SGBlocks in St. Petersburg, FL.

Demography is destiny, as has been said so many times. With 100 million more people in the pipeline, we have to find humane, innovative, affordable ways to house them and provide them with opportunity for advancement. Salvaging empty shipping containers to address this problem is only one step, but a most interesting one that is well worth the trying.

William H. Hudnut III, former Member of Congress and sixteen-year Mayor of Indianapolis, is the principal in his firm, Bill Hudnut Consultants LLC, and an associate of SG Blocks LLC. His email address is: bhudnut3@gmail.com.

Urban Backfill vs. Urban Infill

Richard Reep — Sun, 19 Jul 2009 00:18:25 -0400

By Richard Reep

Wendell Cox recently reported on the state of so-called “urban infill” efforts, and analyzed which cities are experiencing an increase in their density. This report shows some surprising trends. Cities such as Pittsburgh, which claim to be successful at “infilling”, are actually dropping in density, in part because of low birth rates and lack of in-migration.

What may be the next trend might be called urban agriculturalization or “urban backfill”. In the past, urban infill used to make sense. Where a concentration of people already existed, and where infrastructure was in place, development between existing structures seemed inevitable. With the accessibility allowed by the car, urban infill became a choice among others, including the suburban frontier. Urban infill became, for most cities, a rarity.

Current attempts to encourage infill over fringe development may be too little too late, as the cost and regulatory environment favors fringe development. Expenditures on public safety rose as building codes dictated an increasing level of safety in urban cores, not just for the occupants of the building, but for the building itself. Driven higher because of the perceived desirability of a downtown, costs soared out of control as elaborate, complex zoning processes meant high fees to a team of consultants necessary to steer projects through multiple public hearings. These generated some pricey computer graphics, but often no guaranteed outcome.

Aesthetics also have become highly regulated as well, with design boards composed of interested citizens, reducing the design process to design-by-committee. By the early part of this century, urban infill became an Olympian sport, leaving most of an urban area’s empty lots and dilapidated buildings vacant.

To further burden the urban infill developer, right now a new form of regulation is entering the scene, that of the so-called smartcode which regulates the last untouched part of the exterior of a structure: its overall form. With rigid codes and design staffs, cities can now create for themselves a vision, supplemented with pretty pictures, of the imagined future, where building patterns need to be just-so. An urban infill developer must now adhere to someone else’s opinion of where his front door is, and whether he has a front porch.

So, in reality, these urban parcels sit abandoned and income-free, with the biggest real estate growth market being in “for sale” signs, as owners try to unload these properties on a greater fool ready to do battle for the cause of urban infill. It is a no-win scenario for cities.

Back fill provides an alternative below the line. Overlooked spaces are being discovered by many people as ideal for temporary use, and with only a small cost for a license or permit, new marketplaces, street performances, and other people-intensive activities are rushing in to fill the void. Again, a city with any savvy will try to apply a regulatory and fee drag on this activity; fortunately for the citizens, this usually takes a long time, and in the meantime, many cities are acquiring the look of a genteel form of Blade Runner, with person-to-person commerce taking place among the currently decaying and abandoned edifices and infrastructure.

Still other parts of the city are trying to beautify their abandoned spaces by planting them, sometimes with gardens, figuring lush landscapes can hide the fact that their core is not as desirable as it once was. And still others fence them off, creating a new canvas for graffiti artists and advertising, and returning the abandoned spaces into wilderness.

All of this belongs to the study of old field succession, which traditionally has been an agricultural science. For urban cores, this approach suggests a new way to reuse abandoned space. Increasingly, agriculture may not belong exclusively to the rural condition, but can be adapted to the city itself.

In some areas such as Orlando, entrepreneurs have discovered this reverse-flow effect, which has been useful in so many other endeavors. By applying the standards of agriculture to the urban core, interesting and useful businesses are springing up. Near Orlando’s downtown area, for example, Dandelion’s Café is licensed not as a restaurant but as an agricultural kitchen, allowing it to operate under the Florida Department of Agriculture rather than the Florida Department of Health. This freedom does not compromise public safety – people still get sick from food in Department of Health regulated restaurants – but cleverly avoids the intensive state oversight, permits and fees associated with most restaurants.

In College Park, the City’s empty land has been converted into a community garden, offering small plots of land for rental to surrounding property owners to cultivate produce. This is not a new idea; urban community gardens exist in cities worldwide. But as the current economic conditions squeeze incomes, creative use of outdoor space to reduce the grocery bill has engendered a new microfarming movement, and may have staying power as people rediscover a sense of shared purpose.

All this creates a new form of development, which might be characterized as urban backfill. Urban backfill projects include any temporary uses of space for food, commerce, or entertainment. These even include temporary sacred places – the streetcorner preacher, for example, and his congregation. Still other abandoned spaces seemed destined for decay: overgrown weeds, saplings, and mice are turning urban vacant lots into true pastoral scenes that provide surrounding buildings with glimpses of unregulated nature.

Cities can hold off this backfill for only so long. If Twitter can enable a revolution, ad hocracy can certainly enable free commerce and discourse in a democracy. Temporary uses suggest a vitality that cannot be denied or regulated to death, and suggest that cities consider a new way of looking at these spaces. Urban backfill provides an opportunity to reinvent the American city and create economic and social value where now none exists. It can also help establish both a renewed sense of place that can also nurture new ways for a city to evolve organically and naturally.

Forcing Density in Australia's Suburbs

Tony Recsei — Sat, 18 Jul 2009 01:10:20 -0400

Australia is a continent sized country with total urbanized area of only 0.3%. As is the case with the USA, the population is increasing as a result of natural growth and immigration. The country is blessed with a sunny climate and enough space to enable its inhabitants to enjoy a relaxed, free lifestyle.

Given this, one would expect there would be little support for the higher density housing ideology of the Smart Growth advocates. Yet since the early 1990s the Australian Federal Department of Housing has been pushing exactly this approach.

Sydney, located in the state of New South Wales, has been the forefront for this densification policy. Sydney (population 4.34 million) is subdivided into local municipalities, each run by a popularly elected council. Traditionally these councils have had the responsibility of planning their own areas. Over the years council zoning plans have complied with the expressed preference of over 80% of Australians to live in free-standing homes. In an effort to alter this long-standing pattern the New South Wales Government has resorted to the use of authoritarian processes to force densification, whether areas like it or not.

High-density regulations from the Planning Minister come about by ministerial fiat without discussion in the State Parliament. These regulations require municipal councils to submit planning strategies to the Planning Minister that increase density, to his/her satisfaction, under threat of removal of a council’s planning powers. In a blatant conflict of interest, half of the members of the minister’s assessment panel are developers who stand to gain from the implementation strategies being assessed and the other half are bureaucrats. There is no community representation.

Most councils have meekly complied with the coercive demand to submit high-density planning strategies. As a result previously attractive suburbs with their flowers and foliage are being overcome by the relentless march of grey concrete and bitumen. Bewildered long-time residents find themselves isolated amongst the drab shadows of upward-rising, smothering unit blocks.

One leafy, mainly single-residential council area in the northern part of Sydney (Ku-ring-gai) insisted that the submission of their residential strategy be delayed until studies could be conducted of the effects of the resulting higher density on infrastructure, traffic, the environment and heritage. This cheekiness was dealt with savagely. Its traditional planning powers have been taken away and given to a planning panel appointed by the Planning Minister.

This planning panel organised a plan that will increase the population density of the municipality by some 50%. The plan proposes that the traditional village centres and numerous surrounding homes in the area be replaced by massive high-rise tower developments, many spreading deep into surrounding residential streets.

In a token show of democracy the panel arranged for a public consultation meeting on the draft plan. During the meeting, resident after resident excoriated the high-density plan as grossly excessive, defiant of independent studies and contemptuous of environmental and heritage constraints. Speaker after speaker denounced the panel's processes – as “failures of transparency and due process”, “patronising and condescending of community concerns”, “pandering to developer interests”, being “part of a process to impose a policy that was not in the greater public interest” and a “sham”. The panel ended the meeting when only half of those who registered to speak had done so. Despite tumultuous scenes of uproar, the planning panel resolved to adopt the high-density plan.

One would think that such dictatorial impositions on a community could be warranted only by indisputably being in the wider public interest. The Planning Department has attempted to justify its stance by alleging benefits for the greater public good. Chief among these are claims that high density is better for the environment and that the policy saves on infrastructure cost.

In Australia the evidence points to the contrary. On the question of greenhouse gas emissions, a recent study which allocates greenhouse gas emissions to final consumption at the household level1 shows that on average per person emissions in the high-density inner city areas are nearly twice that in the outer low density areas. Another study shows that there are more greenhouse emissions from domestic energy use in high-density living (5.4t/person/year) than in detached dwellings (2.9t/peson/year)2. This results from lifts, clothes dryers, air-conditioners and common lighted areas such as parking garages and foyers. What is more, the energy required to construct high-rise is nearly five times the energy needed to build single-residential, per resident.

In Australia high density hardly reduces travel intensity at all. Research on Melbourne areas shows that the people squeezed into newly converted dense areas did not use public transport to any greater extent than before and there was little or no change in their percentage of car use3.

There is not nearly enough difference in the greenhouse gas emissions of public versus private transport to counter the increased emissions of high-density dwelling. Greenhouse gas emission per passenger km on the Sydney rail network is 105 gm. The figure for the average car is 155 gm - but for modern fuel efficient vehicles is as low as 70 gm.

Adding more people to existing infrastructure results in overload. After 15 years of high-density policies, the quality of Sydney suburban roads, rail service, water supply and electricity has noticeably deteriorated. High-density retrofit is hugely more expensive than laying out new infrastructure on greenfield sites. Infrastructure costs quoted by the authorities almost always omit the cost of restoring the standard of infrastructure back to the level of service people enjoyed before high-density was imposed. One example of these “forgotten” costs – the augmentation of electricity supplies in downtown Sydney, necessitated by 4900 additional apartments, will eventually cost $A429 million ($US340 million) – or $A80,000 per new apartment.4

The effect of high density policies on the cost of housing has been devastating to the younger generation. In attempting to force people into higher density on existing land, the authorities have drastically cut down the supply of new land for housing. This has resulted in the cost of land now comprising 70% of the cost of a place to stay, instead of the traditional 30%. A new dwelling on Sydney’s outskirts should cost about $A210,000 ($U168,000) but is actually more than $A500,000.

The cost of commercial land in Sydney has also rocketed out of control. Employers take their business elsewhere. Back in 2000, the New South Wales proportion of the national economy was 35%. This has now plunged to barely 30%.5 The proportion of bankruptcies has increased from 25% to 38%.6

Besides ostensible “green” ideology, perhaps the powerful driver for high-density policies lies with the resulting opportunities for infill developers to make huge profits. Over the last five years, the ruling New South Wales Labor Party received donations from the development industry of $A9 million while the opposition party netted $A5 million. These donations exceeded the total contributions for all political parties over the same period from the gambling, tobacco, alcohol, hotel, pharmaceutical and armaments industries combined7.

The political donations gain donors favoured access to government. This inevitably results in policies sympathetic to them, which in turn result in more profits and more donations.

Other Australian states also have implemented high-density policies but not to the degree of New South Wales. Recently in Victoria8 and in Western Australia9 carefully couched announcements have revealed that policies are moving away from excessive high-density.

Mistaken ideology and financial rewards to a minority have made high-density an enduring feature of New South Wales planning policy. The results are not pretty: more greenhouse gases, high traffic densities, worse health outcomes, a creaking and overloaded infrastructure, a whole generation locked out of owning their own home and business fleeing the state for the greener, less congested pastures elsewhere.

(Dr) Tony Recsei has a background in chemistry and is an environmental consultant. Since retiring he has taken an interest in community affairs and is president of the Save Our Suburbs community group which opposes over-development forced onto communities by the New South Wales State Government.

1 Australian Conservation Foundation Consumption Atlas, ,http://www.online.org.au/consumptionatlas/

2 Myors, P. O'Leary, R. and Helstroom, R.,2005, Multi-Unit Residential Building Energy and Peak Demand Study, Sydney, New South Wales Department of Infrastructure, Planning and Natural Resources

3 Christopher Hodgetts, 2008,Thesis: Urban Consolidation And Transport, University of Melbourne

4 EnergyAustralia website accessed October 2008

5 Sydney Morning Herald 15 November 2008

6 Sydney Morning Herald 29 March 2009

7 Sylvia Hale, Member of NSW Legislative Council, 29 April 2009, Speech to the National Trust Breakfast

8 http://www.theage.com.au/opinion/opposition-to-a-bigger-melbourne-smacks...

9 http://www.watoday.com.au/wa-news/urban-sprawl-back-in-style--wa-planning-minister-20090624-cw5x.html

Subsidies, Starbucks and Highways: A Primer

Wendell Cox — Thu, 16 Jul 2009 23:38:55 -0400

At a recent Senate Banking Committee hearing, Senator Robert Menendez of New Jersey, responding to comments about large transit subsidies, remarked that the last federal highway bill included $200 billion in subsidies for highways.

The Senator should know better. The federal highway bill builds highways with fees paid by highway users, not by subsidies. Perhaps the Senator was frustrated at having just heard an effective fact-based dismantling of transit lore in testimony by the Cato Institute’s Randal O’Toole and felt it necessary to strike out at the mode by which nearly all travel occurs in the United States.

In fact, virtually all of Senator Menendez’s $200 billion for federal highway spending come from user fees, which are paid by people and companies that use the highways, not subsidies. The Menendez comment might simply result from ignorance. But often the error appears to be the purposeful muddying of an issue that has become so common in public affairs.

The “subsidy” litany is accepted by many in the public, who have better things to do than to check the veracity of statements by public “servants”. As a result, we offer this primer on the subject, not only for casual observers of public policy, but also for any members of Congress who might have an interest in veracity.

What is A Subsidy?

A government subsidy occurs when taxpayers are forced to pay for a government service, whether or not they use it. Subsidies are legitimate. Subsidies are needed to fund government services demanded by the electorate, such as welfare services and education. On the other hand, payments made by users of a government service (or private goods and services) in proportion to their use are not subsidies. They are user fees, including taxes on the use of gasoline and other fuels.

This point can be illustrated by looking at the electricity industry. No one would suggest that Potomac Power, Pacific Gas and Electric or other privately owned utilities that are supported by payments from consumers are subsidized. Similarly, government owned utilities like the Los Angeles Department of Water and Power, Austin Energy and the Tennessee Valley Authority are not subsidized, since they receive their funds from users. It would have been no more absurd to characterize user payments to electricity companies as subsidies than to characterize the federal highway program as subsidized (Note 1).

There is a simple way to tell the difference between subsidies and user payments. With subsidies you pay whether or not you use the service. In contrast, with user fees, you don’t pay if you don’t use. People who don’t use electricity from the Los Angeles Department of Water and Power don’t pay and people who don’t use the highways don’t pay either.

Transit Subsidies

Everyone agrees that transit is subsidized. Approximately one-quarter of transit’s operating and capital funding comes from passenger fares. Nearly all of the rest is subsidies. Moreover, an “open and shut” case can be made for subsidies to transit as a welfare service in core cities where it provides the only mobility for some lower-income residents who do not have access to cars. The case is, however, less than “open and shut” with respect to the substantial subsidies for upper-middle income commuters such as those from Connecticut, the Hudson Valley and New Jersey to Manhattan, or from tony East Bay suburbs to San Francisco, or for well-paid Maryland and Virginia commuters into the District of Columbia.

A 2004 United States Department of Transportation (USDOT) report indicated that federal subsidies to transit amounted to $0.16 per passenger mile in 2002. Our update of this report estimated that the federal subsidy had risen to $0.17 per passenger mile by 2006. Overall, federal subsidies to transit were $7.7 billion in 2002, which increased to $8.6 billion in 2006 (Figure 1).

Subsidies to Highways

Virtually all federal highway spending was financed by fees paid by users in proportion to their use of the highways. There was no taxpayer subsidy.

Indeed, the USDOT report indicates that in 2002, the federal government made a profit on automobile use of highways of $0.001 and had made a profit in every year since 1990, the first year reported upon. Overall, automobile use of the highways earned the federal government a profit of $4.5 billion in 2002 and $5.5 billion in 2006 (Figure 1).

The profits made by the federal government on highways indicate that highways are, in fact, subsidizing other government services. Senator Menendez neglected to mention, of course, that last highway bill (called “SAFETEA-LU,” its predecessor was called “ISTEA,” pronounced by insiders as “ice tea”) included $34 billion in subsidies by highway users for transit. For more than 25 years, federal law has required an add-on to highway user fees to support transit. Today nearly 15 percent of highway user fees are used to subsidize transit. In fact, road users pay 15 times as much in gas taxes per passenger mile on transit as they paid for highway expenditures (Figure 2).

The profits do not stop at the federal level. Federal Highway Administration data indicates that user fees exceed the federal and state share of money spent on state highways, these being intercity highways, urban freeways and some other urban roadways. Only at the local government level are expenditures more than highway user fees, indicating subsidy.

A real world parallel: Most of us have had Starbucks coffee. Our Starbucks coffee is not subsidized; rather we pay for it, 100% of it (Note 2). We can call this a price or we can use the public policy synonym, a user fee. As in the case of highways, those who do not drink Starbucks coffee do not pay for it. However, if Starbucks were financed like the federal highway program, 15 percent of the price of the coffee would be taken to subsidize tea drinkers (the authorizing legislation might be called ICECAFE).

Airports

While Senator Menendez did not refer to airports, those afflicted with a love affair with trains frequently claim that airports are subsidized in order to argue for massive expenditures on high speed rail, intercity rail and Amtrak. They are nearly as wrong as Senator Menendez. The air transportation system is overwhelmingly paid for by users, through taxes on tickets and airport fees. As in the case of highways, only those who use airports and the commercial air system pay for them.

There are relatively small subsidies to commercial air transportation. The USDOT report found subsidies per passenger mile of approximately one-half penny.

By comparison, the nation’s intercity passenger rail system (Amtrak) was subsidized to the extent of $0.21 per passenger mile in 2002, according to the USDOT report. Our report found that the figure had edged up to $0.24 in 2006, more than 50 times the subsidy to the commercial air system (Figure 1).

These commercial air subsidies, however small, should be eliminated. Failing that, train proponents have grounds to ask for up to a half-penny per passenger mile of subsidy for high speed rail and intercity rail. Beyond that, equity requires that high speed rail and intercity rail be financed the same way as the commercial air system: with passenger fares, taxes on rail tickets and fees for the use of railroad stations.

The Bottom Line

The bottom line is that you pay for your coffee from Starbucks, you pay for your electricity from the Los Angeles Department of Water and Power and you pay for your federal highways with your own money, not with subsidies by people who do not use them.

Note 1: Of course, if general taxpayer funding is provided to electric utilities, such payments would be subsidies, whether the utility is privately owned or owned by government.

Note 2: All of this assumes that the local Starbucks is not the recipient of special tax incentives or abatements that might have been used by local government as enticement to locate in the community.

Solar Gains On The Green Competition

Rick Harrison — Thu, 16 Jul 2009 00:45:22 -0400

The living room of my electrician friend Harry Gres was filled with solar panels which were destined for his roof to demonstrate the advantages of his new eco-business venture. In the spirit of Herbert Hoover's campaign pledge of a car in every garage, Harry envisions solar panels on every roof (including garages).

I know very little about solar electric generation, but I was once a very satisfied owner of a 10kW wind energy system back in the (failed) green era in the early 1980s. Wind generation is very visible. When the blades spin on a wind system one can imagine a generator producing power. The whop-whop noise means the electric meter is turning backwards, a beautiful noise indeed. Harry Gres will have a silent 5kW system on top of his roof; the only visual excitement will be to see the electric meter spinning backwards during sunlit hours. Fortunately, here in Minnesota we have an abundance of both wind and sun.

Harry’s excitement about a self-sufficient future was apparent. He explained how in his latest- generation solar system, each panel powers its own inverter, so shade in one area does not shut down production. I did not know that in earlier, typical solar systems the entire grid shut down if one panel was in the shade.

I asked the million dollar question: What’s the cost? Harry explained that you could buy a $50,000 SUV that in 5 years would have little value, or purchase a solar array that would produce electricity for 25 years. I was able to figure out that the system cost 50 big ones. He then went on about how it was not the price, but rather the stewardship of the earth that was important. He also went on about the 30% tax credits which I’m not a fan of for a variety of reasons that are too lengthy to get into here.

I was skeptical about a 5kW, $50,000 solar system, even though I’ve been deeply rooted in the green industry for 25 years. As a customer, I recently built my own green certified home, and back in 1983 I built a net-zero home (it produced more energy than it used) that used wind generation.

As a professional, my business is designing sustainable neighborhoods for my developer customers. When I built my green home there were about a dozen other “green” homes that had recently been built and were on tours or home parades. All of them had elaborate — and expensive — geothermal heating/ventilating/air conditioning systems as part of their green packaging. I decided that spending a few thousand dollars on a highly efficient conventional HVAC system was a better investment than spending upwards of $50,000 on a geothermal design. My $200 natural gas bill for my 3,600 sq. ft. house during one of the coldest Januarys on record proved that I had made the right choice.

Geothermal systems get a lot of buzz. The green certified homes I visited sold quickly at the asking price in a terrible housing market. Most sold for over a million dollars. But a new green home has a low energy bill not because of its geothermal design, but because its emulation of “thermos bottle” construction means that it requires little heating or cooling.

While Harry was giving me the sales pitch on the $50,000 panels I began to ponder: What if those green homes on parade had been designed with solar arrays instead of geothermal systems? Had they used highly efficient HVAC systems instead of geothermal ones, the homes could have come to the market at the same selling price, and then had free electricity.

Wind generation may be cheaper to install, but the chances that you’ll get a wind system approved in your dense neighborhood is pretty much a fantasy, whereas the solar array is likely acceptable anywhere. A wind generator is really cool: Directions are not necessary and guests always have something to converse about. The owner of a wind generator does not have to worry about shadows or cloudy days, only about those times when the wind is calm. Wind can happen 24 hours a day. On the other hand, the solar array does not produce the loud whop-whop-whop sound similar to a helicopter hovering a few feet over your and your neighbor's homes.

The $26,000 I spent in 1983 for the wind generator would be equivalent, after inflation, to spending $54,000 today. So— those who purchase solar systems like Harry’s today will spend about the same post-inflation dollars that I spent in 1983, and they will have the prospect of free electricity.

Given the mindset of the new green home buyer, and the apparent success of those who sell homes with geothermal systems, maybe $50,000 for the prospect of solar electricity is not so farfetched. The more I began thinking about this the more excited I became for my friend's new venture.

Unlike wind power, which can never hope to achieve high volume distribution, solar panels have the potential for high production numbers. Relatively high sales numbers foster competition, which drives research and development for product evolution.

As an example, back in the 1980s I sold $10,000 desktop Hewlett Packard Workstations along with a $5,000 Civil Engineering Software package we developed. For today's market, we developed a $995.00 sustainable neighborhood design software package that works great on a $300 notebook. Comparing the systems we sold in the 1980s to those we sell today at 1/10 the cost is like comparing the Model T Ford to a ZR1 Corvette. Profits from the early adopters of those expensive computer systems financed the research and development that eventually led to the price/performance ratio we take for granted today.

So is Harry onto something?

I hope Harry, his family, and all those who jump in during a deep recession profit greatly from this risk he’s taken on. I hope the day comes when we look up at the low cost energy producing tiles on our roofs and think back to the entrepreneurs like Harry Gres that risked all on a venture to make it possible. That’s the American spirit that we need to get back to.

Rick Harrison is President of Rick Harrison Site Design Studio and author of Prefurbia: Reinventing The Suburbs From Disdainable To Sustainable. His websites are rhsdplanning and prefurbia.

The Next Global Financial Crisis: Public Debt

Susanne Trimbath — Wed, 15 Jul 2009 01:00:18 -0400

The cloud of the global financial meltdown has not even cleared, yet another crisis of massive proportions looms on the horizon: global sovereign (public) debt.

This crisis, like so many others, has its root in the free flow of credit from the preceding economic boom years. The market prices of assets were rising steadily. Rising valuations, especially where they were based on improving revenues from robust economic activity, led to rising income streams for governments. This encouraged governments to borrow more, perhaps often to expand services – and the bureaucracy required to offer services – although sometimes to improve infrastructure.

At the same time, rising market prices for financial assets encouraged more savers and investors into the market. That led to an increasing supply of investable funds, which drove demand for sovereign and municipal debt (in addition to the mortgage-backed securities). This process, driven by the financial services industry instead of the real economy, is eerily similar to the driving forces behind the “subprime crisis.” The demand for public offerings pulled more debt issuance out of borrowers with seemingly little concern for repayment: the financial sector gains its profits from issuance fees, trading fees, underwriting fees, etc. As in the case of mortgages, it will be those who buy and hold the debt, along with the borrowers, who will suffer the consequences.

Certainly, emerging nations took advantage of the depth of rich nation capital markets to increase their debt through public offerings. At the end of June 2009, only Italy, Turkey and Brazil were covered by more credit default swap contracts than JP Morgan Chase and Bank of America. In addition to those two global banks, Goldman Sachs, Morgan Stanley, Deutsche Telekom AG, France Telecom and Wells Fargo Bank all have more credit derivate coverage than the Philippines.

Yet there is clearly a potential default problem here. Gross credit default swaps outstanding for the debt of Iceland are equal to 66 percent of GDP, about 20 percent of GDP for Hungary and the Philippines and around 18 percent for Latvia, Portugal, Panama and Bulgaria. If these countries default on their debt, those global banks who sell credit derivatives will be making enormous payments – whether or not the defaulting countries receive any support or bailouts from international donor organizations (like World Bank or International Monetary Fund).

The table below shows the GDP for the countries named in the most credit default swap contracts (as most recently reported to Depository Trust and Clearing Corporation). For each sovereign (country, state or city), we show the value of their public debt both as a figure and as a percent of GDP. The telling factor here is that the “financial markets,” if they are to be believed, judge these entities as more likely to experience “a credit event” than others. A credit event, as we learned when the AIG saga unraveled can be anything from a decline in the market price of debt to an outright default on payments.

Sovereigns named in most credit default protection*
Sovereign Entity	GDP (2008)	Share World GDP (est)	Public Debt (current)	Debt % GDP
JAPAN	$ 4,348,000,000,000	8.6%	$ 7,408,992,000,000	170.4%
REPUBLIC OF ITALY	$ 1,821,000,000,000	3.4%	$ 1,888,377,000,000	103.7%
HELLENIC REPUBLIC (Greece)	$ 343,600,000,000	0.4%	$ 309,583,600,000	90.1%
KINGDOM OF BELGIUM	$ 390,500,000,000	0.6%	$ 315,524,000,000	80.8%
STATE OF ISRAEL	$ 200,700,000,000	0.4%	$ 151,929,900,000	75.7%
REPUBLIC OF HUNGARY	$ 205,700,000,000	0.3%	$ 151,806,600,000	73.8%
FRENCH REPUBLIC	$ 2,097,000,000,000	3.8%	$ 1,404,990,000,000	67.0%
PORTUGUESE REPUBLIC	$ 237,300,000,000	0.4%	$ 152,346,600,000	64.2%
FEDERAL REPUBLIC OF GERMANY	$ 2,863,000,000,000	4.7%	$ 1,792,238,000,000	62.6%
UNITED STATES OF AMERICA	$ 14,290,000,000,000	21.4%	$ 8,688,320,000,000	60.8%
REPUBLIC OF AUSTRIA	$ 325,000,000,000	0.5%	$ 191,100,000,000	58.8%
REPUBLIC OF THE PHILIPPINES	$ 320,600,000,000	0.5%	$ 181,139,000,000	56.5%
KINGDOM OF NORWAY	$ 256,500,000,000	0.3%	$ 133,380,000,000	52.0%
ARGENTINE REPUBLIC	$ 575,600,000,000	0.8%	$ 293,556,000,000	51.0%
REPUBLIC OF CROATIA	$ 73,360,000,000	0.1%	$ 35,873,040,000	48.9%
REPUBLIC OF COLOMBIA	$ 399,400,000,000	0.6%	$ 191,712,000,000	48.0%
UNITED KINGDOM OF GREAT BRITAIN AND NORTHERN IRELAND	$ 2,231,000,000,000	3.5%	$ 1,053,032,000,000	47.2%
REPUBLIC OF PANAMA	$ 38,490,000,000	0.0%	$ 17,859,360,000	46.4%
KINGDOM OF THE NETHERLANDS	$ 670,200,000,000	0.3%	$ 288,186,000,000	43.0%
MALAYSIA	$ 386,600,000,000	0.3%	$ 165,078,200,000	42.7%
KINGDOM OF THAILAND	$ 553,400,000,000	0.9%	$ 232,428,000,000	42.0%
REPUBLIC OF POLAND	$ 667,400,000,000	0.7%	$ 277,638,400,000	41.6%
FEDERATIVE REPUBLIC OF BRAZIL	$ 1,990,000,000,000	2.7%	$ 809,930,000,000	40.7%
SOCIALIST REPUBLIC OF VIETNAM	$ 241,800,000,000	0.5%	$ 93,334,800,000	38.6%
KINGDOM OF SPAIN	$ 1,378,000,000,000	1.8%	$ 516,750,000,000	37.5%
REPUBLIC OF TURKEY	$ 906,500,000,000	1.1%	$ 336,311,500,000	37.1%
KINGDOM OF SWEDEN	$ 348,600,000,000	0.6%	$ 127,239,000,000	36.5%
SLOVAK REPUBLIC	$ 119,500,000,000	0.2%	$ 41,825,000,000	35.0%
REPUBLIC OF FINLAND	$ 195,200,000,000	0.3%	$ 64,416,000,000	33.0%
REPUBLIC OF KOREA	$ 1,278,000,000,000	1.4%	$ 417,906,000,000	32.7%
IRELAND	$ 191,900,000,000	0.4%	$ 60,448,500,000	31.5%
REPUBLIC OF INDONESIA	$ 915,900,000,000	1.7%	$ 275,685,900,000	30.1%
REPUBLIC OF SOUTH AFRICA	$ 489,700,000,000	0.5%	$ 146,420,300,000	29.9%
CZECH REPUBLIC	$ 266,300,000,000	0.5%	$ 78,292,200,000	29.4%
REPUBLIC OF PERU	$ 238,900,000,000	0.2%	$ 57,574,900,000	24.1%
REPUBLIC OF ICELAND	$ 12,150,000,000	0.0%	$ 2,794,500,000	23.0%
REPUBLIC OF SLOVENIA	$ 59,140,000,000	0.1%	$ 13,010,800,000	22.0%
KINGDOM OF DENMARK	$ 204,900,000,000	0.4%	$ 44,668,200,000	21.8%
UNITED MEXICAN STATES	$ 1,559,000,000,000	1.9%	$ 316,477,000,000	20.3%
BOLIVARIAN REPUBLIC OF VENEZUELA	$ 357,900,000,000	0.6%	$ 62,274,600,000	17.4%
REPUBLIC OF LATVIA	$ 39,980,000,000	0.1%	$ 6,796,600,000	17.0%
REPUBLIC OF BULGARIA	$ 93,780,000,000	0.2%	$ 15,661,260,000	16.7%
PEOPLE'S REPUBLIC OF CHINA	$ 7,800,000,000,000	7.7%	$ 1,224,600,000,000	15.7%
ROMANIA	$ 271,200,000,000	0.3%	$ 38,239,200,000	14.1%
REPUBLIC OF LITHUANIA	$ 63,250,000,000	0.1%	$ 7,526,750,000	11.9%
UKRAINE	$ 337,000,000,000	0.6%	$ 33,700,000,000	10.0%
REPUBLIC OF KAZAKHSTAN	$ 176,900,000,000	0.3%	$ 16,097,900,000	9.1%
RUSSIAN FEDERATION	$ 2,225,000,000,000	4.3%	$ 151,300,000,000	6.8%
STATE OF QATAR	$ 85,350,000,000	0.2%	$ 5,121,000,000	6.0%
STATE OF NEW YORK	$ 1,144,481,000,000	2.1%	$ 48,500,000,000	4.2%
STATE OF CALIFORNIA	$ 1,801,762,000,000	3.4%	$ 69,400,000,000	3.9%
REPUBLIC OF CHILE	$ 245,300,000,000	0.3%	$ 9,321,400,000	3.8%
REPUBLIC OF ESTONIA	$ 27,720,000,000	0.1%	$ 1,053,360,000	3.8%
STATE OF FLORIDA	$ 744,120,000,000	1.4%	$ 24,100,000,000	3.2%
THE CITY OF NEW YORK	$ 1,123,532,000,000	2.1%	$ 55,823,000,000	**
*List from Depository Trust and Clearing Corporation. [www.dtcc.com] Dubai was also on this list, but debt and GDP data were not available.
**NYC GDP includes entire NY-NJ-PA metropolitan statistical area; debt is for City of NY only.
Countries in Italics have never failed to meet their debt repayment schedules (Reinhart and Rogoff 2008); Thailand and Korea received IMF assistance to avoid default in the 1990s.

The obvious consequence is that a crisis in sovereign debt would cause problems not just within those nations, states or cities – but also among their trading and economic partners, among their lenders (banks, sovereigns or international donor organizations) as well as the global financial institutions who sold default protection through the credit derivatives markets. The financial impact would be more than anything we have seen so far: most global financial institutions received bailouts from their sovereign governments to soften or at least delay the impact of the September 2008 financial crisis. Yet, I believe the more dire consequence of a widespread sovereign debt crisis, if there is one, will be civil unrest fomented by the deterioration in governments’ critical functions that will result from their weakened financial positions.

Policy makers will have few options available across the globe to combat this crisis. The rich world’s governments have not been able to contain their debt burdens through budgetary discipline alone. Between Federal Reserve Chairman Ben Bernanke and Treasury Secretary Tim Geithner, they’ve done everything except load the helicopter with dollar bills to finance the bailout with freshly-minted U.S. dollars.

Policymakers are just as likely to precipitate a financial crisis as any other investor or borrower – they seem to have no prescient knowledge of the dangers associated with over-speculation, lack of solid accounting practices, balancing a budget, etc. How else do we explain their dependence on borrowing? Basic accounting principles – not to mention ideas going back at least to the biblical story of Joseph and the Pharoah – would guide users to monitor income and spending; actuarial analysis directs us to save during times of “feast” and spend the surplus during times of “famine.”

Yet the United States government and others have already decided to monetize their financial problems at levels not seen before. I shudder to even think what sovereign default would mean to a large-country (G8, for example); however, I deem such a scenario as highly unlikely. A quick look at the table indicates the countries that have never defaulted or even rescheduled a debt payment in their history. The defaults will more likely come from spendthrift small countries, or big states like California.

The world economy has encountered these debt situations before. But in this environment, a sovereign debt crisis would be unlike anything we have experienced in the past. Not only have financial markets become more globally integrated – with countries borrowing and lending across national borders with ease – but the use of credit derivate products has increased the chance of a default turning into a global catastrophe. These derivatives will have a multiplier effect on every sovereign debt default. We know for a fact that credit default swap contracts are written without being limited to the total value of the underlying assets. Therefore, there could be nine to fifteen times as many credit default contracts to be paid by global banks as there is debt in default.

Today there are outstanding about $2 trillion of credit default swaps contracts on just fifty of the world’s 200 nations. These contracts could come payable under even the most modest credit event, spreading the damage globally even before debt-service payments are missed. For example, it is now known that AIG’s Financial Products Division wrote contracts that became payable when the market price of debt decreased, regardless of whether or not the borrower had missed a payment. These circumstances did not exist during any previous debt crisis, including the most recent default cycle, the emerging market debt crises of the 1980s and the 1990s. If widespread sovereign defaults happen, we can expect to see something new and potentially much more damaging.

Tracking Business Services: Best And Worst Cities For High-Paying Jobs

Joel Kotkin — Tue, 14 Jul 2009 00:11:21 -0400

Media coverage of America's best jobs usually focuses on blue-collar sectors, like manufacturing, or elite ones, such as finance or technology. But if you're seeking high-wage employment, your best bet lies in the massive "business and professional services" sector.

This unsung division of the economy is basically a mirror of any and all productive industry. It includes everything from human resources and administration to technical and scientific positions, as well as accounting, legal and architectural firms.

Overall there are roughly 17 million professional and business services jobs, 4 million more than manufacturing. This makes it twice as big as the finance sector and five times the size of the much-ballyhooed tech sector. While its average salary – roughly $55,000 a year – is somewhat lower than in those other elite sectors, its wages are still higher than those in all the other large sectors, like health. The sector's $1 trillion in total pay per year accounts for nearly 20% of all wages paid in the nation; finance and tech together only account for $812 billion.

More than that, the business and professional services sector has encompassed the fastest-growing part of the high-wage economy. Employment in lower-wage sectors like education has also grown quickly. But employment in other sectors that pay their employees well, such as technology, has remained stagnant; jobs in some, such as manufacturing, have fallen sharply. Critically, the business services sector – particularly at the better-paying end – seems to have weathered the current recession better than these other high-wage sectors.

The crucial question remains: In what regions is this critical economic cog booming? In a new analysis with my colleagues at the Praxis Strategy Group, we examined Bureau of Labor Statistics employment data for this sector, keeping an eye on trends over both the last year and the last decade. Some of the metropolitan areas that boasted short-term growth in this sector also maintained steady employment success over the long-term, which suggests that these particular cities have sturdy economies that aren't as prone to intense boom-bust cycles.

At the top of our list of best places is greater Washington, D.C., and its surrounding suburbs in Virginia and Maryland. Government jobs may drive that economy, but it is the lawyers, consultants and technical services firms who harvest the richest benefits. As New York University public policy professor Mitchell Moss observes, Washington has emerged as the "real winner" in the recession – not just for public-sector workers but private-sector ones too.

Fastest Growing Professional and Business Services Sectors
Area Name	Jobs in Sector 2009 (thousands)	Sector Share of Jobs 2009 (percent of total)	Growth 2008 - 2009 (percent growth)	Cumulative Growth 2001 - 2009 (percent growth)	2001-2009 Job Change (thousands)	2008-2009 Job Change (thousands)
Northern Virginia, VA	355.2	27.2%	1.5%	22.4%	65.0	5.2
Washington-Arlington-Alexandria, DC-VA-MD-WV	558.7	23.0%	0.9%	22.8%	103.6	5.1
Austin-Round Rock, TX	112.4	14.4%	3.3%	18.7%	17.7	3.6
Houston-Sugar Land-Baytown, TX	382.3	14.7%	0.9%	19.2%	61.5	3.2
Virginia Beach-Norfolk-Newport News, VA-NC	106.6	14.0%	2.8%	8.0%	7.9	2.9
Bethesda-Frederick-Rockville, MD	125.7	21.9%	2.1%	9.0%	10.4	2.6
Wichita, KS	31.5	10.1%	3.5%	16.4%	4.4	1.1
Chattanooga, TN-GA	25.9	10.6%	4.3%	11.8%	2.7	1.1
Peoria, IL	23.0	12.1%	4.5%	43.2%	6.9	1.0
Rochester, NY	61.8	11.9%	1.5%	1.9%	1.1	0.9
Augusta-Richmond County, GA-SC	31.0	14.5%	3.0%	7.5%	2.2	0.9
Mansfield, OH	5.1	9.1%	19.4%	4.1%	0.2	0.8
Kennewick-Pasco-Richland, WA	20.8	22.2%	4.2%	20.2%	3.5	0.8
St. Louis, MO-IL	195.4	14.6%	0.4%	3.9%	7.4	0.8
Fayetteville-Springdale-Rogers, AR-MO	33.5	16.2%	2.2%	34.2%	8.5	0.7
Macon, GA	12.1	11.9%	5.5%	31.2%	2.9	0.6
Pittsburgh, PA	158.9	13.9%	0.4%	14.5%	20.1	0.6
Fresno, CA	30.7	10.3%	1.9%	23.3%	5.8	0.6
Provo-Orem, UT	23.3	12.4%	2.5%	16.7%	3.3	0.6
Charleston-North Charleston-Summerville, SC	42.2	14.3%	1.3%	31.1%	10.0	0.5

Over the past year, parts of northern Virginia – ground zero for the so-called "beltway bandits" who work in industries the government depends on to do its job – have enjoyed the fastest growth in business and professional services, adding over 5,200 jobs despite the current downturn.

Other areas around the nation's capital have also seen strong growth. The Washington D.C.-Arlington-Alexandria area, for example, came in second on our list, gaining nearly 5,100 positions, while No. 6 the Bethesda-Frederick-Rockville, Md., metro area added 2,600. In addition, yet another Virginia area – No. 5-ranked Virginia Beach-Norfolk-Newport News, a center for military-related industries – gained nearly 2,900 jobs in this sector.

It's far too early to thank the free-spending ways of Barack Obama's administration for all this growth. As anyone can tell you, the Bush White House and its Republican Congress were not exactly models of fiscal restraint. Plus, Washington and Northern Virginia have seen growth in their business services sectors over the last several years, in the period stretching from 2001 to 2009. Together those two metros added over 165,000 new jobs in this critical, high-wage sector.

Of course, you don't have to head to Washington to find a high-paying job – although you might not be able to escape unpleasant summer weather. The other major group of business-services hot spots includes Austin, Texas, at No. 3, and Houston, at No. 4. These Lone Star local economies have continued to thrive not only during the current recession but also over the last decade.

The others winners include farther-afield locales in Kansas, Tennessee, Illinois and New York. These areas could be gaining both from companies seeking to lower costs and from the new capabilities for remote work due to the Internet. Even though they didn't make our list, a host of smaller communities – like Mansfield, Ohio; Provo, Utah; and Charleston, S.C. – also enjoyed significant growth in the business services sector over the past year.

So if these are the places where this segment of the economy is growing and high-paying jobs are easier to come by, where is the opposite true? The worst cities on our list span three archetypes: Rust Belt basket cases, Sunbelt flame-outs and expensive big cities. Perhaps the toughest losses were in Michigan: Detroit and the Warren-Troy metro area suffered big setbacks both in the last year and over the last decade.

Fastest Declining Professional and Business Services Sectors
Area Name	Jobs in Sector 2009 (thousands)	Sector Share of Jobs 2009 (percent of total)	Growth 2008 - 2009 (percent growth)	Cumulative Growth 2001 - 2009 (percent growth)	2001-2009 Job Change (thousands)	2008-2009 Job Change (thousands)
Phoenix-Mesa-Scottsdale, AZ	289.2	16.0%	-10.8%	7.9%	21.2	-35.1
Warren-Troy-Farmington Hills, MI	202.5	18.5%	-12.0%	-21.2%	-54.4	-27.7
Chicago-Naperville-Joliet, IL	633.6	16.8%	-4.1%	-2.9%	-19.0	-27.0
Los Angeles-Long Beach-Glendale, CA	574.7	14.3%	-4.2%	-3.4%	-20.4	-25.2
Atlanta-Sandy Springs-Marietta, GA	390.3	16.4%	-5.9%	-1.3%	-5.1	-24.4
Orlando-Kissimmee, FL	170.9	16.2%	-8.5%	7.7%	12.3	-16.0
Santa Ana-Anaheim-Irvine, CA	261.9	18.0%	-4.7%	4.0%	10.2	-12.8
Minneapolis-St. Paul-Bloomington, MN-WI	253.4	14.4%	-4.6%	-4.6%	-12.2	-12.3
Edison-New Brunswick, NJ	164.5	16.3%	-6.7%	-2.6%	-4.4	-11.9
Detroit-Livonia-Dearborn, MI	108.9	14.7%	-9.5%	-20.9%	-28.8	-11.4
Indianapolis-Carmel, IN	120.3	13.4%	-8.3%	13.6%	14.4	-10.8
Riverside-San Bernardino-Ontario, CA	133.7	11.2%	-6.5%	36.0%	35.4	-9.2
Tampa-St. Petersburg-Clearwater, FL	223.2	18.5%	-3.7%	12.3%	24.5	-8.6
New York City, NY	595.7	15.8%	-1.4%	-0.8%	-5.1	-8.4
Newark-Union, NJ-PA	163.5	16.0%	-4.7%	-0.5%	-0.8	-8.0
Bergen-Hudson-Passaic, NJ	130.6	14.6%	-5.8%	-9.1%	-13.0	-8.0
Milwaukee-Waukesha-West Allis, WI	107.6	12.9%	-6.6%	-1.7%	-1.8	-7.6
Miami-Miami Beach-Kendall, FL	139.1	13.4%	-4.7%	2.2%	3.0	-6.8
Oakland-Fremont-Hayward, CA	158.0	15.6%	-4.0%	-7.1%	-12.2	-6.7
Las Vegas-Paradise, NV	108.2	12.1%	-5.8%	38.1%	29.9	-6.6
Boston-Cambridge-Quincy, MA	308.8	18.2%	-2.0%	-6.8%	-22.5	-6.4
Sacramento--Arden-Arcade--Roseville, CA	106.1	12.3%	-5.6%	-1.8%	-1.9	-6.3
Cleveland-Elyria-Mentor, OH	137.8	13.3%	-4.3%	-5.2%	-7.6	-6.1
Denver-Aurora-Broomfield, CO	207.0	16.9%	-2.9%	4.0%	8.0	-6.1

Consistent job losses in business services in these areas – some 54,000 in the Troy area since 2001 – reveal the clear connection between employment in business services and in the region's fundamental auto industry. It turns out that elite services often prove dependent on basic industry. When industrial plants shut down, it's not just blue-collar workers and company executives that suffer; as a result, these firms will use fewer lawyers, accountants, architects and technical consultants.

A similar picture emerges in cities like Phoenix, which lost about 35,000 business-services jobs in just one year. This loss stems from the collapse of the housing bubble, which powered the rest of the regional economy. The same meltdown caused smaller but still significant reversals in one-time boomtowns like Orlando, Fla., Atlanta and Southern California's Santa Ana region, which encompasses Orange County, where business service employment dropped by double-digit rates over the past year.

Yet these same areas should see some recovery, perhaps more so than the traditional auto manufacturing-focused towns. Phoenix, Orlando and other Sun Belt locations – including a host of other areas in Florida – all saw increasing employment in business services over the past decade. If the economy comes back, along with a stabilization of the residential real estate market, business-services job growth will likely begin to take off again. After all, the fundamental reasons for the success of these areas, such as warm weather, lower costs and the need to serve a growing population, have not fundamentally changed.

Perhaps most perplexing is the fate of some of the other places on our worst cities list, particularly the biggest metropolitan areas. The professional and business services sector is widely considered ideal for large, cosmopolitan centers, since lots of industries require support. But Chicago experienced a huge chunk of job losses – almost 25% – in this sector during the last year. Other big cities, including Los Angeles, Minneapolis and New York, also suffered.

This is not a new phenomenon. These and other big cities, like Boston and San Jose, San Francisco and Oakland in California, have been shedding these types of jobs since 2001. These losses, however, have been concentrated at the lower-wage end of the business service pyramid, in areas like human resources and administration. These are the positions that companies can fill more easily and cheaply using the Internet or by hiring in less expensive outposts.

That's why Washington and its environs, which has seen across-the-board business growth, remain the great exception. Many business-services jobs outside the beltway appear to be becoming more nomadic, based in places where firms face lower costs and where workers can afford to live well on middle-income salaries. Even the long-term resiliency of higher-wage employment like law and accounting in traditional business hubs like New York could be at risk over time, with some jobs shifting to less expensive locales or even overseas.

The changing nature of business services presents a boon to some communities and a challenge to others as they seek to survive and thrive in spite of the current recession. How some cities manage to grow this segment of their economies may well presage which parts of the country will thrive best during the years of recovery – and beyond.

This article originally appeared at Forbes.

Washington, DC: The Real Winner in this Recession

Mon, 13 Jul 2009 01:04:57 -0400

No matter how far the economy falters, there is always a winner. And no city does better when the nation is at the brink of disaster than Washington, DC. Since December 2007, when the current recession formally began, the nation has lost approximately 6 million jobs. Only two states, Alaska and North Dakota, have lost a smaller percentage of jobs than Washington, DC, which has seen a job loss of 0.6%, or 4,400. Simply put, Washington has done better in this recession than 48 of the fifty states when it comes to job performance.

This is not the first time that Washington flourished while the rest of the nation suffered. For the first few, largely prosperous decades of the 19th Century, the district was a backwater, growing more slowly than the national average. It was widely reviled as fetid, swampy place with little in the way of commerce, industry or culture. Even its great buildings were compared to “the ruins of Roman grandeur.”

It was only during arguably our greatest national tragedy – the Civil War – that the District of Columbia grew into an urban center, more than doubling in population from 1860 to 1870. Soldiers from the northern states flocked to the District of Columbia before going to battle, a new military force was established to guard against a Confederate attack, and the management of the war itself became a major federal enterprise. Slavery was abolished in Washington prior to emancipation, and freed slaves added to the District’s growing population.

During the 1930s, FDR created an entirely new set of federal agencies designed to create jobs by financing projects across the country. At the same time, to prevent abuses on Wall Street, Congress created new regulatory agencies, such as the Securities and Exchange Commission, which hired droves of young accountants and lawyers unable to find work in other cities across the country.

The Second World War and the Cold War also played to Washington’s advantage, as a vast military-industrial complex rose to the fore. So it’s not surprising that now, with the nation in the midst of its worst downturn since the Great Depression, that Washington appears about to indulge in yet another orgy of growth.

Washington has always been a one industry town: that’s why it has an intrinsically self-absorbed monotonic culture. Everyone there depends on government for their livelihood. It is fundamentally not a city of competitive industries, but a giant taxpayer-funded office park, surrounded by museums and memorials. The great presidents: Washington, Lincoln, and Jefferson, have their own monuments, while more recent leaders have concert halls and office buildings named after them.

Today Washington, DC appears much as the twenty-first century version of a gold mining town, even if the gold, so to speak, is coming from taxpayers as well as foreign buyers of our increasingly debased US currency. The Bush Administration kicked off this boom when it created the third largest cabinet department, the Department of Homeland Security, (by consolidating unrelated federal agencies into one super-sized department) and made it the employer of airport baggage and security inspectors across the nation. A new federal agency deserves a new headquarters, of course. DHS is now rising on the site of St. Elizabeth’s Hospital in southeast Washington DC, a pre-stimulus stimulus for the District of Columbia.

The passage of the American Recovery and Reinvestment Act may be only slowly stimulating the nation’s economy but it is already working wonders in DC. Everyone wants a piece of the action. There is a surge in the lobbying industry, with every school board, regional transit agency and county government hiring a lobbyist to guide them through the new federal grant programs.

Tourism may be temporarily down in DC, but the hotels are filled with local law enforcement officials, university bureaucrats, and housing advocates all trying to create jobs with federal dollars. The National Telecommunications and Information Administration and the US Department of Agriculture have just nineteen months to spend $4.7 billion on broadband communications.

To evaluate the thousands of proposals for federal funding, expert panels will convene in Washington, DC. Where else? Communities across the country may receive grants, but the hotel and restaurant industry in the nation’s capital will also prosper from this new federal program.

The same process will follow other Obama initiatives. Health care and climate change legislation will produce the same rounds of hearings, a growing cadre of regulators and the corps of tassel-shoed lobbyists who will try to influence them.

The heightened emphasis on transparency in government has compelled every federal department to build sophisticated websites to engage the public, to distribute information, and to conduct the entire process of awarding grants and contracts. The demand for website designers and managers has grown so quickly that a Los Angeles-based interactive advertising agency, “Sensis,” a minority owned and operated corporation, recently opened an office in the District of Columbia just to “capitalize on the federal government’s new interest in digital communications.”

There is one unambiguous measure that signals the growth of business activity within a city. Until recently, taxi fares in the nation’s capital were based on zones. These made it very inexpensive for members of Congress to go to and from the Capital. Today, every DC taxi has a meter and the old-fashioned zone-based system has been abolished. Both the municipal government and taxi drivers understand that there are more dollars to be made from those seeking to influence government than those who actually make the laws.

Ben Smith of Politico.com has recently pointed out that five new Washington-based reality television shows are in the planning stages, with Bravo ready to launch “The Real Housewives of Washington, DC.” It is no accident that the entertainment industry has discovered the District of Columbia. A city that thrives in a recession may become the Fantasyland of our generation.

Mitchell L. Moss is Henry Hart Rice Professor of Urban Policy and Planning at NYU Wagner School of Public Service.

Recession Analysis: When will the job market fully recover?

Mark Hovind — Sun, 12 Jul 2009 00:10:36 -0400

No one knows this answer for sure, but the data show some interesting trends for what's possible. This analysis takes two approaches to answer this question, including:

Total employment: suggests recovery in 2012
Employment growth rates: suggests recovery in mid-2010 ... but ...

This is a work in progress. Tomorrow the future will change.

Current status

June 2009 was the 18th month of the current and the longest recession since 1940. There were 14.7 million unemployed, more than double two years earlier, and the most since 1940 (the previous high was 12 million in 1985). Unemployment was 9.5%, almost double two years earlier, but less than the previous high of 10.8% in 1982.

For most of the workforce, this is the worst recession of their lifetimes, and what some are calling the "Great Recession."

Total employment Anaysis

The graph below shows total nonfarm employment (blue line) and the statistical average (green line). Two additional lines were added to show the normal high/low ranges. The blue dot is the BLS total nonfarm employment projection for 2016.

Notice that total employment in June 2009 was significantly below the normal range for the first time since 1940. In fact, we have been below this normal range for about one year.

The next graph (below) shows the same total nonfarm employment (blue line), the statistical average (green line), and adds two possible recovery timelines - fast (black) and slow (brown) - estimated from previous recovery timelines on the graph.

When we plot the fast and slow recovery timelines starting in July 2009 and until we reach the average, here is are the results.

Fast recovery => beginning of 2012
Slow recovery => beginning of 2018

The requirements for a fast recovery are high. The most jobs ever created in one year was 5 million in 1984 and 1941. To recover by 2012, the US would have to add 5 million jobs per year (400,000 per month) for the next two and a half years - and this has never been done before. We've added jobs at 400,000 per month, but never for two and a half years in a row.

Employment growth rates

Employment growth is the annual rate of change between a given month and 12 months earlier. These monthly data points are plotted on the graph below, and include the employment growth (blue line), the statistical average (green line) and the recessions (red dots that cover up the blue line).

Then we added two possible recovery timelines - fast (black) and slow (brown) - estimated from previous recovery timelines on the graph.

When we plot the fast and slow recovery timelines starting in July 2009 and until we reach the average, here is are the results.

Fast recovery => middle of 2010 (read the next paragraph)
Slow recovery => beginning of 2014

HOWEVER, AND THIS IS IMPORTANT, the current recession has now lasted longer than one year, and the employment growth rates only look back 12 months. This introduces a cumulative effect that has not been compensated for in this graph. This makes both recovery estimates too optimistic. Plus, even when growth rates return to the average, we will have a backlog of millions who have yet to find a job.

Employment growth rates are a revealing trending tool with some interesting benefits:

This graph comes close to a "real feel." We can tell at a glance how difficult it is to find a job.
- When employment growth is above the green line, jobs are relatively easy to find because demand exceeds supply. A case-in-point is the late-1990s.
- When employment growth is between the green line and zero, jobs are harder to find, even though employment is growing, because job growth is not keeping up with workforce growth.
- When employment drops below zero, jobs are difficult to find. Supply exceeds demand.
Notice that the deep recessions of the 40s, 50s and early 60s recovered quickly, and shallow recessions like 1991 and 2001 recovered slowly. This may seem like good news given that we're in a deep recession (this should recover quickly), but there's more - deep recessions cycle quickly, going from highs to lows every 4 years (two good years followed by two bad years). By contrast, the last 6 recessions were shallow and separated by about 8 years.
Notice that the recessions (red dots that cover up the blue line) almost always start as soon as the blue line crosses the green line on the way down. This seems to be a much better and real time indicator than waiting for the
NBER to formally announce the beginning of a recession - always many months after the recession has already begun. (last time it took them 11 months)
Notice that in almost every case, the end of a recession occurs as soon as the blue line turns back up. This too is a much better and real time indicator than waiting for the NBER to formally announce the end of a recession, months after the fact.

The current recession appears to be slowing down significantly.

Notice that the distance between the red dots (monthly growth rate changes) has been getting smaller in recent months. The data are hard to see, and a small piece of the graph above is blown up here on the right.

The smaller distance between the most recent three or four red dots indicate a slowing in our decline - what some call "getting less bad." When the red dots are spaced far apart, as they were earlier, employment was declining quickly.

When the blue line on our employment growth rate graphs turns up, chances are high that we've hit the bottom. However, this has not happened yet.

Interestingly, some forecast the end of the recession for 2009, and they could be right! It's not the end that matters so much, it's how long it will take to recover - there are millions of unemployed that need to get back to work, and our workforce is expanding at about 1.5 million per year.

Post recession unemployment changes

Between 1950 and 1984, the unemployment rate dropped immediately after the "official" end of every recession. In the last two recessions (1991 and 2001) unemployment increased by less than 1%, shown with brown circles.

It remains to be seen what will happen to unemployment after the end of the 2009 recession. From these data, one might conclude that it will rise a maximum of 1%. However (read the Total Employment analysis at the top of this page), we are outside the normal limits of employment variation for the first time.

The take-away

This is the worst recession of a lifetime for almost everyone in the workforce
We're not at the bottom yet, but we could be close - this recession could end in 2009
The most likely "fast" recovery date (to be fully recovered) is the beginning of 2012

If you'd like to join a discussion about this page on July 21st,
click here and sign up ... it's free.

This report was written by Mark Hovind, President of JobBait. Mark helps six and seven figure executives find jobs by going directly to the decision-makers most likely to hire them. Mark can be reached through www.JobBait.com or by email at Mark@JobBait.com.

Prince Charles is Britain's Master-eco-fraudster

Ian Abley — Sat, 11 Jul 2009 00:18:11 -0400

Thomas Paine was born in Thetford, Norfolk, in 1737. He understood that history is made. Aged 39, writing his Common Sense, he noted that Britain is constituted of '...the base remains of two ancient tyrannies, compounded with some new republican materials.' These were:

'First. - The remains of monarchical tyranny in the person of the king

Secondly. - The remains of aristocratical tyranny in the persons of the peers.

Thirdly. - The new republican materials, in the persons of the commons, on whose virtue depends the freedom of England.' (1)

Since Britain's reformist politicians in the House of Commons have shown no republican virtue, in 2009 we now also suffer the "aristocratical tyranny" of the House of Lords being augmented with life peers. These political appointees must give their allegiance to the monarchy, even if they imagine they serve the majority. In contrast to reformists today, the revolutionary republican Paine had the "common sense" to ask:

'How came the king by a power which the people are afraid to trust, and always obliged to check? Such a power could not be a gift of a wise people, neither can any power, which needs checking, be from God.' (2)

The king in waiting, Prince Charles, certainly believes in God, and entertains the myths of many Gods, but his claim to the throne in 2009 is that he understands and represents "the natural order". He has been arguing like this for 30 years. He reiterated his claim in the 2009 Richard Dimbleby Lecture. His is the 33rd lecture held in honour of the veteran broadcaster who died in 1965. Charles had warned in March 2009 that there were only 100 months in which to avoid disaster. (3) He reminded the BBC audience on 8 July that there were 96 months left. The imagined catastrophe he hopes to avoid is otherwise due in July 2017. (4)

The full lecture is available to see on BBC iPlayer.

It does not matter if Charles Windsor is "well meaning". As Paine understood in the Rights of Man, '...a casual discontinuance of the practice of despotism, is not a discontinuance of its principles; the former depends on the virtue of the individual who is immediate possession of the power; the latter, on the virtue and fortitude of the nation.' (5) Prince Charles conveniently imagines himself to be the "steward" of "natural capital". He has an urgent "duty" in his mind to use his monarchical authority to sustain not only Britain, but the entire planet, in some undefined "natural balance and harmony". This is his eco-myth, and no matter how benign, how little he uses his power, along with the military command that entails, he cannot be tolerated by a self-interested people.

We are weak if we allow his eco-mysticism to go unchecked, and to reinvigorate the monarchy in Britain. Those promoting Charles as the spokesman for "natural capitalism" are worse than weak.

Charles talks of not taking too much "income" from the Earth, which makes him sound modest in his monarchy. He does not seem like a feudal monarch. Yet Paine could see through this in 1792:

'As time obliterated the history of their beginning, their successors assumed new appearances, to cut off the entail of their disgrace, but the principles and objects remained the same. What at first was plunder, assumed the softer name of revenue; the power originally usurped they affected to inherit.' (6)

The Windsors have been adept at assuming new appearances since the Second World War. Where his grandmother walked through Blitzed streets, and his mother managed to appear "ordinary", the now 60 year old Charles makes an effort to appear "green". He is an environmentalist promoting the stasis of sustainability, and the political deception works to the point where in drawing his revenue from "natural capital" he seems to be doing not only the British people but the whole of humanity a favour. 'If we fail the Earth, we fail humanity,' he says. (7)

Even if he lived as a monarch as poorly as the majority of the world does, he would still be a focus for every anti-democratic interest in twenty-first century capitalism. Of course, even before he inherits the British throne from his aging mother, he does not live poorly.

With a Parliament of worse than weak representatives checked by a house of new gentry and old aristocrats, all in deference to a feudal monarchy in charge of an interventionist military, Britain is a mostly low paid industrial democracy of debt-laden professional and amateur residential property speculators using a planning system that makes a political and economic nonsense of freehold land ownership. We must find a way to break free of this social containment, (8) focused in Britain on the impending coronation of a "green" king.

'Hereditary succession is a burlesque upon monarchy. It puts it in the most ridiculous light, by presenting it as an office which any child or idiot may fill. It requires some talents to be a common mechanic; but, to be a king, requires only the animal figure of man - a sort of breathing automation. This sort of superstition may last a few years more, but it cannot long resist the awakened reason and interest of man.' (9)

In the second part of Rights of Man, Paine was over-optimistic. He thought that kings would make themselves sufficiently ridiculous. While Charles is worthy of ridicule on many occasions, he still commands loyalty from "greens", even when they are embarrassed by his fantasy of the Earth as "Gaia", as a conscious entity.

It is not enough to point out his self-deceptive eco-hypocrisy, or its popularity. The pervasive idea that capitalism is in any way "natural" must be broken. That requires the promotion of industrial production based on an appreciation of the social division of labour. It is necessary to see that in moaning about the effect of "mechanisation" on the environment, for which the contemporary capitalist will even accept moral and legal responsibility, they will abandon industry and make a virtue out of a life of laborious effort, sustained as a "duty".

In 2009, 200 years after Thomas Paine died, '...environmentalism is the ideology of capitalism in retreat from production.' (10) That is what we understand at audacity. What people lack is social control of the vast industrial surplus that is produced by all of us. At present the aggregated value of our social production is taken as privately owned capital, partially taxed and redistributed through government, while mystified and made acceptable by the likes of the Prince of Wales as "natural capital".

Charles says:

'It seems to me a self-evident truth that we cannot have any form of capitalism without capital. But we must remember that the ultimate source of all economic capital is Nature’s capital.' (4)

Wrong. Nature just exists. Only human labour turns nature into product, using machines to enable less labour to produce more. Capitalism has succeeded so far in developing industry so that sufficient surplus is produced beyond the needs of subsistence. That has allowed employers to live off their employees. Paine did not understand the parasitical relationship of the employer on employees. The workforce is paid less than the value it produces. However Paine could see institutionalised fraud that we tend to ignore:

'Monarchy would not have continued so many ages in the world, had it not been for the abuses it protects. It is the master-fraud, which shelters all others. By admitting a participation of the spoil, it makes itself friends.' (11)

Democratic society depends on raising the productivity of labour. He may fool himself, and some of his fellow "greens", but we must not let Charles fool us. He and his backward, stasis-loving supporters must be denied the appearance of being "natural" leaders, as they attempt to promote an anti-machine age of capitalist "sustainable development":

'Our current model of progress was not designed, of course, to create all this destruction. It made good sense to the politicians and economists who set it in train because the whole point was to improve the well-being of as many people as possible. However, given the overwhelming evidence from so many quarters, we have to ask ourselves if it any longer makes sense – or whether it is actually fit for purpose under the circumstances in which we now find ourselves?' (4)

What "model of progress" and what "destruction" is he talking about? In his pre-recorded Richard Dimbleby Lecture, broadcast on BBC One on 8 July 2009, Charles insisted that Facing The Future meant a new system that is more '...balanced and integrated with nature's complexity.' (7)

This is complete nonsense, but popular "sustainababble". The majority needs complete control of industrial advance. That requires a plan to rescue society from "greens". Prince Charles knows much "...depends on how you define both 'growth' and 'prosperity'." (4) Much certainly depends on whether most people accept his redefinitions, anticipating his imagined "catastrophe", or whether we are no longer willing to be subject to his retreat from industrial production. We don't need to accept his prediction for 2017. We need not be his duped "commoners".

"As to the word 'Commons,' applied as it is in England, it is a term of degradation and reproach, and ought to be abolished. It is a term unknown in free countries." (12)

There is much to abolish in Britain, fraudulent monarchy included, and much to build with "republican materials" in pursuit of democracy.

References:

1. Thomas Paine, Common Sense: Addressed to the Inhabitants of America, 14 February 1776, Philadelphia, reprinted in Mark Philp, editor, Thomas Paine: Rights of Man, Common Sense, and Other Political Writings, Oxford, Oxford University Press, 1998, p 8

2. Ibid, p 9

3. 'Prince Charles: 'We have less than 100 months to stop climate change disaster" ', 8 March 2009, posted on www.dailymail.co.uk

4. Prince Charles, 'Facing the Future', The Richard Dimbleby Lecture as delivered by HRH The Prince of Wales, St James’s Palace State Apartments, London, 8 July 2009. For transcript see here as directed on the Press Release, 'Richard Dimbleby Lecture 2009: The Prince of Wales', 9 July 2009, BBC, posted on www.bbc.co.uk

5. Thomas Paine, Rights of Man: Being an Answer to Mr Burke's Attack on the French Revolution, to George Washington, President of the United States of America, 1791, reprinted in Mark Philp, editor, Thomas Paine: Rights of Man, Common Sense, and Other Political Writings, Oxford, Oxford University Press, 1998, p 98

6. Thomas Paine, Rights of Man: Part the Second, Combining Principle and Practice, 9 February 1792, London, reprinted in Mark Philp, editor, Thomas Paine: Rights of Man, Common Sense, and Other Political Writings, Oxford, Oxford University Press, 1998, p 221

7. 'Prince fears Earth "catastrophe" ', 8 July 2009, posted on http://news.bbc.co.uk

8. Ian Abley, We are witnessing a British built "housing crisis" that Government is powerless to resolve, 23 July 2008, posted on this website here

9. Ibid, p 226

10. James Heartfield, Green Capitalism - Manufacturing scarcity in an age of abundance, www.heartfield.org, 2008, p 91, with details of how to buy posted here

11. Ibid, p 257

12. Ibid, p 351

Enviro-wimps: L.A.'s Big Green Groups Get Comfy, Leaving the Street Fighting to the Little Guys

Patrick Range McDonald — Fri, 10 Jul 2009 01:28:24 -0400

So far, 2009 has not been a banner year for greens in Los Angeles. As the area's mainstream enviros buddy up with self-described green politicians and deep-pocketed land speculators and unions who have seemingly joined the “sustainability” cause, an odd thing is happening: Environmentalists are turning into servants for more powerful, politically-connected masters.

On March 3, voters shot down Measure B, a controversial solar energy initiative pushed by Mayor Antonio Villaraigosa and endorsed heartily by many prominent environmentalists. The stunning defeat in this liberal city came after critics accused the mayor and his friends of secret deals that rushed the measure onto the ballot as a favor to a city union whose workers be guaranteed almost all of the resulting solar jobs.

Then, on April 29, U.S. District Judge Christina Snyder placed a temporary injunction on part of the “clean trucks” program at the Port of Los Angeles, whose air pollution is so foul that the EPA warns its emissions cause cancer in suburbs like Cerritos, miles upwind of the port. Judge Snyder rejected efforts by Villaraigosa and the Teamsters to force port truckers to give up their independence and work for companies – spun as a green rule, but ridiculed as a move to pressure the truckers to become Teamsters.

Today, labor unions, big businesses, and politicians are embracing a green economy to solve their own political and financial woes. And the green agenda – repairing a damaged planet and protecting the local environment in which we live – is at risk of ending up an after-thought.

“I don't think the traditional environmental organizations are up to speed,” says Miguel Luna of Urban Semillas, a grassroots environmental group. Alberto B. Mendoza, president of the Coalition for Clean Air, concurs: “If we don't become more modern in our approach, we'll become obsolete.”

In Los Angeles, developers now market, or “green wash,” big new buildings as “sustainable” – meaning healthy for the planet over the long term. The city of Los Angeles requires large buildings to follow “LEED” rules – low flush toilets, on-site renewable energy and the like. But do these projects cause more congested streets filled with idling cars, for example, than the energy they claim to save? In truth, nobody knows. “If you have a project that would normally be four stories high and now it has 20 stories,” says Hollywood activist Bob Blue, there's a “net increase in power, water, sewer, traffic, pollution – and impact.”

Yet among many greens, LEED is a closed debate – and represents a profound shift. In the 1990s, greens like Marcia Hanscom, Rex Frankel, Bruce Robertson, Cathy Knight, Sabrina Venskus, and Patricia McPherson took on Los Angeles City Hall, preventing it from wiping out the Ballona Wetlands to erect a vast housing development, Playa Vista. Those greens publicly trounced the pols and their speculator friends over absurd “sustainability” claims — including an effort to count the grassy median strips as “open space.”

Nowadays, though, Los Angeles enviros are sliding toward the argument that big development is good for the air, land and water – and small bits of green are enough. Environmentalists rarely engage in the city's intense development hearings. “Maybe one time an environmentalist showed up,” Blue says, “but it was on the behalf of the developer.”

Within the green movement, Andy Lipkis, the founder of Tree People, and Mark Gold, executive director of Heal the Bay, have reputations as heavyweights with access to Villaraigosa and other politicians. Neither of them, though, wants to jump into rough-and-tumble politics. Lipkis, a likeable and dedicated activist, proudly says he is politically “naive.” Gold, a smart and equally dedicated environmentalist, says he is not “even a little” worried that politicians, labor unions or speculators are hijacking the greens' issues.

