New Geography

Category: Economics

  • The Worst Cities for Job Growth

    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.

    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.

  • Is That an Economic Light at the End of the Tunnel or an Oncoming Train?

    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.

  • Solving the Economic Crisis: Fix the Banks

    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.

    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.

  • Entrepreneurs Overlooked in Recovery Plans

    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

    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.

    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.

  • Big Movers – Up and Down the 2009 Best Cities Rankings

    In a year when modest – if not negligible – growth could nudge a city toward the top of the Best Cities for Jobs rankings you would suspect there to be little opportunity for big leaps up the scale. On the other hand, one could easily expect that there would be some places whose economic fortunes would resemble a vertigo-inducing fall.

    A look at the 2009 rankings confirms that there are many cities whose job-creating engines have sputtered.

    Among 336 cities in the rankings 46 cities fell more than 100 places compared to their position in 2008. Below are seven places that took the biggest fall and plummeted more than 200 places compared to 2008.

    Seven Falling Stars: Ranking Fell More than 200 Places 2008-2009
    City 2008 2009 Rank Change
    Port St. Lucie, FL 88 290 -202
    Pensacola-Ferry Pass-Brent, FL 98 302 -204
    Reno-Sparks, NV 104 314 -210
    Myrtle Beach-North Myrtle Beach-Conway, SC 10 230 -220
    Prescott, AZ 26 252 -226
    Winchester, VA-WV 73 299 -226
    Yuma, AZ 33 266 -233

     

    The Big Downstroke
    Yuma, Arizona’s precipitous decline of 233 places is partly the result of its once envious position among the top ten percent of cities in 2008. It appears they came late to the economic wake that hit some towns with the collapse of the housing bubble in Arizona, Florida and Nevada as early as 2007 . In many communities in these states 2008 reflected things getting worse as commercial and industrial construction activity also dropped off.

    The good news for Yuma, according to Paul Shedal of Yumastats.com is that the “biggest economic pillars,” agriculture and government, have remained relatively unscathed by the recession providing a fallback point that other markets don’t have. This means that our worst case scenario for recession “harm” would be returning to our pre-boom level of economic sustainability rather than some depression abyss.”

    Another falling star, Winchester, Virginia, fell 226 places in the rankings, experiencing what some in northern Virginia have described as a dramatic turnaround. Manufacturing in this part of the Northern Shenandoah Valley is linked to housing and vehicles, two industries hard hit lately. American Woodmark, the third-largest kitchen and cabinetmaker in the U.S. scaled back production as sales to homebuilders continue to fall. The services sector, once a bright spot for the region, has been shedding jobs in the midst of the recession. And major retailers like Linens N’ Things and Circuit City recently closed.

    One bright spot in the Winchester area’s economy is the increase of jobs in the federal government sector, an advantage of its 75 mile proximity to the nation’s capitol. In 2008, the federal government added 400 jobs to the local economy at the Federal Emergency Management Agency offices in Stephenson and the FBI training and recruitment center in Winchester.

    Rising Stars
    Even in a troubled economy one expects that some places will thrive simply through determination and bold leadership moves, the foresight to have done the right things, or the luck of the draw. Everyone shares a hopeful optimism that a meteoric rise can offer a glimpse of things to come and perhaps offer a roadmap to a more prosperous future.

    Rising Stars: Top Five Rankings Climbers 2008-2009
    City 2008 2009 Rank Change
    Lafayette, IN 287 85 202
    Champaign-Urbana, IL 267 83 184
    Sioux City, IA-NE.-SD 253 80 173
    Lubbock, TX 242 74 168
    Wheeling, WV-OH 305 138 167

     

    This year’s rising star is without doubt Lafayette, Indiana with an astounding – and surprising given its Midwestern location – 202-place charge up the rankings from 2008. Like three of the other top five rising stars Lafayette came from a slightly above average position in 2008 to a respectable position in the top 100. These are by no means this year’s best places but their economies are defying the pervasive decline in the national economy.

