New Geography

Category: Policy

  • Up Next: The War of the Regions?

    By Joel Kotkin and Mark Schill

    It’s time to throw away red, blue and purple, left and right, and get to the real and traditional crux of American politics: the battle for resources between the country’s many diverse regions. How President-elect Barack Obama balances these divergent geographic interests may have more to do with his long-term success than his ideological stance or media image. Personal charm is transitory; the struggle for money and jobs has a more permanent character.

    To succeed as president, Obama must find a way to transcend his own very specific geography – university dominated, liberal de-industrialized Chicago – and address the needs of regions whose economies still depend on agriculture, energy and industry. In the primaries, most of these went to Sen. Hillary Rodham Clinton.

    The geographic concentration of manufacturing prepared by Praxis Strategy Group presents a particular complex roadmap for the new president. Although Indiana and Wisconsin top our list of states most dependant on manufacturing employment, the next four are either in the Great Plains, Iowa, or in the south, Arkansas, Alabama and Mississippi. In fact eight of the top 13 industrial states on a per capita basis are located in the South; only one of these manufacturing hotbeds, North Carolina, supported the new president.

    In terms of industry, the auto industry represents the most difficult challenge. Great Lakes political leaders, like Michigan’s clueless Gov. Jennifer Granholm, now a top Obama advisor, will twist the new president’s arm to bail out the crippled U.S.-based auto manufacturers, essentially socializing the industry. Yet in bailing out Detroit, Obama could undermine a thriving, growing auto complex developing in the old Confederacy and along the southern rim of Midwest.

    Although also hit by the recession, companies like Toyota, Honda, Hyundai, Mercedes and BMW have brought unprecedented prosperity to these areas, which include some of historically poorest regions of the country. This is also where many of the most fuel-efficient “green” vehicles in America are being produced. The workers they employ may not belong to the unions so influential among liberals, but their interests matter mightily to Democrats as well as Republicans who represent them.

    Energy issues may be even more challenging from a regional perspective. The nation’s fossil fuel resources are heavily concentrated in the west and South, led by Wyoming, Alaska, West Virginia, Oklahoma, Louisiana, New Mexico, Texas, Montana, North Dakota and Kentucky. Sen. Obama only took one of these states, New Mexico. The new president’s statements against coal and other fossil fuels were not popular in areas where these provide not only reliable low cost energy but also well-paying jobs.

    Not just oil-riggers, heartland miners and coal companies have an interest in an expansive approach to energy policy. If enacted, Obama’s “cap and trade” proposals could raise the cost of Midwestern energy, largely coal-based, by between 20 to 40 percent, according to a recent study by Bernstein Research. This would create yet another disadvantage for U.S. manufacturers, particularly against largely unregulated competitors in developing countries.

    In contrast, reliable and affordable domestic energy supplies from all sources – including from nuclear facilities – would be a major boon manufacturers across the country. Obama must recognize that many states with coal and oil reserves also possess strong wind and bioenergy potential. He should favor expansion of both. The resulting lower cost electrical power could boost an incipient electric car industry that may be the last, best hope for hard-pressed General Motors.

    Here’s another case where regional politics could prove sticky for Obama. Any attempt to boost non-renewable energy supplies would run into opposition from the largely coastally-centered green lobby. These groups generally oppose virtually any fossil fuel development, and most remain hostile to nuclear power. While well-intentioned, increasingly restrictive environmental regulations on manufacturing could push production to parts of the world with dirtier industries and over reliance on shipping long distances. The net reduction in carbon emissions, as a result would seem somewhat ephemeral.

    The current recession and falling energy prices could provide political cover for Obama to shift his energy policies. Hard times have already eroded support for strict curbs on greenhouse gases in Europe and strong advocacy for carbon taxes clearly hurt the Liberals in the recent Canadian elections. A similar reaction could also emerge in this country, excepting the deepest blue coastal enclaves.

    Finally there remains one other regional constituency that must be addressed, that of the financial community. Our analysis shows securities and commodity trading industries to be regionally concentrated, with the largest clusters in greater New York, vice President-elect Biden’s home state of Delaware, followed by New Hampshire and Illinois. They are all now bedrock “blue states” and backed Obama generally by large margins.

    Yet this presents yet another regional dilemma. Simply put, the rest of the country detests Wall Street. They see the bailout benefiting big players in cities like New York or Chicago, but doing little for smaller banks who do much of the lending outside the big money centers. This sentiment cuts across party lines, particularly in the West and South, as the initial anti-bailout votes in the House show.

    All presidents face such regional challenges in governing this vast and diverse country. The weak politicians, like George W. Bush, tend to fall back on an ever-narrower band of regional alliances that, once threatened, easily break apart.

    Transformative leaders, like Franklin Roosevelt and Ronald Reagan, learn to extend their appeal to as many industries and regions as possible. In the next four years, we will get to see what kind of leader Barack Obama intends to be.

    This article originally appeared at Politico.com

    Joel Kotkin is a Presidential Fellow at Chapman University and executive editor of NewGeography.com. Mark Schill, a strategy consultant at the Praxis Strategy Group, is the site’s managing editor.

  • The Case for Optimism on the Economy

    With the prospect of a long, deep recession staring us in the face, are there any reasons for optimism?

    You betcha!

    The central characteristic of the American economy – resiliency – is now being severely tested. But there are ample reasons to believe it will pass that test. Simply put, even after this crisis the US will still have the world’s largest, most dynamic, most productive, most innovative, most technologically advanced, most competitive and most venturesome economy. Combined with population and household growth (the only first-world, industrial economy that can so claim), the US still has the best prospects for sustainable economic growth (which is a good thing, because we will need to return to a growth path to be in a position to solve the many challenges we will be facing in the years and decades ahead).

    What is the case for optimism? Past experience and the fundamentals.

    Globalism
    “If sensible rescue efforts continue – and they will – the immediate crisis will quickly pass. Shell-shocked businesses and consumers won’t recover rapidly from the trauma of recent months, especially as we now cope with recession. But the downturn shouldn’t be prolonged: The economy here and those overseas should start to pick up no later than next spring.” So writes Steve Forbes, publisher of the magazine that bears his family name, in an essay entitled “Capitalism Will Save Us.”

    Despite the crisis, Forbes points out, the global economy still retains enormous strengths. Between the early 1980s and 2007 we lived in an economic Golden Age: worldwide, 70 million people a year were joining the middle class. Even the much-maligned US economy has been doing well in recent years. Between year-end 2002 and year-end 2007 US growth exceeded the entire size of China’s economy.

    As a result, the world is flush with cash. It’s frozen because of fear, but the important things is: cash is there. And the US remains the premier destination for investment capital. So the global boom should resume next year, slowly at first and then with increasing momentum.

    One word of caution: if we continue down the path of criminalizing business failures (think KMPG, Arthur Andersen), we risk undermining the basic idea of limited liability, and the risk-taking it encourages and engenders. That would be catastrophic. Limited liability is arguably the single most important innovation of the modern age, the most significant enabler of the explosive economic growth, development and widespread affluence we have seen since the 19th century. The punitive and costly Sarbanes-Oxley Act, passed in a fit of Congressional pique to punish financial crime, has done no good but lots of harm.

    Monetary Policy, Energy Costs, Housing
    Jeffrey Lacker of the Federal Reserve Bank of Richmond agrees growth will return next year; he expects the US economy to regain positive momentum sometime in 2009 for several reasons. First, monetary policy is now quite stimulative. The federal funds target rate is 1 percent, below the expected rate of inflation. Second, the major shocks that dampened economic activity this past year have already subsided or are in the process of doing so. Energy prices have reversed most of the earlier run-up; that will free up a portion of consumer budgets for spending on other goods and services. And third, the drag from housing seems likely to lessen in the next year, and in fact, we should see a bottom in housing construction around the middle of 2009.

    These are trying times, admits Lacker, but we have weathered economic downturns and banking distress before, both nationally and globally. The fundamental creative process that drives innovation and improves well-being over time has not been mortally wounded, and that bodes well for the long-term.