But today, developers regularly peddle their proposed apartments near L.A. freeways as “sustainable” – claiming they bring workers closer to jobs. The developments are backed by Villaraigosa and the L.A. City Council – to the horror of health experts. Researchers now know, for certain, that children living in these projects are burdened with often lifelong lung disease. “They are putting individuals at risk,” says USC professor Jim Gauderman, whose 2007 study confirmed it.

Heavily focused on lowering emissions region-wide to fight global warming, greens now praise freeway-adjacent housing projects, utterly forgetting about the young humans involved. Incredibly, city Planning Commissioner Michael Woo, a Villaraigosa-appointee, hasn't heard a word of opposition from them. Two years after USC's study, he says, “I'm not sure there's a political will to stop housing projects at these locations.”

Grassroots activist Marcia Hanscom, who has never gotten anything by staying quiet, worked for years with other environmentalists to save the Ballona Wetlands. In 2003, that relentless effort paid off – the state bought more than 600 acres to protect and restore. But now, she says, the environmental movement in L.A. has lost its way. It's time to talk openly about a “mid-course correction.”

L.A. politicians “sometimes call me as if I'm one of their staff members,” she notes, “and I'm supposed to do what they say. They have their roles mixed up. I'm here to advocate for the environment, not to advocate for them.”

Pro-green politicians control the office of mayor, almost every Los Angeles City Council seat, every Los Angeles Unified School Board seat, and, for years, have controlled the legislature. Yet the greens seem oddly incapable of asserting power. Mark Gold of Heal the Bay, for example, went out of his way to endorse solar power Measure B, even though Villaraigosa clearly dissed him by dreaming it up utterly without Gold's input. What L.A. union boss would stand for that?

Stefanie Taylor, interim managing director interim of the Green L.A. Coalition, a group of over 100 organizations, says, “We have to make sure we're at the table when these decisions are made about the new green economy.” But right now, says enviro-lobbyist John White, environmentalists are “more like the menu.”

The stark difference between the daily work of Hanscom, the grassroots environmentalist, and Jonathan Parfrey, the political insider and mainstream environmentalist, is instructive. When the Weekly talked with Hanscom, she was in the middle of an almost surreal battle to keep glaring, Vegas-style digital billboards, made up of 480,000 piercingly bright LED light bulbs, from being allowed adjacent to the blue herons and wildflowers of the Ballona Wetlands.

Says Hanscom, “The city has the Ballona Wetlands as a part of a billboard 'sign district?' It's outrageous! I even had [developer] lobbyists and lawyers ask me what they were thinking.”

As Hanscom aimed her firepower at City Hall, environmentalist Parfrey, one of Antonio Villaraigosa's newest political appointees, was getting ready to visit a Department of Water and Power wind farm way out of town, with the idea of creating “educational tours” for environmentalists. Nothing wrong with that, but it sounded like a public relations campaign for the big utility.

It's hard to escape the fact that Los Angeles power brokers regard the environmental movement not as a passionate force they can tap to improve the quality of life and to clean the air, water, and open spaces, but, increasingly, as just another jobs program. And some of the greenest greens have begun to wonder if their own leaders are taking part in the movement's demise.

Patrick Range McDonald is a staff writer at L.A. Weekly, and this piece appears in full at www.laweekly.com. Contact Patrick Range McDonald at pmcdonald@laweekly.com.

Why Rapid Transit Needs To Get Personal

Thu, 09 Jul 2009 01:05:07 -0400

Innovation in urban transportation is the only long-term correction for expensive environmental losses and energy waste. Why, then, isn’t there a US plan for more vigorous exploration and demonstration of new systems using advanced technologies, particularly automation? Where is the Personal Rapid Transit — PRT — in US transportation policy?

PRT utilizes automated, energy efficient, very lightweight four seat vehicles that operate on narrow, electrified, dedicated guideways. PRT vehicles reduce pollution and conserve land use. The system preserves the benefits that have made automobiles our current dominant transportation mode: personal, on-demand, fast travel directly to arbitrary destinations. For non-drivers, it's a form of public transportation that upgrades travel to the personal level now available with the automobile. It allows travelers to avoid the slow, stop and go, repetitive service schedule which has prevented meaningful acceptance of conventional mass transit in all but a few very dense cities.

PRT works like this: At an off line station, a rider goes to a waiting group of personal cars, inserts a card, punches in a destination and joins the main line for the automatically controlled trip directly to his or her destination.

By direct use of electric energy to power very efficient drive motors, the limitations and inconvenience of batteries are primarily avoided. In some cases, when complete area coverage for the guideway net is not completed, dual mode cars with minimum battery use can deliver the “last mile” to destinations. Of course, current programs for significant automobile improvement should continue until PRT operations are ready to supplant them.

There is a safety bonus, since these very light weight, energy efficient cars are segregated from the mixed flow of heavy cars and trucks.

The simpler, lighter PRT vehicles would use significantly less energy than hybrids or battery powered cars. PRT offers the most potential for deep cuts in greenhouse gases in a few decades, without restricting the mobility necessary for regional productivity.

Community-useful PRT coverage is not possible “overnight”. But PRT and other emerging technologies can stimulate whole new job producing industries while reducing dependence on both fossil fuels and conventional autos for personal transportation.

Billions are being spent on mass transit installations that few travelers want. Meanwhile, urban congestion increases. Urban “streamlined” mass transit is seldom faster than 100-year-old trolleys. No really new concepts have appeared, since government has not prioritized new systems. Instead, it supports minor changes in existing models. Look at the military's successful history of taking advantage of risky new technologies. Imagine if it overlooked a comparable potential; it's equally difficult to fathom telecommunications companies still offering “Ma Bell” style dial phones.

There is some limited evidence that the concept and hardware are being adopted. Heathrow airport near London is about to open on-demand personal ground travel between parking and terminals. Masdar is a United Arab Emirates new city which will replace automobiles with PRT. In the US, completely automatic on-demand travel on a small, funds-limited basis has been operating successfully at the University of West Virginia for thirty years.

Some investigators hope that private funding — perhaps an office park, or a campus — can give PRT its initial boost. Maybe a city would be willing to start such a system in a congested area.. Certainly, the automobile revolution started in piecemeal ways. The commitments that are needed today are larger, however. Today’s climate of regulation and progressive income tax discourage risk capital at the needed levels.

There are signs that the Federal government realizes that transportation policy has lost direction. A recent National Transportation Policy Project report proposes performance-based investment decisions for economic productivity. Compared to other vital infrastructure and private enterprise accomplishments, truly new concepts in transportation have been missing for many decades. With an opportunity to stimulate the economy, and create new job producing industries of global significance, hopefully this new form of vital personal transportation can be the win-win basis for national economic health and efficient urban transportation.

For more on PRT vehicles, see the Liberator Car by MonoMobile or the British/Swedish/Korean Vectusport-Vectur Transport.

Walter Brewer is a retired Vice President of a concepts and management center supporting military missile and space programs.

Telecommuting And The Broadband Superhighway

Wed, 08 Jul 2009 01:01:11 -0400

The internet has become part of our nation’s mass transit system: It is a vehicle many people can use, all at once, to get to work, medical appointments, schools, libraries and elsewhere.

Telecommuting is one means of travel the country can no longer afford to sideline. The nation’s next transportation funding legislation must promote the telecommuting option...aggressively.

The current funding legislation, called SAFETEA-LU, is set to expire on September 30. On June 24, a House subcommittee approved a discussion draft of the new funding bill: the Surface Transportation Authorization Act of 2009. U.S. Representatives James L. Oberstar (D-MN) and John L. Mica (R-FL), Chair and Ranking Member, respectively, of the Transportation Committee are now sparring with the Obama Administration about just when Congress should focus on reauthorizing SAFETEA-LU; the lawmakers say now; the Administration says 18 months from now. Regardless of the timetable adopted, the measure the House and Senate ultimately pass must maximize the powerful benefits of internet-based travel.

Whereas the infrastructure for cars, buses and trains consists of roads and rails, the infrastructure required for telecommuting is broadband. Fortunately for the framers of the new transportation package, the stimulus legislation already provides significant funding - over $7 billion - to expand access to broadband. The transportation legislation should provide more. It should also expressly encourage the use of that broadband to telecommute.

Some Congressional leaders have called on their colleagues to recognize telecommuting as a full-fledged transportation mode. On May 14th, twelve members of the House wrote to both the House Transportation Committee and the House Committee on Energy and Commerce, requesting that they consider including some pro-commuter reforms as they design the nation’s new transportation and energy laws. Among their requests were initiatives to incentivize telecommuting.

One strategy these lawmakers proposed for encouraging telework was to condition federal grants to states and localities for transportation infrastructure on their creation of bold incentives for telework. Why impose this condition? Telework limits the wear and tear on new roads and rails, as well as the demand for further construction. Thus, it protects the federal investment in such infrastructure and mitigates future costs.

There is precedent for insisting that the recipients of federal funding for infrastructure focus on telework’s potential to reduce the need for that infrastructure. Federal law provides that executive agencies, when deciding whether to acquire buildings or other space for employee use, must consider whether needs can be met using alternative workplace arrangements such as telecommuting. Requiring state and local governments that seek federal aid for new roads to include telecommuting in their transportation plans would demonstrate the same kind of fiscal responsibility.

Other lawmakers have introduced legislation specifically linking broadband and more conventional kinds of transportation infrastructure. Representative Anna G. Eshoo, a Democrat from California, together with Democratic Representatives Henry A. Waxman from California, Rick Boucher from Virginia and Edward J. Markey from Massachusetts, has sponsored the Broadband Conduit Deployment Act, a bill that would require new federal highway projects to include broadband conduits. Democratic Senators Amy Klobuchar from Minnesota, Blanche L. Lincoln from Arkansas and Mark R. Warner from Virginia have introduced companion legislation in the Senate.

The proposal set forth in the two bills makes economic sense. It would be an unconscionable waste of taxpayer dollars to dig up roadways, expand and repave them and then dig them up again to lay the broadband pipes the stimulus bill made possible. If the pipes are installed while the roadways are under construction, they will be available when broadband providers are ready to get communities online.

If passed, the Broadband Conduit Deployment Act would only strengthen the case that funding for infrastructure projects should be conditioned on state and local government efforts to facilitate telework. If, as they finance highway projects, American taxpayers also fund broadband, they should not then have to struggle to telecommute. They should be able to help contain transportation costs and, at the same time, easily make the greatest possible use of the broadband access they financed.

What kind of steps to promote telework should states and localities be required to take if they want to qualify for federal transportation funding?

Congress should insist that they provide telework tax incentives for both employees and employers; eliminate tax, zoning and other laws that are hostile to telework; and offer both public and private sector employers technical help in developing and implementing robust telework programs. The government grantees should be required to create such programs for their own employees. They should also be required to designate certain high traffic and high pollution days as telework days — days when employees are specifically urged to take the web to work — and to conduct public awareness campaigns about the benefits of telework.

These benefits go beyond transportation infrastructure savings, emissions reductions, and congestion management. Telework can help businesses and government agencies reduce real estate, energy and other overhead costs and use the savings to avoid job cuts or to hire new staff. It can increase employers’ productivity by 20% or more, and enable them to sustain operations if an emergency, such as the recent swine flu outbreak, compels significant absenteeism.

Telework enables Americans who cannot find work in their own communities – and cannot sell their homes – to look for more distant positions. It can help those still employed to lower their commuting costs and juggle competing work and family obligations. It can help older Americans who cannot afford to retire to continue working even when they no longer have the stamina for daily commuting. And it can help disabled Americans with limited mobility join or re-enter the workforce.

When Congress finalizes its new transportation policy, it must exploit the tremendous mileage it can get from encouraging web-based travel. Conditioning funding to state and local governments on investment by those governments in pro-telework measures – and offering meaningful federal funding to promote telecommuting – is a dual strategy that would yield a greener and leaner transportation system.

In the process, this strategy would advance crucial energy, economic, quality of life and contingency planning goals. A clear emphasis on the need for telework in the new transportation bill is essential to help the nation get to where it needs to go.

Nicole Belson Goluboff is a lawyer in New York who writes extensively on the legal consequences of telework. She is the author of The Law of Telecommuting (ALI-ABA 2001 with 2004 Supplement), Telecommuting for Lawyers (ABA 1998) and numerous articles on telework. She is also an Advisory Board member of the Telework Coalition.

Who Killed California's Economy?

Joel Kotkin — Tue, 07 Jul 2009 00:26:28 -0400

Right now California's economy is moribund, and the prospects for a quick turnaround are not good. Unable to pay its bills, the state is issuing IOUs; its once strong credit rating has collapsed. The state that once boasted the seventh-largest gross domestic product in the world is looking less like a celebrated global innovator and more like a fiscal basket case along the lines of Argentina or Latvia.

It took some amazing incompetence to toss this best-endowed of places down into the dustbin of history. Yet conventional wisdom views the crisis largely as a legacy of Proposition 13, which in effect capped only taxes.

This lets too many malefactors off the hook. I covered the Proposition 13 campaign for the Washington Post and examined its aftermath up close. It passed because California was running huge surpluses at the time, even as soaring property taxes were driving people from their homes.

Admittedly it was a crude instrument, but by limiting those property taxes Proposition 13 managed to save people's houses. To the surprise of many prognosticators, the state government did not go out of business. It has continued to expand faster than either its income or population. Between 2003 and 2007, spending grew 31%, compared with a 5% population increase. Today the overall tax burden as percent of state income, according to the Tax Foundation, has risen to the sixth-highest in the nation.

The media and political pundits refuse to see this gap between the state's budget and its ability to pay as an essential issue. It is. (This is not to say structural reform is not needed. I would support, for example, reforming some of the unintended ill-effects of Proposition 13 that weakened local government and left control of the budget to Sacramento.)

But the fundamental problem remains. California's economy--once wondrously diverse with aerospace, high-tech, agriculture and international trade--has run aground. Burdened by taxes and ever-growing regulation, the state is routinely rated by executives as having among the worst business climates in the nation. No surprise, then, that California's jobs engine has sputtered, and it may be heading toward 15% unemployment.

So if we are to assign blame, let's not start with the poor, old anti-tax activist Howard Jarvis (who helped pass Proposition 13 and passed away over 20 years ago), but with the bigger culprits behind California's fall. Here are five contenders:

1. Arnold Schwarzenegger

The Terminator came to power with the support of much of the middle class and business community. But since taking office, he's resembled not the single-minded character for which he's famous but rather someone with multiple personalities.

First, he played the governator, a tough guy ready to blow up the dysfunctional structure of government. He picked a street fight against all the powerful liberal interest groups. But the meathead lacked his hero Ronald Reagan's communication skills and political focus. Defeated in a series of initiative battles, he was left bleeding the streets by those who he had once labeled "girlie men."

Next Arnold quickly discovered his feminine side, becoming a kinder, ultra-green terminator. He waxed poetic about California's special mission as the earth's guardian. While the housing bubble was filling the state coffers, he believed the delusions of his chief financial adviser, San Francisco investment banker David Crane, that California represented "ground zero for creative destruction."

Yet over the past few years there's been more destruction than creation. Employment in high-tech fields has stagnated (See related story, "Best Cities For Technology Jobs") while there have been huge setbacks in the construction, manufacturing, warehousing and agricultural sectors.

Driven away by strict regulations, businesses take their jobs outside California even in relatively good times. Indeed, according to a recent Milken Institute report, between 2000 and 2007 California lost nearly 400,000 manufacturing jobs. All that time, industrial employment was growing in major competitive rivals like Texas and Arizona.

With the state reeling, Arnold has decided, once again, to try out a new part. Now he's posturing as the strong man who stands up to dominant liberal interests. But few on the left, few on the right or few in the middle take him seriously anymore. He may still earn acclaim from Manhattan media offices or Barack Obama's EPA, but in his home state he looks more an over-sized lame duck, quacking meaninglessly for the cameras.

2. The Public Sector

Who needs an economy when you have fat pensions and almost unlimited political power? That's the mentality of California's 356,000 workers and their unions, who make up the best-organized, best-funded and most powerful interest group in the state.

State government continued to expand in size even when anyone with a room-temperature IQ knew California was headed for a massive financial meltdown. Scattered layoffs and the short-term salary givebacks now being considered won't cure the core problem: an overgenerous retirement system. The unfunded liabilities for these employees' generous pensions are now estimated at over $200 billion.

The people who preside over these pensions represent the apex of this labor aristocracy. This year two of the biggest public pension funds, CalPERS and CalSTERS, handed out six-figure bonuses to its top executives even though they had lost workers billions of dollars.

Almost no one dares suggest trimming the pension funds, particularly Democrats who are often pawns of the public unions. Some reforms on the table, like gutting the two-thirds majority required to pass the budget, would effectively hand these unions keys to the treasury.

3. The Environment

Obama holds up California's environmental policy as a model for the nation. May God protect the rest of the country. California's environmental activists once did an enviable job protecting our coasts and mountains, expanding public lands and working to improve water and air resources. But now, like sailors who have taken possession of a distillery, they have gotten drunk on power and now rampage through every part of the economy.

In California today, everyone who makes a buck in the private sector--from developers and manufacturers to energy producers and farmers--cringes in fear of draconian regulations in the name of protecting the environment. The activists don't much care, since they get their money from trust-funders and their nonprofits. The losers are California's middle and working classes, the people who drive trucks, who work in factories and warehouses or who have white-collar jobs tied to these industries.

Historically, many of these environmentally unfriendly jobs have been sources of upward mobility for Latino immigrants. Latinos also make up the vast majority of workers in the rich Central Valley. Large swaths of this area are being de-developed back to desert--due less to a mild drought than to regulations designed to save obscure fish species in the state's delta. Over 450,000 acres have already been allowed to go fallow. Nearly 30,000 agriculture jobs--held mostly by Latinos--were lost in the month of May alone. Unemployment, which is at a 17% rate across the Valley, reaches upward of 40% in some towns such as Mendota.

4. The Business Community

This insanity has been enabled by a lack of strong opposition to it. One potential source--California's business leadership--has become progressively more feeble over the past generation. Some members of the business elite, like those who work in Hollywood and Silicon Valley, tend to be too self-referential and complacent to care about the bigger issues. Others have either given up or are afraid to oppose the dominant forces of the environmental activists and the public sector.

Theoretically, according to business consultant Larry Kosmont, business should be able to make a strong case, particularly with the growing Latino caucus in the legislature. "You have all these job losses in Latino districts represented by Latino legislators who don't realize what they are doing to their own people," he says. "They have forgotten there's an economy to think about."

But so far California's business executives have failed to adopt a strategy to make this case to the public. Nor can they count on the largely clueless Republicans for support, since GOP members are often too narrowly identified as anti-tax and anti-immigration zealots to make much of a case with the mainstream voter. "The business community is so afraid they are keeping their heads down," observes Ross DeVol, director of regional economics at the Milken Institute. "I feel they if they keep this up much longer, they won't have heads."

5. Californians

At some point Californians--the ones paying the bills and getting little in return--need to rouse themselves. The problem could be demographic. Over the past few years much of our middle class has fled the state, including a growing number to "dust bowl" states like Oklahoma, Texas and Arkansas from which so many Californians trace their roots.

The last hope lies with those of us still enamored with California. We have allowed ourselves to be ruled by a motley alliance of self-righteous zealots, fools and cowards; now we must do something. Some think the solution is reining in citizens' power by using the jury pool to staff a state convention, as proposed by the Bay Area Council, or finding ways to undermine the initiative system, which would remove critical checks on legislative power.

We should, however, be very cautious about handing more power to the state's leaders. With our acquiescence, they have led this most blessed state toward utter ruin. Structural reforms alone, however necessary, won't turn around the economy's fundamental problems and help California reclaim its role as a productive driver of the American dream.

This article originally appeared at Forbes.

Death of the Suburbs: Part Nauseum

Wendell Cox — Mon, 06 Jul 2009 03:16:40 -0400

For decades, those who know best have been chronicling the death of the suburbs. In every new announcement of demographic data, they find evidence that people are “moving back” to the core cities, even though they never moved away. The coverage of the latest Bureau of the Census city population estimates set a new standard. “Cities Grow at Suburb’s Expense During Recession” was the headline in The Wall Street Journal. The New York Daily News headlined “Census Shows Cities are Growing More Quickly than Suburbs.”

Robert E. Lang, co-director of Washington’s Metropolitan Institute at Virginia Tech noted that inner suburbs that have developed transit systems grew more last year and that others will begin to grow faster in the future. Lang specifically cites the Washington, DC suburbs of Alexandria and Arlington. William Frey of the Brookings Institution told Time magazine that the cities are “a lot better” able to withstand the “ups and downs” in the economy.

This is something for which no evidence was reported, but it was the “inside-the-beltway” (Washington) spin that Time and other media have been eager to adopt. Even the latest government numbers still showed the suburbs with a growth rate more than 20 percent above that of the core cities.

Premature Death Syndrome?

Despite the spin, an analysis of the 51 metropolitan areas with more than 1,000,000 population indicates that the nation’s suburbs are in no danger of being displaced as growth leaders by the central city. To start with, suburbs represent nearly 75 percent of the nation’s major metropolitan population. Further, the overwhelming evidence is that people continue to move out of the core cities in far larger numbers than they are moving in (net domestic migration).

In 2008, the core cities accounted for 23 percent of growth in the largest metropolitan areas. This is up from the decade annual average of 16 percent (Note 1). But this improvement is not the result of more people moving to the core cities but a huge decline in domestic migration, which has driven suburban growth for decades. Thus, the story in the latest census estimates is not that the cities are growing faster. It is rather that people are generally staying put amidst the steepest economic decline since the Great Depression. Stunted hopes, not a sudden enthusiasm for urban living, have driven the relative change.

Table 1
Metropolitan Area, Suburban and Core City Population: 2000-2008
Metropolitan Areas Over 1,000,000

	Metropolitan Area			Suburbs			Core City
Metropolitan Area	2000	2008	Change	2000	2008	Change	2000	2008	Change	Share of Growth
Atlanta	4,282	5,376	1,094	3,861	4,838	977	421	538	117	11%
Austin	1,266	1,653	387	602	895	293	664	758	94	24%
Baltimore	2,557	2,667	110	1,909	2,030	122	649	637	(12)	-11%
Birmingham	1,053	1,118	64	811	889	77	242	229	(13)	-21%
Boston	4,402	4,523	121	3,813	3,914	101	589	609	20	16%
Buffalo	1,169	1,124	(45)	877	853	(24)	292	271	(21)
Charlotte	1,340	1,702	362	770	1,014	244	570	687	117	32%
Chicago	9,118	9,570	452	6,222	6,717	494	2,896	2,853	(43)	-9%
Cincinnati	2,015	2,155	141	1,683	1,822	138	331	333	2	1%
Cleveland	2,148	2,088	(60)	1,671	1,655	(17)	477	434	(43)
Columbus	1,620	1,773	154	904	1,018	114	716	755	39	26%
Dallas-Fort Worth	5,196	6,300	1,104	4,006	5,020	1,014	1,190	1,280	89	8%
Denver	2,194	2,507	313	1,638	1,908	270	556	599	43	14%
Detroit	4,458	4,425	(32)	3,512	3,513	1	945	912	(33)
Hartford	1,151	1,191	40	1,027	1,066	40	124	124	(0)	0%
Houston	4,740	5,728	989	2,761	3,486	725	1,978	2,242	264	27%
Indianapolis	1,531	1,715	184	749	917	168	782	798	16	9%
Jacksonville	1,126	1,313	187	390	505	116	737	808	71	38%
Kansas City	1,843	2,002	159	1,442	1,563	122	401	439	38	24%
Las Vegas	1,393	1,866	473	909	1,307	399	484	558	74	16%
Los Angeles	12,401	12,873	472	8,697	9,039	342	3,704	3,834	130	28%
Louisville	1,165	1,245	80	613	687	74	552	557	6	7%
Memphis	1,208	1,224	16	518	554	36	690	670	(20)	-130%
Miami	5,027	5,415	388	4,663	5,002	338	363	413	50	13%
Milwaukee	1,502	1,549	47	905	945	40	597	604	8	16%
Minneapolis-St. Paul	2,982	3,230	248	2,599	2,847	248	383	383	0	0%
Nashville	1,318	1,551	233	772	954	183	546	596	51	22%
New Orleans	1,316	1,134	(182)	832	822	(10)	484	312	(172)
New York	18,353	19,007	653	10,338	10,643	305	8,016	8,364	348	53%
Oklahoma City	1,098	1,206	108	590	654	64	508	552	44	41%
Orlando	1,657	2,055	398	1,464	1,824	360	193	231	37	9%
Philadelphia	5,693	5,838	146	4,179	4,391	212	1,514	1,447	(66)	-46%
Phoenix	3,279	4,282	1,003	1,952	2,714	762	1,326	1,568	242	24%
Pittsburgh	2,429	2,351	(78)	2,095	2,041	(54)	334	310	(24)
Portland	1,936	2,207	271	1,406	1,650	244	530	558	28	10%
Providence	1,587	1,597	10	1,413	1,425	12	174	172	(2)	-23%
Raleigh	804	1,089	284	514	696	182	290	393	102	36%
Richmond	1,100	1,226	126	902	1,024	121	198	202	4	3%
Rochester	1,042	1,034	(8)	822	827	5	219	207	(13)
Riverside-San Bernardino	3,278	4,116	838	3,020	3,821	800	258	295	38	4%
Sacramento	1,809	2,110	301	1,399	1,646	247	409	464	55	18%
St. Louis	2,724	2,841	116	2,378	2,486	109	347	354	7	6%
Salt Lake City	973	1,116	143	791	934	143	182	182	(0)	0%
San Antonio	1,719	2,031	312	555	680	125	1,164	1,351	187	60%
San Diego	2,825	3,001	176	1,597	1,722	124	1,228	1,279	51	29%
San Francisco	4,137	4,275	137	3,360	3,466	106	778	809	31	23%
San Jose	1,740	1,819	79	841	871	29	899	948	50	63%
Seattle	3,052	3,345	292	2,489	2,746	258	564	599	35	12%
Tampa-St. Petersburg	2,404	2,734	329	2,100	2,393	293	304	341	37	11%
Tucson	849	1,012	163	359	470	111	489	542	52	32%
Virginia Beach	1,580	1,658	78	1,346	1,424	78	234	234	(0)	0%
Washington	4,821	5,358	537	4,249	4,766	517	572	592	20	4%
Total	152,409	166,323	13,914	109,318	121,097	11,778	43,090	45,226	2,136	15%
Population in 000s
City share column blank where both metropolitan area & city lost population
Metropolitan areas are named after their largest city or cities. The first city listed is the core city, except in Virginia Beach where the core city is Norfolk.
Italization indicates that core city was largely built out in 1960 and has annexed little or no territory.
Calculated from US Bureau of the Census data for county based metropolitan areas

On close examination, the recent better relative performance of the cities stemmed from three factors, none of which involved people moving to them from the suburbs or anywhere else in the nation.

(1) Decline in Domestic Migration

Suburban growth has declined because the economic downturn has reduced the number of residents moving from one part of the country to another (domestic migrants). In 2008, net domestic migration fell to 30 percent below the decade average. The suburbs and exurbs were the largest gainers from domestic migration in past and have thus declined the most. This is not surprising, given the fact that a major part of subprime mortgage crisis that precipitated the Panic of 2008 (or the Great Recession) was the granting of mortgages to under-qualified households who stretched their financial resources to move to places where housing was the least expensive. Many of these households defaulted on their mortgages, were forced out of their houses and moved away.

Nonetheless, as a new Bureau of the Census report indicated, in each of 12 large metropolitan areas analyzed the percentage growth in the exurbs was greater than in the core city. So even in the worst of times, the basic claim by the “inside-the-beltway” analysts and the media were totally off-base.

The slowdown in net domestic migration also has pushed up city population growth. Fewer people moved away from the core cities than in the past. This, however, is different from people moving into the cities from the suburbs.

It seems likely that stronger domestic migration gains will be restored to the suburbs when the economy improves. In the meantime, the growth rates of both the core cities and the suburbs have converged toward the natural rate of growth (births minus deaths).

(2) Net International Migration

County level data indicates that net international migration was only 9 percent below the decade average in 2008. The core cities have routinely attracted more international migrants than the suburbs. This, combined with a decline in domestic migration among metropolitan areas with more than 1,000,000 population helped to improve the growth rate of the core counties relative to the suburbs.

(3) Not Adding Up: City Estimates

Putting it frankly, the births minus deaths, plus domestic migration and international migration fall far short of the increases being reported in the core cities. This can be shown by examining the only core cities for which full “component of population change” data is available (natural increase, net domestic migration and net international migration). The Bureau of the Census does not release component data at any level of government below counties or their equivalents. In five cases, cities are fully consolidated with counties.

The consolidated city-counties are New York (an amalgamation of five counties, or boroughs), Philadelphia, San Francisco, Baltimore and Washington (DC). Some places referred to as consolidated city-county governments are not genuine amalgamations, because some separate cities remain, such as in Miami, Jacksonville, Louisville and Indianapolis. An examination of the components of population in the five genuinely consolidated city-county jurisdictions reveals huge unallocated discrepancies (the Bureau of the Census term is “residuals”).

Combining the births, deaths, net domestic migration and net international migration all of the five cities produces a population loss. The difference is the unallocated residual, which is huge in four of the five city-counties and a number of others and is small in most places that are not core cities.

This unexplained “residual” is largely the result of the Bureau of the Census population “challenge” program. Four of the five consolidated cities have mounted successful challenges to their estimates and have thus added significantly to their populations. In San Francisco and Washington, the challenges added more population than the 2000-2007 gain (2008 challenges are yet to be filed). In New York, the challenges amounted to 80 percent of the 2000-2007 growth (Table 2).

Table 2
Unallocated Residuals & Estimates Challenges : 2000-2007
Fully Consolidated City-County Jurisdictions

	Change in Population: 2000-2007	Unallocated Residual: 2000-2007	Successful Census Challenges: 2000-2007

With Successful Challenges
Baltmore	(8,400)	34,700	56,400
New York	294,500	325,000	236,100
San Francisco	21,700	37,400	34,200
Washington	16,100	19,900	31,500
Subtotal	323,900	417,000	358,200

No Successful Challenges
Philadelphia	(65,200)	(6,800)	0

Unallocated Residual: Population Change not accounted for in births, deaths, international migration or domestic migration
Calculated from US Bureau of the Census data.

This is just the beginning of the story. More than one-half of the core city growth in the decade has been attributable to similar challenges. In contrast, only three percent of suburban population growth has been attributable to challenges. It does seem curious that the Bureau of the Census that has produced such erroneous estimates in places like New York (230,000), Atlanta’s Fulton County (110,000) and St. Louis (40,000), missed not a soul Los Angeles, Chicago, Cleveland, Phoenix and a host of other core cities and thousands of counties. The next census (2010) may be a good gauge of the challenge program’s accuracy, although it is not beyond imagining that anti-suburban elements may seek to politicize the results.

Inner Suburbs

Further, the theory of inner suburban growth is left wanting, even in the Washington area. Despite their transit improvements, between 2000 and 2008, Arlington and Alexandria lost 45,000 domestic migrants, both losing in every year except 2008 (in both cases, additions due to challenges were greater than the 2000-2007 population increase). Washington’s other inner suburbs, Fairfax County, Montgomery County and Prince Georges County are served by the same transit system (largely paid for by the taxpayers around the country), yet between them have lost another 240,000 domestic migrants between 2000 and 2008. On the other hand, the second ring suburbs have gained 112,000 migrants and the exurbs have gained 104,000 (See Figure). During the last year, the inner suburbs grew at approximately one-third the rate of the outer suburbs. And despite the subprime induced distress in the exurbs, the inner suburbs could achieve no better a rate. Analysts may trade anecdotes at coffee houses about people moving to the city or the inner suburbs from the exurbs or beyond. However, the Bureau of the Census data is clear. For every anecdote that that moves in, more than one moves out.

The Numbers Tell it All

When the 2008 county and metropolitan area population estimates were published a few months ago, we showed that the central counties (Note 2) continue to lose residents at a rapid rate. Among the metropolitan areas with more than 1,000,000 population, central counties lost 4.6 million domestic migrants, while suburban counties gained 2.0 million domestic migrants between 2000 and 2008. Over the past year, the core counties lost a net 314,000 domestic migrants while the suburbs gained 197,000 (Table 3).

Table 3
Domestic Migration: Core and Suburban Counties: 2000-2008
Metropolitan Areas over 1,000,000 Population

	Latest Year: 2007-2008			Decade: 2000-2008
Metropolitan Area	Suburban	Core	Total	Suburban	Core	Total
Atlanta	32,925	10,126	43,051	395,836	(1,749)	394,087
Austin	24,216	10,825	35,041	156,890	41,142	198,032
Baltimore	(6,000)	(6,352)	(12,352)	32,952	(67,923)	(34,971)
Birmingham	5,658	(2,356)	3,302	48,700	(25,755)	22,945
Boston	(2,889)	(5,372)	(8,261)	(154,086)	(99,006)	(253,092)
Buffalo	(358)	(4,127)	(4,485)	(5,933)	(48,232)	(54,165)
Charlotte	21,327	13,060	34,387	125,223	93,513	218,736
Chicago	921	(43,031)	(42,110)	160,765	(667,507)	(506,742)
Cincinnati	3,803	(7,372)	(3,569)	65,905	(85,538)	(19,633)
Cleveland	861	(15,757)	(14,896)	14,726	(141,445)	(126,719)
Columbus	3,325	(826)	2,499	64,211	(40,624)	23,587
Dallas-Fort Worth	62,022	(18,847)	43,175	514,011	(254,016)	259,995
Denver	13,940	3,932	17,872	86,262	(50,881)	35,381
Detroit	(17,020)	(45,140)	(62,160)	(53,478)	(273,695)	(327,173)
Hartford	379	(4,065)	(3,686)	10,789	(21,639)	(10,850)
Houston	38,559	(1,835)	36,724	279,389	(89,222)	190,167
Indianapolis	11,747	(5,040)	6,707	113,378	(51,262)	62,116
Jacksonville	8,723	(3,955)	4,768	101,954	20,185	122,139
Kansas City	4,908	(3,495)	1,413	57,007	(34,481)	22,526
Las Vegas (*)
Los Angeles	(12,033)	(103,004)	(115,037)	(232,281)	(1,006,985)	(1,239,266)
Louisville	4,281	818	5,099	38,420	(9,798)	28,622
Memphis	5,986	(10,533)	(4,547)	49,979	(52,412)	(2,433)
Miami	(18,598)	(28,399)	(46,997)	31,551	(252,098)	(220,547)
Milwaukee	939	(7,382)	(6,443)	13,987	(86,392)	(72,405)
Minneapolis-St. Paul	1,179	(4,619)	(3,440)	61,162	(86,920)	(25,758)
Nashville	17,172	(547)	16,625	128,921	(19,094)	109,827
New Orleans	(2,520)	22,856	20,336	(72,561)	(233,021)	(305,582)
New York	(68,081)	(76,018)	(144,099)	(672,435)	(1,118,025)	(1,790,460)
Oklahoma City	5,707	(226)	5,481	42,399	(10,302)	32,097
Orlando	10,495	(7,342)	3,153	174,428	55,611	230,039
Philadelphia	(9,639)	(12,209)	(21,848)	36,553	(144,849)	(108,296)
Phoenix	22,614	28,463	51,077	117,550	411,697	529,247
Pittsburgh	1,169	(3,601)	(2,432)	5,221	(60,564)	(55,343)
Portland	10,641	7,355	17,996	106,163	(4,247)	101,916
Providence	(3,983)	(6,643)	(10,626)	(13,399)	(34,136)	(47,535)
Raleigh	6,030	23,238	29,268	35,263	132,769	168,032
Richmond	5,625	937	6,562	76,608	(4,095)	72,513
Riverside-San Bernardino (*)
Rochester	(425)	(3,325)	(3,750)	(7,121)	(36,181)	(43,302)
Sacramento	8,255	(3,731)	4,524	97,304	34,798	132,102
St. Louis	561	(6,253)	(5,692)	17,988	(57,090)	(39,102)
Salt Lake City	1,407	(1,164)	243	10,191	(41,646)	(31,455)
San Antonio	10,850	11,941	22,791	69,824	84,409	154,233
San Diego (*)
San Francisco	4,092	1,414	5,506	(269,093)	(80,543)	(349,636)
San Jose	(528)	(2,097)	(2,625)	(6,119)	(221,378)	(227,497)
Seattle	7,894	3,975	11,869	61,244	(38,132)	23,112
Tampa-St. Petersburg	8,610	(2,100)	6,510	169,346	91,106	260,452
Tucson (*)
Virginia Beach	(11,093)	(4,430)	(15,523)	7,486	(15,941)	(8,455)
Washington	(16,637)	(1,622)	(18,259)	(77,894)	(43,457)	(121,351)
Total	197,017	(313,875)	(116,858)	2,015,186	(4,645,051)	(2,629,865)
* Indicates no suburban county(ies)
Calculated from US Bureau of the Census data for county based metropolitan areas

There is a simple test that the reporters and the analysts can apply. When the cores experience net domestic migration gains and the suburbs experience net domestic migration losses, only then can it be claimed that people are moving to the cores are gaining at the expense of the suburbs. The reality is that between 2000 and 2008, there was not a single instance out of the 51 metropolitan areas with more than 1,000,000 population where there was suburban net out-migration and core county net in-migration. There was one case in 2008, but it was an anomaly. The suburbs of New Orleans lost a modest number of domestic migrants, while the city gained strongly. This occurred because people moved back to the city in large numbers, after more than half left due to Hurricane Katrina.

Spin can change perceptions, but not reality. People are not moving from the suburbs to the core cities. The reverse continues to be true, even in the worst of times.

Note 1: Excludes New Orleans due to significant population variations from Hurricane Katrina.

Note 2: Counties are the smallest jurisdiction for which the Bureau of the Census publishes migration data.

Reference: Demographia 2000-2008 Metropolitan Area Population & Migration: http://www.demographia.com/db-metmic2004.pdf

View from the UK: The Progressive’s Dilemma

Sat, 04 Jul 2009 00:24:59 -0400

American progressives long have looked upon Britain’s Labour Party as an exemplar of how to prioritize social welfare without entirely alienating business. Unlike their European counterparts, whose overly suspicious view of wealth and overly generous view of social welfare spending make poor role models for America, the British Labour Party has brokered a “partnership” between wealth and welfare over the years more suitable to the American psyche.

Yet today that partnership is nearing collapse. For over a decade Britain’s supercharged financial sector fuelled the growth of an expansive state. But as the financial sector has cooled, Britain’s Labour party is now faced with the stark reality of burgeoning social welfare commitments, unprecedented public debt, and dubious upward mobility prospects for the ordinary citizen. The government has seemed more competent at creating upward mobility for civil servants who service the growing social welfare state than doing the same for the larger population who have to pay for it.

Now the question for Labour – and the UK – is how to maintain an expansive social insurance program by somehow creating the kind of growth needed to pay for it. Once its “wealth creation strategy” of relying on a fecund banking sector fell apart, its project of providing income security rather than fostering income growth for ordinary people appears to be on the verge of failure.

In order to maintain social welfare goals amidst a floundering economy, the UK has financed its shortfall through massive debt – something the average British household knows something about. Between 1997 and 2007 average household debt grew from 105 to 177 percent of disposable income. The US, of course, also experienced an explosion of household debt during the same period but not nearly to the same extent. At the end of 2007 America’s average household debt reached 106 percent of disposable income – essentially where the UK started 10 years earlier.

The UK’s comfort with personal debt has now extended to the public realm. Even before the recession, Britain had $1.2 trillion of public debt, and by next year it will rise to $1.8 trillion, or 81 percent of GDP. If debt payment were a government agency, it would be the fourth largest in Britain. According to the London-based think tank the Centre for Social Justice, 21 percent of total public spending will be devoted to debt service in 2020, compared to 6 percent today. Public debt in the US, by comparison, will reach 60 percent of GDP by next year, and interest on the debt will rise from 4.6 percent to nearly 14 percent ten years from now. Labour’s legacy will be the Mount Everest of indebtedness it has left the current and subsequent generation.

To put this in perspective, we need look no further than historic trends over the past 30 years. Public debt has tracked fairly proportionately with public spending in the UK during this period. During the economic stagnation of the late 1970s, public debt rose to nearly 50 percent of GDP. It hit its nadir at around 25 percent in 1990 after the Thatcher era, and then rose to around 35 percent, where it has remained ever since – until last year. Suddenly, debt has skyrocketed to more than 75 percent of GDP in the past year – an unprecedented level – and will rise to 100 percent by 2012 before swelling to 150 percent by 2020. In order to reduce debt to its 45 percent level of just a few years ago, public spending would need to be cut by a third. Given that one-fifth of all public spending will go to debt service in 10 years, cutting spending will prove politically impossible for a government – and perhaps an entire nation – that identifies ever expanding government-funded services as essential.

Even more disquieting, tax receipts have mainly hovered around 35 percent of GDP regardless of the tax rate during the past 30 years. This means that raising tax rates – such as Labour’s proposal to lift the top tax bracket to 50 percent– have little effect as high earners move away or find other ways to protect their assets. Logically, if it hopes to cope with its debt obligations, Britain should therefore keep taxes as low as possible and cut public spending. But instead the UK drives full-speed ahead into the fog of debt without having any notion of how to service its future obligations.

The UK is therefore faced with a thorny dilemma: on the one hand, it has spent decades creating a social welfare system that reduces risk and promises citizens protection from life’s vagaries, and on the other, it needs people to take risks in order to revitalize the economy. Government spending fostered risk avoidance precisely when Britain most needs an entrepreneurial class that can help diversify the economy away from finance and, to a lesser extent, tourism.

The people most hurt by social welfare are young working class people – the very group Labour purports to represent. In the UK there’s much talk about the NEETs – young people in their late teens who are Not in Employment, Education, or Training. In 2000 there were 630,000 young people between the ages of 16 and 19 in this group. Today, that number totals 860,000, a 36 percent increase in less than a decade. This would be the equivalent of 4.5 million young people in the United States. If NEETs were a city, they would be the third largest metropolitan area in the UK.

Increasing numbers of able-bodied young people dropping out of society altogether reflects a growing sense of hopelessness. According to the Gallup World Poll, only 20 percent of 25-34 year olds, and 25 percent of 35-49 year olds, thought the economic conditions in the UK were good before the current economic crisis. The UK’s NEET problem and economic pessimism were rampant when the going was good – something that can only be worse now.

This is not merely the result of a profligate welfare state. The NEET problem has its origins in complex cultural phenomena. However, it is difficult to argue with the conclusion that an increasing economic resignation among Britain’s younger population is ill-timed for a government betting on future workers to pay the public mortgage.

The US has a more diversified economy than the UK and likely suffers from less economic resignation, but it is beset with a similar dilemma. Despite historically unprecedented levels of public debt, albeit less extreme than Britain’s, the Obama administration appears to be pursuing an economic program that bears similarities to the Labour preoccupation with creating prophylactics against risk and hardship. In a matter of months, the US deficit has risen from 3.2 to 13.1 percent of GDP, according to the Congressional Budget Office.

Even with President Obama’s widely doubted promises to cut the deficit in half, the CBO estimates a yearly shortfall of more than $1 trillion ten years from now. Even worse, there is precious little in the administration’s plans – including its grandiose claims about “green jobs” – that will create the growth necessary to carry such debt in the future. In fact many of the administration’s proposals – from its healthcare program to its auto company ownership and a more heavily regulated financial sector – could serve more to curb growth than encourage it. In addition, increased taxes on “the rich” will hit small businesses most grievously, the most plausible engine for growth.

It appears the administration seems intent on following Labour’s folly of mortgaging the future. Without addressing the issue of how to unleash the entrepreneurial energies of the young generation, it’s hard to see how America will avoid falling into the morass in which its British cousins are now so perilously trapped.

Ryan Streeter is Senior Fellow at the London-based Legatum Institute.

Lessons from the Left: When Radicals Rule – For Thirty Years

Roger Selbert — Fri, 03 Jul 2009 00:31:21 -0400

Contrary to popular notions held even here in southern California, Santa Monica was never really a beach town or bedroom community. It was a blue-collar industrial town, home to the famed Douglas Aircraft from before World War II until the 1970s.

When I first lived there in the early ’70s, the city was pretty dilapidated, decaying and declining (except for the attractive neighborhoods of large expensive homes in the city’s northern sections). I remember a lot of retirees, students, and like me and my wife, renters of small apartments in old buildings. The tiredness of the place was incongruous with its great location and weather. But then the first of several spectacular rises in real estate values took off. Rents started rising precipitously as well, and in a city where 80% of residents were renters, a political earthquake shook the establishment: in 1979 voters passed rent control and soon after that elected a slate of politicians backed by the SMRR – Santa Monicans for Renter Rights – to a majority on the city council. It has now been 30 years that the city of Santa Monica has been dominated by the politics and politicians of SMRR. What have they wrought?

There have been some momentous battles. Property owners, denied the full use and fair value of their property, came to calling the place “the People’s Republic of Santa Monica.” As economists would predict, rent control resulted in the loss of rental units (and therefore the number of renters), slowed construction of new units, led to the deterioration of existing units as landlords deferred maintenance, decreased the city’s diversity, and increased its exclusivity. These were all opposite effects the original intentions of the new radical rulers.

But rent control was not the only “social justice” concern on the SMRR agenda; “homeless friendly” policies led to an explosion of homeless people in the city, which comedian Harry Shearer reminds the nation every week on his NPR radio show is “The Home of the Homeless.”

Other battles fought over the years have involved traffic issues, a living wage ordinance, preferential parking zones, McMansions, development and redevelopment, planning, zoning, schools, affordable housing requirements, and the height of fences and hedges – a thousand things big and small one would expect in a city of 85,000 residents and an annual budget of over $500 million. At some point in the 1980s, the SMRR-dominated City Council, once anti-development, realized that development could generate millions of dollars for city government necessary for funding its political agenda. Massive rezoning and redevelopment were approved.

One might think that inconsistent policies often causing opposite effect of their intentions would have weakened the left. But two large factors have come into play over time. First, SMRR does not rule without consent and consensus – many, perhaps more than half, of home owners have supported the progressive politics and policies of the SMRR-controlled city council. Secondly, despite the concerns of some property owners and economists, Santa Monica has prospered. Despite powerful regulation, hotels, arts, jobs, and restaurants continue to flow into the city. Opponents on both sides concede most of the population is content and satisfied with the status quo.

This has been accomplished with pragmatism and a willingness to change policies that were not working. The worst effects of rent control are in the past due to a state law that allowed vacancy decontrol. Same with homelessness: residents wanted to be "progressive" but realized that being kind to the homeless only increased their numbers. The city still overdoes it on permits, regulations, etc., but homeowners and business want to be “progressive,” so they go along with it (and they like regulation when it benefits their interests).

The city decided to make itself a tourist destination, and it is, but when it looked like nothing but hotels would be built, voters passed a proposition to halt hotel development. On the other hand, last November voters defeated Prop T, which would have limited most commercial development in the city to 75,000 square feet a year for the next 15 years.

Santa Monica Place, a huge indoor shopping mall, outlived its usefulness, so now it's being rebuilt as an outdoor mixed-use development. A living wage law was passed by the City Council, and then repealed by voters.

SMRR is a political machine that has dominated the city for 30 years, using money, favors, jobs for the connected (and bupkis for those not) to build voting blocs for power and control. It inserts its people onto all the boards and commissions with input into policymaking. Their power ultimately comes from persuading renters, who are still a big majority of the city’s inhabitants, that they need SMRR for protection from “greedy landlords.”

So SMRR dominates political life in the city of Santa Monica, but it does so with the consent of many homeowners, property and business owners, as well as renters. Santa Monica is green, PC, insufferably "tolerant," self-satisfied, etc., but still doing well for itself. Taxes, rules, regulations and restrictions are onerous, but people and businesses still want to be there.

I have lived through and observed the political battles of the last 30 years as a renter, homeowner and briefly as a landlord (never again, thanks). The transformation of Santa Monica reflects an interesting story: left-leaning activists who realize they can bend the establishment by controlling it from the inside. They then become the new establishment, but like in today’s left-leaning academia, work to make sure they themselves are never similarly deposed. And yes, I wonder if it holds lessons for the nation, with President Obama and the Democrats now in control and looking to implement a left-leaning agenda.

What might those lessons be? One, particularly difficult for conservatives to accept, is that the time-tested machinations of leftist political machines sometimes work. They work for the powerful and the connected (who get to have their cake and eat it too: financial reward with a patina of progressivism), and they are perceived to work for the powerless and unconnected (however deleterious in reality). And that the left can come to power and rule with the consent of the governed, if it doesn’t “push the envelope” beyond a certain point, changes course when warranted, rewards cronies and allies, co-opts opponents where possible (and freezes them out where not). It worked for Tammany Hall, it has worked for Mayor Daley, and it seems to be working for Obama. Saul Alinsky would be proud of his protégé.

Perhaps at the heart of its success is that like all successful political machines, SMRR “fixes potholes.” Frank Gruber, who writes a weekly column about life and politics in Santa Monica for The Lookout News, calls this “squeaky wheel government.” SMRR council members try to turn every complaining resident – and there are many – into happy SMRR voters. Whatever the aims of SMRR, they have created a popular government.

Gruber, who considers himself an “old leftie” of the “jobs, housing, education, environment” school, takes SMRR to task for putting the needs of comfortable voters (traffic, for instance) ahead of the needs of the larger community (such as jobs for minority youth). (A collection of Gruber’s columns has recently been published in a book called, fittingly, Urban Worrier: Making Politics Personal.)

In the 2008 elections, in which Santa Monicans voted overwhelmingly for Barack Obama, all four incumbents of the City Council won easily. SMRR seems as entrenched as always. In at least this paradisiacal portion of Southern California, left-wing government appears to be working – even if sometimes at odds with its own old radical objectives.

Downtown Character and Street Performers

Richard Reep — Thu, 02 Jul 2009 01:58:53 -0400

By Richard Reep

Carmen Ruest, Director of Cirque de Soleil, recently revealed her start as a street performer, or busker, in Canada. The interviewer did not hesitate to contrast this with the current state of Downtown Orlando, which forbids street performers. Eliminating this ban will improve Orlando's urban consciousness, both downtown and elsewhere, and improve the city in general.

The Downtown Development Board (an arm of city government) has long stated its mission to promote arts-based businesses downtown. In the nineties, this board even had special incentives for independent creative enterprises to encourage a local arts scene. Only later did the city give in to the temptation to go for the big box retailers, and all bets were suddenly off.

Meanwhile, street performers continue to provide local color that graces cities of Europe, Canada, and elsewhere in the United States. Often, tales of tourists include encounters with creative street performers that make the trip; willingly parting with some money for a brief but engaging performance can be a bit of spice in an otherwise overstimulating experience. Such spontaneity is not allowed in Orlando, which ranks among the world’s top tourist destinations.

The street performer connects with the pedestrian in a unique way: not in the safety of the theater, not in a venue where tickets are taken, and not at a scheduled time. Instead, the performer seeks the audience, and gives the performance first, then hopes for compensation. This puts the onus on the performer to be compelling, original, and brief. In short, the performer has got to have soul. There is no better training ground for future actors and entertainers than the street.

Meanwhile, Orlando's downtown arts scene is slowly gentrifying, with a variety of galleries and even artist's studios. On the third Thursday every month, artists and art lovers from Avalon tour galleries up Pine Street, along Orange Avenue to the City Arts Factory, and some are even brave enough to filter up Magnolia Street to Redefine Gallery.

However, for anyone who has visited other downtowns, this can be a rather antiseptic experience. If Orlando is serious about Downtown as a tourist venue, perhaps the city should focus a little more on the quality of the experience.

Right now, spontaneity is missing from Downtown Orlando. The notion of public space is founded on the ability of citizens to express themselves within this space, and by encouraging positive forms of self-expression. If Orlando follows this venerable tradition downtown, the city might be surprised to find the benefits may far outweigh any disadvantages.

Certainly with the city's budget cuts, the Police Department has more important places to prioritize cops' time rather than busting illegal street performance. By legalizing this activity, the shrinking resources of law enforcement can be spent elsewhere, thus improving the general safety and security of the city.

To encourage the art scene, Downtown has instituted Third Thursdays, an art walk that mimics the ones popularized in the nineties in Scottsdale, Arizona and elsewhere. To experiment with street performers, the pathway taken by the Third Thursdays crowd would be an excellent place to start. If the city were to license street performers and monitor the activity along Pine Street and Orange Avenue, it could be a testing ground for this idea. Given the crowd's affinity for art, street performers could become another attraction in itself. After all, the walk between galleries includes a lot of blank sidewalk time.

For Downtown Orlando, it is time to fight fire with fire. Disney is successful because it recreates that lost-in-time feeling of walking in an urban environment and encountering balloon artists, saxophonists, mimes, and other characters. But at Disney and other theme parks this is all carefully choreographed and timed. If the downtown folks were to provide a spontaneous alternative, the city would have a new parking problem as people come to experience this. This proposal is not as ambitious as all that; it is simply to try it for the art walk. That's once a month on three or four blocks. The city might even collect a license fee, and then let them do their thing.

For lovers of performance art, the City of Orlando has proposed a new Performing Arts venue to be financed by bond money. However, the City's Performing Arts Center boosters cannot find anyone else interested in funding this huge trophy. There may be some karmatic justice in the relationship between the City's distaste for street performers and the City's evaporating dream of a Performing Arts Center. By allowing and regulating street performers, the City might find itself with a newfound interest in performing arts in general.

The urban consciousness of the city can be measured in many ways, and one way to measure it is how the citizens of the city use its public spaces. Orlando, with its torpid downtown, has little to lose by experimenting with street entertainment. Perhaps this will help the soul of the city come back to life, and create what has always been missing – an authentic sense of place for the region.

Shrinking the Rust Belt

Aaron M. Renn — Wed, 01 Jul 2009 01:00:08 -0400

An article in the London Daily Telegraph suggesting that President Obama might back a major program of bulldozing parts of cities in the Rust Belt has put so-called “shrinking cities” back in the spotlight. Many cities around the country, especially in the Rust Belt have experienced major population loss in their urban cores which has sometimes spilled into their entire metro area. They have thousands of abandoned homes, decayed infrastructure, environmental challenges, and no growth to justify a belief that many districts will ever be repopulated.

Cities in the Rust Belt grew in an era when large scale manufacturing required large amounts of labor. Today, productivity improvements mean that the United States can set new industrial production records with a fraction of the workforce of yesteryear. With much of its traditional labor force no longer as in demand in the modern economy, many Rust Belt cities lack an economic raison d'etre. Some may transform themselves for the modern economy, but many will be forced to accept the reality of a significantly diminished stature in the 21st century.

In this world, size can prove a liability. One of the biggest problems in turning around Detroit is the sheer size of the region. The metro area has a population of 4.5 million – not including nearby Ann Arbor or Windsor, Canada. Is there really any need in the modern day for a city the size of Detroit in Southeastern Michigan? It seems doubtful. As I've argued before, transforming that city's economy would be much easier if the region were smaller.

One challenge is that a decline in population, which is already occurring naturally, doesn't shrink the area of urbanization or the accompanying infrastructure that needs to be maintained. Indeed, although it is losing population and can't support the infrastructure it has, Detroit still wants to build more, such a new regional rail transit system. And legacy debts such as pension liabilities don't get smaller just because people leave. As with leverage, scale economics works in declining places as well as on the growing ones. The people who operate new transit systems or police who secure expanded areas must be paid. Roads, sewers, and water lines need to be maintained. In many places that are losing people, jobs, and tax base, such fixed costs could prove ruinous over the long run.

Under such conditions, Rust Belt cities require both outside help and a program of managed shrinkage. The first challenge will be getting these cities, especially larger ones like Detroit, to admit that they need to do it on a regional basis. Medium sized cities like Flint and Youngstown have been more willing to face up to challenges. In contrast, places like Detroit, Cleveland, and Buffalo still see themselves as important national cities. Pride is blocking the effort to undertake a major managed shrinkage program. Instead of adjusting to reality, these cities continue to pour hundreds of millions into projects that vainly attempt to restart growth. .

What would a federally assisted managed shrinkage program look like? No one can say for sure since this is a new field in America. Clearly, study of what has happened in Europe, particularly in Germany, where managed shrinkage has long been on the agenda, is warranted. But these ideas can't just be transplanted via lift and drop. We need to create a distinctly American program informed by the best practices of elsewhere. That program should include the following elements:

Education. Raising educational attainment not only makes people more employable in the new economy, it makes them more mobile.
Relocation Assistance. Many people in the Rust Belt might want to move but be unable to do so because they are upside down on a mortgage or can't sell their house. As more people leave, that will put downward pressure on the housing market. Hence, some government relocation assistance to help buy out people who want to move might be helpful.
Shrinking the Urban Footprint. The quantity of urbanized land needs to be reduced so that the excess housing and infrastructure can be retired and the cost of servicing it eliminated. This means painfully identifying areas which will not receive reinvestment, and encouraging and assisting the people and businesses that remain to relocate. This will be difficult as these neighborhoods are still the locales for people’s homes and they have a strong emotional sense of ownership. Sensitivity is clearly called for. We need to increase localized density in areas targeted for redevelopment and convert other areas to non-urbanized uses such as nature preserves or agriculture. This will be a long process.
Financial Restructuring. Older cities are often hobbled by mountains of debt, underfunded pensions, overstaffed payrolls, and too many municipal fixed assets. The government needs to be right-sized. Federal assistance may be needed to take over pensions and to give cities some tools to restructure unsustainable debt loads outside of bankruptcy.
Development Restrictions. In return for federal assistance, there ought to be a real insistence that these cities sign up to the shrinkage programs. This might include enforceable restrictions on their ability to adopt policies that are oriented towards servicing growth such as restrictions on the ability to use federal funding for net new infrastructure. For example, if Detroit wants to build a federally funded rail system, it should retire an equivalent amount of other infrastructure elsewhere to offset it.

Participation would be voluntary, but the federal government should make it clear that it will not finance futile attempts by these cities to try to recapture the glory of their pasts.

This is of course only a conceptual outline of a program. Significant thought, analysis, and research would be needed to develop a program. Given our lack of experience in the field, experiments should be encouraged, flexibility granted within broad parameters, and real world feedback continuously incorporated back into the program. Clearly, we will not get everything right the first time around. We need to have the courage to learn from our mistakes and not forge headlong into failure simply because it would look like a political retreat.

This won't be pleasant or easy. It is not a path anyone wants to take. But given the condition of much of the Rust Belt, the only viable options appear to be painful ones. As local blogger Tom Jones recently said, “Too often, dealing with urban problems in Memphis is like the stages of grief. Just this once, maybe we can move past denial, anger, bargaining and depression, and unabashedly move to acceptance and develop the kinds of bold plans that can truly make a difference in the trajectory of our city.”

Aaron M. Renn is an independent writer on urban affairs based in the Midwest. His writings appear at The Urbanophile.

Did Homeowners Cause The Great Recession?

Joel Kotkin — Tue, 30 Jun 2009 00:12:55 -0400

The person who caused the current world recession can be found not on Wall Street or the city of London, but instead could be you, and your next-door neighbor--the people who put so much of their savings and credit to buy a house.

Increasingly, conventional wisdom places the fundamental blame for the worldwide downturn on people's desire--particularly in places like the U.K., the U.S. and Spain--to own their own home. Acceptance of the long-term serfdom of renting, the logic increasingly goes, could help restore order and the rightful balance of nature.

Once considered sacrosanct by conservatives and social democrats alike, homeownership is increasingly seen as a form of economic derangement. The critics of the small owner include economists like Paul Krugman and Ed Glaeser, who identify the over-hot pursuit of homes as one critical cause for the recession. Others suggest it would be perhaps nobler to put money into something more consequential, like stocks.

Homeowners also get spanked by leading new urbanists, like Brookings scholar and urban real estate developer Chris Leinberger. He lays blame for the downturn not on unscrupulous financiers but squarely on aspiring suburban home buyers. "Sprawl," he intones, "is the root cause of the financial crisis."

If only we built more high-density, transit-oriented housing--which, incidentally, is not exactly thriving--the crisis could be happily resolved, he believes. This approach is echoed by big-city theoreticians like Richard Florida, who believes that both homeownership and the single-family house "has outlived its usefulness." In his "creative age," we won't have much room for either single-family homes or owners. Instead, we will be leasing our ever-more-tiny cribs--just like yuppies with their BMWs--as we wander from job to job.

To be sure, many people who bought homes in the last few years should not have qualified. Weak lending standards, promoted by both unscrupulous industry figures like Countrywide's Angelo Mozillo as well as Congress--including the many "friends" receiving cut-rate loans from the disgraced mortgage firm--clearly made things worse.

Yet the recent real estate debacles should not obscure the tremendous positives associated with homeownership. Widespread and diffuse ownership of property has been a critical element in successful republics, from early Rome and the Dutch Republic to the foundation of the United States. Jefferson held that "small land holders are the most precious part of a state." In the ensuing generation, progressives embraced widespread ownership of property as central to democratic aims. Lincoln's Homestead Act stands out as a prime example.

Even by the 1940s, this model was only partially realized. Barely 40% of the population owned their homes. Homeownership remained confined largely to small-town denizens and the urban upper classes. No one in my mother's family--growing up in the tenements of Brownsville, Brooklyn--even considered homeownership an achievable goal. It was hard enough simply to pay the rent and put food on the table.

Yet by the 1960s, rising prosperity and government-subsidized loans helped most of my numerous aunts and uncles own their residence.

Presidents from Roosevelt to Clinton all identified homeownership as a critical social goal. Government loan programs exploded as housing starts doubled in the post-war era. By 2005, the homeownership rate was approaching 70%.

This trend also took place in other advanced countries, from the U.K. and Australia to Canada and Spain. It reflected what the Italian urbanist Edgardo Contini once referred to as "the universal aspiration." In some cases, such as Japan, societies that had been divided between landlords and peasants for millennia now boasted a huge, and growing, cadre of small owners.

In virtually every country, this was largely a suburban phenomenon. People bought houses where land was cheaper, stores and schools newer. Here, too, people could transcend the often confining social limits of the old neighborhood. It was also, as the novelist Ralph G. Martin, noted "a paradise for children."

Through all this, the chattering class never lost its contempt for homeowners and their suburban refuges. Old gentry long disliked the idea of dispersed ownership of property--even if many got rich selling their own estates to developers. Aesthetes disliked the seemingly banal housing tracts "rising hideously," as Robert Caro put it, from the urban periphery. This critique was applied not only to Queens and Long Island but also to places like Milton Keynes or Basildon outside London, and greater Tokyo's Chiba prefecture.

Along with the fashion police, the new owners also took criticism from their urban betters, many of them also owners of country homes, for deserting the city. Some on the left feared the homeowners as a bastion of conservative politics. Architects, planners and developers identified them as opponents of their grand plans to refashion suburbia into a denser, more rental-oriented environment.

Yet, despite the disdain, the dream of homeownership survived. Many boomers, who in their 1960s radical phase denounced suburban tracts as sterile and racist, meekly ended up buying homes there. So, increasingly, did middle-class minorities, whose rates of homeownership rose faster after 1994 than that of whites.

To be sure, the financial crisis has led to a sharp drop in levels of homeownership, as occurred in the last big recession of the early 1990s. In the future, some suggest that aging boomers will force the home market to collapse even more due both to the current mortgage meltdown and changing demographics.

Yet there are limits to how far homeownership will drop. Urban boosters, apartment-builders and greens--all advocates of expanding the renter class--tend to ignore several key facts. For one thing, the vast majority of boomers are holding onto their mostly suburban homes far longer than ever suspected. Many will remain there until forced into assisted living, nursing homes or the cemetery.

Then we have the X generation, who, if anything, has favored large homes and exurbs in large numbers. In addition, behind them lie the large cohorts of millenials, who according to surveys conducted by generational chroniclers Morley Winograd and Mike Hais, prioritize the ownership idea even more than their boomer parents do.

No doubt, the weak economy will slow this generation's push into the home market. However, by the next decade, as this generation enters the late 20s and early 30s, they will find their economic footing and be ready to enter the market for houses in a big way.

The real question then will become which companies and regions will meet the expanding demand. Over the past decade, we saw the demand for housing push middle-class families toward destinations as varied as Las Vegas and Phoenix, Austin, Houston, Dallas and Atlanta. Others have started heading to more affordable markets in the nation's heartland, to the metropolitan areas like Kansas City, Des Moines and Sioux Falls.

Rather than a source of economic weakness, this renewed quest for homeownership could underpin a sustainable recovery. As prices fall to reasonable levels, more people will qualify for reasonable loans. First, the empty houses and somewhat later, the condominiums now on the market will find buyers, in most places in a matter of a few years.

This shift will create huge opportunities for a diverse set of geographies. For urban areas like New York or Los Angeles, there will be a unique--perhaps once in a generation--chance to induce middle-class people to settle down in big-city homes or condominiums. If they become homeowners, they will be more likely to stay than move elsewhere to the suburbs or other regions when the time comes to buy a home.

Other, more affordable, less regulated and often more economically dynamic places like Texas and the Great Plains may realize even greater gains. Over time, we will likely see a recovery in some now-suffering parts of the Sunbelt. The renewal of home demand could also help revitalize many of our hardest-hit sectors, including construction and manufacturing.

Sadly, some policymakers in Washington seem less than enthusiastic about this prospect. Many close to President Obama seem to dislike single-family homes and suburbs. Some embrace the policy which the British called "cramming," essentially forcing people into ever smaller, denser units. Energy Secretary Steven Chu recently praised the notion of small apartments with numerous people. "You know, body heat keeps a lot of the apartment warm," he suggested. You can't do this in a big apartment with a few people."

My suspicion is that most Americans are not quite ready to become their own heaters, any more than modern farm families like having farm animals live with them--although they, too, generate warmth. Instead, we should explore less unpleasant ways to cut energy use though such things as incentives for decentralizing work, promoting home-based labor, more tree planning and effective insulation.

An administration that places itself at odds with the "universal aspiration" that has driven growth in the advanced world for over a half-century could delay a full recovery unnecessarily. Advocacy of what amounts to declining living standards and a return to feudalism might also prove a less than successful political strategy.

This article originally appeared at Forbes.

The Suburban Economy and its Enemies

The New City Journal — Mon, 29 Jun 2009 01:53:16 -0400

Treasury Secretary Ken Henry’s recent address to business economists was an apt prism through which to survey Sydney’s immediate past and distant future. According to reports, he said ‘the [Chinese] resources boom had produced a “two-speed” economy, with unemployment rising in the south-eastern states but falling in the west and north’. Dr Henry is reported to have told his Sydney audience, ‘I don’t think everybody in this room should be moving to Perth. But let me make this prediction: some of you will’.

These comments serve as a reminder of how quickly the ground shifts in an open and dynamic economy. It wasn’t so long ago that New South Wales, dominated by Sydney, was dubbed the powerhouse of Australia’s extended boom.

Even the most elaborate attempts at urban planning can be superseded by events. After all, modern Sydney was itself, until recently, shaped by forces that outpaced the bureaucrats and planners. These forces are assuming a new dynamic in the conditions described by Dr Henry. Competition from the interstate resources boom is a now major factor driving state politics, together with slowing jobs and property markets and nagging infrastructure constraints. All are feeding the momentum for revitalization - for a new phase of urban growth that will push the limits advocated by planners, environmentalists and others campaigning to turn the city’s socio-economic tide.

The suburban economy

There is surprisingly little acknowledgement that, overall, the transformation of suburban Sydney in the wake of globalisation has been a success story. Over the last twenty years, the middle to outer suburbs adapted to volatile domestic and international environments, as well as technological change at breakneck speed, with an effective model of economic development. The key point is that this had more to do with the interplay of space and mobility than good planning.

By no means was this inevitable. Sydney could have succumbed to the downside of what urban theorists call the ‘world city’ phenomenon. According to the research group Globalisation and World Cities (GaWC), world cities are major international hubs with stronger ties to the global economy in terms of capital flows, trade and movement of people and information than to their own hinterlands. GaWC ranks Sydney in the second or ‘beta’ echelon of world cities, along with places like San Francisco and Mexico City (Melbourne is ranked in the third or ‘gamma’ echelon). Hence Sydney’s ‘global arc corridor’, which stretches from Macquarie Park south to the CBD’s gleaming towers and onto Sydney Airport and Port Botany, hosts the cream of the country’s finance, legal and business services, information technology, engineering and marketing industries.

Some world cities are distinguished by vast disparities in wealth and economic opportunity - between such globally oriented zones, sucking up the region’s capital, infrastructure capacity, skills base and government services, and stagnant hinterlands inhabited by struggling workers in declining, marginal industries or masses of unemployed. But that was not Sydney’s fate.

Why and how did a viable economy develop in the middle to outer suburbs of the city? To answer this question it is necessary to recall some of the constants of Sydney’s recent history. The gradual emergence of global Sydney generated higher land values throughout the inner-city. Consequently, many inner-city land uses associated with nineteenth century transport nodes, such as the light industrial plants, depots and warehouses clustered near the railway junction south of the CBD or along the harbour foreshores of the inner-west were no longer sustainable in the face of escalating demands for office space and gentrification.

Combined with the growth of motor vehicle mobility for passenger and freight transport, particularly since the 1950s, this led to the transfer of many industrial, transport and warehousing activities to cheaper land on the western and south-western fringes. At that stage of the city’s evolution, there were relatively few restrictions on the acquisition of space for these and related purposes. And the growth of road transport relative to maritime and rail sealed the necessary links to international gateways on the eastern seaboard, like Sydney Harbour, Port Botany and the airport.

These trends were intensified by the construction of a road network to service the interstices of Sydney’s nineteenth century ‘hub-and-spokes’ or radial railway lines, culminating in the orbital motorway network (the dreaded ‘tollways’). Not only did motor vehicle mobility facilitate industrial dispersion, but also residential settlement adjacent to the new industrial jobs. The radial railway lines were Sydney’s nineteenth and early twentieth century template; the orbital motorway is the city’s contemporary template.