    A visit to the Lafayette Commerce website succinctly tells the tale. “Greater Lafayette wrapped up 2008 with a strong showing.” For Lafayette 2008 was a good year with new capital investments of $600 million, new employment in life sciences industries associated with the Purdue Research Park, and a second new hospital on the way as Greater Lafayette expands its regional healthcare base.

    Equally important, Lafayette, like many university and college towns, benefits from the stabilizing presence of Purdue University, the area’s largest employer, which also serves as a force creating new economic opportunities through research, development and access to an educated workforce.

    The annual report from Lafayette Commerce concludes by focusing on two key elements of their success. “In Greater Lafayette, we’re choosing not to participate in the national recession by using this opportunity for workforce development and innovation. That’s not to say we have been immune to the troubles of the national economy, but on the whole our community is growing, it’s thriving and improving every day.”

    The Impending Future of Boom and Gloom

    Science fiction author William Gibson’s famous quip that “the future is already here – it’s just not equally distributed” could have some credence in this year’s rankings –both up and down the scale.

    The fastest rising cities boast stable employers in government and universities. They are leveraging this edge to create new opportunities in manufacturing, production agriculture and advanced producer services serving diverse sectors. Growth in health care services to the mixture, until recently one of the few remaining generators of new jobs, has also played a role.

    Rising stars like Lafayette have made significant investments in infrastructure and advanced infrasystems, enabling them to create jobs in higher-value, innovation-generating economic activities.

    This year’s cities that fell the furthest portend a return to pre-bubble growth patterns. As in the case of Yuma many places will refocus back on their historically strong core industries, like agriculture, and the economic activities that made them viable centers in the first place.

    For all cities the ability to innovate locally and take advantage of demonstrated areas of competence represent two key ingredients of success – for building on existing momentum or hitting the reset button for a more prosperous future.

    Delore Zimmerman is president and CEO of Praxis Strategy Group and publisher of Newgeography.com

  • Why Today’s Green Era May Fail

    Much of the debate about ways to create a landscape of green homes today has focused on the new tax credits for residential energy efficient windows, solar panels and geothermal options. Passive solar and other design methods which make more sense have yet to qualify for tax credits. If history is any guide, this is an error that may take us down the wrong path.

    Yesterday And Today

    To best understand the direction of today’s green movement, let’s remember the first green era, when the Carter Administration offered a 50% tax credit to solve our energy consumption and pollution problems. The most prolific of the tax financed energy saving devices were unsightly rooftop solar water heaters that marred the suburban landscape. Those solar units cost $5,000 or more installed (1983 dollars). So you, the tax payer, financed $2,500 per home. Unfortunately the heaters had a short life span. Over a decade most wore out and disappeared. The good news was the developed landscape looked better without those things … the bad news was the tax payers likely paid billions for systems that quickly failed.

    Back then, I too was a participant in this green era. I built a 1980’s state-of-the-art home: Passive solar, earth bermed, with a 10kW Bergey Wind Generator, of which the tax payers reimbursed me $13,000.

    With “passive” solar, the sun heats up a dark brick floor in the home, which in turn heats the home on a sunny winter day. In the picture here, you can see the south-facing windows, which allow the sun through to heat the dark tile floors. The bricks were built upon a thick concrete base which stored heat over-night; this is known as the “battery”. No complex systems are needed as the home itself is the collector. It proved to work well.

    The City of Maple Grove, Minnesota, where the home was located, had passed a Wind Generator Ordinance allowing a 100 foot tall wind system to be built on a small city lot with just a permit. Perhaps it was the first city in the country with such a ruling.

    So we constructed a 100’ tall tower with a 10kW Bergey Wind System with its 23 foot diameter blades. A quarter century before today’s Green movement, we had a “Net-Zero” home (it produced more energy than it used).

    The neighbors however, were not enthused, and waged a war against the city, resulting in Maple Grove being the nations first city to repeal a Wind Generator ordinance. Years after the construction, the City made a large offer and bought the generator from me. There was no recovery from the tax laws, so I got to keep the $13,000 credit.

