New Geography

Category: Policy

  • Will The New Air Pollution Science Choke City Planners?

    Part One of A Two-Part Series

    Not long ago, Michael Woo, a former Los Angeles city councilman and current member of the Los Angeles City Planning Commission, took up a case pending approval by that body: a mixed housing-retail development near the intersection of Cahuenga Boulevard and Riverside Drive. Like many of the remaining buildable sites in the city, the property is right next to a roaring motorway; the windows of some apartments would look right out onto the 134 Freeway. To Angelinos, who have grown up in a car culture, it was hardly a remarkable proposal. But Woo, perhaps one of the brainier members of the city’s political elite—after losing a mayoral race to Richard Riordan in the early 1990s he became a professor of public policy at University of Southern California—had a problem with it, and he couldn’t quite let it go.

    Just a few weeks before, the Commission had witnessed a lengthy presentation by a scientist who’d been studying how living within 500 yards of high traffic corridors—freeways and some particularly busy streets—substantially raises the risk for a number of chronic diseases. “We were all sort of sitting there, looking at this proposal and discussing it through the conventional lens we normally use, when I said, `Wait a minute. Didn’t we just hear a pretty compelling argument about this the other day? Can we talk about that for a minute?’ It struck me that it was impossible to read those studies and then continue approving housing that sits that close to freeways.”

    The Commission then asked for the developer’s point of view on the issue. “As I recall, the only real mitigation that they brought up was almost comic,” Woo says. “Their idea was, you know, we’ve got that covered: We’re going to make sure that residents can’t open the windows that face the freeway.” The project was approved.

    Woo doesn’t particularly fault anyone in the exchange, because the implications of the new science of air pollution—much of it driven by pioneering work at USC, the University of California at Los Angeles, and California Institute of Technology—are utterly mind boggling. No one has quite calculated exactly how much buildable land would be excised from use for housing and schools if this growing body of work were to take hold in the policy realm, but, as Woo said, “We can’t hide from this issue anymore. The hard science on the subject is compelling. It makes you fundamentally rethink some pretty key parts of how, where and why we’re building housing in such locations.”

    For decades, pretty much everyone “knew” that smog—usually measured as ozone, the gas that forms from sunlight’s ionizing effect on air particles—caused all kinds of health problems, principally those associated with the lungs, like asthma. But the truth of the matter is that, until ten years or so ago, no one knew how that happened; they didn’t know the “mechanism of action,” the intricate physiological processes that lead to chronic airway inflammation. Epidemiological data was confounding, because some high ozone communities showed lower rates of asthma than low ozone communities. Also, smog levels—measured as ozone—were going down, while asthma rates were going though the roof.

    One suspect was what researchers called fresh emissions, comprised of ultrafine particles, or UFPs, which are so small that they can penetrate the furthest reaches of the lung’s bronchial branches and set off the systemic inflammation that causes respiratory disease. Thus, it was possible to have lower ozone levels and still have increased levels of inflammation, or as USC Professor Robert McConnell notes, “You could have cleaner horizons but still have increasing inflammation to people who live closer to where the particles are being produced.” McConnell has been leading the federally funded Children’s Health Study in Los Angeles for over a decade. “I tell people that I’m studying how pollution causes asthma, and people look at me and say, `I thought we already knew that,’” says McConnell. “The fact is that we assume risks that aren’t there, and we’re ignorant of risks that are there.”

    What caused the sea change in pollution epidemiology—the ability to link exposure to tail pipe emissions and chronic diseases—is as much a story of ingenuity at the lab bench as it is one of persistence against conveniently indolent regulations. At USC, engineers over the past 20 years have invented ways to concentrate particles from the freeway, assess their specific toxicity in human doses, and then test various theses with lab animals genetically engineered to physiologically respond like humans. They have also developed ways to track real-time daily human exposures to ultrafine particles. On any given day in Los Angeles there are mobile smog units measuring how pollution ebbs and flows on a neighborhood-by-neighborhood basis. There are people wearing “personal ambient pollution” backpacks to track how individuals experience different loads of smog throughout their day, part of which may be spent in a low-pollution environment, part in a high. Through modern genomics, we also now know that several highly prevalent gene mutations make some people more susceptible to pollution, and that others make them less susceptible.

    At all three universities, engineers in the aerosol sciences developed machines that could accurately measure not just ozone—a rather crude measure of air toxicity—but also specific toxins, known as ultrafine particulate matter, or UFPs, of less than 2.5 microns. It is stuff so small that it can reach the bottom of the airways; there, it can over-stimulate the so-called inflammatory cascade of the body’s native defense system and turn it into a disease called asthma. At UCLA, cell biologists, toxicologists and lung and heart specialists have even been able to image what happens to the human cell when it’s exposed to high levels of ultrafine particles. It is the kind of image that can make one utterly despairing, but one that also might clue modern physicians, medical researchers and environmental scientists on how to better focus on the issue and perhaps mitigate it.

    A few examples of new directions within the science:

    Ultrafine Particles, Diesel Exhaust And Asthma: A growing consensus holds that, infants, young children, and expectant women experience substantial elevations in risk for deficits in lung function growth when living near high volume motorways. There is less consensus on the recommended buffer zone, ranging from 75 meters to 500 meters.

    Ultrafine Particles And Heart Disease: A growing body of laboratory experiments and human observational work links heart disease, especially the process leading to atherosclerosis and heart attack, to air pollution. Recent work at UCLA and USC on lab mice parked next to the 110 Freeway has suggested an alarming thesis of causality: That chronic exposure to high levels of ultrafine particles may make us more likely to get heart disease because it makes HDL—the so-called “good,” form of cholesterol that “cleans up” the bad form—dysfunctional.

    Diesel, Ultrafine Particles And Alzheimer’s: Work coming out of Mexico City, increasingly LA’s sister city in the environmental sciences, documents how amyloid plaque, one of two suspect brain proteins associated with Alzheimer’s, increases with exposure to air particles, especially in children and young adults.

    Diabetes, High Blood Pressure And Obesity: A small but growing body of research shows that being fat and breathing smog is really bad for you. Worse, high exposures may accentuate existing diabetes and metabolic syndrome, the perfect storm of high cholesterol, high blood sugar, and high blood pressure.

    Air Pollution, Expectant Mothers, And Infants: UCLA researchers have repeatedly demonstrated a consistent, dose-dependent relationship between expectant mothers living in high traffic-emission-adjacent housing and premature births, low birth weights, birth defects and respiratory diseases. In a recent report, the UCLA Institute of the Environment concluded that the problems were of such magnitude as to “require drastic changes to motor vehicle and transportation systems” over the next decades.

    In Part Two, Critser explores the politics of pollution.

    Greg Critser is the author of Fat Land: How Americans Became the Fattest People in the World (Houghton Mifflin 2003), Generation Rx: How Prescription Drugs Are Altering American Lives, Minds, and Bodies (Houghton 2005), and Eternity Soup: Inside the Quest to End Aging (Random/Harmony 2009).

  • Is the U.S. Capitalist, Socialist or Something In-between?

    During the Presidential campaign, then-Democratic candidate Barack Obama inartfully described his proposed federal income tax cuts for the middle class as “sharing the wealth.” His more strident right-wing opponents – including Vice Presidential candidate Sarah Palin – almost immediately labeled Obama “a socialist,” adding to a litany of alleged infirmities as a presidential candidate that included lacking executive experience; being a closet Muslim; and “someone who pals around with terrorists.”

    Yet in reality Obama’s middle class tax proposal may have been the least “socialist” concept that has been floated and acted upon by a broad array of elected officials and senior-level appointees since four weeks before and four weeks after the Presidential election. This includes not only the huge federal financial bailout and taking of ownership of major investment and commercial banks – something embraced by the establishments of both political parties and the putative ‘capitalist’ business elites – but a series of other proposals, including the bailout of the Big Three American automakers, that are far more socialistic than a tax cut.