As in the case of industrial relocation, there were fewer restrictions on residential development for the workers employed in these dispersed industries (this began to change by the mid-1990s). Inexpensive housing, a mild climate, out-door lifestyles and a preference for detached houses on sizeable blocks were also attractions. Over time western Sydney achieved 75 per cent regional employment self-containment, and key travel patterns are now intra-regional.

Later phases of globalisation reinforced this spatial pattern. The rise of global Sydney was a major driver, at least since the early 1980s, of economic policies that favoured the liberalisation of economic activity. Naturally, this had repercussions across the rest of the city. One fundamental outcome was the expansion of services - such as retail - relative to manufacturing and commodities as a proportion of the national economy. The appearance of diverse service industries in the outer suburbs was yet another function of space and mobility. In western Sydney, this was closely associated with the region’s booming population growth. From the 1970s to recent times, western Sydney’s population growth outstripped the rest of the city and country.

By the early 1990s, market oriented reform had ushered in a period of low inflation, interest rates and input costs, the latter having been wrung from difficult reforms to energy and other public utilities. The interaction of steady economic and population growth powered a strong consumer economy linked to settlement of the fringe suburbs. Such areas experienced a boom in residential and commercial construction, and the related demand for household fixtures, appliances and goods.

These conditions unleashed a thriving small business sector in services, operating in a competitive market characterised by low entry barriers (low costs and overheads) and narrow profit margins. This, too, was a by-product of globalisation, as SGS Economics and Planning explain: ‘The concentration of small business activity in NSW (and Sydney) and the more rapid growth in the share of employment in this sector compared with other parts of Australia may reflect the tendency for heightened fragmentation of supply chains in globally engaged economic regions’. Presumably, this is why Mark Latham harped on about ‘the small business-people, the contractors, franchisees and consultants of the new economy’.

While market pressures caused the ‘unbundling’ of service providers, advanced information and communications technologies were integrating head office, back office, manufacturing and distribution activities in land extensive facilities like the 50,000 plus square metre Coles Myer and Coca Cola distribution centres at Eastern Creek, and, in a different way, cutting-edge business and technology parks like Norwest and Macquarie Park. These facilities, contiguous with the orbital motorway, are creatures of space and motor vehicle mobility, and always will be.

That is why the best elements of the NSW government’s City of Cities plan represent responsive rather than prescriptive planning; they reinforce successful trends emerging from the interplay of market forces. Plans for intensive commercial development along orbital motorway corridors, such as the M7 and particularly at its intersection with the M4, dubbed ‘the western Sydney employment hub’, the refocus on important western centres like Parramatta, Liverpool and Penrith as ‘regional cities’, and the series of road-rail transport interchanges (also land extensive) are prime examples.

Its enemies

This vibrant though vulnerable web of socio-economic connections is always at the mercy of global conditions - witness the impact of petrol prices - but also increasingly under challenge from domestic political actors, principally environmentalists, urban planners, some property developers and opinion makers. Their determination to freeze urban boundaries and, as far as possible, reduce mobility to public transport capacity, particularly rail, is hurting Sydney. Hopefully, their influence is gradually receding under Morris Iemma’s leadership.

Environmentalists and planners - two increasingly interchangeable categories - are oblivious to the prospect that their creeping regulations and imposts, and misallocated resources, could unravel the suburban economy. Yet they will always struggle to mobilise public opinion. Their all-purpose pretext, the climate change hypothesis, relies on aggregated data which can’t be used to argue particular cases. Take the NSW government’s recent decision to review the costly ‘energy efficiency building sustainability’ rules. While the Housing Industry Association came to the issue armed with a raft of statistics about price impacts and falling housing starts, green outfits like the Total Environment Centre could do little but sputter the magic words ‘greenhouse’ and ‘global warming’. They were not in a position to show why, how and to what extent this particular decision would exacerbate climate change.

Their other weapon is the peculiar concept of ecological or urban ‘footprint’. This purports to measure how much productive land and water an individual, a city, a country, or humanity requires to produce all the resources it consumes. On this measure, Sydney has a footprint that covers 49 per cent of NSW or 150 times its actual size, so its expansion must be constrained. The notion that wealth can be equated to an amount of land, however, is a throwback to pre-modern times. In advanced economies, wealth creation has more to do with the elaborate transformation of natural inputs, capital accumulation, forms of business organisation and services. And as one scathing writer points out, the concept fails to acknowledge that a stretch of land can be used for several different purposes simultaneously. Nevertheless, this absurd idea continues to pass unmolested into almost every discussion of urban planning, including City of Cities.

If environmentalists are taken seriously at all, it is because they ride on the back of vested interests who benefit from artificially inflated land values, since this is the inevitable consequence of restricting new releases. Alan Moran of the Institute of Public Affairs argues that the reluctance of governments to burst the bubble of housing unaffordability by releasing more land for development can be traced to the undue influence of existing property owners, including powerful developers, who stand to suffer a capital loss if the scarcity value of land is diminished. It is a case of the ‘haves’ depriving the ‘have nots’, such as low income earners and young first home buyers.

Then there are the progressive academics and commentators who insist the suburbs are zones of social alienation, inimical to personal contentment and well-being. Consider the Australian Financial Review's property writer Tina Perinotto, who opposes sprawl because we can’t afford the ‘psychologists to deal with people who end up in the lonely greenfield sites’, or left-wing writer Natasha Cica, who raves about ‘the aesthetic and ethical slums of McMansion affluenza’, or Sydney Morning Herald planning and architecture writer Elizabeth Farrelly, who calls suburbanisation ‘total-indulgence parenting’, or urban policy academic Brendan Gleeson, who believes ‘shadows of fear and antipathy are spreading across’ the suburbs.

Progressives clearly feel a need to delegitimise suburban life. This stems from their barely suppressed rage against people they can’t control. Like Kurtz in Joseph Conrad’s Heart of Darkness, suburban people have strayed too far from civilisation, they contend, and will lose their minds. Yet they fail to explain why surveys indicate an overwhelming preference for detached housing on sizeable blocks, or why the latest Australian Unity Wellbeing Index registers higher rates of happiness amongst suburban people than their inner-city counterparts.

The left’s new poster-boy of urbanism, Gleeson, in particular, leads a tortured existence: he idealises suburbs as the nation’s ‘heartlands’ while hating almost everything about them. Gleeson has latched on to the emergence of so-called ‘gated’ communities as ‘harmful to collective democratic purpose’. This sort of socio-economic segregation is a recognised downside of the ‘world city’ scenario, especially in developing countries. In Sydney, however, it is more likely to mark a transitional stage of historically disadvantaged areas attracting more prosperous residents, eager to replicate the superior amenity of affluent suburbs. To the extent that it heralds the arrival of generally higher living standards in these localities, it is not necessarily the evil denounced by Gleeson.

Of course, the enemies of growth don’t give a damn about the storm clouds perceived by Dr Henry. Sooner or later, however, they will bow to the inevitable: space and mobility made Sydney’s past; they will make the city’s future, if it is to be a future worth having.

This article originally appeared at The New City Journal

Letter From Asia's Co-Prosperity Sphere

Matthew Stevenson — Sun, 28 Jun 2009 01:03:55 -0400

To visit banks in Hong Kong and Kuala Lumpur, I recently flew into Shanghai and out from Singapore. In two weeks, I rode a lot of trains and met a lot of bankers. When I got home to Europe, it felt like I had traversed a Greater Economic Co-Prosperity Sphere, although I was never sure if it was one that belonged to China, Japan, or the international banking system. Here's a highly personal, thumbnail report on the region's development and some of the local rail network:

China: The complexities of its currency are less significant than the feeling that the renmimbi certainly feels undervalued, when you can buy dinner for $3. Shanghai is an Asian cross between New York and Las Vegas, a port city of grandeur and skyscrapers that, at night, pulse like slot machines. Behind and facing the French colonial façades on the Bund, modern capitalism’s famous boardwalk, Shanghai is awash in modernistic, high-rise towers, as if the Chinese miracle is to produce office cubicles.

The underground metro lacks the efficiency of Moscow or the elegance of Paris, although the trains are clean and the signs are in English, and the ticket machines feel like off-track betting. Changing from one line to another was often a nightmare. Trips across the city frequently involved long subterranean walks through arcades, on Escher-like stairways, or what felt like the Great Patriotic Underground Long March. But I never tired of the metro signage, such as one billboard that implored: “No jumping off the platform and onto the track.”

Hong Kong Night Train: On the overnight train from Shanghai, I had a Pullman-like berth in a first-class compartment, where my easy chair looked like it was borrowed from Mao’s office. In the dining car, what I hoped might be blackened tuna was four small, boney fish, more bait than a main course. I went to sleep around what looked like the steel belt of Wheeling, West Virginia, and woke up to a misty, terraced, landscape painting.

Guangzhou: Housing for the Chinese revolution is a phalanx of high-rise apartment buildings, which can be seen in every village, town, and city, grimly marching their tenants into a brave new world that finds heaven in sixty stories. What will happen to China when the housing projects become slums? On the ride south, in the two hours between Guangzhou and Hong Kong I crossed territories with a population of more than one hundred million. Contemplated from the train, Mao looks less like a revolutionary and more like Robert Moses, New York’s superbuilder.

Hong Kong: Shanghai may well represent the future working, but, when compared to Hong Kong as a financial center, it remains a second city. In the Special Administrative Region (Hong Kong’s married Chinese name), I talked with bankers who are convinced that the former British colony, still splendid and affluent, is playing the same role for Beijing communists that it once did for the Jardine family: that is, to serve its masters as an entrepôt, money changer, front company, merchant bank, fiduciary, gold vault, and deep-water port for the goods of empire.

The pleasure of Hong Kong was to visit banks that are not at death’s door. In Europe and the United States, all I ever come across are banks that have lent $500 on the collateral of a toaster. In Hong Kong, not to mention Asia at large, I only encountered banks that had ample deposits, liquid collateral, and positive cash flow. The question I heard most often was what to do with excess deposits; the assumption all around was that the money markets in London and New York are variations on Macau dog tracks.

Malaysia: The state railway charges about $30 for a night in a compartment, and has fish tanks on the platform in Alor Setar. George Town, the colonial capital of Penang, is Asia’s Jerusalem, a warren of shops owned by Chinese, Malays, Indonesians, Armenians, Indians, Thais, and Englishmen. Penang is the place to go if you want to change your money, faith or identity.

Down Penang’s east coast, not far from a Chinese temple with ceremonial snakes, is an urban enterprise zone of out-sourced, offshore semiconductor companies, many American, which import chips parts and workers and export the internal combustion engines of the information super highway.

Kuala Lumpur's large banks straddle the disparate worlds of retail and Islamic finance. Much of the Asian economic miracle has been fueled with local currency bonds; in Malaysia, they are issued in ringget. But modern finance does not work for those Islamic clients for whom interest is not an article of faith. Hence, banks in Muslim countries like Malaysia and Indonesia often transmute deposits into assets that are veiled to look like interest-bearing bonds.

Singapore reminds me of a shopping mall with a national flag. To get home to Europe, I flew on Air France as opposed to continuing the journey by train. I knew from a meeting with the Malaysia state railways that there is a gap in the international connections between Singapore and Europe.

Before leaving, I met with a railroad man who is working to complete the network in Southeast Asia. With this finger on a map, he traced the missing track through the Thai jungle and Cambodian rice paddies, grimly pointing out that one way to tie in the overland service would be to complete the line that crosses the River Kwai.

One day, tracks will connect Singapore to Kunming, in southern China. And from there, perhaps someday, I will begin my journey home, using an ATM machine to buy my ticket and then to pay for it in renmimbi.

Amid Obama's Change is More of the Same

Joel Kotkin — Fri, 26 Jun 2009 09:45:09 -0400

The Obama administration has been, so far, hierarchical and even conservative in its thinking. Following and even surpassing the Bush administration’s reliance on an M.B.A.-trained elite, which drove the country nearly to ruin, the Obama approach seems to boil down to finding the smartest guy in the room, rather than utilizing people with hands-on experience or acquired wisdom.

This fixation on hierarchy has been unexpected for an administration whose stock sold on the notion of being something other than the same old, same old. Yet as it turns out, the Obamanians seem to be as narrow, if not narrower, than their much-disdained predecessors.

Early on, President Barack Obama’s magical mystery tour gained power in places you would not expect it to — winning critical victories in overwhelmingly white, socially conservative Great Plains and Midwestern states. Yet today, he has built one of the narrowest administrations, both ideologically and regionally, in recent memory.

This trend became apparent in a new National Journal study of the administration’s top 366 officials. To be sure, the Obama team has more Hispanics, African-Americans and women than its predecessors. But beyond gender and color, the Journal reports, this is an administration of remarkable sameness.

For one thing, people with practical business experience — outside of finance — have little role in formulating economic policy. This differs from the Bush administration’s tilt toward traditional autocracies; this is more rule by the cognitive elites. A history of real problem solving seems to matter less than the quality of university pedigrees; the Obama team appears to be a bit like a giant law review, drawing on only the best and brightest from places such as the University of Chicago, Oxford, Harvard and Stanford, as well as some elite think-tank denizens.

This narrow gauge is even clearer geographically. There are few people around the president who come directly from exurbs or small towns; virtually all the inner circle hail from a handful of locales — Washington, Chicago, New York, Boston and the Bay Area. Remarkably, according to the National Journal, only 7 percent worked last year in a state carried by John McCain. Red appears to be one color that does not pass diversity muster for this administration.

The danger here is not so much inexperience but a vision clouded by similar experiences and prejudices from the liberal wing of the baby boomer generation. The president remains broadly popular with the young, yet his administration is actually older than that of President George W. Bush. Obama may be a millennial matinee idol, but his administration appears boomer-dominated in its point of view.

This may explain why Obama has focused so much on the old obsessions of left-leaning boomer elites — health care, civil rights, pacifistic foreign policy — and less on the issues, notably job and wealth creation, that matter most to those younger than 50. Even on the environment, an issue with great appeal to millennial Americans, his approach has been less community-based and consensual and more dogmatically and centrally directed than might appeal to a generation shaped by social networking and the Internet.

Of course, Obama still could change course and evolve into the bold, innovative leader needed for these fast-changing times. However, to get there, he must be more than merely articulate. This president needs a surer and more current approach to dealing with epochal challenges whether on the public squares of Tehran or on this country’s Main Streets.

This article first appeared at Politico.

America’s Energy Future: The Changing Landscape of America

Fri, 26 Jun 2009 01:17:57 -0400

During the first ten days of October 2008, the Dow Jones dropped 2,399.47 points, losing 22.11% of its value and trillions of investor equity. The Federal Government pushed a $700 billion bail-out through Congress to rescue the beleaguered financial institutions. The collapse of the financial system in the fall of 2008 was likened to an earthquake. In reality, what happened was more like a shift of tectonic plates.

History will record that the tectonic plates of our financial world began to drift apart in the fall of 2008. The scale of this change may be most visible in who controls the energy that powers our world.
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May 2008 brought with it the highest price on record for Brent Crude Oil – $148 per barrel. At the pump that translated into prices in excess of $4.00 per gallon. A sixteen gallon fill-up of a Toyota Prius in Los Angeles cost its owner $72.00 and a fill-up of a twenty-five gallon Cadillac Escalade set its owner back more than $100.00. The largest transfer of wealth in the history of mankind was underway and consumers were feeling the pinch.

The countries that border the Persian Gulf produce and export 20,000,000 barrels of oil per day. At its peak in May of 2008, the Persian Gulf producers (Saudi Arabia, Iran, Iraq, Kuwait, Qatar and the U.A.E) were receiving $3 billion per day, $90 billion per month and $1 trillion per year in revenues from the industrialized nations of the world, including the EU, North America and, most importantly, the rising powers of India and China.

These Persian Gulf nations are mostly monarchies controlled by individuals, royal families or at best a few power brokers. American consumers abandoned their love affair with the SUV and Detroit’s assembly lines began to grind to a halt. New car sales which peaked at 17 million units in 2007 plummeted to a rate of 9.2 million within six months. The inventory of unsold vehicles built up and led inexorably to the bankruptcies of Chrysler and General Motors.

At the same time, the airlines began charging for checked bags and discontinued the ubiquitous bag of peanuts as they reeled under the cost of jet fuel. Bellicose despots in oil rich lands outside the Middle East used their new found wealth to rattle their sabers. Russia, the world’s second largest oil producer after Saudi Arabia, began flying their venerable Backfire bombers to the American coast. Hugo Chavez of Venezuela, the world’s ninth largest oil producer, used his oil wealth to turn himself into an icon of the anti-gringo sentiment always beneath the surface throughout Latin America.

Politicians, who placed America’s coastline off limits for drilling, were forced to recant their precious moratorium under the growing chorus of “Drill here and drill now”. Environmentalists, who destroyed the nuclear power industry with fearmongering over its safety, were increasingly on the defensive. T. Boone Pickens invested millions of his own money to promote wind farms – and more importantly natural gas – across America’s heartland. Sales of little known Jatropha seeds, a plant indigenous to India that produces an oil clean enough to run a diesel engine, skyrocketed. By the fall of 2008, the financial markets were buckling under the strain.

As the economies of the world contracted, demand for oil plummeted and the price of crude collapsed. Terrified by the apparent mismanagement of the economy by the Republicans, Americans elected an untested junior Senator to the most powerful position in the world. Predictably, plans for alternative energy withered as prices plummeted and gas dropped to $1.50 per gallon. Russia, whose cost to develop crude is $50 per barrel, lost its swagger as its currency and stock market collapsed with the price of crude. The collapse of oil to $35 per barrel even silenced Hugo Chavez, at least for a moment.

Sadly, the America public lost interest in energy as they were distracted by a 40% loss in their 401ks, corporate bankruptcies and the growing numbers of lay-offs. Politicians quickly shifted their focus from drilling, nuclear energy and independence from imported oil and began espousing the Obama administration mantra of “green energy” and “green collar jobs”. Unfortunately, these words are just a chimera since they are likely, even with massive subsidy, to produce only a small fraction of the nation’s energy for at least decade or two.

These ephemeral goals only mask the real problem: America’s dependence on imported oil. The world demand for oil averages 85 mbd (million barrels per day). In the darkest days of the global financial crisis during the spring, when we stood at the abyss of The Great Depression, demand dropped to just 82.3 mbd. Conversely, world oil supply peaked at 87 mbd in 2007. This relative parity between supply and demand eliminates the elasticity that puts some control on prices. With literally no elasticity, speculators know that buyers will purchase every barrel of oil and prices rise. The proof of this market force is visible at the pump where gasoline has crested $3.00 per gallon in California and more than $2.66 per gallon nationwide. The United States consumes 20,000,000 barrels of oil per day or 24% of the world’s supply. In previous decades this was not a problem because the United States was a major producer of oil. But our peak production was reached in the 1970s when the US imported just 35% of its oil. Today we import more than 66% and no longer can influence the price of black gold. That price is now determined by despots in the Persian Gulf, Russia and Venezuela.

This problem is not going away soon. According to the Energy Information Agency of the U.S. Government, the world demand for oil will require an additional 44 million barrels of oil every day to meet projected demand. The increase of demand is not going to come from the American or European markets. The developed nations through conservation, fuel standards, a reinvigorated nuclear power industry and, over time, the push for alternative fuels will actually reduce their consumption over the next twenty years. The push will come from India, Russia, Brazil, and of course China.

India, with a population over one billion, has announced its version of the Interstate Highway System that opened America to its great Middle Class. After the acquisition of Jaguar and Land Rover, Tata Industries has begun production of the Nano, a car that sells for $2,000 in India. The demand for oil to power the cars for an educated and increasingly affluent Indian society will keep pressure on oil prices for years to come. India uses just 2.7 mbd today but expects that demand to grow to 4.5 mbd by 2030.

There are now more than a billion Chinese. China consumed just 2 mbd of oil in 1990. Oil consumption jumped to 7.6 mbd in 2007 and is projected to grow to 15 mbd in 2030. The Chinese automobile industry grew at 21% last year while the US auto industry contracted by 40%. China displaced Germany as the third largest auto producer and will soon eclipse the damaged US auto industry which is contracting to a mere shadow of its former self. Chinese brands such as Chery and Geely, unknown to American consumers, may soon become as well known in America as Nissan or Hyundai.

Demand will push oil over $100 barrels again. Vast capital will pour into the Persian Gulf, Russia and Venezuela once again. Into this tempest comes America with a thirst for 20,000,000 barrels each day. The major oil producers in the Middle East, Russia and Venezuela are not America’s friends. Russia will use its oil wealth to thwart the US and veto in the United Nations any effort to subdue the North Koreas and Irans of the world. China, with its surplus of US dollars, will continue to harvest natural resources around the world, and forge strategic alliances with the likes of Iran as it secures the flow of oil and natural resources to its industries for years to come.

Meanwhile our politicians ignore our growing dependence on unfriendly nations and our weakening credit rating in the world to chase the chimera of green collar jobs and a green economy. Wind and solar will never power more than a minuscule fraction of America’s engines. America needs the equivalent of the Apollo moon project, a national challenge to move America off its dependence on foreign oil. We need simultaneous development of domestic oil and natural gas drilling, nuclear power, development of hydrogen fuel cells and clean coal technologies along with wind and solar power plants.

A year from now the landscape of America will be forever changed. Five years from now, will American find the fortitude to grasp its energy independence? Or will our weak politicians in both parties keep their heads buried in the sand until China and India emerge to deny us what we are no longer in a financial position to demand?

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This is the third in a series on The Changing Landscape of America. Future articles will discuss real estate, politics, healthcare and other aspects of our economy and our society. Robert J. Cristiano PhD is a successful real estate developer and the Real Estate Professional in Residence at Chapman University in Orange, CA.

PART ONE – THE AUTOMOBILE INDUSTRY (May 2009)

PART TWO – THE HOMEBUILDING INDUSTRY (June 2009)

Why Attitude Matters: How Nebraska is Reaping the Stimulus

Susanne Trimbath — Thu, 25 Jun 2009 01:23:24 -0400

In what are tough times for most states, conditions for business remain surprisingly good in Nebraska. Like other states in the “zone of sanity” Nebraska is especially supportive of small businesses.

Nebraska is one of a series out of mid-American outliers. In 2008 – a year of a severe national contraction – the state experienced a 3.6 percent growth in gross domestic product. Its current unemployment rate of just 4.4 percent stands at less than half the U.S. rate of 9.4 percent (latest available from Bureau of Labor Statistics).

The state itself is in good financial shape, with a cash reserve over $500 million (including a $20 million to $30 million operating surplus every year since 2001). I believe there are two important factors fundamental to Nebraska’s health. The first lies in cooperation across levels and borders – which was described in my piece on regional cooperation in the Omaha World-Herald. This positive attitude toward growth and economic development in Nebraska extends through every level – you find it at the state, regional, county and city level. A supportive attitude toward development plays an important role in making things work.

The second and perhaps more important factor critical to fostering an environment supportive of growth and prosperity lies with a broad acceptance of the benefits of on-going economic development as a source of continued quality of life. This attitude can be described – as opposed to the traditional NIMBYism seen so often in more crowded, coastal states – as “Yes, In My BackYard” or YIMBYism. Nebraska has pockets of pro-development populations, like Sarpy County, on the southern border of the city of Omaha.

Before moving to Omaha, my business was based in Santa Monica, California. With a population of about 89,000, Santa Monica is a beautiful city consisting of smart people who often make foolish choices. Many residents in Santa Monica, like those in Portland and other NIMBY-areas of the country, oppose development in their neighborhoods.

Many who live in million-dollar single-family homes in Santa Monica were opposed to building new middle-class jobs and homes in their neighborhood, although they often favor building homes for the poor, albeit somewhere not in their bailiwick. This promotes a “haves versus have-nots” social order, and also doesn’t make sense from a personal point of view. Whenever the growth debate was on the table (which it often is in Santa Monica), I would tell people, “Wouldn’t you like to build jobs and housing so your children can work and live in Santa Monica, too? Do you want your grandchildren to move to Texas? Because I assure you they are building middle-class jobs and housing in Texas.”

In contrast I’ve found some pro-growth Nebraskans who relentlessly seek making development happen. For the mayors of the United Cities of Sarpy County, the emphasis is on cooperation as a path to success. Recent developments around my adopted hometown of Bellevue, Nebraska – home to Offutt Air Force Base and U.S. Strategic Command – provide a simple, straight-forward example of how YIMBYism works in practice.

About seven years ago, the City of Bellevue, along with the Bellevue Chamber of Commerce, funded an economic development plan that could be used to set a community agenda for growth. The resulting plan highlighted several locations where development was feasible, desirable and likely to lead to greater growth. One of the initial designated areas is a 6.5 mile corridor along Fort Crook Road. “Fort Crook Road,” says Megan Lucas, President of the Bellevue Chamber of Commerce, “is the spine of Bellevue. Other nodes of economic development will fill-in around Fort Crook when it is ready to move forward.”

The City and the Chamber then devised a development plan specific for the Fort Crook Road Corridor. The Fort Crook Road Plan was approved as part of a new comprehensive plan for City development – with zoning updated to accommodate retail development along the entire length. The long-range plan is to shift the road west, closer to an existing active railroad line, and to create a linear park along the median strip to connect two existing trail systems – the Lewis & Clark in the north and the Bellevue Loop of the Keystone Trail on south end.

Two points make this specific example interesting. The foresight in developing the comprehensive plans for the area positioned it perfectly for the current environment. A good chunk of the Fort Crook Road Corridor is currently occupied by an abandoned concrete production facility. These blighted structures need to be demolished to get the property ready for development. But since the City already owns the property and a comprehensive development plan is in place, the project is “shovel ready” – those magic words that qualify any development project for federal stimulus funding under the American Recovery and Reinvestment Act of 2009.

In contrast, there are hundreds of worthy projects in every state that will not qualify for Stimulus money because they fail to meet the “shovel ready” requirement. Part of the Fort Crook Road Plan made it through the initial review stages for stimulus funding in Nebraska. The project ranked in the top three in the state for eligibility and suitability. According to Mayor Ed Babbitt, some stimulus funding has been allocated to revise traffic signals in the corridor; funding to remove blighted structures will likely come later this year from an environmental clean-up fund.

The second point that makes the Fort Crook Road Corridor an interesting example is that one of its biggest proponents – Megan Lucas – lives in the Corridor. The development and expansion of Fort Crook Road is in her backyard. She and many other residents in Bellevue are saying, “Yes, In My Backyard.” Even more recently, three cities in Sarpy County vied to be the location of a Triple-A ballpark to be built in cooperation with the Omaha Royals of the Pacific Coast League. YIMBY-ite residents far out-numbered the NIMBY-ites at every public forum on the choice of location. A positive attitude toward economic development has emerged as a major factor in getting ready for the stimulus – something many in the Obama bastions in the blue states might want to consider.

Exurban Growth Greater than Central Growth: Census Bureau

Wendell Cox — Wed, 24 Jun 2009 01:00:09 -0400

The US Bureau of the Census has just released an analysis of suburbanization showing that the nation continues to suburbanize, despite the consistent media “spin” that people are leaving the suburbs to move to core cities.

The report, Population Change in Central and Outlying Counties of Metropolitan Statistical Areas: 2000 to 2007, goes further than our previous 2000 to 2008 analysis that showed strong domestic outmigration from central counties to suburban counties and beyond.

Our report compared trends between the core county (such as the 5 county New York City core) of each major metropolitan area. The new report compares population trends between what it terms “central counties” and outlying counties. The Bureau of the Census considers any county in the metropolitan area that is generally beyond the urban area (urban footprint) to be outlying. Thus, in Chicago, the report considers not only the core county of Cook, but also 9 additional counties as around it as central (Figure 1). Not surprisingly this means the bulk of the metropolitan area population is in the central counties (92%), however there is rapid movement even further out to the outlying counties.

This Bureau of the Census report tells us more about exurbanization than suburbanization. Exurbanization might be thought of growth that occurs outside the urban area, including its historic suburban periphery. It represents, if you will, “sprawl beyond sprawl”. You usually can tell when you are in an exurb because you have to drive through countryside to get to the “city” (For definition of urban terms, such as metropolitan area, urban area and city, see this document).

Between 2000 and 2007, these outlying counties grew 13.1 percent, nearly double that of the central counties, which includes the suburbs, at 7.8 percent (Figure 2). The report goes on to compare detailed results for the 12 metropolitan areas with more than 2,500,000 population that have outlying counties. In every case, the outlying counties grew faster than the central counties. On average, the outlying counties grew at 2.3 times the rate of the central counties (Figure 3).

In San Francisco, the outlying county growth was 25 times that of the central counties.
In New York, the outlying county growth was 10 times that of the central counties.
In Boston and Minneapolis-St. Paul, the outlying country growth was between four and five times the growth in the central counties.
In Baltimore, the outlying county growth was 3.5 times the growth in the central counties.
In St. Louis, Washington (DC) and Chicago, the country growth was between two and three times the growth in the central counties.

The strongest central county performance occurred not in the much ballyhooed “cool” dense urban areas of the Northeast or Pacific Coast but in the largest metropolitan areas of the south, Atlanta, Houston and Dallas-Fort Worth.

In Dallas-Fort Worth the outlying county growth was 1.9 times the growth in the central counties.
In Houston the outlying county growth was 1.3 times the growth in the central counties.
In Atlanta, the outlying county growth was 1.1 times the growth in the central counties.

The worst central county performance occurred in Detroit, where there was a net population loss. The outlying counties grew nearly 9 percent.

It may seem surprising that the Bureau of the Census analyzed only 12 metropolitan areas. Regrettably, Census metropolitan area definitions makes a broader analysis virtually impossible. Many metropolitan areas do not have outlying counties. That does not mean they do not have outlying or exurban areas. Riverside-San Bernardino is a good example. At the eastern end of this metropolitan area, a recluse might live less than 40 miles from the Las Vegas strip, yet be separated by 175 miles of desert and mountains from the edge of the Riverside-San Bernardino metropolitan area. The problem is that most metropolitan areas are defined by counties, and some counties contain much more area than can reasonably be considered as part of the labor market.

This fixation with county boundaries is unnecessary. Decades ago Statistics Canada figured out how to define metropolitan areas below the county level. The Bureau of the Census approach tends to obscure the growth of outlying areas, particularly in the largest counties. This is illustrated by our analysis of the Riverside-San Bernardino area from 2000 to 2006, which showed outlying areas to be growing at 2.5 times the rate of the core urban area.

Nonetheless, the conclusion of the new report is clear. The nation’s most remote suburbs – its exurbs – are growing much faster than the central counties. Whether this trend will now reverse, of course, is up to debate. Perhaps demographic changes and higher energy costs will slow expansion on the outer fringes. More likely, the current recession may well lead to less exurban growth, but history suggests this may prove only a short-lived trend.

Why The Left Is Questioning Its Hero

Joel Kotkin — Tue, 23 Jun 2009 00:23:45 -0400

Much has been made by the national media and the markets about the emergence from our desiccated economic soil of what President Obama has called "green shoots." But although the economy may already be slowly regenerating (largely due to its natural resiliency), we need to question whether these fledglings will grow into healthy plants or a crop of crabgrass.

The political right has made many negative assessments of the president's approach, decrying the administration's huge jump in deficit spending and penchant for ever more expansive regulatory control of the economy. Polling data by both The New York Times and the Wall Street Journal shows some growing unease about both the expanding federal role in the economy and the growing mountain of debt.

But this conservative critique, which includes sometimes shrill accusations of nascent "socialism," isn't the most important counter to Obamanomics. Perhaps more on point – and politically risky for the administration – are criticisms coming from his supposed bedfellows further to the left.

One recent example comes from a new report issued by my old colleagues at the liberal-leaning New America Foundation called "Not Out of the Woods: A Report on the Jobless Recovery Underway." It amounts to a blistering, if largely unintentional, critique of the administration's policies, providing a sobering antidote to manufactured euphoria peddled by both presidential spin-meisters and some Wall Streeters.

The report baldly asserts that the president's programs are simply not sufficient to make up for a "huge job creation deficit" that is getting worse by the day. It estimates the country needs to generate 125,000 or more new jobs a month just to keep pace with population growth – something few see happening for at least several years.

Even with little immediate hope for such employment gains, the report does cite government and private-sector projections of upward of 10% unemployment well into next year. More worrisome still, the authors assert that the administration's current program is unlikely to create a return to a "normal" level of joblessness – to between 4% and 5% – until after the president's first term.

The New America report then goes on to make some even scarier observations. It claims unemployment rates are far higher in reality than official statistics reveal, citing calculations by Chairman of New America's Economic Growth Program Leo Hindery of what they call "effective unemployment." This also includes the millions now working part-time but seeking "full-time and productive work."

Hindery is no conservative. He was an adviser to John Edwards and, more recently, to the president himself. Yet his prognosis is grimmer than the ones offered by most right-wingers. He calculates that the real unemployment rate in the country last month was not 9.3%, which is the figure that was reported, but rather closer to an alarming 16.8%. By that measure, more than 30 million people are effectively out of work. That's nearly one-fifth of the labor force.

Given current economic policies, the report suggests, we can expect "a six-year recovery for what has been to date only a year-and-a-half recession." Hiring by government and green industries are clearly not going to make up for the massive losses in productive sectors like manufacturing, business services, energy and agriculture.

Against this grim background, the president's program seems inadequate and even chimerical. To be sure, the massive bailout of institutions such as the big banks – as well as Chrysler and General Motors – has provided some reassurance to Wall Street that paper assets may continue their recent upward climb.

Yet that will do precious little to make a dent in unemployment elsewhere in the economy. Treasury Secretary Timothy Geithner, chief economic guru Larry Summers and others might see "green shoots" for investors, but those could turn out to be more like crabgrass for the rest of us.

In fact, finance is surviving the recession remarkably unscathed. Just compare the numbers. Since 2007, manufacturing (and other blue-collar-dominated sectors) lost 13% of its employment, while construction payrolls have plunged over 16%. Meanwhile, finance, the industry arguably most responsible for the economic meltdown, has dropped a mere 5% of its jobs. Today unemployment in the financial sector stands at less than 5%, compared with nearly 20% in construction and over 12% for manufacturing.

So as hundreds of thousands of construction and factory workers are being sacrificed, many grandees of finance – like top executives of Bank of America and Citigroup – remain in their plush perches. Even proven financial demolition experts like Mark Walsh, who led Lehman Brothers' disastrous march into toxic properties, are now being paid to clean up the mess they so brilliantly created.

No wonder some factions of the left are becoming uneasy with their hero. Some privately admit that the administration – despite its pro-middle class rhetoric – has adopted an economic program that makes Ronald Reagan seem like the vox populi. One wonders how they will react later this year, when continued high unemployment meets massive, perhaps even record, Wall Street bonuses.

This state of affairs, as the New America report correctly suggests, does not lead us down a path toward "a strong and sustained recovery." Clearly, we need something more. For one thing, the country needs to reassert its ability to produce more of what it consumes. (See Joel Kotkin's earlier column, "We Must Remember Manufacturing.")

Others on the left are also making this point, perhaps none more effectively than an article in the Nation called "The Case for Kenosha." The piece, in short, skewers the Obama administration's manhandling the auto industry and manufacturing sectors. It accuses Obama of taking the old industrial belt on a "wild ride" that will lead to more plant shutdowns and increased outsourcing to foreign factories. "With 'fixes' like these," the article states, "it's hard to imagine how Obama plans to fulfill his campaign promise to 'revive and strengthen all of American manufacturing.'"

This is not to say that the entire left side of the political spectrum opposes the administration's economic policy. There is now more than one left in this country, and the gaps between these lefts are every bit as wide as those between, say, small-government libertarians, social conservatives and messianic global interventionists.

To date, the administration has listed toward the agenda of what may be best described as the left's gentry wing. These include activists at universities, urban planners and liberal nonprofits, many of whom see in Obama's pro-green policies and multicultural agenda the fulfillment of their long-time fantasies.

This, at times, puts them at odds with large parts of the middle- and working-class base of the Democratic Party. The administration's plans to"coerce" people out of their cars for the alleged good of the environment probably does not offer much "hope" for those working at auto plants. Highly dependent as they are on stocks and asset inflation for their income, the gentry are not likely to object to the administration's coddling of large financial institutions.

Then there is the party's populist contingent, whose inspiration comes more from FDR and Harry Truman than from the likes of Barney Frank and Nancy Pelosi. They are less likely to see much of a difference between a Timothy Geithner or a Hank Paulson. To them, the two Treasury secretaries have both been useful servants for the nation's "economic royalists."

Of course, most conservatives might despair over the populists' tendency to embrace statist solutions to our economic problems. But would-be inheritors of the Reaganite mantle should at least sympathize with their goal to restore broad-based upward mobility and close-to-full employment. Indeed, if the Republican Party figures out how to take command of the issues like job creation and social mobility, they could even become relevant once again.

Right now, though, critiques from the left may be more effective than yammering from the still-clueless right. The president knows that talk of green shoots makes people and markets feel better. But unless those shoots show some staying power, the long-term economic consequences – and ultimately political ones, too, for the president and his party – could prove unwelcome indeed.

This article originally appeared at Forbes.

How Phoenix Will Come Back

Andrew Kirby — Mon, 22 Jun 2009 01:00:31 -0400

I have heard Paul Krugman say that ‘the end is nigh’ so many times that it seemed like the only sensible way to think about the housing market. It was identified as a bubble, and that could only mean that it would eventually burst. A steady diet of NYT editorials and Economist charts leave you with one conclusion — this is not going to end well.

This certainly seems to be true in Phoenix. Even though I’ve lectured for years about ‘the growth machine’, how the economy in a city like Phoenix depends on building more homes, I did not expect the whole thing to collapse quite so precipitately, and with so many repercussions. The number of passengers going through the airport here is down 10% from last year; numerous restaurants, stores and other services have gone out of business, the State is trying to stare down a $3 billion deficit, the universities have fired hundreds of people—so the cycle keeps spreading like a slow motion disaster.

Also predictable is the response. Local politicians are planning to slash the State budget and get government off people’s backs, once and for all. If we used foreign phrases such as ‘chutzpah’ around here, that would have to qualify. After all, it takes balls to watch the market behave like a bunch of drunks kicking Humpty Dumpty about, and then blame government for trying to put him back together again.

Yet, at least here in Phoenix, it turns out that Professor Krugman hadn’t really got it figured out after all. As a rational man, he was distracted by the irrational exuberance of the market, the unsupportable ramping up of property prices, the NINJA loans, and the cynical exploitation of those arriving late to the party, those doomed to buy at the top of the market and be left holding fake mortgages on homes with phony values. The solutions seem simple. More oversight from Big Brother and everything can be fixed. Or, if you prefer to listen to the bizarro-world script over on AM radio, the black helicopters are about to start landing on Wall Street as the UN takes over to install European-style socialism.

Yet much of this commentary is laughably wrong. The housing market debacle was not just predictable but actually utterly unavoidable. Some of this is simply a matter of money circulating around, which as Niall Ferguson’s book The Ascent of Money makes clear, this is as old as capitalism itself. The difference now is that digital technologies have made the speed of trading and transfer shift. The same rules apply, except that everyone must work harder to keep that cash flowing.

What I now realize is that the entire economic system is based upon finding more risk. Without more risk in which to invest, the economy can’t keep moving. In other words, this wasn’t a series of calamities or errors or criminal mistakes — it is the market at work, no more, no less. And that is not going to change.

What I thought I knew is not really so. I thought a bigger banking sector was not just more mysterious but was somehow more efficient and therefore safer; after all, health insurance works best if the risks are spread across larger and larger groups. Yet in reality finance is more like a vast Ponzi scheme. We should, in fact, let Mr. Madoff out of jail, as he was doing nothing particularly wrong — his only crime was that he wasn’t being clever enough in hiding his scheme in sufficiently obscure mathematics.

What happens to the cities, towns and suburbs left devasted by the financial schemers? As James Surowiecki recently observed in the New Yorker, “banking grew bigger and more profitable but all we got in exchange was acres of empty houses in Phoenix.” So? Isn’t that a small price to pay? Given a choice, what would we rather have: a buoyant capital market and a few distant suburbs and downtown condos without any residents, or what we have today in some cities — double digit unemployment?

There are real policy issues at work here. We were taught years ago, by the Marxists no less, that the purpose of a capitalist economy is to reproduce itself and the purpose of governments is to make sure that happens. So we make credit available to people; first to buy Model Ts, then to live in Levittown, then to play golf in Cancun, and so forth. And for this to work there has to be more risk in which to invest, an endless supply of new things. Housing has served us well in this regard; people live in condos and McMansions, people sell them, people build them, people manufacture the fixtures and fittings. This is how the growth machine, particularly in places like Phoenix, works.

An economy like Phoenix is like a shark – it can’t stop, it can’t even run slow. We have to find more buyers — or perhaps we just build the homes now and fill them in the future when the population increases. Or, in line with a previous posting, we should have solved the immigration problem, and the need to sell more homes, by legalizing the Latino population and making them creditworthy.

In this sense, maybe all this focus on the Valley’s 65,000 foreclosures is a mistake. As I argued last year, perhaps they should just be turned over to rentals and let the market sort it all out; predictably, rents are now coming down in apartment complexes as more families find affordable homes to rent.

What we need is not to stop the market from repairing itself but we need to do it in a more creative way. Some of those suburbs are looking a bit down at heel, and the homes weren’t that sturdy to begin with — so let’s bulldoze them and do some serious brownfield redevelopment. Perhaps build them right, more sustainably, and less dependent on distant employment centers

We can all get back to work, we can all feel virtuous as no new desert is being bladed, the infrastructure is already paid for, the journey to work costs will be less, the density perhaps a little higher with more jobs, offices and retail located closer to the houses.

This approach will let us build more homes and get some more risk back into that market. Let’s repurpose the land. Then we can go back to business as usual, and if I was a betting man, that’s exactly what we are going to do.

Andrew Kirby is the editor of the interdisciplinary Elsevier journal “Cities.”This is his 20th year as a resident of Arizona.

GM, Business, and The Age of Small

Dennis Powell — Sun, 21 Jun 2009 00:24:15 -0400

At its peak, General Motors employed 350,000 people and operated 150 assembly plants. It defined “big business” for America and the world.

But GM was not always big. It grew through the acquisitions that it made in the early decades of the twentieth century. In those days, the automotive industry was populated by entrepreneurial small businesses led by people like Ransom Olds and Henry Ford. There were more than 200 automobile companies in the United States in 1920. By 1940, only 17 had survived.

As with all businesses, success and failure was measured by a company’s ability to manage and adapt to change. Change in consumer expectations and demographics. Demands for lower prices and more features. Underlying all of this was the need to constantly improve, to challenge core assumptions, and attend to customer needs. The early automobile companies that could not adapt were driven out of business or forced to merge. In the end, we had the “Big Three” in control of all major American automotive brands.

And so it was, but only for a time. Our economy is dynamic. It is always changing. This is why consumer products are always adding “new and improved” to even their most popular and profitable labels, and why companies produce competing products — like laundry detergents and cereals — within their brand. Control of shelf space is vital in retail, and an expanded offering of products maintains a company's all-important market share.

In a free economy, “Big” has some advantages. It has more resources and reach. “Big” companies can define a market and, to a point, control entry into it. But “Big” also has many disadvantages. It is unwieldy, bureaucratic, inflexible, slow to react and unresponsive to small events. This is why in a dynamic free economy “Big” gives birth to “Small”, which forces innovation and change, and ushers in the next Big Idea.

Apple was started in a garage to challenge the giant IBM. Microsoft was founded by a college dropout who ran with a platform (Windows) that Xerox created and discarded. Hechinger’s was the first big box hardware store. It was overtaken by The Home Depot, which pioneered a better way to service clients with an even bigger box.

America is all about good, better, best. Google is now the dominate internet search engine. A small part of its success has been its ability to become part of the vernacular. How many of us have said, “Let me Google that?” Microsoft is not sitting back and accepting Google’s success as a given. It recently launched “Bing”, with features not available on Google. Is Bing the next newer, better search engine? The market will determine if it is, once consumers take it out for a search or two and decide whether or not they like the results.

The American automobile industry has reached the end of “Big.” GM recently sold its Saturn brand to Roger Penske, a former auto racer turned entrepreneur. Penske will likely bring new energy and focus to a brand that was only a small cog in a giant corporation. I bet that the brand will reemerge stronger in the marketplace. A Chinese company bought Hummer. SAAB is still looking for a new home. The remaining GM brands, including Cadillac and Buick, will be part of a newer and smaller company. This is the natural economic cycle. It is what would have taken place months ago, and saved the American taxpayer billions of dollars had we simply let GM go into an orderly Chapter 11 bankruptcy.

The problem is that our federal government is attempting to control this process in order to achieve a desired result. Yes, looking at saving GM as a short term federal jobs program is a valid argument (albeit a God-awful expensive one). But we should not let these actions, taken in the midst of a crisis, instill the belief that government control of markets is a viable alternative to free markets that respond to consumer demand.

The natural flow of our economy is big to small to big again. We are now entering an 'Age of Small' throughout our economy. It is an era in which new ideas will drive innovation, and the nimble will overtake the weak. The only thing that can derail this process is the permanent entry of big government into the mix.

Government is the antithesis of a market economy. It is unwieldy, bureaucratic, inflexible, slow to react, and unresponsive to small events and to its own consumers.

It is Big when we are at the right moment for Small.

Dennis M. Powell is president and CEO of Massey Powell, an issues management consulting company located in Plymouth Meeting, PA.

On Our Knees: Prince Charles vs. Lord Rogers

James Heartfield — Fri, 19 Jun 2009 15:57:32 -0400

It is no wonder that architect Richard Rogers is feeling a bit peeved at Prince Charles. This month, the heir to the British throne scuppered plans for a £1 billion development putting 552 apartments on the 12.8-acre site of the old Chelsea Barracks. Rogers was most offended that the Prince used his Royalty to by-pass the usual planning law consultation, by speaking direct to the Qatari royalty who owned the site.

This is not the first time the heir to the throne has acted as Lord High Planner. Twenty five years ago, he threw a hissy fit about a modernist, hi-tech tower development planned on the national gallery. It was created by the firm Ahrends, Burton and Koralek – but inspired by a Rogers’ design. His sub-majesty called it a ‘monstrous carbuncle’ on the face of a much loved and elegant friend (his ancestor predecessor William IV had a lower opinion of William Wilkins late classical design – ‘a nasty pokey little hole’). He got his way, then, and a pseudo-classical outgrowth was manufactured by Robert Venturi.

Just a month ago, Charles was asked back to the Royal Institute of British Architects, where he first made the ‘carbuncle’ attack, and even apologised, half-jokingly, promising not to set off another debate about modernist versus traditional architecture. But word had already got out that he was going to sabotage the Chelsea Barracks development.

Charles’ has been dogged, or perhaps the word is better dogmatic, in his interest in architecture and planning. Out in Dorchester, on land owned by the Duchy of Lancaster (that’s Prince Charles, to you and me) he constructed a weird dreamscape of a village called Poundbury, wholly built according to the Prince’s own ideals, of tradition, community and high density dwellings, designed by the new urbanist Leon Krier. It is full of desperately traditional motifs, like a film set, and it is supposed to be built to dissuade car use (though according to a recent survey, resident are above average car users).

Richard Rogers has dared break ranks with the Prince publicly over his busy bodying. Rogers makes some excellent points. The Prince is but a man, amongst many: why should he have more say so than anyone else? The Prince will not debate his views, so why should he be allowed this influence on political choices? Even moderate constitutionalists agree that the Royalty enjoys its formal position as head of state (which Charles will become, if his mother Queen Elizabeth dies) on the condition that they keep out of day-to-day politics.

One person who put some real flesh on the bones of Rogers’ complaints has been Vicky Richardson, the editor of the architecture magazine Blueprint. When Charles stood to address the Royal Institute of British Architects, she shouted out ‘abolish the monarchy’, a cry that was perhaps a bit too plebeian for Richard Rogers.

Rogers is the last person to be telling us that we should not fawn to established authority. Let me spell it out for you. This is no plebe; it’s Sir Richard Rogers, Baron Rogers of Riverside, a peer of the realm. In 1991, Rogers, in an act of fealty, bent down on one knee before the Queen, to be made a knight. In 1996, he was made a Baron, and sits in the unelected House of Lords (on the Labour benches). Quite why Rogers thinks he is free of the oaths he made to protect the Queen – and consequently her progeny – is not clear.

Richard Rogers’ leaning on the Royal brand when it suits him is not the end of his fixation with authority over the common people. Though he pressed a few demotic buttons when he turned on Prince Charles, there was a weird undercurrent of superiority in his complaints. Prince Charles is not an expert he was keen to say. Charles has no expertise in architecture … unlike Richard Rogers. It was quite a snooty put down to place on a soon-to-be King.

Rogers went further, asking whether things ought to be changed, so that the unspoken rule that the monarchy stay out of everyday politics might be shored up. Indeed, Richard Rogers called for a panel of constitutional experts to re-examine the Prince’s powers. ‘A panel of constitutional experts’? Who are these ‘experts’ that know better than the rest of us how the United Kingdom ought to be run? A committee of the House of Lords, perhaps?

At the heart of Richard Rogers case against the monarchy is not an argument for the people against entrenched authority. Rather, it is an argument for a new elite to take over – ‘experts’ (so-called), technocrats, people like Rogers himself, who know better than the rest of us how we should live.

In real fact, Rogers may be even more a throwback to medievalism than the Prince. Rogers’s Chelsea Barracks development has been attacked for being too ‘modern’. But the row is cast in terms of traditional versus modern, because in many ways, Rogers plans are more backward looking that Charles’s.

One feature that lies behind the many complaints that preceded Charles’ intervention is the density of the development. Originally planned for 638 flats, the developers were persuaded to reduce the number and increase the open space from two to 6.2 acres.

Local people resent more bodies being crammed into an already overcrowded, teeming and increasingly dehumanized London. In this process, Rogers is far more a villain than the unlikable Prince. In 1998 his government appointed Urban Task Force saddled planning authorities with the principle that most new development would take place on ‘brownfield’, that is previously built-upon land, not newer greenfield sites out in the country.

This is almost something out of apartheid or the 19th Century enclosure acts. The policy is to keep Londoners kettled up behind the Green Belt, telling local authorities to keep filling in every patch of land that becomes available with extra housing, densifying the city. Ironically, the Prince entirely agrees with Rogers on the need for densification – but at least he prefers something more humane, like a nice cottagey feel, and some old stonework.

The ‘urban nimbys’ who objected to the Chelsea barrack development are a new thing. In north London, residents protested against an apartment block squeezed into a space that used to be garages at Pilgrims Way. Under the regional plan, drawn up on rules laid out by Baron Rogers, local objections have no purchase, because the overriding goal is cramming: forcing ever more people in a fixed amount of space. That is why Rogers is so angry with the Prince. Rogers has the planning approval all sewn up. Because his development offers the highest density, it ticks all the right boxes as far as the planners are concerned. But for residents, looking at results of cramming on their already limited space, 500 new flats squeezed in does not look so good. They have a right to object, but the plan – blessed by the experts, knighted and not – trumps their objections.

Rogers objects that the Prince is using his hereditary power. But what makes Rogers so cross is that he is accustomed to exercising unchecked and undemocratic power to get his own way. He cannot quite believe that there might be a greater unelected power in the land than his own.

The fact is the so-called great are only great because we are on our knees, said the Irish rebel James Connolly. It is time the British stood up and kicked both of these unelected overlords out, whether to the manor born or entitled by their “expertise”.

James Heartfield is author of Let’s Build! Why we need five million homes in the next ten years, and a director of www.Audacity.org.

Image courtesy of Henry Bloomfield

How Can Cities with Unaffordable Housing be Ranked Among the Most Livable Cities in the World?

Owen McShane — Fri, 19 Jun 2009 01:21:31 -0400

The Economist magazine's "Economic Intelligence Unit" (EIU) has published its most recent survey of the most livable cities in the world.

Vancouver, Canada, ranks number one, Vienna, Austria number two, Perth, Australia number five, Geneva number 8, Zurich, number 9, (both in Switzerland) and Auckland, New Zealand, number twelve.

The comments on the EIU web page are plentiful and outspoken, most of them from people living in the 'top-ranked' cities explaining why the survey has got things 'so wrong' – or 'so absolutely right'. Many point out that Vancouver, like so many of the top-rated cities, has severely unaffordable housing.

Many also have high taxes, and some, like Auckland, have low wages by world standards. For most people, high wages, low taxes and affordable housing make a major contribution to livability.

Anyone familiar with Zurich and Geneva knows that one has to be very wealthy to live there. For most of us, such cities are quite 'unlivable'.

However, the EIU is probably providing its customers with the right answers (or as right as such surveys can be) because their experts are ranking these cities according to their attractiveness to expatriate executives.

Executives posted from New York to Vancouver or Sydney are unlikely to be concerned with the cost of housing because their housing will be provided free of charge, or subsidized by accommodation allowances. These rankings are not established by interviewing a random sample of residents, but are generated by a team of experts trying to assess these cities through the eyes of transferred executives setting up homes in new countries.

This introduces another set of biases because even expert visitors have different priorities and preferences to long-term residents.

Visitors to cities use public transport – especially shuttles, taxis and trains – if only because they do not carry their cars in their suitcase. Again, the comments on the EIU web page demonstrate that the public transport that serves visitors well may not be so impressive to the long term residents.

Similarly, the Mercer Consulting’s Quality of Living survey ranks Auckland fourth, equal with Vancouver. Vienna, Zurich and Geneva are their top three, with Vancouver and Auckland fourth equal. Again, the Mercer ranking is designed “to help governments and major companies place employees on international assignments”. So housing affordability is not an issue. These are the best cities for ‘top’ people – and for government officials in particular.

So, when pondering the rankings of these cities, we should understand they have been ranked according to the preferences of a high income, highly mobile, urban elite. This probably reduces their utility as a guide to overall public policy.

Once we understand this perspective the rankings make much more sense. Whether this makes sense to people starting a career, or trying to raise a family on a middle or even upper middle class income, is dubious at best.

Of course some will no doubt hail such surveys because they emphasize such things as physical beauty or cultural offerings. Yet they have precious little to do with what matters most, notably affordability of decent housing. For most migrants to these cities, the prospects of upward mobility – something not discussed or even considered – are probably less optimal than in places like Houston, Atlanta, and even New York.

After all, for most people, the cost of housing is important in making location decisions, whether within their own countries or when considering migration to other lands.

The 5th Annual Demographia International Housing Affordability Survey (2009) surveyed the Metropolitan Housing Markets of Australia, Canada, the Republic of Ireland, New Zealand, the United Kingdom, and the United States, so does not include the housing markets the EIU ranked in Europe, and elsewhere in the world.

Even so, the list below shows that six of the ‘top twelve’ most livable cities prove to be ‘severely unaffordable’ as measured by Demographia’s Median Multiple Index. (Median house price divided by median household income.) A further two of the twelve, Toronto, ranked 4th, and Calgary, ranked fifth equal with Perth, are both ‘seriously unaffordable’.

Most of us would expect housing affordability to be a key ingredient of livability. The list below included the eight EIU ranked cities (from top ranking Vancouver to 12th ranking Auckland) which were also surveyed for housing affordability by Demographia.

1. Vancouver – 4th least affordable of all the severely unaffordable markets with a Median Multiple Index (MMI) of 8.4.
3. Melbourne – Severely unaffordable; MMI of 7.1
4. Toronto – Seriously unaffordable; MMI of 4.8.
5. Perth – Severely unaffordable; MMI of 6.4
5. Calgary – Seriously unaffordable; MMI of 4.8
9. Sydney – 5th least affordable of all severely unaffordable markets; MMI of 8.3
11. Adelaide – Severely unaffordable; MMI of 7.1
12. Auckland – Severely unaffordable; MMI of 6.4.

A survey that included housing affordability, per capita income, tax rates (central and local), and average drive-time to work, would almost certainly generate quite different rankings. Perhaps what has been missing is this acknowledgement that different factors motivate different kinds of people. The urban elite is very different from the middle class in its concerns. Pundits and planners would be well-served to note these differences before using such surveys as the basis for sound public policy.

Owen McShane is Director of the Centre for Resource Management Studies, New Zealand.

Sustaining Localism in the English Suburban Context

Laura Vaughan — Thu, 18 Jun 2009 01:44:04 -0400

Localism, a longstanding agenda of the Green Party in the context of the UK economy, is gaining ground in the current economic crisis. In a recent edition of the London-based Daily Telegraph, a striking contrast is made between Chester in north-west England – which is suffering from the decline of its relatively narrow economic base and Totnes in south-west England, which with its longstanding interest in alternative living, and more localised economy, seems to be weathering the situation much better. The underlying message from the article is that small is good – particularly for businesses not overextended in their borrowing, and familiar enough with their immediate context to be able to adapt to a changing economy.

The New Economics Foundation think-tank, has been for several years campaigning against Clone Town Britain (namely, the over preponderance of chain stores at the expense of small chains and independent stores). Past criticism of the foundation for having an overly romantic notion of what constitutes a successful town centre may still continue, but there may also be some economic logic to a more locally oriented town centre strategy.

Perhaps the best approach is to avoid either free-market efficiency ideology, on the one hand, or a strict local-only approach. It seems clear from other recent research into successful suburban town centres that a combination of national chains and good quality independents makes for the best mix to ensure long-term economic sustainability.

This issue, like perhaps too much else in Britain, is currently subject to government action. The new Sustainable Communities Act now makes it mandatory for the UK government to assist local councils and community ‘stakeholders’ in drawing up local sustainability strategies for enabling independent businesses to survive in the increasingly cut-throat high street (the equivalent of the US ‘main street’).

Yet as usual the government seems to overlook where most people live: the word suburb or suburban is nowhere in the Act. Possibly this is not surprising as the main focus is on large scale, infrastructure projects, but the continuing lack of attention in policy terms to the suburbs should be a matter of concern to those who believe a diffuse network of connections is essential to the continuing sustainability of the economy.

It is equally worrying to see that the influential group set up by London's Mayor Boris Johnson to focus on the outer London suburbs (which are cited as being his main source of political support in the mayoral elections) continues the pattern of focusing on the larger metropolitan centres at the expense of the smaller suburban centres in the capital. At an ‘Outer London Summit’ held on 11th June, Mayor Johnson made it clear that the policy focus continues to be on strengthening a constellation of “growth hubs” of economic activity, such as the metropolitan centre of Croydon in south London, despite the clear evidence demonstrating how smaller centres have an important role in making suburbs more sustainable.

Within the next 20 years, most housing growth in England and Wales is predicted to occur in suburban settlements. This development is expected to be sustainable economically and environmentally, which means that suburbs will increasingly be required to provide local economic activities in order to minimise travel and to support cohesive and vibrant communities.

The Towards Successful Suburban Town Centres research project at University College London has investigated the strategic contribution of Greater London’s smaller and district centres to the sustainability of the metropolitan region. ‘Sustainability’ in interpreted by the project team as referring to conditions favourable to local concentrations of long-lasting socio-economic and cultural activity.

The research also has found that the widespread perception of suburbia as synonymous with social and architectural homogeneity belies its spatial, social, ethnic and economic diversity. With pressure to build large numbers of new homes increasing, there is a real danger that such perceptions become self-fulfilling.

Initial findings suggest the success of local centres depends on the ability of their built environments to adapt to social and economic change by allowing pedestrian movement around an extended central area, balanced with accessibility to vehicular and public transport at larger scales of movement. Centres that support a wide range of locally generated activity are likely to be more resilient in the face of change than retail or purely residential monocultures. The results show that spatial variety and economic adaptability are both crucial to economic sustainability.

This adaptability inherent to the suburban built environment needs to be more widely understood and promoted. The Towards Successful Suburban Town Centres project has found that where the town centre supports a diverse range of activities it benefits from increased by-product movement, where people do more than what they deliberately came to do during their visit to the centre. People visiting local town centres such as Surbiton (made famous by the 1970s BBC sitcom The Good Life), are not like shoppers at a ‘power centre’ dominated by a Wal-Mart. They don’t just shop for a specific item; they linger, eat lunch, drink coffee, research local cultural activities and indeed might be there for a business meeting. Surbiton, like many of London’s smaller town centres, has close links to larger centres such as Kingston, which alongside retail, offices and a university, boasts the new Rose Theatre led by Sir Peter Hall.

The benefits here go well beyond the strictly economic. More time spent locally leads to a more vibrant mix of people on the streets and helps enliven the town centre throughout the day. This street network potential provides a critical element for sustaining the vitality of suburban and small town centres. The extensive and varied activity in lively areas enables complex routine daily and weekly movement patterns to emerge, thereby furthering the engagement of individuals with their locality.

With the closure of chains such as Woolworths, however tragic for long-time customers and employers, the economic downturn also opens up opportunities for alternative high street activities. In one example, Art Space + Nature, an avant-garde Scottish art collective, have produced plans to bring new activities to empty shop fronts by putting on art exhibitions. The Institute of Community Cohesion is working on plans to create new indoor markets for local communities in closed business units.

These and many other grassroots initiatives are localist at heart. The key may be in making sure that these attempts remain grassroots, and not too impacted by either large governmental units or major non-profits. To succeed, localism must be properly bedded in the community. Economic trends, as well as history, demonstrate that a bottom-up approach to creating lasting viable communities works not only in cities, but in suburbs as well.

Laura Vaughan is a Senior Lecturer in Urban and Suburban Settlement Patterns and the Director of the MSc in Advanced Architectural Studies at the Bartlett, University College London and a member of UCL’s Space research group.

The Geography of Class in Greater Seattle

Richard Morrill — Wed, 17 Jun 2009 00:23:57 -0400

Most readers may not be initially very interested in the detailed geography of “class” in Seattle, but it actually matters not only for our area but for the whole debate over the shape of the urban future. Academics, perhaps Americans in general, are loath to admit to class differences, yet they remain very crucial to the understanding of how cities and regions evolve.

Seattle is a great example of the transformation of a 20th century model of the American metropolis to a 21st century-cum-19th century “old World” model of metropolis. It is often held up as one of the role models for other cities, so its experiences should be considered seriously not only for American cities but for regions throughout the advanced world.

Many readers, including those afflicted with political correctness, probably many upper and lower class folk uncomfortable with their home areas being labeled as of a particular class, or others, might feel that class is an obsolete Marxist term. They may prefer I use the safer term “socio-economic status” rather than “class.” Let’s admit it: “class” is used widely, as in “the middle class is getting squeezed” or the “tax burden on the lower classes.” As it has been for hundreds of years, class remains a meaningful descriptor of areas of obviously differing well-being.

We should understand by identifying upper or middle or lower classes this does not imply “better than.” Class simply reflects the mix of inheritance, education, biology, experience, discrimination, and life events that lead to variability in economic well-being. Class is real. But there is certainly a legitimate concern with the identification of heterogeneous areas like census tracts as of a particular class, based on average or median values for the in fact diverse households in a tract. This method is far from perfect but nevertheless we and others find such generalization common, meaningful and useful.

This map plots “factor scores,” a statistically constructed variable or index divided into six levels of “class:” two upper, two middle and two lower. It is timely to do this, since it was 50 years ago when Calvin Schmid, demographer in Sociology at the University of Washington, and my early mentor, performed a pioneering factor analysis of crime in Seattle – and this was before modern computers! The derived scores most reflect high weighting of the variables: percent of adults with a BA or more, percent in professional versus laboring occupations, median house value and median household income.

As you look at the map, it’s clear how Seattle reflects very strongly what is generally described as gentrification. This means the reclaiming of the central core by the highly educated and professional, eschewing the suburban metaphorical desert. In the case of Seattle, this process occurring between 1985-2005 resulted in the displacement of over 50,000 less affluent and often minority households to south King county. The city begins to resemble the historic pattern of the rich and important occupying the vibrant core of the city, relegating the working poor to the suburbs, with poor access and inadequate services. Indeed, even now I am involved in a project to assess the lack of access of poor children, often minority or foreign born, to health care in south King county.

The dominant “upper class” area is the Eastside, east of Lake Washington, and location of the affluent “edge city” of Bellevue, home of the Microsoft campus. A second set of upper class areas are waterfront and view neighborhoods, taking advantage of the Seattle area’s broken topography. The third is simply the University of Washington immediate hinterland. I suspect the location of a large research university with 42,000 students and 22,000 staff increasingly propels Seattle’s unusually high status, income and popularity. I think this is increasingly more important a factor than the presence of an increasingly less important downtown Seattle business center.

Conversely, lower class areas include traditional zones of mixed housing, industry and transport, such as south Seattle, the older satellite cities of Everett (north), Bremerton (west), and especially Tacoma (south). The largest area of lower class neighborhoods extends from south Seattle through south King county to Tacoma, marked by historical development, displacement from Seattle and high minority population. The second large zone of lower class settlement is the rural fringe, especially in Pierce (south) and Snohomish (north) counties, and may surprise those who think all rural areas are the home of rich estates.

Then there is the middle class. This is where the suburbs matter most. On the map, middle class areas (yellow and green) are intermediate in location as well and dominate the outer suburban areas as well as some older inner neighborhoods of Seattle and Tacoma. It is unfortunately true that race, ethnicity and class remain highly correlated especially within the core cities of Seattle and Tacoma, reflecting the continuing history of unequal education and job preparation and prospects.

This analysis suggests one possible future of urban development following something of a European model, with most middle class people in the suburbs, while the rich and poor concentrate either in the urban core or in selected locales in the periphery. As for the city itself, it’s clear that the total landscape is not simply becoming wealthier but increasingly bifurcated between the affluent and the long-term poverty population. And suburbia, home to the vast majority of the region’s population remains the predominant home of the middle and working classes, with pockets of both wealth and poverty.

Europe: No Longer A Role Model For America

Joel Kotkin — Tue, 16 Jun 2009 00:20:44 -0400

For decades many in the American political and policy establishment--including close supporters of President Obama--have looked enviously at the bureaucratic powerhouse of the European Union. In everything from climate change to civil liberties to land use regulation, Europe long has charmed those visionaries, particularly on the left, who wish to remake America in its image.

"There is much to be said for being a Denmark or Sweden, even a Great Britain, France or Italy," wrote political scientist Andrew Hacker in his 1971 book The End of the American Era .This refrain has been picked up again more recently by the likes of Washington Post reporter T.R. Reid and economist Jeremy Rifkin. Just last year, international relations scholar Parag Khanna shared his vision of a "shrunken" America lucky to eke out a meager existence between a "triumphant China" and a "retooled Europe."

But the tendency to borrow from the European toolbox may be somewhat questionable, particularly given that a growing number of Europeans are either uninterested--barely 40% bothered to vote in E.U. Parliament elections last week--or in open revolt against their own system of government. In the elections, for example, parties generally opposed to expanding E.U. power gained ground in countries as diverse as Hungary, Slovakia and the Netherlands. In Britain, the relatively small U.K. Independence Party, which even opposed membership in the U.N., out-polled the Labour Party and trailed only the Conservatives, who announced their own shift toward a more euro-skeptic point of view.

Although the E.U.'s current top-down bureaucratic approach is clearly losing support, these recent events don't necessarily mean the E.U. is doomed. It's just that people who might be happy to accept a customs union and perhaps even a common currency are simply proving loath to hand over land use controls and environmental standards, much less foreign policy, to Brussels-based bureaucrats. At its root this move represents both a cry against control and a cry for greater autonomy.

For the Obama administration, there may be some significant lessons here. Compared with Europeans, Americans are disposed to dislike too much central control. Turning Washington into a new Brussels, with regulations to cover virtually any human activity, could backfire both on the president and his party.

But it's also critical not to see Europe's new tilt as affirming Reaganite cowboy capitalism. Many European countries, particularly the northern ones, are justly proud of the "social" models of capitalism they embrace. There are many policies--such as Danish incentives for industrial firms to greenify themselves, efficient universal health care and tough fuel economy standards for cars--that should be discussed and perhaps even adopted in some form in the U.S.

In one sense, we should understand that Europeans are trying to protect their preferred standards when it comes to culture, social structure and lifestyle. They remain, if you will, fundamentally conservative in their efforts to preserve their well-established welfare states.

But overall the anti-E.U. vote should make it clear that Europe's overall economic system makes for a poor role model for our country. When the current economic crisis first hit, many European leaders--and their American fans, like Harvard economist Ken Rogoff--saw vindication for the E.U.'s economic policy and a much tougher road for the U.S. over the next year or two. Yet in reality, Europe already has suffered as much as we have from the downturn, and recovery there may also be even slower to emerge. In some countries, such as Greece and France, social unrest has been far more evident than here in the U.S.

Simply put, European models do not necessarily work better--and when they do, they have occurred in part due to shifts away from strict welfare-state policies. As Sweden's Nima Sanandaji and Robert Gindehag have argued the recent return to growth in places like Sweden came only after some modest reforms in both taxes and social benefits.

Yet at the same time, even successful European countries--as well as the whole E.U.--generally experience slower growth than the U.S. with respect to measures like gross domestic product and job growth. This makes it an example of limited utility for America, a country that needs strong economic growth in order to maintain both its quality of life and overall social sustainability.

The biggest source of divergence between the U.S. and the E.U. lies in demographic trends. For the most part, Europe is aging far more rapidly, and its workforce is shrinking. As demographer Ali Modarres notes, America's population over the second half of the 20th century grew by 130 million, essentially doubling, while the populations of France, Germany and Britain together increased by 40 million, or 25%.

As a result, there is virtually no European equivalent for cities like Houston, Phoenix, Las Vegas or Atlanta. American cities sprawl--and will likely continue to do so--because they are newer and because they are growing much faster in a country that is much vaster. Even with 100 million more people, the country will still be one-sixth as crowded as Germany.

These differences will only become more stark. Opposition to immigration--from both Muslim countries and the E.U.'s own eastern periphery--is growing even in historically tolerant places like Great Britain, Denmark and Holland. Over time, migration into Europe is destined to slow. In Barack Obama's wildly multicultural America, strong restrictionist sentiments have not gained much political ground, and, at most, efforts are directed not at reducing legal immigration but rather shifting it toward a more meritocratic model.