    In 1983 this home cost about $121,000. Twelve years later it was appraised at $186,000. It’s architectural oddity severely limited it’s resale potential. In those years of good home appreciation, had it been a conventionally built, the nearly 4,000 sq.ft. lake front home should have been worth a minimum of $350,000. I had lost nearly $200,000 by going green. In fairness the loss was due to the underground construction and lack of curb appeal, and had nothing to do with its passive solar design, which is why we used passive solar again on our new home.

    Late in 2008, I found myself building Green again, this time as a requirement of a land purchase I made from the City of St. Louis Park, Minnesota. I had to agree to build to MNGreenStar certification, a derivative of LEED modified for severe cold climates.

    This time, in a similar situation to the ‘80s, the housing market downturn coincides with an increase in energy awareness and we have a government controlled by the Democratic Party. We have not found any new Green solutions that simultaneously reduce both initial housing costs and energy consumption. It seems that higher an EnergyStar rating on an item, the more expensive it becomes. The option today still remains to pay more now, for the promise of reduced costs later.

    With most Green ratings there is a list of requirements (with MNGreenstar the “list” is 36 pages long in tiny sized fonts) the builder must contend with to earn “points”. MNGreenstar is modeled after LEED which also contains many “social engineering” requirements.

    I also had my builder, Creek Hill Custom Homes, apply for National Association of Home Builders “Green” certification. My Certification comes with a HERS Rating of 59. I have no idea what that means but I’m told it’s pretty good. It’s on an EnergyStar sticker for the entire house.

    Why Passive Solar instead of Geothermal?

    Since Passive Solar is a very low cost design method and our home has a large unobstructed southern exposure, it simply made sense. This first winter the passive solar was inoperable because we discovered Anderson delivered the wrong glass, reflecting the suns energy out, not letting it in. Regardless, our first gas bill for the January 2009 winter (most days the high was below zero) heating period bill was only $200 at a nice and toasty 72 degrees . We used a conventional 95% Bryant HVAC system with a 3 phase air exchanger, plus a separate gas heater for the garage, a 14,000 BTU Fireplace, and three separate gas cooktops – and 3,600 sq.ft. to heat.

    Considering that the average home sells every 6 years, a home buyer is not likely to recover the initial investment on a $20,000 to $60,000 geothermal system, leaving the cost benefit a future home buyer. There is likely to be a significant long term mortgage on the home, so the interest on a $40,000 geothermal system might eventually add up to over $100,000.

    According to a December 2008 study and report by Oak Ridge Laboratory for the US Energy Department, Geothermal Systems should reduce energy consumption 30% to 35% compared to typical conventional systems (not specifying what “typical” means). On our home savings in January, the coldest month in a decade, would have been only $66. At best we would save $500 annually with Geothermal. If we spent an extra $40,000 for geothermal payback ( even after factoring in the new 30% tax credit) it would take almost half a century ( without factoring interest). I’d be 108 years old by then.

    Had Anderson delivered the correct glass, our heating bill would have been much less than an active complex system (geothermal); there are no moving parts to passive solar.

    Sustainable Green

    We need efficient housing for the mass market home buyer at attainable pricing to make the largest difference. We desperately need many more newer and better technologies and methods than we have today. This will take the same type of research and development effort that the automotive industry maintains to be competitive. Twenty five years ago our government spent enormous amounts of tax payer dollars on grants for programs that no longer exist. We are entering a new era where government will likely make huge funds available for energy related technologies.

    How did the housing industry respond when consumers stopped buying? Why didn’t builders respond by going back to the drawing board to develop innovative and efficient affordable home construction? Where has that good old American innovation gone? We need real solutions that work this time around and we need them to be at prices the average home buyer can afford.

    Those applying for grants should show proof of concept of ideas in working prototypes before any money is released to reimburse their efforts. Even then, green still won’t take off unless this next problem is solved.

    Appraising the Situation… Or Not.