    Velocity
    If there is a slowdown in the turnover of money – say a 5% decline – the impact on nominal GDP growth is no different than if the money supply itself shrinks by 5%. And that’s exactly what caused the sharp drop in growth (with some panic thrown in for good measure). This sharp drop in growth is due to a temporary drop in velocity, not a typical recession caused by fundamental, economy-changing events such as higher tax rates, tighter money, protectionism or other public policies that stifle innovation or entrepreneurship.

    But there is good news. After ham-handing the rescue operation for months, the cavalry has finally arrived. The Fed has injected massive amounts of liquidity, driving the federal funds rate to roughly 1%.

    Moreover, the Treasury Department has drawn a line in the sand. It has decided that no more banks will fail due to a lack of liquidity. Despite the downside this represents for the ideal of free markets, these actions by the Fed and Treasury will help unlock the credit markets and turn velocity upward. With velocity and the money supply both heading up, a “V” shaped recovery is likely.

    Rather than being the first of several negative quarters of economic growth, economists like Brain Wesbury and Robert Stein of First Trust Advisers predict a healthy period of growth in the second half of 2009. To be precise, they expect real GDP to be flat in Q1-2009 but then grow at an average annual rate of 3% in the final three quarters of next year, with only a temporary hit to earnings. The Dow Jones industrials average should recover to 11,000 by the end of this year, with another 20% climb in 2009 all the way up to 13,250.

    We Have Been Here Before
    The US economy has blossomed for 25 years, and can and will again. If, however, we regress by adopting protectionism, higher taxes, too much regulation and other key policy mistakes, the effect on our economy could be devastating. With the prospect of a new Democratic administration and Congress, these are not insubstantial fears. The Bush tax cuts will expire after 2010 if action is not taken to extend them. The capital gains tax rate will go up; the dividend tax rate will go up; the death tax will jump from 0% to 55% in 2011. These automatic tax increases we have the makings of an economic calamity. Same goes for increased protectionism and new regulations. But it will be with eyes wide open.

    Innovation is Key
    Pessimism about America’s future has been growing, at least until the recent election of Barack Obama. Yet beneath the gloom, economists and business leaders across the political spectrum are slowly coming to an agreement: Innovation is the best – and maybe the only – way the US can get out of its economic hole. New products, services, and ways of doing business can create enough growth to enable Americans to prosper over the long run.

    But here’s the conundrum: If money alone were enough to guarantee successful innovation, the US would be in much better shape than it is today. Since 2000, the nation’s public and private sectors have poured almost $5 trillion into research and development and higher education, the key contributors to innovation. Nevertheless, employment in most technologically advanced industries has stagnated or even fallen.

    The new field of innovation economics addresses this gap between spending and results. Economists are increasingly studying what drives successful innovation to learn how companies can get more bang from the bucks spent on R&D and higher education.

    One of the hottest areas in the field is the use of government aid to cultivate “innovation clusters,” or collections of local companies and academic institutions working together to create new products and processes. Ideally, those alliances would build on existing expertise in a region.

    It’s possible the longstanding partisan debate over tax rates and budget deficits may soon become a sideshow. If it is realized that the main purpose of economic policy is to spur innovation and growth, then the two political parties will have to stop fighting and coalesce around policies that promote innovation.

    So let’s keep things in perspective. Reports of our demise are premature.

    Dr. Roger Selbert is a business futurist and trend guy. He publishes Growth Strategies, a newsletter on economic, social and demographic trends, and is a professional public speaker (www.rogerselbert.com). Roger is US economic analyst for the Institute for Business Cycle Analysis in Copenhagen, and North American representative for its US Consumer Demand Index.

  • Toronto: The Action is Where You Make It

    You get mean-spirited when you feel left out of joy. Somebody else’s joy raises envy when you haven’t had any yourself. Cities are like that, jealously eyeing other cities as if there were more fun and delight and oh, “buzz,” to be had elsewhere.

    In fact it’s an illusion that the party is going on somewhere else. The action is where you make it, and in a city you have lots of help doing it. In fact that’s what justifies city life – the signature of any great city. Self-rejoicing. It’s something more than plain pride, or confidence or superiority, or a call for “buzz,” excitement, or (yech) prosperity.

    Joy is what Toronto hasn’t done too well. But now the New Canadians are it the city along with their spontaneity, a zeal, a natural gusto for life; that is, until they get hooked on the regulation and protocol that define the city’s ethic.

    What makes the new Canadians naturally more joyful? Perhaps it’s because they initially come from less “fortunate” places. Deprivation, (for all its unseemliness in a climate of entitlement) has a way of instructing people in reliance upon family and community. People need each other in dire straits. In their calm affluence, Torontonians seem to not need each other.

    There’s something about having to rub closely against another human being that gets on our nerves and I don’t think that all the talk of “densification” in affluent Toronto will quite manufacture that alchemy of inter-civic dependence. And that’s the challenge for all cities in an atmosphere of globalization. Globalization likes order, efficacy and the robotization of human capital, leading to culture of protocol and calculation – even when it comes to enjoying oneself.

    To be fair, there’s been a steady erosion of the puritan ethic that says “don’t do this” “don’t do that”. But now the caveats and prohibitions come from a more hygenic mentality. There are prohibitions against parking, loitering, lingering, lingering in parks after 11pm., trespassing. We have bylaws for everything; a bureaucratic industry of injunctions and disallowance. Add to that a contemporary feel for the wisdom of surveillance, neighborhood watch and reporting of suspicious behavior, and you have a self-consciousness that is being perfected in Toronto.

    Toronto comes to its love for order from a colonial tradition of shopkeepers, whose ethic was that of good business. Add to that the “family compact”, loyalism, and a legacy of stingy theologies (notions that God totes a ledger instead of a horn of plenty) and this typology becomes a model for Ontario. It’s evident in the dedication of bureaurocrats and civil servants, who seek a sanitized city in place of a creative or playful one. This culture of prudence and circumspection threatens to oppress the lively spirit generated and smuggled here by the new Canadians.

    Proceduralism preempts happenstance encounter. Connectedness is preferred to intimacy. Negotiated space is the means by which we enter the public realm. The city in general is being redefined as a place where you can enjoy yourself without necessarily enjoying others.

    You can slap on all the new urbanism you want, all the new designs, the access paths to waterfronts, the well thought out landscaping but the zeitgeist of civic withdrawal persists. In urban centres, revitalized or not, you will find no one on the streets after 8 pm at night.

    In Toronto, this zeitgeist is abetted by parking police and increased infatuation with bylaws, a lack of leniency and flexibility in regulation – the licensing difficulties for small businesses that force them to use consultancies that conform better to the civic animal.

    Yes there are the usual arts festivals, showcase museums, testaments to corporate architecture, commercial temples, touristic theme-parks, and the downtown is hugely revitalized with condos, bars and art galleries. But like revitalized downtowns throughout North America, ours is, predictably, a playground for the rich and their pampered offspring, while the service workers can’t afford to live there. Let alone the artists who first raised the property values by their ethos of adventure. Bring the artists in, let the neighborhood get trendy, and then make it unaffordable to anyone but the gentrified. At the end of the day, there is nothing casual about what the gentrified city permits.

    In the end, the natural expression of exuberance is left crippled. Spontaneity is the casualty of the global city – scared as it is by security issues, the notion that the next guy is in it for himself, the loss of a general ethic that encourage the citizen to civic sacrifice. In short, in trying to become or remain ‘world class’ we are in danger of being regulated out of life.

    In some ways, Toronto’s fetish for regulation may be the very thing that attracts the global lifestyle pilgrim. It might be why trendy people choose to live in Toronto …because Toronto the good (or the Toronto of protocol) is antidote to the tyranny of origins and the fracas of more bankrupt places.

    In the future, however, this stifling of spirit and resort to regulated celebration could backfire. What will define the successful city of the future will be not adherence to cultural fashion but the nature of its faith, its civic generosity and it’s preservation of civil encounter. Civil encounter is under siege. The public realm is being evacuated of its indigenous spirits, and with it, the delight the manufacture of joy.