    Of course, effective campaigning, like good television advertising, tends to have at least two fundamental characteristics in common – oversimplification and hyperbole – so one might forgive or ignore the campaigns for taking liberties with such terms. Yet the ready and frequent use of the term “socialist” by a variety of sources does raise serious questions as to whether anyone out there really understands either capitalism or socialism as concepts or political constructs. This might help us know how much we should apply either label to the U.S. given the prevailing economic malady and the series of palliatives being offered up by the current and future Administrations, respectively.

    Socialism, of course, places primary ownership of the means of production in the hands of the state, or in some cases, corporate entities controlled by the state. In its extreme cases, such as in North Korea, this reality is absolute; in many other countries, state control is predominant and preeminent but pockets of private enterprise, usually small-scale and concentrated in agriculture or business services, still exist.

    Capitalism is a much more vague idea but essentially reverses priorities, putting the predominant role in the hands of private interests such as investors and corporations. State power in a capitalist country usually focuses on the creation of standards, public health, safety, and welfare, such things as regulating the currency, protecting the environment, and assuring the health of the populace.

    In contrast to the 19th Century, the US already operates on a much-diluted form of capitalism. Our markets are not free; they are highly regulated (and yet many would today argue they are not highly regulated enough). The exchange rates and values of our currency do not float freely but are heavily manipulated through federal government rate-setting activities. Investment decisions are not driven purely by return expectations or classic risk/reward analyses; rather they are incentivized or discouraged by a byzantine system of rewards and penalties affectionately known as the Internal Revenue Code. In other words, the federal government – under both Democrat and Republican Administrations and supported by both Houses of Congress – intervenes routinely in how markets operate and how capital is deployed. In this sense the federal tax code is fundamentally a mechanism for wealth redistribution, so candidate Obama’s statement about his proposed middle-class tax cut simply represented a shift to one set of priorities, much as the Bush Administration’s tax cuts represented another.

    If you accept the premise above that the U.S. already had one foot out the doorway between a more pure form of capitalism and socialism as it is widely practiced in other Westernized countries, it now appears that the U.S. is being pulled at warp speed through that doorway, as a consequence of the myriad plans (schemes would be a more accurate description, given how little thought appears to be devoted to them before rolling them out at press conference after press conference) for bailing out various classically capitalistic institutions.

    Bailing out a completely broken mortgage finance system that rewarded handsomely (some would say shamelessly) myriad private-sector entities and the mortgage industry represents a shift towards socialism. Providing over $100 billion in taxpayer support for AIG is socialism, not capitalism. Providing $200 billion of taxpayer support to prop up consumer credit, so that Americans can return to a false economy predicated upon unbridled, conspicuous consumption, is socialism not capitalism.

    The fact that these and other extraordinary moves by the federal government are undertaken in the name of saving our capitalistic economy and staving off a severe economic depression does not change the fact that we are experiencing – first under Bush and soon under Obama – a powerful drift towards extended state control of the economy. Free-wheeling and unfettered profit-making and corporate greed on the way up, backstopped by enormous government bailouts on the way down, represents in some ways the worst of both worlds .

    We now add to this series of attempts to solve our economic crisis the so-called “New, New Deal” proposed by President-elect Obama the week before Thanksgiving. Focused on fixing America’s infrastructure improvements, technological innovation, and education – as well as the creation of 2.5 million new jobs in the process – the New, New Deal basically supplants a failed, quasi-capitalistic economy with one that is driven primarily by government spending on government projects, in part for the purpose of creating new government jobs.

    There will be two silver linings if all of these government bail-out strategies and the implementation of Obama’s New, New Deal succeed: The U.S. could emerge from this economic abyss in which we find ourselves; and pass, at last, a comprehensive, universal healthcare reform that will not look nearly as socialistic as it may have appeared only six months ago.

    Yet there are some real dangers as well. A massive government program that extends more and more into every aspect of the economy could bring enormous inefficiencies as political decisions overtake market-based decision-making. It is not beyond the pale, for example, that banks may make loans to customers not based on their fundamental ability to pay but their ability to shift their risks to the government. Land use and other decisions once left to markets and localities could be placed in the hands of federal regulators, where the influence of well-connected developers and special interests (including such laudable causes as environmental protection) could be profound.

    Of course, this is a situation that could also change our national geography in profound ways. Parts of the country well-plugged into the new ruling party – the Northeast, coastal California, and most of all Chicago – could be huge beneficiaries. But the real winner, as I have argued before, may be the Nation’s Capital and its environs, whose power over the private economy would be greater than at any time since the Second World War.

    Of course, it may perhaps be both overly simplistic and somewhat hyperbolic to suggest that Washington, D.C. is morphing into “Pyongyang on the Potomac.” However, unless the federal rescue of our fundamentally capitalistic economy and society is not very carefully orchestrated, we may see greater similarities with another centrally planned economy – the one run from Paris. In that case, similarities between Paris and Washington, D.C. may extend well beyond the boulevarded street network and classical scale bestowed upon us by Pierre L’Enfant; we could also end up with something more akin to France’s centrally controlled dirigiste system than anyone could have expected.

    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.

  • Auto Bailout: Help Mississippi, Not Michigan

    We should be getting used to the depressing spectacle of once-great corporations begging for assistance from Washington. Yet perhaps nothing is more painful than to see General Motors and other big U.S.-based car companies – once exemplars of both American economic supremacy and middle-class aspirations – fall to such an appalling state.

    Yet if GM represents all that is bad about the American economy, particularly manufacturing, it does not represent the breadth of our industrial landscape. Indeed, even as the dull-witted leviathan sinks, many nimble companies have shown remarkable resiliency.

    These include a series of small and mid-sized firms – in fields as diverse as garments and agricultural machinery, steel and energy equipment – that have managed to thrive in recent years. It also includes a growing contingent of foreign-owned firms, notably in the automobile industry, that have found that “Made in America” is not necessarily uncompetitive, unprofitable or impossible.

    Indeed, until the globalization of the financial crisis, American manufacturing exports were reaching record levels. Overall, U.S. industry has become 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. Far from dead, our manufacturing sector is the world’s largest, with 5% of the world’s population producing five times their share in industrial goods.

    So what is the problem then? If it is not the effort and ingenuity of American workers or our infrastructure, Detroit’s problems must lie somewhere else, largely with almost insanely bad management.

    We have to remember that the Big Three have been losing market share through even the best of times. Their litany of excuses is as tiresome as their product lines. Back in the 1970s it was “cheap” Japanese labor, something that can no longer be cited as an excuse. European car makers, if anything, have even higher wage costs.

    Then there is high gas prices – a good excuse, it appears, back in the 1970s, as well as more recently. But the Detroit auto industry has now had three decades to come up with fuel efficient products that are also fun to drive and reliable. While they have slumbered, the Japanese, Koreans and now the Europeans – with products like the new Volkswagen Jetta – have made enormous strides.

    Now it is the credit crunch, the car makers say. OK. Will increased credit mean that people will suddenly scoop up the same products they have been deserting in droves for decades? Keep in mind that the desertion could get even worse if the congressional greens – led by new Energy and Commerce Committee Chairman Rep. Henry Waxman – impose stiffer taxes on gas, which will hurt the guzzlers that have generated most of Big Three profits.

    So why the push to bail out the Big Three? It’s basically about regional politics. The deindustrializing states of California and New York may not care much, but the big car companies’ operations are overwhelmingly concentrated in the politically volatile Great Lakes region, an area that proved decisive in President-elect Obama’s victory. Another big reason may be that up to 240,000 jobs in Illinois, the nation’s new political epicenter, are tied to the big automakers.