    This may come as a shock, but the home appraisal business does not factor in green at all. Not even those items that actually can clearly demonstrate a quick payback. Certainly a soy derived counter top (with questionable service life) won’t win over the bank, but there are sustainable green solutions. So, what good does winning Silver, Gold or Platinum Green Certification mean if the home is not worth a cent more for financing? To the average consumer what’s most important is valuation for financing. Because the appraisals give no extra value for highly energy efficient homes, lenders see no advantage to green certification. Fix the appraisal and mortgage side of green and there is hope.

    Are we Headed In The Wrong Direction?

    In some ways these difficult to comply with “go for the Gold” certification programs create roadblocks to success by adding unnecessary complexity and costs. The new tax credits for energy efficient windows, solar panels, geothermal, and wind energy ignore passive solar and other design methods which make more sense, yet earn no tax credits. New home construction is much easier than retrofitting an old home to be efficient, yet there are few tax benefits if building new. The middle class is unlikely to finance home improvements even with a 30% tax credit. Most likely only the wealthy can access funds to retrofit a home today, and take advantage of the tax credits. If we continue on the current path, this green era will fail, and in another quarter century the next generation will try again.

    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.com and April 19, 2009

  • Beyond the Stimulus: Time to Get Real

    In remarks on Friday following a meeting with Fed Chairman Ben Bernanke and Sheila Bair, Chair of the Federal Deposit Insurance Corporation, President Obama pointed to some “glimmers of hope” in the economy, and indeed a few green shoots – rising mortgage refinancings and a slight uptick in durable goods orders – have appeared in recent weeks.

    But the economy is still in trouble. Don’t bet what remains of your 401K on the White House’s optimistic growth forecasts of the economy rebounding to 3.2 percent to 2010 and then improving to more than 4 percent on average for the next three years. Given the damage the housing and credit bubbles have done to the economy and the inadequacies of the administration’s economic recovery program, these growth assumptions are unrealistic. If anything, we will eventually need another better directed stimulus package before we see the kind of sustained economic growth the White House is predicting for the years beyond 2010.

    With its growth forecasts, the President’s economic team is betting on a sustainable V-shaped recovery typical of a normal business-cycle downturn. But as his team knows, this was not a normal business-cycle recession. For one thing, consumer spending is unlikely to return to its bubble-year levels given high household debt levels, slumping home prices, and constraints on credit expansion. In addition, unemployment is not expected to peak well in double digits until later in 2010, and thus it will put downward pressure on wages and incomes for some time to come. There are also serious impediments to increased business investment, not least of which is the fact that businesses have little incentive to invest given weak demand and excess capacity in many sectors.

    To be sure, Obama’s economic recovery program will help soften the economy’s fall as households and the financial system deleverage and rebuild their balance sheets. But it fails tragically to put the economy on a new more sustainable growth path. First, the $787 economic recovery program passed by Congress in February is too unfocused, too scattered over many areas, and too concerned with social spending to create a big new source of economic growth given likely lower levels of consumption in the future.
    The administration’s much-hyped green investment agenda comes to about $17 billion a year, far short of what is needed to create a new driver of investment and job creation.

    Indeed, on balance, the White House’s green energy agenda could actually become a drag on any economic recovery. The administration’s proposals for doubling the contribution of renewable energy by 2012 will make at best a modest contribution to energy supply. (Together, wind and solar sources produce only 1.1 percent of America’s electricity consumption and a far smaller percentage of all energy use.)

    Meanwhile, the cut-back in the domestic exploration of oil and gas, caused by falling prices and by Obama’s withdrawal of incentives for exploration, seems likely to reduce the domestic supply of energy by as much or even more. This a prescription for a new spike in energy prices that could snuff out any recovery just as it gets going. In the short term the administration’s green investment agenda may actually cost the economy jobs in the energy sector and lead to higher imports of foreign oil.