So we can expect America's population to continue growing at close to the highest rate in the advanced industrial world while Europe remains among the most rapidly aging places on earth. America's fertility rate is 50% higher than Russia's, Germany's and Italy's. By 2040, for example, the U.S. could have a greater population than the first 15 member nations of the European Union. Compare that prediction to 1950, when America had only half the population of Western Europe.

These numbers point toward separate destinies for the U.S. and the E.U. Throughout history, low fertility and societal and economic decline have been inextricably linked, affecting such once-vibrant civilizations as ancient Rome, 17th-century Venice and, now, contemporary Europe.The desire to have children also reflects a fundamental affirmation of faith in the future and in values that transcend the individual. This is particularly true in affluent societies, where it is socially acceptable to remain childless and technology has made the decision not to have children easier to enforce.

The U.S.' demographic vitality will allow it to emerge from the current economic doldrums with more rapid growth than Europe--continuing a trend that has generally held for most of the past two decades. Innovation, largely a product of youthful indiscretion, also will continue to emerge more quickly stateside. Indeed, according to one recent European Commission survey, at the current rate of innovation, it would take 50 years for the E.U. to catch up to the U.S.

Largely thanks to these demographic pressures, we could see an American economy twice the size of the E.U.'s by 2050. Unlike Europe, we have better prospects for growth, since there's really no sustainable alternative for our society. In contrast, 40 years from now Europe's economic growth rate is expected to fall 40%, due directly to the shrinking size of both its labor force and its internal market.

We can ultimately expect two very different courses to develop. In America, the emphasis needs to be on sustained growth to prevent a massive decline in living standards. In contrast, Europe may be able to maintain a steady level of prosperity--even with lower growth, since its population will be either stagnant or declining--at least until the looming costs of maintaining a welfare state impose onerous economic burdens.

Environmentally, Europe will become a "green" hero--because lower economic growth means a natural reduction in energy consumption and dreaded greenhouse gas emissions. Americans, on the other hand, will need to depend more on technological fixes--some of them from Europe--and embrace less economically damaging paths to growth. (These include promoting such things as working close to or at home and developing more fuel-efficient cars.)

Neither Europe nor America--particularly given a much-reduced E.U. bureaucracy--has a better or worse model. We just have to recognize that these are, in the end, increasingly different societies: The former is focused on preservation of its hard-won peace and prosperity; the latter is challenged more by constant, major and sometimes even frightening change.

Some may still hold out the hope that wise men in the old continent will present us with a road map to the future. But given the revolt going on against this mega-European ideal, we should understand that even many across the pond are having second thoughts about a future controlled by Brussels. Perhaps it's better to recognize that most solutions to America's problems--now and in the future--will be concocted not in Brussels, Berlin or Paris, but at home.

This article originally appeared at Forbes.

Special Report: Infill in US Urban Areas

Wendell Cox — Mon, 15 Jun 2009 01:35:57 -0400

One of the favored strategies of current urban planning is “infill” development. This is development that occurs within the existing urban footprint, as opposed that taking place on the fringe of the urban footprint (suburbanization). For the first time, the United States Bureau of the Census is producing data that readily reveals infill, as measured by population growth, in the nation’s urban areas.

2000 Urban Footprint Populations

The new 2007 estimates relate to urban areas or urban footprints as defined in 2000 and are produced by the American Community Survey program of the Bureau of the Census. Urban areas are the continuous urbanization that one would observe as the lights of a “city” on a clear night from an airplane. It is the extent of development from one side of the urban form to the other. Further, urban areas are not metropolitan areas, which are always larger and are defined by work trip travel patterns. Metropolitan areas always include adjacent rural areas, while urban areas never do.

The Process of Infill

Although embraced with often religious passion within the urban planning community, infill is neither good nor bad in terms of social or environmental impact. Infill always increases population densities and that means more traffic. If road capacity is increased sufficiently, traffic congestion can be kept at previous levels. If on the other hand, nothing is done, traffic congestion is likely to increase along with population. This means slower traffic and more stop and go operations, which inevitably increases the intensity of air pollution with the potential to cancel out any reductions in greenhouse gas emissions (GHG) that might occur if average car trip lengths decline. Similar difficulties can occur with respect to other infrastructure systems, such as sewer and water. Expanding roads, sewer and water systems in already developed areas can be far more expensive than new systems on greenfield sites. Regrettably, boosters of infill routinely ignore these issues.

But infill has been going on for years, along with suburbanization, both in the United States and in other first world nations. This is indicated by the general densification trend that occurred in US urban areas between 1990 and 2000 and the longer term densification trends that occurred in a number of southwestern urban areas, such as Los Angeles, San Jose, Riverside-San Bernardino, Phoenix, Dallas-Fort Worth and Las Vegas. All these traditionally “sprawling” areas have, in fact, been densifying since 1960 or before. Since 2000, 33 of the nation’s 37 urban areas with a population exceeding 1,000,000 population experienced population infill to their 2000 urban footprints.

Infill in Traditionally Regulated Markets (More Responsive Markets)

Infill is a natural consequence of the traditional post-World War II land use regulation, which tends towards accommodating both demographic growth and market forces. This has been replaced by more prescriptive (often called “smart growth”) land use regulation in some urban areas. Under traditional regulation, suburban development followed a “leap frog” process, moving ever further out. This is roundly condemned in today’s planning literature and among leading academics and policy makers.

Leap frog development occurs where urban development skips over empty land and creates a less continuous urban fabric. Land is developed based upon the interplay between sellers and buyers. Due to fewer planning restrictions, no seller can be sure that their land will be purchased since there is always plenty of land that buyers can otherwise purchase. This keeps land prices down. In the more responsive markets, it is typical for land and site infrastructure costs to be 20 percent of the total price land and house price.

Infill occurs as land that has been “leaped” over is subsequently purchased for development. Again, because buyers have plenty of choices, prices of the infill land remains low, so that land and infrastructure costs remain relatively affordable in relationship to the overall new house purchase price.

The result is an urban area that is generally continuous, though with a transitional “ragged edge.” The ragged edge enabled the broad expansion of home ownership that occurred in the decades following World War II by keeping house prices low.

Infill in More Prescriptive Markets (Smart Growth)

The infill process is quite dramatically different in more prescriptive markets. Infill might be mandated as a percentage of total development or by severely limiting the development allowed to occur closer to the urban fringe. Sellers of land on which development is permitted have disproportionate power to charge higher prices because the planning regime seriously limits the availability of alternative sites for buyers. This, of course, flows through to house prices. The share of land and site infrastructure can rise to two-thirds of the house and land cost. The urban area may have a “clearer” edge, but at a significant loss in housing affordability.

Infill Trends in the 2000s

The new infill estimates indicate that American urban areas continue to densify. Between 2000 and 2007, the 33 of the 37 urban areas of more than 1,000,000 population experienced densification in their 2000 urban footprints. The average population infill increase was 5.6 percent (See Table the following table).

Population Infill in 2000 Urban Footprints
2000-2007
	Population Change: 2000 Urban Footprint					Population Density of 2000 Urban Footprint in 2007
Urban Area	2000 Census	2007 Estimate	Change	%	Rank	Population Density of 2000 Urban Footprint in 2007	Rank
Riverside--San Bernardino, CA	1,506,816	1,800,117	293,301	19.5%	1	4,110	8
Atlanta, GA	3,499,840	4,118,485	618,645	17.7%	2	2,100	36
Austin, TX	901,920	1,051,962	150,042	16.6%	3	3,308	17
Las Vegas, NV	1,314,357	1,518,835	204,478	15.6%	4	5,311	5
Houston, TX	3,822,509	4,370,475	547,966	14.3%	5	3,377	16
Portland, OR--WA	1,583,138	1,779,705	196,567	12.4%	6	3,755	12
Phoenix, AZ	2,907,049	3,254,634	347,585	12.0%	7	4,078	9
Dallas--Fort Worth, TX	4,145,659	4,549,281	403,622	9.7%	8	3,236	18
Orlando, FL	1,157,431	1,267,976	110,545	9.6%	9	2,799	24
San Antonio, TX	1,327,554	1,440,794	113,240	8.5%	10	3,540	14
Tampa--St. Petersburg, FL	2,062,339	2,209,067	146,728	7.1%	11	2,754	25
Sacramento, CA	1,393,498	1,488,647	95,149	6.8%	12	4,034	10
Seattle, WA	2,712,205	2,896,844	184,639	6.8%	13	3,040	21
Miami, FL	4,919,036	5,243,679	324,643	6.6%	14	4,703	6
Washington, DC--VA--MD	3,933,920	4,174,187	240,267	6.1%	15	3,611	13
Denver, CO	1,984,887	2,087,803	102,916	5.2%	16	4,192	7
Indianapolis, IN	1,218,919	1,278,687	59,768	4.9%	17	2,316	34
Columbus, OH	1,133,193	1,175,132	41,939	3.7%	18	2,960	22
Kansas City, MO--KS	1,361,744	1,408,900	47,156	3.5%	19	2,413	31
Virginia Beach, VA	1,394,439	1,442,494	48,055	3.4%	20	2,742	26
San Jose, CA	1,538,312	1,588,544	50,232	3.3%	21	6,110	2
Los Angeles, CA	11,789,487	12,171,625	382,138	3.2%	22	7,302	1
Cincinnati, OH--KY--IN	1,503,262	1,546,730	43,468	2.9%	23	2,305	35
Baltimore, MD	2,076,354	2,133,371	57,017	2.7%	24	3,128	19
San Diego, CA	2,674,436	2,747,620	73,184	2.7%	25	3,514	15
New York, NY--NJ--CT	17,799,861	18,223,567	423,706	2.4%	26	5,440	4
Minneapolis--St. Paul, MN	2,388,593	2,438,359	49,766	2.1%	27	2,727	27
Chicago, IL--IN	8,307,904	8,467,804	159,900	1.9%	28	3,992	11
St. Louis, MO--IL	2,077,662	2,103,040	25,378	1.2%	29	2,540	30
Milwaukee, WI	1,308,913	1,324,365	15,452	1.2%	30	2,719	28
Boston, MA--NH--RI	4,032,484	4,077,659	45,175	1.1%	31	2,350	33
Providence, RI--MA	1,174,548	1,183,622	9,074	0.8%	32	2,353	32
Philadelphia, PA--NJ--DE--MD	5,149,079	5,178,918	29,839	0.6%	33	2,880	23
San Francisco, CA	3,228,605	3,214,137	(14,468)	-0.4%	34	6,099	3
Detroit, MI	3,903,377	3,831,575	(71,802)	-1.8%	35	3,041	20
Pittsburgh, PA	1,753,136	1,687,509	(65,627)	-3.7%	36	1,981	37
Cleveland, OH	1,786,647	1,705,917	(80,730)	-4.5%	37	2,641	29
Total	116,773,113	122,182,066	5,408,953	5.6%
Data from US Bureau of the Census

Riverside-San Bernardino, long castigated as a “sprawl” market, had the largest population infill, at 19.5 percent. Atlanta ranked number two, at 17.7 percent. This is a real surprise, since Atlanta was the least dense major urban area in the world in 2000, ranked second in 2000s infill. As a result, it is likely that Pittsburgh- often held up as a model of urban regeneration - is now the world’s least dense major urban area. On the other hand, if Atlanta’s infill rate continues, its 2000 urban footprint will be more dense than that of Boston by 2015.

Austin ranked third, adding 16.6 percent population to its 2000 urban footprint. Las Vegas ranked fourth, with a 15.6 percent increase in its 2000 urban footprint. The density of Las Vegas is increasing so rapidly that by the 2010 census its 2000 urban footprint will be more dense than the 2000 New York urban footprint, should the current rates continue.

Perhaps most surprising of all is that Houston ranked fifth, added 14.3 percent to its 2000 urban footprint. This may surprise those who have denounced Houston’s largely deregulated regulatory environment, both in the city and in unincorporated county areas in the suburbs. Yet overall Houston’s infill exceeded that of smart growth model Portland. The Rose City stood at sixth, adding 12.4 percent to its 2000 urban footprint.

Perhaps equally surprising, Portland remains less dense than average for a western urban area. Its 2000 urban footprint density trailing Los Angeles, San Jose, San Francisco, Las Vegas, Denver, Riverside-San Bernardino, Phoenix and Sacramento, while leading only San Diego and Seattle.

The top ten were rounded out by Phoenix (7th), Dallas-Fort Worth (8th), Orlando (9th) and San Antonio (10th). It is worth noting that like Houston, the unincorporated suburbs of Austin, Dallas-Fort Worth and San Antonio have largely deregulated land use regulation, yet these urban areas ranked high in infill.

Interestingly some of the greatest infill growth also took place in the fastest growing, traditionally “sprawling” cities. Atlanta also had the largest numeric increase in the population of its 2000 urban footprint, at more than 600,000. Houston was a close second, at nearly 550,000.

In contrast, population losses since 2000 in the urban footprints of Cleveland, Pittsburgh, Detroit and San Francisco, means these urban areas experienced no population infill. San Francisco’s loss enabled San Jose to move into second position nationally after Los Angeles in the population density of its 2000 urban footprint.

How the Core Cities Fared

The core cities (municipalities) attracted, on average, their population share. Approximately 30 percent of the infill growth occurred inside the core cities. Even this figure may be a bit high, due to the impacts of annexation

All of the infill in Philadelphia, Baltimore, Chicago, Providence and Minneapolis-St. Paul occurred outside the core cities. The city of Portland attracted barely 10 percent of its urban area infill, despite highly publicized (and subsidized) infill projects such as the Pearl District. Core cities attracted the largest share of infill growth in such diverse cities as San Antonio, San Jose, Columbus, Phoenix and New York.

Note: Additional information available at http://www.demographia.com/db-uzafoot2007.pdf

Kauai, Hawaii: Local Merchants Make Waves

Pete Peterson — Sun, 14 Jun 2009 00:08:33 -0400

Many have by now heard or read the story of the plucky group of Hawaiians on the island of Kauai who, when faced with the loss of their businesses due to the state government’s inability to open park roads to a popular beach and camping area, took care of it themselves for a fraction of the cost and in a fraction of the time. How very Tocquevellian. Or, better, how very American. The story brings a reflexive smile to everyone who hears it, but the events cast a spotlight on the way governments at all levels interact with their communities, and how, in light of significant budget cutbacks, roles are changing.

In his magisterial commentary on 19th century democratic culture, Democracy in America, Alexis de Tocqueville compared the initial sources of public action in European countries with the United States: “Everywhere that, at the head of a new undertaking, you see the government in France and a great lord in England, count on it that you will perceive an association in the United States.”

De Tocqueville was overwhelmed at this penchant of Americans to collaborate in common effort. The Frenchman attributed this unique, awe-inspiring American quality to the absence of a large government or aristocratic structure. “They can do almost nothing by themselves," he wrote, "and none of them can oblige those like themselves to lend them their cooperation. They therefore all fall into impotence if they do not learn to aid each other freely.”

After December floods washed out the park roads, bridges, and facilities at the Polihale State Park, Hawaii’s Department of Land and Natural Resources (DLNR) studied the damage and released a statement two months later, declaring, “We know that people are anxious to get to the beach. However, the preliminary cost estimate of repairs is $4 million.” An original timeline for the work was set for late summer, but, commented local resident and surfer, Bruce Pleas, "It would not have been open this summer, and it probably wouldn't be open next summer.”

The DLNR’s natural response to this natural disaster was to go inward (look to its own capabilities) and upward (look for more State or Federal funds). The public’s role – if there was to be any – was to leave them alone to do the first task, and help them achieve the second; specifically, the main objective was to grab a fee-generated windfall for the department, ironically entitled the “Recreational Renaissance” fund. In February, DLNR’s Chair, Laura Thielen, pleaded, “We are asking for the public’s patience and cooperation to help protect the park’s resources during this closure, and for their support of the ‘Recreational Renaissance’ so we can better serve them and better care for these important places.” The department convened an “information meeting” in March to discuss… how residents could work with the department to open the roads? No, only to provide information on how to lobby the state for more funding.

This approach did not sit well with area residents who depend on the park for their livelihood. It was reported that Ivan Slack, owner of Na Pali Kayaks, which operates from the beach in Polihale, summed up the community’s frustration: "We can wait around for the state or federal government to make this move, or we can go out and do our part." Beginning in late March, business leaders and local residents organized — “associated” — to take the situation into their own hands. From food donated by local restaurants to heavy machinery offered by local construction companies, a project that was originally forecast to cost millions and take months (if not years) was nearly completed in a matter of weeks, all with donated funds, manpower, and equipment. As Troy Martin from Martin Steel, which provided machinery and five tons of steel at no charge, put it, “We shouldn't have to do this, but when it gets to a state level, it just gets so bureaucratic; something that took us eight days would have taken them years. So we got together -- the community -- and we got it done."

This was not just a park clean-up, but a significant undertaking involving bridge-building, reconstructing rest rooms, and use of heavy equipment to clear miles of flood-damaged roadways.

While unique in its scope, what is happening on the southwestern coast of Kauai is not completely anomalous. Due to the national budget crisis, states and cities around the country are having to take a hard look at the services they offer and find new ways to involve civil society. The organization I head up, California Common Sense, is working with cities and school districts that have to chart this new course. The failure of several revenue-raising ballot initiatives here in the Golden State has provided even more impetus to practice this outward-focused governance.

In some respects, governments themselves are to blame for setting the service expectations of the past decades. Beginning in the mid-1980s, the “TQM” (Total Quality Management) craze in private industry found its way into the public sector, and a new language of “service provider” (government) and “customer” (citizen) followed. Government no longer was something to participate in, but something to pay for. Later in this transition, scholars like Northwestern University’s John McKnight could see that the results of this new relationship were heading towards a precipice. In an essay for The Essential Civil Society Reader, McKnight commented on this situation in terms reminiscent of de Tocqueville’s fears almost two centuries earlier: “The service ideology [in governments] will be consummated when citizens believe that they cannot know whether they have a need, cannot know what that remedy is, [and] cannot understand the process that purports to meet the need.” This, thankfully, is not the situation in Kauai.

But we, as citizens, don't get off the hook that easily. Certainly, we have too often taken on this role as “customer,” believing our taxes are just the prices we pay for the services we desire, from filling potholes to teaching our children. When government does not perform up to our expectations the usual response is either to decry its wastefulness or to acquiesce to higher taxes. These often unproductive reactions come from both the left and right on the ideological spectrum.

The story in Kauai, and others bubbling up around the country, demonstrate that there is a “third way”: get some friends and pick up a shovel when the government can’t or won’t. Governments on the other side of this equation need to be open to this kind of direct participation; in fact, they should encourage it. What is happening in Polihale is not a syrupy, Rockwellian portrait. It is doubtful that this dramatic participation would have occurred without the dire financial consequences that loomed for many of the residents and businesses involved. It is a manifestation of de Tocqueville’s “self-interest rightly understood”.

“All feel themselves to be subject to the same weakness and the same dangers,” De Tocqueville wrote, “and their interest as well as their sympathy makes it a law for them to lend each other mutual assistance when in need.” Ray Ishihara, manager of the local Ishihara Market, which has donated food for the volunteers, puts this in more concrete terms: “I think it’s great. Everybody needs help these days in this economy.”

It is ironic that this should all be taking place in President Obama’s home state. The usually articulate Obama has sounded uncomfortable when attempting to define how he expects Americans to “sacrifice” during this financial crisis. From a policy perspective, the Administration’s only responses appear to be raising taxes on our wealthiest 5%, and, interestingly, increasing Federal funding for volunteer programs.

One thing the President could do is travel out Kauai’s Route 50 to Polihale State Park during his next trip to Hawaii. There, he could see and celebrate what everyday Americans do when they gather in common purpose. Thanks to their hard work and sacrifice, surf’s up.

Pete Peterson is executive director of Common Sense California, a multi-partisan organization that supports citizen participation in policymaking (his views do not necessarily represent those of CSC). He also lectures on State & Local Governance at Pepperdine’s School of Public Policy. An earlier version of this article appeared in City Journal.

Federal Highway Trust Fund: Problem Solving, Government Style

Dennis Powell — Sat, 13 Jun 2009 00:16:12 -0400

News Flash: The Federal Highway Trust Fund will go broke in August.

It went broke last year, and Congress needed an emergency transfer of $8 billion to keep it solvent. There was very little concern last year, but this year we find ourselves in a post-modernist political environment where managing a crisis is good politics, although actually all we do is talk about it.

According to Senator Barbara Boxer (D. CA), the fund will need $7 billion this year and another $10 billion next year to remain solvent through September 30, 2010. Even with this crisis verified and time running out, Congress seems reticent to pull the trigger on a solution anytime soon. It’s just too heavy a lift politically.

It should not surprise anyone that the trust fund is broke. The federal tax on gasoline has not been increased since 1994, but this did not stop politicians from spinning the issue. State and federal data show that gas tax collections are way down. In Pennsylvania for example revenues are running about $100 million below budget. There is also the recession, price of gasoline and more fuel efficient cars contributing to the crisis. But one factor often overlooked is that with the passage of the last federal highway bill (SAFETEA-LU) spending simply outstripped revenues, and even without changes in driving habits and the economic downturn the fund was slated to be depleted.

Now for the really tough part: Congress needs to find money, not simply print it. The trust fund has a dedicated source of funding that has lost about half its purchasing power to inflation over the past 15 years. During that period, politicians have avoided raising taxes for roads and bridges like the plague, so now a crisis looms and our political leaders are finding out that it is much easier to spend than adequately fund.

An Associated Press report stated, “A study by the Transportation Research Board of the National Academies estimated that the annual gap between revenues and the investment needed to improve highway and transit systems was about $105 billion in 2007, and will increase to $134 billion in 2017 under current trends.”

The usual bag of tricks used to obfuscate this issue is no longer available. Not one but two “blue ribbon” commissions have already reported that gas taxes need to be increased. In January, The National Commission on Surface Transportation Infrastructure Financing called for a ten cent per gallon increase. A two year study by National Surface Transportation Policy and Revenue Study Commission called for an increase of 40 cents per gallon. Both studies recommended that gas tax be indexed to inflation. The second recommendation had no chance since it would in effect take this issue out of the hands of politicians who would much rather do nothing about an issue than lose control over it.

Meanwhile, Congress has been busy at work expanding mandates for biofuels and increasing CAFÉ standards to more than 35 miles per gallon. These two combined decimate gas tax and make it an almost unworkable solution to this crisis going forward.

Problem solving often requires taking a long term view of things. It demands answering tough questions and a willingness to implement difficult solutions. Elected leaders find it very difficult to take a long term view, because they live in a two-year election cycle. It’s one reason why the founders wanted limited government. They knew the limits of government to make tough choices to solve difficult problems.

The day after the Department of Transportation reported the trust fund is reaching depletion it issued another press release announcing the Vice President Biden and Secretary of Transportation Ray LaHood were “challenging governors to think boldly when designing high-speed rail plans…” The Obama Administration has committed $13 billion to high-speed trains to jump start a “world class passenger rail system” in America.

The release states that “President Obama’s vision for high-speed rail mirrors that of President Eisenhower (who gave us the Interstate Highway System.)” High-speed rail was positioned as a solution to lower dependence on oil, provide for a cleaner environment, and drive economic growth. All may be true, but what about the $17 billion hole in the highway trust fund?

There is a lesson and a caution here about putting matters into the hands of politicians. They know that they won’t get as much credit for fixing something that is broken as they will for giving the people something new.

Maybe this explains why government budgets keep growing and so do the deficits for many of our legacy programs.

Dennis M. Powell is president and CEO of Massey Powell an issues management consulting company located in Plymouth Meeting, PA.

Farmland Prices: The Cost of Growing A Suburb

Rick Harrison — Fri, 12 Jun 2009 01:38:47 -0400

Summer in Minnesota – land of 10,000 lakes — is, for many families, about boating, with the Harley the preferred mode of ground transportation. In winter, snow mobiles are popular. Hunting and fishing replace the corner coffee shops as hangouts. Three car garages are considered a minimum – four even better!

So how did it come to pass that out-of-control land prices would destroy the economics of housing in this small-town region? And why was the pattern repeated in markets like Las Vegas and Phoenix?

In the 1980’s the Metropolitan Council in Minneapolis became concerned with sprawl. The MET Council thought Portland, Oregon’s policies to control sprawl by creating an Urban Boundary would be beneficial to the Twin City area, a seven county region. This area is topographically simple: no ocean boundary, and, unlike Portland's region, no mountain ranges. The MET Council did not anticipate that their attempt to control growth would end up contributing to it.

Farmers who owned land with sewer capacity outside the boundary knew that its value had just skyrocketed. When a supply — land — is limited, those that control it can name their own price. Within the boundary land was too expensive to develop affordable housing. So cities outside the MET Council's control began to attract developers. Places that nobody had heard of much: Otsego, Albertville, Elk River, and Hugo are all a very long drive from the Twin City core. These towns had two important components for builders: city sewer and cheap land.

As the tiny towns outside the Urban Boundary attracted more development, they also attracted the national developers. All of the nation’s Top Ten Home Builders discovered this region. Each year 25,000 or so new homes were built and quickly sold to suburbanites who preferred a 30 to 40 mile commute over living near the city core. (Keep in mind that Minneapolis / St Paul has one of the nicest core areas of a major US city. Even downtrodden sections look pretty nice. And Minneapolis stays alive in the evenings and becomes a social Mecca that is also relatively safe.)

Much of the escalation in home pricing was due to a bidding war over developable farmland. National builders, using their Wall Street dollars, competed for desirable acreage. If Farmer Fred was able to sell his property for $50,000 an acre, when Roy next door put his farm up, the starting price was $50,000 and the final fee was likely to be $60,000, the starting point of the next site for sale. By 2005 the outer small town land that could have been bought for $12,000 an acre a decade earlier was worth more than 10 times that amount.

In the past, builders would look at the price of a finished lot, and assume that the house they built on it would cost a maximum of four times the finished lot price; a sort of "one-quarter" rule for land costs. If the lot cost $30,000, they would not build a home that ultimately cost more than $120,000.

By 2005, if outer suburban land sold for $150,000 an acre and the density (after required park areas, wetlands, buffers, and shoreline zones) was two homes per acre, that meant that $75,000 of a new suburban home was in raw land costs. Add to that $25,000 in construction of roads, utilities, fees, etc, and the lot price skyrocketed to $100,000. Using the one-quarter rule, this meant the builder would need to get $400,000 for the finished home.

At the 2006 Land Development Today Breakthroughs conference I spoke about our research into the impending market crash and its basis. The market had just begun to show signs of slowdown, and nobody was predicting a big fall.

Our “study” was based on a comparison of our local housing market in the Minneapolis region with markets where we were working in about 40 States. It involved a simple search of major builders in the top markets. We looked at areas where land prices were escalating much faster than inflation in order to see the common elements. The National Association of Home Builders average national price for a 2,400 square foot average home was $264,000. It should be no surprise that impromptu results indicated the average price of a 2,400 square foot home in Phoenix was $331,000 (20% above average), in Las Vegas $442,000 (40% high), and in the Minneapolis suburbs $349,000 (25% high).

Weather was not one of the common elements. But all three areas — Las Vegas, Phoenix, and the Twin Cities — had explosive growth for two decades until 2007 (2006 for the Twin Cities), and all three had most, if not all, of the nation’s Top Ten Home Builders selling and building.

In March of 2005 one of my clients made me an offer. If I convinced a certain farmer to sell, I would receive not just the planning fees, but also 5% of the profits. The land in question was about an hour’s drive from the urban core during rush hour traffic. I looked at the site and took out the slope restriction, the Department of Natural Resources tiers, the wetlands, the buffers, and the land that was otherwise not buildable, including the rolling surface areas that resembled more Moto-Cross course than residential developable land.

The cost for the remaining buildable area would have been about $300,000 an acre. The numbers simply did not work out. Land prices had reached the breaking point. Since there was no possible way to profit, my 5% of zero would still be zero. I suggested that my client not do the deal, and saved him from financial ruin.

It’s easy to make Government the scapegoat. Even though the MET Council set in motion policies that likely caused sprawl by trying to curb it, it was not the cause of land prices going out of control. All the major developers with their deep pockets outbidding each other for over a decade was what did the economics in. Today, housing prices in the Twin City market have plummeted to a more realistic point that is about what the national average was in 2005.

Five years before the crash many actually believed that high land prices were a sign of a great economy. Well guess what? They were wrong.

Rick Harrison is President of Rick Harrison Site Design Studio and author of Prefurbia: Reinventing The Suburbs From Disdainable To Sustainable. His websites are rhsdplanning and prefurbia.com.

A New Story for Timeshare

Richard Reep — Thu, 11 Jun 2009 00:18:35 -0400

By Richard Reep

More employment sectors are increasingly migratory and less fixated on a particular place. Many of us are instead working from home, or from places where we prefer – it might be a coffeeshop, or it might be a vacation condo. Housing’s rigid systems belong to the Old Economy.

Meanwhile, a new form of housing less than 2 generations old has quickly gained ground as a part of the luxury leisure lifestyle of the middle class: timeshare. Unfortunately, during the real estate boom in the last several years, timeshares have been severely overbuilt, and the market is years, perhaps even decades, away from filling this oversupply. This form of housing is based not on real estate mortgages - although one or two companies still practice this – but based upon points. And the genius of the points-based residence is its transportability, which served the vacation market extremely well.

By applying a points-based approach to primary housing, a developer will be able to take advantage of the increasing percentage of workers that move frequently for their careers. This unchains workers from their mortgages and lawnmowers, and enables the nomadic nature that has defined several segments of our economy where project-based employment has replaced company-based employment.

Most timeshare developers privately agree: “The party’s over. It won’t be anything like it was, even if the economy comes back. At least not for a long, long time,” confessed one senior developer for an international timeshare company privately. Meanwhile, many of the communities who assumed a vast market of affluent customers need to start asking big questions.

One of them is to refocus on the quality of places. Gated condominium developments, with little or no connection to the communities where they reside, are a study in self-absorbed lifestyles. Turning these into real homes and communities will require opening them up, integrating them into the local culture and civic life of their places, and making timeshares something other than...well, simply a commodity.

It will also require some fundamental changes that are overdue in the timeshare industry itself. The points-based system was originally fabricated as a customer-loyalty system. It will need to be adapted to suit a worker wishing the flexibility to travel from place to place and stay for longer periods of time. Perhaps a more ominous dilemma that the timeshare developers have created for themselves, however, is the crushing maintenance fees, running often $750 to $1000 a week or more.

The credit-backed future dreams of luxury and leisure remain idle, but the physical properties sit on some pricey and fundamentally attractive real estate at ski area bases, golf courses, desert getaways, and beaches. Few may be in the mood these days to buy a bunch of ephemeral points for a vacation, but the same system would serve well any project-based endeavor that assembles workers for an assignment and disbands these workers when the assignment is completed.

The movie industry has operated on this model for years, and other industries have begun working in this same manner. In the Old Economy, this was rare, and most pursuits encouraged a young college graduate to put down roots as fast as possible: Start a career, start a family, and buy a house. Increasingly, however, entry-level workers have resisted this, preferring instead to experiment with multiple careers, often moving from place to place, sometimes until well into their thirties. In the technology industry, software developers have tended to work on this model, and especially in digital media, the permanent nature of jobs and companies has given way to temporary alliances and co-ops to get things done – the so-called Digital Nomads.

Yet even as the workforce and its physical plants adapted, the housing industry instead has trudged along its same path, with mortgages or rental property as the two options. It is time for timeshare to fill the gap in between these two extremes and offer this as a third option. At this point, the timeshare industry has little to lose. Market contraction and the loss of its credit foundation have rendered these companies dormant. There needs to be a paradigm shift to recover at least some of these investments and, over time, create long-term value.

Timeshare developers built plenty of beach resorts, which are still fairly active, but still can be turned into more semi-permanent communities. Their interior resorts – desert, golf, and ski areas – have an even more urgent need for reinvention. A stronger and more stable sense of community, safety and security, and higher quality of life could draw more workers away from the large metropolitan areas, as baby boomers downshift and global corporations onshore their workers.

All this adds up to an opportunity for a timeshare developer who wants to fill his units with paying customers. When digital media employment is studied, it might resemble the timeshare model more closely than one thinks. Dominated by no one single old-economy company, digital media assignments are often accomplished by a temporary alliance of multiple small studios that work together, then decamp and move to the next assignment. This is a perfect scenario for a points-based housing system. Freed from the chains of the mortgage banks and from the landlord-lease situation, the points-based system enables free flow of workers who enjoy sampling the tastes of different cities and have no real interest in setting down roots, mowing lawns, and fixing leaky gutters.

Ski timeshare properties in particular are quite ready for this shift in focus. Ski towns were built upon timber or mining town functions. They already have reinvented themselves and need to do this again. If these towns were to partner with their timeshare properties and incentivize technology and research employers, a new story and a new model could revitalize them.

Marrying this desire to move to more low-density regions combines what timeshare developers do best – create amenity-laden residential communities – with a free-flow form of ownership. This approach is worth a closer look. We need to thaw the frozen residential concepts and look at new models and new stories that are happening in America and elsewhere. By adapting timeshare to the New Economy at this critical point, an industry can be repurposed and a new sustainable housing option can be born.

The Fate of America’s Homebuilders: The Changing Landscape of America

Wed, 10 Jun 2009 00:06:16 -0400

History will record that the tectonic plates of our financial world began to drift apart in the fall of 2008. The scale of this change may be most evident in housing.

PART TWO – THE HOME BUILDERS

For decades, home ownership epitomized the American dream. For years, Americans saved their money for the required 20% down payment to purchase their dream home and become part of the great American Middle Class. They saved their money in a special account at the local savings & loan that paid a little more interest than the banks. Interest rates were fixed by law. A typical mortgage was written at a fixed rate for 30 years. Most American home owners stayed in their homes and celebrated the pay-off with a mortgage burning party.

In this arrangement, it was understood that the savings & loans were allowed to pay more interest because they provided long term home mortgages. They paid depositors 4 - 5% and lent money at 6% making a little profit on the arbitrage for their risk. With a 20% down payment, there was little risk. Mortgage bankers knew the homes they lent money on and more importantly, they knew their clients. The mortgage stayed on the books at the local savings & loan until paid.

In this time, home builders were mostly small local shops known by their customers and the lenders. For decades the industry was quite stable. Homes averaged 1,400 square feet in 1970 according to the National Association of Homebuilders. A quality home could be purchased for under $20,000. Not everyone could afford to buy a home but almost everyone aspired to this. Savings & loans provided 60% of all home mortgages.

The first crack in the dam appeared in the late 1970s. Under President Jimmy Carter, America suffered double-digit inflation. As the value of the dollar eroded, Americans sought investments that could protect their dollars from the ravages of inflation. Regulation D prohibited banks from paying interest on checking accounts. A tiny bank in Massachusetts, the Consumers Savings Bank of Worcester, Massachusetts introduced the NOW Account (Negotiable Order of Withdrawal) and began paying a higher rate of interest than the savings & loans. Money flooded into the bank.

The Depository Institutions Deregulation and Monetary Control Act of 1980 began the six-year process of phasing out limits on interest rate. Money flowed out of savings & loans and into NOW accounts and MMDA accounts (Money Market Depository Accounts). The S&Ls, with long term fixed loans on their books and short term money leaving for higher rates at the banks, never fully recovered. The primary source of funding for America’s home building industry was changed forever.

In the late 1980s the S&L industry attempt to recapture market share by entering the equity side of real estate development with disastrous consequences. The government was forced to seize most of the S&Ls and sell off their assets through the Resolution Trust Company (RTC). In 1989, Congress passed TEFRA, the Tax Equity and Fiscal Responsibility Act that effectively outlawed direct ownership of property by S&Ls. It was a death blow to the industry and the end of the 30-year home mortgage as we knew it.

This is where the seeds of the current housing disaster and financial meltdown were sown. Wall Street and politics entered the financial vacuum left by the demise of the savings & loan industry. The Garn-St Germain Depository Institutions Act of 1982 introduced the ARM (adjustable rate mortgage) which allowed rates paid to depositors to balance rates charged to borrowers. Our politicians, filled with good intentions, began down an irreversible path of using the home mortgage for social engineering.

Seeking to increase homeownership, Congress began to unwind the financial safety net that protected the American dream for nearly 100 years. An ugly brew was concocted with the marriage of too much money and too much power. Congress began to consider housing as a right instead of a privilege.

Over the ensuing quarter century, Wall Street and Congress conspired to turn the traditional 20% down, fixed 30 year mortgage on its ear. In 1977, they passed the Community Reinvestment Act that outlawed red-lining and forced lenders to make loans to poor neighborhoods. In 1982, they passed the Alternative Mortgage Transactions Parity Act (AMTPA) that expanded the funding and powers of Fannie Mae and Freddie Mac by lifting the restrictions on adjustable rate mortgages (ARM), balloon payment mortgages and the Option ARM (negative amortization loan). When a savings & loan made a mortgage in the past, they held it for 30 years or until paid. Freddie and Fannie became the new absentee owner of the majority of mortgages by purchasing them from the originators in the secondary market.

Thus the die was cast. Mortgage bankers and brokers became salesman and paper pushers packaging applications for the secondary market and financial investors who never saw the asset they lent money against or met the borrowers for whom they made the loan. But this was not enough to satisfy the greed of Wall Street which invented the CMBS (commercial mortgage backed security) in 1991. This was nothing more than a private label pool of mortgages that they sold off to equally unconnected financial investors in their own secondary market. Home mortgage lending by commercial banks went from nothing to 40% of the market in a matter of years.

The market could have possibly tolerated this bastardization of the conventional mortgage but neither Congress nor Wall Street could control themselves. There was simply too much money to be made. Congress determined that the credit score was discriminatory and violated the rights of the poor and minorities. In 1994, Congress approved the formation of the Home Loan Secondary Market Program by a group called the Self-Help Credit Union. They asked for and received the right to offer loans to first time homebuyers who did not have credit or assets to qualify for conventional loans. Conventional 80% financing was replaced with 90% loans and then 95% and finally 100% financing that allowed a home buyer to purchase a home with no down payment. The frenzy climaxed with negative amortization loans that actually allowed homes to be purchased with 105% financing.

In June of 1995, President Clinton, Vice President Gore, and Secretary Cisneros announced a new strategy to raise home-ownership to an all-time high. Clinton stated: “Our homeownership strategy will not cost the taxpayers one extra cent. It will not require legislation.” Clinton intended to use an informal partnership between Fannie and Freddie and community activist groups like ACORN to make mortgages available to those “who have historically been excluded from homeownership.”

Historically, a good credit score was essential to receive a conventional mortgage. Under pressure from the politicians, lenders created a new class of lending called “sub-prime” and as these new borrowers flooded the market, housing prices rose. Lenders used “teaser rates”, a form of loss leader, to help the least credit worthy to qualify for loans.

Congress instructed Fannie and Freddie to purchase mortgages even though there was no down payment and no proof of earnings by the applicant. An applicant could “state” his or her income and provide no proof of employment. Stated income loans eventually became known as “liar loans”. Sub-prime loans grew from 41% to 76% of the market between 2003 and 2005.

This devilish brew caused a record 7,000,000 home sales in 2005, including more than 2,000,000 new homes and condominiums. Mortgage lending jumped from $150 billion in 2000 to $650 billion in 2005. Prices rose relentlessly, pushed by more and more buyers entering the market. The top 10 builders in the United States in 2005 were:

D.R. Horton – 51,383 Homes Built
Pulte Homes – 45,630 Homes Built
Lennar Corp. – 42,359 Homes Built
Centex Corp. – 37,022 Homes Built
KB Homes – 31,009 Homes Built
Beazer Homes – 18,401 Homes Built
Hovnanian Enterprises –17,783 Homes Built
Ryland Group – 16,673 Homes Built
M.D.C. Holdings – 15,307 Homes Built
NVR – 13,787 Homes Built

Economists and pundits eventually began to identify the phenomenon as the housing bubble. And, bubbles burst. But Congress was not ready to confront reality. Rep. Barney Frank testified he “saw nothing that questioned the safety and soundness of Fannie and Freddie”. Fannie Mae Chairman Franklin Raines was paid $91.1 million in salary and bonuses between 1998 and 2004. In 1998 Fannie’s stock was $75/share. Today it is 67 cents.

In 2007 as prices stopped rising, the flood of buyers entering the market ceased putting market values into a free-fall. Home building is not a nimble industry. It takes years of planning and development to bring a project to market. America’s homebuilders had hundreds of thousands of homes and condos under construction when the housing market came to a crashing halt in the fall of 2008. New home sales, which topped 2,000,000 units per year in 2005, fell to an annual level of under 400,000 units in early 2009. Prices have retreated to 2003 levels and in some markets even lower.

What happens to America’s home builders? Do they follow General Motors and Chrysler into bankruptcy? Can they survive? New home sales are down 80% since 2005 – doing worse even than automobile sales. The tectonic plates of the housing industry are shifting rapidly and have not settled into any discernible pattern.

Residential land has dropped precipitously in value but a case can be made that raw residential land now has a “negative residual value”. There are hundreds of thousands of completed but unsold, foreclosed, and vacant, homes littering the countryside. The chart above demonstrates how dramatically sales have fallen since their peak in 2005. This “overhand” inventory must be cleared out before any recovery can ensue. The prices of these units must be cut by draconian margins to attract the bottom fishers and speculators who will take the risk from the home builders and purchase the outstanding inventory. This will not happen quickly. This is not a market that can generate an early rebound.

Has Congress learned from its mistakes? Apparently not. In March 2009, Democratic Representatives Green, Wexler and Waters introduced HR600 entitled “Seller Assisted Down Payments” that instructs FHA to accept 100% financing from those who cannot fund the required 3.5% down payment.

A year from now the landscape of America will be forever changed. Five years from now, will American ingenuity have revolutionized the home building industry? The imperative is to find homebuilders who can speed production and lower costs. And government needs to learn from its own mistakes and realize that a successful housing sector depends on solid market fundamentals as opposed to pursuing an agenda of social engineering.

***********************************

This is the second in a series on The Changing Landscape of America. Future articles will discuss real estate, politics, healthcare and other aspects of our economy and our society. Robert J. Cristiano PhD is a successful real estate developer and the Real Estate Professional in Residence at Chapman University in Orange, CA.
PART ONE – THE AUTOMOBILE INDUSTRY (May 2009)

State of the Economy June 2009

Susanne Trimbath — Tue, 09 Jun 2009 13:41:48 -0400

Nobel Prize-winning economist Paul Krugman was quoted widely for saying that the official recession will end this summer. Before you get overly excited, keep in mind that the recession he’s calling the end of started officially in December 2007. Now ask yourself this: when did you notice that the economy was in recession? Six months after it started? One year? Most people didn’t even realize the financial markets were in crisis until the value of their 401k crashed in September 2008. Count the number of months from December 2007 until you realized the economy was in recession, add that to September 2009 and you’ll have an idea of when you should expect to actually see improvements in the economy.

Douglas Elmendorf, Director of the Congressional Budget Office (CBO), testified on “The State of the Economy” before the House Committee on the Budget U.S. House of Representatives at the end of May. CBO sees several years before unemployment falls back to around 5 percent, after climbing to about 10 percent later this year. Remember this phrase: Jobless Recovery; it happens every time we have a recession. Employment historically does not increase until 6 to 12 months AFTER GDP starts to improve. Even Krugman admits that unemployment will keep going up for “a long time” after the recession officially ends.

While some of us are worrying about stagflation – a stagnant economy with rising prices – the CBO report does a good job of describing why deflation is worse than inflation. Deflation would slow the recovery by causing consumers to put off spending in expectation of lower prices in the future. The risk associated with high inflation is primarily that the Federal Reserve would raise interest rates too fast, stalling the economy – similar to what Greenspan did to prolong the recession in the early 1990s. We think the real conundrum is this: how do you deal with an asset bubble without deflating prices? Preventing deflation now simply passes the bubble on to some other asset class at some future time.

CBO calculates that output in the U.S. is $1 trillion below potential, a shortfall that won’t be corrected until at least 2013. New GDP forecasts are coming in August from CBO. They say the August forecast will likely paint an even gloomier picture than this already gloomy report. Hard to imagine!

There are plenty of reasons that Krugman and others are seeing encouraging signs in the economy. Social Security recipients received a large cost-of-living adjustment, payroll taxes were lowered so that employees are taking home bigger paychecks, larger tax refunds, lower energy prices – all of these lead to an uptick in consumer spending in the first quarter of 2009. I checked in with Omaha-area Realtor Rod Sadofsky last week. He has seen an improvement in sales in the range of median-priced homes which he attributes to the $8,000 tax credit available to first-time homebuyers (or those who have not owned for at least three years). Along with an up-tick in that segment of the market, those sellers are able to move up to higher priced homes a little further up the range, further improving home sales. However, the tax incentive is scheduled to expire at the end of 2009. When the stimulus winds down...well, there will be no more up-ticks. CBO agrees with Rod and warns of a possible re-slump in 2010 when the effects of the stimulus money begin to wane.

CBO’s Dr. Elmendorf has a way to solve this problem: to keep up consumer spending, he suggests that people should work more hours and make more money. Duh! We think we hear Harvard calling – they want their PhD back! CBO seems undecided about which came first in the credit markets: problems in supply or problems in demand?

"Growth in lending has certainly been weak, but a large part of the contraction probably is due to the effect of the recession on the demand for credit, not to the problems experienced by financial institutions."

"Indeed, economic recovery may be necessary for the full recovery of the financial system, rather than the other way around."

We shouldn’t be so hard on Elmendorf. The report makes it clear just how difficult it has been to figure out 1) what happened 2) why it happened 3) what do we do about it and 4) what happens next. CBO seems to be reaching for answers while to us it is obvious they are missing the point by not even considering that manipulation has wrecked havoc on the markets. Whenever things don’t make sense to someone like the Director of the CBO, experience tells us there’s a rat somewhere.

Regardless of how overly-complicated financial products may become, the economy really shouldn’t be that hard to figure out. Still, no one seems to know how far down the banks can go – if banks don't lend to businesses, businesses close, people lose their jobs, unemployed people default on loans, banks have less to lend, and banks can’t lend to businesses...Seems we are damned if we do and damned if we don't: too much borrowing caused the crisis; too little spending worsens it. Do they want us to keep spending money we don't have?

While Krugman is admitting that the world economy will “stay depressed for an extended period” CBO is reporting that "in China, South Korea, and India, manufacturing activity has expanded in recent months." The other members of the G8, however, aren’t faring any better than we are: GDP is down 10.4 percent in the European Union, 7.4 percent in the UK and 15.2 percent in Japan. Canada – whose banks are doing just fine without a bailout, thank you very much – saw GDP decline by just 3.4 percent in the last quarter of 2008.

Undaunted by nearly 10 percent unemployment – after predicting it would rise no higher than 8 percent – President Obama announced today that the White House opened a website for Americans to submit their photos and stories about how the stimulus spending is helping them. If they can't manage the economy, they can still try to manage our expectations about the economy.

Britain's Labour Lessons For Obama

Joel Kotkin — Tue, 09 Jun 2009 00:25:56 -0400

LONDON - The thrashing of Britain's New Labour Party – which came in a weak third in local and European Parliament elections this week – may seem a minor event compared to Barack Obama's triumphal overseas tour. Yet in many ways the humiliation of New Labour should send some potential warning shots across the bow of the good ship Obama.

Labour's defeat, of course, stemmed in part from local conditions, notably a cascading Parliamentary expense scandal that appears most damaging to the party in power. Yet beyond those sordid details lies a more grave tale – of the possible decline of the phenomenon I describe as gentry liberalism.

Gentry liberalism – which reached its height in Britain earlier this decade and is currently peaking in the U.S. – melded traditional left-of-center constituencies, such as organized labor and ethnic minorities, with an expanding class of upper-class professionals from field like media, finance and technology.

Under the telegenic Tony Blair, an Obama before his time, this coalition extended well into the middle-class suburbs. It made for an unbeatable electoral juggernaut.

But today, this broad coalition lies in ruins. An urban expert at the London School of Economics, Tony Travers, suggests that New Labour's biggest loss is due to the erosion of middle-class suburban support. The party also appears to be shedding significant parts of its historic working-class base, particularly those constituents who aren't members of the public employee unions.

Even some longstanding ethnic minorities, most notably the highly entrepreneurial South Asians, also show signs of drifting away from Labour. The only Labour supporters left, then, are the liberal gentry, the government apparatus and the most aggrieved minorities.

This process started before the Parliamentary scandals, Travers adds. Last year a Conservative, Boris Johnson, was able to unseat the sitting Labour-ite mayor of London, Ken Livingstone, largely due to votes from the outer boroughs of the city.

The shift reveals the weakening hold of gentry liberalism. At its core, gentry liberalism depends on massive profits in key sectors – largely finance and real estate – to maintain its affluence while servicing both its environmentally friendly priorities and redistributing wealth to the long-term poor.

This has also allowed for a massive expansion of both the scope and size of government. Today government-funded projects account for close to half of Britain's gross domestic product (GDP), and this share is heading toward its highest level since the late 1940s. In some depressed parts of country, like in the north of England, it stands at over 60%.

As long as the City of London was minting money – much of it recycled from abroad – the government could afford to pay its bills. But with the economy in a deep recession, Labour can no longer count on the same sources to finance expanding government.

Although the liberal gentry are not much affected by diminished job opportunities, higher taxes or reduced services, those problems do afflict the tax-paying working and lower middle classes who dominate suburban areas. "We are not [just] dealing with upward mobility," notes Shamit Saggar, a University of Sussex social scientist with close ties to the Labour Party, "but also the prospect of downward mobility."

Both in Britain and America, these middle-income suburban voters remain by far the largest electoral bloc. Last year they divided their votes about evenly between Obama and John McCain, which helped the Democrats, along with the huge supermajorities Obama racked up in the urban core, forge an easy victory.

In Britain, however, now these suburban as well as small-town voters are tilting to the right, notes Sarah Castells of the Ipsos-Mori survey organization. This is in large part because they no longer believe the Labour Party supports their aspirations. "This is where we see a shift to the Tories," Castells explains.

The now-diminished Labour base of public employees, minorities and these gentry liberals is not a sustainable electoral coalition. In total, Labour can't count for more than one-quarter of the electorate.

Although vastly different in their class status, these groups share a common interest in an ever-more-expansive state. For public sector workers and the welfare-dependent poor, there is the reasonable motive of self-interest. In contrast, the liberal gentry's enthusiasm for expanded government stems increasingly from their embrace of environmental regulation, which has become something of a religion among this set.

You have to wonder what average Brits must make of the likes of Jonathon Porritt, the head of the government's Sustainable Development Commission – a member of the gentry in both attitude and lineage. The Eton-educated Porritt's recent pronouncements include such gems as a call to restrict the number of children per family to two to reduce Britain's population from 60 to 30 million. He also has scolded overweight people for causing climate change.

These do not seem like sure electoral winners. Today extreme green policies that were once merely odd or eccentric are becoming increasingly oppressive, leading to even more actions that disadvantage suburban lifestyles. Environmental activists' solution for the country's severe housing shortage – particularly in the London region – is to cram the working and middle classes into dense urban units resembling sardine cans and force even more suburbanites off the road.

Even so, large-scale house production over the past decade has lagged behind demand and, as a result, the tidy single-family home with a nice back garden so beloved by the British public may soon be attainable only by the highly affluent – and, ironically, that includes much of the gentry. What an odd posture for a party supposedly built around working-class aspirations.

"New Labour has brought in 'New Urbanism,' and the results are not pretty," suggests University of Westminster social historian Mark Clapson, as he showed me some particularly tiny, surprisingly expensive new houses outside of London.

This kind of approach has gained some proponents among the Obama crowd. Recent administration pronouncements endorse such things as "coercing" Americans from their cars, fighting suburban "sprawl" and even imposing restrictions on how much they can drive. It makes you wonder what future they have in mind for our recently bailed-out auto companies.

It's possible that America's middle-income voters will eventually be turned off by such policies, as is the case in Britain. President Obama's remarkable genius for political theater may insulate him now, but it won't for eternity. Over time, some of the Democrats' hard-won, suburban middle-class support could erode.

The key here may be the quality of the opposition. In Britain, the Conservatives may have found at least an adequate leader in David Cameron. People see him as a viable prime minister. Right now, the Republicans have no such figure, allowing themselves to be led by gargoyles like Rush Limbaugh and Newt Gingrich.

Yet the president cannot count on Republicans' continued ineptitude. There's only so much tolerance in the U.S. – both for cascading public debt and ever-expanding government regulation.

Of course, Obama still has time to get it right. But if he remains the prisoner of the gentry, he and his party could experience some of the pain now being inflicted upon their ideological counterparts across the pond.

This article originally appeared at Forbes.

Rewriting The Oil Stock Story

Mon, 08 Jun 2009 01:14:49 -0400

Could oil price manipulation have created the rerun of the Great Depression that we are currently enduring?

Think about it. The doubling of gas prices had a profound effect on disposable income and the affordability of housing, whose subsequent downturn set the stage for economic collapse.

We now know that Wall Street speculation drove oil from $69 a barrel to nearly $150. But this article purports to explain why.

Back in early 2004, the nation’s investment banks began making large investments in oil stocks, which became the so-called “story stocks” of the era. The story was obvious. Emerging nations like China and India were driving up demand for oil, and supplies weren’t keeping pace.

The investment banks had their analysts write papers espousing the profits to be made from oil, and they promoted the commodity itself as an asset class like real estate, stocks, and bonds, suggesting that it was suitable for long-term investment.

To prove their point, the investment banks began investing in oil in the futures market. But their reason had nothing to do with what they were telling investors. It had to do with the long positions they held in oil stocks, which were certain to appreciate with the rise in the value of oil as a commodity. Exxon-Mobil stock, for example, went from around 40 in the spring of 2004 to a high of 95 on December 24, 2007. Merry Christmas and a Happy New Year!

It was around this time that the Petroleum Marketers Association, which represents more than 8,000 retail and wholesale home heating oil companies and gas station owners, began getting hate mail. They were being blamed for gouging the public, even though their costs had more than doubled.

Early in 2008, I received a call from a former stock brokerage client of mine, who is the CEO of a concern with factories and production facilities in China. "Tim, I keep getting these investment letters from the banks telling me how China is slurping up all this oil. But it simply isn’t true. Sure, the country is growing quickly, but no faster than last year, and certainly not enough to double the price of oil in less than a year.”

Around the same time, Art Rosen, the former president of the National-Committee on U.S.- China Relations, also told me that China could not account for all the price spikes in oil. From what he could tell, there was plenty of product readily available at supply terminals throughout the Middle Kingdom.

Now we know how this happened. The investment banks went to regulators to obtain permission to increase their leverage from a factor of 12 to a factor of 40 times capital. Much of that leverage was being applied to the already heavily leveraged oil market, where $10,000 controls over $100,000 of product. In the new scenario, $10,000 in the hands of an investment bank controlled $4 million in product.

The levered effect on the price of oil was such that it began drawing huge amounts of money from stock and bond funds into the commodities markets, and specifically the market for oil. Institutional investors ranging from the Harvard Endowment to sovereign wealth funds got in on the oil action, which rose from $13 billion to over $300 billion in commodities transactions in just three years. At one point the markets were trading 27 barrels of crude oil for each barrel of oil that was actually being consumed in the United States, positions so large that they move the market in the cash commodity. In a single day in the price of oil jumped by more than $25, and yet there were no hurricanes or other supply disruptions that might have accounted for it.

A report out of the MIT Center for Energy and Environmental Policy Research clearly showed that the dynamics of supply and demand for the cash commodity could not have been responsible for such a run-up in oil prices, which reached its steepest levels during an interval when supply was going up and demand was falling.

By this time the price of gas was rising to five dollars a gallon. The owner of a $400,000 house who commuted by car suddenly discovered that that the price of gasoline had doubled and his commute was costing more than his mortgage payment. Something had to give and it was his mortgage. Suddenly, the $400,000 houses were worth $200,000, the mortgages were underwater, and the banks were drowning in red ink. The cascade in housing prices was soon mirrored in the price of oil. The money on Wall Street was now pulling out of the oil patch to drive down the bank shares and their mortgage-backed assets, setting the stage for the deepest economic contraction since the Great Depression.

There’s plenty of blame to go around. But once again (as in Frontrunning and Finance; New Geography.Com), most of it should be borne by the people on Wall Street, best described as a bunch of crumbs held together by dough.

Tim Koranda is a former stockbroker who now works as a professional speechwriter. He can be reached at koranda@alum.mit.edu.

The Gambler King of Clark Street, the Origin of Chicago's Political Machine

Sun, 07 Jun 2009 02:20:47 -0400

Long before Chicago sold off its assets, made plastic cows parade and outlawed goose guts, there was Michael Cassius McDonald, Big Mike. Where the Chicago Machine now grinds the citizen with Progressive idiocies, Mike McDonald and other Machine Mavericks like the Lords of the Levee appeared to actually help people. Vice and Government have gone hand-in-hand since Solon tried to reason with Croesus – Hesiod tells us that political corruption sparks political thought. The life of Michael Cassius McDonald was active and thought-provoking. Big Mike sleeps with counselors and kings a few hundred yards from my raised ranch along the tracks on Rockwell Street in the Morgan Park neighborhood of Chicago.

Big Mike’s massive mausoleum dominates the entrance to Mount Olivet Catholic Cemetery on 111th street, situated between the railroad tracks that once served the Chicago Stockyards and the ones that connected to the steel mills of Indiana. Chicago workingmen had their pockets looted by Big Mike during the 19th Century, particularly those who were given to vice gambling, booze and broads. More importantly Michael Cassius McDonald was the architect of the Chicago Democratic Machine.

Chicago journalist, lecturer, author and frequent guest contributor on the History Channel, Richard C. Lindberg has written a wonderful parallel to our current political situation. The Gambler King of Clark Street: Michael C. McDonald and the Rise of Chicago’s Democratic Machine – Southern Illinois University Press studies the life of this remarkable, energetic, romantic and larcenous Chicagoan.

The flabby accolades and acclimations directed at Jane Addams by the PC crowd are all too tiresomely trumpeted. Socialist Sapphist has her own expressway, but most of Addams’ storied good works are more flatulence than wholesome air. In reality, her arch-nemesis 19th Ward Alderman John Powers did more for starving Greek, Italian, and Jewish families (while taking more than few spondulix for himself) than crop-haired Addams, whom Powers appointed to public office only to have Addams scream for his indictment. It is amazing, that, once one takes the time to read contemporary accounts from the archives, that iconic Harpies like Jane Addams emerge in the flesh. Likewise, traditional villains seem to have the scales of their sins drop like cotton-wood puffs. While doing some research on 1904 Stockyard Strike, I learned that Addams and her crowd seemed to sell out the strikers. Historians can deal with that, I guess. In the mean time Richard Lindberg casts a cold eye on history.

Richard Lindberg studies Big Mike McDonald in the cold light of historical reality. This from the Amazon Product description:

“Twenty-five years before Al Capone’s birth, Michael McDonald was building the foundations of the modern Chicago Democratic machine. By marshaling control of and suborning a complex web of precinct workers, ward and county bosses, justices of the peace, police captains, contractors, suppliers, and spoils-men, the undisputed master of the gambling syndicates could elect mayoral candidates, finagle key appointments for political operatives willing to carry out his mandates, and coerce law enforcement and the judiciary. The resulting machine was dedicated to the supremacy of the city’s gambling, vice, and liquor rackets during the waning years of the Gilded Age.

McDonald was warmly welcomed into the White House by two sitting presidents who recognized him for what he was: the reigning “boss” of Chicago. In a colorful and often riotous life, McDonald seemed to control everything around him—everything that is, except events in his personal life. His first wife, the fiery Mary Noonan McDonald, ran off with a Catholic priest. The second, Dora Feldman, twenty-five years his junior, murdered her teenaged lover in a sensational 1907 scandal that broke Mike’s heart and drove him to an early grave.”

I had the pleasure of chatting with Mr. Lindberg about his book that traces Illinois political corruption to the Chicago King of Vice in the 19th Century. Richard Lindberg traces the lineage of the modern machine and “boss rule” back to the 1870s – Big Mike was the uncrowned “boss” of the Democratic Party, controlling patronage, the gambling action, the Cook County Board, the neighborhood saloon bosses he anointed to aldermen and a bewildering array of contractors and spoilsmen not unlike the same kind of folks who cut the inside deals today. Rich moves the story forward to the 1890s and early 1900s when Mike relinquished his rule to younger up-and-comers. As the 19th Century rolled over and we move forward into the Cermak-Kelly-Daley years, the names become more familiar to us. After Mike settled in for a bitter and unhappy retirement having to contend with an unfaithful wife who ultimately drove him into the grave, the “impresarios of Democratic graft, clout and patronage” take over – James “Hot Stove” Quinn and Robert Emmet “Bobby” Burke (indicted); Roger C. Sullivan (who tried to ramrod through the Council the Ogden Gas Monopoly in the 1890s); George “Boss” Brennan, who mentored “Pushcart” Tony Cermak; the Pat Nash-Jake Arvey-Ed Kelly triumvirate through Depression and War; continuing on through the Daley Dynasty, the final destruction of Chicago’s Republican Party and the modern day notions of political correctness foisted on us that disguise a mountain of political malfeasance in good ole’ Crook County.

There’s never been a book-length biography of McDonald written before – and Rich, the author of 14 books about his ‘ole home town, is contemplating making this Volume One of a three-volume history of Machine graft. The story is an eye-opener, but as Rich reminded me, the lakefront liberals who castigated John McCain and the GOP so savagely last Fall, turn a blind eye and say nothing about the 130 years of non-stop corruption in the City of Chicago – most of it perpetrated by the Lords of the Machine, of which Mike McDonald was its founding father. The shady history of the “Copperhead” Democrats of the Civil War, the 27 aldermen indicted since 1970 – none of that counts in this one-party, one-rule town championed by the Chicago Sun-Times (the Obama Times) when you get down to it, and that is the sad and sordid legacy of our past.

This article is courtesy of the Chicago Daily Observer.

Pat Hickey is an author, blogger, and regular columnist for the Chicago Daily Observer.

You can buy Rich Lindberg’s book The Gambler King of Clark Street: Michael C. McDonald and the Rise of Chicago's Democratic Machine here.

Painting the Town White: Technology and Greenhouse Gas Emissions

Wendell Cox — Sat, 06 Jun 2009 02:13:04 -0400

“Paint the world white to fight global warming” was the astonishing headline from The Times of London. The paper was referring to a presentation made by United States Secretary of Energy, Dr. Stephen Chu at the St. James Palace Nobel Laureate Symposium last week. Chu was reported as saying that that this approach could have a vast impact. By lightening paved surfaces and roofs to the color of cement, it would be possible to cut carbon emissions by as much as taking all the world’s cars off the roads for 11 years. That would be no small accomplishment.

Chu makes considerable sense and his underlying approach is wise: emphasizing inexpensive, simple and unobtrusive ways to reduce greenhouse gas (GHG) emissions. This is at the same time that Secretary of Transportation Ray LaHood has suggested “coercing” people out of cars and a bill by Senators Jay Rockefeller and Frank Lautenberg would require annual reductions in per capita driving. Strategies such as these are not inexpensive, they are not simple and they are not unobtrusive. Indeed, given the close association between personal mobility, employment and economic growth, such policies could have serious negative effects.

The biggest problem with coercive strategies is that they are simply unnecessary. As Secretary Chu has indicated, huge reductions can be achieved in GHG emissions, without interfering in people’s lives or threatening the economy. There’s more to this story than paint.

The Cascade of Technology

There is a virtual cascade of technological advances that have been spurred by the widely accepted public policy imperative to reduce GHG emissions. Here are just a few.

Vehicle Technology

Some of the most impressive advances are in vehicle technology. GHG emissions from cars are directly related to fuel consumption. Thus, as cars require less fuel, GHG emissions go down at the same rate.

By now, everyone is aware that the Administration has advanced the 2020 vehicle fuel efficiency (CAFE) standards to 2016, matching the California requirements. These requirements apply to the overall fleet, both cars and light trucks (which are predominantly sport-utility vehicles). Recently published research by Robert Puentes of the Brookings Institution finds that per capita automobile use had fallen off even before gasoline prices exploded, so it seems reasonable to suggest that future vehicle travel will rise at approximately the population growth rate, rather than the robust growth rates previously forecast. At the new 35.5 miles per gallon, the nation could be on a course to reduce GHG emissions from cars and light trucks by more than 20 percent by 2030, despite the increase in driving as population increases.

This is just the beginning. There are advances well beyond the 35.5 mile per gallon standard. The most efficient hybrid cars now achieve 50 miles per gallon. The European parliament has adopted a nearly 70 mile per gallon standard for 2020. The President has often spoke of his commitment for the nation to develop 150 mile per gallon cars, while Volkswagen has already developed a 235 mile per gallon car.

A French company plans to market a car powered by compressed air at city traffic speeds, producing almost no GHG emissions, while at higher speeds it uses gasoline to get more than 100 miles per gallon.

Fuel Technology

Progress is also being made on alternative fuels and on making present fuels cleaner.

Technologies are being developed to produce gasoline from carbon dioxide.

There are even substantial advances in air travel emissions. Air New Zealand has announced tests that show the feasibility of using biofuels based upon the jatropha plant. The airline reports that, gallon for gallon, the biofuel reduced GHG emissions 60 to 65 percent relative to jet fuel. Jatropha is a non-food crop, and therefore its use would have little or no impact on food prices.

Carbon Neutral Housing

We have previously reported on the development of a carbon neutral, single story 2,150 square foot suburban house in Japan. The resulting 100 percent reduction in GHG emissions means that there is no reason that such housing cannot continue to be available to those who prefer it.

Electricity Generation

One of the most intractable challenges will be producing sufficient supplies of electricity while considerably reducing GHG emissions. Obviously, one approach with great potential is nuclear power, which the environmentally conscious French have successfully used to produce approximately three-quarters of their demand.

Further, substantial advances are coming in solar power. For example a Massachusetts Institute of Technology team has developed a solar concentrator system that increases power production “by a factor of 40.” The process is now under commercial development.

Even Buck Rogers seems to be getting into the game. California’s Pacific Gas and Electric Company is partnering with a startup firm to produce solar energy in space and to beam it to earth by microwaves. This process could produce as much as 10 times the energy as ground based solar connectors.

Further, international efforts continue toward developing nuclear fusion power generation. This non-polluting technology, still largely theoretical, could revolutionize power production in decades to come.

The Color of Paint

Some of the technological advances above may not in fact make a substantial contribution to reducing GHG emissions in the longer run. However, these developments and others likely to come underscore the fact that technology, that is human ingenuity, can materially reduce GHG emissions, while permitting people and the economy to go about their business. Serious attempts to force behavior modification backwards to the past seem likely to fail.

So, there is no reason to retreat to an idealized yesterday to meet the thinly disguised social engineering goals of the few while leaving the many worse off. Secretary Chu has caught the spirit of the right approach. We should be painting the town white with innovation and should reject the coercion that has been embraced by those who naively (or perhaps even purposefully) would paint the future a more somber color. As in the past, human ingenuity appears up to the challenge, if we give it the chance.

The Real Mayor of Chicago

Fri, 05 Jun 2009 01:44:36 -0400

Most Americans living outside the Chicago area identify the city with Oprah, Obama, or Michael Jordan. When the subject of who really runs Chicago comes up, most people would say Mayor Daley. Chicago's lack of term limits and persistent political machine have kept Mayor Daley in office for over 20 years.

Those who know Chicago politics know there's one man who's more powerful than Mayor Daley, Alderman Ed Burke. Mayor Daley may be the identifiable public face of Chicago's political system and act as a lightning rod for criticism, but the lower profile Alderman Burke wields the real power.

Chicago's City Council recently celebrated Alderman Burke's record-breaking 40 years in office. No Chicago Alderman has served so long or accumulated so much power. No man represents Chicago's political system better and all that is wrong with it. Only in a city that is hostile to checks and balances could a politician achieve what Alderman Burke has done. Since joining City Council in 1969, Alderman Burke has amassed a portfolio of positions to be the Machine's top boss. Alderman Burke not only represents the 14th Ward but also serves as Chairman of the Finance Committee. The city of Chicago’s own website is quite honest about exactly who's in charge:

As Chairman of the City Council’s powerful Committee on Finance, Alderman Burke holds the city’s purse strings and is responsible for all legislative matters pertaining to the city’s finances, including municipal bonds, taxes and revenue matters. Alderman Burke became Chairman for the second time in 1989. He previously served from 1983 to 1987. He also serves as a member of the Chicago Plan Commission.

One of the Finance Committee's responsibilities is dealing with workers compensation claims. A few years ago, the Chicago Sun-Times explained Chicago's system: "When city workers get hurt on the job, they usually turn to a handful of lawyers tied to City Hall. And the city often fights back by hiring lawyers with ties to Ald. Edward M. Burke, chairman of the City Council Finance Committee, which has sole authority to settle workers compensation claims against the city."

But, Alderman Burke's control of Chicago's financial purse strings isn't his only lever of power. Cook County has the largest unified court system in America. In heavily Democratic Cook County, 100% of all of the judges are Democrats. The Chairman of the Democratic Party Judicial Slating Committee is none other than Alderman Burke.The Chicago Reader astutely observed Burke's "Seat on the Democratic Party judicial slate-making committee ensures that Cook County judges owe him their jobs." Alderman Burke's influence goes beyond the Cook County level: his wife Anne is a justice on the Illinois Supreme Court.

Along with all of Alderman Burke's power to control Chicago's tax code and Cook County's judicial system comes campaign contributions. Alderman Burke doesn't represent a wealthy ward, nor has he ever faced a serious political opponent, but he still has amassed an eye popping campaign fund. The Chicago Tribune explains:

But the state’s richest political family was Ald. Edward Burke (14th) and his wife, Illinois Supreme Court Justice Anne Burke. Together, their political committees held $8.3 million in cash. The Tribune reported Monday that Anne Burke’s campaign was returning a large portion of her cash to donors because she is running unopposed in the Democratic primary.

Mayor Richard M. Daley, who traditionally ceases fundraising after elections, raised just $43,000 in the last six months, but had $3.1 million in cash on hand.