    Sadly, dependence on the Big Three has had long-term tragic results for this entire region. Between 2000 and 2007 – before the onset of the financial crisis – the nation’s largest percentage losses of manufacturing jobs were concentrated in Big Three bastions like Detroit, Warren-Farmington Hills, Saginaw, Flint and Cleveland. In the five years before the onset of the financial crisis, Michigan alone had lost one-third of its auto manufacturing jobs. Now that figure is up to half.

    Worse still has been the psychological dependency that has grown from this troubled relationship. By their very nature, declining businesses – particularly unionized ones – tend to protect their older members and encrusted bureaucracies more than they look to the future. This also creates a political environment where the incentive is not to spur innovation, but to protect the already established.

    Michigan, for example, has met the challenge of its Big Three habit with a combination of farce and failure. Under the clueless leadership of its governor, Jennifer Granholm, the state first hoped its “cool cities” program would keep young, educated workers close to home. After that failed to work, the governor then pushed the highest tax boost in state history, a reliable job-killer.

    So let us be clear. It did not take a world financial crisis to sink Michigan; it was getting there very well on its own. Nearly one in three residents, according to a July 2006 Detroit News poll, believe that Michigan is “a dying state.” Two in five of the state’s residents under 35 said they were seriously considering leaving the state.

    Fortunately, the Big Three do not represent the entire picture of American manufacturing. Even within the Great Lakes region, Wisconsin, which ranks second in per capita employment in manufacturing, has held onto most of its industrial employment due to its large, highly diversified base of smaller-scale specialized manufacturers.

    If Congress and President Obama want to figure out how to restart our industrial economy, they need to travel not to Detroit but to an alternative universe that includes the South and Appalachia, where most of the new foreign-owned auto manufacturers have clustered. States like Alabama, with the second-largest per capita concentration of auto-related jobs, as well as South Carolina, Tennessee, Kentucky, Georgia and Mississippi, have been growing these high-wage jobs for a new generation. In the process, they have brought unprecedented opportunity to some of the nation’s historically poorest regions.

    Nor are these states looking to remain mere assembly centers. For example, they have launched bold new research initiatives, such as the recently formed International Automotive Research Center at Clemson University, which offers the nation’s only Ph.D. in automotive engineering, to make their region a major center of technological innovation for the industry. And the fact that the region will likely be producing the majority of the most low-mileage and low-emission cars certainly cannot hurt their future prospects.

    However, it is also critical to see beyond merely autos. If you look at the period between 2000 and 2007, as we did at the Praxis Strategy Group, much of the fastest growth in manufacturing was taking place in areas tied to energy production like Midland and Longview, Texas, and Morgantown, W.Va., all of which enjoyed 15% or more increases in manufacturing jobs. Already states like Arkansas, Alabama, Iowa and Mississippi boast more per capita industrial jobs than either Michigan or Ohio.

    Another strong performer has been the Great Plains. Places like Dubuque, Iowa, and Fargo and Grand Forks, N.D., experienced substantial growth in industrial jobs during the past decade. The base here, as in Wisconsin, is highly diverse and includes agricultural and construction equipment, electronics as well as a burgeoning sector in the renewable fuels sector, such as LM Glasfibre, a Danish firm with a large operation in Grand Forks. Washington state has been another bright spot, powered by Boeing and other manufacturers attracted to its low-cost, low-emission hydropower.

    If the country is serious about enhancing U.S. industrial might – as it should be – it might want to ask executives and entrepreneurs in these areas, as well as foreign investors, what they need to keep growing and expanding exports. There is clearly a demonstrated global market for Boeing airplanes and Caterpillar construction and agricultural machinery, as well as a host of high-tech and fashion-related products now being churned out in factories scattered across the country.

    The people running these firms should be those at the congressional hearings, not the pathetic losers from companies like General Motors. They might even have some helpful ideas, like streamlining regulations, investing in critical infrastructure and research facilities, expanding support for training a new generation of skilled blue collar workers and using incentives to encourage firms to improve their energy efficiency. These are the steps we can expect our competitors in Europe, Asia and the developing world to take as well.

    Rather than looking for ways to bail out the most egregious serial failures, let us find ways to provide incentives for those successful at creating new jobs and saving existing ones.

    This article originally appeared at Forbes.com.

    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.

  • L.A.’s Big-Bucks Plan for Upper Floors on Broadway Overlooks Facts at Ground Level

    City officials and private business owners recently gathered to celebrate the extended holiday hours of the Metropolitan Transportation Authority (MTA) Metro Red Line train service between Hollywood and Downtown. Private businesses put up $50,000 or so to pay for the Red Line to run an extra two hours — until 3 a.m. — on weekends through December 27. The local business community also came up with private funds for free service on city-operated DASH buses that will offer connections to late-night Red Line riders and others.

    There’s room to question the timing of those moves amid an economic slide. Yet there’s just as much reason to see good sense and courage behind efforts to kick-start economic activity in the face of the frozen confidence of consumers. The effort falls within the realm of a privately financed gamble, too, so that’s fair enough.

    It’s another thing altogether for our city officials to take such chances on an economic stimulus program, as they apparently intend to do with a plan to make $150 million a year available for loans to property owners along the Downtown stretch of Broadway.

    The plan, as stated by 14th District Los Angeles City Councilmember Jose Huizar, is to provide incentives for property owners to renovate some of the long-empty upper floors of buildings along the thoroughfare, where many of the structures have few tenants besides ground-floor retailers.

    Huizar has noted that the empty spaces provide no jobs and little tax revenue, and that he hopes to reverse that by lending money to property owners from a pool of federal funds. The funds would finance renovations in hopes of drawing commercial tenants and jobs to the upper floors on Broadway.

    It remains unclear why any of the property owners who didn’t see incentives to renovate their properties during Downtown’s recent boom years would find reasons to do so now. It’s also unclear what sort of tenants would fill the empty spaces. It could be several years before we see anything resembling a hot economy in these parts.

    Again, there is always room for bold ideas that are counter-intuitive. Fortune magazine launched in 1930 — just four months after the stock market crash that signaled the Great Depression — and the publication has done just fine all these years. There’s also room to figure that renovations take awhile, and such work along Broadway might be ready just as the economy picks up.

    This economic mess of ours is big and immediate, though, causing extreme difficulties for folks everywhere. There’s some irony here, because you can get a picture of the pain by walking along Broadway. Don’t bother looking at those empty spaces on the upper floor. Take a gander at the ground floors, where many of the retail shops that buzzed with customers just a short while ago have closed, and those that remain face uncertain prospects.

    It’s enough to make you wonder whether $150 million might be better spent on something other than loans to property owners on the hopes that renovations will someday bring jobs from somewhere to the upper floors along Broadway.

    Meanwhile, there’s never been a better chance of getting a change on the rules that come with federal funds. That should be enough for Huizar and other city officials to re-think their plans. They should consider that Broadway — while it’s not everybody’s cup of tea — has been one of the busiest commercial streets in the city for years. It’s a place where merchants sell, workers earn, and shoppers spend.

    Maybe the action is mostly bargain retail on the ground floor, but Broadway is a working street — and we need all of those we can get right now.

    So why not focus ways to help retailers hang on, and draw more to fill the new gaps at street level? How about renovations for storefronts, with merchants allowed a voice in the process? Or more cops for the area to help improve the atmosphere for shoppers? Or aggressive promotions of the retail scene? All of that might even entice a few more mid- and upper-scale merchants to set up shop on Broadway, sparking some organic changes in the marketplace.

    Pick a program, but keep in mind that this is no time to overlook — quite literally — Broadway’s long-standing role as a street-level heartbeat of our city.