    Second, the economic recovery program is too concerned with short-term consumption as opposed to long-term investments in our public infrastructure that can create jobs and improve U.S. productivity. The White House estimates that the economic recovery program will create or save at most 3.5 million jobs over two years. Private forecasters are less optimistic and put the number at less than three million. But given the scale of job losses (now running at more than 600,000 per month) created by this recession, the economy will need to create 9 million more jobs to return the economy to something approaching full employment. Wages therefore are not likely to show any significant improvement any time soon, thereby eliminating the possibility of wage and income-led growth in the short-term. At the same time, weak private and public investment will undercut future gains in productivity, eroding the foundation for long-term income gains.

    Third, a sustainable economic recovery depends upon a strengthened tradable goods sector and a sustainable improvement in our trade balance. In order to work our way out of the debt accumulated during this crisis and, at the same time, improve American living standards, we will need to export more and import less. But the Obama economic recovery program will at best provide only a modest boost to America’s manufacturing sector. The most important help will come from the increased infrastructure spending included in the economic recovery program and the 2010 budget. Good basic infrastructure is critical to the success of American-based manufacturing companies, and the program will create some improvements in this area and relieve some bottlenecks that are now preventing increased investment.

    There are, however, other aspects of the Obama program that are much less favorable to the strengthening of manufacturing. As suggested earlier, the Obama green energy strategy will raise the cost of energy to American producers, and thus create new disincentives to business investment. In recent days, the White House has backed away from the president’s ambitious proposals for cap-and-trade, but some Congressional members of the President’s party are determined to push forward with this misguided policy.

    An improved trade balance also depends upon stronger global demand, critical if the exports are to increase in the months ahead. The president understands the importance of rebalancing the global economy with the large current account surplus economies consuming more and saving less. But even though the president received high marks for his recent European trip, he gave up more than he received in this area. Large current-account economies like China and Germany need to increase their fiscal stimulus to encourage more consumption. But in face of resistance from Germany and France, the administration quietly dropped its call for G-20 countries to commit to a modest 2 percent of GDP target for fiscal expansion. At the same time, the administration pledged to resist Buy America provisions and other measures that would ensure that the US stimulus does not leak out of the economy and help economies free-riding off world demand. As a result, once again the U.S. economy will bear a disproportionate burden in pulling the world economy out of a deep recession.

    The basic point here: The administration’s program is not properly structured to create a bridge to a new healthy pattern of economic growth. It is too reliant on the Federal Reserve and its program of quantative easing. At best, this will create a pale version of the debt-financed consumption-led economic growth that we experienced over the last five years – with a new bubble forming in commodities and energy that will act as a drag on a sustained economic recovery. The economy may experience a short recovery that will peter out into a prolonged slow-growth recession with high unemployment as stimulus dries up and energy prices begin to rise

    So how do we avoid this prospect? We need a second economic recovery program, one that focuses on the economic basics of encouraging real investment and demand creation. This economic recovery program would be more strategically focused on creating jobs with more emphasis on investment in America’s tradable goods sector. It would include the following features:

    • A temporary payroll tax cut to help restore the purchasing power of working families and to reduce the cost to employers of retaining or hiring new workers.
    • A greatly expanded long-term public infrastructure investment program that would commit the country to spend 1 percent of GDP beyond current spending to build the infrastructure needed for the 21st century
    • A crash oil and gas exploration energy program, combined with a program to convert part of our transportation fleet to natural gas by 2012, to complement Obama’s renewable energy initiative.
    • A cut in the corporate income tax to draw capital back to the United States and help spur onshoring of investment and jobs.
    • A jobs training program that would provide paid apprenticeships in fields and industries reporting shortages before the economic recession.

    This economic recovery plan should be accompanied by a new global diplomatic initiative that would push for new rules of trade and investment that would force chronic current account surplus economies to expand domestic demand and increase support for international development. If successful, such a global rebalancing plan would increase demand for U.S. good and services. This together with the domestic measures above would enable us to reduce America’s trade deficit and to stimulate private investment and job creation in our tradable goods sector.