    The time must soon come when the “city” as notion will no longer be limited to the “metropole.” The revitalization of downtowns is inevitable but the real urban frontier may lie in those hinterlands snubbed by those cosmopolitan condo dwellers and spuriously dismissed as “suburbs”. This is where the bulk of urban populations – the middle and working classes now reside. The expedience, economy and unimaginativeness with which those areas are being designed is appalling. Toronto’s outer rings cannot be brought to health medication of new urbanism, with no thought to why people don’t use public spaces even when they are adequately designed, even when they pose no threat to personal safety.

    What we need is not so much better design or more control but the cultivation of “urban citizenship”. Urban citizenship is not understood as the key to poorly done infrastructure and municipal alienation; it can not be quantified, or designed into existence. You can not manufacture the notion of loyalty to a neighborhood, municipality or city. Without loyalty, people become mere “services” to each other, networks and not neighborhoods; information replaces knowledge about people. The government ends up knowing more about you than your neighbor does.

    Toronto has arrived as a successful North American city by the standards of a livable city but is it a place where you still have an appetite for life? It is good to consider that though most places seek to be livable cities, they often arrive there without the manufacture of joy.

    Let me tail this piece off with a quote from Walt Whitman: “The greatest city in the world is that place that has the greatest men and women. Though it be a few shacks, it is still the greatest city in the world”. In the wake of a deep recession, that is a perspective urbanists must adopt. Our mutual reliance and ability to create our joy in places we make our own constitutes the infrastructure upon which creating a great city must be based.

    Pier Giorgio Di Cicco is Principal of Municipal Mind, Poet Laureate of The City of Toronto, and Curator of The Toronto Museum Project. He was a team member and co-author of the Imagine Toronto report of the City of Toronto and Province of Ontario. He was official moderator for the 2005 International Metropolis Conference and the Toronto host for the World Association of Major Metropolises. His latest book is Municipal Mind: Manifestos for the Creative City.

  • Will we be over-stimulated?

    Stimulus fever is in the air, and with the election of Sen. Barack Obama to become the 44th US president, it’s now reaching a fever pitch. US automakers have already made the rounds on Washington DC, meeting with Congressional leadership to generate political support for another $25 billion in government subsidy to avoid bankruptcy. Now, congressional leaders and some economists are clamoring for $150 billion to $300 billion in additional stimulus to goose the national economy – all this on top of the $700 billion financial services “rescue package” passed in October.

    Harking back to the days of the Great Depression, many policymakers see transportation spending in roads, highways, and transit as an effective job creation program. Indeed, the American Association of State Highway and Transportation Officials has identified 3,109 “ready to go projects” worth $18.4 billion that could, in theory, produce 644,000 jobs.

    That’s more than double the number of jobs that disappeared in October according to the U.S. Department of Labor. Unemployment edged up to 6.5% in October as the economy shed 240,000 jobs. The number of employed has fallen by 1.2 million workers since the beginning of the year. Meanwhile, wages for those with jobs increased an average of 3.5% over the last year, significantly lagging inflation (for urban consumers) of 5.3% during the same period. More than half of that fall occurred in September, October, and November.

    These numbers embolden economists and pundits alike. Paul Krugman, writing in the New York Times, advises President-elect Obama to be bold and audacious in his fiscal stimulus:

    “My advice to the Obama people is to figure out how much help they think the economy needs, then add 50 percent. It’s much better, in a depressed economy, to err on the side of too much stimulus than on the side of too little. In short, Mr. Obama’s chances of leading a new New Deal depend largely on whether his short-run economic plans are sufficiently bold. Progressives can only hope that he has the necessary audacity.”

    Krugman’s observation is an extraordinary statement because little evidence exists that this kind of discretionary fiscal policy has a meaningful impact on the economy. Alan Aurbach, one of the nation’s leading macroeconomic policy experts and an economist at the University of California at Berkeley, examined fiscal policy during the 1980s, 1990s and early part of 2000s and concluded:

    “There is little evidence that discretionary fiscal policy has played an important stabilization role during recent decades, both because of the potential weakness of its effects and because some of its effects (with respect to investment) have been poorly timed.”

    Where fiscal policy has been effective it’s been through “automatic stabilizers”– programs such as social security and unemployment insurance that maintain income levels regardless of current economic conditions. Of course, these programs are not discretionary—they are ongoing programs resistant to manipulation by politicians responding to the immediate political climate.

    In short, a blanket infusion of cash through a one-time (or two or three) Congressional stimulus package(s) focused on transportation is not likely to be effective. This is true for a number of reasons. The key should not be how many miles of concrete we pour, or even how many jobs we create. Instead the focus should be on how much the investment creates a more productive and globally competitive American economy.

    It’s true transportation spending will ramp up construction jobs, but these are temporary ones that provide little stimulus to the advanced service, information technology, and manufacturing jobs that are critical to the long-term growth of the US economy. In addition, construction jobs tend to be seasonal, hardly the type of job creation that builds long-term economic expansion.

    More substantively, the transportation needs of a globally competitive, service-based economy differ fundamentally from those of the industrial economy that benefited so much from federal highway largess in the 20th century.

    In the 1950s, transportation investment was rather straightforward. Mobility was relatively low and restricted. Most households owned a car, but usually just one. Most households lived close to where they worked and walked to meet their daily needs. Typically, the wife stayed home, dropping the husband off at the train or bus station to take mass transit into work, picking him up at the end of the day. Many families could afford to allow one spouse to stay at home.

    A national transportation infrastructure program was relatively easy to identify during this period (even if it was politically controversial): connect major urban cities to create a unified economy, keep freight moving, and ensure workers could get to their places of employment. An Interstate Highway System linking the Central Business Districts of major cities, complete with beltways to shuttle employees and through traffic around these centers, created a highly efficient hub-and-spoke highway network.

    Today’s travel environment is far more complex, and doesn’t lend itself to the hub-and-spoke system. Current travel patterns point to a transportation network that should focus on improving point-to-point travel in a dynamic economy, more of a spiderweb than a hub-and-spoke network, as Adrian Moore and I point out in our new book Mobility First: A New Vision for Transportation in a Globally Competitive Twenty-first Century.

    In an era of customized travel, massive infusions of funding into a transportation network designed for the industrial era won’t be effective. Moreover, the legislative process is likely to be far less efficient at allocating transportation funds in a meaningful way without a system that allows travelers and highway users to determine what projects get the highest priority. What politicians or even federal planners think is important may not be to travelers. Only by adopting the latest and newest technology to gauge user willingness to pay, most usefully through electronic tolling, can the right projects be put in the right place at the right time while also ensuring a sustainable funding stream for the road network.

    Perhaps not surprisingly, economists Clifford Winston and Chad Shirley, writing in the Journal of Urban Economics, estimate that the return on investment to highway spending has fallen from 15% in the 1960s and 1970s to less than 5% in the 1980s and 1990s. They suggest one reason for the decline in productivity impacts has do with the fact that the highway system is already built out. Another reason is that federal transportation policy often targets unproductive investments – such as “Bridges to Nowhere” – rather than high-priority items, reducing transportation spending’s effectiveness at boosting overall economic growth.

    All this suggests that blanket spending on transportation projects may not have substantive long-run impacts on the economy. In fact, it could work against job creation and productivity if the added spending reinforced a transportation network that is already poorly suited to the needs of a modern, 21st century services-based economy.

    Douglas Elmendorf and Jason Furman, writing for the Brookings Institution, report that infrastructure spending has a lackluster record for boosting short-term economic growth. The focus should be elsewhere. For example, we should look more to the longer-term impacts of investments that actually increase productivity and competitiveness.

    Infrastructure should be seen, then, as a way to boost the speed of information and movement of goods, not as a quickie jobs program. Congressional leaders and urban planners should keep these cautionary points in mind as they ponder the need and efficacy of yet another stimulus package.

    Samuel R. Staley, Ph.D. is director of urban policy at Reason Foundation (www.reason.org) and co-author of Mobility First: A New Vision for Transportation in a Globally Competitive Twenty-first Century (Rowman & Littlefield, 2008).

  • Sundown for California

    Twenty-five years ago, along with another young journalist, I coauthored a book called California, Inc. about our adopted home state. The book described “California’s rise to economic, political, and cultural ascendancy.”