    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)

  • The Housing Bubble and the Boomer Generation

    Much of the commentary on the current economic crisis has focused on symptoms. Sub-prime mortgages, credit default swaps and the loosening of financial regulations are not the root cause of the financial crisis. They are symptoms of what has recently become a surprisingly widespread belief that individuals, families and even entire nations could live indefinitely beyond their means.

    The crisis has reminded everyone that, in the end, market fundamentals like supply and demand still matter and that ignoring traditional virtues like thrift and long-term planning can lead to grief. But what does this have to do with boomers?

    Ultimately, this economic crisis shines some light on some of the most important yet unresolved and paradoxical aspects of American culture as it developed in the wake of the economic, social and political upheavals of the late 1960s and early 1970s.

    Children coming of age in the 1950s and 1960s were born into families that, on average, enjoyed the greatest material prosperity and the best housing the world had ever known. The security offered by an enormously expanded and comfortable middle class allowed these children to crusade on behalf of various causes. Those who called themselves “progressive” pushed to expand individual civil rights, sometimes at the expense of what others perceived as community rights or duties, but at the same time they were often deeply suspicious of capitalism and markets and for this reason pushed to restrict the rights of private property owners in order to expand on their own notions of community rights.

    The result was, on the one hand, a massive effort to empower racial and ethnic minorities, women, gay people and many others. This aspect of the revolutions of the 1960s era has always been highly controversial, with conservatives fighting the “reforms” every step of the way. On the other hand, starting about 1970, there was an explosion in regulations on the use of land including tighter zoning and building codes, regulations governing environmental matters, historic preservation and land conservation, growth and building caps and growth management schemes. It became harder to build at the urban edge because of the environmental rules and efforts to limit “sprawl.” It also became harder to build at the center because of substantial down-zoning and other regulations to “preserve neighborhood character,” particularly in affluent neighborhoods. This aspect of the 1960s progressive agenda has led to grumbling about NIMBYism but has otherwise generated surprisingly little negative commentary.

    Nevertheless, this movement has created one of the most paradoxical legacies of the 1960s as programs justified in the language and logic of “rights,” have turned into bulwarks for the status quo and a mechanism to transfer wealth from younger families of modest income to more affluent older families.

    In the 1950s and 1960s developers in America built a huge amount of housing, primarily on cheap land at the suburban edge of almost every city in the country. This housing was remarkably inexpensive and, together with liberal financing terms, allowed millions of Americans to enter into the ranks of home ownership and the middle class. It provided the underpinnings for the enormous wealth of the boomer generation.

    Starting in the 1970s, though, particularly in some of the most desirable markets in the country, the same people who most benefited from the developments of the early postwar years turned against those development practices. They advocated regulations for many things that most people, then as now, would agree were desirable – conserving scenic areas and wetlands, protecting coastlines and animal habitats and preserving open space, historic buildings and neighborhood character.

    Yet the net effect of all of these regulations was to limit severely the supply of land for urban uses. Even more important, existing homeowners, what I have elsewhere called the “Incumbents’ Club,” created a political system that allowed them to dictate how much growth and what kind of growth would be permitted in their cities.

    This shift of decision-making about development from private developers and individual property owners to public planning bodies, almost always controlled by homeowners, was hailed by many observers as a triumph of democratic process. The community rather than the developers, so this line of thinking went, would henceforth dictate the growth of the community. The problem with this equation was that it failed to consider who was speaking for the community and whose voices were not heard or to calculate the costs and benefits of these policies.

    For existing homeowners in affluent communities like Boulder Colorado, or Nantucket Island or San Francisco, this regulatory rush turned existing land ownership into pure gold. By limiting the supply of land for development and driving up the costs of development where the land was available, it pushed up the perceived value of all houses, including their own.

    Take the case of the Bay Area, where land prices were on par with urban areas elsewhere in the country up until 1970. Then, as the area pioneered in land use regulations of every kind, house prices started a steep climb. Where the rule of thumb had long been that the average American family in any given urban market would expect to pay about three times its annual salary for an average house, by the early years of the 21st century it had reached the point where that average house in the Bay Area would be the equivalent of ten, eleven or even twelve years of the average family’s income. At the same time, however, in lightly regulated urban areas, even extremely dynamic ones like those of Atlanta, Houston or Phoenix, house prices registered no comparable rise against incomes.

    Nor was this all. There was at the same time an increasing movement around the country to push the cost of what had been considered public goods, like new roads, street lights, sidewalks and sewers, even parks and schools, onto the developers who then passed these costs on to the eventual buyers. As a result, existing owners who enjoyed infrastructure paid for by previous generations no longer had to pay for the infrastructure of their children’s and grandchildren’s generation.

    Finally, this elaborate edifice of protection of the interests of existing landowners was capped by a series of tax revolts starting in the 1970s, particularly Proposition 13 in California. This made it possible for members of the incumbent’s club to enjoy the benefits of rapidly escalating house prices without paying a corresponding share of the property taxes that financed most municipal services.

    These land use regulations and real estate tax policies have made possible, at least in certain highly regulated markets, one of the greatest transfers of wealth in American history. The primary beneficiaries have been existing landowners including a very large percentage of affluent boomers. The ones who have paid have been less affluent renters, younger people and all future generations of prospective homeowners.

    The existing homeowner in the Bay Area could watch the value of his house soar from a few hundred thousand dollars up into the millions without lifting a finger. Meanwhile the dramatic rise in land prices, because it has not been accompanied by a corresponding increase in salaries, has devastated the prospects of young couples, many of whom were forced to either leave the area or obliged to take on huge mortgage debt just to afford an entry level house. These same people are now bearing the brunt of the steep decline in housing prices and the wave of foreclosures washing over the country.

    One of the most remarkable things about this enormous transfer of wealth has been how little most people were aware that it was happening or what caused it. A few people – notably Bernard J. Frieden in his book The Environmental Hustle from 1979 – had sounded the alarm. More recently Wendell Cox and Hugh Pavletich at Demographia.com have made a similar case using substantial data from cities in the English speaking world. Although all of these observers have been dismissed as free market enthusiasts, more mainstream commentators – like Edward Glaeser of Harvard and Joseph Gyourko of the University of Pennsylvania – have embraced this theme. Even the noted liberal economist Paul Krugman has joined the chorus, comparing the moderate land prices in the “flatlands,” meaning lightly regulated places like Texas, with the extremely high prices in the “zoned zone” or places like heavily regulated coastal California.

    This leads us to the great challenge we face now keeping families in their homes. The sad truth is that in areas where housing prices have vastly outstripped incomes there may no easy way to do this. In many markets either housing prices will need to fall quite a bit further or income will have to rise substantially, and there is little likelihood – particularly with this weak economy – of the latter happening any time in the near future.

    One good thing that might come out of the current crisis, though, is a recognition that regulations, however well-intentioned, can come at a price, sometimes a high one, for some parts of society. I doubt very much that the boomer generation ever intended to create the current housing bubble or enrich itself at the expense of less affluent families and generations to come. This was the unanticipated consequence of a genuine desire to create a better life for everyone by individuals who, probably inevitably, defined the good life as the kind of life they themselves wanted. In many ways they succeeded all too well. We can only hope this downturn will at least open up a new chapter in the discussion of the bittersweet story of a generation that set out to remake the world.

    Robert Bruegmann is a professor of Art History, Architecture and Urban Planning at the University of Illinois at Chicago. His most recent book, Sprawl: A Compact History, published by the University of Chicago Press in 2005, has generated a great deal of discussion worldwide.