    This program would represent a real sustainable economic stimulus for the country because it would create a new pattern of economic growth – one that no longer relies on debt-financed consumption but focuses instead on raising real wages and incomes through investment and job creation in America’s productive economy.

    Sherle Schwenninger directs the New America Foundation’s Economic Growth Program and the Global Middle Class Initiative. He is also the former director of the Bernard L. Schwartz Fellows Program.

  • America’s Four Great Growth Waves and the World Cities They Produced

    There have been four great growth waves in American history. In each case, there was an attractive new frontier, which not only drew migrating waves of people seeking new opportunity, but also developed large new bases of industry, wealth, and power. These waves have also created top-tier world cities in their wake. The first three of these waves were:

    1. The Boston, New York, Philadelphia, Baltimore, Washington DC corridor was America’s original land of opportunity, industry, wealth, and power. New York was the big winner, and DC and Boston still do quite well.
    2. The rise of the agricultural and industrial Midwest, including Chicago, Detroit, Pittsburgh, Cleveland, and St. Louis. The fall here has been a hard one as manufacturing moved abroad, but Chicago still stands as a world-class city produced during the region’s heyday.
    3. The great westward migration, mostly focused on California, but with ancillary growth in adjacent and west coast states. This migration started well before World War 2, but really took off after the war, and produced two top-tier mega-metros – Los Angeles and the San Francisco Bay Area – and several successful second-tiers like Seattle, San Diego, Las Vegas, and Phoenix.

    These waves are not clearly distinct, but overlap each other. As one region matures and starts to level off, the next region starts its growth wave. And that’s the situation now as California shows clear signs of having peaked: gigantic tech and housing crashes plus economic and domestic outmigration as tax, cost-of-living, housing, and regulatory burdens rise and a dysfunctional government teeters towards financial collapse.

    The fourth wave is increasingly clear and follows the same California model of a single focus mega-state and an ancillary region: Texas and the new South.

    Just as California had its pre-war growth surge, Texas had its first real growth waves with the 20th-century post-Spindletop oil boom. California had the dust bowl migration of the 30s, and Texas the oil boom migration of the 70s. But the real super-surge has become clearer in the new century as California hands off the baton to Texas. This growth wave really covers much of the South, but Texas is the 800lb gorilla vs. states like Georgia and North Carolina, just as California dominates over Washington, Nevada, and Arizona. Texas even looms over Florida, which certainly has experienced incredible population growth to become the fourth-largest state, but has had considerably less success with building industry, wealth, and power. Florida’s wealth – like that of Arizona – comes in part from people who built wealth elsewhere but moved or bought a second home there. Neither place is home to many Fortune 500 headquarters, an area where Texas has excelled.

    California had its agriculture and oil barons before WW2, but the real story there was the post-war rise of the entertainment, defense, aerospace, biotech, trade and technology industries. In a similar way, Texas’ oil tycoons are just the tip of the coming surge of wealth and power in industries such as technology, health care, biotech, defense, trade, transportation, aerospace, finance, telecom, and alternative energy in addition to traditional oil and gas (in fact, Texas is the #1 wind power state).

    The great cities emerging from this new wave are Atlanta, Dallas-Ft.Worth, and Houston. They dominate the census growth stats (Houston story), and all indications are that Houston will pass Philadelphia in the 2010 census to join Dallas-Ft.Worth in the top 5 metros along with New York, Los Angeles, and Chicago. DFW and Houston are even approaching the combined San Francisco Bay Area population of 6.1 million, and Texas passed California and New York for the #1 ranking in the Fortune 500 HQ rankings last year.

    Want more evidence? Check out this impressive video on the DFW-Austin-San Antonio-Houston Texas Triangle with an overwhelming list of statistics that make the case. In the video, they refer to the region as the 18m-strong “Texaplex” – a play on the “Metroplex” nickname for Dallas-Ft. Worth. You can also see their Texaplex informational brochure here (pdf).