    As relative newcomers at the time, we saw California as a place of limitless possibility. And over most of the next two decades, my coauthor, Paul Grabowicz, and I could feel comfortable that we were indeed predicting the future.

    But much has changed in recent years. And today our Golden State appears headed, if not for imminent disaster, then toward an unanticipated, maddening, and largely unnecessary mediocrity.

    Since 2000, California’s job growth rate— which in the late 1970s surged at many times the national average—has lagged behind the national average by almost 20 percent. Rapid population growth, once synonymous with the state, has slowed dramatically. Most troubling of all, domestic out-migration, about even in 2001, swelled to over 260,000 in 2007 and now surpasses international immigration. Texas has replaced California as the leading growth center for Hispanics.

    Out-migration is a key factor, along with a weak economy, for the collapse of the housing market. Simply put, the population growth expected for many areas has not materialized, nor the new jobs that might attract newcomers. In the past year, four of the top six housing markets in terms of price decline have been in California, including Sacramento, San Diego, Riverside, and Los Angeles. The Central Valley towns of Stockton, Merced, and Modesto have all been awarded the dubious honors of the highest foreclosure rates in the nation during the past year.

    Even with prices down, many of the most desirable places in California are also among the most unaffordable in the nation. Less than 15 percent of households earning the local median income can afford a home in L.A. or San Francisco. In Santa Barbara, San Diego, Oxnard, Santa Cruz, or San Jose, it’s less than a third. That’s about half the number who can buy in the big Texas or North Carolina markets. Moreover, state officials warned in October that they might have to seek as much as $7 billion in loans from the U.S. Treasury. This is a disappointing turn for a state that once saw itself as the harbinger of the future.

    Not surprisingly, few Californians see a turnaround soon. In the most recent Field Poll in July, a record high 63 percent of Californians said they are financially worse off than they were a year ago, while a record low 14 percent described themselves as better off. Poll director Mark DiCamillo called it “the broadest sentiment of pessimism we’ve ever seen.”

    Of course, California can still attract many newcomers, particularly young and ambitious people who dream of a career in Hollywood or Silicon Valley. The problem is that when you grow up and have failed to secure your own dotcom or television series, life in Texas, Arizona, North Carolina, or even Kansas starts looking better. According to real estate analysts, the only thing preventing the current outflow from being worse is that homeowners cannot sell their residences in order to move.

    All of this suggests a historic slide of California’s role as a bastion of upward mobility. In 1946, Californians enjoyed the nation’s highest living standards and the third highest per-capita income, noted journalist John Gunther. As recently as the 1980s, Californians generally got richer faster than other Americans did. Now, median household income growth trails the national average while the already large divide between the social classes—often bemoaned by the state’s political left—grows faster than in the rest of the country.

    Today, notes a recent Public Policy Institute of California study, California has the 15th highest poverty rate in the nation. Only New York and the District of Columbia fare worse if the cost of living is factored in. Indeed, after accounting for cost of living, L.A., Monterey, and San Francisco counties—all places known for concentrations of wealth—have poverty populations of 20 percent. “San Francisco,” says historian Kevin Starr, a native of the city, “is a cross between Carmel and Calcutta.”

    The Political Roots of the California Ascendancy

    You can blame many factors for California’s fall from grace: too much immigration from poor countries, the impact of global competition on technology and aerospace industries, the end of the Cold War, failing schools, and the 12 years of political control by the Texas-centric Bushes. Yet other states have weathered similar storms and still gained ground on the Golden State.

    The real problem lies in the decline of the state’s political culture. “Our society may be evolving spectacularly but our politics are devolving,” suggests Starr, the state’s most eminent historian. “California is in no way a role model for anyone from outside the state.”

    For much of the 20th century, California—already blessed by climate, topography, and fertility—was also relatively well governed. California’s schools, universities, and infrastructure were considered among the finest anywhere. From the 1920s on, its prevailing ideology was a kind of business-like progressivism. Californians in both parties embraced the idea that government could be a positive force in the economic and social life of California. However, they also embraced the latest notions of scientific management. One report from the administration of California’s Republican Governor Hiram Johnson, produced in the early part of the 20th century, stated that the goal was “to systematize the business of the State of California.”

    California’s state government laid the foundation for its remarkable ascendancy. Progressivism’s pragmatic orientation, the melding of science and technology into government, the large-scale investment in infrastructure, and a strong nonpartisan tradition produced spectacular results. In his famous book Inside USA in 1946, Gunther gushingly described California as “the most spectacular and most diversified American state … so ripe, golden.”

    Another Republican California governor, Earl Warren, who served between 1943 and 1953, epitomized progressive virtues—pragmatic in policy, nonpartisan in approach, and activist in his manner. Later on, as the GOP became more conservative, the progressive mantle shifted to the Democrats. Under Governor Edmund G. “Pat” Brown, elected in 1958, the state continued with an aggressive program of public works, a rapid expansion of higher education, and the massive California Water Project.

    Like his Republican progressive predecessors, Brown advocated civil rights for minorities but also promoted business interests, notably in real estate development, Hollywood, aerospace, and agribusiness. Equally important, the Democrat embraced the traditional good government principles of the progressives. Shortly after taking office, Brown initiated a thorough reorganization of state government, attempting to make it more businesslike. California, Brown himself noted, needed “to apply the latest concepts of management, organization, and cost control just as modern corporations have done.”

    The End of the Progressive Era

    By the mid-1960s, Brown’s traditional progressivism was being undermined by rising interest-group liberalism. State employees, left-liberal lobby groups, and minorities were demanding more and more from the governor. Fed up with ever-growing taxes and social spending, business interests became increasingly alienated. Once seen as a boon to the private sector, state government was becoming perceived by corporate interests as overly meddlesome and hostile.

    Perhaps even more damaging was the cultural rift that developed. Many white middle- and working-class voters felt threatened by the rise of new militant minority and student groups. Riots at Berkeley and Watts deepened resentments against the university and African Americans, two linchpins of Brown’s support.

    In the 1966 gubernatorial election, Ronald Reagan smashed Brown and the remnants of the old progressive coalition. The former actor captured both business support and grassroots votes in previously Democratic-leaning areas in suburban L.A. and the Central Valley. Numerous interviews conducted with his closest confidants at the time make clear that they did not intend to impose a conservative social agenda, but hoped to slow the regulatory regime and restore order on the state’s campuses and ghetto streets.

    One scholar has claimed that Reagan “destroyed” progressivism, but some of the blame should also be laid at the feet of the Democrats. To be sure, Reagan slowed the growth of government, but infrastructure building continued and the state university grew, as did many social problems. Much the same could be said of later Republican governors George Deukmejian and Pete Wilson, whose policies were only moderately conservative.

    Enter Governor Moonbeam

    The real problems for the progressive model, ironically, began to surface with the rise of Pat Brown’s son, Governor Edmund G. “Jerry” Brown Jr. He veered away from the traditional focus on nonpartisan governance and infrastructure spending—what long-time advisor Tom Quinn called “this build, build, build thing”—and instead focused on an environmentally friendly, “small is beautiful” approach.

    However, the real problems did not ultimately reside with the brash, creative, and sometimes unpredictable young governor himself. Entrenched Democratic interest groups, particularly public employees, resisted property tax relief for California’s middle-class homeowners. Ultimately, this failure brought about the passage of Proposition 13, a strict limit on property taxes that would sharply curtail infrastructure spending and reduce the ability of local governments to address serious problems.

    During Brown’s watch, and even despite his occasional opposition, the Democratic Party came increasingly under the sway of public employees, trial lawyers, and narrow interest activist groups. Their ability to raise money and impose their political will often outweighed that of even the most powerful business interests.

    The full bill for this transformation would eventually be paid not by Brown, but by his former chief of staff, Gray Davis. Becoming governor in 1998, Davis became the prisoner of the special interest groups with whom his predecessors, Deukmejian and Wilson, had struggled.

    By then, California’s shift to the Democrats had become inexorable and, with the fading of a GOP counterweight, influence within the party flowed to its more radical factions further to the political left. As a result, the state moved decisively away from the economic growth focus of Pat Brown. It seemed determined to wage war against its own economy. As pet social programs, entitlements, and state employee pensions soared, infrastructure spending—the hallmark of the Pat Brown regime and once 20 percent of the state budget—shrank to less than 3 percent.