  • Back to Basics in Orlando

    By Richard Reep

    For the last decade the City of Orlando has been concentrating form, trying somehow to displace its image as the ultimate plastic city. Although tourism helped insulate Central Florida from the slowdowns of the 1970s and 1980s, the last three recessions hit Orlando harder than the national average. This metropolitan area has now been taking on a more essential task of morphing slowly away from its status as ephemeral support city for the theme parks.

    One sign of this new appreciation for the basic necessity of good jobs can be seen in two new districts: one concentrated around medical research and practice; the other concentrated around digital media.

    Both districts will greatly enhance the city’s core offering of service jobs, and are being nationally scrutinized for their viability as a new home for technological research and application. In the next phase of city-making, Orlando can make important steps towards a sustainable economy, if it grows good jobs while focusing on the basics of safety, security, and a spiritual core for its citizens.

    The first growth district, on Orlando’s ring road, is Lake Nona. Private interests have combined with institutions of higher education to create a core of medical research and technology. The most recent star addition to this, Nemours Children’s Hospital, will anchor part of the development. Medical research laboratories by Florida’s major public universities flank the hospital, and more medical facilities are on their way.

    Surrounded by residential communities and scrub pine, the medical district is in its infancy. This community already boasts two promising features. For one, the focus on good jobs sets the fundamental stage for organic and meaningful growth created. This seems logical enough, but the employment element has been largely missing from most new developments of regional impact. Secondly, the residential community, currently less than 10% developed, appears to be growing unmolested by the need to conform to pre-set ideas about cities. Lake Nona’s Master Plan promises an 11-acre oval “town center”, likely to be a mixed-use district typical of recent Southeastern town centers: shops, offices, residential, and of course, the local supermarket, Publix.

    Thankfully, the developer is leaving the town center to the future, and this new core will have a chance to reflect Lake Nona’s mature identity, rather than be thrust upon the community by the Master Developer in some kind of bland neohistorical form. This is reminiscent of Valencia, planned in the late 1950s and developed in the 1960s, where core community functions such as hospitals, government offices, and schools were built first by the Newhall family near Los Angeles. Residential areas filled in the 1960’s and 1970s; but the original Town Center, designed by Victor Gruen, was not built until the late 1980s, after Valencia matured. The lesson of Valencia is that organic growth can yield a vibrant, successful development plan. Valencia remains today a positive addition to the Santa Clarita Valley and southern California in general.

    Switch focus to the inner city: forgotten, chaotic, grim residences; sagging front porches and weedy lots. Orlando’s own inner city, Parramore, did not benefit very well from the run-up in the last six years, and by the looks on the faces of the residents who watch you as you drive by, they know it. The City of Orlando has decided that it is now their turn.

    This will be an interesting experiment to see whether the greenfield results of New Urbanism can be translated to what is essentially a classic, 1960s urban renewal project in reverse: Demolition of 20-year-old event center slums, to be replaced by new construction to further the cause of virtual reality.

    The City’s bonding capacity, sadly, has been tapped for major venues (a new sports arena and a performing arts center), but failure of the event center has led to a healthy focus on higher skilled jobs. The city envisions a partnership with higher education and the private sector to create a digital media village, similar to Laval, a suburban community just north of Montreal. Laval, an existing neighborhood in search of new life, benefited from a similar effort when the city focused on developing its bioscience and information industries. Now Laval’s status has begun to show some basic street life and has a highly successful retail complex that draws shoppers from throughout the region.

    This concept of a technopole has now been borrowed by the City of Orlando to create a similar district centered around digital media: movies, gaming, and other pursuits. The city must be careful to make sure that, like Laval, it concentrates on jobs growth first, and then seeks to integrate those jobs with the community. As a city with a strong, form-based planning outlook, Orlando will certainly be anxious that the Media Village conforms to the concepts of New Urbanism.

    The trend is ominous: Cities that allow their job base to become concentrated in a small handful of industries are risking their economic lives on a set of very outdated assumptions. On the other hand, cities that have sought out high technology jobs have become the “survivors” of the economic downturn.

    In the year 1980, there were only nine research parks in America. Today there are more than 200 in the United States, and competition from overseas is heating up fast.

    It is important to remember what a giant head start that we gave to other cities. The Triangle Research Park near Raleigh / Durham was founded back in 1959, and now houses more than 150 research and technology companies. Although Orlando is the “new kid” on this particular block, if we focus on what the employers need, we still have a lot to offer besides tourism.

    With the economy stagnating, a growing focus on jobs – and building an environment that promotes growth – should have a strong appeal. As in the 1930s, slower growth can begin to get the community to look beyond New Urbanist form-obsession and look to more fundamental elements that create jobs and wealth as opposed to seeking to win accolades from developers and the architectural and planning establishments.

    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.

  • Architecture in an Age of Austerity

    “Architectural publication, criticism and even education are now focused relentlessly on the enticing visual image. The longing for singular, memorable imagery subordinates other aspects of buildings, isolating architecture in disembodied vision.” – Finnish architect Juhani Pallasmaa, from his essay “Toward an Architecture of Humility”

    Anyone paying even remote attention to the domain of high architectural design in the past decade will surely recognize the name Frank Gehry. The celebrity architect (or if you prefer to use the portmanteau word used to describe such practitioners: starchitect) is best known for his unconventional creations-buildings that billow, swoop and shimmer. Whether the project is a concert hall, museum, or university building, the clientele hiring Gehry is paying for a brand name product. In this sense, a ‘Gehry-designed building’ is akin to a piece of fashion – with the value of the building based primarily on the name of the designer and not on how well it operates for end users as a work of architecture.

    Gehry was not alone in this respect. Real estate developers were quick to jump on the trend toward ‘signature’ buildings. Hiring other marquee architects such as Zaha Hadid, Daniel Libeskind, and Santiago Calatrava, high-end condo developers everywhere from Manhattan to Dubai were willing to deal with paying exorbitant design fees for the assumed marketing advantages of associating with such big names.

    But now the obsession with starchitecture may now itself be outdated. Thanks to the financial meltdown, the party may be ending both for starchitects and their credit wielding developer patrons. Not surprisingly, ambitious projects like the Gehry designed Grand Avenue development in Los Angeles and the Calatrava designed Chicago Spire have been put on hold and perhaps consigned to oblivion.

    These are just some of the most visible examples of the construction slowdown as it relates to high architectural design. Less renown figures in the architectural profession, both sole practitioners and those working in corporate firms, also find themselves struggling to retain projects. The imagined career trajectories of wannabe starchitects may be yet another casualty of the financial slowdown.

    Ironically, the economic crisis relates back to the very thing architects are entrusted with – the built environment. Of course, architects had a hand in only a very small percentage of what is actually built in the United States. During the most recent boom cycle of construction – at least until the last year or two – the single family detached housing developments in the suburbs and urban fringes dominated the market. These developments were often promoted in a manner that made the house as an investment vehicle paramount to it being a place of long-term inhabitance and raising a family.

    The subprime mortgage crisis has since debunked the commonly accepted strategy that real estate is always a ‘safe’ investment for the average American. But this is not only a suburban phenomenon, despite the claims by many in the architecture and urban planning professions that the real estate meltdown represented the triumph of the city over the suburbs. In reality the city development scene is also collapsing, a bit later perhaps, but largely because it took a while for the financial fallout to reach large urban projects.

    Ironically the starchitecture so celebrated by the popular media may have contributed to this. The fact that the majority of architecturally revered high-rise housing developments built in the past decade are geared toward the ‘luxury market’ may have slowed the potential market for in-city living. In too many cases, developers in the urban luxury condo market have relied on cash-wealthy individuals to purchase their units as second homes, a market that is certain to crash as the asset bubble bursts.