    When you look at it in this historical context, it’s clear Texas and the new South will be the focal point of America’s growth for at least the next few decades. History also says at least one, and possibly more, truly top-tier world cities will emerge from this wave – and it could be argued that some have already. It’s easy to get caught up in the day-to-day hubub and crisis-of-the-moment, but take a minute to stand back and see the big picture. Those living in or moving to Texas and the new South are part of a great historical wave that’s just starting to really take off, the same as being in Chicago at the turn of the 19th-century or in California after WW2. Pretty cool, eh?

    Tory Gattis is a Social Systems Architect, consultant and entrepreneur with a genuine love of his hometown Houston and its people. He covers a wide range of Houston topics at Houston Strategies – including transportation, transit, quality-of-life, city identity, and development and land-use regulations – and have published numerous Houston Chronicle op-eds on these topics.

  • Where are the Best Cities for Job Growth?

    Over the past five years, Michael Shires, associate professor in public policy at Pepperdine University, and I have been compiling a list of the best places to do business. The list, based on job growth in regions across the U.S. over the long, middle and short term, has changed over the years–but the employment landscape has never looked like this.

    In past iterations, we saw many fast-growing economies–some adding jobs at annual rates of 3% to 5%. Meanwhile, some grew more slowly, and others actually lost jobs. This year, however, you can barely find a fast-growing economy anywhere in this vast, diverse country. In 2008, 2% growth made a city a veritable boom town, and anything approaching 1% growth is, oddly, better than merely respectable.

    So this year perhaps we should call the rankings not the “best” places for jobs, but the “least worst.” But the least worst economies in America today largely mirror those that topped the list last year, even if these regions have recently experienced less growth than in prior years. Our No.1-ranked big city, Austin, for example, enjoyed growth of 1% in 2008–less than a third of its average since 2003.

    The study is based on job growth in 333 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.)

    The top of the complete ranking–which, for ease, we have broken down into the two smaller lists, of the best big and small cities for jobs–is dominated by one state: Texas. The Lone Star State may have lost a powerful advocate in Washington, but it’s home to a remarkable eight of the top 20 cities on our list–including No. 1-ranked Odessa, a small city in the state’s northwestern region. Further, the top five large metropolitan areas for job growth–Austin, Houston, San Antonio, Ft. Worth and Dallas–are all in Texas’ “urban triangle.”

    The reasons for the state’s relative success are varied. A healthy energy industry is certainly one cause. Many Texas high-fliers, including Odessa, Longview, Dallas and Houston, are home to energy companies that employ hordes of people–and usually at fairly high salaries for both blue- and white-collar workers. In some places, these spurts represent a huge reversal from the late 1990s. Take Odessa’s remarkable 5.5% job growth in 2008, which followed a period of growth well under 1% from 1998 to 2002.

    Of course, not all the nation’s energy jobs are located in Texas, even if the state does play host to most of our major oil companies. The surge in energy prices in 2007 also boosted the performance of several other top-ranked locales such as Grand Junction, Colo., Houma-Bayou Cane-Thibodoux, La., Tulsa, Okla., Lafayette, La., and Bismarck, N.D.

    Looking at the energy sector’s hotbeds, however, doesn’t tell the whole story. Another major factor behind a city’s job offerings is how severely it experienced the housing crisis. There’s a “zone of sanity” across the middle of the country, including Kansas City, Mo., that largely avoided the real estate bubble and the subsequent foreclosure crisis.

    Still other factors correlating with job growth–as evidenced by Shires‘ and my current and past studies–are lower costs and taxes. For example, the area around Kennewick, Wash., is far less expensive than coastal communities in that same state, and residents and businesses there also enjoy cheap hydroelectric power. Compared with high-tech centers in California and the Northeast, such as San José and Boston, places like Austin offer both tax and housing-cost bargains, as do Fargo, N.D. and Durham-Chapel Hill, N.C.