    The educational system, closely aligned with the Democrats in the legislature, accelerated its secular decline. Once full of highly skilled workers, California has become increasingly less so. For example, California ranks second in the percentage of its 65-year-olds holding an associate degree or higher and fifth in those with a bachelor’s degree. But when you look at the 25-to-34 age group, those rankings fade to 30th and 24th.

    Instead of reversing these trends, the state legislature decided to spend its money on public employees and impose ever more regulatory burdens on business. Davis, a clever and experienced public servant, understood this but could not fight the zealots in his own party. When the state’s revenues shrank after the high-tech bust in 2000, he appeared to be their complete captive. Perhaps the most telling example of the misplaced priorities of the state’s majority party took place amid the state budget crisis when legislators, facing an imminent fiscal disaster, took time to debate legislation about providing more protections for transgender Californians.

    Enter the Girlie Man

    Davis’s apparent inability to gain control of the looming budget crisis opened the door to his 2003 recall and the election of a Republican, Arnold Schwarzenegger. The former bodybuilder and action hero promised to clean up “the mess” in California. He took aim at what he derided as the “girlie men” in the legislature, promising to get the state’s affairs in order. It was not to be. After a bruising defeat by liberal interest groups over a series of propositions, the onetime tough guy embraced what he called “bipartisanship.” The media, particularly on the national level, cooed, but in reality the governor simply ceded initiative to the very “girlie men”—the left-leaning state legislators—that he formerly promised to rein in.

    Under Schwarzenegger, notes former GOP Assemblyman Keith Richman, the state budget actually grew even faster—10 percent annually as opposed to 7 percent—than under his spendthrift Democratic predecessor, Gray Davis.

    Dan Walters, the dean of California political reporters, argues that Schwarzenegger never bothered to learn the basics of state governance. As a result, state spending, particularly on state employees and their pensions, continued with no notion that another budget crisis was looming.

    The Economic Crash

    The Terminator and his advisors also never understood the economic rot undermining the state. The governor assumed little could be done to preserve manufacturing, warehousing, and other high-paying blue-collar jobs in California. Instead, he bought the idea that “creative” professionals in technology, finance, and entertainment could keep the state economically vibrant.

    To be sure, the big players in technology and entertainment still often keep their main offices, and sometimes their research facilities, in California. However, they also tend to locate their middle management and production jobs to more affordable, enterprise-friendly states and countries. This is one reason, notes the Milken Institute’s Ross DeVol, that tech growth has been relatively weak even during the much-ballyhooed Internet 2.0 boom.

    Worst of all, the governor’s economic team did not see the danger of the state’s growing reliance on the real estate bubble. According to my colleagues at the Praxis Strategy Group and others, as much as 50 percent of the state’s job growth in the 2000s relied on an inflated property market. It worked for a time, keeping many people—investors, homeowners, construction workers, financial types—gainfully employed and the state, for a while, solvent. A better-informed governor might have known it would all unravel. Indeed, in early 2007, even as it was clear that the bubble was deflating, Schwarzenegger continued to play vaingloriously to the klieg lights, promoting California as “the harmonious state, the prosperous state, the cutting-edge state … a model not just for 21st-century American society, but the world.”

    Instead of addressing the fundamental fiscal and economic problems, the governor preened for the local and national media by making California the focal point for addressing global climate change. He also proposed a gigantic $14 billion healthcare program largely funded by a state that has beleaguered smaller businesses.

    Fiscal reality scuttled the healthcare plan, but business is still trying to figure out how to cope with a carbon regime faced by few of their competitors. Meanwhile, California’s unemployment is now over 7.3 percent, fourth worst in the nation, behind only Michigan, Mississippi, and Rhode Island.

    In wide regions of the state—from San Diego up through the Central Valley—the only boom is in the foreclosure business. Nor are the inner-city revivals doing much better. Shining condominium towers in Oakland, L.A., and San Diego have either cut their prices or, in many cases, gone rental, a fitting tribute to an age of diminished expectations.

    …and Now the Return of Governor Moonbeam?

    The state’s Republicans might be expected to exploit such a record of Democratic failure but seem incapable of doing so. Since the mid-1990s and Pete Wilson’s embrace of Proposition 187, the ballot measure designed to restrict social services provided to illegal immigrants, many grassroots elements of the party have tended to demonize the immigrants who make up almost 40 percent of the workforce.

    The state is already close to a minority majority; Latinos alone make up half of the current kindergarten class. Republicans could blame the Democrats for the state’s persistent fiscal crisis. They could score points against the elitist aspects of ultra-green policies, the gluttony of public employees, the prospect of higher taxes, and the more radical parts of the left’s social agenda. However, that argument must be addressed toward, not against, the state’s increasingly minority middle class.

    Instead, the most probable political scenario is more of the same, or worse. The two leading candidates for governor, San Francisco Mayor Gavin Newsom and 70-year-old Attorney General Jerry Brown, are considerably to the left of and even greener than Schwarzenegger.

    Brown is clearly the stronger candidate, with a demonstrated appeal to minority voters that Newsom lacks. And Brown enjoys greater name recognition and better access to the big urban land interests, Hollywood, and Silicon Valley, the main money sources of the party other than the unions. In addition, Newsom is particularly ill suited to make even Jerry Brown seem out of touch. In a campaign, Newsom will have to justify his city’s policy of shielding illegal alien felons. He has spoken publicly about fining residents up to $1,000 for failing to sort their garbage correctly, something sure to repel most Californians.

    Yet a second Brown administration poses enormous risks. Although somewhat pragmatic as mayor of Oakland, Brown has become an increasingly strident apostle of Al Gore’s global warming ideology. Brown calls global warming “the most important environmental issue facing the state and the world.” He has made it clear that he hopes to use legislative and executive power to curb suburban growth and induce people to cram themselves into California’s already congested, often crime-ridden cities.

    Brown also seems determined to declare a holy war against the state’s already weakened agricultural and industrial base. As attorney general, he has pledged to block a proposed northern California plant that violates green values by using plastic bottles, a policy which, if he carries it out to its logical end, will decimate almost every blue-collar and industrial industry in the state.

    So is there hope for the Golden State? Perhaps, although California likely will never regain the preeminence of a quarter century ago. Brown is many things, but he is also smart and flexible, as he showed by embracing Proposition 13 after its passage in 1978. He could still find a way to push the legitimate part of the green agenda, such as expansion of renewable fuels, without forcing every carbon- consuming business or single-family homebuilder out of the state.

    Finally, there is this: no place in North America enjoys California’s combination of fertility, natural beauty, and diversity. Many Californians accept high housing prices, silly regulations, and noxious lawyers as part of the price of paradise. In a country of 50 states and more than 300 million people, there should still be a niche for an exceptional place, even if it no longer can pretend to lead the nation.

    This article originally appeared at American.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.

  • Pittsburgh’s Brain Drain Game

    Rust Belt communities are obsessed with brain drain. The demographic losers of economic restructuring, cities are employing a variety of strategies to stop the bleeding and keep the talent from leaving the region. Akron, OH recently voted down a proposal to lease the city’s sewer system in order to fund a scholarship program designed to plug the holes of out-migration. The voters balked at the initiative partly as a result of the 30-year residential commitment necessary to reap the full benefits of the funding for post-secondary education in Akron schools.

    You would think plugging the brain drain seems like a good idea. I thought so when I decided to help Southwestern Pennsylvania solve its declining population problem. However, a few months into the project I determined that the exodus from Pittsburgh ended almost two decades ago. The devastating loss of young adults in the early 1980s still echoed throughout the area and informed a great deal of policymaking.

    The most comical anti-brain-drain campaign was Border Guard Bob, a product of the Pittsburgh Regional Alliance who was invented to keep local graduates around home. The pitch was that Pittsburgh is too great of a place to leave, if you knew where to look. Bob was retired before his unveiling, hopefully because he was too ridiculous even for our local leaders, but the spirit behind it remained.