    The current recession is a trying time for most Americans, and as such, it could prove a pivotal time for architects, planners and those who care about the built environment to reassess their roles in a democratic culture. Great or monumental architecture – from imperial Rome to Napoleon III’s Paris and Dubai today – has often been built at the discretion of powerful religious institutions, monarchies or omnipotent dictatorships. Democratic architecture, in contrast, tends more to the functional and efficient, whether in the form of William Levitt’s suburbia or the high-rise towers that accommodated corporations.

    The future of urban development in the United States is likely to follow a different trajectory. For one thing environmental sustainability is likely to frame the decisions made in regards to urban planning in the coming years. In this context, metallic structures like those favored by Gehry and his acolytes do not represent a very energy-efficient form; in places like Los Angeles, Phoenix or Dubai they reflect sunlight and heat up the surrounding environment. The next era of American architecture will have to deal with such issues and also with the restrictions of a strapped fiscal environment.

    With funding for flashy and iconic buildings screeching to a halt, the era of the architect as detached genius and artiste appears to be coming to a close. In order to retain relevance at this crucial point in time, architects would be wise to come out from their ivory towers and shift their focus to becoming more civically engaged and oriented towards the needs of the middle class.

    At the dawn of the 21st Century, as the definitions of traditional urban centers, suburbs and metropolitan regions become more blurred, so does the role of the architect and planner. After the chaos of the current economic recession is settled, most construction is likely to be focused on updating existing infrastructure and building new ‘green’ infrastructure. What America needs most right now from the architectural profession is not more Frank Gehrys but a new commitment to build an environment that is both sustainable and affordable.

    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.

  • Blame Wall Street’s Phantom Bonds for the Credit Crisis

    The “credit crisis” is largely a Wall Street disaster of its own making. From the sale of stocks and bonds that are never delivered, to the purchase of default insurance worth more than the buyer’s assets, we no longer have investment strategies, but rather investment schemes. As long as everyone was making money, no one complained. But like any Ponzi Scheme, eventually the pyramid begins to collapse.

    For the last couple of months trillions of dollars worth of US Treasury bonds have been sold but undelivered. Trades that go unsettled have become an event so common that the industry has an acronym for it: FTD, or fail to deliver.

    What’s the result? For the federal government, it’s an unnecessarily high rate of interest to finance the national debt. For states, it’s a massive loss of potential tax revenue. And for the bond buyers, brokerage houses, and banks, it’s yet another crash-and-burn to come.

    First, a primer: The Federal Government issues as many bonds as Congress authorizes (the total value is an amount that basically covers the national debt). Many are purchased by brokers and investors, who then re-sell them in “secondary” trades. The way the system is supposed to work is that the broker takes your bond order today and tomorrow takes the cash from your account and ‘delivers’ the bonds to you. The bonds remain in your broker’s name (or the name of a central depository, if he uses one). If there is interest, the Treasury pays the interest to your broker and he credits your account for the amount.

    What is happening today that strays from this model? Because the financial regulators do not require that the actual bonds be delivered to the buyer, your broker credits you with an electronic IOU for them, and, eventually, with the interest payments as well. But the so-called “bonds” that you receive as an electronic IOU, called an “entitlement”, are phantoms: there aren’t any bonds delivered by your broker to you, or by the government to your broker, or by anyone.

    The significant result of the IOU system is that brokers are able to sell many more bonds than the Congress has authorized. The transactions are called ‘settlement failures’ or ‘failed to deliver’ events, since the broker reported bond purchases beyond what the sellers delivered. Since all of this happens after the US Treasury originally issues the bonds, the broker’s bookkeeping is separate from US Treasury records. That means there is no limit on the number of IOUs the broker can hand out…and there are usually more IOUs in circulation than there are bonds.

    The ramifications are far reaching for the national budget. Wall Street, by selling bonds that it cannot deliver to the buyer — in selling more bonds than the government has issued — has been allowed to artificially inflate supply, thereby forcing bond prices down. These undelivered Treasuries represent unfulfilled demand by investors willing to lend money to the US government. That money — the payment for the bonds — has been intercepted by the selling broker-dealers. The subsequently artificially low bond prices are forcing the US government to pay a higher rate of interest than it should in order to finance the national debt.

    The market for US Treasury bonds has been in serious disarray since the days immediately following September 11, 2001. Despite reports, reviews, examinations, committee meetings, speeches, and advisory groups formed by the US Treasury, the Federal Reserve, and broker-dealer associations, massive failures to deliver recur and persist. Somehow, government, regulators and industry specialists alike believe that it’s OK to sell more bonds than the government has issued. It shouldn’t take a PhD-trained economist to tell you that prices are set where supply equals demand. If a dealer can sell an infinite supply of bonds (or stocks or anything else for that matter), then the price is, technically-speaking, baloney. And the resulting field of play cannot be called a “market”.

    If regulators and the central clearing corporation would only enforce delivery of Treasury bonds for trade settlement — payment — at something approaching the promised, stated, contracted and agreed upon T+1 (one day after the trade), there would be an immediate surge in the price of US Treasury securities. As the prices of bonds rise, the yield falls. This falling yield then translates into a lower interest rate that the US government has to pay in order to borrow the money it needs to fund the budget deficit and to refinance the existing national debt.

    This week’s drop in the yield on US Treasuries was accompanied by a spike in bond prices. The data won’t be released until next week, but you can expect to see that a precipitous drop in fails-to-deliver occurred at the same time. Don’t get your hopes up, though. One look at the chart above will tell you that the good news won’t last until real changes are made to the system.

    As a bonus insult to government, consider the $270 million in lost tax revenues to the states. This is because investors (unknowingly) report the phony interest payments made to them by their brokers as tax exempt; interest earned on US Treasury bonds is not taxed by the states.

    For the bond buyer, the situation poses other problems and risks. As an ordinary investor, you’re not notified that the bonds were not delivered to you or to your broker. Of course, your broker knows, but doesn’t share the information with you because he or she plans to make good on the trade only at some point in the future when you order the bond to be sold.

    The electronic IOU you received can only be redeemed at your brokerage house, and no one knows what will happen if it goes under, although I suspect we’ll find out in the coming quarters as more financial institutions get into deeper trouble. You’re probably not aware that, in order to cash in that IOU when you’re ready to sell, you depend not on the full faith and credit of the US government, but on your broker being in business next month (or next year) to make good on the trade. In other words, you’re taking Lehman Brothers risk, and receiving only US Government risk-free rates of return on your investment.

    Your broker, meanwhile, enjoys the advantages of commission charges for the trade, maybe an account maintenance fee and – more importantly – they use your money for other purposes. Wall Street is not sharing any of this extra investment income with you. In my analysis of Trade Settlement Failures in US Bond Markets, I calculate this “loss of use of funds” to investors at $7 billion per year, conservatively.

    Despite this, rather than require that sold bonds be delivered to the buyer, the Treasury Market Practices Group at the Federal Reserve Bank of New York merely points out FTDs as “examples of strategies to avoid.”

    Now for the really bad news. The tolerance for unsettled trades and complete disregard for the effect of supply on setting true-market prices is also responsible for the “sub-prime crisis,” which everyone seems to agree on as the root of the current global financial turmoil. You see, there are more credit default swaps — CDS — traded on mortgage bonds than there are mortgage bonds outstanding. A CDS is like insurance. The buyer of a mortgage bond pays a premium, and if the mortgage defaults then the CDS seller makes them whole. CDS are sold in multiples of the underlying assets.

    A conservative estimate is that $9 worth of CDS “insurance” has been sold for every $1 in mortgage bond. Therefore, someone stands to gain $9 if the homeowner defaults, but only $1 if they pay. The economic incentives favor foreclosure, not mortgage work-outs or Main Street bailouts.