In terms of cash at the very least, Burke is already more potent not only than Daley but has more in his coffers than Daley and all 49 Aldermen combined. But, the ever active Alderman Burke is also a businessman, not surprisingly a rather successful one.

The state of Illinois has rather lax ethics laws, and since being an Alderman is a "part time” job, Alderman Burke has outside employment. Burke runs a successful property tax appeals business. Burke's latest ethics form filed with the city of Chicago shows his impressive list of clients. Such big corporations as AT&T, American Airlines, Bank of America, Northern Trust, Harris Bank, T Mobile and many others have done at least $5000 in legal business with Alderman Burke's law firm in the last year. They also – I am sure readers will be shocked – do business with the city of Chicago. WBBM, the local CBS affiliate, even has Alderman Burke handle some of its legal business.

Occasionally, Alderman Burke's conflicts get reported on. When Obama ally and Blagojevich influence peddler Tony Rezko was looking to get his taxes cut on a big land deal the Chicago Sun-Times explained:

Why did Ald. Edward M. Burke vote to approve Tony Rezko’s plans to develop the South Loop’s biggest piece of vacant land even as he was working for Rezko on that same deal?

Burke says: I forgot to abstain.

When Rod Blagojevich first decided to run for Governor in 2001, he got important backing from Burke. Blago's father in law, by the way, is Alderman Dick Mell, a colleague of Alderman Burke's who got the ball rolling.The Daily Herald unearthed this revealing statement from Alderman Burke in 2001 concerning Blago:

"I am with Rod 100% because he has what it takes to win – money, message and an army of supporters,” said Burke, referring to a rousing announcement speech given by Blagojevich to a reported throng of 10,000 people on August 12. Burke also mentioned filings with election officials that show Blagojevich with over $3 million in his campaign fund, double the amount of cash on hand of all of his potential Democratic opponents combined.

In the coming years, as Chicago style politics seeps into America's mainstream, remember Alderman Burke. Thirty of Burke's colleagues on Chicago's City Council went on to become convicted felons since 1970. But Alderman Burke is still standing, and still dominating in the shadows, atop much of what happens in the Windy City.

Steve Bartin is a resident of Cook County and native who blogs regularly about urban affairs at http://nalert.blogspot.com. He works in Internet sales.

Salinas and Self-Governance

Pete Peterson — Thu, 04 Jun 2009 00:27:23 -0400

“Man is the only kind of varmint who sets his own trap, baits it, then steps in it.” — John Steinbeck

Though probably not intended as a political commentary, Steinbeck’s utterance perfectly describes the current California budget crisis. And, given the revenue and service delivery relationship between cities and the state, traps can be set and baited in Sacramento, leaving mayors, city councils and city managers to step in them.

This is what is happening today in Steinbeck’s hometown of Salinas (his childhood home is pictured), where the city faces a structural deficit of nearly $20 million, out of a $97 million general budget. Given the dramatic scope of the decisions it faces, the city government is taking a unique approach to finding solutions: gathering residents together in a series of facilitated discussions about the budget crisis. I attended one of these workshops in early April, where I watched around a hundred Salinas residents participate in a three-hour dialogue, and learned anew the challenges to self-governance, and its power.

The first hurdle attendees encountered was informational. From the size of the deficit, to utility users’ tax revenues, to what portion of the budget is spent on cops versus parks, it was evident that most attendees had little understanding about how their city government actually functions. This is not to cast aspersions on Salinas: lack of basic civic knowledge, especially of local government, is a national tragedy, contributing to uninformed discussions that easily turn partisan. Several participants came to the workshop with single-issue views about the police chief’s salary, or the amount spent on maintenance, but when faced with the full budget picture, and other residents with contrary opinions, they soon moderated their judgments.

Participants were forced to wrestle with the same difficult trade-offs as their elected representatives, and in so doing, learned that governing – even at the local level – is a complex process of moving interlocking levers. Using a program template developed by San Diego’s Viewpoint Learning, participants were presented with a set of three “visions” of Salinas, each with related service and revenue frameworks. A budget cut in a certain area has specific ramifications, as do tax and fee increases, but rarely do any of us participate in conversations where we have to confront such decisions. As Mayor of Salinas Dennis Donohue told me, “The gap between service expectations by the public and the public sector’s inability to deliver those services needs to be bridged.” This can only happen effectively when the public both understands and legitimately weighs its options.

Finally, as the dialogues reached the final hour, I began to sense a change in the attitude of those hundred or so Salinans gathered in a community college cafeteria. What began as a crash course in local government civics, and moved to the plate-balancing act that is a budget process, concluded with participants taking ownership of their city. A debate at one table about a sales tax increase moved into a discussion of, “What can we do to keep our young people from moving out of Salinas after High School?” When presented to the full group, this thought was echoed, with others extolling “What it is that’s great about Salinas,” wondering how this could be communicated, and what role they might play in improving their community.

Salinas is one of several cities around California, and around the country, employing this “participatory budgeting” process in response to painful fiscal decisions. Even cities as large as Philadelphia, with its “Tight Times, Tough Choices” project, involved over 4,000 residents in budget deliberations. Each has different elements depending on the size of the city and scope of the budget challenge, but those with the greatest impact do the following: accurately inform the public, engage them in a conversation that involves having to make legitimate trade-offs, and create a space in which residents can not only offer informed opinions, but actually participate in the building of their city.

It seems that budget deficits are yielding surpluses in local involvement.

Pete Peterson is Executive Director of Common Sense California, a multi-partisan non-profit organization that supports civic participation around California. He also lectures on civic engagement at Pepperdine’s School of Public Policy.

North America’s High Tech Economy: The Geography of Knowledge-Based Industries

Ross DeVol — Tue, 02 Jun 2009 07:34:48 -0400

Almost ten-years ago, the Milken Institute first released America’s High-Tech Economy which cataloged technology’s central role in propelling economic growth in high-wage jobs and value-added economic activity. Shortly thereafter, the dot-com and high-tech bubbles popped, leading many to conclude that the era of tech-driven economic development was over.

But the pessimists were wrong. A recovery in high-tech began in 2003 and served as an engine of regional growth through most of 2008. Communities with concentrations of knowledge-based industries – everything from information technology to biopharmaceuticals – have been able to create and retain high-paying jobs. And when economic growth returns, these industries will once again be at the forefront.

In the full study, we explain the patterns of growth in 19 high tech-categories. In each category, individual metro areas are ranked according to their performance as “tech poles.” The entire study and a complete explanation of our methodology can be found in the full report, downloadable from milkeninstitute.org.

This time around, we extended the study to include Canada and Mexico, whose economies have become ever more intertwined with that of the United States, including the high-tech sector.

Top-Performing U.S. and Canadian Metros

1. Silicon Valley (the San Jose–Sunnyvale–Santa Clara, California metro area) remains the preeminent high-tech cluster in North America (and the world), although it’s once seemingly enormous lead over other regions has diminished somewhat. Even so, it retains an unrivaled capacity to capture locally generated intellectual property and to convert it into economically viable businesses. Its firms regard R&D as part of their very DNA; they see innovation as their core business mission rather than as a necessity that can be given short shrift when times during recessionary time.

In recent years, Silicon Valley has had to restructure its operations. Businesses are now more cost-conscious, outsourcing lower value-added functions while retaining the highest-valued and most creative elements. Manufacturing – in particular, manufacturing of heavily commoditized products – have been relocated. Thousands of jobs were lost, considerably more than were recovered over the past ten years.

The Valley’s famed Sand Hill Road venture capitalists are now more inclined to go abroad to India, China and Israel to fund new enterprises and to seek partners for their portfolios of start-ups. Many foreign-born engineers, software developers and tech-savvy entrepreneurs have left the area to lead a wave of technology entrepreneurship back home. This process is better termed “brain circulation” than brain drain, as these innovators are inclined to retain strong ties to former colleagues in Silicon Valley.

Still, Silicon Valley still ranks as first or second in six industry categories; it places among the top ten in 12 categories. Overall, its high-tech employment concentration is four-and-a-half times the metro average for North America. The San Jose metro may not dominate the technology landscape as fully as it did ten years ago, but its position is still unique.

2. Seattle-Bellevue-Everett’s second-place position on the tech pole index should be no surprise. The metro area employed 226,300 high-tech workers in 2007, just 17,700 fewer than San Jose. Seattle owes most of its stellar ranking, of course, to software, mainly Microsoft and its spinoffs, as well as aerospace.

Microsoft alone employs more than 33,000 workers in the metro, giving it first place on the tech pole index in software publishing. Seattle’s doesn’t just lead in software, it dominates the software landscape with a tech-pole score of 100, five times that of Cambridge. More than 23 percent of wages in North America’s software industry are paid to workers in the metro.

In addition, although no longer the headquarters town for Boeing, much of the firm’s operations remain in Seattle along with a bevy of aerospace sub-contractors. Altogether, Seattle employed 76,100 in aerospace products and parts manufacturing in 2007. Only Wichita, Kansas, has a higher concentration in aerospace. Seattle also ranks among the top ten tech poles in telecommunications and other information services.

3. The Massachusetts metro combining Cambridge,Newton and Framingham, is third on the tech pole index. Home to world-class research universities including Harvard and MIT, and the global leader in commercializing and transferring university research to the private sector, the metro area has an ecosystem of technology entrepreneurship that rivals Silicon Valley’s. The research intensity in the area has enabled it to be among the elite in generating and growing biotech start-ups, as well as attracting the research divisions of large pharmaceutical and biotech firms.

Particularly notable has been the Cambridge metro which stands as the top-ranked tech pole in scientific R&D services, a category that captures much of its biotech research. Scientific R&D employed 26,000 locally in 2007; these activities are nearly eight times more concentrated in the Cambridge area than in North America overall Cambridge also ranks second on the software index, and it makes the top ten in a total of nine categories.

4. Washington-Arlington-Alexandria is fourth among tech poles. The capital area is the North American leader in high-tech services, placing in the top ten in six out of eight high-tech service categories. Overall, firms in the Washington metro employed 275,700 high-tech workers in 2007, double the average concentration in North America.

The presence of much of the federal government in DC generates the need for massive data-processing support and attracts defense and aerospace contractors. By no coincidence, the metro Washington leads in computer systems design and related services, where it has more than five times the average concentration found in North America. In this sector it dominates other tech poles, with twice the score of second-place San Jose. The National Institutes of Health (NIH) and its spin-offs in the biotech area aid the metro area’s performance.

5. Los Angeles–Long Beach–Glendale ranks fifth thanks to its still-vast aerospace footprint and the emergence of the technology-intensive segment of the motion picture industry. The area has a large university research base, with world-class institutions including Cal Tech, UCLA, and USC. They provide great depth in medical research, especially in the biotech area.

Los Angeles is the top tech pole in navigational, measuring, electromedical and control instruments manufacturing. This sector employed 36,200 local workers in 2007. Los Angeles is the headquarters of Northrop Grumman, and Boeing retains major operations in the area, making it fifth in aerospace products and parts manufacturing, with 38,000 jobs. Clearly, the inclusion of motion picture and video in our definition of high-tech industries boosts LA’s position in the rankings, but this decision makes sense in light of the field’s growing importance as a generator of value-added in high technology. Los Angeles has 32 percent of North American employment in motion pictures.

6. The Dallas-Plano-Irving, Texas, metro division is sixth on the tech pole index. Its strengths lie in information and communications technology hardware and data processing services. Overall, high tech employed 187,700 workers in 2007, for a concentration 50 percent above the North American average.

Dallas ranks second in telecom, and places third in communications equipment manufacturing. The metro is renowned for its Dallas-Richardson telecom corridor. And with Texas Instruments as its anchor, the metro places sixth on the semiconductor and other electronic component manufacturing tech pole index. The Dallas campus of the University of Texas has an outstanding engineering program that provides homegrown talent to local industry. Since 2003 Dallas has jumped a spot (to second place) in data processing, hosting and related services. A number of data processing centers are located here, with Electronic Data Systems as the anchor.

7. San Diego–Carlsbad–San Marcos is home to the world’s most geographically dense biotech cluster, with a strong position in telecom hardware and services and several other fields. San Diego employed 136,400 in high-tech sectors in 2007, 80 percent above the average North American concentration. The metro area placed in the top ten in a total of four high-tech sectors.

San Diego’s biotech network is anchored by the Scripps Research Institute, the Salk Institute for Biomedical Sciences, the Burnham Institute and the University of California at San Diego as well as dozens of mid-sized biotech firms and uncounted start-ups are located here, too. Qualcomm is the major player in the communication chips, while AT&T gives San Diego a presence in telecommunications.

8. San Diego’s neighbor to the north, Santa Ana–Anaheim-Irvine (Orange County) is eighth on the tech pole index, a jump of three places since 2003. High tech in the area is driven largely by medical equipment manufacturing, medical and diagnostic labs as well as measuring, electro-medical and control instruments manufacturing. But the presence of Broadcom makes it a key player in communication chips, too. Orange County ranks among the top ten in seven categories and exceeds the North American concentration in a remarkable 16 categories.

9. Part of the greater New York City area, the metro division of New York–White Plains–Wayne places ninth on the overall tech pole list. While the area is not particularly known for high-technology, it does employ 262,000 high-tech workers – tens of thousands more than Seattle. New York is second only to Los Angeles in motion pictures and video industries. It is also a key location for Internet portals, placing the area third in other information services.

10. San Francisco–San Mateo–Redwood City just made it the top ten in 2007, slipping from eighth in 2003. The dot-com bust hit San Francisco harder than any other tech-pole. However, the creativity of its entrepreneurs and high-skill level of its workforce give the metro the capacity to constantly reinvent itself. Biotech heavyweight Genentech was initially built around local university research. It ranks fifth among software publishers with major operations of Electronic Arts and Oracle. San Francisco is a major hub of data processing, hosting, and related services, where it ranks seventh. And it ranks just behind the DC metro in high-tech services.

11. The Philadelphia, Pennsylvania metro area was eleventh on the tech pole index in 2007, up two slots from 2003. The area hosts a number of pharmaceutical companies including Merck, Wyeth, and GlaxoSmithKline, as well as biotech firms including Cephalon. Philadelphia ranked seventh in scientific R&D services, up from 14th in 2003 thanks to biotech’s rising star. Philadelphia is strong in medical devices as well.

12. Atlanta–Sandy Springs–Marietta’s ranking is due largely from its first-place ranking in telecommunications. AT&T’s Mobility division is the biggest local player in telecom; overall the sector employs 37,900 workers in Atlanta.

13. Edison, New Jersey, placed third in pharmaceutical and medicine manufacturing, with 16,800 workers. Major players include Bristol-Myers Squibb and Johnson & Johnson. Edison is a top-ten performer in telecommunications as well.

14. The Chicago, Illinois portion of the Greater Chicago metro ranks among the top ten in telecom and computer systems design and related services. Altogether, some 200,000 local workers were employed in high-tech industries in 2007. The two biggest high-tech firms: Motorola and Abbott Labs.

15. Toronto is Canada’s highest-ranking tech center, coming in 15th in North America.. And with 157,400 high-tech sector jobs it ranks tenth in terms of absolute size. Private-public research collaborations involving the University of Toronto and McMaster University have propelled the metro’s emergence as an attractive place for biopharmaceutical firms. Major players include GlaxoSmithKline and Apotex. Toronto is Canada’s leading center of computer systems design and related services, a category in which it ranks eighth in North America. The metro area has nurtured a thriving film cluster as well.

16. Oakland-Fremont-Haywood isn’t in the top ten finish in any of the 19 categories, it exceeds the average high-tech job concentration in 16 of them. Major tech employers include Oracle and Sybase.

17. Minneapolis–St. Paul–Bloomington owes its position to medical devices giants Medtronics and Boston Scientific. Overall, Minneapolis has a higher than average concentration of high-tech jobs in nine categories.

18. Denver-Aurora ranking comes in large part to its fourth-place finish in telecom. Qwest Communications is the largest employer in the metro area.

19. Montréal is Canada’s second metro to make the top twenty, and it’s up eight spots since 2003. Montréal boasts more than 127,000 high-tech jobs, with aerospace as a primary driver. Bombardier is headquartered here, contributing nearly 21,000 aerospace-related jobs, but Pratt & Whitney also has a large presence. Montréal’s aerospace cluster is supported by its formidable research capacity, a mix of four major universities and 197 research centers.

20. Austin–Round Rock, arguably the quintessential 21st-century knowledge-based community, rounds out the top twenty. Among high-tech industries, its highest concentration is in computer and electronic product manufacturing. Dell is headquartered here. But it is also favored by major presences of IBM, Applied Materials, Advanced Micro Devices, Flextronics and Samsung Austin Semiconductor.

Mexican States
To create a set of North American rankings that included Mexico, we had to utilize data at the state level rather than the metro level. Mexican data was only available through 2003, so we include it in the North American rankings only for that year. Note that use of state-level data pushes up total employment and wages, but also reduces the overall concentration of jobs in each sector.

Baja California, the state that makes up the northern half of the Baja California Peninsula and include the cities of Tijuana, Mexicali and Ensenada, is the top-ranking Mexican state in the tech pole index. Placing 15th in North America (in 2003), it employed 104,000 in high-tech sectors.

Foreign firms have been attracted by the Maquiladora Decree of 1989 that granted them a variety of incentives to manufacture in border areas for the purposes of export. Most products from these factories are intended for export to the United States or Canada so they are located in zones close to the U.S. border . The region was the top tech pole in audio and video equipment manufacturing.

Baja’s concentration of employment in electronic components actually exceeds that of San Jose, although it is largely made up of lower-wage production line jobs. This may also be the case in medical equipment and supplies manufacturing, where Baja leads North America in with 22,200 jobs, 16 times the average concentration. Overall, Baja California has more than three times the average North American job concentration in high-tech industries.

The Distrito Federal or DF which encompasses Mexico City and its immediate surrounding area, was the second-ranking Mexican state, placing 20th overall in North America in 2003. The DF was the top tech pole for telecommunications in North America in 2003, thanks largely to the location of giant Telefónicas de México (Telmex). The concentration of telecommunications in the region is nearly three-and-one-half times greater than average in North America and telecom employment (82,100) was nearly double that of second-ranking Atlanta.

The DF ranked sixth in pharmaceutical and medicine manufacturing in North America, with 33,700 local workers – 13,000 more than the second-highest ranking North American metro.The ability to export Mexican film and television products to other parts of Latin America as well as a large home market has given the industry cluster around Mexico City a comparative advantage. Employment is actually the third largest of any of the locations on the list. Total high-tech employment in the DF is 17 percent more concentrated than the North American average.

Ross C. DeVol is Director of Regional Economics and the Center for Health Economics at the Milken Institute. He oversees the Institute's research efforts on the dynamics of comparative regional growth performance.

Is Your City Safe From The Tech Bust?

Joel Kotkin — Tue, 02 Jun 2009 00:11:58 -0400

A decade ago, the path to a successful future seemed sure. Secure a foothold in the emerging information economy, and your city or region was destined to boom.

That belief, as it turned out, was misguided.

In the decade between 1997 and 2007, the information sector--which includes jobs in fields from media, publishing and broadcasting to computer programming, data processing, telecommunications and Internet publishing--has barely created a single new net job, while some 16,000,000 were created in other fields.

The biggest losses have been in the telecommunications sub-field, which has shed 400,000 jobs nationwide since its peak in 2000. Not surprisingly the media and publishing industries have also lost ground, while employment in other arenas such as motion pictures, software and data-processing have remained stagnant for much of the decade.

Equally critical, it seems clear that simply being a high-tech magnet does not make a region a prodigious job creator. The San Jose metropolitan area, better known as the heart of Silicon Valley, boasted over 960,000 jobs in 1997. Last year, even after the ballyhooed Version 2.0 of the dot-com boom, that number had actually declined--to barely 900,000. According to figures from economic-strategy firm Praxis Strategy Group, other traditionally tech-heavy areas, including San Francisco and Boston, also did poorly in terms of growth through the balance of this decade.

Perhaps most disturbing, many areas are also losing their share of the information industry. For example, the information-sector job count, notes the Public Policy Institute of New York, has actually been stagnant or in decline in places like New Jersey, Connecticut, Illinois, Massachusetts, Minnesota and New York.

The same pattern also affects so-called "cool" cities that were supposed to be ideal for high-tech jobs, according to a recent study by my colleagues at Praxis. The biggest declines in information jobs since 2000 have occurred in San Francisco (which lost 31,800 jobs), Northern Virginia (35,200) and Washington, D.C. (40,700).

Silicon Valley dropped 5,400 positions since 2000, which amounts to 11.6% of all its information-sector jobs. The only bright spot for blue states is in Washington, where growth is driven by big employers Microsoft and Boeing. Los Angeles, buoyed by the relatively stable entertainment sector, has also managed to hold its own.

Faced with all these cities that are merely struggling not to lose any jobs, just where is the tech-sector growth? It's in less-celebrated areas of the country, like Idaho, New Mexico, North Carolina, Nevada--and in parts of Florida, South Dakota and South Carolina. By region, the fastest gainers turned out to be places like Orlando, Fla. (with 2,176 new information jobs since 2000), Madison, Wis. (2,400), Boise, Idaho (1,500), Wilmington, N.C. (1,267) and Charleston, S.C. (1,033).

What distinguish most of these places are factors beyond prominent employers. These could include such prosaic things as tax rates (particularly on incomes), the cost of housing and the overall climate toward business. Information-sector jobs, it turns out, follow the basic rules of economic development seen in other industries.

Of course, this is not to say tech jobs don't matter. As the Milken Institute's Ross DeVol argues in his new study of high-tech centers, technology jobs pay better than most, and their presence can boost other parts of local economies. And although they may not be multiplying fast, in some centers, like Silicon Valley, Boston and Southern California, whatever employment already exists has enough inertia to allow them to remain the largest tech centers in the country.

Yet the problem is that the information economy, by itself, simply doesn't reliably spur broader economic growth. That may be due to changes within the sector itself. From the 1980s to the mid-1990s, tech firms largely focused on creating productivity-enhancing products. Many of them also used on-shore manufacturing. Aerospace was a smaller industry, but it was still vital.

These catalysts helped create dynamic companies that both employed large numbers of people directly and used contractors (whose numbers increased). The Silicon Valley I reported on in the mid-1980s housed an essentially industrial economy with many good jobs for middle- and working-class people. It was both a hotbed for pioneering entrepreneurs and a society that offered and encouraged opportunity.

Today, however, tech has become increasingly software- and media-oriented. New companies tend to emerge from a small pool, and they are financed by a relative handful of local venture capitalists. Once launched, they may conduct some research and development at home, but marketing and customer service are either off-shored or moved to remote locations like the Great Plains or the "Intermountain West," between the Cascades and the Rockies.

As a result, even star companies like Google create a far smaller number of jobs than predecessor firms like Hewlett Packard, Intel or IBM. And even newer companies like venture darling San Francisco-based Twitter may go public, valued at $250 million or more, with only 45 employees.

This, of course, represents very good news for a select few: investors and a handful of highly educated software engineers. But the Bay region's broader economy and society isn't as lucky.

That's because most segments of the information sector that do create lots of jobs tend to take place elsewhere. For example, when Intel considers opening a new chip plant, which could open up 7,000 new positions, it won't build it in the Valley of its birth but rather in farther-flung locales like Oregon, Arizona and New Mexico. California has become too expensive; businesses there are heavily regulated and taxed for most industrial activity.

So maybe it's time to unlearn some of the assumptions we developed during the first tech boom. In the 1990s and early 2000s, many held that the information revolution would tame the business cycle, guarantee constant high returns and create widespread prosperity. Now we know better.

The model of Silicon Valley, as DeVol suggests, cannot be easily duplicated. Another well-promoted formula, linking great universities to up-and-coming hip cities for the so-called "creative class," has proved very limited when it comes to creating new jobs. And, anyway, trends in tech growth suggest that basic economic conditions like general affordability, taxes and the regulatory environment play an important role.

Just as troubling may be the class divisions on display in places like Silicon Valley. As manufacturing and middle management jobs have fled, its capital, San Jose, has become more of a backwater. As local blogger Adam Mayer has pointed out, San Jose increasingly serves as a dormitory for the bottom-feeders of the Silicon Valley food chain.

In contrast, tech power and influence is shifting to those areas that have always been well-to-do and are likely to stay that way--academically-oriented places like Cambridge, Palo Alto and San Francisco. They are becoming ever-more-exclusive reserves for the restless young and those with the greatest talent within the media and software industries. Meanwhile, the service class commutes in from the surrounding periphery to tidy up and run restaurants, while high housing costs and an overall lack of opportunities for other kinds of workers drive away much of the middle class, particularly families.

In geographic terms, the real losers in this brave new tech world may be the communities on the fringes of those high-end tech areas. Take Lowell, Mass. Lowell, a former mill town widely celebrated for its tech-led revival in the 1980s, has seen little job growth since the late 1990s. But why pick Lowell, when it's far cheaper and easier to expand in Boise or, even better, Bangalore, India?

The time has come to let go of vintage fantasies about tech that date from the 1990s. Key regions--and the country as a whole--need to understand that the information sector is best seen not as an end in itself but as an industry that derives its value from how it works with other parts of the economy, such as finance and business services, agriculture, energy, manufacturing, warehousing and engineering. (Manufacturing alone employs 25% of the U.S.'s scientists and 40% of its engineers--and their related technicians.) We have to nurture a broad industrial base so that innovations in this sector do not simply end up boosting off-shore industry.

Techies won't save us from the folly of deindustrialization; in essence, we can no longer believe that it's possible to Google our way to prosperity.

This article originally appeared at Forbes.

Joel Kotkin is executive editor of NewGeography.com and is a presidential fellow in urban futures at Chapman University. He is author of The City: A Global History and is finishing a book on the American future.

San Jose, California: Bustling Metropolis or Bedroom Community?

Adam Mayer — Mon, 01 Jun 2009 01:57:00 -0400

Dionne Warwick posed the question more than 40 years ago, yet most Americans still don’t know ‘The way to San Jose’. Possessing neither the international cachet of San Francisco nor the notoriety of Oakland, San Jose continues to fly under the national radar in comparison to its Bay Area compatriots. Even with its self-proclaimed status as the ‘Heart of Silicon Valley’, many would be hard pressed to locate San Jose on a map of California.

More well-known American cities may try to gain population by branding themselves as interesting places, but San Jose does not struggle to attract newcomers. Sprawling over 178 square miles, San Jose sits at the southern end of the San Francisco Bay. This year the city exceeded the 1 million population mark for the first time.

So what makes this city, the 10th-largest in the United States, appealing? Unlike its precious neighbor 50 miles to the north, San Francisco, people move to San Jose primarily for jobs – especially those related to the coveted technology sector. Whereas San Francisco balances its role as playground for the independently wealthy and welfare state for the lumpenproletariat, San Jose remains favored among families and those looking for a safe environment in which to raise children – not to mention, the weather is better.

San Jose does not stimulate a sense of urban exaltation. Aside from a commercial downtown core with a collection of mediocre high-rises (limited in height due to do downtown’s adjacency to the San Jose Airport), the city is unapologetically suburban in a character.

San Jose’s pattern of development can be traced back to its origins as an agricultural community supporting early Spanish settlers who chose to settle in the fertile Santa Clara Valley. It remained a modest-size agrarian community until the end of World War II when it underwent a period of rapid expansion-not unlike that of Los Angeles to the south. During the 1950s, with the emergence of semiconductor technology derived from silicon, San Jose and the greater Santa Clara Valley exploded into a center for the evolution of computer technology.

Today, San Jose can best be understood by its ambivalent relationship with neighboring Silicon Valley cities. Mid-size suburbs such as Cupertino, Sunnyvale, Mountain View and Palo Alto, all located west/northwest of San Jose as one travels up the peninsula towards San Francisco, are very distinct and separate entities. Home to some of Silicon Valley’s heaviest hitters (Cupertino has Apple, Sunnyvale has Yahoo!, Mountain View has Google, Palo Alto has Hewlett-Packard, Facebook and Stanford University), these cities largely define the technology-focused region. To be sure, San Jose’s has its share of big players, including eBay and Adobe as well as the ‘Innovation Triangle’, an industrial area of north San Jose, home to the headquarters of large companies like Cisco Systems and Cypress Semiconductor.

Yet, despite the presence of these firms, San Jose has become ever more a residential community, with among the worst jobs to housing balances in the region. Furthermore, a whopping 59% of the city’s developed land constitutes residential use – 78% of that being single-family detached housing. In this sense, despite being the largest city, San Jose essentially serves as a ‘bedroom community’ for the rest of Silicon Valley.

This has been a burden for the city, which, unlike its neighbors, lacks enough large information technology companies to help fill their tax coffers. In contrast job rich ‘green’ cities like Palo Alto have remained staunchly ‘anti-growth’ regarding residential development and consequently have very high housing prices.

This pattern poses fiscal problems for San Jose. City officials have long been aware of the need to stimulate economic development instead of continuing to lose out to its neighbors but the city seems determined to increase further its role as dormitory for its neighbors. Indeed, amazingly the city’s development agenda has in recent years shifted to a relentless focus on high-density, multi-family residential in the downtown core and along transit corridors. In 2007, 79% of all new housing built in San Jose was multi-family – a staggering deviation from its history of low density development.

Though well-intentioned, the slant towards densification has yielded a glut of empty condo units throughout the city. Those that have purchased units in new developments often find themselves with underwater mortgages. During a recent visit to one the flashy new downtown condo buildings, The 88, I entered a desolate sales office and was greeted by a skittish sales agent. When asked how sales were, my question was deferred without a direct answer in an act of not-so-quiet desperation.

Although it’s clear most people in San Jose prefer lower density living, the city government continues hedging tax dollars against a future in which newcomers will want to live in a high-density setting. Outside of downtown, low to mid-rise multi-family housing has been built along the city’s light-rail lines in what are conceived to be ‘transit villages’. The popularity for such a lifestyle is questionable given the high price point and unreasonable HOA dues of these condo units, particularly when single-family detached houses can be purchased at comparable prices.

Despite these issues, San Jose seems hell-bent on its path towards densification. The city has major plans to develop the area around its Diridon Train Station, just west of downtown, as California High-Speed Rail and BART are projected to make their way to San Jose. Furthermore, the city government is counting on the Oakland A’s baseball team making a move to San Jose.

From the Champs-Élysées to Tiananmen Square, grand urban visions are what have defined cities historically. As a product of the Silicon Valley ethos as well as an observer of planning trends, I would argue that this is no longer valid – especially for any city with the hopes of a prosperous future. Rather, in democratic societies, it will be the idiosyncrasies of individual actors and the prospect of upward mobility that will define a sense of place.

Obsessed with density and urban form, planners don’t seem to grasp the chicken and egg conundrum – the notion that lifestyle amenities follow on the heels of economic opportunity. San Jose needs to cast its future on nurturing its entrepreneurs instead of trying to become something it is not yet ready to become.

Adam Nathaniel Mayer is a native of the San Francisco Bay Area. Raised in the town of Los Gatos, on the edge of Silicon Valley, Adam developed a keen interest in the importance of place within the framework of a highly globalized economy. He currently lives in San Francisco where he works in the architecture profession.

Stimulus Alert Stretches From the Center of L.A. to Suburban Atlanta

Jerry Sullivan — Sat, 30 May 2009 23:49:38 -0400

The hundreds of millions of dollars in federal stimulus money are working their way through various systems, en route to a city near you.

Give President Barack Obama credit for acting boldly to pump the funds into the economy – or take him to task for printing up money on the cuff.

Either way, the time has come to shift your focus from Washington, D.C., and onto State Houses and City Halls throughout our land.

You’ll need to keep an eye on your local government officials because our civic culture has grown corrupt, and it’s a cancer that’s widespread. Politicians still don’t quite understand that this is now an open secret – although they’ve at least begun to stir in the wake of the recent and resounding “no” that California voters gave to the latest request for a bailout of a sick system of government.

Meanwhile, the stimulus money is beginning to flow as pundits slice and dice the results from the Golden State, and the federal funds offer the potential to allow local governments to ignore the clear message from voters who are fed up with corruption and waste. Consider that most local governments across the nation have enjoyed a long run of a strong economy with only a few, brief interruptions over the past 25 years. They’re out of shape, all balled up with bad habits. The stimulus money could serve to finance another year or two of bad behavior if the people don’t watch local government like hawks. And another year or two of bad habits will be too much for all of us.

Any doubts that these bad habits exist can be dispelled by taking a look at a recent deal that had city officials in Los Angeles ready to spend $5.6 million for a small parcel of land to be turned into a park on the 400 block of S. Spring Street. They eventually cut the offer to $5.1 million – a savings of $500,000 that came only after ongoing coverage by the Los Angeles Garment & Citizen – a weekly community newspaper that covers the Downtown area of the city and surrounding districts – shed light on a number of questionable factors in the deal.

Those questionable factors indicate that it’s time for everyone who is not a city official – the people, in other words – to take a second look at the situation. The recent coverage amounted to more than stories about a park, or even the price of the land. The stories pointed to systemic corruption in the process that city officials use in spending large sums of the public’s money.

There are no individuals to single out here – not at this point, anyway. No one got caught with a hand in the cookie jar. That’s the main problem – the corruption of our civic culture is pervasive to the point that it’s tough to catch anyone with their hand in the cookie jar. We don’t even keep our cookies in a jar in Los Angeles anymore – they’re left out around City Hall for the taking by politicians and special interests.

New rules and ethical standards are needed in Los Angeles – and it’s a safe bet that the same is in order for cities across the country. A good place to start would be a new rule to ensure that taxpayers never again see city officials offer to pay millions of dollars based on an appraisal commissioned on behalf of the seller of a piece of land—the very process originally used in the park deal in Los Angeles. There should be some standard that requires city officials to conduct their own appraisals on major purchases. Many cities have such expertise among their employees. If not, it is surely worth a few thousand dollars to hire an appraiser to work for the city’s interests on deals where a 0.1% savings would cover such extra costs, as was the case on the park land.

The Garment & Citizen’s recent reporting also shed light on the fact that bureaucrats in City Hall currently have great leeway in such matters. Sometimes they order their own appraisal on land purchases—and sometimes they don’t. The decision seems to be left entirely to the discretion of unelected bureaucrats.

The problem here is basic because the current set-up begs for abuse. Bureaucrats are human beings, after all, and subject to all of the problems and temptations that life brings. It’s also well known that the career bureaucrats in Los Angeles are subject to political pressure from any number of sources. That includes the 15 members of the Los Angeles City Council, who operate their districts much like personal fiefdoms. The City Council members tend to stay out of one another’s business in a pretense of some sort of legislative courtesy. What they’re really doing is withholding their best efforts at internal oversight, a failure that has helped send the people on a sorrowful journey from engaged participants in our democracy to cynics who don’t even bother to vote.

The lack of standards on appraisals is only one of the problems that cropped up on the recent park deal. There are many more specific to real estate dealings – and you can just imagine how many additional pitfalls can be found in the way the city purchases motor vehicles, or paper products, or telecommunications services. And so on, and so on.
It’s enough to make you wonder how many city deals could be trimmed by a half-million here or a couple of million there?

We’re guessing plenty – and that tightening up on these sweetheart deals would go a long way toward solving the current budget crunch while maintaining many of the jobs and services that might be cut to close a looming $500 million deficit in the city’s budget in Los Angeles.

You can bet there are plenty of similar savings to be had in State Houses and City Halls across the nation, too. Indicators abound in Gwinnett County, Georgia, just outside of Atlanta. Taxpayers in Gwinnett who want to avoid getting fleeced will apparently have to go a step further than a clear standard on appraisals for land deals. That seems to be the only lesson to take from a recent report in the Atlanta Journal-Constitution, which found that elected officials in Gwinnett County commissioned their own appraisal on a piece of land and still voted to pay twice the price.

Some of the county commissioners in Gwinnett said that they approved the higher price because land appraisals are “all over the board” these days.

Commissioner Mike Beaudreau opposed the deal, saying that the wide range of appraisals indicated that the matter should be given more study. He stood alone in his opposition, and the people of Gwinnett County are now set up to pay twice the appraised value for the land.

So here’s the key question to consider: Will stimulus money paper over such deals in State Houses, County Commissions, and City Halls throughout our land?

Only the people can say for certain.

Jerry Sullivan is the Editor & Publisher of the Los Angeles Garment & Citizen, a weekly community newspaper that covers Downtown Los Angeles and surrounding districts (www.garmentandcitizen.com)

Project Development: Regulation and Roulette

Rick Harrison — Sat, 30 May 2009 01:02:24 -0400

The site plan logically should be the key to approval of a development project. Yet in reality, the plan is secondary to the presentation. My conclusions are based upon experience with well over a thousand developments over four decades, most in the mainland USA. And what I’ve observed is that the best site plan is only as good as the presentation that will convince the council or planning commission to vote “Yes” on it. No “yes” vote, no deal, no development.

Each presenter deals with the dog-and-pony show in his own way. There’s an endless variety of styles (or lack of styles). All of these public meetings have one thing in common: The neighbors (if there are any) will be there to oppose the new development.

Not Too Long Ago…
In the old days there were three factions: The developer presenting the plan, the neighbors opposing the plan, and the council listening to both sides. If the development was high profile, someone from the local press might also show up. The planning commission and council are fully aware that all plans will be met with neighborhood opposition, and they will have to listen to lengthy complaints along the route to approving (possibly) the plan.

In the past, the citizens sitting on these boards would most likely dismiss Elwood and Betsy Smith’s complaint about how a development in their back yard would invade their privacy, and would vote in favor of the new master planned community instead.

How It’s Different Today
Today there is often an additional audience. Televised meetings provide an entire region of neighbors. The on-screen council listens to the neighbor’s objections, no matter how absurd they may be, then answers directly to the camera, showing the general community watching at home that they really care about every citizen’s opinion. The council member must never appear too much in favor of the developer, as that could be misconstrued as not caring about the citizens he or she represents. A televised Council member hears the Smith's complaint with a very concerned on-camera look, explains how maybe we have too many new homes in this town, and proceeds to tell viewers that the developer might want to consider a buffer and a drop in density. Concerns have changed from developing economically sensible neighborhoods to “please elect me Mayor when I’m on the ballot”.

Planning Outside The USA
Our first large site plan done outside the States was in Freeport, Bahamas. In 2000, when we were first contacted to design Heritage Village, we asked about doing presentations to the city council and planning commission to help move the approval process along. We were told that the development company and the regulating entity were the same, and if they liked the plan it would be built! That is exactly what had happened.

Our next attempt outside the USA was not so easy. In Mexico City when we asked to sit down with government officials to change policy to create better neighborhoods, the developer said... No. At the time, we did not understand why it was so critical that we were not to suggest changes.

We Discover A Superior Foreign System
We wrongly assumed that all planning outside the USA could have similar problems, with restrictions that were absurdly prohibitive for designing great neighborhoods. It was only when we worked in Bogota, Columbia last year that we had the opportunity to work within a system that may not be so backwards after all. Our request to meet with the authorities to show them new ways to design neighborhoods was met, as it had been in Mexico City, with an absolute... No.

We then asked for an opportunity to present the plan, and were told that was not necessary. Being that it was Columbia you can imagine our first thoughts. Cartels? Maybe corruption? The reality was much simpler. Since our plans met the minimums (they actually exceeded them), they were automatically considered approved. Imagine that – no neighbors to complain! If everything conforms, it should be approved … right? Just plain common sense.

Zoning-Compliant Projects Should Be Exempt From Public Meetings
When you think about it, why wouldn’t this work in the USA? if the development plan being submitted meets or exceeds the zoning and the subdivision regulation minimums, why does it need to go through any public approvals at all? The American developer often faces months or years of delays, enormous interest payments, and tens or perhaps hundreds of thousands of dollars spent on consultants and legal help to re-create plans that conform. Those massive sums could go towards making better neighborhoods, better architecture, better landscaping, less environmental impacts, and more affordable housing.

We’d Still Need Public Meetings
The public would still have plenty of input on regulation and zoning exemptions, where public citizen input is valuable. If a developer is proposing something that goes below minimums or does not conform to zoning regulations, then it is reasonable to go through the more time consuming process that we currently have. This brings up the question of how the developer would introduce something different to the written law. This could be a problem under typical PUD (Planned Unit Development) regulations, which typically allow blanket changes to the minimums when alternative designs are not covered by typical zoning.

This PUD Pandora’s box, once opened, can have devastating results if the regulators and the neighbors both agree that the plan is simply not good enough. The developer thinks the plan is just dandy as is, but in reality most PUD proposals are simply too vague to be functional. A battle of wills that can last years often ensues.
In the end , these expensive delays increase lot costs, and the home buyer ultimately pays. If a special ordinance such as PUD, Cluster Conservation, or Coving was specifically spelled out in a rewards-based — instead of a minimums-based — system, developers could get benefits for great plans complete with open space and connectivity, typically density and setback relaxations.

While writing Prefurbia, we began to ask ourselves, how did we take something so simple and let it get so out of control? The third world countries are progressive enough to actually allow developers who comply with the rules to quickly build their neighborhood. Maybe they are not so far behind us after all.

Perhaps our regulations and planning approach is intended to keep the system “busy” with billable hours. Imagine if we could get a conforming plan stamped, and the next day construction could begin. How many billable hours would be eliminated, how much construction cost and land holding interest saved? That would be very hard to calculate, but it’s likely significant.

“It is difficult to get a man to understand something when his salary depends upon his not understanding it…" Al Gore, An Inconvenient Truth

The inconvenient truth won’t win us many friends in the consulting industry whose incomes depend upon generating billing time in meetings. But can we afford to continue down the path we are presently on? We need to take a hard look at the regulations. Are they written solely to provide the highest living standards? Or do they generate the highest billable hours for the consultants who propose them?

Rick Harrison is President of Rick Harrison Site Design Studio and author of Prefurbia: Reinventing The Suburbs From Disdainable To Sustainable. His websites are rhsdplanning and prefurbia.com.

The Changing Landscape of America: The Fate of Detroit

Fri, 29 May 2009 01:17:55 -0400

INTRODUCTION

During the first ten days of October 2008, the Dow Jones dropped 2399.47 points, losing 22.11% of its value and trillions of investor equity. The Federal Government pushed a $700 billion bail-out through Congress to rescue the beleaguered financial institutions. The collapse of the financial system in the fall of 2008 was likened to an earthquake. In reality, what happened was more like a shift of tectonic plates.

In 1912 a German scientist, Alfred Wegener, proposed that the continents were once joined together as one giant land mass called Pangea.

About 200 million years ago the continents began to drift apart as the globe separated into eight distinct tectonic plates. History will record that the financial tectonic plates of our world began to drift apart in the fall of 2008. They have not stopped moving and the outcome of where they will end up remains uncertain.

PART ONE – THE AUTOMOBILE INDUSTRY

Edsel, Packer, Studebaker, Hudson, Nash, AMC – the demise of these brands may have seemed tragic at the time, but were actually a sign of industrial health. In contrast, for the last fifty years the American automobile industry has been static. Despite the proliferation of Japanese, Korean and German imports, General Motors, Ford and Chrysler managed to hold on to a majority of the domestic market, with a dizzying stable of makes and models that grew to near 17 million new car sales in 2007. That epoch is now over. The tectonic plates have shifted under the automotive business and a year from now, the industry will bear little resemblance to the static structure of the last fifty years.

Fifty years ago General Motors owned more than 50% of the American market and automobile jobs made up one seventh of the US workforce. It was said that when GM sneezed the US economy caught a cold. GM shares now sell for less than a cup of coffee at Starbucks. Now GM is about to enter bankruptcy.

The brands are dissolving, Oldsmobile was the first casualty. Pontiac and Hummer have been discontinued. When they reorganize, eleven hundred dealers will be terminated. General Motors will close all its plants for three months this summer. Many will never reopen. The New GM, to be known as Government Motors, will be owned by the UAW (20%) and the Federal Government (70%). Twenty billion of tax-payer loans will be converted to ownership to make the UAW pensions liquid. The debt holders will see their senior $27 billion investment converted into just 10% of stock. The shareholders will be wiped out.

The New GM will become the platform for small fuel efficient cars, hybrids, electric vehicles and experimental technologies mandated by an ever demanding government. Its shareholders vanquished, The New GM will bear no resemblance to the car company that we have known for the last 50 years. Can the Chevy Volt rescue GM? The answer is no.

GM will continue to shrink as their SAAB and Saturn franchises are sold off to the Chinese. China’s automobile sales are up 10% this year versus declines of 23% in the US and 15% in Europe. Chinese automobile manufacturers are grabbing market share, 30% this year versus 26% in 2008, while their competitors are distracted. Chinese companies unknown to Americans like Geely Motors, Chery Automobiles or BYD Co. will buy SAAB or Saturn for their dealer network. Warren Buffett invested $230 million into BYD, a firm that has been manufacturing cars for just six years. They already provide batteries to Ford and GM and soon will be building the world’s least expensive mass produced hybrid and electric vehicles. Geely plans to triple its domestic sales to 700,000 by 2015 and Chery plans to introduce 36 new models over the next two years.

Chrysler is in far worse shape and will likely never recover. The Federal Government already forced it into bankruptcy. Seven hundred and eighty nine dealers have been told that their franchises are terminated. Its shotgun marriage to Fiat will look more like a surgical amputation of unnecessary body parts than a marriage. If Fiat remains in the game, they will do so for the Jeep brand and a portion of the dealer network. Like Oldsmobile and Pontiac, Plymouth and Dodge brands are doomed as well as most of the Chrysler line. No one will mourn the demise of the Crossfire, Pacifica, Sebring, or the PT Cruiser. Fiat should keep the new Chrysler 300, a beautiful design that deserves to be built. Chrysler has not produced many stars in the last few decades. The trail blazing design of the 300 brought the full size sedan back from the dead.

Chrysler will jettison the weakest of its dealers in bankruptcy. Fiat will retain the big dealers in the network. They will bring the stunning and iconic Fiat 500 to America, a fuel efficient small car that will enjoy the same success as Volkswagen’s retro Beetle. Fiat will also use the dealer network to bring the Alfa-Romeo back to America. The Fiat-Jeep-Alfa dealer of the future will bear no resemblance to the staid Chrysler-Dodge-Plymouth dealer of today.

The surprising winner among the American troika of manufacturers is the Ford Motor Company. Ford and Lincoln will survive because they took no government bail-out money. Mercury may not survive but Ford and Lincoln should make it through the transition. The new Ford-Lincoln will be the refuge for auto enthusiasts who want attractive fast and powerful cars. Ford will become the Apple of the auto business, doing its own thing and flaunting political correctness and conventional wisdom. Ford’s namesake CEO has been an environmentalist for many years so Ford was well into fuel economy and hybrids before the tectonic plates began to move last fall. At just $5.00 per share, Ford is a tantalizing buy for the long term.

One can no longer call Mercedes, BMW, Toyota and Honda imports as many of their cars are made entirely in the U.S. The Japanese system is different than the American counterpart although we are drifting toward their model. The Japanese government plays a heavy hand in their industry, subsidizing the encroachment into new markets until the brands have stabilized market share. But they are not immune. Toyota lost $7.7 billion in the last quarter – even more than GM.

True imports like Volkswagen will weather the storm because they were well positioned with small fuel efficient cars long before the tectonic plates began to shift. VW is making a huge bet that oil will top $100/barrel again soon and their fuel efficient and clean diesels will be accepted by American drivers.

The biggest winner is obviously the UAW and their pensions which have been bailed out with tax payer money by an administration beholden to its labor supporters. Who will be the biggest loser? Clearly, it will be America’s small towns. Our small towns will lose their local dealer and their choice in automobiles. They will be forced to buy the brand that remains in town or drive scores of miles to the next closest dealer for service. Most small town auto dealers were also the most generous members of the community. Charitable giving and support will wither as will local sales tax revenues when the big ticket automobile sales tax revenues disappear. Ironically, as the plates continue to shift, America’s small towns could be decimated by the changes in the automobile industry as they were one hundred years ago when the automobile shifted millions from rural communities to the cities.

A year from now the landscape of America will be forever changed but the plates will continue to shift. Five years from now, will American ingenuity bring about a renaissance of the American automobile industry? Or, will what is left of this industry be gobbled up by the Chinese and the Korean manufacturers as the Japanese did in the 70s and 80s? The key issue may be what role the government will play. Will Americans buy cars designed by government bureaucrats and built by the unions that own the factories? Will an administration devoted to “coercing” Americans out of their cars be able to simultaneously save the auto industry?

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This is the first in a series on the Changing Landscape of America. Future articles will discuss real estate, politics, healthcare and other aspects of our economy and our society. Robert J. Cristiano PhD is a successful real estate developer and the Real Estate Professional in Residence at Chapman University in Orange, CA.

Portland: A Model for National Policy?

Wendell Cox — Thu, 28 May 2009 01:18:54 -0400

United States Secretary of Transportation Ray LaHood and Washington Post columnist George Will have been locked in debate over transit. Will called LaHood the “Secretary of Behavior Modification” for his policies intended to reduce car use, citing Portland’s strong transit and land use planning measures as a model for the nation. In turn, the Secretary defended the policies in a National Press Club speech and “upped the ante” by suggesting the policies are “a way to coerce people out of their cars.”

These are just the latest in a series of media accounts about Portland, usually claiming success for its policies that have favored transit over highway projects as well as its “progressive” land use policies. Portland has also become the poster child for those who advocate planning restrictions and subsidies favoring higher density development in parts of the urban core.

Indeed if Secretary LaHood has his way, Portland could become The Model for federal transportation policy. So perhaps it is appropriate to review what it has accomplished.

Portland’s Mediocre Results

Portland’s record of transit emphasis began more than 30 years ago, when the area “traded in” federal money that was available to build an east side freeway to build its first light rail line. The east side light rail opened in 1986. Since that time, Portland has significantly increased its transit service, especially opening three more light rail lines (West Side, North Side and Airport) as well as a downtown “streetcar.”

Portland’s Static Transit Market Share: With these new lines and expanded service, Portland has experienced a substantial increase in transit ridership. Passenger miles have increased more than 130 percent since 1985, the last year before the first light rail line was opened. This is an impressive figure.

However, over the same period, automobile use increased just as impressively. In 1985, approximately 2.1 percent of motorized travel in the Portland urban area was on transit and it remained 2.1 percent in 2007, the latest year for which data is available.

Portland’s Declining Transit Work Trip Market Share: One of transit’s two most important contributions to a community is providing an alternative to the automobile for the work trip (the other important contribution is mobility for low income citizens). Work trip rider attraction is important because much of this travel is during peak periods, when roadways are operating at or above full capacity. In 1980, the last year for which data is available before the first light rail line opened, United States Bureau of the Census data indicates that transit’s work trip market share was 9.5 percent in the Portland area counties of Clackamas, Multnomah and Washington covered by Portland’s strong land use policies. Yet despite this, and the transit improvements, the work trip market share has not grown. By 1990, transit’s market share had dropped a third, to 6.3 percent. It rose to 7.6 percent in 2000 and by 2007 had fallen back to 6.8, despite opening two new light rail lines since 2000 (Figure 1). Remarkably, transit’s 2007 work market share was 28 percent behind its 1980 share and had fallen 10 percent since 2000.

Figure 1:

Yes, Portland did increase its transit use, but failed to increase the share of travel on transit and the proportion of people riding transit to work declined.

Driving the Portland Evangelism: GHG Emissions

Secretary LaHood’s affection for Portland appears to principally be that its policies can materially assist in the objective of reducing greenhouse gas (GHG) emissions. The data is available to test that claim.

We examined GHG emissions per capita by transit in Portland and the urban personal vehicle fleet, including cars and personal trucks (principally sport utility vehicles). Overall, including upstream emissions (such as refining and power production), transit in Portland is about 50 percent more GHG friendly per passenger mile than the 2007 vehicle fleet. If all of the increase in transit passenger miles from 1985 to 2007 replaced automobile passenger miles, then reduction of approximately 50,000 GHG tons can be said to have occurred as a result in 2007 (though as is indicated below, things are not that simple).

That sounds like a large number, until you consider that Portland traffic produces more than 8,000,000 GHG tons per year. Transit’s expansion has reduced GHG emissions by approximately 0.6 percent annually over 22 years. This pales in comparison to the 83 percent national reduction over a 45 year period that would be required by the Waxman-Markey bill being considered by Congress.

The Cost of GHG Emission Reduction

Moreover, GHG emission reduction requires a context. Not all GHG emission reduction strategies make sense. Given the widely held principle that GHG emission removal must not hobble the economy, it is crucial that costs (per ton of GHG removed) be a principal criteria. If excessively costly strategies are employed, the result will be wasted financial resources, which will translate into diminished economic growth and higher levels of poverty. According to the United Nations Intergovernmental Panel on Climate Change (IPCC), between $20 and $50 per ton is the maximum amount necessary to accomplish deep reversal of CO2 concentrations between 2030 and 2050. It is fair to characterize any amount above $50 per ton as wasteful and likely to impose unnecessary economic disruption.

Even that cost may be high. The current “market rate” is about $14 per ton, which appears to approximate the amount that figures such as former vice-president Al Gore, Speaker of the House Nancy Pelosi and California Governor Arnold Schwarzenegger pay to offset their GHG emissions from flying.

Portland Costs of GHG Emission Reduction

This $14 to $50 range provides the context for comparing the cost of GHG emission reduction through transit expansion in Portland. Annual transit costs in Portland more than tripled from 1985 to 2007 (including inflation adjusted operating costs and the annual capital costs of the light rail lines), an annual increase of more than $325 million. This figure is reduced to capture the consumer cost savings from reduced automobile gasoline and maintenance costs. The final result is a cost of approximately $5,500 per ton of GHG removed.

This is 110 times the IPCC $50 maximum and nearly 400 times the Gore-Pelosi-Schwarzenegger standard. If the United States were to spend as much to remove each ton of the likely 83 percent national reduction target, the cost would be $30 trillion annually, more than double the gross domestic product. To call the Portland GHG cost reduction figure extravagant would be an understatement.

Traffic Congestion Increases GHG Emissions

There is not a one-to-one relationship between reduced driving levels and reduced GHG emissions. As traffic congestion increases, urban travel speeds decline and “stop-and-start” traffic increases, fuel consumption is reduced (miles per gallon declines). Some or even all of the supposed gain from reduced driving can be negated by the higher GHGs from traveling in greater traffic congestion.

Portland’s traffic congestion has increased substantially since before light rail. Further, by 2007 Portland’s traffic congestion had become worse than average for a middle-sized urban area and worse than in much larger Dallas-Fort Worth, Atlanta, Philadelphia and Phoenix.

Further, according to information in the Texas Transportation Institute’s Annual Mobility Report, the amount of gasoline wasted due to peak period traffic congestion in Portland rose 18,000,000 gallons from 1985 to 2005 (latest data available, adjusted for the population increase), simply due to greater traffic congestion. The increase in GHG emissions from this excess fuel consumption is estimated to be approximately 200,000 tons annually. This is four times the estimated reduction in GHG emissions that was assumed to have occurred from the increase in transit ridership.

The bottom line: The Portland model inherently produces more congestion and increases GHG emissions. Failure to expand roadways to meet demand and forced densification increase traffic congestion.

Better Models

The ineffectiveness of Portland’s model strategies in GHG emission is in contrast to other strategies. Between 2000 and 2007, the share of people working at home in Portland rose more than one quarter. If transit and working at home should continue their 2000s rates, transit’s work trip share will be less than that of working at home by 2015. Working at home eliminates the work trip, resulting in substantial GHG emission reductions and does it at a cost of $0.00 per ton.

Another approach is the Obama Administration’s automobile fuel efficiency strategy. About the same time as the LaHood-Will debate was heating up, the President announced that automobile manufacturers would be required to increase their corporate average fuel efficiency for cars and light trucks to 35.5 miles per gallon by 2016, a 75 percent performance improvement from that of the present fleet. If this fuel efficiency could be achieved in Portland today, the reduction in GHG emissions would be more than 40 percent. This new policy would eventually close 90 percent of the gap between personal vehicles and transit in Portland.

President Obama indicated that this strategy is costless. The higher costs that consumers will pay for cars will be more than made up by the fuel cost savings. Thus, according to the President, this policy costs $0.00 per ton of GHG emissions removed, less than the IPCC’s $50 and less than Portland’s $5,500. Of course, it is not possible to achieve 35.5 miles per gallon now, but it will be (Figure 2).

Figure 2:

The best hybrid cars now achieve 50 miles per gallon, which makes them less GHG intensive than transit in Portland. President Obama has gone further, indicating the potential for developing 150 mile per gallon cars. The curtain could be rising on a future of cars that emit less GHG emissions per passenger mile than transit. People and officials genuinely concerned about GHG emissions should applaud these advances. On the other hand, people and officials who value coercive behavior modification more than GHG emission reduction are likely to resist.

The Consequences of Coercing People Out of Cars

Moreover, Portland policies ignore a crucial factor: how automobiles facilitate economic growth and employment. Generally, the research indicates that the economic performance of metropolitan areas is enhanced by greater mobility. Moreover, no transit system provides the extensive mobility made possible by the automobile, not in America and not even in Europe. Coercing people out of cars coerces some out of employment and into poverty.

Even where transit service is available, it generally takes longer than traveling by car. In 2007, travel to work by transit took 3:50 (three hours and 50 minutes) per week longer than driving in the nation’s largest metropolitan areas. With all of Portland’s transit improvements, it still takes approximately 3:15 longer per week to commute by transit than by driving. It appears that Secretary LaHood would add more than three hours (time many don’t have) to our work trip each week.

The Land Use Cost

The second plank of The Model is strong land use regulation (smart growth), which economic research shows to materially increase house costs, which would lead to a lower standard of living.

Time to Turn Off the Ideological Autopilot

The policies of The Model Portland have no serious potential for reducing GHG emissions and could even make it worse. On the other hand, the rapidly developing advances possible from improved vehicle technology, something the Administration espouses, show great promise. Behavior modification a la The Model turns out not only to be undesirable, but also unnecessary.

Frontrunning and Finance: Left Foot Forward

Wed, 27 May 2009 01:11:06 -0400

This month, the Obama administration moved to regulate the so-called ‘invisible’ financial instruments that have come to rule the world of finance. Variations of the ‘shadow’ banking system — or, in the preferred language of financiers, market ‘risk management tools’ — have increasingly taken the spotlight during the current crises.

Jim Cramer, on one of those CNBC webcasts which he must have thought would never be seen by anyone who counts, appeared to admit in December to something illegal when he said, “A lot of times when I was short (stocks) at my hedge fund, I would create a level of activity beforehand that would drive the futures."

Might he have been referring to self-frontrunning, an egregious flim-flam that takes place on two separate exchanges almost simultaneously so that one regulatory eye can’t see what the other one sees? On one exchange, the hedge fund manager sells the index future, and on another, he executes a series of short sales in the stocks of which the index is composed. The net effect is to drive the future down to profitable levels. Or, in the case of Mr. Cramer, who goosed the futures after having shorted the stocks, to draw investors in to an arbitrage that he himself created.

It is strange and striking that a practice responsible for the lion’s share of the trading profits of the nation’s hedge funds and investment banks should remain a secret… even an open secret. But every morning on CNBC’s Squawk Box, commentators comfortably predict that the market will open up or down based on the movement of the futures. And nine times out of ten they are right.

This type of thing can go on ad infinitum: after having closed out the short position, one might readily go long the index future and likewise the composite stocks and make money on the upside as well. While not foolproof – a critical mass of fools could upend such plans in a jittery trading environment – one can achieve a comfortable margin of safety by working with other hedge funds to go long or short the identical stocks and futures in concert. The effect is momentum investing in the truest sense of the term. And lofty expectations are sure to be met because the law of one price will force the futures in line with the cash every time. Add computers and a little leverage, and your hedge fund will not only spectacularly outperform the market averages, but take on far less risk in the bargain.

Of course, Wall Street firms which execute trades for hedge funds often have an advantage over the funds because they have inside knowledge of the trading plans. And they can and often do trade in advance of these moves to the detriment of the hedge fund customers. Recently, a jury convicted three former stockbrokers at Bank of America, Merrill Lynch and Smith Barney for placing open telephone lines next to the internal speaker systems to eavesdrop on block orders by hedge funds and other institutional clients.

The hedge funds are run by bright people. They caught onto this scam quickly. And rather than miss out, they joined forces with the Wall Street firms themselves to combine their financial power in concerted transactions, which makes the markets even more volatile. Mighty orchestrations of computer-driven buy and sell orders then exploit the minute-to-minute differentials of the stocks and their derivatives. Those differentials add up to trillions of dollars.

Such bold moves trigger wild price swings and send skittish investors to the exits. But the solipsistic trading strategy is so wonderfully profitable to the insiders that any thought of calming the waters prompts snickers. Regulators don’t seem to care; they think these moves improve efficiency, seemingly without realizing that the traders create the conditions under which index arbitrage makes sense.

A variant of this practice played a major role in sinking the banks during the credit crisis that began last year. Hedge funds began by shorting the banks, and then forced them into the toilet by shorting the same mortgage pools that banks carried on their balance sheets.
Mark-to-market accounting created the impression that the banks were insolvent. This not only ensured that the short positions were profitable, but forced the Financial Accounting Standards Board to rush rule changes.

Years ago, when commodity firms first adopted it, marking to the market seemed like a good idea, as investors need to know not only the cost basis of an asset, but also what it would fetch in the marketplace. Today it’s clear that the market transactions may have less to do with an asset’s actual valuation in a normal trading environment than with its desired valuation in a manipulated one.

Having ruined the banks, these same swindlers turned on the insurance companies whose short interest skyrocketed in tandem with the crashing of their shares because their annuity products were backed by the same triple-A rated mortgage bonds that reposed on the banks’ balance sheets. Ironically, some firms, such as Lincoln National, ended up buying banks to qualify for bailout money so that they could continue in business.

The stakes to the economy may seem smaller when insurers — as opposed to banks — appear insolvent, but many alarmed customers were quick to move their business elsewhere at merely the whiff of insolvency. The consequences to both industries were such that for the first time in 16 years the finance and insurance sectors of the economy actually shrank by 16 percent. They now have to raise more equity just to keep their customers.

The transactions at the source of these woes were the result of what one financial writer termed “regulatory somnambulism,” in that it allowed for the elimination of the up-tick rule — which stipulated that short sales be entered at a price that is higher than the price of the previous trade — and of naked short selling, which can sink a flagship faster than a broadside beneath the water line.

Naked short selling is a vicious twist on the usual. Normal short selling occurs when investors borrow shares and sell them, hoping the stock will fall and they can buy back the shares at a lower price. Naked short selling artificially increases the supply of a security as one can sell them without first borrowing them and thereby might technically sell more shares than actually exist. This utterly speculative practice has no bearing on the efficiency of the markets, contrary to what its practitioners claim. Its only purpose is to flood the market with sell orders and drive down share prices.

In doing so, it contributes to an inaccurate picture of financial stringency that plays a major role in the price and allocation of credit and capital, which is central to the proper running of the world economy. It’s a true tail wagging the dog phenomenon that enriches well-placed gamblers at the expense of everyone else.

Tim Koranda is a former stockbroker who now works as a professional speechwriter. He can be reached at koranda@alum.mit.edu.

Can California Make A Comeback?

Joel Kotkin — Tue, 26 May 2009 00:17:16 -0400

These are times that thrill some easterners' souls. However bad things might be on Wall Street or Beacon Hill, there's nothing more pleasing to Atlantic America than the whiff of devastation on the other coast.

And to be sure, you can make a strong case that the California dream is all but dead. The state is effectively bankrupt, its political leadership discredited and the economy, with some exceptions, doing considerably worse than most anyplace outside Michigan. By next year, suggests forecaster Bill Watkins, unemployment could nudge up towards an almost Depression-like 15%.

Despite all this, I am not ready to write off the Golden State. For one thing, I've seen this movie before. The first time was in the mid 1970s. The end of the Vietnam War devastated the state's then powerful defense industry, leaving large swaths of unemployment and generating the first talk about the state's long-term decline.

An even scarier remake came out in the 1990s. Everything was going wrong, from the collapse of the Soviet Union and the unexpected deflating of Japan to a nearly Pharaonic set of plagues, ranging from earthquakes and fires to the awful Los Angeles riots of 1992.

Yet each time California came roaring back, having reformed itself and discovered new ways to create wealth. In the wake of the early '70s decline came the first full flowering of Silicon Valley as well as other tech regions, from the west San Fernando Valley to Orange and San Diego counties. Much of the spark for this explosion of growth came from those formerly employed in the defense and space sectors.

The '90s recovery was even more remarkable. Amazingly, the politicians actually were part of the solution. Aware the state's economy was crashing, the state's top pols--Assembly Speaker Willie Brown, Sen. John Vasconcellos, Gov. Pete Wilson--made a concerted effort to reform the state's regulatory regime and otherwise welcomed businesses.

The private sector responded. High-tech, Hollywood, international trade, fashion, agriculture and a growing immigrant entrepreneurial culture all generated jobs and restored the state's faded luster.

These sectors still exist and still excel even under difficult conditions. The problem this time is that the political class seems clueless how to meet the challenge.

Politics have not always been a curse to California. In the 1950s and 1960s, the Golden State's growth stemmed in large part from what historian Kevin Starr describes as "a sense of mission" on the part of leaders in both parties. Starr chronicles this period in his forthcoming book, Golden Dreams: California in an Age of Abundance, 1950-1963.

Under figures like Earl Warren, Goodwin Knight and Pat Brown, Starr notes, California "assembled the infrastructure for a great commonwealth." Their legacy--the great University system, the California Water Project, the freeways and state park system--still undergirds what's left of the state economy.

Perhaps the best thing about these investments was that they helped the middle class. Sure, nasty growers, missile makers and rapacious developers all made out like bandits--which is why many of them also backed Pat Brown. But the '50s and '60s also ushered in a remarkable period of widespread prosperity.

Millions of working- and middle-class people gained good-paying jobs, and could send their children to what was widely seen as the world's best public university system. People who grew up in New York tenements or dusty Midwest farm towns now could enjoy a suburban lifestyle complete with single-family homes, cars, swimming pools and drive-through hamburger stands.

"This was an epic success story for the middle class," historian Starr notes. It's one reason why, when people ask me about my politics, I proudly identify myself as a Pat Brown Democrat.

That's why California's current decline is so bothersome. A state that once was home to a huge aspirational middle class has become increasingly bifurcated between a sizable overclass, clustered largely near the coast, and a growing poverty population.

Over the past 40 years California's official poverty rate grew from 9% to nearly 13% in 2007, before the recession. Three of its counties--Monterey, San Francisco and Los Angeles--boast large populations of the über rich but, adjusted for cost of living, also suffer some of the highest percentages of impoverished households in the nation.

Most worrisome has been the decline of the middle--the increasingly diverse ranks of homeowners, small business people and professionals. The middle has been heading out of state for much of the past decade. Politically, they have proven no match for the power of the wealthy trustfunders of the left, the powerful public employee union as well as a small, but determined right wing.

The good news is that the middle class shows signs of stirring. The nearly two-to-one rejection of the governor's budget compromise reflected a groundswell of anger toward both the Terminator and his allies in the legislature.

Simply put, California voters sense we need something more than an artful quick fix built to please the various Sacramento interest groups. Required now is a more sweeping revolutionary change that takes power away from the state's most powerful lobby, the public employees, whose one desired reform would be ending the two-thirds rule for approval of new taxes and budgets.

Middle-class Californians are asking, with justification, why we should be increasing taxes--we're ranked sixth-highest in the nation--to pay for gold-plated state employee pensions as well as an ever-expanding social welfare program. Although state spending has grown at an adjusted 26% per capita over the past 10 years, it is hard to discern any improvement in roads, schools or much of anything else.

As an opening gambit, the right's solution--strict limits on state spending--makes perfect sense. However, long-lasting reform needs to be about more than preserving property and low taxes. To appeal to the state's increasingly minority population, as well as the younger generation, a reform movement also has to be about economic growth and jobs.

Not surprisingly, local leaders of the "tea party" movement gained some profile from last week's vote. Yet the right, which has exhibited strong nativist tendencies, is not likely to win over an increasingly diverse state.

In my mind, California's revival depends on three key things. First, the lobbyist-dominated Sacramento cabal needs to be shattered, perhaps turning the legislature into a part-time body, as proposed by one group. Perhaps the cleverest plan has come from Robert Hertzberg, a former Speaker of the Assembly who heads up the reformist California Forward group.

Hertzberg proposes a radical decentralization of power to the state's various regions, as well as cities and even boroughs in urban areas like Los Angeles. This would break the power of the Sacramento system by devolving tax and spending authority to local governments.

Secondly, California needs to develop a long-term economic growth strategy. Over the past decade, California's growth has become ever more bubblicious, dependent first on the dot-com bubble and then one in housing. The basic economy--manufacturing, business services, agriculture, energy--has been either ignored or overly regulated. Not surprisingly, we could see 20% unemployment, or worse, in places like Salinas and Fresno by next year.

Third, both political reform and an economic strategy aimed at restoring upward mobility depends on a revival of middle-class politics in this state. It would include building an alliance between the more reasoned tea partiers and saner elements of the progressive community.

The new alliance would not be red or blue, liberal or conservative, but would represent what historian Starr calls "the party of California." At last there could be a political home for Californians who are angry as hell but still not yet ready to give up on the most intriguing, attractive and potentially productive of all the states.

This article originally appeared at Forbes.

Sweden's Taxes - The Hidden Costs of The Welfare State

Nima Sanandaji — Mon, 25 May 2009 01:25:06 -0400

By Nima Sanandaji and Robert Gidehag

Sweden is a nation with extraordinary high tax rates. The average worker not only pays 30 percent of her or his income in visible taxes, but, additionally, close to 30 percent in hidden taxes. The defenders of the punishing tax burden argue that it is needed to maintain Sweden’s generous welfare system. While this claim may seem reasonable on its surface, a deeper look suggests that it is based on flawed analysis.

Some level of taxation is, of course, required to fund the public sector. At the same time, a high level of taxation does not necessarily translate into an equally high level of welfare:

Taxes discourage work and encourage tax avoidance. There is strong evidence that Sweden’s highest rate of individual and capital taxation actually reduces public revenue. For this reason, some taxes, such as the wealth tax, have recently been reduced. The result is estimated to be a net increase in tax revenues.