    I’m not aware of any successful anti-brain-drain program, but Pittsburgh continues to try despite having more college graduates than the region can employ. If anything, Greater Pittsburgh suffers from a glut of talent that stubbornly tries to stay. Average wages are below even those in nearby Cleveland, which sports notably more unemployment and a much more acute foreclosure crisis. Yet the initiatives keep coming.

    The Pittsburgh Urban Magnet Project (PUMP) claims to better enfranchise young adults living in the city. The ultimate goal is to retain talent by giving them reasons to stay. Empowering residents is noble enough, but I doubt PUMP can deliver the population boost the City of Pittsburgh desperately seeks.

    Maybe the problem is not that Pittsburgh or other Midwest cities are unattractive places to live. Instead the roots of the out-migration lie elsewhere – in dysfunctional economies and wretched politics. It’s not lack of “cool places” to hang out but things like a declining tax base and a growing pension debt that effectively hamstring the city.

    Frustrated job seekers aren’t heading to the Sun Belt because they need a cooler place to hang out. They are looking for jobs and opportunities. And if they hang around until their thirties, they then leave to the surrounding suburbs and their better schools.

    The Pittsburgh Promise, a child of the Kalamazoo Promise, offers a better alternative. Thanks to money from the University of Pittsburgh Medical Center (UPMC), the City doesn’t have to lease its sewers in order to provide graduates from Pittsburgh public schools with scholarships. The suburban schools don’t look quite so attractive when we are talking about a free ride for college.

    But even if it’s a step in the right direction, the Pittsburgh Promise still won’t keep families from moving to Charlotte, NC. It certainly won’t attract families from Austin, TX. Therein lies the flaw. There are no mechanisms to bring new talent into the region. Without substantial in-migration, particularly immigration, no Rust Belt city is likely to experience an economic renaissance. But the focus is always on the people who leave. The real problem is why people don’t come.

    Just about anywhere in the Rust Belt, the perception of brain drain and actual rates of out-migration are horribly out of whack. This past summer, the Land Policy Institute at Michigan State University issued a report that concluded that the number of young adults in the state was growing faster than the national average during the period of 2000-2006. The cry to stop brain drain in Michigan – epitomized by Governor Jennifer Granholm’s “cool cities” program – has never been louder. The rhetoric doesn’t concern me, but the ineffectiveness of the programs should give everyone pause.

    Basically fighting out-migration is a losing cause. The US Census found a positive correlation between increasing levels of education and the greater likelihood of leaving a region. Should Pittsburgh stop investing in its schools in order to better retain residents? Of course not. But this is no more absurd than spending a lot of money to keep people from seeking opportunity elsewhere.

    If you are a parent, then the idea of moving in order to improve your children’s opportunities makes sense. However, for a community to invest in a student likely to leave the economic area presents a conflict of interest.

    The Pittsburgh Promise isn’t a bad idea. Maybe it will encourage people to stay or even move in from the suburbs given the carrot of subsidized college tuition. But that won’t alleviate anemic regional population growth. Pittsburgh needs to sell itself globally as a place where you can access opportunity, either for yourself or your children. Pittsburgh must attract new blood. Pittsburgh, essentially, needs economic growth.

    I’ve labored over the best way to align the interests of individuals with that of the community concerning geographic mobility. I think the solution is, counter-intuitively, to promote out-migration. Pittsburgh’s exodus during the early 1980s was impressive, perhaps uniquely so. The result is what I call the Burgh Diaspora, the scattered expatriates who still retain an unusual preoccupation with their hometown.

    My idea is to use the Burgh Diaspora like an alumni network, to help Pittsburghers get a leg up on globalization. You can always find an ex-neighbor prepared to help you. Facilitating this odyssey could deepen loyalty and might eventually spark a return migration. But my hope is that non-natives would also appreciate this value proposition, seeking access to the diaspora network.

    Read Jim’s Rust Belt writings at Burgh Diaspora.

  • Obama: Making History but Not Ending It

    Barack Obama won a mandate among younger voters so large that it literally defies comparison, and with it, we’re told, a mandate to retire tired old fights of little concern to this new generation. Yet in the long run, it may well be that his victory has only put on hold some enduring political conflicts and may even ignite new ones.

    Obama’s 34-point, 66-32 percent win among the group that made up about 20 percent of voters and 60 percent of new voters was nearly four times the margin of John F. Kennedy in 1960 and Clinton in 1992.

    This differential has been put down to the vast age gap between the first post-boomer candidate and his pre-boomer foe. A poll comparing support in an Obama-McCain race against a theoretical Clinton-McCain race in September, though, showed no gender gap in support for the respective Democrats, but a vast difference in the age of their supporters, with the Illinois senator faring 20 percentage points better than his New York counterpart among voters 35 and under, which was more or less cancelled out by Clinton’s 6-point lead among the larger pool of voters 35 and older.

    It’s clear that Obama’s victory represents, among other things, a generational transfer of power. What’s less clear is the oft-repeated claim that with it the culture wars of the 1960s have finally been “won,” or at least that the two sides have agreed to a cease-fire.

    Vietnam vets, pollster James Zogby points out, are oh-for-the-last-three elections, and vets overall oh-for-the-last five. Race has been put away, perhaps since Obama’s post-Wright speech and certainly since his election. (That particular cease-fire, as it were, was immeasurably aided by McCain’s decision, not always honored by his campaign, to stay clear of former Obama spiritual guide Reverand Jeremiah Wright in particular and race more generally).

    Gender? It turns out the Hillary supporters came around to Obama after all. When feminists blasted Sarah Palin for working despite having five children and conservatives insisted they’d never had an issue with unmarried teen pregnancies, it became clear that yesterday’s core principles had been reduced to this election’s politically expedient positions.

    The era-ending nature of Obama’s win has been vouched for by no less an authority of the old culture wars than William Ayers. Writing in These Times after the election, the Weatherman founder turned Hyde Park friend of the Chicago machine writes:

    “The idea that the 2008 election may be the last time in American political life that the ’60s plays any role whatsoever is a mixed blessing. On the one hand, let’s get over the nostalgia and move on.

    On the other, the lessons we might have learned from the black freedom movement and from the resistance against the Vietnam War have never been learned. To achieve this would require that we face history fully and honestly, something this nation has never done.”

    Ayers is right that we haven’t faced history, in part because Americans are always so busy trying to bury it. We have opted to use Obama – who referred to himself in The Audacity of Hope as “A blank screen on which people of vastly differently political stripes project their own views” – as a proxy for history. With his election, the old politics are behind us.

    Or not. As Mario Cuomo might say, it’s a poetic notion but it won’t survive four years of prose.

    By the time the election was called for Obama at 11:00 Tuesday night, it was already clear that the old racial, ethnic, gender, class and regional antagonisms remain very much in play.

    The heated and at times nasty name calling between blacks and gays (mostly aimed at the former by the latter) in the aftermath of Proposition 8’s passage in California even as those same voters gave Obama a 23-point, 2.6 millon vote win, represents one illustration. (Gays incidentally, preferred Clinton to Obama by more than 2-to-1 in the state’s primary, according to CNN exit polling). Arizona and Florida voters also passed referenda defining marriage as between one man and one woman, and Arkansas voters passed one prohibiting unmarried couples from adopting children or serving as foster parents.

    It’s clear that the strong generational consensus of equal rights for gays isn’t a broader American consensus just yet.

    New York Mayor Michael Bloomberg’s dismissal of the automakers’ appeals for federal monies (which spawned a predictable round of New York to Detroit: Drop Dead headlines) is another, representing both the clash of cities and regions for their share of the federal bailout funds, and the clash of wealthy Wall Street Democrats with what’s left of the old industrial union branch of the party.

    So too will be coming tension between the party’s urban core and vulnerable new exurban House members, who may not easily accept the urbanist green agenda embraced by the party’s city-oriented congressional leadership, and which would pass tremendous upfront and long term costs to industries ranging from airlines and aerospace to truckers and energy producers. Whatever the potential environmental and economic benefits down the road, this tack will prove politically difficult to implement if the economy continues to struggle and oil prices continue to fall.

    More generally, there’s the tension between the socially libertarian instincts of younger voters and their pro-big government tilt, especially but not exclusively on the environment, a dynamic that’s just now beginning to play out but augurs conflict to come.