    College towns also did well on our list, particularly those in states that are both less expensive and outside the Great Lakes. Although universities–and their endowments–are feeling the recession’s pinch, they continue to attract students. In fact, colleges saw a bumper crop of applicants this year, as members of the huge millennial generation, encompassing those born after 1983, reach that stage of life. More recently, college towns have emerged as incubators for new companies and as attractive places for retirees.

    Specifically, the college town winners include not only well-known places like Austin and Chapel Hill, but also less-hyped places like Athens, Ga., home of the University of Georgia; College Station, Texas, where 48,000-student Texas A&M University is located; Morgantown, W.Va., site of the University of West Virginia; and Fargo, the hub of North Dakota State University.

    Democratic states are glaringly absent from the top of the list. You don’t get to a traditionally blue state–in a departure from past years, Obama won North Carolina–until you get to Olympia, Wash., and Seattle, which ranked No. 6 among the large cities.

    But political changes afoot could affect the trajectory of many of our fast-growing communities–and not always in positive ways. It’s possible that the Obama administration’s new energy policies, which may discourage domestic fossil fuel production,could put a considerable damper on the still-robust parts of Texas and elsewhere where coal, oil and natural gas industries are still cornerstones of economic success.

    By contrast, the wind- and solar-power industries seem to be, as of now, relatively small job generators, and with energy prices low, endeavors in these areas are sustainable only with massive subsidies from Washington. But still, if these sectors grow in size and profitability, other locales that have not typically been seen as energy hubs over the past few decades may benefit–notably parts of California, although Texas and the Great Plains also seem positioned to profit from these developments.

    Another critical concern for some communities is the potential for major cutbacks on big-ticket defense spending. This would be of particular interest to communities in places like Texas, Oklahoma and Georgia where new aircraft are currently assembled. Over the years, blue states like California have seen their defense industry shrivel as the once-potent Texas Congressional delegation and the two Bushes tilted toward Lone Star State contractors.

    These days it’s big-city mayors and big blue-state governors who are looking for financial support from Obama. Northeast boosters are convinced more money on mass transit, inter-city rail lines and scientific research will rev up their economies. Boston–No. 16 on the list of large cities and a leading medical and scientific research center–could be a beneficiary of the new federal spending.

    The most obvious winner from the recent power shift should be Washington, D.C. The Obama-led stimulus, including the massive Treasury bailout, has transformed the town from merely the political capital into the de facto center of regular capital as well. Watch for D.C. and its environs to move up our list over the next year or two. Already the area boasts one of the few strong apartment markets among the big metropolitan areas in the country, which will only improve as job-seekers flock to the new Rome.

    Yet Washington is an anomaly, because most of the places that stand to benefit from this unforgiving economy are ones that are affordable and therefore friendly to business, reinforcing a key trend of the last decade. It also helps regions to have ties to core industries like energy and agriculture, a sector that has remained relatively strong and will strengthen again when global demand for food increases.

    Some areas have attracted new residents readily and continue to do so, albeit at a somewhat slower pace. Over time this migration could be good news for a handful of metropolitan areas like Salt Lake City, which ranks seventh among the big cities for job growth, and Raleigh-Cary, N.C., which was No. 1 among large cities last year and No. 8 this year. Over the last few years, these places have consistently appeared at the top of our rankings and are emerging as preferred sites for cutting-edge technology and manufacturing firms.

    Below these winners are a cluster of other promising places that have already managed to withstand the current downturn in decent shape and seem certain to rebound along with the overall economy. These include the largely suburban area around Kansas City, Kan., perennial high-flyer Coeur d’Alene, Idaho, and Greeley, Colo.–in part due to their ability to attract workers and businesses from bigger metropolitan centers nearby–as well as Huntsville, Ala., which has a strong concentration of workers in the government and high-tech sectors.

    In the end, most of the cities at the top of the lists–whether they are small, medium or large–have shown they have what it takes to survive in tough times. Less-stressed local governments will be able to construct needed infrastructure and attract new investors so that job growth can rise to the levels of past years. If better days are in the offing, these areas seem best positioned to be the next drivers of the economic expansion this nation sorely needs.

    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.