    In the same process that is multiplying Treasury bonds, sellers are permitted to “deliver” CDS that were not created to correspond with actual mortgages; call them “phantom CDS”. According to October 31, 2008 data on CDS registered in the Depository Trust & Clearing Corporation’s (DTCC) Trade Information Warehouse, about $7 billion more CDS insurance was bought on Countrywide Home Loans than Countrywide sold in mortgage bonds. That provides a terrific incentive to foreclose on mortgages.

    Countrywide is the game’s major player: The gross CDS contracts on Countrywide of $84.6 billion are equivalent to 82% of the $103.3 billion CDS sold on all mortgage-backed securities (including commercial mortgages) and 90% of the total $94.4 billion CDS registered at DTCC sold on residential mortgage-backed securities.

    General Electric Capital Corporation is the fifth largest single name entity with more CDS bought on it than it what it has sold; someone is in a position to benefit by $12 billion more from consumer default than from helping consumers to pay off their debt. Only Italy, Spain, Brazil and Deutsche Bank have more phantom CDS than GECC, according to the DTCC’s data.

    The US auto manufacturers also have net phantom CDS in circulation: $11 billion for Ford, $4 billion for General Motors, and $3.3 billion for DaimlerChrysler (plus an additional $3.5 billion at the parent Daimler). Of course, these numbers change from week to week and only represent CDS voluntarily registered with the DTCC, so the real numbers could be much greater.

    Who stands to gain? There is no transparency for CDS trades, which means that we don’t know who these buyers are. But in order to get paid on these CDS, the buyer must be a DTCC Participant… and that brings us to Citigroup, Goldman Sachs, JP Morgan and Morgan Stanley – all Participants at DTCC and instrumental in designing and developing CDS trading around the world. By the way, these firms are also in the group that reports FTDs in US Treasuries; the top four firms represent more than 50% of all trades. You can do the math from there.

    The US government and regulators are in the best position to end these fiascos, turn us away from casino capitalism, and return our financial industry back into a market. It won’t require any new rules, laws or regulations to fix the situation. If someone takes your money and doesn’t give you what you bought, that’s just plain stealin’, and we already have laws against that.

    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.

    More on the US Treasury market’s structural failure: The US treasury market reaches breaking point

  • Pittsburgh Turns 250 Years Old Today

    But instead of a nice birthday card, my home town of Pittsburgh could use a sympathy card. It’s been a tough last 100 years for a once great and powerful city.

    The first 150 years were not so bad. On Nov. 25, 1758 British Gen. John Forbes named the city for prime minister William Pitt after chasing the French from the militarily and economically strategic triangle of land where the Allegheny and Monongahela rivers meet to form the Ohio.

    Historically, we started off on a roll, thanks to our strategic location on the rivers, North America’s first oil and gas boom, and lots of coal. By 1909, when social scientist Paul Kellogg cataloged the city’s industrial might in “The Pittsburgh Survey,” he said it was not just “first among American cities in the production of iron and steel” but also “first in electrical apparatus and supplies.”

    “In coal and coke, tin plate, glass, cork, and sheet metal … its output is a national asset,” Kellogg wrote, adding that Pittsburgh’s banking capital exceeded “that of the banks of the North Sea empires and its payroll that of whole groups of American states.” “Here,” Kellogg claimed without exaggeration, “is a town, then, big with its works.”

    Unfortunately, that world famous powerhouse of iron and steel is long gone. Today the Pittsburgh region’s de-industrialized economy runs mainly on providing health care for its aging populace, the education of about 140,000 college students and the construction of taxpayer-subsidized professional sports stadia and mass-transit boondoggles.

    In her 1969 book The Economy of Cities, Jane Jacobs traced the origins of Pittsburgh’s economic downturn all the way back to 1910. But its demise, she claimed, was abetted and accelerated after World War II by its downtown political and corporate powerbrokers. These are the direct ancestors of the civic movers-and-shapers, government redevelopment planners and political hacks who have been mismanaging our city so horribly for the last 20 years.

    The post-WW II power elites cleaned up Pittsburgh’s poisoned three rivers and Venutian atmosphere, but Jacobs said they also worked overtime to protect incumbent steel and manufacturing industries and discourage new industries from being born. They also launched misbegotten urban renewal projects in three poor and/or black neighborhoods – the Hill District, East Liberty and the North Side – whose destructive effects still afflict the city.

    As most Americans know, having its biggest economic eggs in heavy manufacturing turned out not to be such a good long-term plan for Pittsburgh when the steel industry collapsed in the 1970s and 1980s. Its metropolitan population went into its nationally famous free-fall. In 1960, there were 2.4 million people in metro Pittsburgh and 604,000 in the city of Pittsburgh. Metro Pittsburgh was the 12th biggest TV market in the USA. Today, Pittsburgh metro has a population of 2.3 million and – incredibly – there are just 310,000 souls left in a city that peaked in 1950 with 676,000 people. Metropolitan Pittsburgh is ranked 26th today.

    As its population has shrunk, the region has emulated the demographics of Western Europe and Russia. Its population is disproportionately old (24 percent are 65 or older, about twice the national average) and since 1990 more Pittsburghers have died each year than have been born – a net loss of 25,000 people since 2000 alone. It also has fewer foreign-born immigrants (about 3 percent) than any major American metro area.

    This is all the more the shame since the city boasts many priceless assets. These include a relatively low crime rate, great old middle-class city neighborhoods, affordable suburban homes in good school districts, top universities like Carnegie-Mellon and Pitt, major league sports teams, big-time cultural attractions and a beautiful landscape of hills, hollows and wide rivers.

    These assets are one reason why “Places Rated Almanac” crowned it the country’s most livable city in 1985 and again last year. In 1985 The New York Times immediately dispatched a reporter to Pittsburgh to check out the claim and he wrote back that “With its breathtaking skyline, its scenic waterfront, its cozily vibrant downtown, its rich mixture of cultural amenities, its warm neighborhoods and its scrubbed-clean skies, it no longer is the smoky, smelly, gritty mill town of yesteryear.”

    Pittsburgh – which, for the record, hadn’t been “The Smoky City” since about 1950 – is re-discovered by the bicoastal media every few years. Brendan Gill of the New Yorker came here in 1990 and famously raved about the beautiful terrain, the old architecture and ethnic neighborhoods and said if it were a European city people would travel hundreds of miles out of their way to visit it.

    So if the place is so great why are people – especially young people – leaving in droves? For one thing pay scales are low and the general populace, though friendly and unassuming, fully embraces not risk-taking but the two unofficial regional religions – unionism and Steelerism.

    When it comes to pop culture and new retail chain outlets, Pittsburgh’s at least 5 years behind L.A. or San Francisco, which isn’t necessarily a bad thing. Pittsburgh remains a fine city in which to raise a family, grow old and die. What travel writers never seem to notice when they parachute into town however, is the chronically sorry state of Pittsburgh’s public sector.

    A one-party (Democrat) town since 1934, the city of Pittsburgh has been run like Argentina ever since. Over-taxed, over-regulated, over-planned, quick to abuse its eminent domain powers, it’s now virtually bankrupt. Its finances are now overseen by the state. Its budget flirts with red ink each year. On the horizon loom huge pension liabilities that it can’t possibly pay.

    City Hall can barely provide a decent level of basic services. Meanwhile, they find money to subsidize downtown retailers who often go bust and leave. The city’s redevelopment gurus have handed out tens of millions of taxpayers’ cash to private businesses. The most recent example was giving PNC Financial $48 million in public subsidies to build its new and superfluous skyscraper downtown where vacancy rates, pre-recession, stood well in the double digits.

    Pittsburgh’s public school district is equally inept and even more expensive. It spends well over $20,000 a year per student while enrollment – nearly 40,000 in 1998 – is down to 26,600 and falling. The graduation rate is 64 percent, according to a recent Rand Corp. study. Local school and property taxes are among the highest in the country.