When Swedish municipalities receive increased funding from the state, the money is used to expand the local bureaucracy, a government survey has shown, instead of going to educators and health care workers.

Municipalities provide much of the welfare in Sweden. The Swedish Association of Local Authorities and Regions have shown in a study that funding for Swedish municipalities grew dramatically between 1980 and 2005. Despite this, the general public consensus is that the quality of welfare has declined during the same period.

Welfare provisions don’t necessarily correspond with taxation levels. A 2005 research paper examines the efficiency of the public sector in 23 industrialized countries. The researchers found that Sweden only reaches a mediocre 12th place when it comes to how much the public sector provides in terms of welfare services. When the level of welfare is related to the level of taxation, Sweden falls to the last position in the index.

There is a high variation in how effectively public money is spent within Sweden. The Swedish Taxpayers Association has, in a number of surveys, shown that identical welfare services such as care of the elderly, can vary in cost quite dramatically across Sweden.

There are two important reasons why the average Swedish worker pays a large portion of her or his income in taxes, without necessarily receiving an equally high level of welfare.

First, much of the money is spent on administrative costs at various levels of government. Although a small nation, Sweden has over a hundred public authorities. Vast sums are spent on political projects which fall outside the frames of general welfare. It is, for instance, not unusual for Swedish municipalities to fund bowling alleys, swimming pools, or camping places.

Second, a large fraction of the population is living on benefits rather than working, due to the combination of high taxes, a rigid labour market and generous welfare benefits. Even before the economic crisis hit, for example, almost one out of five children in Sweden’s third largest city, Malmö, were living in a family supported by social security. Sweden has 105 local districts where the majority of the population lives off of various public benefits, and does not work. This unintended consequence of the welfare state has taken a heavy toll on public services, since an increasing share of tax revenue must be diverted to fund welfare payments, rather than social services.

Many are immigrant dense neighborhoods; others are situated in the northern part of Sweden, where many cities with stagnating economies have suddenly experienced a boom in the fraction of the population who cannot work due to disability.

The famous Swedish welfare state is to a large degree a notion of the past. Many feel that its glory days occurred during the late 1950s and early 1960s, when Sweden successfully combined welfare policies with an expanding economy. At that time, however, Swedish taxes were 27 percent of the GDP, compared to 47 percent today. The golden days of Swedish welfare did not coincide with the high tax regime we know today.

How could Sweden fund a prospering welfare system with relatively low taxes in the past? As the researcher Erik Moberg documents in a book for the Ratio Institute, public money was spent much differently back then. The share of public revenues spent on health care and education at the end of the 1950s was greater than it is today.

And, compared to the 1950s, close to three times as much of public revenues are now spent on public bureaucracy. Four times as much is spent on welfare payments and social insurance. As the level of taxation has increased, so has the share of taxes going to public bureaucracy and various government handouts.

The historical comparison with the 1950s and 1960s is worth thinking about. It shows that a high quality of welfare can be achieved with a much lower tax level than we have today. If politicians slim down public bureaucracy and cut wasteful spending, resources can be opened up for increasing welfare and reducing taxes at the same time. If the system rewards work to a greater degree than it does living off the state, fewer will be dependent on the public for their daily living, again opening up tax revenues for better use.

Sweden has long been a small homogeneous country with a high degree of economic equality. Strong norms related to work and responsibility made it possible to enact an effective welfare system early on. With time, however, welfare dependence has reduced the very norms that formed the foundation of Swedish welfare, and wasteful spending has increased.

Many important social outcomes that the welfare state aims to address, and that Sweden is famous for, such as a low crime rate, have increased in recent decades, concurrent with the expansion of the welfare state. Even income inequality has increased in Sweden compared to, for example, the 1980s, despite similar or higher public expenditure.

Swedish decision makers are doing their best to reduce public spending and lower taxes. The reforms have been highly successful so far. As taxes have decreased from 57 percent of GDP in 1989 to 47 percent of GDP in 2009, the incentives to work have improved, with Swedish growth rates benefiting. The convergence of lower taxes and lower public spending is likely to continue. After all, experience has made it quite apparent for many Swedes that extraordinary high taxes are not the key to qualitative welfare services and a well functioning society.

Nima Sanandaji is president of think tank Captus and a fellow at the Swedish Taxpayers Association. Robert Gidehag is president of the Swedish Taxpayers Association.

Life After Sunrail

Richard Reep — Sat, 23 May 2009 01:06:19 -0400

With their tails between their legs, Central Florida’s leaders returned from Tallahassee in early May without funding from the Florida Senate for Sunrail, the region’s proposed commuter rail system. This failure to convince the state Senate to fund Sunrail is a major political defeat for the 1.8 million people who were said to be served by this train. This failure now gives Central Florida a chance to recreate its growth scenario from scratch, without relying on commuter rail to cure the region’s ills.

Blame bad timing: In a low-tax state with a down economy, asking for that kind of money takes nerve. “The loss of Sunrail may…have implications for efforts to reconstruct Interstate 4,” stated Harold Barley, Executive Director of Metroplan Orlando, a publicly funded organization that studies and advocates transportation projects in the region. Barley’s understatement is almost droll, for the defeat signals a significant political loss, years of wasted effort, and a rejection (for the second time) of massive federal startup money. In short, the calculus of Central Florida’s growth must start again almost from zero.

The leaders now will lick their wounds, but is it really time to ask “what comes next?” Many of the arguments in favor of Sunrail echo the arguments that Wendell Cox devastated earlier in The New Geography. After their first defeat in 1999, the leaders of the region spent ten years convincing themselves of the merits of commuter rail, but without selling the same goods to others in the state of Florida. This region’s population now waits, while the leaders decide whether to sink ten more years into trains, or abandon this dream and begin writing a new story for Orlando.

It is time to find a growth vision that is viable, and can be implemented within the power of the region’s leadership. Commuter rail’s biggest claim was to take one lane off the region’s only north-south highway (Interstate 4), replacing this lane with trains on an existing track. The track runs like a twisty, bent stick right up through the center of the region, and the track’s original usage as a freight system has been largely passed by the region’s growth. Sunrail’s other claims included significant travel time savings, encouragement of transit-oriented development, and retainage of 20 percent of the region’s federal gas taxes (why aren’t we getting this money now?). These claims will never be tested against reality; meanwhile, many of the smaller towns served by the system are likely expressing quiet relief that commuter rail’s financial burden will not be turned over to them in 2017.

No doubt, this loss is disappointing to those who envision Washington DC, Atlanta, New York, Boston, or other entrained cities as a model. Yet it constitutes a perfect signal to create a unique vision for Orlando. Unlike the regions mentioned above, Orlando’s economy is shockingly monocultural, devoted mostly to tourism and supporting industries. The most significant way Central Florida can better its future is to attract and retain other forms of employment, rather than build another rigid transportation spine of questionable sustainability.

Of course, transportation choices can help, but the question of rail seems academic at this point. Diversification of transportation away from a single imagined commuter rail means, for one thing, that the regional bus system should become more effective than it currently is. Lynx currently operates one bus type (huge), and this “one size fits all” solution misses opportunities and makes for slow rides with multiple transfers. Lynx is referenced in commuter rail’s promotional literature, which vaguely promised “enhanced bus service” to feed commuter rail stops. If Lynx was indeed poised to enhance bus service, then that act is more important now than ever. What are we waiting for?

Instead of a rigid stick up the center of a dispersed, multipolar city, the new wave of commuter transportation might look more like an octopus, which has no backbone and multiple wiggly arms. No backbone means the system may resemble a network, rather than a trunk with branches. Wiggly might mean that smaller vehicles service localized neighborhood routes, and it also might mean that the routes could change depending on development and growth patterns. If either of these sounds questionable from a cost point of view, weigh them against the cost of commuter rail and they will look like amazing bargains. Whether a bureaucratic government agency like Lynx can handle this assignment may also be questionable. Perhaps the solution could involve private services, much like the commuter systems that were born in earlier times – the streetcars in San Francisco, for example – which operated for profit.

Some will argue that trains are sexy compared to buses, but it is time to look at what really is sexy: having a real choice to commute while saving money. The form of this new transportation system may be electric jitneys, rubber-tired trolleys, or lake-hopping hovercraft; what is more important than form is their functional qualities. The transportation planners, from the federal level down to the local level, need to truly understand the needs of people and respond to them in a more fine-grained way. Diversification may mean trying different ideas until one is found that works.

Diversification could also mean less transportation. If the goal of a commuter rail system was to take cars off the interstate, then perhaps the leadership could meet this goal by promoting employment-based growth, rather than growth for its own sake. Neighborhoods that support an employment center are what built the region – think Lake Eola around downtown, or Winter Park around Rollins College. Getting back to that will allow density clusters that have sustainable value, rather than be form-based simulacra of antique small towns.

Density clusters can be positive parts of a city, where residential and employment bases are intertwined, and need not drive affordability up out of reach. Orlando, as an aspirational city, is currently more affordable than most, and the multiple-center model of Orlando never seemed to quite fit the single-spine commuter rail model. Cluster spacing allows for lower-density infill regions which can appeal to both middle class and affluent families. True commuter rail serviced the late 19th century single-center city quite well, but it would be hard to effectively service the late 20th century multiple-center, edge-city conditions of Orlando. With no natural boundaries, the region will continue to grow in all directions, and continue to regenerate itself within the urban centers that collapse and renew themselves through generations.

Losing a battle could mean winning a war. The Orlando region has for too long been thought of as an ephemeral city composed of theme parks. Losing its commuter rail system will reinforce this perception, but it can also shock the region’s leadership into more profound thinking and action. By taking advantage of this loss, and shaking off the distraction of trains, the region can truly concentrate on diversification of its population and creating a flexible, cost-sustainable, multi-centered transportation system that could ably serve Central Florida’s needs for the future.

The Successful, the Stable, and the Struggling Midwest Cities

Aaron M. Renn — Fri, 22 May 2009 01:47:31 -0400

The Midwest has a deserved reputation as a place that has largely failed to adapt to the globalized world. For example, no Midwestern city would qualify as a boomtown but still there remain a diversity of outcomes in how the region’s cities have dealt with their shared heritage and challenges. Some places are faring surprisingly well, outpacing even the national average in many measures, while others bring up the bottom of the league tables in multiple civics measures.

Let us examine the health of various cities, using population growth as a heuristic proxy for overall civic health. Looking at population change from 2000 to 2008, we will classify a city as "successful" if its metro area population growth exceeded the national average growth rate of 8% during that period, as "stable" if it had a population growth rate between 3% and 8%, and as "struggling" if its growth was less than 3%. Let us also put Chicago into its own category of "global city". It is simply one of a kind in the Midwest, a colossus of nearly 10 million people, and not easily measured against the other cities. Indeed, it is really three cities in one, a prosperous urban core, an archipelago of successful upscale suburbs and edge based growth to the west and north, with a sea of deteriorating city neighborhoods and stagnant to declining suburbs surrounding them. On our scale, Chicago would be "stable" – its inner core has grown but the city overall has lost population, while the outer ring has grown strongly. As a region, it has grown somewhat below the national average.

Here are the results of our tiering, including all cities in the Midwest* with metro areas exceeding 500,000 in population:

Global City
Chicago (5.2%)

Successful Cities
Des Moines (15.6%)
Indianapolis (12.5%)
Madison (11.9%)
Columbus (9.9%)
Kansas City (9.0%)
Minneapolis-St. Paul (8.8%)

Stable Cities
Cincinnati (7.2%)
Grand Rapids (4.9%)
St. Louis (4.4%)
Milwaukee (3.2%)

Struggling Cities
Akron (0.5%)
Detroit (-0.6%)
Dayton (-1.4%)
Toledo (-1.5%)
Cleveland (-2.8%)
Youngstown (-6.1%)

These tiers, based only on a single criterion and arbitrary boundaries, nevertheless basically conform to how these cities are performing both economically and in terms of perceptions.

A few interesting things emerge:

There are a surprisingly large number of Midwestern cities that are growing faster than the US average population. This indicates pockets of strength, in its larger metros at least, seldom associated with the Midwest.
The clear dominance of the successful list by state capitals. This is so pronounced that I have put forth what I call the "Urbanophile Conjecture", which is that if you want to be a successful Midwestern city, it helps to be a state capital with a metro area population of over 500,000. The only successful city on the list that is not a state capital is Kansas City.
The 500,000 barrier seems to be important as well. The state capitals below that threshold - Lansing, Springfield, and Jefferson City – would not qualify as successful on this list. Note too that the presence or absence of the major state university does not appear to be a decisive factor. Des Moines and Indianapolis are not home to their states' flagship universities. The home of the academic powerhouse that is the University of Michigan is the Ann Arbor metro area, which was not included in this list because its population is only about 350,000. Notwithstanding, its growth rate would have put it into the stable category.
In a region in which there is such divergence between the performance of cities, a diversity of city specific policies are required. There is no one size fits all for the Midwest. There may indeed be a base of pan-Midwest policies worth pursuing – improvements in education, attractiveness to migrants, better conditions for innovative entrepreneurship, etc – but successful approaches will be those most tailored to uniquely local conditions. For example, a state capital or University town may have different needs than a place that has neither.

Some suggested areas to investigate by city tier are:

Chicago. How can it ease the gap between the thriving global city of Chicago – largely located around the Loop as well as the northern and western suburbs – and the parts of the region that are falling behind, largely the western city neighborhoods and southern edge of metropolis? How do you do this without sacrificing its overall competitiveness? Can the policies appropriate to each be reconciled?
Successful Cities. Their policy focus should be on maintaining favorable demographic and economic conditions, and dealing with decaying areas of their urban cores and the potential for decay in some inner ring suburbs. Should the civic aspiration be desirous of it, tuning the engine to attempt to shift the growth rate into high gear to target a profile closer to the Sunbelt boomtowns would be a further focus area. Each city would need to examine which specific policy levers it could pull to attempt to do this. Clearly modernizing and expanding infrastructure to keep up with growth in these places and maintain their high quality of life is a clear imperative.
Stable Cities. Their challenge is to bring growth rates up to average or above average levels. It would be worthwhile for them to study the successful areas, and ask what policies and approaches might be adopted. Kansas City offers the best encouragement here. It has managed to maintain a strong growth rate despite not being a state capital and being part of a bi-state metro region. Kansas City features lows costs, high quality of life, a relatively stable housing marketing, and a pro-business culture. It is clearly a standout and worthy of further study for that reason. It may hold the key for moving the stable cities up into the successful tier. Geographically, it is notable that Kansas City is a border state on the far edge of the Midwest, and could arguably be called a Great Plains city. Is that a factor? Some type of peer city comparison with the successful cities, and especially Kansas City, might be warranted here.
Struggling Cities. Unfortunately, there isn't a magic bullet to solve the long festering problems in these places. All of them were heavily industrialized and have borne the brunt of globalization, particularly in manufacturing. This is especially the case in cities linked to the domestic automobile industry, which is clearly in a state of crisis. Until the automobile industry completes its restructuring, and out migration right sizes some of these areas, there does not seem to be a clear path to restart growth. Youngstown, which brings up the bottom of our league table, perhaps offers the best road forward. It is trying to right-size itself to a permanently smaller, but more sustainable, future population based on an aggressive controlled shrinkage plan that has received extensive national notice. This type of plan is likely something all of these cities need to be actively considering as the large fixed costs support a population base that no longer exists will become increasingly unaffordable as the population further shrinks. These cities likely also will need special state and federal help to back this shrinkage plan.

* The Midwest is defined as Illinois, Indiana, Iowa, Michigan, Minnesota, Missouri, Ohio, and Wisconsin.

Aaron M. Renn is an independent writer on urban affairs based in the Midwest. His writings appear at The Urbanophile.

Housing Downturn Update: We May Have Reached Bottom, But Not Everywhere

Wendell Cox — Thu, 21 May 2009 01:21:59 -0400

It is well known that the largest percentage losses in house prices occurred early in the housing bubble in inland California, Sacramento and Riverside-San Bernardino, Las Vegas and Phoenix. These were the very southwestern areas that housing refugees fled to in search of less unaffordable housing in California’s coastal metropolitan areas (Los Angeles, San Francisco, San Diego and San Jose).

Yet now the prices in these hyper-expensive markets are beginning to fall. Once considered widely immune from the severe housing slump, the San Francisco area now has muscled its way into the list of biggest losers. The newly published first quarter 2009 house price data from the National Association of Realtors indicates that prices are down 52.5 percent from the peak. Only Riverside-San Bernardino and Sacramento have experienced greater losses out of the 49 metropolitan areas with a population of more than 1,000,000 for which there is data (see table below). Other metropolitan areas that have seen prices drop more than 50 percent include Phoenix, Las Vegas and, for very different reasons, that rustbelt sad sack, Cleveland.

Table 1
Median House Price Loss: Metropolitan Areas Over 1,000,000 Population
Rank	Metropolitan Area	Median House Price % Loss from 2000-2008 Peak	Median House Price Loss from 2000-2008 Peak
1	Riverside-San Bernardino, CA	-57.7%	$235,600
2	Sacramento, CA	-56.5%	$219,600
3	San Francisco, CA	-52.5%	$444,800
4	Phoenix, AZ	-51.9%	$139,200
5	Cleveland, OH	-51.5%	$74,300
6	Las Vegas, NV	-51.3%	$163,800
7	Los Angeles, CA	-48.8%	$289,400
8	San Jose, CA	-48.0%	$415,000
9	San Diego, CA	-47.5%	$291,900
10	Miami-West Palm Beach, FL	-47.3%	$185,200
11	Orlando, FL	-43.1%	$117,200
12	Tampa-St. Petersburg, FL	-42.2%	$98,800
13	Washington, DC-VA-MD-WV	-37.3%	$165,900
14	St. Louis, MO-IL	-35.8%	$56,300
15	Chicago, IL	-35.2%	$100,900
16	Atlanta, GA	-34.4%	$60,600
17	Memphis, TN-MS-AR	-34.0%	$49,400
18	Providence, RI-MA	-33.6%	$102,600
19	Boston, MA-NH	-32.5%	$140,200
20	Cincinnati, OH-KY-IN	-28.6%	$42,600
21	Richmond, VA	-27.9%	$66,800
22	Indianapolis, IN	-26.6%	$34,300
23	Minneapolis-St. Paul, MN-WI	-25.9%	$60,800
24	Columbus, OH	-24.5%	$38,400
25	Denver, CO	-24.1%	$61,200
26	Birmingham, AL	-23.2%	$39,300
27	Jacksonville, FL	-22.4%	$44,600
28	Charlotte, NC-SC	-22.1%	$48,700
29	New York, NY-NJ-PA	-21.9%	$104,700
30	Virginia Beach-Norfolk, VA	-21.2%	$54,000
31	Kansas City, MO-KS	-20.4%	$32,400
32	Seattle, WA	-20.1%	$79,500
33	Pittsburgh, PA	-19.0%	$24,300
34	Hartford, CT	-17.7%	$47,800
35	Portland, OR-WA	-17.0%	$51,100
36	Baltimore, MD	-16.3%	$47,900
37	New Orleans, LA	-15.6%	$27,800
38	Philadelphia, PA-NJ-DE-MD	-15.2%	$37,000
39	Louisville, KY-IN	-15.1%	$21,500
40	Rochester, NY	-14.5%	$18,000
41	Houston, TX	-13.6%	$21,800
42	Dallas-Fort Worth, TX	-13.5%	$21,100
43	Buffalo, NY	-13.1%	$15,000
44	Milwaukee, WI	-12.1%	$27,800
45	Salt Lake City, UT	-6.7%	$16,500
46	San Antonio, TX	-6.2%	$9,800
47	Austin, TX	-6.1%	$11,900
48	Raleigh, NC	-5.3%	$12,600
49	Oklahoma City, OK	-3.3%	$4,500

Cleveland, the newest entrant to the “over 50” club, fell largely because of the collapse of its industrial economy. It remains the only one of the thirteen mega-losers without prescriptive land use policies (sometimes called “smart growth”), which raise house prices by rationing land for development and imposing more stringent regulatory requirements. Cleveland illustrates a point made in a previous commentary: that the huge house price losses in the housing downturn have spread broadly from the original metropolitan areas that precipitated Meltdown Monday, the Lehman Brothers bankruptcy on September 15, and the Panic of 2008.

During Phase I of the housing downturn (through September 2008), the largest losses were concentrated in the “Ground Zero” markets of California, Florida, Las Vegas, Phoenix and Washington, DC. In each of these 11 markets, median house prices dropped at least 25 percent, with per house over $100,000 except in Tampa-St. Petersburg during Phase I. These markets, all with more prescriptive planning, accounted for nearly 75 percent of the gross house value loss in the nation, with other more prescriptive markets accounting for another 20 percent. The more responsive markets, where land use regulation follows more traditional market-driven lines, accounted for slightly more than 5 percent of the loss.

The Chart below and Table 1 in The Housing Downturn in the United States: 2009 First Quarter Update financial collapse, however, now has spread the losses much more generally. In Phase II, the Ground Zero markets represented 44 percent of the loss, the other more prescriptive markets 38 percent and the more responsive markets 18 percent.

As of the first quarter of 2009, prices had dropped in all major metropolitan areas. The average per house loss in the Ground Zero markets was still the highest, at 48 percent, though the overall all loss had increased to 34 percent.

There are indications that the housing downturn may be slowing. The latest data indicates that the median house price increased in March, though not enough to forestall a loss in the first quarter. Another indicator is the fact that the Median Multiple (median house price divided by median household income) has fallen to a national level of 3.1, which is slightly more than the 2.9 historic rate and well below the 4.6 peak.

The best news of all is that the Median Multiple has dropped to 3.8 in the Ground Zero markets, which is equal to the historic level and well below the peak of 7.3. In the other more prescriptive markets, the Median Multiple is at 3.5, above the 2.9 historic average but well below the peak of 4.8. In the more responsive markets, the Median Multiple has dropped to 2.6, just above the historic average of 2.5 and below the peak figure of 3.2.

Prices have fallen so much that they now stand at historic 1980 to 2000 Median Multiple levels in 18 of the 49 metropolitan areas. Critically, this includes the Ground Zero markets of Riverside-San Bernardino, Sacramento, Phoenix and Las Vegas.

Other Ground Zero markets have seen much of their price inflation whittled away, but still have a way to go. Prices need to decline $33,500 to reach the historic Median Multiple level in Los Angeles, $32,300 in Miami, $31,200 in Washington, $18,500 in San Francisco, $11,100 in San Diego and only $1,700 in Tampa-St. Petersburg.

In other markets, however, prices still have some distance to go before the historic Median Multiple is reached. The largest decrease would have to occur in New York, at $122,000, followed by Portland ($95,000), Seattle ($94,000), Baltimore ($75,000) and Salt Lake City ($74,000). Other markets, including Philadelphia, Virginia Beach, Milwaukee and Ground Zero San Jose would need to have price declines of more than $50,000 to restore their historic Median Multiples. See Table 2.

Table 2
Median House Price Reduction Required to Reach Historic Price/Income Ratio (Median Multiple)
		Median House Price Reduction Required to Reach 1980-2000 Median Multiple	Median Multiple
Rank	Metropolitan Area		1980-2000 Average	2000-2008 Peak	Current (2009: 1st Quarter)
1	New York, NY-NJ-PA	$122,200	3.9	7.7	5.8
2	Portland, OR-WA	$94,700	2.7	5.4	4.4
3	Seattle, WA	$94,400	3.3	6.2	4.7
4	Baltimore, MD	$74,700	2.6	4.6	3.7
5	Salt Lake City, UT	$73,800	2.6	4.3	3.8
6	Philadelphia, PA-NJ-DE-MD	$61,500	2.4	4.2	3.4
7	San Jose, CA	$55,400	4.5	10.2	5.1
8	Virginia Beach-Norfolk, VA	$53,600	2.6	4.7	3.5
9	Milwaukee, WI	$51,400	2.8	4.4	3.8
10	Boston, MA-NH	$41,900	3.5	6.1	4.1
11	Los Angeles, CA	$33,500	4.5	10.1	5.1
12	Miami-West Palm Beach, FL	$32,300	3.4	7.0	4.0
13	Jacksonville, FL	$32,000	2.3	3.6	2.9
14	Washington, DC-VA-MD-WV	$31,200	2.9	5.3	3.3
15	Providence, RI-MA	$29,400	3.1	5.4	3.6
16	Raleigh, NC	$26,700	3.3	3.9	3.7
17	Austin, TX	$20,500	2.8	3.3	3.2
18	San Francisco, CA	$18,500	5.0	11.2	5.2
19	Denver, CO	$18,000	2.9	4.3	3.2
20	Minneapolis-St. Paul, MN-WI	$15,700	2.4	3.6	2.6
21	Hartford, CT	$14,300	3.1	4.2	3.3
22	San Diego, CA	$11,100	4.9	9.5	5.1
23	Buffalo, NY	$10,900	1.9	2.5	2.1
24	Charlotte, NC-SC	$10,100	3.0	4.1	3.2
25	Richmond, VA	$9,500	2.8	4.1	3.0
26	Louisville, KY-IN	$8,100	2.4	3.1	2.6
27	Chicago, IL	$7,800	2.9	4.8	3.0
28	San Antonio, TX	$5,200	3.0	3.3	3.1
29	Orlando, FL	$4,000	2.9	5.2	3.0
30	Pittsburgh, PA	$3,400	2.1	2.8	2.2
31	Tampa-St. Petersburg, FL	$1,700	2.8	4.7	2.8
	Las Vegas, NV	At or Below	3.4	5.3	2.7
	Riverside-San Bernardino, CA	At or Below	3.7	6.6	3.0
	Sacramento, CA	At or Below	3.6	5.6	2.8
	Memphis, TN-MS-AR	At or Below	3.0	3.1	2.0
	New Orleans, LA	At or Below	3.1	3.3	2.8
	Phoenix, AZ	At or Below	2.8	4.7	2.4
	Atlanta, GA	At or Below	2.4	3.1	2.0
	Birmingham, AL	At or Below	3.0	3.5	2.7
	Cincinnati, OH-KY-IN	At or Below	2.3	2.8	2.0
	Cleveland, OH	At or Below	2.2	2.8	1.4
	Columbus, OH	At or Below	2.4	2.9	2.2
	Dallas-Fort Worth, TX	At or Below	2.7	2.7	2.4
	Houston, TX	At or Below	2.5	2.9	2.5
	Indianapolis, IN	At or Below	2.1	2.3	1.7
	Kansas City, MO-KS	At or Below	2.5	2.9	2.3
	Oklahoma City, OK	At or Below	2.8	2.9	2.8
	Rochester, NY	At or Below	2.2	2.4	2.0
	St. Louis, MO-IL	At or Below	2.2	2.9	1.9

Median Multiple: Median house price divided by median household income.

These price reductions may or may not occur in over-valued metropolitan areas like New York, Portland and Seattle, all of which are also experiencing serious increases in unemployment. However, given the pervasive evidence that the market is returning to the vicinity of historic price ratios, it would not be surprising if significant price reductions happen in these metropolitan areas, which were previously seen and saw themselves as immune to the fallout that hit the less well-regarded ground zero markets.

Additional information is available in:
The Housing Downturn in the United States: 2009 First Quarter Update

California Meltdown: When in doubt, Blame the Voters!

Bill Watkins — Wed, 20 May 2009 07:11:43 -0400

By rejecting the complex Sacramento budget settlement, Californians have brought about an earthquake of national significance as has not been seen since the passage of Proposition 13 over thirty years ago. Once again, California voters handed politicians something they fear more than anything else, constraints on the ability to raise taxes and raid revenues for their pet interests.

Some, like long time Los Angeles Times statehouse reporter George Skelton thinks it’s the voters’ fault, as he suggested in his recent op-ed. The problem, we are told, lies with voters. The state’s massive fiscal crisis, which I and others warned was coming, was apparently unforecastable to California politicians and their enablers, like Skelton.

Blame the voters will become a large part of the national and local media spin. It is not the first time. Consider Proposition 13. The problems that led up to Prop 13 were years in the making, and they were well understood. Inflation and rising home prices were increasing taxes beyond what citizens were prepared to pay. Sacramento tried several times to address the problem, but then as now, politicians couldn’t make hard decisions. The entrenched interests, notably the public employee unions, would not hear of anything that might shrink state revenues.

Contrary to some versions of history, Proposition 13 was not backed by oil companies, land developers and other business interests. In fact, most opposed it.

Proposition 13 backers were outmanned, outspent and certainly without much media support. The measure was passed because after years of incompetence in Sacramento, California voters, like Medieval peasants, grabbed their pitchforks and torches and stormed the castle. They passed Prop 13.

Some interpret this story as showing voter ignorance and fickleness. I interpret it as showing that California voters are patient, but only to a point. Once they have reached a certain point, California voters take matters into their own hands. The results are invariably far more onerous for the state than if the political class had effectively faced the issue. Part of the reason for this is because the voters have fewer tools available to them. Legislatures and governors may have scalpels, voters have only axes.

Gray Davis was the victim of a similar uprising. He took the fall for a government that had failed. Arnold was going to be different. He would be the Governator. He won election promising mortal combat with special interests. In 2005, he tried to change things but was outmaneuvered by his union-backed opponents. After losing round one, he became Gray Davis but without his predecessor’s grasp of the essentials of government. As the Sacramento Bee’s Dan Walters has pointed out, hubris and ignorance make a deadly combination.

Now, we have a budget crisis, and California voters are unwilling to give Sacramento a pass. Why?

Maybe they don’t think they are getting value for their increased investment in government. California spent about $2,173 per resident (2000 dollars) in the 1997-1988 budget. The 2007-2008 budget spends about $2,738 (2000 dollars) per resident. That represents a 26 percent increase in real (inflation adjusted) per-capita spending in ten years.

What have California voters purchased with their 26 percent increase in government spending? Are the roads 26 percent better? Are schools 26 percent better? What is 26 percent better?

That is Sacramento’s problem. It is very hard to identify what good that this increase in spending has purchased. If it has been a good investment, why haven’t California’s leaders convinced the voters?

Maybe you can make a case that we are 26 percent better off; maybe not. I don’t know, but then I haven’t seen a strong effort to make the case. Instead, we get predictions of doom. We’ll cut back on teachers. We’ll let prisoners out of jail. Skelton says “And, oh yes, the elderly poor, blind and disabled – welfare moms and children's healthcare? They'll take the biggest hits, as usual.”

The problem with predictions of doom is that they don’t ring true, or they sound as if the political leaders will punish voters for forcing the leaders to face a budget constraint. Voters can remember 1997-1998. California had teachers. Prisoners were in jail. Healthcare was provided for those with the least resources. If California had these essential services then, and the State is spending 26 percent more now, why cut those essential services now?

That is the question the California’s leaders have to answer soon. Today Sacramento faces a crisis. The governor and the legislature will have to deal with a real binding budget constraint, and how they choose to deal with that constraint will make a huge difference. They could show leadership. They could make difficult choices. They could stand up to the special interests that will spare no effort to punish them.

They may not. They may try to punish voters by cutting essential services. They may try even more Enron-style accounting tricks. They may sell assets or use federal money to push the problem to future legislators and governors. They may make poor choices. They may avoid cutting entitlements and public employee pensions, the real source of the state’s fiscal distress.

We are heading towards a convulsion, not only here in California but in a host of high-tax, high-regulation states now controlled by their own employees. This includes New York, Illinois, and New Jersey for starters. In the age of Obama, with its celebration of bigger government, this suggests perhaps a whiff of a counter-revolution.

Bill Watkins, Ph.D. is the Executive Director of the Economic Forecast Project at the University of California, Santa Barbara. He is also a former economist at the Board of Governors of the Federal Reserve System in Washington D.C. in the Monetary Affairs Division.

Let's Snooker The TARP Babies

Joel Kotkin — Tue, 19 May 2009 00:20:29 -0400

Snook, Texas, a town of less than 600 souls, is best known for being the home of Sodalak's Country Inn, the originator of country fried bacon. It may seem an odd place to launch a return to financial health, but that's exactly what Dean Bass has in mind.

Bass, a veteran banking entrepreneur from Houston, in November bought the tiny First Bank of Snook as part of his plan to build a new financial powerhouse amid the worst economic downturn in a generation. The old bank, which also had a branch 15 miles away in College Station, home to Texas A&M, provided Bass with his charter, as well as access to a strong market on the far periphery of his home town.

Since buying into Snook's bank, now renamed the Spirit of Texas Bank, Bass opened a new branch in the Woodlands, northwest of Houston. Over the past six months, the new bank's assets have doubled to over $70 million, and by the end of the year he expects to break $100 million. Longer-term plans include expanding as well into Austin, Fort Worth and other major Texas markets.

Bass' basic strategy: Take advantage of the stumbling TARP-funded banking giants and steal what he calls their "disenfranchised customers." This approach has implications well beyond the Lone Star State. Like other successful community bankers across the country, Bass believes that the mega-banks have been hopelessly tarred by TARP taxpayer funds. They have been revealed to be, if too big to fail, also too incompetent and poorly run to trust.

"This is one of the worst banking markets I have ever seen--but the best for people like me," said Bass, who sold his last venture, Houston-based Royal Oaks Bank, for $38.6 million in 2007. "When else would you see A+ customers fleeing places like Bank of America, Chase and Citi? People can't even understand their balance sheets and stress tests. Their customers are ready to move on."

Over the next few years, the emergence of banks like Spirit of Texas could prove the silver lining in the largely bungled Bush-Obama bail out of the big financial companies. Ironically, the attempt to shore up the mega-dinosaurs has revealed these mega-banks to be creatures of little brain and even less principle. They now seem more akin, as economist Simon Johnson has pointed out, to Third World crony capitalists than paragons of free enterprise.

In comparison, independent, non-TARP banks like the Spirit of Texas appear like paragons of traditional capitalist virtue and homespun values. For the time being, their rise will be most notable in "the zone of sanity," the vast range of territory between south Texas to the Great Plains, which largely resisted the housing and stock asset bubbles of the past decade.

In this region, most homes are well above water and many businesses--in everything from agriculture and energy to manufacturing and high-end business services--remain on solid footing. Of course, notes Randy Newman, president and CEO of Grand Forks, N.D.-based Alerus Financial, many local companies have been slowed by the recession. However, for the most part, places like the Dakotas and Texas enjoy relatively low unemployment and foreclosure rates, making them relatively good places for cultivating new customers.

Politics and a sense of propriety also may play a role for resurging community banks. In places like the Great Plains, people prefer old-fashioned shots of banking fundamentals to the exotic financial cocktails concocted by the "genius" financiers on the coast. Politicization of banking is even less popular than elsewhere.

"For the government to come out and stimulate the economy seems OK, but you think, jeepers, this TARP business makes little sense," says Newman, whose bank enjoys assets of roughly $750 million. "TARP," he adds, "is simply prolonging or delaying what has to happen. The walking dead will have to die sometime."

Uncertainty about the big banks, Newman believes, is leading customers, particularly smaller firms, to rediscover the merits of old-fashioned relationship banking. At banks like his, each loan is scrutinized not only by formula but also by things such as character, markets and a firm's record of accomplishment.

"The big banks will tweak their standards system-wide. There are no individuals in their book," says Newman." The big banks are geared to mass markets and big customers. But if you are looking at the $1 to $5 million loan a small business wants, the big bank does not look at you as an individual."

This up close and personal approach may seem laughably archaic to the once-celebrated "genius" quant jocks and bonus baby M.B.A.s on Wall Street--and perhaps also the brainy financial types running the Obama economic team. Yet if a sustainable private sector economic recovery is to take hold, the key may well lie with smaller bankers who can help small firms survive the recession

Of course, the administration's favoritism of the big boys also creates some real problems to community banks. Some fear the mega-banks will use TARP funds to acquire better-run, local institutions. Newman calls this prospect a "travesty." Given their awful real balance sheets, Newman believes, banks like Citicorp and Bank of America "really shouldn't be in a position to grow, much less expand."

So here's a better course. Let these giants shrink or even fail. Let their insured depositors seek out new banking relations; with the stronger, well-run community banks. It's widely believed that some 500 to 1,000 smaller banks may fail in the next year or so, so why not some big boys, too?

Many economists, both right and left, including Nobel Prize winner Joseph Stiglitz, have urged this course. It would pave the way for well-run banks to expand at the expense of the incompetent and venal. Competition, after all, is supposed to be the basis of capitalism.

Right now, the zone of sanity probably offers the best chance for this capitalist revolution. However, the shift to smaller banks may prove even more important in reviving the epicenters of lunacy, such as my adopted home state of California. Here, little banks like the privately held Montecito Bank and Trust are quietly expanding as customers leave the TARP babies for an institution a little more personal and grounded in sound banking principles. "Better boring than broke," jokes Janet Garufis, Montecito's president and CEO.

It also helps to be local, she notes, even in a mega-state like California. Much of the damage to the TARP banks came when they bought into sliced and diced mortgages in locations they didn't know. It turns out that local knowledge counts--not only in real estate, but in deciding about the right business to back.

"The differences between a big-box bank and community are the difference of night and day," suggests Garufis, who spent 35 years with Security Pacific, a onetime L.A. area powerhouse. "People like to see the whites of the eyes of the people they are doing business with. We know the community. We are part of it, and we understand what is going on here."

Of course, being local, smart and disciplined may not be enough for all these upstart banks. The failures of the mega-banks have increased the costs of things like FDIC insurance for even well-run institutions--in Montecito's case, from $400,000 to $1.2 million over the past year. Equally challenging, TARP funds are helping the big boys offer slightly higher rates for mass-market products like CDs.

Rather than focus on saving their Wall Street friends, the administration needs to allow an upsurge in smarter, smaller and better-run banks. Let us give these grassroots capitalists a chance and see what they can do.

The road to a financial and economic recovery does not run through Wall Street and K Street, which, after all, are the primary originators of our distress. It lies in places that look more like Snook--even if country fried bacon is not to your taste.

This article originally appeared at Forbes.

The Luxury City vs. the Middle Class

Joel Kotkin — Mon, 18 May 2009 01:11:55 -0400

The sustainable city of the future will rest on the revival of traditional institutions that have faded in many of today’s cities.

Ellen Moncure and Joe Wong first met in school and then fell in love while living in the same dorm at the College of William and Mary. After graduation, they got married and, in 1999, moved to Washington, D.C., where they worked amid a large community of single and childless people.

Like many in their late 20s, the couple began to seek something other than exciting careers and late-night outings with friends. “D.C. was terrific,” Moncure recalled over lunch near her office in lower Manhattan. "It was an extension of college. But after a while, you want to get to a different ‘place.’”

The "place" Ellen and Joe looked for was not just a physical location but something less tangible: a sense of community and a neighborhood to raise their hoped-for children. Although they considered suburban locations, as most families do, ultimately they chose the Ditmas Park neighborhood of Brooklyn, where Joe had grown up.

At first, this seemed a risky choice. While Joe was growing up in the 1980s, the neighborhood — a mixture of Victorian homes and modest apartments — had become crime-infested. The old families were moving out, and newer ones were not replacing them. Yet Joe’s Mom still lived there, and they liked the idea of having grandma around for their planned-for family.

In a city that has been losing middle-class families for generations, the resurgence of places like Ditmas Park represents a welcome change. In recent years, child-friendly restaurants and shops have started up along once-decayed Cortelyou Road. More important, some local elementary schools have shown marked improvement, with an increase in parental involvement and new facilities.

Even in hard economic times, the area has become a beacon to New York families, as well as singles seeking a community where they will put down long-term roots. “There’s an attempt in this neighborhood to break down the city feel and to see this more as a kind of a small town,” notes Ellen. “It may be in the city, but it’s a community unto itself, a place where you can stay and raise your children.”

The Decline of the Urban Middle Class

The rise of neighborhoods like Ditmas Park suggests that cities can still nurture and accommodate a middle class. Yet sadly this trend continues to fight an uphill battle against a host of forces from high taxes and regulation to poor schools, highly bifurcated labor markets, and the scourge of crime.

These problems can be seen in the migration numbers. A demographic analysis conducted by my colleagues at the Praxis Strategy Group over the past decade found that New York and other top cities — including Chicago, Los Angeles, San Francisco, and Boston — have been suffering the largest net out-migration of residents of virtually all places in the country, albeit the pattern has slowed with the recession.

It’s astonishing that, even with the many improvements over the past decade in New York, for example, more residents left its five boroughs for other locales in 2006 than in 1993, when the city was in demonstrably far worse shape. In 2006, the city had a net loss of 153,828 residents through domestic out-migration, compared to a decline of 141,047 in 1993, with every borough except Brooklyn experiencing a higher number of out-migrants in 2006.

Since the 1990s virtually all the gains made in the New York economy have accrued to the highest income earners. Overall, New York has the smallest share of middle-income families in the nation, according to a recent Brookings Institution study; its proportion of middle-income neighborhoods was smaller than any metropolitan area, except for Los Angeles.

Much the same pattern can be seen in what has become widely touted as America’s “model city,” President Obama’s adopted hometown of Chicago. The city has also experienced a rapid loss of its largely white middle class at a rate roughly 40 percent faster than the rest of the country.

Although there has been a considerable gentrification in some pockets around Lake Michigan, Chicago remains America’s most segregated big city. In contrast to the president’s well-integrated cadre of upper-class African Americans, Chicago’s black population remains among the poorest, and most isolated, of any ethnic population in America.

And like other American cities, Chicago now has a growing glut of “luxury” condos, a pattern that became evident as early as 2006 and has now, as Chicago magazine put it, “stalled” as a result of a “perfect storm” of toughened mortgage standards, overbuilding, job losses, and rising crime.

Yet there could be some good from the current crisis. Considerable drops in urban rents and residential housing prices should ease the burdens on those who struggle with extremely high prices and taxes. Younger people, including families, may now be able to consider whether a home in Brooklyn, Chicago’s Wicker Park, or Los Angeles’ Studio City might now be affordable and desirable enough to eschew the move to the suburbs.

The Cost of Being Urban

In doing scores of interviews recently for a report on New York’s middle class, my coauthor Jonathan Bowles of the Center for an Urban Future and I ran into many people who were considering moving out of the city or had friends who had recently left. This seems particularly true in the remaining middle-class enclaves in the outer boroughs.

“Almost all the friends I grew up with have moved to Mahopac or Yorktown [in the Hudson Valley],” says Jimmy Vacca, a member of the City Council who represents communities in the Northeast Bronx such as Throgs Neck and Pelham Parkway. “There’s a flight out by many middle-class people because of the schools. A couple gets married and by the time their children gets to age five, they move.”

Costs, particularly relating to child-raising, are killing the urban middle class. Urban residents generally pay higher taxes and more for utilities, insurance, trash, and sewer than those living elsewhere. Manhattan is by far the most expensive urban area in the United States, with an average cost of living that is more than twice as much as the national average; San Francisco, another city that has seen large-scale middle-class flight, ranks second. The Washington, D.C. area, Los Angeles, and Boston also suffer extremely high living costs.

These costs are most onerous on the middle class, particularly those with children. This can be seen in the rapidly declining numbers of students in most urban school districts, including such hyped success stories as Chicago, Seattle, Portland, Washington, and San Francisco. Over the past seven years, for example, Chicago’s school system, which was run by new Education Secretary Arne Duncan, has declined by 41,000 students.

America’s core cities — including the borough of Manhattan in New York — boast among the lowest percentage of children under 17 in the nation. Although Manhattan had a much discussed “baby boomlet” (the borough’s number of toddlers under the age of 4 grew 26 percent between 2000 and 2004), once children over 5 are taken into account, Manhattan’s under-age population is well under the national average. This indicates there may be a process of exhaustion — both mental and financial — as the costs of raising children drain family resources.

The real issue for the urban middle class is not having babies but being able to sustain their families as the children age and as families expand. One reason: many middle class urbanites spend tens of thousands of dollars a year in additional expenses that those in other cities as well as surrounding suburbs often avoid. For instance, since most middle-class families in big cities today need to have two working parents just to get by, child care becomes a necessity for those without grandparents or other relatives to look after young children. In places like Chicago, Washington, Boston, San Francisco, New York, or Los Angeles these costs typically run from $13,000 to $25,000 per child annually.

Later many of these same families, if they choose to stay, must then contemplate shelling out considerable sums to send their children to private schools, particularly after the elementary level. This can add from a few thousand dollars to $30,000 a year to their annual costs — and with no tax benefit.

Do Cities Need a Middle Class?

Ultimately, in good times or bad, cities have to want a middle class to have one. And politicians, if asked, will genuflect to the idea of maintaining a middle class, yet their actions — on taxes, regulations, schools, development — suggest otherwise.

Indeed, in reality most urban areas have focused on creating what New York Mayor Michael Bloomberg famously dubbed the “luxury city.” To pay for often inflated public employee costs, the luxury city can only survive off the wealthy and on other groups — empty nesters, singles and students — who demand relatively little in the way of basic services like schools and public health facilities.

City planners and urban developers favor the unattached: the “young and restless,” the “creative class,” and the so-called “yuspie” — the young urban single professional. Champions of the unattached suggest that companies and cities should capture this segment, described by one as “the dream demographic,” if they wish to inhabit the top tiers of the economic food chain.

Another key group coveted by cities are the legions of baby boomers who have already raised children. No longer cohabiting with offspring, they are expected to give up their dull family existence and rediscover the allure of a fast-paced, defiantly “youthful” lifestyle. The new retirees, suggests luxury homebuilder Robert Toll, “are more hip-hop and happening than our parents.” They are more interested in indulging “the sophistication and joy and music that comes with city dwelling, and doesn’t come with sitting in the ’burbs watching the day go by.”

A Demographic Dead End?

This whole approach has severe limitations. Despite an enormous amount of publicity about empty nesters moving back to the city, surveys conducted by the housing industry find that most aging boomers — upwards of 70 percent — are aging in place, mostly in the suburbs. The numbers moving back into the urban core remain negligible, except in the pages of urban booster publications like The New York Times.

The young singles provide a more promising demographic for cities. But even here time may be running out. This will be even more evident between 2010 and 2020, when the millennial generation hits their 30s and early 40s and enter the prime years for family formation. Surveys of the cutting edge of this group — the other large age cohort in the population — show that most prefer a single-family home and, like their parents, seem most likely to head to the suburbs.

But perhaps most troubling of all is what this means in terms of the historic role of cities as incubators of upward mobility. Back in the 1960s, Jane Jacobs could still predict that Latino immigrants to New York, mainly from Puerto Rico, would inevitably make “a fine middle class.” Yet four decades later in the Bronx, the city’s most heavily Latino county, roughly one in three households lives in poverty, the highest rate of any urban county in the nation.

On the other extreme, in Manhattan, where the rich are concentrated, the disparities between the classes have been rising steadily. In 1980 it ranked 17th among the nation’s counties for social inequality; today it ranks first, with the top fifth of wage earners earning 52 times that of the lowest fifth, a disparity roughly comparable to that of Namibia.

The University of Chicago’s Terry Nichols Clark, one of the most articulate advocates for this new urban pattern, says cities should focus on acting not so much as vehicles for class mobility, but as “entertainment machines” for the privileged. For these elite residents, the lures are not economic opportunity, but rather “bicycle paths, beaches and softball fields,” and “up-to-the-date consumption opportunities in the hip restaurants, bars, shops, and boutiques abundant in restructured urban neighborhoods.”

In this formulation cities become the domicile primarily of the young, the rich (and their servants), as well as those members of the underclass who persist in hanging around. What emerges, in the end, is a city largely without children, particularly of school-age, and with a diminishing middle class. Ironically, these are places that, despite celebrating diversity, actually could end up as hip, dense versions of the most constipated suburb imaginable.

This shift will also limit the economic functions of certain elite cities. Cost pressures, for example, have already helped Houston to replace New York and Los Angeles as the nation’s energy capital; in the future, although now humbled by the collapse of Wachovia, more middle class-oriented Charlotte, as well as other cities, could continue to gain jobs in the post-bust financial sector. Charlotte real estate developer John Harris suggests the city can compete against an expensive metropolitan region not only at the top levels of management but across the board. “It’s hard to be a mass employer in San Francisco,” he notes.

Joe Gyourko, a real estate professor at the Wharton School, suggests this elite model of urbanism will spread to other favored places such as Portland, Seattle, and possibly Austin. In all these places, we may be seeing the emergence of a European-style pattern of elite urbanism in the core, with a growing concentration of low-wage workers in the least favored parts of the urban periphery.

The City of Aspiration

Even if such a model proves sustainable, it certainly means a major change for American urbanism. Unlike most urban cultures, that of the United States has been dominated not by the dictates of princes or priests, but by the efforts of ambitious entrepreneurs and migrants.

American cities have been driven by a protean, ever-shifting commercial and middle-class culture, willing to break the bonds of tradition. As the great sociologist E. Digby Baltzell noted, the population in New York and other American cities has been “heterogeneous from top to bottom.” Social mobility, Baltzell said, constituted the fundamental reality of American urbanism.

In this country, cities emerged as the principal North American bastion for those who sought to improve their lives. As historians Charles and Mary Beard noted, “All save the most wretched had aspirations.”

Such cities often were not inherently pleasant or culturally edifying. Although its wealth would propel it to one day become the world’s cultural capital, visitors from more genteel Philadelphia and Boston often regarded 19th-century New Yorkers as crass and money-oriented.

The new cities on the opportunity frontier — Chicago, Cleveland, Cincinnati — were, if anything, even more egalitarian. After two years in Cincinnati, British writer Frances Trollope deplored how “every bee in the hive is actively employed in the search for honey…neither art, science, learning, nor pleasure can seduce them from their pursuit.” Chicago, a Swedish visitor commented in 1850, was “one of the most miserable and ugly cities” of America.

Yet these places were ideal for taking advantage of new technologies from mass manufacturing to trains and the telegraph. They created dynamic societies that provided huge opportunities for vast waves of immigrants, who by 1890 accounted for as much as half of the nation’s urban dwellers.

The newcomers were joined by others from rural America, including, by the early 20th century, many African Americans. The “Great Migration” of African Americans from the rural south, noted Gunnar Myrdal in 1944, created “a fundamental redefinition of the Negro’s status in America.” Urban life had its horrors, but in the cities it became increasingly difficult to restrict a person into “tight caste boundaries.” African-American migrants from the South may have been different in many ways from newcomers from Italy, Ireland, or Russia, but their fundamental aspirations were often very much the same.

The Key to a Middle-Class Comeback: The Power of Plain Vanilla

Compared to the dismal decline in the 1970s and early 1980s, urban prospects have improved, particularly in primary urban areas such as Chicago, New York, and San Francisco. Yet, if these and other cities are to sustain their momentum, they need to look beyond “the luxury city” to the potential of less glamorous neighborhoods that can attract the middle class and people with families.

These “plain vanilla” neighborhoods include many places that managed to resist the urban decay of the 1970s and in many cases have begun to enjoy a steady resurgence. These include, for example, large swaths of Brooklyn and Queens, as well as the lovely, park-blessed sections of south and west St. Louis, or scattered Los Angeles neighborhoods in places like the San Fernando Valley.

But these communities can only grow if cities focus on those things critical to the middle class such as maintaining relatively low density work areas and shopping streets, new schools, and parks.

This would require a massive shift in urban priorities away from the current course of subsidizing developers for luxury mega-developments, new museums, or performing arts centers. To maintain and nurture a middle class, cities need to look at the essentials that have made great cities in the past and could once again do so in the future.

The New Urban Middle Class

Perhaps the other key question is what constitutes the economic base for the people who might settle and remain in cities. It’s clear that many traditional industries — heavy manufacturing, warehousing — as well as middle-management white collar jobs will diminish in the future. But it is possible to imagine the rise of a new kind of urban economy built around people working in small firms, or independently in growing fields such as information, education, healthcare, and culture, or as specialists in a wide array of business services.

These are professions that continued to grow in many older cities, even as other fields declined. In San Francisco, for example, by 2006 there were an estimated 70,000 home-based businesses and a thriving culture of self-employed “Bedouins” working in post-industrial professions. These self-employed people, noted one study, were critical to helping the city withstand the ill effects of the post-2000 dotcom collapse.

Similarly, the close-in communities of the San Fernando Valley of Los Angeles are home to large contingents of entertainment industry workers, many of them self-employed. According to studies by California State University’s Dan Blake, up to 60 percent of all L.A.-area workers in this highly dispersed industry reside somewhere in this sprawling urban region made up largely of post–World War II single-family houses. Workers in media, graphic arts, and other specialized services have also been among the few groups of middle and upper-middle income earners to see rapid growth in New York’s outer boroughs.

These post–industrial age artisans — along with more traditional parts of the middle class such as civil servants, teachers, nurses, and other service workers — could provide the critical residential base for the plain vanilla urban neighborhoods’ work. Neither rich nor poor, these artisans could use the new telecommunications net to access clients who may exist in the sprawling suburban rings, throughout the United States, or overseas.

Cities of the Future

You can see this emerging reality in places like Ditmas Park, Brooklyn. Nelson Ryland, a film editor with two children who works part-time at his sprawling turn-of-the-century Flatbush house, suggests that the key to an urban revival lies not in the spectacular but in the mundane. “It’s easy to name the things that attracted us — the neighbors, the moderate density,” he says over coffee in a house close to that occupied by Ellen and Joe. “More than anything it’s the sense of community. That’s the great thing that keeps people like us here.”

This “sense of community” will become the key currency of sustaining urban communities. Such middle-class sensibilities get short shrift by urban scholars such as Richard Florida, who argue that in the so-called “creative age” places of residence should be “leased” like cars. In his mind, single-family homes, the ideal of homeownership, should be replaced “by a new kind of housing” that embraces higher forms of density without long-term commitment to a particular residence or location.

In fact, the sustainable city of the future will depend precisely on commitment and long-term residents. It also will rest on the revival of traditional institutions that have faded in many of today’s cities. Churches — albeit often in reinvented form — help maintain and nurture such communities. Similarly, extended family networks will be critical to future successful urban areas. As Queens resident and real estate agent Judy Markowitz puts it, “In Manhattan people with kids have nannies. In Queens, we have grandparents.”

The modest and mundane ties between people that exist in such places represent the key to reviving America’s urban regions in the coming generation. It is in our urban neighborhoods — not in the glamour zones and high-end downtowns — that our country’s cities can find a new life and purpose in the 21st century.

This article originally appeared at American.com.

Suburbs and Cities: The Unexpected Truth

Wendell Cox — Sun, 17 May 2009 00:12:29 -0400

Much has been written about how suburbs have taken people away from the city and that now suburbanites need to return back to where they came. But in reality most suburbs of large cities have grown not from the migration of local city-dwellers but from migration from small towns and the countryside.

It is true that suburban areas have been growing strongly, while core cities have tended to grow much more slowly or even to decline. The predominance of suburban growth is not just an American phenomenon, but is fairly universal in the high income world).

This is true in both auto-oriented and transit oriented environments. Suburbs have accounted for more than 90 percent of growth in Japan’s metropolitan areas with more than 1,000,000 residents, both those with high transit market shares and those with high auto market shares, The same is true in Canada, Australia and New Zealand.

In Western Europe, where vaunted transit systems carry a far smaller share of travel than cars, all growth and then some has been in the suburbs, as overall core city populations have declined. Indeed, the same trend is well underway in middle and lower income world urban areas. In such places as Mexico City, Sao Paulo, Buenos Aires, Manila, Shanghai, Kolkata, and Jakarta, nearly all population growth has occurred in the suburbs, rather than the core cities.

As the world faces a more expensive energy future and as efforts are intensified to reduce greenhouse gas (GHG) emissions, it is sometimes suggested that people need to “move back” to the cities. This is a dubious and needless strategy, which reveals a fundamental misunderstanding of the dynamics of metropolitan growth.

Most suburban growth is not the result of declining core city populations, but is rather a consequence of people moving from rural areas and small towns to the major metropolitan areas. It is the appeal of large metropolitan places that drives suburban growth.

Larger metropolitan areas have more lucrative employment opportunities and generally have higher incomes than smaller metropolitan areas. This is particularly the case in developing countries. As a result, the big urban areas attract people seeking to escape what are often the stagnant or even declining economies in smaller areas.

There are, of course, significant individual exceptions. Virtually all of the first world core cities that have achieved a population of more than 400,000 – if they have not expanded their boundaries and did not have substantial empty land for development – experienced losses to 2000. Yet even in most of these cases, the majority of suburban growth was from outside the metropolitan areas, rather than from the core cities. For example:

St. Louis is a champion among the ranks of population losers, having lost the greatest percentage of its population of any large municipality in the world, (dropping from nearly 860,000 in 1950 to 350,000 in 2000). Indeed, it may be fair to say that St. Louis has lost more of its population than any city since the Romans sacked Carthage. Yet, even in St. Louis, 60 percent of suburban growth was from outside the metropolitan area, rather than from the city.
Few core cities have lost the nearly 1,000,000 residents that have fled Detroit since 1950. Yet, even in Detroit, 65 percent of suburban growth was from outside the metropolitan area, rather than from the city.
The city of Chicago lost 725,000 residents between 1950 and 2000, yet 82 percent of the suburban growth was from outside the metropolitan area.
The city of Philadelphia lost 550,000 residents between 1950 and 2000, yet 76 percent of the suburban growth was from outside the metropolitan area (See lead picture of Philadelpia downtown).

The central city of Paris lost approximately one-quarter of its population from 1965 to 2000 (675,000), while the suburbs gained nearly 3,850,000 residents. More than 80 percent of suburban Paris growth came from outside the region.
The central city of Lisbon experienced a 30 percent population decline from 1965 to 2000. Yet suburban Lisbon’s growth was 80 percent from outside.
Stockholm was another losing core city, yet more than 90 percent of the suburban growth came from smaller towns and cities.
Despite Zurich’s nearly one-quarter population loss 83 percent of the suburban gains derived from outside the region.
The core city of Tokyo (which really doesn’t exist except as 23 separate subdivisions or kus of a city abolished during World War II) lost more than 700,000 residents from 1965 to 2000. Tokyo’s suburbs, however, attracted more than 90 percent of their growth from region.

In some metropolitan areas, smaller towns and rural areas contributed less to suburban growth. In Amsterdam, 50 percent of the suburban growth was from outside the metropolitan area. In Copenhagen, the number was 40 percent of the suburban growth while in Birmingham (UK) only 30 percent of the suburban gain was from outside.

In a few cases, both the core city losses were greater than the suburban gains, such as in Pittsburgh, Liverpool and Manchester. In these cases, it is fair to attribute all of the suburban gains to core city losses.

Unlike the cases above, however, most core cities gained population. This includes all in Canada, Australia and New Zealand and many in the United States. As a result, none of the suburban growth in the corresponding metropolitan areas can be attributed to an exodus from the city, because there, on balance, was no exodus.

Suburbanization is often characterized as reducing densities, but in fact it has done just the opposite. Most suburbanites come from smaller places; they may prefer suburbs because they are less dense, safer, or simply more manageable than the core cities. But they are also, almost invariably, more dense than where they lived before. Suburbanization is thus a densifying dynamic, albeit one that is less dramatic than preferred by many planners and architects.

In this sense, suburbs have to be seen not as the enemies of the city, as just a modern expression of urbanization. They are neither the enemies of the city, nor are their residents likely to move “back” there. You cannot move back to someplace you did not come from.

The Twilight of Special Interest Politics

Roger Selbert — Sat, 16 May 2009 02:34:09 -0400

Special interest groups are the scourge of the common interest, are they not? The Founding Fathers, in The Federalist Papers, recognized the danger posed by “factions,” but assumed that competing groups would keep the balance. They could not have foreseen our current Special Interest State, wherein tens of thousands of special interest groups exert such profound influence on politics, policies and life in the United States.

Nowhere is this more evident than in California, my adopted home state. In California, as in much of the country, government is forever and hopelessly trapped in interest group politics and therefore, forever large and growing. Interest groups are intractable, in this view, because they are always able to devote more resources to their specific causes and concerns than are any conceivable guardians of the common interest.

California’s predicament is a perfect illustration of public choice theory, which shows that government will always act in its own interest, interest group politics seem to be the logical and inevitable end-point of democracy. Multiply this process by the tens of thousands of special interests that lobby, petition and influence politicians and the public sector and it becomes clear why government will tend only to grow, never to shrink, crowding out the private sector. Over the decades the number of special interests has expanded exponentially, whether Democrats or Republicans control Sacramento or Washington.

But eventually this system must overwhelm carrying capacity. Maybe in California we are approaching that limit even faster than the rest of the country.

Debts, deficits, waste, inefficiency and voter/taxpayer fatigue must at some point render the special interest state untenable. Readers of this web site are familiar with the dire situation in California: a budget deficit of gargantuan proportions, driven by increases in public sector spending that have outpaced population growth plus inflation, now combined with a drastic drop in state revenues. Attempting to deal with the situation, the Governor and legislators have placed six measures on the May 19th special statewide election ballot. Proponents claim the measures will stabilize the budget process, save billions, modernize the lottery, preserve needed services, and cap elected officials’ salaries. Opponents claim the measures will raise taxes, not put a meaningful cap on spending, and not solve the state’s basic problems.

A new poll by the Public Policy Institute of California asks voters, “Would you say the state government is pretty much run by a few big interests looking out for themselves, or is it run for the benefit of all the people?” Among likely voters, 76% say special interests dominate the state government which, only a few decades ago, was once touted as having one of the best, most forward-thinking governments on the planet!

According to Shane Goldmacher, writing in the Sacramento Bee, they’re right. The six ballot propositions, agreed upon in February’s budget deal between Governor Schwarzenegger and the Legislature, are designed to please or neutralize the state’s most powerful political players: labor unions, public service workers, the teachers union, casino-operating Indian tribes, the liquor, beer and wine industry, and the oil industry, to name a few.

Some of these very interest groups protected in the budget deal are bankrolling the campaign to ratify it. But, writes Goldmacher, the influence of such groups is, more often than not, simply unspoken.

According to Jerry Roberts and Phil Trounstine (www.calbuzz.com) voters hate the propositions for the following reasons:

They were carefully crafted to avoid causing any pain or requiring any sacrifice by Sacramento’s heavyweight special interests.
They were written with stultifying complexity, the better to sell them to voters with simple-minded sound bites.
Their political perspective has far more to do with inside-Sacramento tactics and strategy than with the real lives of real people.

The Third American Republic
Clearly, in California and on the federal level, the special interest state is untenable in the long run, and what cannot continue will stop. How and when it will stop, and what will replace it, is the subject of an essay in The American by James DeLong, “The Coming of the Fourth American Republic.”

The special interest state is the third iteration of American politics and policy, in DeLong’s analysis. The first was the Civil War and its aftermath, which established that sovereignty belongs to the nation first and the states second. The second great institutional upheaval was the New Deal, which radically revised the role of government to include responsibility for the functioning of the economy.

As governmental power expanded, it needed to delegate management and implementation of tasks to those with administrative abilities or specific expertise. This stimulated the rise of agencies, legislative committees and subcommittees, and yes, interest groups. Eventually, perhaps inevitably, power came to rest with those with the greatest interest or the most money at stake. Thus was the Special Interest State created, with various interest groups seizing control over particular power centers of government and using them for their own ends.

This Special Interest State must expand, explains DeLong: the larger and more complex the government becomes, the higher the costs of monitoring it. No one without a strong interest in a particular area can be expected to possess the time and energy to keep track. As a result policy turf is left to the beneficiaries of government action.

Special interests wield their power through laws, regulations and the tax code. Voters may object, and politicians may pronounce and promise, but nothing ever gets done to diminish special interest power. In fact, special interests have become their own special interest: the millions of lobbyists, governmental officials and compliance officers that make a living from the system and resist all reform.

But the special interest Third American Republic, writes DeLong, is falling of its own weight. American progress cannot proceed without reforming it.

The End of the Third Republic
This Third Republic has had a good run, and could continue, writes the author, but it is more likely that the Special Interest State has reached a limit. This may seem a dubious statement, at a time when the ideology of total government is at an acme, but DeLong offers a catalogue of the current regime’s insoluble problems:

Sheer size. Government in the US consumes about 36% of GNP (federal and state combined). This does not reflect the impact of tax provisions, regulations, or laws, however, so an accurate estimate of how much of the national economy is actually disposed of by the government is impossible. Whatever it is, it is growing apace, and the current administration is determined to increase it considerably.
Responsibility. As the government has grown in size and reach, it has justified its claims to power by accepting ever more responsibility for the economy and society. Failure will result in rapid loss of legitimacy and great anger.
Lack of any limiting principles. There is no limit on the areas in which special interests will now press for action, nothing that is regarded as beyond the scope of governmental responsibility and power. Furthermore, special interests try to convert themselves into moral entitlements to convince others to agree to their claims. Compromise is regarded as immoral.
Conflicts. The combination of moral entitlement, multiplication of claimants, and lack of limits on each and every claim throws them into conflict, and rendering unsustainable the ethic of the logrolling alliances that control it.
U.S. politicians do not grasp the situation. None of the leaders of any branch are demonstrating an appreciation of the problems and limits of the Special Interest State.
Past Governors and Presidents have understood the importance of keeping special interests at some distance. They may have given up the agencies, but most ensured at some level, the executive, at very least, acted in the overall public interest. This is no longer the case.

Over the past few years, political winners have become increasingly aggressive. Losers have become increasingly restive, ready to attack the legitimacy of the winners’ victory. This was true for George Bush and now Barack Obama. Politics has become more like a contest between equally fierce warring gangs than a civilized contest for ideas. Each party is regarded by the other as a principle-free alliance of special interests, eager to loot the government.

What Comes Next?
Given these trajectories and the lack of any mechanisms for altering them, writes the author, it is hard to see how the polity of the Third Republic can continue. Nor is there any easy self-correcting mechanisms in the Special Interest State. Quite the reverse; the incentives all seem to be pushing the accelerator rather than the brake.

Thus the need for a new break: what DeLong calls the Fourth American Republic.

What will this look like, and how will it come about? Two possibilities for change seem most promising, he believes. The first is a third political party that explicitly repudiates the present course and requires that its members reject the legitimacy of the Special Interest State. This would require a certain almost religious fervor, but the great tides of history and politics are always religious in nature, so that is no bar. In California at least this comes up often in meetings between interested, but frustrated, citizens.

This second would be more bottom-up. In California, there is a growing movement to change the Constitution. This could also occur on the national level as well. There could also be a groundswell to force responsible change within the current constitutional framework.

This may seem a bit pie in the sky but, as the California crisis worsens, that of the country may not be far behind. Something, quite clearly, needs to change.

Dr. Roger Selbert is a trend analyst, researcher, writer and speaker. Growth Strategies is his newsletter on economic, social and demographic trends; IntegratedRetailing.com is his web site on retail trends. Roger is US economic analyst for the Institute for Business Cycle Analysis in Copenhagen, and North American agent for its US Consumer Demand Index, a monthly survey of American households’ buying intentions.

Lenny Mills to Urban America: Clock Is Ticking for Ranks of ‘New Homeless’

Jerry Sullivan — Fri, 15 May 2009 00:36:25 -0400

I always do my best to make time for Lenny Mills because he’s earned that sort of consideration.

Mills is the fellow who wrote several pieces under the banner of his trademark “7 Rules” outline, where he applies the tricks he learned as a telemarketer to analyses of real estate development, politics, and other matters.

Mills did an especially fine job on the “7 Rules of Downtown Gentrification,” which appeared in the Garment & Citizen’s issue of April 21, 2006. He laid out a number of reasons – seven, to be exact –to consider the possibility that the residential real estate boom ringing through Downtown Los Angeles back then would eventually turn into a busted bubble.

Events have certainly borne out Mills’ prediction, so he brought credibility with him on his latest visit to my office.

Mills waved a recent copy of USA Today at me, saying that he’s worried about the sort of folks who were featured in a recent front-page story in the national publication, a piece that described the circumstances of some of “the new homeless.” These are individuals who worked steadily their whole lives before hitting the skids and losing their homes in the current economic downturn. It’s a trend that has become familiar these days, with homeless encampments cropping up in all sorts of places, including Los Angeles.

Mills has some added credibility when he speaks about homelessness – he spent a number of years living on the streets. He knows what it means to go through life with a weather-beaten face, watching opportunities slip away for lack of a telephone number to leave behind when seeking work.

Mills has a place to live now, but he remains determined to inject his warnings about the new homeless into the public debate. The clock it ticking, he says, and the deterioration that comes with life on the streets will make it harder and harder for folks to climb back into mainstream lives. Once the wardrobe starts to fray, he says, the odds against getting back on track grow longer. Once the teeth start to go, he adds, homeless individuals can just about write off any return to the life they once knew. Each bit of deterioration makes it tougher for the homeless individuals – and more likely that they will become permanent burdens to the rest of us in one way or the other.

Mills is remarkable in a number of ways, including the ability he mustered to retain his social skills during his time on the streets – something that many individuals quickly lose. I disagree with him on some things, but I can’t fault his ability to make fine use of the language to get his points across.

Mills used such skill during our recent talk, driving home a couple of points about the new homeless: Our society has a narrow window of opportunity to pay for programs to reverse the trend – and a failure to act soon will mean far greater costs in terms of human lives and the public purse.

Mills can spout chapter and verse on what he sees as the causes of the increases in homelessness over the past 40 years. He can cite demographic trends, economic patterns, and public policies to make a compelling case that a lot of folks were swept into life on the streets by causes beyond their control. He firmly believes that we as a society could have prevented most of the homelessness we have seen over the years had we not lacked the will to do so.

I wouldn’t describe Mills as a fun guy. He’s a valuable fellow, though, because he’s willing to tell you what you’d rather not hear – and he’s capable of doing so in reasoned tones.

Give Mills his due for hitting upon something of vital importance now. It’s clear that all the talk we’ve heard about addressing the old homelessness has led to no great progress over the course of decades. What did that latest Blue-Ribbon Public-Private Committee to End Homelessness Forever accomplish besides a photo opportunity, anyway?

Someone wake the Blue Ribbon brigade and fire all of them.

We have a whole new homeless problem – and we’re in desperate need of new ideas.

Jerry Sullivan is the Editor & Publisher of the Los Angeles Garment & Citizen, a weekly community newspaper that covers Downtown Los Angeles and surrounding districts (www.garmentandcitizen.com)

Smart Growth? Or Not So Bright Idea?