    Then there’s the continued dissatisfaction of those Hillary voters who gritted their teeth while pulling the lever for Obama. What if the Republicans find a more effective and proven female standard-bearer than Sarah Palin?

    New black and Latino voters culturally closer to the religious right than to the wealthier liberals with whom they united in support of Obama have not had a chance to express those culturally conservative views. Perhaps a Bobby Jindal or some other non-white Republican figure could emerge to exploit these potential fissures once memories the anti-immigration fervor of the GOP primaries has faded.

    It’s critical to recognize that all these conflicts – regional, geographic, ethnic and philosophical – were suppressed this year by the economy, which drove voters of all stripes running to the Democrats. When the economy improves, or becomes the problem of the Democrats as opposed to George Bush’s cross to bear, many issues now considered resolved won’t be.

    Barack Obama may have made history but he did not end it. As we have seen over the past decades, the end of one set of conflicts often sets the stage for another. This is likely to be the case again.

    Harry Siegel is a contributing editor at Politico. hsiegel@politico.com

  • Two-Timing Telecommute Taxes

    Telecommuting — or telework — is a critical tool that can help employees, businesses and communities weather the current financial crisis, and thrive afterward. However, right now, the nation is burdened with a powerful threat to the growth of telework: the telecommuter tax. This tax is a state penalty imposed on Americans who work for employers outside their home states and sometimes telecommute.

    Proposed bi-partisan federal legislation called the Telecommuter Tax Fairness Act would abolish the telecommuter tax. To help assure that the nation can take full advantage of the economic relief telework offers, Congress must pass this bill – either as stand-alone legislation or as part of a new economic stimulus package.

    Relief for Employees

    Working from home (or alternative sites close to home) can save struggling families money on gasoline, parking, train and bus fares, dry cleaning, business wardrobes and work-week meals. They can save on dependent care by providing some of the necessary care themselves during the time they previously spent commuting.

    Telework can also relieve the considerable strain on Americans nearing retirement who have unexpectedly lost their pensions and must now continue working. Working indefinitely may be a hardship for many older employees. Some may not be able, physically, to continue making a daily round-trip commute. Some may need to move closer to their adult children who live out-of-state, either to receive physical help from them, or to help them with child-care costs by baby-sitting. If Americans who have been robbed of their retirements can work from home at least some of the time, they can stay on the job without having to travel as often or live as close to their offices.

    Relief for Employers

    Employers (both public and private) can use telework to slash real estate and energy expenses. When fewer employees work on-site every day, employers need to rent, heat, cool and light less office space.

    Implementing telework can also reduce recruitment and turnover costs: Employers offering flexibility can attract top-tier candidates from a wide geographic area, and generate loyalty among valued employees.

    Telework can reduce business interruption costs when an emergency or other major disruption occurs near the main office. If, for example, a severe storm, fire, bomb threat or transit strike affects the employer’s area, a staff trained to work remotely can keep operations running smoothly.

    And organizations adopting telework can become more productive. Employees can replace commute time with work time; concentrate better because they are less exposed to the frequent interruptions typical in busy offices; reduce absenteeism by completing tasks at home instead of taking whole days off when they have to meet non-work responsibilities, like caring for sick children, and reduce “presenteeism”, the phenomenon of employees showing up at the office when they are too sick to be productive and are likely to compromise the health and productivity of co-workers.

    Relief for Communities

    Telework can bring new Internet-based jobs to rural areas with sagging economies. It can also bring new home buyers to such regions: Americans who want to maintain their high paced, big-city careers in a slower paced, more scenic environment. A significant growth in the population of home-based workers in these communities can also produce growth in businesses catering to their needs, such as home office supply stores and business service providers.

    The Telecommuter Penalty Tax

    Despite the important help telework can provide during and after the financial meltdown, states may punish nonresident teleworkers by subjecting them to a telecommuter tax. New York has been particularly aggressive on this front.

    Under the “convenience of the employer” rule, when a nonresident of New York and his New York employer agree that the employee may sometimes work from home, New York will tax him on his entire income, both the income he earns when he works in New York, and the income he earns when he works at home, in a different state. Because telecommuters’ home states can also tax the wages telecommuters earn at home, they are taxed twice on those wages.

    In some cases, a telecommuter’s home state may give him a credit for the taxes he pays New York on the income he earns at home. However, even in such cases, the employee may be penalized for telecommuting. When New York taxes income at a higher rate than the home state, the telecommuter must pay taxes on his home state income at the higher rate.

    By subjecting nonresident employees to double or excessive taxation if they telecommute, a state like New York needlessly limits the strategies available for coping with our ailing economy.

    Harm to Employers

    By deterring telework, the telecommuter tax frustrates businesses trying to decentralize their workers and prevents them from exploiting telework’s business benefits.

    In addition, the hefty payroll obligations the telecommuter tax imposes on businesses can force companies to relocate. Indeed, The New York Times reported this year on a small business that planned to leave New York because tackling the state’s claims under the convenience of the employer rule proved too draining. (See David S. Joachim, “Telecommuters Cry ‘Ouch’ to the Tax Gods,” The New York Times, Special Section on Small Business, Feb. 20, 2008.)

    Further, by thwarting the growth of telework, the telecommuter tax encourages traffic congestion, a menace to productivity. Excessive traffic can, for example, cause employees to arrive late for work and delay customer deliveries.

    Harm to States

    In addition to employees and employers, telecommuters’ states of residence also suffer under the telecommuter tax. Consider a Virginia resident who telecommutes most of the time to his New York employer. If Virginia grants the telecommuter a credit for taxes paid to New York on his home state income, Virginia forfeits its tax revenue to New York. In so doing, Virginia effectively subsidizes public services in New York (like transportation, police, fire and other emergency services) while it makes the same services available to its resident who is working in Virginia. States currently struggling with steep budgetary shortfalls cannot afford to cede their own revenue to other states. The employee who telecommutes, meanwhile, suffers under a reduced budget for home state spending.

    Even the state imposing the tax loses. In addition to driving business away, New York’s telework tax policy can drive part-time telecommuters away. Because the convenience of the employer rule applies only to nonresidents who spend time working in New York, nonresidents can avoid the rule by avoiding the state: They can increase their telecommuting from part-time to full-time, or take jobs in their home states. When nonresidents stop traveling to New York for work, New York gives up the opportunity to tax any of their wages, and New York restaurants, hotels and other businesses lose the income these teleworkers would have generated on their commuting days.

    The Remedy

    The Telecommuter Tax Fairness Act would eliminate these ills, prohibiting states like New York from taxing the income nonresidents earn at home in other states.

    The bill has bi-partisan support in both Houses of Congress, including the support of lawmakers from Connecticut, Maine, Mississippi and Virginia. Outside Congress, the measure has been endorsed by advocates for telecommuters, taxpayers, homeowners and small businesses.

    To help assure that the greatest number of employees and businesses can maximize telework’s economic benefits – during the current crisis and afterward – Congress should pass the Telecommuter Tax Fairness Act. Whether as an addition to a new stimulus package or in a separate measure, Washington must see to it that telecommuter tax fairness becomes the law.

  • The Future of Affirmative Action Under President Obama

    There is going to be a lot of debate on the impact of Barack Obama’s election on the future of affirmative action.

    There has been speculation for months among all sides of the debate about whether Obama’s ascension to the Presidency would provide proof positive that affirmative action is no longer necessary, or at least, has run its course.

    Ward Connerly, a black Republican who has led the fight to ban affirmative action in California and other states, told the San Francisco Chronicle today that Obama’s election decimates “victimhood“.

    Obama has said that his own daughters do not deserve affirmative action because of their economic privilege. As president, asks Joan Vennochi in the Boston Globe, will he lead the way from race-based to class-based policies? Some black leaders, she writes, citing such figures as Eugene Rivers and Kevin Peterson, say Obama’s political success necessitates a new approach to the issue.