    The region’s roads and parkways are in bad shape – can you spell p-o-t-h-o-l-e? – and designed for 1950s traffic counts. The city of Pittsburgh’s parking tax could be the highest on Earth – 40 percent. City firefighters have some of the highest public salaries in town – and trade their votes for sweetheart contracts.

    The poster child for mismanaged government bodies, however, is Pittsburgh’s public transit monopoly, the Port Authority of Allegheny County. For the last 20 years, as its ridership has fallen steadily and its annual budget has hit $350 million, it consistently enriched its union workers and managers with high salaries, super-generous benefits and pensions.

    Port Authority budgets have outpaced inflation since 1980 and with fares covering about a third of operating costs, it has had to ask for higher and higher subsidies from the state to keep its mostly empty buses lumbering around town. Since the late 1970s, it has spent upwards of $2 billion (in current dollars) on three dedicated busways and a rinky-dink light-rail system that serves about 12,500 suburban round-trip commuters a day.

    The transit agency’s proudest boondoggle, however, is the North Shore Connector, aka “The Transit Tunnel to Nowhere.” Arguably the premier transit boondoggle in North America today, it’ll cost $435 million (a low-balled figure that hasn’t been adjusted to reflect reality in several years) for a 1.2-mile twin light-rail transit tunnel under the Allegheny River from Downtown to the taxpayer-subsidized pro sports stadiums and not far from the new casino.

    The tunnel’s construction currently is tearing up a huge chunk of the North Shore between PNC Park and Heinz Field. It is projected (most dubiously, of course) to carry 16,000 passengers a day – by 2030. A local think tank, the Allegheny Institute, worked out the per-trip subsidy to be $15.50. Set to be completed in 2011, it will be a miracle if the project comes in under $600 million.

    Today Pittsburgh’s regional economy is what it’s been for the last 40 years – stagnant at best. Yet perversely, but predictably, its civic boosters are trying to sell the anemic economy as something to be thankful for because it is “recession-proof.” Since Pittsburgh never had a housing bubble, the spin goes, the foreclosure crisis will hardly affect it. Because Pittsburgh has all those extra citizens on Social Security, the economic meltdown will be less severe. Maybe becoming a morgue might be even safer.

    Yet somehow the local spinmeisters continue to put a bright spin on Pittsburgh’s century-long death spiral. For example, USA Today recently cranked out a big upbeat feature on how wonderful Pittsburgh is – without mentioning such unseemly things as high taxes, bankruptcies or out-of-control government agencies.

    And on Sunday, Nov. 23, the Cleveland Plain Dealer – hometown paper of a city arguably in even worse shape – published a similarly glowing piece of chamber-of-commerce journalism with the headline “Pittsburgh’s renaissance holds lesson for Cleveland.” It began with the sentence “The city that once defined rust belt decay might show the rest of the nation how to weather a recession.”

    True to form, it went on to say that while the rest of the country “reels in debt and despair, Pittsburgh is on the move: A new $200 million downtown office tower, upscale condos, a casino, a new hockey arena and a riverfront convention center.”

    What the Plain Dealer never bothered to note, of course, was that the office tower, the pricy condos and the hockey arena were not being built in downtown Pittsburgh because they actually made economic sense. They were being built only because local politicians had handed millions of dollars in public subsidies to their private, well-connected owners. If this is the road to an urban renaissance, it’s certainly an expensive one. Most likely, it will prove the path to yet another dead end.

    Bill Steigerwald, born and raised in Pittsburgh, is a former L.A. Times copy editor and free-lancer who also worked as a docudrama researcher for CBS-TV in Hollywood before becoming an associate editor and columnist for the Pittsburgh Tribune-Review.

  • Island of Broken Dreams

    A The New York Times editorial wonders why foreclosure rates are so high in the two Long Island counties it rightly calls the “birthplace of the suburban American Dream.” After all, the area has “a relative lack of room to sprawl.” which in Times-speak should be a good thing, since “sprawl” is by definition both bad and doomed.

    Yet it is precisely the constraints on new housing that has served as a principal cause for Long Island problems. Long Island was the birthplace of the suburban American Dream, in principal measure because new housing development was permitted to occur at land prices reflecting little more than its agricultural value plus a premium to the selling farmer. The same financial formula expanded the American Dream throughout the country and many parts of the world, at least until urban planners were able, in some instances, to drive the price of land so high that housing was no longer affordable to average households.

    Indeed, land use regulation throughout the New York suburbs downstate, in New Jersey and Connecticut has long since rationed land for development. As a result, once loose mortgage loan standards became the practice, house prices escalated. Throughout the New York metropolitan area, the Median Multiple – median house prices divided by median household incomes rose from 3.2 to 7.0, in the decade ending in 2007. In traditionally regulated markets – like Long Island in the past and still much of the country in the present – the Median Multiple has been 3.0 or less for decades.

    Various regulations have led to this precipitous decline in the area’s housing affordability, virtually all of them falling under the category of “smart growth.” There are the regulations that have placed large swaths of perfectly developable land off limits for housing. There are large lot zoning requirements that have forced far more land than the market would have required to house the same number of people, producing an entirely artificial “hyper-sprawl.” Much of this ostensibly has been done in the interests of controlling “sprawl.” Where quarter acre lots would have been the market answer, planning authorities often have required one-half acre, one-acre and even more as minimum lot sizes.

    In fact, however, Long Island’s housing cost escalation has not been visited anywhere with more traditional liberal land use policies. From the first world’s three fastest growing metropolitan areas of Atlanta, Dallas-Fort Worth and Houston, to much of the South (excluding Florida), to the Midwest, housing prices rose little relative to incomes during the period of profligate lending. The difference, of course, was that the liberal land use regulations in these places allowed sufficient housing to be built that supply kept up with demand, thus accommodating new demand. Speculators saw no potential windfall profits to bring them into the market.

    The Times is not alone in misunderstanding the dynamics of land use regulation and housing affordability. But there is a very clear, demonstrated relationship – where land use regulations constrain development, prices are forced upward. This is because scarcity raises prices of goods that are in demand.

    Fortunately, not everyone at the Times shares the wrongheaded views of its editorial department. Had the editors walked down the virtual hall of their own department, or taken the train down to Princeton, where he lives, they would have encountered someone who understands all this. He is Paul Krugman, Times economic columnist and, much more importantly, Nobel Laureate. In August of 2005, Krugman noted that house prices had escalated strongly in the more regulated markets, but had changed little in the less regulated markets. He further rightly associated the less regulated markets with more sprawl, not less. In January of 2006, Krugman noted: that the highly regulated markets accounted “for the great bulk of the surge in housing market value over the last five years.” Krugman further predicted “a nasty correction ahead.”

    Meanwhile the non-Nobelist Times also make a point to bemoan the high levels of racial segregation on Long Island. Is it beyond them to understand that the very policies they favor are at fault? When one considers that ethnic minorities tend to have lower than average incomes and that land rationing nearly doubled the price of housing relative to incomes, it’s not surprising that they have not moved en masse to expensive places like Long Island, with the exception of Hempstead and a few other pockets. There are costs to restrictive land use regulation. One of the most pernicious consequences is the denial of the American Dream to groups of citizens that have so long been excluded from the economic mainstream.

    It is time to recognize that the regulations that raise the price of housing – however well-intentioned – work against housing affordability and represent one of the prime contributors to the high levels of foreclosures in many communities across the country.

    Wendell Cox is a Visiting Professor, Conservatoire National des Arts et Metiers, Paris and the author of “War on the Dream: How Anti-Sprawl Policy Threatens the Quality of Life”