Rick Harrison — Thu, 14 May 2009 00:28:17 -0400

Smart Growth and New Urbanism have increasingly merged into a loosely aligned set of ideas. The benefits of this high-density housing viewpoint are fast becoming a ‘given’ to planners and city governments, but studies that promote the advantages often omit the obvious disadvantages. Here are some downsides that show a much different story:

Smart Growth or Dumb Idea?

One goal of Smart Growth is to move our society away from dependence on cars, and many Smart Growth plans intentionally make it difficult to drive through the neighborhood, making walking more inviting. Smart Growth planners advocate short blocks in a grid pattern to distribute traffic (vehicular and pedestrian) evenly within a development. These short blocks produce a multitude of 4-way intersections, and add a multitude of those trendy “turnabouts,” to make a bland site plan look more interesting.

But all of this together destroys “flow”. On the other hand, in a grid planned neighborhood you might drive a straight line with an occasional turn, giving the impression of a much shorter drive than a curved subdivision. But with short blocks, a driver must stop completely, pause, then when safe accelerate through the intersection onto the next intersection, then repeat… multiple times. This scenario uses a tremendous amount of energy; the car eats gas.

To understand this point clearly, go out and try to push a modern car. All the safety and convenience features, even in the most basic car sold today, add weight. Even a Toyota Prius is just under 3,000 lbs. While a given model may get great mileage the bulk of energy consumed is in getting the thing moving from a full stop. Should a vehicle maintain a constant flow (at any speed), the energy usage plummets, compared to stop-and-go traffic patterns that intentionally force conflicts.

To make matters worse, the majority of vehicular vs. pedestrian accidents occur at intersections. Smart Growth designs have many more intersections than conventional suburban plans . Even more dangerous, Smart Growth walkways are placed close to the where the cars turns. Check out Traffic by Vanderbilt for an understanding of the psychology of driving.

One may argue that cars will become more efficient. So what? This stop and go scenario also consumes time.

Rooting Out Tree Issues

Nobody can argue against the character of a tree-lined street… no one, that is, except the city Public Works department that must maintain structures being destroyed by trees growing in close confines to concrete walks and curbs. Smart Growth/New Urbanist compact front yard spaces are typically 10 feet or less. This simply cannot provide for enough room for tree growth when there is a 4’ wide walk typically a few feet away from the curb, the area where street trees grow. Without trees to define the street, these solutions have very little organic life to offset the vast volume of paving in front of each porch.

Now and in the near future there will be a new era of solar heat and power, most of which will be mounted on the roofs of homes. Guess what blocks the sun's energy? Yep – street trees! High density means that the proximity of trees to roofs will deter the sun’s energy from reaching those solar panels.

Get Real About Presentations, Porches and People

Typically, when a high-density development is proposed, the renderings show large green common areas bounded by homes with grand porches. The presentations usually show only a few cars parked along the street, and plenty of residents enjoying the spaces lined by mature trees that have had about 20 years of growth. This misrepresentation helps to win over councils, planning commissions and concerned neighbors. What is not shown in the presentations for approvals are claustrophobic, intense areas, such as the typical street most residents will live on, or perhaps the views down the alleys.

There may be some neighborhoods that are built as represented, but architectural and land planning consultants are likely to stretch the truth more than a wee bit to gain approvals. Where can we see the original presentation images compared to what actually gets built?

Those inviting large porches where neighbors sit and gossip in the presentation: Do they ultimately end up as stoops hardly large enough to fit a standing person? Those large mature trees: Are they actually just seedlings? Does the real streetscape have people walking on the typically narrow 4 foot wide walkways? How many people are walking along the roadway instead? Are the streets lined with just a few cars, as the renderings show, or are they packed with unsightly vehicles, while the nice cars are likely stored in the rear garage?

The Evolution of Pavement

Suburbs have changed during the last few decades. For example, in Minnesota thirty years ago an average suburban lot would have been 15,000 square feet and 90 to 100 feet wide. Today, 8,000 square feet and 70 feet wide would be more typical. In a conventional suburban plan, there weren’t any alleys, and the front loaded driveways were appropriately tapered. There were few side streets. The lots might have been 20% larger than in a Smart Growth high density plan, but the street layout might have had about 30% less linear feet of street compared to a Smart Growth grid layout. In the south, where the typical suburban lot is about the same size as that high density lot, the numbers favor the conventional layout even more; the total paved surface area could be 50% or more lower. So, the Smart Growth/New Urban plans place a greater burden on the tax payers to municipally maintain (more) paved surfaces.

A Final Consolation...

In reality, fire and police departments, as well as traffic engineers, review suburban development plans. And often the original high-density narrow street proposal doesn’t make it all the way to approvals. With or without the popularity of Smart Growth and New Urbanism, a much wider paved section or a compromised width is often the ultimate result.

Rick Harrison is President of Rick Harrison Site Design Studio and author of Prefurbia: Reinventing The Suburbs From Disdainable To Sustainable. His websites are rhsdplanning and prefurbia.com.

Who will win the Car-wars?

Wed, 13 May 2009 01:45:35 -0400

General Motors, the venerable American auto manufacturer is sitting on the cliff’s edge in North America with a recent 3-month loss of $6 billion. However, GM watched its sales in China skyrocket 50% for the month of April, 2009. Ironically, Toyota, the company many Americans now cheer for, has posted a $7.7 billion loss for the first quarter.

This now proves, without a doubt, that the auto industry – not just in the US – is going through a massive crisis. But it’s clear that American manufacturing has reached a critical, historical turning point. What was once good for General Motors is no longer good for the rest of the nation. The days are gone where an automobile must be designed in the Detroit region and manufactured in the Great Lakes. We have seen a shift in trade and production location from the north to the south. However, geographic arguments are only a small part of the overall challenge to the industry, especially in North America.

When the dust settles, what will the American auto industry look like?
Regardless of what some may say, there is no such thing as an “American” vehicle anymore. We are fast shifting into a global economy that requires the sharing and collaboration of multinational resources from across the globe. Consumers demand quality products at very affordable costs. Corporations have no choice but to comply with consumer demand even if it means off-shoring production and even trimming quality in order to save money. In many ways, this is the Wal-Martization of consumer goods.

The 21st-century automotive industry will be geographically spread throughout North America. Modern technology allows engineers to work from just about any location regardless of population, climate or infrastructure. However, many engineering outfits have found that locating brainpower in dynamic places improves quality and innovation. A dynamic place is a place where the educated and skilled want to work. These includes places like southern California (where most of the design studios are located), Ann Arbor, Austin, and others.

In the 1980s the Midwest watched the southern states gear up and recruit non-Detroit manufacturers, in large part due to the lack of unions in the land of Dixie. We have seen the southern United States explode in production and manufacturing capability. The two main reasons for this were lack of unions in the South as well as tax-payer funded incentives. However, the idea of receiving incentives from the public coffer can backfire.

Just about every state offers some form of tax breaks or incentives to corporations looking to construct new facilities. Every large corporation now looks to the state where they can get the most incentives. Everything else, such as skilled workforce, distribution, infrastructure – that all comes secondary. In many ways, this is just an example of robbing Peter to pay Paul. And it doesn’t work. You cannot simply take tax dollars from one area of the state and pour them into another region with the long-shot hope that an industry will grow in that certain region. This is exactly what Tennessee is doing.

However, the southern states have struggled and will continue to struggle to attract brainpower and engineering talent. What the American public doesn’t realize is that there is a lot more to the creation of a vehicle unit than mere assembly. Besides production, there is fabrication, engineering, design, testing, marketing, legal, and distribution. Even today, much of the world’s automotive intelligence and engineering is located in Southeast Michigan. This fact irks southern powerbrokers who have been so successful at bringing grunt work to their states.

We will continue to see massive amounts of automotive-related manufacturing relocate to Mexico due to the extremely low cost of production. Many of the Japanese and German manufacturers are already starting to notice the negative consequences of setting up production facilities in the United States. Nissan, Toyota and Honda have all initiated cuts and hiring freezes in their American manufacturing facilities. These companies have also initiated major contact employee programs rather than hire full-time fully-hired help.

So what happens now in the old auto belt? Certainly, Ohio as well as Michigan must figure out how they can re-deploy their engineering talent. Each seems to graduate a huge number of students year after year but this tends to benefit other places. States such as Wyoming, Arizona, Washington, and others have held job fairs in Michigan in order to gain talent. If there are no jobs in Michigan, why do they keep graduating so many students?

Even without George Bush and the GOP in power, Texas seems also to be a big beneficiary of this brain drain. But for how much longer can this continue? Remember Texas went bust in the early 1980s with low energy prices. It could happen again.

Another natural winner in the car-wars could be the southern states, but only once they consolidate their efforts to bring knowledge and engineering to the South. It is much easier to offer incentives for a production facility than to woo an engineering lab.

Critically, there still seems to be a lack of emphasis on higher education in the south. Even the best universities in the South cannot fully compete with the universities in the Midwest from a technical standpoint. Institutions such as Michigan, Wisconsin, University of Chicago, Michigan State and Indiana are still levels above the universities found in Kentucky, Tennessee and Georgia. The Midwestern schools built their solid knowledge and research background over a period of decades. This cannot easily be duplicated.

To be sure, the auto-dominated economies of Michigan and Ohio will be shrinking in the future. These states are shedding their manufacturing sectors while reinforcing their knowledge-based sectors. Over time they may find it much easier to morph into a knowledge-based economy by using previous know-how than to build a knowledge economy from scratch. Michigan, for example, may have been hit hard by this global schism in manufacturing, yet it has been left with the know-how and knowledge left over from industry in the form of a strong university system. In contrast, nowhere in the south can we find that.

In conclusion, some individual Midwestern cities may come out of this crisis better than many expect. Younger workers in the future will look at specific towns such as Madison and Ann Arbor, which offer an excellent quality of life, rather than head off to the sunbelt. This may be particularly true as they enter their 30s and look for a good place to raise their children, hopefully close to grandparents. The Midwest may be down, but not all of it is out – far from it.

Amy Fritz was born in Cambridge, England during World War II. Her mother was a seamstress and her father a pilot with the RAF. Her uncles worked in various capacities within the British automobile industry and her father became an engineer and professor.

After studying engineering at Cambridge, Fritz developed an interest in automobiles and went to work for a now defunct automotive supplier. Her occupation took her to Europe, Asia and North America, where she eventually settled as a technical engineering contractor for various auto-related companies. She is now semi-retired and living in the Denver area.

Obama's Energy Triangulation

Joel Kotkin — Tue, 12 May 2009 08:23:42 -0400

With the possible exception of health care reform, no major issue presents more political opportunities and potential pitfalls for President Barack Obama than energy. A misstep over energy policy could cause serious economic, social and political consequences that could continue over the next decade.

To succeed in revising American energy policy, the president will need to try to triangulate three different priorities: energy security, environmental protection and the need for economic growth. Right now, the administration would like to think it could have all three, but these concerns often collide more than they align.

A president should have no higher priority than to ensure that America becomes more independent from foreign producers, particularly those outside North America. This represents a great opportunity to diverge from the failure of the Bush administration to reduce this dependence and encourage conservation.

Instead, the best course could be called an “all of the above” strategy. This would embrace not only conservation and investment in renewable fuels but also aggressive expansion of the electric grid, the domestic fossil fuel industry and nuclear power. In particular, the country should focus on exploiting our vast reserves of relatively clean natural gas and drive technologies that could also clean up emission from coal, our other large resource.

Instead of promoting fossil fuel development, environmental lobbyists — and Obama — like to talk about “green jobs.” Although green elements need to be integrated into all walks of economic life, the notion that green jobs can provide economic salvation seems more like a marketing strategy than one based on reality.

Given current energy prices, large-scale numbers of green jobs can be created only through huge subsidization, the costs of which would, of course, be born by other parts of the economy. At the same time, jobs lost in fossil fuel production and manufacturing because of the high costs associated with renewables would most likely far outweigh any imaginable surge of green jobs.

A recent study conducted in Spain, another country with a history of strong subsidies for renewable fuels, found that the money invested in green jobs actually cost so much that the overall employment effects were negative. Increasingly, the “green jobs” mantra seems like a story we tell our children to get them to sleep.

The mantra also obscures the critical fact that the true goal of the environmental lobby is, above all, to shrink the much detested “carbon footprint” of people and communities. People like Obama’s science adviser, John Holdren, do not place much priority on maintaining much of the present American way of life. An acolyte of the many-times-wrong neo-Malthusian Paul Ehrlich, Holdren has promoted the “de-development” of Western societies as a way to lower carbon emissions and redistribute the world’s wealth.

Such an approach might be popular at academic soirees or even among some investment bankers who see their future in Shanghai as opposed to Saginaw or Sacramento. It may prove a bit less popular among those, particularly in the middle and working class, who might not welcome seeing their families and communities de-developed.

This should be obvious to the president and the clever political tacticians around him. Recent polls reveal that voters now rate global warming among their 20 least-critical concerns. Not surprisingly, the economy and jobs ranked as the top two.

There are also serious regional issues to consider. Areas with economies tied to fossil fuels — mainly in Texas, the Great Plains, the Southeast and Appalachia — view the issue differently than do places like Manhattan, San Francisco or Chicago’s Gold Coast, whose residents can afford much higher energy prices and have few ties to traditional productive industries.

As leader of both the country and his party, the president will have to consider these regional and class divides. The Republicans may be irrelevant, but the swelling ranks of more-pragmatic Democrats from Western, Southern and exurban districts cannot be so easily dismissed.

In this sense, the possibility of the election next year of Houston Mayor Bill White, a Democrat, to the Senate represents more of a threat to the green lobby than a Republican victory does. White, like many Texas Democrats, has close ties to the energy industry and has already expressed grave misgivings about the administration’s renewables-obsessed carbon emissions policies.

Given growing opposition in Congress, green groups and their allies in legal circles now argue that the administration can transcend the messy political process by imposing a strict anti-greenhouse-gas policy through the Environmental Protection Agency apparat. This has the virtue of allowing the president to avoid direct confrontation with many congressional Democrats but leaves power firmly in the hands of zealots for whom both energy independence and economic growth are less-than-compelling priorities.

Ultimately, energy policy is too important to the economy and security to be left in the hands of bureaucratic zealots and their allies. It is up to the president to forge an energy program that, while looking toward renewables in the long run, does not sacrifice the livelihoods of millions of American workers today or leave our country ever more susceptible to the machinations of hostile foreign powers.

This article originally appeared at Politico.

Austin's Secrets For Economic Success

Joel Kotkin — Tue, 12 May 2009 00:27:17 -0400

Few places have received more accolades in recent years than Austin, the city that ranked first on our list of the best big cities for jobs. Understanding what makes this attractive, fast-growing city tick can tell us much about what urban growth will look like in the coming decades.

Austin's success is not surprising since, in many ways, it starts on third base. Two of its greatest assets result from the luck of the draw; it's both a state capital and home to a major research university.

Our ranking of the best cities for job growth includes many college towns--from Fargo, N.D., (home to North Dakota State) to Athens, Ga., (University of Georgia), Durham-Chapel Hill, N.C., (Duke and University of North Carolina) and College Station, Texas (Texas A&M).

Being a state capital also helps. Baton Rouge, La., home to both the state government and Louisiana State University, ranked seventh on our list of the best medium-sized cities for employment. This confluence of institutions also accounts in large part for the relatively decent rankings of two Midwestern cities, Indianapolis and Columbus, Ohio, in spite of the generally sad situation in that region.

That's because colleges and state governments offer stable employment--since they cannot or will not outsource jobs to India or China. These places also tend to be inhabited by reasonably well-educated people whose stable incomes makes them less vulnerable to contractions in competitive industries like finance, manufacturing, construction or information.

"We're pretty close to recession-proof," suggest Chris Bradford, a local attorney and blogger in Austin. "It's almost anti-cyclical. In bad times, the students want to stay here."

There is a third factor, however, that adds to Austin's special sauce: the fact that it is located in Texas, the one fast-growing mega-state. With low taxes and low regulation at the state level, Austin--no doubt to many locals' consternation--is a great environment not only for public sector employment but also private sector growth.

Its success contrasts dramatically with the relatively poor employment status of capitals in business-unfriendly states (such as Sacramento, Calif., which ranked 60th among large cities) as well as other college towns like Ann Arbor, Mich., home to one of the nation's best public universities, the University of Michigan. (Among medium-sized cities, Ann Arbor came in 93rd.)

Austin, essentially, reaps the benefits of being a deep blue, Democratic island in a red-state sea. The university and state government employ large numbers of people who might want higher taxes and greater regulation--but they can talk the redistributionist's game without feeling any of the pain.

This is not to say that Austin itself--that is, its urban core area--does not try to trot out its blue, and "green," trimmings. Like every college town, Austin likes smart growth, mass transit and high density.

But in reality, Austin is not a dense region. In fact, its metropolitan population per acre puts it in the middle of the nation's largest areas, well behind not only Los Angeles and New York but also Houston and Dallas.

Even central Austin seems rather spread out and suburban compared to traditional East Coast cities. Smaller, older homes--mainly cottages--dominate neighborhoods close to downtown. Recent attempts to go high-rise have not been notably successful, as the auction signs on the sides of some new towers suggest.

Yet the urban center increasingly represents less and less of the area's total employment and houses fewer and fewer of its residences. Today, the city itself is home to well under half the metropolitan population of 1.5 million.

As in many regions, notes blogger Bradford, over the past decade the strongest growth has occurred in Austin's periphery. Even as the city itself has enjoyed strong job and population growth, the biggest increases have taken place in suburban outposts outside city limits, like Williamson, Bastrop and Hays counties, as well as parts of Travis, the county that is home to Austin. In fact, Williamson was the nation's sixth fastest-growing county last year, while Hays ranked 10th.

Surprisingly, these suburban areas are the places most driving Austin's economic success. Why? Two reasons: affordability and livability. By Texas standards, the city is not cheap. It costs between $350,000 and $400,000 for a nice three- or four-bedroom house in a good school district, say, 20 minutes from downtown. However, a similar place in the 'burbs of Silicon Valley, San Francisco, Boston or Irvine would run at least twice as much.

Local Realtor and blogger Shannan Gonyea-Reimer adds that, a bit further away from town, home prices can drop as low as $150,000. "People come from California, and they are shocked," she says.

This price structure, along with the human capital attracted to the University of Texas, has in turn propelled the rapid expansion of the non-governmental economy in places like Cedar Creek and Round Rock, home to Dell. A recent Brookings study estimates that central Austin employment grew by almost 13% between 1998 and 2006. The number of jobs more than 10 miles from the central business district increased by 77,523, or 62%, according to the study.

Austin has seen remarkable overall employment growth--almost 34%--in the last decade. With that figure, it leaves its major hip tech rivals in the dust. Over the same period, for example, San Jose/Silicon Valley has lost 6% of its jobs; San Francisco, around 1.6%. Boston, Austin's other big high-tech competitor, enjoyed only a 1.2% gain.

Again, this growth stems in part from the unique combination of both an appealing city center and attractive suburbs. The city's lively urban core remains a lure for affluent professionals, young singles and, of course, students. However, unlike places like New York, Boston and San Francisco, the sprawling 'burbs provide an affordable place for people to move to when their hardcore clubbing days are over.

"California might work well for the apartment-dwelling, single-guy lifestyle person, but when you get married, you can't afford Los Gatos," says former Silicon Valley entrepreneur Mike Shultz, the CEO of Infoglide, a software firm headquartered on Austin's outer ring. "In Austin, the same person can grow up, move into a reasonable house and have a reasonable life."

This does much to explain why Austin has enjoyed a migration pattern unlike that of its primary competitors. Its residents may start off hip and cool, but the city also accommodates their often inevitable evolution to Ozzie and Harriet. This allows individuals and companies to plan to stick around. One doesn't have to have the short-term mentality so common in the Bay Area, L.A., Boston or New York.

Ultimately, it is this combination of a "cool" downtown culture--with excellent restaurants as well as great music--and a more sedate, affordable periphery that makes Austin a home run.

"It has a hip cool side to it," Shultz observes, "but it's also a great place to raise kids."

A caveat to all this: We also have to consider scale. With roughly 1.5 million people, Austin simply offers more convenient choices than a megalopolitan behemoth like Los Angeles, New York or the Bay Area. In Austin, nice, single-family homes within walking distance of cool urban streets are not uncommon or absurdly expensive--and even a larger, more affordable house out in the suburbs is usually less than a half an hour from downtown.

Additionally, Texas, unlike its main rival California, is not teetering on the edge of bankruptcy and is instead a stable long-term bet in this recession. Rather than haggling with bankers or public employee unions, it is busy building its future: attracting new comers, investing in its university and building new transportation infrastructure.

"Austin is off the charts livable, but it's in a state that makes it viable," says Shultz, the entrepreneur. "You can't say that about California and many of the other places where our competitors are."

This article originally appeared at Forbes.

Cap and Trade: Who Wins, Who Loses

Susanne Trimbath — Sun, 10 May 2009 01:30:16 -0400

President Obama recently announced his plan for environmental protection and Congress took up the debate. Called “Cap and Trade” Obama explained it simply in several public appearances. The government puts a limit on the total amount of carbon emissions that are acceptable in the United States. Carbon emissions come, basically, from burning carbon-based fuels – natural gas, petroleum and coal – in the production and use of energy. Users and producers of energy emit carbon dioxide (and other pollutants) into the atmosphere.

As Richard Ebeling writes at the Mises Institute, under cap and trade “the government will formally nationalize the atmosphere above the United States.” The program bypasses fundamental questions like what is pollution, how much does it take to cause harm, who is harmed by it and linking the causation between pollution and harm. Fear of lawsuits, torts and injunctions (which could provide the answers) keeps the Administration from addressing these questions head-on. Reliance on the same, tired old source for solutions – Wall Street – ensures that those being harmed aren’t necessarily the ones who will benefit.

Under Cap and Trade, each carbon-emitting entity – cars, power plants, factories, etc. – is allotted some share of that total limit, or Cap, permitted for carbon spewed into the air in the United States. For example, a power plant producing electricity for 50,000 homes and businesses might be allowed to emit 2 tons of carbon per year. That’s their “cap,” the maximum amount of carbon they are allowed to put in the air.

Now for the “trade”: if that plant finds a cleaner way to produce the electricity needed for 50,000 homes and businesses, say only 1 tons of carbon per year, they can sell the right to emit 1 ton of carbon to a power plant that puts 3 tons of carbon into the air while generating electricity for 50,000 homes and businesses. The plant that buys the right to emit an extra 1 ton of carbon per year is not required to limit their emissions to 2 tons – they bought the right for the extra ton.

It all sounds very lovely as long as the caps will control the total amount of carbon added to the air from the United States. The money gained by selling the rights for “unused” emissions will provide financial incentives to the makers and users of cars, power plants and factories to pay for the technology to be cleaner. Since the money spent to pay for the more efficient technology can be recovered in the Cap and Trade marketplace, the cost of the cleaner energy shouldn’t require higher costs to consumers of the now cleaner air.

This is great if you live near a power plant that manages to reduce the carbon emissions into the air you breathe below the maximum cap level. Here’s the problem: what if you live next to the power plant that paid for the right to put an extra ton of carbon into the air? Two things happen. First, you will be paying for the extra carbon because the power company will have to charge more to pay the cleaner power company for the right to produce the extra ton of carbon. That leads to the second problem: the extra ton of carbon is being emitted into the air around your home. That means that you could end up paying more for your electricity, while also breathing more polluted air.

Cap and Trade is not a solution, it is another money-making scheme cooked up by the “dangerous dreamers” of Wall Street. In the EU they at least have the good grace to call it a “Trading Scheme.” A global carbon trading market already exists. “Pollution rights” have been traded since the 1990s when the Environmental Protection Agency held the first auction of air emission allowances, or pollution rights, at the Chicago Board of Trade. Starting with sulfur dioxide allowances, other pollutants were added in the next ten years to eventually create a complete trading market on the Chicago Climate Exchange. “The right to use water or air is more valuable than food, and we can use the price system to allocate that right,” said Richard Sandor at the 2005 Milken Institute Global Conference (yes, that Milken). The Chicago Mercantile Exchange and the New York Stock Exchange are now prepared to expand the environmental markets for industrial pollution, also known as the carbon markets, into “futures and options on more than 40 U.S. and international indexes [for pollution rights].”

But, really, do we want the same bunch of guys that gave us junk bonds, mortgage-backed securities and credit default swaps allocating air and water? Globally? Into the future?

Like sending subprime mortgages throughout the global economy, this scheme will allow pollution rights to be bought and sold by anyone. So, it isn’t just the factory next door to the power generator in Detroit that will be emitting the extra tons of carbon – factories in other countries will be able to sell their carbon emitting rights to power companies in Detroit. It’s a great money-making scheme for a solar powered producer in Costa Rica – but a very bad deal for those breathing the air and paying for power in Detroit.

The Cap and Trade scheme is being supported by President Obama’s main economic advisor, Larry Summers – who once said we should export pollution to Africa because their per capita figures are too low. “I think the economic logic behind dumping a load of toxic waste in the lowest wage country is impeccable and we should face up to that.”

Cap and Trade gets the polluters mixed up with the victims of pollution. Shouldn’t the money generated from the sale of pollution rights accumulate to the persons harmed by the pollution? The idea that you can structure economic incentives to produce socially beneficial results really ends up being about creating paper profits for the money-traders at the expense of the people living with the pollution. This does not seem like a fair trade to me.

In California, the Canary is Dead

Bill Watkins — Sat, 09 May 2009 01:53:55 -0400

Canaries were used in early coal mines to detect deadly gases, such as methane and carbon monoxide. If the bird was happy and singing, the miners were safe. If the bird died, the air was not safe, and the miners left. The bird served as an early warning system.

Domestic migration trends play a similar early warning system for states. California’s dynamism was always reflected by its ability to attract newcomers to the state. But today California’s canary is dead.

Here’s the logic. If net domestic migration is positive, the state’s economy is reasonably sound. Economic growth, taxes, housing, and amenities are strong enough to keep people where they are and attract others. If net domestic migration is negative, it usually means that lack of economic growth, taxes, quality of life, and housing have deteriorated sufficiently to drive people away. This happens despite the inevitable pain of leaving the security and comfort of family, friends, and familiar surroundings.

California has been a destination for migrating workers and families since 1849. They came form every state and from around the world. Often the migrants faced tremendous challenges and hardship. Illegal immigrants from Mexico and other developing countries still must leap over such barriers. Often, California’s migrants came in waves. The 1850s, 1930s, and 1950s all saw huge surges tied to huge events – the Gold Rush, the Depression and the post-war boom. But even between these waves, California consistently experienced a steady inflow of new immigrants.

Immigration has been good for California. The new residents brought ambition, skills, and a willingness to take risks. They found a state with abundant natural resources, from oil to rich soil and ample, if sometimes distant water resources. Together with the people already there, they created an economic powerhouse. They built cities with amenities that rival any other. They fed much of the nation and large numbers overseas. They did this while persevering much of California’s unique endowment: the vast coastline, the Sierra Nevada, and the deserts.

California, with 12 percent of the United States population, became the world’s sixth largest economy while managing to maintain the aura of paradise at the same time. Opportunity and housing were abundant. California was a great place to have a career and raise a family.

Most recently, though, this has begun to change. California is no longer a preferred destination, at least for domestic migrants. The state’s economy is limping along considerably worse than that of the nation. Opportunity is limited. Housing is relatively expensive, even after the dramatic deflation of the past two years, except for some very hard-hit and generally less attractive inland areas. Taxes are high and increasing. Regulation is onerous and becoming more so. Many California communities are outright hostile to business.

Consequently, net domestic migration has been negative for 10 of the past fifteen years. International migration to California remains positive, but that reflects more on the weakness of the economies and the attraction of existing ethnic networks than the intrinsic superiority of California. This represents a sea change: anyone predicting it fifteen years ago would have been laughed out of the room.

What happened?

California’s economy was badly hit by the 1990s recession. The State’s aerospace and defense sectors were especially decimated. Middle-class families moved out by the hundreds of thousands.

The 1990s out migration caused some soul searching in California. There was lots of talk, and a little action on making the State more competitive. Then came the technology and real estate booms. Domestic migration turned positive. The half-hearted efforts to make California more competitive faded as policy makers were lulled into complacency by the strength of California’s resurgence.

But the problems that bedeviled the state in the 1990s – high housing prices and taxes, cascading regulations and a deteriorated infrastructure – had only been obscured by the boom. By 2005 migration began to turn negative, largely as soaring housing prices discouraged newcomers and encourage many residents to cash out and move to less expensive places. California had priced itself, and the dream, out of competitiveness. Since then, California has seen four consecutive years of increasingly negative domestic migration. The recent net outflow numbers have been smaller than in the 1990s, but it may be because other tradidional California migrant destination economies – like Oregon, Washington, Nevada and Arizona – have become less competitive as well.

Today, many argue that California will bounce back, but they can’t identify the reason. What sector will lead the resurgence? They seem to think economic growth will come with the sunshine, beaches, and mountains. There was plenty of sunshine in the 80 years between the founding of the first mission and the gold rush, and not much happened. Similarly, the differences between California cities and neighboring Mexican cities show clearly that successful economies need more than good looks and nice climate.

It's hard right now to assume California’s future will include the same predominance in technological innovation. Agriculture is running out of water, in large part due to environmental lawsuits, and the state no longer seems willing to invest in new water projects. Even the entertainment industry is increasingly looking outside of California for growth. You have to ask: what does California offer that will overcome the State’s high costs, regulatory environment, and antipathy to business?

That is the short term. The long term doesn’t look very good either. The public universities, a major source of innovation over the past two decades, are facing increasingly severe budget challenges. It is unlikely that they will be able to maintain their status even as other states – Texas, Colorado, New Mexico – eye further expansion. Even more ominous are gains in countries, such as China and India, who have long sent their best and brightest to the Golden State.

All this suggests a relative decline in California’s long-term prospects. What should we do? Part of California’s problem is its political process. The state’s chronic inability to do much of anything reinforces stasis. As Dan Walters says, “everyone has a veto on everything.”

But even improving the political process may not be enough. Much of Coastal California is dominated by rich, aging, baby boomers. The residents of this increasingly geriatric ghetto often don’t worry much about economic opportunity. They may have the money and votes to guarantee that growth does not impinge on their lifestyles. Unless these conditions change, it will be unlikely to see a renewal of strong domestic migration to California in the coming years.

Unsustainable Transit: New York City

Wendell Cox — Fri, 08 May 2009 00:32:30 -0400

When it comes to transit, as like many things in the United States, there is no place like New York City. The subways and buses of the New York City Transit Authority (NYCTA) carry more than 40 percent of the nation’s transit rides (unlinked trips). To account for 40 percent of the nation’s ridership is quite an accomplishment inasmuch as the city represents less than 3 percent of the nation’s population.

Of course, New York City’s ridership domination stems from the evolution of an ideal environment for transit. Most of the ridership comes from the heavily urban boroughs of Manhattan, Brooklyn, Queens and the Bronx, with a much smaller ridership in Staten Island, most of which looks like the second ring adjacent New Jersey suburbs. The four highly urban boroughs have exceedingly high population densities, averaging above 30,000 per square mile. The city of San Francisco, with its reputation for density, is little more than one-half as dense. The four boroughs are nearly as dense as city (23 ku area) of Tokyo, denser than most European core cities and nearly three times as crowded as Amsterdam.

The most important factor, however, is the concentration of destinations in the central business district, south of 59th Street in Manhattan. This is the world’s second largest central business district and the home of approximately 2,000,000 jobs. Only the geographically larger business district inside Tokyo’s Yamanote Loop has more jobs. The Manhattan business district (really two, Uptown and Lower Manhattan and the area between) has at least four times as many jobs as Chicago’s Loop, the second largest central business district in the nation.

The share of people commuting to work by transit is far higher than anywhere else in the nation. Approximately 75 percent of the people commuting to jobs in Manhattan get there by transit. Approximately 55 percent of the city’s working population commutes by transit, double the percentage of automobiles. By comparison, other highly urbanized central cities have far smaller transit work trip market shares, with Boston at 34 percent, San Francisco at 33 percent and Chicago at 26 percent. In each of these cities, considerably more people commute by car than by transit.

Suffice it to say that New York is the penultimate transit city. If transit is the answer anywhere, it is the answer in New York.

Yet the history of New York City Transit Authority has been one of financial crisis. From the NYCTA’s founding in 1953, transit riders of New York City have been faced by recurring threats of service reductions and fare increases. Over the years, transit fares have risen sharply despite increased subsidies. The financial downturn has generated yet another financial crisis at NYCTA, as well as at many other transit agencies around the country. There may be a financial bail-out from Albany, or there could be significant fare increases or service reductions. But the present financial crisis is by no means the first and it is unlikely to be the last. The problem is that transit is characterized by perverse incentives that keep if from focusing on its principal mission.

Transit’s mission, as my late Los Angeles County Transportation Commission colleague (and Santa Monica city councilwoman) Christine Reed so eloquently put it, is to serve both riders and taxpayers. Regrettably, however, the riders and taxpayers routinely take a back seat to other more concentrated and powerful groups with a strong interest in getting themselves more money and scant interest in cost efficiency.

As a result, the story is always the same in New York and elsewhere. Financial crises are characterized as funding crises and the answer to every question is more money. Little or no serious attention is paid to the cost side of the equation. In the present environment, the riders and the taxpayers are unlikely to ever be able to provide enough money to make transit financially sustainable.

Both labor and management operate in an environment of perverse incentives. Labor unions understandably seek to improve the wages and working conditions of their members. In a competitive environment, there are some limits. But transit remains immune to competitive pressures; it is rather a political environment. Transit board members are appointed by elected officials, many of whom rely heavily on political contributions from labor unions and their often sophisticated get out the vote operations.

Transit managers must live with this reality and any who become too courageous in their dealings with transit labor can expect to be shown the door. At the same time, transit labor negotiations are often not really conducted between parties across the table from one-another. Indeed, often the table is shoved up against the wall, since the gains that are won by the labor unions are largely duplicated in the pay and benefits packages of transit managers. Thus, costs are higher in transit – whether at NYCTA or at other agencies – than they would be for similar work in the private sector.

One might expect transit to face frequent crises in Eugene, Madison or even Los Angeles or Seattle. But New York City? Perverse incentives are the problem, but other cities have managed to have successful transit systems without such incentives. In some of the world’s largest cores, such as Tokyo and Hong Kong, transit obtains virtually all of its funds from commercial revenues, principally fares. Without access to the deep pockets of taxpayers, transit is required to live within their means. Serious attention is paid both to funding and costs. It may be too much to ask for transit in New York City to be converted from its heavy subsidies to a profitable operation. But improvements can be made.

In transit operations, one answer is competitive contracting (competitive tendering), whereby the transit agency seeks competitive bids on bus and rail routes for private operation. The competitive market reduces costs, while the transit agency specifies all aspects of the service. The best example of competitive contracting in the world is the London Transport bus system, which is the largest city bus system in the developed world. Buses are operated by multiple private contractors, under the control of Transport for London, which determines fare levels, routes, schedules and transfer arrangements. To the public, London Transport’s buses look and act like a single system. There is, however, a big difference. Competitive contracting has reduced costs per mile by nearly 40 percent after adjustment for inflation over the past 25 years. The savings have been plowed back into substantial service increases, which have led to strong ridership increases. Subway operating costs have also been reduced through competitive contracting, such as in Stockholm.

But so long as the focus is on revenues and costs are largely ignored, the only thing sustainable about transit in New York City will be its fiscal crises. Even if there is an eventual financial bailout of NYCTA this time, expect the clock to start ticking towards the next inevitable crisis.

Lessons from Chrysler and the Nationalized Economy

Dennis Powell — Thu, 07 May 2009 00:14:18 -0400

Economists and accountants could very likely have told us six months ago that Chrysler was doomed as a business and that the likely best course of action would be Chapter 11 bankruptcy and restructuring. Doing this in a timely manner would have saved the taxpayers billions of dollars.

But the politics were not right to permit this to happen at that time. So instead we invested billions of tax dollars to save it, only to find ourselves right back were we started. Except now the clock is striking twelve and it is the right time to reorganize the automaker – politically speaking.

The politics has worked to “force” Daimler, Cerberus, Banks, UAW and the U.S. taxpayer to forgive nearly $17 billion in debt, and to transfer ownership to a consortium that includes Fiat, U.A.W., and the U.S. and Canadian governments. The same fate may soon await General Motors given the current political atmosphere.

Government action is not driven so much by economics or accounting as it is by shifts and changes in public opinion and the political winds on Capitol Hill. Regardless of the problem and the consequences of delay, no issue will be dealt with until opinion has been properly shaped around it. This is inefficient by its nature, but government is not a business and cannot fail, so the consequences are never felt by government.

This means government will often invest in what’s next and ignore what is needed in the present. Why? Because the public likes the new and the novel and grows weary of the old and tried and true. Transportation infrastructure is a great example. It is an accepted fact that our road and bridge infrastructure is failing and will require billions of additional dollars to rebuild and reform into a 21st century, integrated mobility network. Yet there is no political will to address an issue which could seriously undermine our economic competitiveness costing us countless jobs and businesses.

Politicians know that a solution will require new revenues and very likely a new user fee to augment the current gas tax. Raising taxes is not good for the long term political health of our elected “leaders” because the public does not want to pay for things. So rather than solve a pressing need, government proposes borrowing $8 billion to spend on high speed rail projects like the one to connect Disneyland and Las Vegas. This project works politically because it is filled with perceived benefits and no one really has to pay for them – we can pass it all on to the next generation.

As we move toward increasing the politicization of our economy where politicians replace CEOs, government becomes a major shareholder in corporations, and the metrics of elections replace standard accounting practices, we should remember the inherent and unintended consequences.

Businesses succeed or fail based on markets. The government’s attempt to create a false housing market with its affordable housing initiative is arguably one of the major contributing factors to our current recession. They will likely assert their new power in the automobile industry to create “green” cars that may or may not sell. What if consumers choose to buy Japanese, Korean or German label cars made in Mississippi or Alabama, instead of UAW-built cars from Michigan?

Markets work, and yet they are being ignored. The second most profound economic event of the past year (the collapse of the financial markets being the first) was when the price of gasoline moved above $4.00 a gallon in April of 2008. People drove less. Demand for SUVs plummeted. Ridership of public transportation increased dramatically. Many valued components of American way of life changed almost overnight.

What is often missed is the fact that government was powerless to do anything about gas prices. Elected leaders looked for scapegoats in speculators and commanded the heads of the Big Oil companies pay homage at their feet. They attacked profits, demanded more drilling, put their environmental agenda on the back burner. The crisis showed them to be feckless on the horns of a dilemma. When prices retreated swiftly in August 2008 and public opinion cooled on the issue, drilling for new energy disappeared from the radar and everything was “green” again. The problem has not disappeared of course, but only public support for a solution. Is this any way to run an economy?

Businesses concentrate on profit. Elected leaders focus on votes. Bad business decisions are unsustainable in a free market which metes out consequences with failure. Bad political decisions make an elected official unelectable, so it is always better to avoid conflict by putting off the really tough decisions for another day. This is not the way most Americans run their households, but it’s how politicians would run our economy – responding to opinion, not market conditions.

There are some very difficult decisions as we move through this economic downturn. Do we want more and more of the political processes to be incorporated into our economy on a permanent basis? Banks and financial institutions have already seen first hand the consequences of getting into bed with government. Our automobile industry is next in line. Let’s hope it is the end of the line, but it probably won’t be.

Dennis M. Powell is president and CEO of Massey Powell an issues management consulting company located in Plymouth Meeting, PA.

America's (Sub)Urban Future

Joel Kotkin — Wed, 06 May 2009 00:13:17 -0400

Cities today have more political clout than at any time in a half century. Not only does an urbanite blessed by the Chicago machine sit in the White House, but Congress is now dominated by Democratic politicians hailing from either cities or inner-ring suburbs.

Perhaps because of this representation, some are calling for the administration and Congress to "bail out" urban America. Yet there's grave danger in heeding this call. Hope that "the urban president" will solve inner-city problems could end up diverting cities from the kind of radical reforms necessary to thrive in the coming decades.

Demographics and economics make self-help a necessity. Despite the wishful thinking of urbanophile pundits and policymakers, central cities have little realistic chance to reclaim their pre-1950 role as the dominant arbiters of American life.

Short of a catastrophic change, the country will remain predominately made up of suburban, exurban and small town residents. Since 2000, more than four-fifths of metropolitan growth has taken place in suburbs and exurbs. Economically, we see a similar pattern. According to a recent Brookings Institution study of 98 large metropolitan areas, only 21% of employees work within three miles of downtown. The report found that only three regions avoided the decentralizing trend.

The Brookings report and many others decry all these trends as promoting "sprawl," but name-calling will not assure that urban areas can impose their political hegemony over the long run. The Obama administration may try to boost cities by imposing barriers to suburban growth, but these seem doomed to failure given both the preference of most Americans for lower-density lifestyles and the president's demonstrated ability to count votes.

Rather than waiting for Barack, urban boosters should instead take up the New Testament injunction to "heal thyself." Cities should have a chance to grow based on the roughly 10% to 20% of Americans who tell researchers they would like to live in a dense urban environment. With an extra 100 million Americans coming on line by 2050, cities could look forward to accommodating upwards of 20 million more people in the next few decades. As my grandmother would say, that's not exactly chopped liver.

Yet in order to enjoy this repast, cities will need to address three fundamental and inextricably related issues: public safety, business climate and political reform. Of these, public safety is the most critical. From the earliest times, security has represented a critical pre-condition for urban success. The huge surge in urban crime during the 1960s, for example, played an enormous role in the precipitous decline of cities in the ensuing decades.

Conversely, improvements in public safety after 1990--notably in New York and Los Angeles but also in other large cities--helped slow the out-migration from urban cores and attract new residents, mostly young educated professionals and immigrants. Now urban crime may be on the rise, and could again threaten new growth.

This is worrying because urban crime rates, notes demographer Wendell Cox, remain still three times higher than those of surrounding suburbs. Almost all the highest crime areas in America can be found in urban settings, while the safest places tend to be in suburban towns.

Even the president's much-celebrated hometown of Chicago suffered roughly a murder a day last year. On the city's MTA trains, robbery soared 77% between 2006 and 2008. Now there's also more than a stickup a day.

Hard economic times may exacerbate these problems, with an estimated 250,000 more Chicagoans predicted to fall into poverty by the end of the year. More widely, unemployment among core urban populations--young people, minorities and immigrants--is on the rise, even more than in the general population. Indeed, for the first time since the mid-1990s, the foreign born now suffer a higher rate of joblessness than the native born.

Yet even in the face of a tough economy, few cities seem to focus on long-term middle-class job creation. Most seem to prefer to indulge in marginally useful taxpayer-subsidized prestige projects like convention centers, arts complexes, ball parks and arenas. Meanwhile, the core issues stifling growth--high taxes, stiff regulatory burdens and sometimes corrupt governments--remain largely ignored.

Recently while researching the middle class in New York, I met many otherwise committed urbanites considering leaving to less costly, lower-tax and more business-friendly locales. Up until recently, this problem was somewhat obscured by spectacular earnings on Wall Street, which engendered the growth of an extensive "luxury economy" largely insulated from high costs. But even Timothy Geithner won't be able to bail out this favored segment of the economy ad infinitum.

Instead cities, including New York, will have to diversify to less gilded industries. Increasingly cities will need to rely on small companies, micro-enterprises and self-employed high-tech artisans to drive their economies. To keep them there, they will need to attend to basic services--education, police and transportation--while managing to curb taxes and regulations.

This will necessitate confronting the largest source of high city costs: public employee salaries and pensions. This problem is not unique to core cities, but tends to be more severe in urban areas where public employee unions often dominate local politics.

Finally, cities need to address their educational systems. Despite all the talk of urban educational reform, the urban dropout rate, according to a recent study of the nation's largest cities by America's Promise Alliance remains around 50%, roughly 20 points higher than the rate for suburbs. Poor-quality urban schools drive out both the middle class and the most upwardly mobile segment of the working class.

Even more money from Washington won't solve this problem. Cleveland, with a 38% graduation rate, spent far more on students per capita than Ohio's statewide averages. In contrast, the surrounding suburbs enjoyed an 80% graduation rate.

Are cities capable of changing their governance for the better? In the 1990s, the emergence of tough, reform-minded mayors like New York's Rudy Giuliani, Indianapolis' innovative Steven Goldsmith, Richard Riordan in Los Angeles and Houston's hard-driving Bob Lanier all sparked urban revivals in their cities.

Today, however, there are few such personages; Houston's Bill White is one glaring exception. Yet without an infusion of bold new leadership, the future of American cities, although not universally bleak, will not be nearly as bright as it should be. Rather than a constellation of strong, reviving cities, we can envision the emergence of a less promising set of scenarios.

One archetype will be the Bloombergian "luxury city," a very expensive urban area dominated by the wealthy and their servants, students and nomadic young workers as well as the poor. The affluent will drive this growth, but only in a relatively few neighborhoods in attractive places like New York, Chicago, Boston, Los Angeles, Seattle, Portland, Denver and Minneapolis.

San Francisco may presage this urban form. Already middle-class families are becoming scarce in the city by the bay. The place seems increasingly something of a Disneyland for privileged adults, exempting of course the large homeless population. "A cross between Carmel and Calcutta," jokes California historian and San Francisco native Kevin Starr.

At the opposite end of the spectrum lie those cities consistently at the bottom of our Worst Cities For Jobs ranking. Despite some zones of gentrification, such once-great cities as Detroit, Cleveland, Memphis, Baltimore and Philadelphia could continue to suffer persistently high rates of poverty, diminished populations and high crime rates.

Not that this has to be. These areas could stage a real resurgence if their governments determine to throttle criminals, improve basic services and nurture small businesses. Low housing prices, cheap land and, in some cases, strategic locations could attract businesses as well as some of the millions who will be seeking out an urban lifestyle in the coming decades.

Currently the brightest hopes for America's urban future lie with newer, "aspirational," middle-class-oriented cities such as Houston, Dallas, Austin, Phoenix, Raleigh-Durham, Charlotte and Orlando. Although some are now suffering from the recession, these places will benefit from both lower costs and more business-friendly regimes. Primarily suburban in nature, many of these cities have worked to develop attractive dense urban districts, which could expand much further over the next few decades.

There remains nothing pre-determined about the urban future. Some cities may surprise us by reviving strongly while others may continue to disappoint. Success will depend not on Washington, but on how each city addresses the basics of safety, economics and governance. Grasping this fundamental truth constitutes the first step towards creating a sustainable long-term urban resurgence.

This article originally appeared at Forbes.

How Austin’s Rise Became a Tale of Two Cities

Chris Bradford — Tue, 05 May 2009 01:00:05 -0400

Austin has enjoyed healthy growth during its 150-year history. As a rule of thumb, its population doubles every 20 years, and has done so since it was founded. It continues to grow at a healthy clip: from a population of 345,000 in 1980 to 656,000 in 2000; the Census Bureau estimates it had nearly 750,000 residents in 2008.

But if the city of Austin has grown briskly, its suburbs have exploded. Williamson County to its north was the sixth fastest-growing county in the United States between July 1, 2007 and July 1, 2008. Hays County to the south was the tenth.

This is not a recent development. Williamson and Hays Counties have outpaced Travis County (Austin) and Texas for years:

The figures for individual suburbs reflect this spectacular growth:

Between 1990 and 2007, Round Rock, ten miles north of Austin and home to Dell Computers, tripled from 31,000 to almost 100,000; its population grew by 50% between 2000 and 2007 alone.
Pflugerville, just south of Round Rock, grew from a tiny village of 4,000 in 1990 to 34,000 in 2007.
Cedar Park and Leander grew tenfold and sevenfold, respectively, between 1990 and 2007.

The scale of rapid growth is noteworthy, but the distribution of growth is hardly unique. After all, American cities have been suburbanizing for the last 60 years (and in some cities, for much longer). Austin’s suburbanizing growth merely mirrors the national trend.

But Austin’s growth evinces another pattern. As Austin and its suburbs have grown, families with children have left central Austin for its fringes, ceding central Austin to singles and couples without children.

Central Austin is typically defined as the area urbanized by 1970, delineated by a perimeter of highways and lakes. But there’s an alternative definition: Central Austin is where the families with children are not.

The map below tells the story. It depicts, using 2000 Census data, the percentage of households consisting of married couples with children. Darkly-tinted regions have a relatively high percentage of such households; lightly-colored regions, relatively few. The area bounded by the heavy, black line – the lightly-tinted region in the center of the map – is central Austin.

This map excludes the suburbs in Williamson and Hays Counties. Needless to say, these cities would also be colored brown and deep-orange. For example, 45% of Cedar Park’s households in 2000 consisted of married couples with children. In Pflugerville, the figure was 48%. Over the last few decades, Austin has sorted itself into two cities: suburbs populated by families with children, and a central core populated largely by singles and childless couples.

Why?

This might seem a trite question at first blush. This pattern has repeated itself in one American city after another for many decades.

But Austin’s case is interesting because many standard explanations do not hold. Austin’s families have not had to flee the central city to escape crime, or dense, overcrowded neighborhoods, or failing schools, or the pollution and blight of old, abandoned industrial sites. Nor have they had to abandon the central city in search of jobs.

Austin historically has had a low crime rate with one of the lowest homicide rates in the country. And many of those crimes occur outside the central city. Austin’s slums are not located in central Austin, but in the aging suburbs just north and southeast of the urban core. Central east Austin – where African Americans and Latinos were banished for much of Austin’s history – was, and to some extent remains, an exception. But even that area has gentrified rapidly in recent years. And, in any event, neither east Austin’s problems nor a racist desire to avoid people of color can explain the flight of families from the historically “whiter” parts of town.

Central Austin certainly has plenty of bad schools. But it also has plenty of good schools, and a liberal transfer policy. Moreover, many of the central schools began to deteriorate after they were abandoned by middle-class families. Thanks to declining populations of children, the Austin school district has been forced to close several small, neighborhood elementary schools, even as it strains to add classrooms to the burgeoning suburbs. Austin includes many of its suburbs – it grows rapidly through annexation – and AISD covers these.

Families also did not have to flee central Austin to escape dense, overcrowded neighborhoods. The typical central Austin neighborhood is no denser than a typical suburban neighborhood. Most central Austin neighborhoods consist almost entirely of single-family residences. Indeed, in some, nearly 90% of the residential acreage is set aside for single-family housing, with multi-family developments relegated to busy streets. And yard sizes in suburbs are frequently little larger than the yards in the central neighborhoods.

Nor did families flee central Austin in a quest for green space. Austin’s great parks are concentrated in its core. These include Zilker Park – Austin’s equivalent of central park; Barton Springs, fed by springs bubbling up from the Edwards Aquifer; Lady Bird Lake, neé Town Lake; and more green belts than a die-hard hiker could cover in a summer.

Central Austin has no pollution or industrial blight. Austin has never been a manufacturing town. Its employment base has always been the University of Texas, the state government and, more recently, high tech.

The high-tech job growth has blossomed in Austin’s suburbs. Austin styles itself “Silicon Hills,” and virtually all high-tech jobs have spring up in the rolling country west and north of the downtown. But the addition of jobs to the periphery does not explain why families have been abandoning the central city. Austin’s core has not only retained its jobs, it has seen healthy growth. A recent Brookings study estimates that central Austin employment grew by almost 13% between 1998 and 2006 According to the Brookings study, the number of jobs more than 10 miles from the CBD increased by 77,523, or 62%. Obviously, this was incredible growth. But this does not explain why families abandoned the central core when it, too, was adding jobs.

In the end the key reason people have been moving to the suburbs lies in a mundane reality. Austin families have been moving to the suburbs because the suburbs have bigger, better and cheaper houses.

Austin’s inner neighborhoods may be packed with single-family housing, but they are small, old and increasingly expensive. The central neighborhoods were built before 1970 and, in most cases, before 1960. The houses are usually no more than 1200 or 1400 square feet. And these houses are expensive (for Austin) and often fixer-uppers to boot.

By contrast, the suburban stock is much newer and larger. Between 2000 and 2006, for example, the average new home in Circle C, a prominent suburb to the south, had 3,965 square feet; the average new home in Steiner Ranch, a western suburb had 3,915 square feet. And these houses were and are much cheaper than central city houses. One might find a 3,000 square-foot home in the suburbs for $250,000. The same home in central Austin might cost $750,000. Many suburban subdivisions have much smaller homes, of course, but a middle class family only able to afford an 1,800 square foot house in the suburbs is not likely to pay $400,000 for a smaller house in central Austin.

Families want space, and the central housing stock is either too small or too expensive. This basic reality has transformed Austin into essentially two largely successful cities: a central core left to small households and suburbs that offer either larger housing, or smaller housing at much cheaper prices.

This trend may have been slower if developers had been allowed to continue replacing small bungalows with larger, more modern houses. But this trend prompted an outcry from central Austin residents, who pushed the city council to enact a “McMansion” ordinance to “protect” central Austin neighborhoods. The title was a clever bit of marketing. The word “McMansion” evokes an enormous, pretentious structure – and who wants that? But Austin’s stringent ordinance takes aim at much more modest homes. Depending on lot size, a home with an attached two-car garage may be limited to 2,000 square feet, smaller than the typical new American home. The ordinance imposes other complicated limitations, turning modest home additions into a complicated, extensive ordeal. A homeowner who wants to add a second story, for example, must ensure that the second story fits within an elaborate “building envelope” – a complicated calculation unless the addition is centered in the lot – and new setback lines calculated as a rolling average of neighboring setbacks. (Incidentally, the new setbacks and square-foot limitations have all but eliminated granny flats.) The only option for adding a significant amount of new space is often the construction of a basement buried completely below grade; basements do not count against the square footage limits.

Austin’s McMansion ordinance will ensure that its central Austin neighborhoods remain the domain of small, aging bungalows – and people without children – for the foreseeable future. In this way, it will reflect the demographic realities of many prosperous, “hip” cities from San Francisco and Boston to Seattle and Portland.

Yet there’s an ironic side to this. Alarmed by the decline of families in the city, the same city council that enacted the McMansion ordinance created a new task force a few months later to determine why central Austin has now so few families with children.

Chris Bradford is a 1992 graduate of the Yale Law School, where he was an Olin Fellow in Law and Economics. He is an attorney at Clark, Thomas and Winters, P.C. in Austin, Texas. Visit Chris's blog at austincontrarian.com

New Towns and New Lives in the Country

Luke Lea — Mon, 04 May 2009 00:59:00 -0400

Back in the 1950s when I was growing up, pundits worried a lot about automation and the problem of leisure in a post-industrial society. What were the American people going to do once machinery had relieved them of the daily burden of routine labor? Would they paint pictures and write poetry? Armchair intellectuals found it hard to imagine.

It was the age of Ozzie and Harriet, when ordinary working and middle-class families could aspire to a house in the suburbs and a full-time Mom who stays at home with the kids. Today, of course, that popular version of the American dream is a thing of the past, especially the part about a full-time Mom who stays at home with the kids.

Ironically it was washing machines and automatic dishwashers – automation – that brought this idyll to an end. These two labor saving devices made it possible for housewives to go out into the workforce and compete with their husbands. At first they did it because they were bored at home and wanted to earn extra money, if only to help pay for those new household appliances. Gradually, however, it became a matter of necessity as two-paycheck families bid down wages even as they jacked up the price of suburban real estate in areas where the schools were good and the neighborhoods safe. By the time you subtracted the costs of owning a second automobile and using professional child care services, the advantages of that extra paycheck had largely disappeared.

The biggest surprise – to me as well – was that labor-saving technologies do not automatically redound to the benefit of labor. Other things being equal they reduce the demand for labor and hence its price in the marketplace. We saw this happen in the 19th century when modern agricultural machinery forced three-quarters of the population off their farms and into the cities, where they had to compete with immigrants and each other in the new industrial economy. Not until the Fair Labor Standards Act of 1937, which outlawed child labor and established the 40 hour work week, did the world of Ozzie-and-Harriet become a democratic possibility.

But of course Modern Marvels never cease. Thanks to a never-ending supply of new labor-saving machinery, today’s industry employs only half as many people as it did in the 1950s when housewives first started entering the job market. Meanwhile medical science has greatly extended the average human lifespan, which has created a much larger pool of able-bodied adults who must either work or be supported by those who do. The Wal-Martization of retail and wholesale trade is yet a third development tending in the same direction.

Given this trajectory, perhaps it is time to consider a further reduction of the standard work week and the creation of new forms of suburban development. The goal would be for ordinary working families to begin enjoying the fruit of fifty years of economic and technological progress.

In particular let us consider the advantages of a program to build new towns in the exurban countryside in which people would be employed half-time (18-to-24 hours a week) outside the home, and in their free time would participate in the construction of their own houses, cultivate gardens, cook and eat at home, and look after their own children (and grandchildren) in traditional neighborhood settings close to village greens.

Once work and leisure are integrated into the fabric of everyday life people will not feel the same need to retire they do today. Instead of retiring in their sixties seniors could take easier jobs as they grow older and continue working for as long as they are able and willing. The Social Security crunch could be relieved without having to raise taxes on the younger generation.

We might even consider a return to the three-generation form of the family – except under two roofs instead of one, say, at opposite ends of the garden. Grandparents could use their savings to help their children with the initial purchase of their homesteads, while later on their children and grandchildren could help care for them in their old age, providing a more humane (and far more affordable) alternative to nursing homes and assisted-living arrangements.

And instead of being designed around high-speed automobiles the new towns could be small enough (25,000 to 30,000 inhabitants) and be laid out in such a way that the residents could get around on foot, by bicycle, or in “neighborhood electric vehicles” (souped up golf carts) designed to go 30 mph. In other words, with careful planning the efficiencies of urban density could be realized without forcing people to move back into the dense centers of our cities and surrounding both privacy and space.

I once hired the Gallup Organization to survey the American public about a lifestyle similar to this. The question asked was the following:

“As a new way to live in America, it has been suggested that we build our factories in rural areas outside the cities and run them on part-time jobs. Under this arrangement both parents would work six hours a day and three-days a week and in their spare time would build their own houses, cultivate gardens, and pursue other leisure-time activities. How interested would you be in living this way?”

Forty percent of the population said they would be either “definitely” or “probably” interested in the idea, with another 25 percent expressing possible interest. Included in these figures were two-thirds of those who had attended college, 60 percent of people with incomes in the top quartile, and 80 percent of African Americans.

Industries might be interested in the idea because part-time workers can work faster and more efficiently than full-time workers, just as in track and field the short-distance runners always run faster than the long-distance runners. When I explained this in a letter to one of America’s leading industrial relocation firms, the executive vice-president flew down to Tennessee the very next day to discuss it with me. He assured me that this was “a doable idea” and not “pie in the sky.”

Even so building New Towns in the Country is no easy task. It won't happen spontaneously if for no other reason that people will not move to places where industry does not exist, and industry will not move to places where people do not live. It takes coordination, planning, organization, and investment in infrastructure.

There is a movement afoot in America for a new nation-wide infrastructure spending program. This proposal could be one part of it. After all, our federal government in the past has done things for the people to create a better way of life: the trans-continental railroad, the Homestead Act, the Interstate Highway System, the Fair Labor Standards Act, and the FHA.

New Towns in the Country and a much shorter work-week would work well together, even if the two things are impossible to achieve by themselves. We need to reorganize both time and space if we hope to create a healthy, productive way of life for tomorrow’s working families.

Luke Lea is a retired landscape gardening contractor and one-time professional carpenter. A graduate of Reed College, he lives in the small town of Walden, Tennessee, near Chattanooga where he was born.

The Draw of Dhaka

Wendell Cox — Sun, 03 May 2009 01:50:19 -0400

In recent centuries, the principal migration of the world’s population has been from rural areas to urban areas. As late as 1900, less than 20 percent of the world’s population lived in urban areas. That figure has now risen to more than 50 percent. Urbanization occurred earliest in the first world, as the increased wealth produced by the industrial revolution attracted people from the countryside. In 1900, 40 percent of the US population was urban, a figure that had risen to 80 percent by 2005. Trends in Europe, Japan and other first world nations are similar.

The migration to cities has been slower to start in the less developed world. Only in 2005 did China achieve a 40 percent urbanization rate. Urbanization is expected to continue virtually everywhere, with the world rate increasing to 70 percent by 2050.

Nowhere, however, are the trends starker than in Bangladesh and its capital, Dhaka, which I had the privilege of visiting a few weeks ago. Bangladesh is approaching 160 million people, despite having a land area less than that of Wisconsin. Its population density, rural and urban combined, is approximately 3,200 per square mile (1,250 per square kilometer) and is nearly equal to that of the Portland urban (urbanized) area, which had 3,300 per square mile. The nation’s population density is more than three times the minimum population density used by census authorities in the United States, France, the United Kingdom and Canada for definition of urban areas.

However, most of Bangladesh is not urban. The United Nations puts the urban share of the Bangladesh population at 28 percent, barely two-thirds of the less developed world average. Even this is a stunning increase from the less than 5 percent of 1950. By 2050, the United Nations says that the urban areas of Bangladesh will add 97 million people, as the rural population declines, sending the urban population to roughly 60 percent of the total.

Growing Dhaka: Dhaka is the world’s newest megacity, with an urban agglomeration just over 10 million population (based upon United Nations population growth rate projections). There are few urban areas in the world that are growing faster. Historically, nearly one-third of the urban population increase in Bangladesh has been in Dhaka. This seems likely to continue, since the nation has few other urban centers. The second largest, Chittagong, is just one-third the size of Dhaka. At projected urban population growth rates, Dhaka could have 40 million people by 2050.

Dhaka’s Unfortunate Location: As difficult to imagine as this urban growth may seem, other emerging super-cities such as Shanghai can be imagined with 40 million people, with their plentiful supply of quality land for development. Things are much different in Dhaka. No rapidly expanding urban area (and no nation) faces greater locational challenges.

Dhaka could be the most inconveniently placed urban area in the world, even worse than New Orleans. The urban area sits on the world’s largest river delta, the Ganges – Brahmaputra Delta (The Ganges is called the Padma River in Bangladesh). This Delta, nearly the size of Oregon, is more than 1.5 times the size of the nation, though not all of the nation is in the Delta.

Dhaka itself is virtually surrounded by the rivers of the Ganges-Brahmaputra system, from which most of it is protected from routine and disastrous floods by floodwalls. The main channel of the Ganges is less than 20 miles distant the confluence with the Brahmaputra and is less than 50 miles away and the Indian Ocean (Bay of Bengal), barely 100 miles away. Dhaka lies at a low elevation, so rising sea levels could intensify the problem. The same river delta is also home to another megacity, Kolkata (India). However Kolkata’s geographical challenges are far less, with fewer Ganges outlet channels and less in wetlands, which has permitted it to develop at one-third the density of Dhaka.

Dhaka’s Unprecedented Population Density: The urban area is the world’s most dense, having recently passed Hong Kong (based, again on United Nations estimates and projections). Covering a land area of little more than 100 square miles, Dhaka’s population density is now approaching in excess of 100,000 per square mile (40,000 per square kilometer). At that density, the New York urban area would accommodate all of the population of the United States and Mexico.

Dhaka’s Impossible Traffic: The urban area is from five to seven miles wide and from 15 to 20 miles long, north to south. There is a single north to south thoroughfare through the whole urban area, which the Inspector General of Police estimates is blocked for 6 hours per day at railroad crossings. Needless to say, with its density inducing traffic congestion and insufficient road infrastructure, Dhaka’s traffic is horrific.

The Poverty: There is, of course, the grinding poverty. Most recent estimates place the gross domestic product per capita of Bangladesh at under $1,500 annually (purchasing power parity). Dhaka is very likely the world’s poorest megacity. Progress is being made, principally from the fruits of globalization. There has been strong growth in garment production and huge numbers of jobs have been created. However, even this progress is threatened by inward-looking anti-trade movements in developed countries whose proponents ignore the likelihood that their policies would drive the poor of Dhaka into even greater decrepitude. Even if these selfish intentions fail, it will take decades for Bangladesh to join the ranks of middle income nations, much less high income nations. That, nonetheless, should be the objective.

The Shantytowns: Various estimates indicate that up to one-quarter of Dhaka’s population lives in informal settlements (shantytowns, slums or favelas). These settlements tend to be “marbled” throughout the urban area, along the streams, railroads, lakes and ponds and in the drainage canals. However, none of the shantytowns are so expansive as those in Mumbai. Perhaps that is because commerce is decentralized in Dhaka, with garment factories spread throughout the urban area. People in the shantytowns have to work and many walk to their jobs, both factory and domestic. Their lives are precarious. Population densities in the slums have been reported as high as 4,200 per acre, which converts to more than 2,500,000 per square mile or more than 1,000,000 per square kilometer. At that density, the population of the world could be accommodated in the Tokyo-Yokohama urban area, leaving 10 percent of the land for open space.

The Draw of Dhaka: Why do they come to Dhaka? What is the draw of a place that to western eyes could be dismissed as one of the least attractive urban environments in the world? It is the same incentives that drew people to Chicago from the farmlands of Poland, Italy or Iowa and to Sao Paulo from the sugar plantations. People routinely seek better lives. As in other cities in the developing world (or the developed world before), rural populations did not migrate to Dhaka because they were better off where they came from. Moreover, virtually all of the migrants from rural areas could return home tomorrow. Not surprisingly, few do.

Moreover, there is progress, even in the shantytowns. Many residents “cook with gas” and have access to electricity, even if pirated from adjacent lines. There are schools where the children of the migrants are exposed to the foundation of literacy required for better lives in the future.

Dhaka: City of Hope: Of course, it is all a matter of perspective. Dhaka may not look pleasing to affluent foreigners. Few residents of Portland, Paris or Perth would willingly embrace even a privileged lifestyle amidst the poverty of Dhaka. But despite the intense challenges, for the rural poor of Bangladesh, Dhaka remains very much a city of hope.

Additional References:
The Megacity Book: http://www.rentalcartours.net/megacity_book.pdf
Dhaka Rental Car Tour: (soon to be published): http://www.rentalcartours.net/rac-dhaka.pdf

The Republican Party, Pennsylvania and Arlen Specter

Dennis Powell — Fri, 01 May 2009 16:44:37 -0400

Senator Arlen Specter switched parties. A five term Senator switching parties is certainly news, but it also represents a far greater statement about the challenges facing the Republican Party in Pennsylvania going forward.

Pennsylvania has been a dependable “Blue State” in presidential races since 1988. Currently, Democrats have a 1.2 million voter registration advantage. Less than a decade ago the margin was less than 500,000. What changed over the past decade?

The changes in the political and demographic make-up of the five county Philadelphia region forced Specter’s flip. Specter’s base had been eroding as a result of other popular Democratic politicians seeking statewide and national offices and needing moderate Republicans to switch parties to support them in tough Primary Elections.

It began with now Governor Ed Rendell who faced a fierce Primary Election in 2002 against Bob Casey, Jr. – the son of a former Pennsylvania Governor. The former Philadelphia Mayor needed a strong turnout in the Philadelphia area and he managed to flip more than one hundred thousand Republicans for the primary.

Rendell defeated Casey by 162,648 votes statewide, but his victory total was 305,641 in the five county Philadelphia area where he won 81.3% of the vote and 56.5% of his total vote statewide.

The 2002 primary proved the central role of the Philadelphia region, especially the suburbs. Rendell was able to win even while losing the total vote in the other 62 counties of Pennsylvania. The shift in moderate Republicans in the suburbs to Rendell was the critical factor.

This was again the case in the general election; Rendell would carry this region by 515,000 votes on his way to winning his first term as Governor by 323,827.

The 2002 election marked a turning point in Pennsylvania politics. From that point forward no candidate for statewide office could win without carrying at least one of the four suburban Philadelphia counties. All were becoming increasingly Democratic in voter registration.

In the 2004 Primary, Arlen Specter faced conservative ex-Congressman Pat Toomey. Specter likely underestimated the impact of the change is southeast voting patterns. He was overconfident that his moderate Republican suburban base would carry the day. They did, but more narrowly than most suspected. Specter won the election by 17,146 votes statewide but he carried the southeast by 41,719 votes.

Like Rendell in 2002, Specter lost the rest of the state but won in the five county region by enough of a margin to secure victory statewide. Unlike Rendell, his total in the southeast region only accounted for 31.4% of his statewide total votes as compared to Rendell’s 56.5%.

Also, significant was the fact that he only defeated Toomey, who is far more conservative than former Senator Rick Santorum, by 34,669 votes in the four suburban counties. The moderate base was shifting to the Democrats, leaving the remnants of the GOP more conservative. This was a harbinger of Specter’s diminishing prospects as a Republican.

Specter won the primary with 166,944 votes from the southeast region. Two years earlier in the primary, Mike Fisher, the Republican candidate from Pittsburgh who was running for Governor without opposition, won 161,103 Republican votes in this region. Fisher outpolled Specter’s 2004 vote in 2 of the 5 counties. It was only the last minute support Specter received from President George W. Bush and Senator Rick Santorum that saved Specter from defeat in 2004.

In the General Election, Specter walloped his Democratic opponent Joe Hoeffel, a former southeast Congressman and Montgomery County Commissioner, by nearly 600,000. He would carry all five counties in the southeast by wide margins mainly because he had significant support from Democrats and Independents.

The trend of greater Democratic power – and Specter’s dependence on them – continued to build. In 2006, Bob Casey defeated incumbent Senator Rick Santorum by 17.4 percentage points statewide despite the fact that Santorum would spend $31 million and was the number three in Republican Senate Leadership. Casey would carry all five counties in the southeast region proving that conservative Republicans could no longer win in this critical area in a contested General Election. By 2008, Barack Obama put the icing on the cake. The President racked up huge margins in the southeast repeating what Rendell had done in 2002. The change was now complete.

It is safe to say that Arlen Specter simply could not win a Republican Primary Election in 2010. This said it is also safe to say that he would have likely won the General Election with relative ease regardless of who was the Democratic candidate. This is the dilemma that faced a Republican Party increasingly alienated from Specter, but facing increasingly stiff odds in its former suburban Philadelphia strongholds.