    As Ben Smith writes on Politico.com, partisans of both sides of the bitter, long-running wars over affirmative action say Obama’s position on the subject is ambiguous and scarcely articulated. As a state senator in Illinois, he called traditional affirmative action “absolutely necessary,” but he’s more recently called for government to “craft” policy “in such a way where some of our children who are advantaged aren’t getting more favorable treatment than a poor white kid who has struggled more.”

    Some of the staunchest opponents of race-based affirmative action are skeptical of replacing it with a system that takes class into account rather than simply considering merit, but if Obama or the courts were to shift away from existing programs, writes Smith, a focus on class seems the most likely direction.

    Indeed, affirmative action cannot endure if nothing else because the black/white paradigm no longer fits. Ironically the rise of Hispanic Americans (who, by the way, voted for Obama by a nearly 2-to-1 margin) may prove the critical factor here.

    As I have maintained for years, the future of multiculturalism is not fragmentation and segmentation into endless subgroups, but a blurring, mixing and blending of races, ethnicities and cultures. This process is already well under way.

    In Mongrels, Bastards, Orphans and Vagabonds: Mexican Immigration and the Future of Race in America (2008), author Gregory Rodriguez writes that America has become so mixed that racial distinctions are losing their power to categorize and separate Americans from each other:

    Mexican Americans are forcing the United States to reinterpret the concept of the melting pot to include racial as well as ethnic mixing. Rather than abetting the segregationist ethos of a country divided into mutually exclusive groups, Mexican Americans continue to blur the lines between “us” and “them.” Just as the emergence of the mestizos undermined the Spanish racial system in colonial Mexico, Mexican Americans, who have always confounded the Anglo-American racial system, will ultimately destroy it, too.

    How will they destroy it? By making categorization impossible, and hence, meaningless. When racial classification is no longer sensible or even possible, neither are discrimination or affirmative action. And we have long since passed that point. I often use Tiger Woods as an illustration of this: he is a mixture of black, Asian, Caucasian, and Indian (oops, I mean Native American) ancestors, but when asked to identify himself he says, ”I’m Tiger.”

    Another key factor will be interracial dating and marriage. In 1987 slightly less than half of Americans approved of dating between black and whites. By 2007, according to the Pew Center, this had risen to 83%. These changes are most evident among the millennial generation, the very people who will make up the majority of adults in 2050, 94% of whom approve of such matches.

    Already, over 2.5 percent of Americans are of mixed race, and this percentage grows significantly among people under 18, and, geographically, in California, on the entire west coast, and in the New York area. One third of all mixed marriages involve Hispanics. In California, between 1980 and 1997 one of every seven babies born had parents of different races. This notion of race will become ever more fluid as it becomes obvious from DNA testing that people’s racial or ethnic origins are often far more diverse than usually imagined.

    During the 1990s, even interracial marriages between black and whites, once very rare, increased seven times as rapidly as marriages overall. Intermarriages between native-born Hispanics and Asians with other groups covered upwards of thirty percent in the first native-born generation, and over 57 percent in the next.

    These developments are anathema to the diversity/affirmative action industries. Believe me; I have been encountering them on the corporate speaking circuit for years. When I speak (optimistically!) of the American future, of the blending and blurring of races, ethnicities and cultures, and of the individual as the basic sovereign unit of a truly free and diverse society, they start going through the first four phases of grief: denial, anger, bargaining and depression. Regrettably, the final phase – acceptance – is beyond them. They will probably endure, administering preferential treatment for quite a while, as they have been empowered and financed by large, slow-changing bureaucracies: governments, foundations and corporations.

    But the writing is on the wall. A mixed-race candidate has just been elected President of the United States. In the same election, via voter initiative, Nebraska adopted (and Colorado narrowly rejected) state constitution amendments outlawing discrimination by race, sex, ethnicity or national origin. Nebraska has thereby joined California, Washington and Michigan as states where voters have outlawed discrimination by race. According to the American Civil Rights Institute, similar amendments, put on state ballots by voters, will appear in coming election cycles across the country, including in Arizona, Oklahoma, Missouri and Colorado (again).

    What? you thought such discrimination was already illegal and unconstitutional? It is. These state ballot initiatives have become necessary to overturn the system of ethnic favoritism known as affirmative action – the use of racial and ethnic quotas in the bestowal of public and private largesse – which has been codified in both public policy and private practice.

    Obviously, the American people are tiring of a diversity regime that (perversely) demands conformity of thought (also known as ”political correctness,” the phrase Soviet commissars used to enforce Central Party rule). Eventually, the American people themselves, having become a mongrel nation, will also reject racial and ethnic categorization. Hint: watch the dramatic rise in the number of people who decline to state in surveys, questionnaires and the Census itself.

    Dr. Roger Selbert is a business futurist and trend guy. He publishes Growth Strategies, a newsletter on economic, social and demographic trends, and is a professional public speaker www.rogerselbert.com. Roger is US economic analyst for the Institute for Business Cycle Analysis in Copenhagen, and North American representative for its US Consumer Demand Index.

  • Big City Prediction: Expect All Things in Moderation From Obama

    Barack Obama is now set to become the first genuine urbanite to occupy the White House in more than 100 years.

    It will be tempting for many politicians and activists to envision a new era for big cities, with federal money flowing freely toward plans for high-density housing, transit projects, and any number of other dreams and schemes held dear by urban folk.

    And why not? The so-called “liberals” or “progressives” who dominate politics in many big cities form a key part of the base of the Democratic Party. They have long claimed Obama as one of them—and he has let them do so when politically convenient.

    But here’s why not: The way that Obama managed his campaign offers indications that he’s smart enough to find that precious intersection where good politics and good policy become one. That will mean saying no more than yes, disappointing fervent supporters more often than not.

    Obama is impressive, but he’s a politician and not a saint.

    He plays tough, and knows how far his supporters will bend. He’s willing to push them right up to the breaking point in service of his larger goals. This doesn’t necessarily mean that the urban agenda will get less than it has in recent years. Just don’t expect a gusher for big cities.

    The guess here is that Obama will zero in on some large national efforts such as healthcare, the ongoing stresses on our financial system, a winding down of the war in Iraq, and some new strategy in Afghanistan. Look for him to occasionally square off against the Democratic majority in the U.S. Congress, using the Republican minority for leverage when his own party gives him a hard time.

    Such moves will amount to a high-stakes strategy to redefine the middle in U.S. politics. Success will likely pave Obama’s way to re-election in four years, while failure will tempt a stiff challenge on re-nomination.

    Obama has shown that he’s willing to take his chances when he likes his cards, though. He’s now holding enough cards to pull off a big political feat. Watch him say no to big cities if that is what it takes to address national priorities and give him enough room to occasionally co-opt Republicans to tame Democrats who grow obstreperous in Congress.

    Anyone who doubts this scenario should review the recent campaign, where Obama beat New York Senator Hillary Clinton for the Democratic nomination—and took her husband, former U.S. President Bill Clinton, down a few pegs in the process. Obama didn’t seriously consider Hillary Clinton as a vice presidential pick…and Bill Clinton steamed. Obama heard the whispers about the Hillary factor costing him big chunks of votes. He toughed it out while Bill Clinton damned his candidacy with faint praise and spoke ever-so-kindly of John McCain.

    Obama, meanwhile, focused on building his campaign into a model of efficiency that overwhelmed any bitterness about the battle with the Clintons. Both Clintons were eventually happy enough to jump aboard the winning campaign. Where else were they going to go?

    Compare that to McCain, who won the Republican nomination over the heated objections of the so-called “conservative” movement and the big names in the vaunted world of talk radio—those yakkers who claim to represent their party’s base. These ideologues had no use for McCain, but he whipped them outright.

    McCain failed to claim victory in his own party, however, moving instead to appease his critics with a dubious choice for vice president. The decision cost him any chance of getting the support he needed from other segments of the electorate—he vacated the middle ground of the political field, where presidential elections are always decided.

    McCain should have taken the chance on disappointing a segment of his party’s base in hopes that they would bend but not break.

    Obama did exactly that, and he has reaped the political benefit.

    Big city politicians and activists should expect the same playbook from Obama in the White House.

    The rest of us should hope that’s the plan, because it’s time for all of our politicians to make a virtue of saying no to their most fervent backers in the service of larger goals.

    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)