The question now is will the Republican Party stand with conservative Pat Toomey to challenge Democrat Arlen Specter in the General Election? With promised support from President Obama, Vice President Biden and Governor Rendell the likelihood of a primary challenge for Specter is remote in his new party.

Revenge is rarely as sweet as anticipated. It seems unlikely that a conservative Republican can win statewide without support in the Philadelphia suburbs. But data and history show that this is highly unlikely for a conservative Republican. There’s a cost to party purification. Unless the Republicans can find a way to appeal to the wayward suburban voters, it will take a major shift in the political dynamic – perhaps a more decided Democratic move to the left – to put Pennsylvania back in play.

Dennis M. Powell is president and CEO of Massey Powell an issues management consulting company located in Plymouth Meeting, PA.

Photo: KyleCassidy

Main Street Middle America: Don’t Get Mad, Get Ahead

Fri, 01 May 2009 02:07:44 -0400

Like many on Main Street Paul Goodpaster is angry. Paul is my banker friend in Morehead, a retail, medical and education hub on the edge of eastern Kentucky. He observed that his bank was doing quite well – albeit hurt now by rising unemployment and an economy starting to have an impact even on those unglamorous places that had minded their business well.

“If only some of those ’experts‘ would get out of their inside-the-beltway heads and visit with me here in Morehead, I’d give them ideas on how this October disaster could have been averted. "Too big to fail,” he scoffed. “It should be about too big to have been allowed to do business and thus too big not to fail!”

So, what can forgotten middle America do about all this mess? Anger won’t get it; and self pity is a waste of time. Only by developing the “swagger” of elbowing our way through the noise can we hope to be heard. We still hear the cacophony of all the blither and blather coming out of the well-connected east coast crowd. Cutting through means learning how we in the “flyover“ zone can position ourselves in the national and global economy.

The world most assuredly did change – likely in perceptible ways prior to but with an exclamation point in October. In November “we” – with more than a few exceptions in the south and middle country – elected a president that exemplified our hopes and dreams. He was touted as a guy who understands cities and community life better than any in modern history.

But, all that being said, middle and certainly southern and Appalachian America did not vote for the president. We are a long way – in our economy, our habits and our viewpoints – from Chicago. We are the home of coal and factories and small places far out of the way.

Our outlook, on the surface, could not be worse. As a community we are out of power and also perhaps out of favor. Yet the world changed for us as well and opportunity abounds for those who are willing and able to fight back. We discovered that (1) we are interdependent with the global community no matter where we are; (2) that the experts don’t all graduate from Harvard and Yale – note the Greenspan bewilderment in October, 2008 and (3) that a new kind of sensibility is emerging.

As the world grows bewilderingly out of control, people will be seeking places that are affordable and welcome growth. That is where middle America comes in.

We will have something close to another 100 to 120 million more people in this country by the year 2050. Conventional wisdom would have it that they will all move to glamorous, hip and fast places. But not so fast on that theory. A visit to Owensboro, Kentucky yields a different answer. Set on the Ohio River across from Evansville, Indiana, Owensboro is a town with a unique DNA that has been preserved over the years. With high performing schools and a rich tradition of civic activism, they are planning a major “quality of life” initiative that the Mayor Ron Payne describes as something aimed squarely at children and grandchildren – a statement that bucks the “all about me era.” Owensboro, with a diverse economy that never rode the wave of the “bubble” always minded its Ps and Qs. He is building walking and bike trails and bolstering a downtown that he describes as the living room to the community.

Owensboro is also home to a world class performing arts center headed up by Zev Buffman, a master producer of over 40 Broadway plays, who made Owensboro his home after visiting the arts center and appreciating its high quality. Zev has convinced Broadway of the wisdom of “staging” plays in Owensboro at a fraction of New York City prices. What is the advantage to Owensboro? Young people can see first hand that life in middle America is not the same as being banished to the boonies. It can also be enriching and connected. As one young man put it: “I can get started earlier in owning a business in a place like Owensboro that would take years or never happen in one of the mega cities where I would just be a cog in the machinery.”

In middle America, we need to learn that nothing is predictable. But we should have more confidence that we can build expertise at home. People like Mayor Ron Payne and Zev Buffman have taken their entrepreneurial spirit and applied it to an emerging new frontier of America’s battered small- to mid-sized cities in the middle of the country. It’s time for this portion of America to stop getting mad, and start getting ahead.

Sylvia L. Lovely is the Executive Director/CEO of the Kentucky League of Cities and the founder and president of the NewCities Institute. She currently serves as chair of the Morehead State University Board of Regents. Please send your comments to slovely@klc.org and visit her blog at sylvia.newcities.org.

Credit Cards Flash At The White House

Henry Ehrlich — Wed, 29 Apr 2009 23:29:37 -0400

Back in the 1980s, Citibank CEO John S. Reed looked at the bank’s earnings and said, more or less: This is really a credit card company with six other lines of business. That is, the card portfolio was making lots of dough, and carrying the rest. Commercial lending, real estate lending, clearing, foreign exchange, branch banking — all of them were flat or losing money, while the card business was cooking.

Membership has its privileges indeed. I am reminded of this today because this past week President Obama has been meeting with the CEOs of the big credit card companies and trying to jawbone them into giving up some of the power they enjoy to goose their earnings by opportunistic manipulation of terms of service to their customers. It’s as if Mobil or BP had the power to come back in the dark of night and siphon off some of the gas they sold you in the afternoon.

I wish the president well. He made it clear during his session with the card executives that he was familiar with their machinations from personal experience. We have come a long way since the first President Bush marveled at a bar code reader. But I have my doubts. Right now, the whole banking portfolio looks a good deal like Citibank did in those days. Commercial lending, mortgages, trading… all underwater.

Credit cards may or may not be making money—that shoe doesn’t drop all at once—but when you can squeeze your customers the way all that fine print allows, you don’t give up the franchise lightly. Let’s not forget, the credit card business already had its bailout, in the form of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, which functions according to the Law of Goodfellas: Drowning in medical bills? “F* you, pay me.” Swamped by alimony and child support? “F* you, pay me.”

To that, add: Lost your job, house, and health insurance? “F* you!”

When I arrived at Citibank in 1980, one of the first speeches I wrote was for the opening of Citibank, South Dakota, which was created expressly for the purpose of lodging the credit card business. Citibank had transplanted this business from New York State because New York still had usury laws, which capped retail interest rates at 12%.

The bank was in big trouble. In the preceding years, Mr. Reed had flooded the nation with credit cards, a bold move in an era when people did their banking locally. A credit card was generally an extension of an existing banking relationship, replete with a credit history and some suasion of banker over customer. Reed’s folly, as it was occasionally called, entailed giving cards to total strangers by mass mailing—unlike retail banks, the U.S. Post Office could branch across state lines—many of whom were of dubious creditworthiness, or dubious character for that matter. With interest rates capped at 12% by New York law, and overnight money, borrowed as needed from other banks, floating north of that—this was when Paul Volcker was Fed chairman—something had to give. As Walter Wriston put it, “When you borrow money at 14% and lend it at 12%, you can’t make it up on volume.” When I was recruited as a Citibank speechwriter, among the perks my boss mentioned was that I could take out a loan at a low employee rate and buy a CD that paid a higher one.

New York State legislators never imagined that one of the most venerable of banking institutions would relocate the business to a more favorable venue, a practice called jurisdiction shopping. But armed with some combination of the Bank Holding Company Act and other legislation, and something called the Commerce Clause of the U.S. Constitution, they found their way to South Dakota and its accommodating four-term Governor William Janklow. Governor Janklow’s signature legislative accomplishments were the reinstatement of capital punishment, and lifting the State’s usury limits. (He was later convicted of running a stop sign and hitting a motorcyclist, killing him. The family was precluded from collecting damages because Janklow was heading home from a speech at a country fair, and thus on official business. He is now a practicing lawyer.)

But enough local color. Suffice it to say that the bank got what it wanted, and so did the State. The bank instantly became South Dakota’s largest employer, and, as we pointed out in our speeches, its college graduates found an employer where they could put their degrees to work without leaving home.

This was so soon after I started working at Citibank that I was denied my first credit card because I hadn’t been at my job long enough. “I’m writing speeches for the chairman of the bank and for your boss, Rick Braddock,” I told the phone rep. “That may be,” she said, “but you haven’t been employed long enough to qualify.” When I told Rick, he laughed and said, “At least they’re doing their jobs. What do you want, plain vanilla or preferred?”

Freed from the constraints of New York State law, Citibank survived its catastrophic loan losses and pioneered many now-standard innovations, including risk-based pricing, affinity cards, and a portfolio of cards targeted to different categories and classes of users.

Even then, the promiscuous marketing of cards and the potential resulting horrors were manifest. Like pornographers’ lawyers, we found the germ of redeeming social importance. We were providing consumers with a tool for managing their personal and family finances. We were freeing working people from the necessity of relying on loan sharks from payday to payday. We were dealing with consenting adults.

The bankers were fully aware, of course, that in spite of talk about sensible use of credit and managing the household budget, they were really selling liquor to the natives. Behind the scenes was a laboratory where young people with degrees in psychology were kicking the consumer behavior of millions around like a soccer ball, finding ways to hype the impulse to buy, buy, buy, and mining data to place “choices” in front of people based on their previous purchases. We take it all for granted now, with Amazon.com and a thousand other websites, but this took place in the years of the mid-1980s, one of which was 1984.

By the end of last week, the biggest story out of the credit card summit was that Larry Summers fell asleep, a serendipity that is almost a reenactment of regulatory behavior over the past eight years or more (I am aware of the role Summers played under Clinton). The New York Times reported, “One executive told the president that although her assignment had been to try to persuade the president not to support new restrictions, ‘it was pretty clear I won’t succeed.’” The biggest underlying argument is that with the banks’ other businesses so weak, they don’t want to give up the one cash cow.

My fear is that whatever new restriction is placed on this weasel industry, whether we have to wait for new Federal Reserve regulations in 2010 or they are expedited, the evil minions at the banks will find a way around it. This is the game they have long played. I have seen their tricks in my own accounts, including that first one that Mr. Braddock granted me. Lower the interest rate? They accelerate the repayment schedule, which means the customer has to pay just as much each month, resulting in lower repayment of interest as a share of the payment.

It reminds me of the way cigarette companies lower the tar content of cigarettes by perforating the paper. The poor addict drags more often and harder, just to maintain the accustomed nicotine levels. Or the time I paid my balance in full—thousands of dollars worth—when my interest rate was low, then used the card in an emergency, only to find that my rate had shot up to Tony Soprano levels. Why? Because when I had paid my bill in full, they hadn’t yet posted $6 in new interest charges, which went unpaid, and therefore I was now being charged at deadbeat levels.

Or, as Michael Corleone would put it, just when I thought I was out, they pulled me back in.

Henry Ehrlich has written speeches as a freelancer for both the new, white-knight CEO of Fannie Mae and the former, disgraced CEO of Freddie Mac. He is author of Writing Effective Speeches and The Wiley Book of Business Quotations.

Here in the Real World They’re Shutting Detroit Down

Morley Winograd and Michael D. Hais — Wed, 29 Apr 2009 01:49:29 -0400

Once upon a time, not so long ago, in a city at the heart of the American continent, General Motors produced cars, like Pontiac’s “Little GTO,” celebrated in Beach Boys songs that captured the thrill of driving Detroit’s latest creations. Today, as GM struggles to appease the government’s auditors just to stay alive, Kris Kristofferson, with a little help from Mickey Rourke, curses the financial wizards from Wall Street that are “Shutting Detroit Down” while “livin’ it up in that New York town.”

Never has the inherent tension between the investor class and the country’s manufacturing sector been more pronounced or the stakes in this particular poker game higher for the future of America. Chrysler may be forced into bankruptcy first, but it’s GM's downfall that represents the true mid-American earthquake.

Back in the late 1950s, General Motors so dominated the American automobile market that its corporate goals were focused on achieving a 60% market share. The hubris of its executives led them to decide to pick up more and more costs for medical insurance, pensions and retiree benefits, beginning GM’s slide down a slippery slope of poor financial performance

This posed a huge but not initially recognized risk to GM. By taking on these obligations that didn't show up as a cost or balance-sheet liability until the government changed its accounting rules in 1992 and required companies to show the cost of “other post-employment benefits” (OPEB) on their books, General Motors lit a ticking time bomb that has now exploded in its face. In 1972, as GM came the closest it would ever come to achieving its sixty-percent market share goal, GM was paying the entire health insurance bill for its employees, survivors and retirees, and had agreed to "30 and out" early retirement that granted workers full pensions after 30 years on the job, regardless of age. Its world then began to come apart.

In 1973, OPEC’s embargo tripled the price of oil. GM failed to respond quickly enough to the consumer’s sudden demand for fuel-efficient cars. At the same time, the Japanese with their then superior, lean manufacturing techniques stepped into the vacuum, gaining a foothold in the North American car market that they have continued to expand. Ironically, thirty years later the very same inability to shift product offerings during a spike in oil prices precipitated GM’s current difficulties.

GM’s reluctance to go green is often cited by its new government owners as the reason it’s in so much trouble now, but the crux of GM’s problems really go back to those heady days of market domination and financial profligacy.

In the 1960s GM’s annual operating margin (profits divided by revenues) averaged 8.7%. The turmoil of the seventies and the pressure from Japanese competition drove those average margins down to 5.5%. Margins fell by about half to an average of 3% in the 1980s, and about half again to 1.3% in the 1990s (not counting the $20 billion hit GM took when the new accounting rules for OPEB took effect.) Finally, in this decade the slide has actually taken the company into an average of negative margins. Now only the government’s suggested radical restructuring seems to offer a way to stop the bleeding.

It is estimated that the cost of OPEB, essentially GM’s retiree pension and health care programs, have cost the company about $7 billion each year since 1993 and are probably around $10 billion per year now. The bargain auto company management made back in the 60s with labor to provide generous off the balance sheet benefits has now become an albatross that threatens the manufacturing jobs for the Big Three’s own current workers and suppliers across the Midwest. It’s the kind of problem only government can solve.

But the Obama Administration’s early efforts to do so have been far from promising. First it selected Steve Rattner as its “car czar”, a politically well-connected private equity investor and turnaround artist from “that New York town,” someone with no significant automobile industry experience. In addition, the government's demands that GM dismantle more brands and shut down more dealerships suggests the process may get a lot uglier by the May 31 decision deadline.

Luckily the United Auto Workers remain on watch to try to ensure that whatever concessions are demanded of GM’s current and retired employees reflect an equitable shared sacrifice with the company’s bondholders and investors. The kind of GM that emerges from these negotiations will have a huge impact on these workers and on the many industrial towns that depend on the car business for their basic existence.

Ultimately, the decision on how best to “rescue” GM may turn out to be the most difficult call President Obama will make in his first year in office. He will be pulled by pressures from the green gentry left to force GM’s future products to conform to a pre-determined environmental agenda. He also will face predictable Republican calls to let the market work its will, even if it means the end of the company.

President Obama will need the wisdom of Solomon to recognize that today’s workers no more deserve to be punished for the mistakes of prior management than CIA agents do for carrying out the orders of their equally arrogant Republican counselors during George W. Bush's administration. To paraphrase the President’s words, it’s “time to move on” and offer GM the support it needs to “Catch a Wave” and start producing more “Good Vibrations” for America’s hard pressed, but still very critical manufacturing sector.

The Worst Cities for Job Growth

Joel Kotkin — Tue, 28 Apr 2009 00:21:38 -0400

One of the saddest tasks in the annual survey of the best places to do business I conduct with Pepperdine University's Michael Shires is examining the cities at the bottom of the list. Yet even in these nether regions there exists considerable diversity: Some places are likely to come back soon, while others have little immediate hope of moving up. (Please also see "Best Cities For Job Growth" for further analysis.)

The study is based on job growth in 336 regions – called Metropolitan Statistical Areas by the Bureau of Labor Statistics, which provided the data – across the U.S. Our analysis looked not only at job growth in the last year but also at how employment figures have changed since 1996. This is because we are wary of overemphasizing recent data and strive to give a more complete picture of the potential a region has for job-seekers. (For the complete methodology, click here.)

First let's deal with the perennial losers, the sad sacks of the American economy. Mostly cities in the nation's industrial heartland, these places have ranked toward the bottom of our list for much of the past five years. Eleven of the bottom 16 regions on our list are in two states, Ohio and Michigan. In fact, the Wolverine State alone accounts for the bottom four cities: Jackson, Detroit, Saginaw and Flint.

Unfortunately, there's not much in the way of short-term – or perhaps even medium- or long-term – hope for a strong rebound in those places. President Obama seems determined to give the automakers, for whom Michigan is home base, far rougher treatment than what he meted out to ailing companies in the financial sector.

In addition, new environmental regulations may not help auto production, since it necessitates some carbon-spewing and therefore perhaps unacceptable levels of greenhouse gas emission.

However, not all of Michigan's problems stem from Washington or the marketplace. Many of the locations at the bottom of the list remain inhospitable to business. To be sure, housing is cheap – in Detroit, property values are fast plummeting toward zero – but running a business can be surprisingly expensive in these hard-pressed places.

In fact, according to a recent survey by the Tax Foundation, Ohio has an average tax burden roughly similar to New York, California, Massachusetts and Connecticut. But while the others are comparatively high-income states, Ohio residents no longer enjoy that level of affluence.

Can these places come back? It is un-American to abandon hope, but there needs to be a radical shift in strategy to focus on creating new middle-class jobs. Some Midwestern cities, like Kalamazoo and Indianapolis, have made some successful efforts to diversify their economies, encouraging start-ups and trying to be business-friendly.

But those are exceptions. Cleveland, one of our worst big cities, could spark a renaissance by revamping its port and nearby industrial hinterland. Once the world economy improves, it could re-emerge – building on the existing knowledge and skills of its production- and design-savvy population – as a hub for manufacturing and exports.

But right now, Cleveland does not seem to be pursuing such opportunities. As Purdue's Ed Morrison has pointed out, local leaders there seem to "confuse real estate development with economic development."

So Cleveland will focus on inanities such as convention business and tourism, believing we all fantasize about a week enjoying the sights along Lake Erie. Yet even high-profile buildings like the Rock and Roll Hall of Fame and Museum, completed in 1986, have not transformed a gritty old industrial town into a beacon for the hip and cool.

Old industrial cities like Cleveland are better off focusing on their locational advantages – access to roads, train lines and water routes – while offering a safe, inexpensive and friendly venue for ambitious young families, immigrants and entrepreneurs.

Meanwhile, cities with formerly robust economies – like Reno, Nev., Las Vegas, Orlando, Fla., Tampa, Fla., Fort Lauderdale, Fla., West Palm Beach, Fla., Jacksonville, Fla., and Phoenix – are more likely to rebound. These areas topped our list for much of the 2000s; their success was driven first by surging population and job growth and later by escalating housing prices.

But the collapse of the housing bubble and a drop in large-scale migration from other regions has weakened, often dramatically, these perennial successes. "We could rely on 1,000 people a week moving into the area," notes one longtime official in central Florida. "These people needed services, houses and bought stuff. Now the growth is a 10th of that."

Instead of waiting for the real estate bubble to return, these areas should choose to focus on boosting employment in fields like medical services, business services and light manufacturing. In much of Florida and Nevada, there's also a need to shift away from a reliance on tourism, an industry that pays poorly on average and is always subject to changes in consumer tastes.

We can even be cautiously optimistic about some of these former superstars. After all, observes Phoenix-based economist Elliot Pollack, the existing reasons for moving to Arizona, Nevada or Florida – warm weather, relatively low taxes and generally pro-business governments – have not disappeared. "There's no change in the fundamentals," he argues. "It's a transition. It's ugly, and there's pain, but it's still a cycle that will turn."

Once the economy stabilizes, Pollack says he expects the flow of people and companies from the Northeast and California to Phoenix and other former hot spots will resume, once again lured by inexpensive real estate, better conditions for business and a generally more up-to-date infrastructure.

The Problem with California

So what about California? The economic well-being of many metropolitan areas in the Golden State has been sinking precipitously since 2006. This year, three California regions – Oakland, Sacramento and San Bernardino-Riverside – have sunk down into the bottom 10 on the large cities list. That's a phenomenon we've never seen before – and never expected to see.

Like other Sun Belt communities, California suffered disproportionately from the housing bubble's bust, which has devastated both employment in construction-related industries as well as much of the finance sector. But some, like economist Esmael Adibi, director of the Anderson Center for Economic Research at Chapman University, where I teach, think a real estate turnaround may be imminent.

Among the first to predict the potential for a real estate bubble back in 2005, these days Adibi is more upbeat, pointing to rising sales of single-family homes, particularly at the lower end of the market. California's inventory of unsold homes is now down to about six months' worth, a figure well below the national average of 9.6 months.

It seems not everyone is ready to abandon the Golden State – but still, recovery in California may prove weaker than in surrounding states. One forecaster, Bill Watkins, even predicts unemployment could reach 15% next year, up from about 11% today. California, most likely, will see only an anemic recovery in 2010 even if growth picks up elsewhere.

Much of the problem lies with the state's notoriously inept government. The enormous budget deficit will almost certainly lead to tax increases, which will fall mostly on the state's vaunted high-income entrepreneurial residents. Stimulus funds won't do much good either, Adibi notes, since "the state is grabbing all of the federal stimulus money" to keep itself afloat.

A draconian regulatory environment also could dim California's prospects for growth. Despite double-digit unemployment, the state seems determined not only to raise taxes but also to tighten its regulatory stranglehold.

This is a stark contrast to what happened in the 1990s during the last deep recession. At that time, leaders from both political parties pulled together to reform the state's regulatory and tax environment. Almost everyone recognized the need to improve the economic climate.

But an even deeper recession, it seems, hardly troubles today's dominant players – public employees, environmental activists and gentry liberals who largely live along the coast. The state has recently passed a draconian Assembly bill aimed to offset global warming by capping greenhouse gas emissions – a measure that seems designed to discourage productive industry.

"This is becoming a horrible place to produce anything," says Watkins, who is executive director of the Economic Forecast Project at the University of California, Santa Barbara.

California's lawyers, though, might stay busy. Attorney General Jerry Brown has threatened to sue anyone who grows their business in unapproved, environment-threatening ways. To be sure, this promise may have relatively little impact on the more affluent, aging coastal communities – but it could wreak havoc on younger, less tony areas in the state's interior. Many of the local economies there still rely on resource-dependent industries like oil, manufacturing and agriculture.

It's sad because California has the capacity to recover more quickly than the rest of the country if the state moderates its spending and stops regulating itself into oblivion. This current round of legislation is so dangerous precisely because it could eviscerate the heart of the economy by slowing down entrepreneurial growth, the state's greatest asset.

Even in hard times, there are people with innovative ideas trying to bring them to market – and not just in Hollywood- and Silicon Valley-based industries but in a broad range of fields, from garments to agriculture, aerospace and processed foods. The desire to increase regulation reflects a peculiar narcissism and arrogance of the state's ruling elites, who believe the genius of San Francisco's venture capitalists and Los Angeles' image-makers alone are enough to spark a powerful recovery.

This is delusional. True, California still has a lead in everything from farm products to films to high-tech manufacturers. But it has been slowly losing ground – to both other states and overseas competitors. CEOs and top management might stay in the Golden State, but they increasingly send outside its borders all jobs that don't require access to the local market, genius scientists or talented entertainers.

"There's a feeling in California that we will come back, no matter what, because we are California," Watkins says. "The leadership is swallowing Panglossian Kool-aid. Some very smart people, a beautiful climate and nice beaches is not enough to guarantee a strong recovery."

This article originally appeared at Forbes.

Germany's Green Energy Goals Are Potentially Unrealistic

Mon, 27 Apr 2009 01:19:03 -0400

The world looks to Germany to be a leader in Green Energy. There’s been a great deal of hype surrounding Chancellor Angela Merkel’s very ambitious goals of dramatically reducing the county’s emissions by 2020.

Yet the German experience should also provide some pause to President Obama and others proposing such changes in the United States. It turns out that goals are potentially unrealistic, perhaps even dangerous, for numerous reasons. One reason that makes them so unrealistic is that they are seriously hamstrung by effectively cutting off the single largest source of CO2-free energy available anywhere in the world right now: Nuclear Power.

This reflects how much Germany has been influenced by green politics. In the years of the Socialist-Green government stretching from 1998 – 2005, nuclear power was considered an anathema. The Green party has its roots in the anti-nuclear power movement of the seventies. One of the most important items on their agenda when they came into power was to completely eliminate Germany’s use of nuclear power in the now infamous Atomaustieg or Nuclear exit which mandated that Germany no longer use nuclear power by the year 2020.

When Chancellor Merkel took power under the Grand Coalition of Christian Democrats and Social Democrats, this policy remained in place even as the government pledged it would dramatically lower Greenhouse Gases by 2020 as well. Although the Christian Democratic Union (CDU) has been arguing for a repeal of the ban on nuclear power, the coalition continued to eliminate this most effective means of GHG reduction, placing its bets on conservation and renewable energy.

Ironically Germany remains one of the leading countries when it comes to nuclear technology. Areva, France’s nuclear leviathan has a large R&D facility here in Germany, where I myself once worked as an English language trainer. The German engineers working here in Erlangen are regularly sent abroad to help with the building and maintenance of nuclear plants throughout Europe and the rest of the world. German engineering is being used in Finland, Bulgaria, and Sweden. Some of the engineers have even helped build a high-pressure reactor in Lynchburg, Virginia. I have worked with these people and they include some of the best minds in the field.

Germany’s desire to reduce greenhouse gases and live without nuclear power has taken some almost absurd turns over the years. For one thing, Germany appears to be turning to its single cheap and abundant supply of energy, albeit a very dirty one, coal. Germany has both some cleaner anthracite and a lot of very dirty bitumen mines. These mines provide an enormous portion of Germany’s electricity and are also one of the reasons why Germany’s lights won’t go off even if all the nuclear plants are turned off. Coal power plants are being built across the country – even the Greens in the Hamburg government have allowed massive plant to be built in the city with some very strict regulations.

The single most absurd aspect of the Green’s desire to eliminate Germany’s reliance of nuclear power are massive subsidies that it has provided for both solar and wind power generation. Germany, while not the gloomiest country in Europe, is not exactly sunny. It has huge annual amounts of precipitation and dark, grey winters. Subsidies, as well as its renowned industrial prowess, have turned the country into one of the leading producers of solar power.

Yet this is not an unalloyed advantage – despite the constant claims made about “green jobs“ here in Europe as well as North America. Solar power is enormously expensive and inefficient here, most notably lacking the reliability needed by all major power suppliers. It only produces power when the sun shines, and it is very tricky to store the energy created, especially with photovoltaic sources making it enormously expensive. Some forms of solar power have been able to store off-peak power production; the parabolic-trough plants in Andalusia or the Mojave deserts use molten salts stored en masse to assure 24-hour supply, but these technologies, though provided by German companies, cannot be implemented in Germany itself due to the lack of intense sunshine about 6 months out of the year.

And then there’s wind. Wind has all of the drawbacks of solar but the advantage that Germany is at least fairly windy. Wind power has taken off here and the Baltic and North Sea coasts are dotted with enormous wind parks. The costs are still enormous and wind or solar power are still far more expensive than standard sources of power. A May 12, 2008 editorial in the Wall Street Journal stated: "For electricity generation, the EIA concludes that solar energy is subsidized to the tune of $24.34 per megawatt hour, wind $23.37 and 'clean coal' $29.81. By contrast, normal coal receives 44 cents, natural gas a mere quarter, hydroelectric about 67 cents and nuclear power $1.59."

Costs have come down recently due to the explosive growth in the sector over the last few years. The U.S. Energy Information Administration estimates that wind costs $55.80 per MWh, coal at $53.10/MWh and natural gas at $52.50, and the costs for wind fail to take into consideration the costs of owning and operating a conventional power plant to provide energy when the wind is not blowing. Explosive growth over the last few years has allowed companies to exploit the economies of scale created by large-scale production. German wind-turbine producers have been able to maintain a fairly large presence on the market but have been muscled out recently by American and Indian manufacturers. Wind-power will never be able to provide more than 20% of the power mix by most projections. As with solar, there is insufficient storage technology affecting solar; the appropriate areas have been built out. There have been murmurs about the possibility offered by off-sea wind parks but these are also enormously expensive to build and maintain.

Germany has shunned nuclear and coal in an attempt to use wind and solar. Renewable sources are not only much more expensive but also cannot begin to provide the amount of energy at economical rates. Germans are also big fans of natural gas but the problem is Germany has very little of it. Germany has had to import its natural gas, some from fairly reliable partners like the Netherlands and the United Kingdom but mostly from an increasingly assertive and authoritarian Russia.

So rather than promote independence in energy, Germany’s green policies are making it ever more dependent on an autocracy. Even under the Soviets, Germany’s wet winters were made more commodious with the pleasant warmth provided by Russian gas. Schroeder and Putin were the best of friends, aided by the fact that Putin spoke fluent German from his time running the KGB station in Dresden, Germany. When Schroeder was fired by the German people he quickly found employment as a lobbyist for Gazprom, the Russian energy titan.

This leaves Germany with a series of problems with no pleasant solution. It can either lift the ban on nuclear power or extend the lives of its plants as Sweden has already done. It can build a lot more coal-fired power plants, which Vattenfall is now trying to do in Hamburg, or it can opt for conservation, renewable energy and economic stagnation. The latter seems to be the path that Germany has chosen. Economic stagnation or even moderate economic growth or slight contraction might not be so bad for Germany. It has none of the demographic pressures driving dynamism and growth in America. The green ideologues driving German policy argue that renewable and conservation of energy are Germany’s only hope. To them, green principles are well worth the price in demographic and economic stagnation.

Is That an Economic Light at the End of the Tunnel or an Oncoming Train?

Roger Selbert — Sun, 26 Apr 2009 01:39:50 -0400

When it comes to the state of the economy, is the worst behind us or still to come? Informed opinion is all over the map. The optimists are citing such factors as accommodative Federal Reserve Bank policy (massively increased liquidity), bank profitability (and yes, banks are lending, but only quality loans), money velocity (trending up), a positive yield curve (long-term vs. short-term rates), housing starts (surging), favorable financial rule changes (abandonment of mark-to-market accounting, reinstatement of the short uptick rule to prevent naked short-selling), retail sales (recovering), commodity prices (rising due to increased industrial demand), used car prices (firming), and new vehicle sales (rising off their sickening lows).

Pessimists are pointing to job losses, bankruptcies, business closings, unfunded liabilities, budget deficits as far as the eye can see, potential for high inflation, the debt overhang, and more. They don’t believe any good news is real or sustainable. On housing, for example, they say prices have further to fall, and that new construction is mostly in condominiums, apartments and townhouses, not detached single family residences.

But that’s disputable. In fact the housing trend has become much more positive. In California, existing home sales have jumped 30% over the past year, taking the inventory from an estimated 16.7 months to less than seven months.

Nationwide, existing home sales have been on the rise for the last few months, with strongest growth occurring in Sunbelt markets in Arizona, Nevada and Florida, as well as in California. These are the places that experienced some of the greatest surges in prices, but have now seen declines of as much as 50% below peak, allowing new buyers to purchase affordably.

If there is one iron-clad rule when it comes to the life cycle of recessions, it is that when things get cheap enough, buyers appear.

In other words, there is a bottom somewhere, if for no other reason than even after the worst disaster, survivors must move ahead with their lives. And we all have to buy the basic staples (even the bare necessities add up to billions of dollars in expenditures). Will we completely change our lifestyles, living in smaller places, driving smaller cars, consuming less, become more frugal, less ostentatious, opting for voluntary simplicity, etc.? Fugetaboutit. I get asked about this during every downturn and I always say the same: only those who already have everything seem to buy into the notion of doing with less. And, as it turns out, they have to spend freely in order to impress themselves that they are living frugally.

Going socialist?
Some observers have said that if we continue down the current economic, social and political path, we will become like the social democracies of Western Europe, characterized by slow growth, heavy government involvement in all businesses an industries, high taxes and regulations, and a resultant lower quality of life. Others – say, those who have visited Europe and like what they see – say they would welcome the guaranteed health care, education and pension. If I may offer some personal and professional insight into the argument, as I have lived in, worked in, studied, researched and written about the European system, I would say the model is not transferable to the States, and is likely itself unsustainable even in Europe.

Europe suffers from consistently slow growth, permanently high unemployment, aging populations, declining birthrates, rising fiscal deficits, and, worst of all, little prospect of change. The labor market is less flexible, regulations are onerous, fewer new businesses are formed, spending on research and development is lower than in the US. With so much regulation and “national champions”, barriers to competition are higher.

Europeans are less productive, work less and earn less. And no, contrary to Jeremy Rifkin (The European Dream), this represents more than a voluntary choice of more leisure and lifestyle over income. A Federal Reserve Bank of Minneapolis study found that Europe’s higher taxes explain almost all the difference in labor-force participation rates between Europe and the US. When European tax levels were comparable, European work hours were similar. Having lived among the natives in the “café society” I can confirm that when marginal tax rates are confiscatory, the best and brightest will indeed either “go Galt” (withhold their full efforts from the labor market), or seek opportunities elsewhere abroad.

Entrepreneurs and innovation – not ever expanded government – will save the US economy, but those are in short supply in Europe. We excel in them here, but they require low taxes, low levels of regulation, low barriers to entry and operation, the freedom to hire and fire freely, etc.

Consumers
What about consumers and consumer spending, such an important component of economic activity? Optimists point out that most people (upwards of 90%) are still working, earning, making their mortgage and credit card payments – and spending, if at a less frenetic pace. Pessimists see the credit contagion as spreading. They point to devastated domestic balance sheets, due to collapsing home values, declining net worth and reduced financial spending power.

I can here also offer some personal and professional insight, from my long association with the Institute for Business Cycle Analysis: our own US Consumer Demand Index, the only monthly survey of American consumers which measures actual buying intentions (as opposed to sentiment, confidence or opinion, all of which are of course subjective). We query over 1,000 households a month on their specific spending plans across a broad range of durable and non-durable goods. We don’t ask their opinion of which direction the country is going, or on how good a job they think the President is doing. We ask them, are you, or are you not, in the next three months, going to be buying a car, PC or TV, white goods, home furnishings, kitchenware, toys, etc. In the case of food/groceries and clothing/shoes, we ask whether they are going to be purchasing more, less or the same amount as in the corresponding period of last year. Regarding those durable goods, we also ask, uniquely, if their household has no plans to be buying anything in those categories during the next three months. This gives us some unique insight into real consumer behavior.

Our March data show a fairly strong upturn (from a very depressed level of -37 to a less depressed level of -11). This is a significant improvement, but we will refrain from calling a bottom or turnaround until we see our three-month moving average in positive territory for three consecutive months. (On the basis of this March report, the three-month moving average improved only one point, from -26 to -25, so there is still a long way to go, but the positive direction and momentum is encouraging.)

[Feel free to contact me for a copy of the US CDI and subscription information (or feel free to visit www.consumerdemand.com). Our monthly surveys, which have been conducted since February 2001, give a fairly accurate forecast of the strength and direction of the PCE (Personal Consumer Expenditures) and ISM (Institute for Supply Management) indexes 4 to 6 months ahead of official data.]

So where do I stand? I believe the tide is starting to turn – the rate of decline in most major economic indicators is clearly slowing. The forward looking stock market is well off its lows. In our latest CDI survey, the percentage of consumers declaring themselves on the sidelines decreased from the record high level of 68.4 in February to the still awful 62.2 in March (at least we’re moving in the right direction!).

So is that flickering light we see the end of the tunnel or an oncoming train? Ask me in two months. I would offer a stronger opinion, but everyone in the "foreseeing” business ought to be properly humble from now on.

Dr. Roger Selbert is a trend analyst, researcher, writer and speaker. Growth Strategies is his newsletter on economic, social and demographic trends; IntegratedRetailing.com is his web site on retail trends. Roger is US economic analyst for the Institute for Business Cycle Analysis in Copenhagen, and North American agent for its US Consumer Demand Index, a monthly survey of American households’ buying intentions.

Mr. Cloghessy Deserves Better – And So Do the Rest of Us

Jerry Sullivan — Sun, 26 Apr 2009 01:11:19 -0400

The role of politicians in the corruption of our civic spirit – a national problem that has led us to the current economic mess – has me thinking a lot about Joe Cloghessy.

Mr. Cloghessy lived in my childhood neighborhood. He was big and strong and worked hard for a living, like most of the men in the neighborhood. He might have had more money than his neighbors, but that never came up. He did have a pool in his backyard – he built it himself – and that made his house a rarity in those parts.

Mr. Cloghessy was just as rare as his house. He let every kid on our block swim in his pool between 2 p.m. and 4 p.m. from the day school let out for summer until we went back to classes in the fall.

Mr. Cloghessy was good with woodworking, too, and the nooks and crannies around his pool were filled with small bridges through garden plots adorned with wind chimes and figurines. It was as close to a country club as I was going to get, and that was just fine with me.

Then one day I was playing around, doing the sorts of tricks that kids do, and I broke a railing on one of the bridges. I propped up the broken wood so it might pass for undamaged just long enough for me to slink away from the scene.

Later that day one of my sisters mentioned the mishap, and my mother overheard. She immediately gave me a stern reminder that someone could have gotten hurt if they had counted on that railing to support them as they walked over Mr. Cloghessy’s backyard bridge. She told me that Mr. Cloghessy worked hard for a living – and nearly as hard to craft the handiworks that made his backyard such a special place. She made it clear that our fine neighbor was under no obligation to let every little kid on the block into his yard – into his life – every day of every summer.

My mother also made it clear to me that it’s wrong to break something and not own up to the damage – especially when it’s something that belongs to someone who’s been good to you. Then she made me walk down the block and tell Mr. Cloghessy about the broken rail. She told me to apologize for breaking the rail – and for having lacked the courage to be forthcoming about the damage I had done.

I was embarrassed and scared as I approached Mr. Cloghessy in the workshop of his garage that evening. He nearly gave me a pass right off the bat, just because he was that sort of guy. I think he figured out that my mother had sent me down for a lesson, though, so he got serious, telling me to come right to him if it ever happens again. Someone could have gotten hurt on that busted rail, he said.

All of this makes me think of our current crop of politicians, who have busted more than a few rails but have yet to own up to the damage. It’s almost as though they are children who have misbehaved for a long time. It seems that nobody ever told them that fellows like Joe Cloghessy work hard and deserve better than to see their contributions to the common good left broken by someone who doesn’t even have the courage to admit to the damage.

This immaturity in our political system has been a long time in coming. Voters helped make the problem – we haven’t done much to hold our child-pols accountable for many years.

Now is the time for a fresh start – time to tell the politicians that they’ve disappointed us and must face some discipline.

Many of the politicians will survive – there are some sincere ones out there, after all, and others who have a sufficient store of good deeds to ride out their missteps.

Some shouldn’t get a pass because they’ve simply gone too far with the pay-for-play and other selfishness.

In any case, it’s time to realize that the world has changed dramatically in just the last few months. It’s quite clear that none of us are going to get anywhere until our politicians own up to their mistakes and start mending their ways.

It’s now up to everyone who’s concerned about our country and its civic spirit to call our politicians to account. We’re the only ones who can demand that they stop breaking things – starting with the public trust.

Jerry Sullivan is the Editor & Publisher of the Los Angeles Garment & Citizen, a weekly community newspaper that covers Downtown Los Angeles and surrounding districts (www.garmentandcitizen.com)

Playing With Trains

Wendell Cox — Sat, 25 Apr 2009 01:16:52 -0400

The Obama administration appears to have established the development of high speed rail (HSR) as the most important plank of its transportation strategy. The effort may be popular with the media and planners, but it’s being promoted largely on the basis of overstatement and even misinformation.

I have had considerable experience evaluating high speed rail projects. Most recently, Joe Vranich (a former colleague on the Amtrak Reform Council) and I teamed to produce an extensive report on the subject, California High Speed Rail: A Due Diligence Report. The findings, based on information provided by the HSR promoters reveal the claims of the Administration to be highly questionable.

Financing: It begins with understanding transportation financing in the United States. The Administration notes that far more money has been spent on highways and airports than on intercity rail. This is not in question. However, virtually all of the money spent to build the nation’s highway system and its major airports has been paid for by users of the system. Highway users have paid for intercity highways with their state and federal fuel taxes. Airport users have paid for the airports and the air traffic control system with taxes on their tickets. Put directly, if you don’t use the highway or airport system, you don’t pay. Indeed, not only do highway users pay for highways, but at the federal level, their funds provide 8 times as much revenue to transit per passenger mile as to highways.

Passenger rail finance is another matter. Generally, users pay less than one-half the total costs of passenger rail. The rest comes from taxpayers. If passenger rail were financed the same way as highways and airports, it would be largely paid for – both capital and operating costs – by fares and by taxes on tickets. Of course that would not work, because passenger rail is far more costly than the highway and airport competition. Today, Amtrak fares per passenger mile are more than double that of the airlines per passenger mile, and that is before the heavy subsidies received by Amtrak.

Indeed, the most recent data provided by the Department of Transportation indicates that the federal government made a profit of $1.00 per 1,000 passenger miles on the highway program while subsidizing passenger rail $210 and transit $159 per 1,000 passenger miles.

Ridership and Relieving Congestion: High Speed Rail is also promoted by the Administration, which claims it will reduce traffic congestion. This claim is fraught with difficulty. First, highway traffic congestion is almost exclusively within urban areas, not between the urban areas that HSR would serve. Data from the California promoters indicates that traffic levels would rise nearly as much with HSR as without it. HSR is projected to reduce traffic by less than 3 percent once the system is complete. Without high speed rail, traffic volumes would increase 52 percent and without high speed rail, traffic volumes would increase 49 percent above 2000 levels (See Figure). In either case, things would be far worse in the future than they are today. And if HSR can make so little difference in congested California, it will surely do less in other parts of the country.

Similarly, HSR will have little or no impact on the need to expand airports. For example, the Bay Area’s regional airport plan noted that high speed rail “would not divert enough passengers to make up for the shortfall in runway capacity.”

In France and Japan, where travel is far more concentrated due to the linear location of major urban areas and the smaller number of large metropolitan centers, markets that are well served by HSR still have significant airline traffic (Tokyo to Osaka and Paris to Marseille). Also worth noting, both nations boasted pre-existing rail ridership levels that account for much of the HSR volumes. There is no such foundation in the United States. The ridership issue is particularly important, because of the miserable record of transportation ridership projections both in the United States and around the world. A most recent example is the Taiwan high speed rail system, which according to the early projections of promoters was to carry 180,000 passengers per day in its early operations. Yet in its second year of operation (2008), the average daily ridership was less than one-half that projection (84,000, calculated from Taiwan government data). This is telling in a country with notoriously congested traffic and very few major urban centers,

This strategy of exaggerating ridership claims (and grossly under-estimating costs) is widespread in rail projects and has been extensively documented in Megaprojects and Risks: An Analysis of Ambition, by international scholars Bent Flyvbjerg, Nils Bruzelius and Werner Rothengatter (available from booksellers). The Taiwan and other international experiences suggest a major HSR investment would cost the taxpayers many additional billions and could bankrupt any private investors.

Greenhouse Gas Emissions: But perhaps the most misleading claims are related to greenhouse gas (GHG) emissions. It starts with the marketing. The Administration’s press release indicates that building all of its routes would reduce GHG emissions by “six billion pounds” annually. This sounds like a big number. It is akin to my characterizing my weight as nearly 100,000 grams, instead of the pounds (200 in my case) that is customary in talking about weight. In GHG emissions, we do not talk about pounds, we talk about metric tons. Six billion pounds is only 2.7 million metric tons (2,205 pounds), which is an infinitesimal share of the GHG emissions from the nation’s passenger transportation. Indeed, given the propensity of the consultants to produce ridership projections less accurate than “Vietnam body counts,” the figure is probably less.

The Administration falls into the usual trap of assuming that theoretical differences in GHG emissions can be turned into radical changes in travel patterns and behavior. The GHG emissions per passenger mile may be less (at least before the coming improvements in vehicle technology) but that does not mean that enough passenger miles can be moved from cars (and planes) to make a material difference. Our experience in high cost urban rail projects should have taught us this.

Moreover, a mere reduction in GHG emissions is not sufficient to justify adoption of a strategy. Strategies must be prioritized based upon their effectiveness, and that is measured by cost. On this score, the California HSR system fails to a degree that is incomprehensible. The Intergovernmental Panel on Climate Change (IPCC) has indicated that the cost of GHG emission reduction should be no more than from $20 to $50 per ton. Even that may be too high. For example, Al Gore, Governor Schwarzenegger and Speaker of the House of Representatives Nancy Pelosi studiously buy carbon offsets for the tons of GHG that they produce flying around the country. The current market rate for such offsets is under $15.

The California High Speed Rail Authority, whose leadership touts its GHG emissions reduction potential constantly, did not even bother to look at the cost of GHG emission removal in its thousands of pages of expensive, taxpayer financed reports. We looked at the issue, using California High Speed Rail Authority and California Air Resources Board assumptions and found that the cost per ton of GHG emission removal would be nearly $2,000, or 40 times the maximum figure used by the IPCC. To illustrate how extravagant a figure that is, if the nation were to reduce its GHG emissions by 80 percent (as proposed by the Administration) at the same rate, the annual cost would be more than 75 percent of the gross domestic product.

But that assumes all of the rosy cost and ridership projections. The figure could be as high as $10,000 per GHG ton, if the consultants have exaggerated as much in California as elsewhere.

Conclusion: It is likely that the same arguments can be made even more strongly in other proposed high speed rail markets. Yet, as costly as it is, HSR would be no more objectionable than building a new hardware store if it were paid for by its users. However, when taxpayers are asked to foot the bill, objective analysis of the claims, costs and benefits should at least have some priority. These are issues that an Administration committed to reducing GHG emissions by 80 percent has an interest in addressing. Relying on folklore rather than reality, as seems to be the present case, reflect an abject naivety at the least and incredible foolhardiness at the worst.

Wendell Cox is a Visiting Professor, Conservatoire National des Arts et Metiers, Paris. He was born in Los Angeles and was appointed to three terms on the Los Angeles County Transportation Commission by Mayor Tom Bradley. He is the author of "War on the Dream: How Anti-Sprawl Policy Threatens the Quality of Life.”

Can Eddie Mac Solve the Housing Crisis?

Fri, 24 Apr 2009 01:00:13 -0400

Every downturn comes to an end. Recovery has followed every recession including the Great Depression. In 1932, John D. Rockefeller said, "These are days when many are discouraged. In the 93 years of my life, depressions have come and gone. Prosperity has always returned and will again." The question is not ”IF”, rather it is “WHEN” recovery will begin. The age-old question remains: what can government do to get the nation out of recession?

Government can act wisely. In the past, it used tax legislation (the mortgage interest deduction) to create the highest home ownership rate in the industrialized world. It can also act stupidly by promoting “Sub-Prime” mortgages, “105%” financing and the “No-Doc” loan that got us into this financial mess. As many as 4.4 million more Americans could lose their homes – unless drastic action is taken to stop the process.

Much of this was built on good intentions. One example of poor planning can be seen in Department of Housing Development’s “Dollar Homes” program. The HUD website describes this as an altruistic program “to foster housing opportunities for low and moderate income families” by selling homes for $1 after the Federal Housing Authority has been unable to sell them after six months.

This sounds like a good idea but the program has become consumed by fraud and waste and has delivered little benefit to the parties intended. First, the policy eliminated any ability to sell the properties at market since it is clear that the value will be marked down to $1 in six months. The result was massive losses to the government as previously saleable properties were re-priced to $1. Second, the homes were snatched up by businessmen and the cronies of politicians who knew how to game the system. These homes were then sold on the retail market for huge profits. Very few homes made it to the needy parties intended. This dumb legislation created and fed a lazy, corrupt, bloated, ineffective and expensive bureaucracy.

In contrast, smart legislation can end the housing crisis that threatens to send our economy reeling into the next Great Depression. A simple but effective governmental action does not have to cost a lot of money and more importantly, does not require a new permanent and expensive bureaucracy. It can be a win-win-win for federal government, local government and working families. This smart legislation is called Eddie Mac, which stands for the Empower Direct Ownership Mortgage Corporation.

The genesis of Eddie Mac comes from the “good old days” when home prices were high. The most common complaint heard from police, fire, teachers, nurses and municipal workers was that they could not afford to live in the very communities where they worked. The lower wages of these groups forced them onto the freeways to more affordable neighborhoods in distant suburbs. The commute of hundreds of thousands of city workers across the nation clogged our roads, added harmful emissions to our atmosphere and exacerbated our dependence on foreign oil.

Simply stated, the Eddie Mac program allows local government to buy vacant foreclosed homes from the banks and institutions. Local government then stimulates the local economy by hiring local realtors, appraisers and contracting with local labor to fix up the deteriorated properties. It then leases the properties to police, fire, teachers, nurses and municipal workers who otherwise could not afford to live in their own communities. Local government enters into an “Empower Direct Ownership Lease Option” with their employees so that the employees have the right to purchase the homes in the future using their rental payments to build equity. The Empower Direct Ownership Lease Option allows the employee to acquire the home in five years for the original purchase price plus 50% of the appreciated value.

Instead of concentrating power in Washington, Eddie Mac empowers local government to solve their own local real estate economy. Eddie would employ local realtors to identify vacant foreclosed properties qualified for the Eddie Mac program. Realtors would earn a 1% fee for identifying and assisting local government with the acquisition. The purchase price would be set by a local appraiser who would also earn an appraisal fee. Use of local appraisers avoids banks profiting unfairly from a government program. The free market system would set the value. The purchase price would include an estimate of costs to bring the home back to local standards, using local workers to fix up these properties. Local government would obtain 100% financing for the acquisition from Eddie Mac bonds that would be sold on Wall Street along side of Fannie Mae, Freddie Mac and Ginnie Mae guaranteed loans.

A $200,000 home, foreclosed upon, vacant and allowed to deteriorate has likely deteriorated to just $120,000. Its actual value will be determined by appraisal. At $120,000, a 4% guaranteed Eddie Mac mortgage would cost local government just $4,800 per year. Local government would be able to rent that home for $400 per month making it affordable to police, fire, teachers, nurses and municipal workers.

The Empower Direct Ownership Lease Option allows the employee to acquire the home in five years for the original purchase price plus 50% of the appreciated value. If the baseline value is $120,000 and the home appreciates at 5% per year, it will increase in value $6,000 per year or $33,153 over 5 years. The employee's Empower Direct Ownership Lease Option allows them to acquire the home in five years for the original purchase price plus 50% of the appreciation or $136,577. The price is $16,577 below market price, creating equity for the home buyer of $16,577 which can be used as the future down payment to acquire the home.

This is a win-win-win scenario. Stopping the slide in home values by buying up foreclosed homes with federally insured 4% bonds is a low tech, low cost effort to put the brakes on the recession. And it entails no new bureaucracy. The Federal government is the big winner because they would be footing the bill for the bail-out if the economy continued to unravel. Local government wins by solving an age old dilemma of how to house its local work force. The local economy wins as fresh stimulus is put into the economy to locate, appraise, acquire, insure, repair, repaint and refurbish these homes. The city/county/municipal workers win with an opportunity to enjoy the American dream of home ownership in the very communities where they work. The environment wins as we take commuters off the road and lessen the environmental impact of their commute. And, we help reduce our dependence on Middle East oil as the ripple effect of tens of thousands of Eddie Mac homes are leased to local employees who now live and work in their own communities.

Eddie Mac can become the firebreak to the mortgage crisis, the game changer needed to change market momentum. The hundreds and thousands of vacant foreclosed home sales generated by the implementation of the Eddie Mac program would send a strong signal to the public that the market has bottomed and the recovery has begun. Vacant homes would be acquired, fixed up and occupied by stable, important and long-term members of our communities.

John D. Rockefeller once stood on the floor of the New York Stock Exchange and quieted the panic by firmly proclaiming; “Buy” in the dark days of the 1929 collapse. Our government can help stop the slide in prices by standing with our local governments and firmly encouraging “Buy” in the local markets. Reckless government got us into this mess. Smart government can get us out.

Robert J. Cristiano Ph.D. has more than 25 years experience in real estate development in Southern California. He is a resident of Newport Beach, CA.

Solving the Economic Crisis: Fix the Banks

Bill Watkins — Thu, 23 Apr 2009 03:14:10 -0400

Economic forecasts today reflect a remarkable variation. Some economists are predicting a rapid increase in economic activity within just a few months. Some are forecasting an economic decline that persists for years.

At the root of the debate lies the question: where is the heart of darkness? Primarily, forecasters are focusing on the impact of the fiscal stimulus and the efficacy of monetary policy. Yet they have been less forthcoming to center on the real problem, which is fixing the banks.

Government spending as economic stimulus is typically rejected by economists based on either a crowding-out or a Ricardian Equivalence theorem. The crowding out theory says that government spending can replace, or “crowd out”, more productive private investments. The perverse result is that the economy may slow down even more.

The Ricardian Equivalence theory holds that future taxpayers, recognizing their increased tax obligations, simply increase savings by an offsetting amount. The result is no change in economic activity. Though I’ve simplified the respective cases, crowding-out and Ricardian Equivalence arguments are persuasive for most states of the world. So, for the moment, let’s reject fiscal stimulus as a way out of recession.

What about monetary policy? One of Ben Bernanke’s contributions to monetary policy has been the notion that the central bank still has policy tools even when interest rates fall to zero. The FED can still purchase all sorts of assets. Those purchases increase the monetary base and directly impact targeted non-liquid markets. Continued action after interest rates reach zero addresses one criticism of Japan’s response to the 1990s in which their central bank essentially did nothing once interest rates reached zero.

First we need to consider how monetary policy affects economic activity. We teach students that monetary policy works through a money multiplier. The money multiplier is based on lending by a fractional reserve banking system. The money goes to the banks, and the banks lend it out. The reserves are provided by FED purchases of financial assets.

Of course the multiplier depends on the bank’s lending. What happens when banks don’t choose to lend? Scott Sumner, an economist at Bentley University, has pointed out that this is exactly the situation we have right now. The FED has been increasing reserves, but the banks are not lending. Since October, bank reserves and vault cash has grown to over a trillion dollars but lending has declined. Sumner recommends a penalty on excess reserves, but more is needed to restore bank lending.

I see three significant issues that are driving the banks’ apparent reluctance to lend. First, banks appear to expect deflation. Fear of deflation is not unfounded. Prices are falling in many markets, impacting bank behaviors.

I keep hearing that “Cash is king.” This is exactly what one would expect in a deflationary environment, and there is no obvious way to deal with it. You can tax excess reserves and vault cash. You can tax bank deposits. You cannot tax money that is under the mattress, and money under the mattress is profitable in a deflationary world.

This is what some call Keynes’ famous liquidity trap. Technically, a liquidity trap is when zero interest rates make monetary policy ineffective. As Scott Sumner and others point out, the described situation is really an expectations trap. The problem isn’t zero interest rates, the problem is deflationary expectations.

But if the “trap” makes monetary policy ineffective the arguments against fiscal stimulus are much weaker. This is where Paul Krugman says we are today, and it changes everything. We need to go back to fiscal policy to find hope for effective policy.

If we are in a trap, it bolsters Krugman’s criticism that the existing stimulus is too little. To be effective, the stimulus would need to be very large, perhaps 40 to 50 percent of gross product. This would imply a stimulus package in the range of 6 to 8 Trillion dollars!

But even if we were to follow this notion, I would argue that the composition of the stimulus would have to change. To be effective, government spending would have to create assets that significantly increase the productivity of private assets. We have examples from history. The Tennessee Valley Authority in the Southeast and Hoover Dam in the West cut private industry’s production costs by providing abundant and cheap energy. California’s water system, with its dams and canals, expanded agriculture’s productivity and range.

Sadly, in spite of its size, the current stimulus plan has nothing that will significantly enhance private-sector productivity. And even any attempt to boost productivity investments is likely to run into roadblocks from the very powerful, well-connected green lobby which enjoys a far more favorable press than does business.

Are we doomed then to deflation and slow growth? I don’t think so. The federal deficit, monetary policy, the impending Social Security and Medicare crisis, and baby-boom demographics imply eventual inflation.

The real problem is with the banks. Banks can fail because of a lack of liquidity or a lack of equity. Last fall banks faced a liquidity crisis. There was a run on the entire financial sector. Today banks are probably facing an equity crisis, and the Treasury’s Toxic Asset Plan is exhibit one.

The Treasury’s Plan does not make sense as presented. The plan is to leverage private sector resources, expertise and cash, with government funds to purchase underpriced toxic assets. This would supposedly reveal a true price for toxic assets. However, Gary Becker and Jeffrey Sachs have convincingly shown that the plan provides strong incentives to dramatically overprice the assets at the taxpayers’ expense. What if those toxic assets are already correctly priced?

The Treasury’s Toxic Asset Plan does make sense if the banks are insolvent, and policy makers are unwilling or unable to more directly and transparently tackle the problem. To me, the Toxic Asset Plan looks a lot like a backdoor way to recapitalize the banks. If so, we have a problem. Insolvent banks must deleverage as rapidly as possible. That is, they must reduce assets, and a bank that is reducing assets in not a bank in the lending business.

Here our problem is a variation of the problem faced by the Japanese in the 1990s. Their economic malaise continued for a decade in large part because they would not or could not clean up their banks. We and the rest of the World told Japan, time and again, that there was a toxic asset problem at their banks. Informed observers, inside Japan and out, knew that the core problem was bad bank assets.

Today, the United States is probably in the same position. Our banks and other financial institutions are in trouble. They are sitting on a bunch of bad assets. If the banks recognize their bad assets, their equity is inadequate. The banks’ unpopularity prevents a bailout or a restructuring, but policy makers are afraid to let them fail. The other solution would be the Swedish solution, but policy makers don’t want to be accused of nationalizing the banks. Right now even President Obama lacks the political capital to address the problem. So, we get the convoluted Treasury Plan.

What we need is political courage. We need to clean up the banks, and it doesn’t much matter how. We could crank up the bankruptcy courts, or we could implement the Swedish plan. Inaction will only prolong the economic pain. Backdoor plans from an unpopular Secretary of the Treasury aren’t going to get the job done. The sooner we clean up the banks, the sooner they will return to the business of lending, and the sooner we will have a recovery.

Entrepreneurs Overlooked in Recovery Plans

Delore Zimmerman — Wed, 22 Apr 2009 01:51:56 -0400

As most recently spelled out in The Economist , one of America’s most potent advantages – even in the current economic crisis – lies in its entrepreneurialism. America’s entrepreneurs are the proverbial wellspring of innovation and creators of most of the country’s new economic opportunities. Entrepreneurs, or global heroes as The Economist calls them, are not only important here in this country but are the best hope for creating the innovations that will get sufficient traction to resuscitate the world economy.

Year in and year out Small Business Administration data confirm that small businesses drive employment. Firms with fewer than 500 employees account for most, if not all, net new jobs while large firms with 500 or more employees exhibit a net loss of jobs. About 99 percent of all businesses are small businesses.

In that case one would expect that government would be doing more to encourage individuals to start businesses and create jobs, which is ultimately the long-term solution for the country’s economic woes. Not so says a recent study by the Kauffman Foundation – Entrepreneurship and Economic Recovery: America’s views on the best ways to stimulate growth.

The key findings of the report include the following:

By a margin of three to one (63 percent to 22 percent) Americans favor business creation policies as opposed to government creating new public and private sector jobs. In fact, 79 percent of respondents say entrepreneurs are critically important to job creation, ranking higher than big business, scientists, and government.
Only 21 percent of all survey respondents say that the stimulus package supports entrepreneurial activity and 33 percent believe it will retard entrepreneurship.
While 78 percent of survey respondents say innovation is important to the health of our economy, only 3 percent say they believe the stimulus package will encourage innovation.
Americans think the government does little to encourage entrepreneurship, despite its importance; 72 percent of respondents say the government should do more to encourage individuals to start businesses. Almost half of respondents think the laws in America make it more difficult to start a business.

So even now, entrepreneurship is widely recognized as more important than the stimulus package in creating long-term economic stability. Yet, Americans doubt that the stimulus package will spur the entrepreneurship that they hold as so important.

Americans Want Small Business Innovation
If entrepreneurship and innovation are the keys to revitalizing our economy, how can the federal government spur this on without the delay involved in creating a new bureaucracy? Is there a proven mechanism in place for evaluating, vetting and administering research funds that can be used to address some of our nation’s most pressing challenges related to the environment, a dwindling industrial base, our defense capability, or the health of our nation?

Of course there is, and it is somehow – amazingly – overlooked. It’s called the Small Business Innovation Research (SBIR) Program, an existing highly competitive program that funds the most promising scientific and engineering ideas from the nation's small, high-tech, innovative businesses. It’s so competitive that some, if not most, agencies only fund 1 out of 9 Phase 1 proposals.

Eleven federal departments now participate in the SBIR program; five departments participate in the companion Small Business Technology Transfer (STTR) program, which requires partnerships with universities to harness the intellectual capital of our universities and the market capabilities of small business. Altogether the SBIR/STTR programs award a little over $2 billion each year to small high-tech businesses.

Since its inception in the late 70s and early 80s the program has awarded $26 billion to over 80,000 Phase 1 projects and about 31,000 Phase 2 projects, resulting in small businesses filing 67,600 patents and attracting over $41 billion in venture capital. Over 650 SBIR companies have gone public. Increasingly, large firms and mid-sized firms have entered into various forms of collaborative relationships with SBIR awardees to commercialize their technologies.

Despite having a rigorous independent scientific and commercialization review process in place, and despite its record of success, the program now languishes with little support in either Congress or the White House.

Now let me admit that I’ve been actively involved in the SBIR program since 1992 – now having served as an eight-time principal investigator for Phase 1 and Phase 2 projects. Our company’s innovations are in community-based solutions for technology-based economic development, related to capital investment, trade and technology linkages and infrastructure investment. Our company is a 1997 recipient of the Tibbetts Award, named after the National Science Foundation’s Roland Tibbetts, awarded for success in the program and for the pursuit of science-based solutions to our nations challenges and opportunities.

I’ve also been an advocate for sustaining and building the program along with numerous colleagues in other small technology businesses and representatives of government from the technology-based economic development community. I’ve made this personal commitment because the program makes a significant difference in the opportunities that are available to small business and because the program works in creating new economic opportunities based on science, engineering and technology.

Instead of watching the SBIR program evaporate we should be doubling if not tripling our investment. At a minimum a $5 billion SBIR program should be put in place. It will get us much more in growth than the Treasury bailouts of the banks, or General Motors. It represents both what America wants – Small Business Innovation – and needs in these times of economic stress.

Delore Zimmerman is president and CEO of Praxis Strategy Group and publisher of Newgeography.com

We Must Remember Manufacturing

Joel Kotkin — Tue, 21 Apr 2009 00:20:30 -0400

General Motors' reorganization and contemplated bankruptcy represents one possible – and dismal – future trajectory for American manufacturing.

Unlike highly favored Wall Street, which now employs fancy financial footwork to report a return to profitability, the nation's industrial core is increasingly marginalized by an administration that appears anxious to embrace a decidedly post-industrial future.

Indeed, a recent survey of manufacturers found that most see the stimulus as only "slightly effective" for them. This is no surprise, since the lion's share of the $800 billion is going to bolster the banks, with scraps spread out to green projects, health care and education.

The administration's priorities reflect a new political consciousness that, if not openly anti-industrial, seems to minimize manufacturing's role in the nation's long-term future.

Just examine the demands placed upon General Motors and Chrysler. Their workers are being asked to make huge sacrifices – 1,600 new layoffs announced just this week – while their executives are largely shunned and demeaned compared with the generally more gentle treatment Wall Street malefactors get.

This disparity reflects the close ties between Treasury Secretary Timothy Geithner, chief economic adviser Larry Summers and other top administration officials with the increasingly Democratic financial elite.

Perhaps most revealing has been the somewhat bizarre choice to make mega-contributor and investment banker Steve Rattner as the "car czar" overlooking Detroit's fate. Rattner, after all, has limited experience with the auto industry. (His expertise is largely in media.) "About all he knows about cars," joked one person who has worked with him, "is that his chauffeur drives one."

Rattner may yet lose his post because of his involvement in New York's latest pension fund scandal – but his appointment speaks volumes about the disdain with which the administration views the industrial economy.

It also reflects an attitude – common among the academics, financiers and high-tech executives closest to the administration – that "smart" people can solve any problem better than someone with more hands-on experience but perhaps a less lofty IQ or a less tony advanced degree.

To be sure, we should be wary of an approach like the Bush administration's well-demonstrated embrace of mediocrity. But it is also dangerous to embrace a mindset that disdains all practical skill and areas of business not dominated by the cognitive elite.

These days this mentality appears alongside an overall contempt for the tangible economy. Very few Obama appointees have ties to the country's core productive sectors: manufacturing, agriculture, energy. Veterans of investment banking, academia or the public sector, they seem to see the economy more in terms of making media, images and trades – as opposed to actually making things.

Such an approach also reinforces the administration's surprising radicalism on the environmental front. Most industrial firms understand that precipitous moves to limit greenhouse gases and decimate domestic fossil fuels threaten America's international competitiveness. Apparently, patience with and sympathetic understanding for Wall Street's foibles is one thing; figuring out sustainable economic and energy policies that are friendly to industry is another.

Unless something is done soon, the Obama policy could end up eroding more than just the nation's industrial base. The president's much-ballyhooed expansion of "green jobs" to make up for massive manufacturing layoffs worked well on the stump – but in reality it's largely a fantasy.

Certainly windmills and solar panels won't rescue many of the communities at the bottom of our recent list of best cities for job growth. Industrial towns like Lansing and Flint, Mich., as well as Janesville, Wisc. may only see more devastation.

Since 2007, these areas have lost somewhere between 15% and 25% of their industrial jobs. In Flint, nearly half have disappeared since 2003. These are the places where the American dream is dying most rapidly; Big Three bastions Michigan and Ohio have seen the quickest declines in per-capita incomes for most of this decade.

The situation may be getting worse. Industrial decline could even be spreading to areas – like Houston, Texas, Fargo, N.D., Tulsa, Okla., or Anchorage, Alaska – that have actually been gaining industrial jobs. One culprit here may prove to be the administration's anti-fossil fuels agenda, which could undermine even healthy firms and healthy regions. Even if Congress refuses to approve draconian rules for cap and trade or new taxes on greenhouse gas emissions, the "green" agenda could be imposed by the federal apparat anyway, through bureaucratic fiat. One harbinger could be the EPA's recent actions to regulate carbon dioxide as a pollutant.

All this doesn't bode well for the country's prosperity and for the prospects of millions of Americans. As demographer Richard Morrill has pointed out, traditionally, regions with industrial economies have been more egalitarian than the finance-driven areas. If this anti-manufacturing trend continues, more of America will resemble New York, Los Angeles or Chicago, places sharply divided between a growing class of low-wage workers and a relative few hegemons in finance, academia and media.

Perhaps even worse, by stimulating everything but industry, the administration risks accelerating the very imbalance between production and consumption that is one key reason for the nation's economic woes. Padding incomes by handing out money without increasing production may indeed prove a great way to stimulate economies – that is, those of industrial exporters like Germany, Japan and, most critically, China.

Over time, Republicans may try to make these points. But economic conservatives have tended, if anything, to be at least equally clueless about the importance of industry. As far back as 1984 – the peak of the Reagan era – the New York Stock Exchange issued a report stating that "a strong manufacturing economy is not a requisite for a prosperous economy."

Disdain for industry has since grown as industrial employment has ebbed and the finance, service and media industries – and other non-tangible fields – have gained workers. Yet few understand how a swelling manufacturing trade deficit, which has grown ten-fold since 1984 to over $800 billion in 2007, has undermined the nation's financial position. It has shifted so much wealth to countries focused on productive industry and energy.

In the long run, too, it's not just forlorn factory towns that get hurt. A strong manufacturing sector also boosts science and technology; the industrial workforce is increasingly dominated by engineers and highly trained technicians, many of whom are in increasingly short supply. Marketers, media firms, advertising agencies and software companies all benefit when industry expands.

Fortunately, the situation isn't hopeless. Despite commonly held assumptions, American can still compete industrially – and could do even better with the right investments in both human and physical infrastructure. In fact, despite unfavorable trade policies and growing regulatory burdens, American factories have remained among the most productive in the world; output has doubled over the past 25 years, and productivity has grown at a rate twice that of the rest of the economy.

Clearly, not all American factories are run by the kind of boobs who governed General Motors and other failed enterprises. A 2008 McKinsey study noted American factories actually were, on average, considered the best-managed in the world – ahead, albeit slightly, of competitors based in advanced nations like Germany, Sweden and Japan, and considerably better than their counterparts in key emerging competitors China and India.

To take advantage of these assets, American industry needs government to recognize their importance. We need incentives for improved productivity and investment, including ones for those companies employing "green" technologies. Another step would be to include accurate "carbon accounting" of goods produced elsewhere – particularly in places like China, whose production tends to generate more pollutants than those in more regulated countries like the U.S. Greening may be good, but it should not become another excuse for American de-industrialization.

Finally, President Obama should recognize that expanding industry presents some of our best chances for future growth. Once the world recovers from the current financial crisis, there will be another surge in demand, particularly from developing countries, for the basic products that the U.S. can produce at prodigious levels, such as foodstuffs and airplanes, as well as farm, energy and construction equipment. The strategic opening for American firms may indeed be greater than any other time since the years after World War II.

"We're in the midst of 2 to 4 billion people around the world rising out of abject poverty and demanding a better living standard," notes Daniel R. DiMicco, head of Nucor, the nation's largest steelmaker. "That means we have a 20- to 30-year bull market in basic stuff."

Hopefully the Obama administration will overcome its preoccupation with post-industrial and green industries and allow American firms and workers to take advantage of this historic opportunity. If they fail to do so, the Great Lakes, Appalachia, parts of the Southeast and other regions can expect ever more economic devastation. Rather than delivering much-anticipated "hope" to the most beleaguered parts of the country, the administration could instead leave a legacy of wasted potential and economic misery that will haunt communities, and the entire country, for generations.

This article originally appeared at Forbes.