Category: Policy

Europe Is Still a Second-Rate Power

In the years after the Cold War, much was written about Europe’s emergence as the third great force in the global political economy, alongside Asia and the United States. Some, such as former French President Francois Mitterand’s eminence grise Jacques Attali, went even further: in his 1991 book Millenium Attali predicted that in the 21st century, “Japan and Europe may supplant the United States as the chief superpowers.”

This notion of a fading America has been embraced among some here as well, by authors such as Jeremy Rifkin who has written extensively about a “European dream” supplanting the American one on a global scale. In 2008, CNN anchor Fareed Zakaria predicted the rise of what he called “the post-American world,” with the U.S. still preeminent but losing ground, particularly to emerging countries in Asia. This view is widely held in American elite circles, including many people in or close to the Obama administration.

Yet something funny happened on the road to a post-American era: it didn’t happen. Even under two of the most incompetent administrations in our country’s long history, we are headed not to a “post-American” world, but more likely a “post-European” one.

The Fading of the “European Dream”

Fifty years ago, when Europe’s economy was growing faster than America’s on a consistent basis, and Asia was just emerging, the case for the continent’s ascendency seemed much stronger. But for the past 30 years Europe’s economy has been generally performing worse than that of the U.S. , not to mention rising Asian powers, including China and India.

The Great Recession hit all economies, but recently American growth rates have consistently outperformed those on the continent. By 2013 Europe was still experiencing 12 percent unemployment—a rate that exceeds ours at the height of the U.S. recession. European household debt, notes analyst Morgan Housel, has been increasing while that of American households has dropped.

The roots of Europe’s poor economy lies in large part in the very welfare state so admired by some progressives. To be sure, generous benefits have helped make Europe somewhat less unequal than the United States. But in the process Europe has become a very expensive place to do business. High taxes and welfare costs, tolerable in an efficient economy like Germany’s, have caught up with weaker, less productive countries such as Italy, Greece, and even France.

This weakness is most evident in two critical sectors—energy and technology—critical to modern economies. Europe’s much ballyhooed attempt to go “green” has raised energy costs throughout the continent. Ultimately, the effects of high energy prices tend to fall on the middle and working classes, as well as on manufacturing industries, which are are now scouring the world, including the southern United States, for lower cost alternatives.

Europe is also vastly underrepresented among the rising players in the tech world . The continent still possesses some influential industrial companies—Siemens, BMW, Volkswagen, Bayer, Royal Dutch Shell, Daimler—but it has created no European equivalent to Google, Facebook, Apple, Amazon, Microsoft, Intel, or even IBM. Not one of the world’s 14 largest tech companies by revenue is based in Europe. Five are in Asia, nine in the United States. European officials have tried to curb these often intrusive and arrogant companies, but the problem lies not in overstrong American competition but Europe’s inability to grow and nurture successful young companies.

The Barrel of the Gun

It’s understandable that a continent that almost destroyed itself twice with wars in the 20th century would shy away from the use of military force. This was reinforced by decades of reliance on U.S. military might for security. This situation in turn nurtured a strong anti-military, pacifistic streak that resulted in a region with a large economy but with little to offer on the battlefield. England is the only European country to possess one of the world’s top five military budgets. Besides the U.S., by far the largest military power, the top four include China, Russia, and Saudi Arabia. The three largest economies using the Euro—France, Germany, and Italy—spend one third less on defense combined than the U.S. Increasingly the only counterweight to U.S. power will be the emerging Sino-Russian alliance, which matches Russia’s still prodigious arms production with China’s almost limitless bankroll.

Demilitarization has its perils. As Chairman Mao once noted, “political power grows out of the barrel of a gun.” Sure we should all prefer, like President Obama, to employ “soft power” rather than going in with guns blazing a la George Bush. Yet the world is still full of well-armed people who don’t play by such civilized rules. A hard-baller like Vladimir Putin knows a bluffer when he sees one and knows he can do what he wants, in the Ukraine or elsewhere, without fear of European intervention or even fear that the E.U. might help arm Kiev’s forces. Similarly, Jihadis have learned that you can do what you want to Europeans, knowing that some countries—notably France, Germany, Spain and Italy—will willingly pay ransoms to free their citizens. Kidnap a German and get rich; do it to an American, Brit or, god forbid, an Israeli, and there’s eventually hell to pay.

The Demographic Disaster

Europe’s biggest problem, however, happens inside the boudoir. Along with Japan, Europe has pioneered low fertility. European countries average a fertility rate of 1.5, well below the 2.1 children per family needed to replace their population.

The problem is most acute in Italy, Spain, and, most important, Germany. The number of German babies born annually has dropped below the levels at the turn of the last century. Not surprisingly the U.N. expects Germany’s population to drop 9 percent by 2050. Germany may have fewer children than it did in 1900, but Spain’s total number of births has dropped well below the rates of 1858, and may match those of the 18th century.

This reflects something of a hangover from the disasters inflicted by Europeans on themselves in the last century. After decades of war and conflict, notes historian Tony Judt, Europeans simply wanted peace and quiet. In post-war Europe, every subsequent generation has been a “me generation,” focusing less on family and religion and more on material goods and financial security. Today Europe is one of the most irreligious places on the planet; there are more atheists in Germany, by some counts, than in the entire United States, a country with nearly four times as many people.

To maintain their workforces and create new consumers, European countries have by necessity made a priority of bringing in more immigrants. By 2025 Germany’s economy will need six million additional workers; this means 200,000 new migrants every year to keep its economic engine humming, according to government estimates . The situation gets worse from there, and by 2050 Germany’s overall workforce (PDF) is expected to drop 30 percent below 2010 levels, reducing it from 54 to 38 million. In the same time period the American workforce is expected grow by an additional 35 million workers.

For years, Germany and other western European countries have depended on newcomers from Turkey and other Islamic countries to drive their economy. But Islamic migration is widely believed to have failed to deliver workers with enough skills, not to mention creating ever more dire cultural and social divisions. Concerned about Islamic immigration, Germans are now relying , as they did back in the ’60s, on the diminishing pool of skilled workers from rapidly aging states such as Spain and Italy, as well as from eastern Europe. These economically beleaguered countries have become a major source of new migrants to Germany, numbering roughly one million in 2011, a 20 percent increase from the previous year.

In the process, much of southern and eastern Europe is gradually depopulating. By 2050, Bulgaria is expected to lose 27 percent of its population, while Latvia, Lithuania, and Romania are expected to lose more than 10 percent of theirs. By 2050 the populations of almost the all of Eastern Europe will fall, according to recent projections.

Then there is Europe’s rapidly aging population, a natural product of low birth rates, which also imposes enormous burdens on the region’s economy. A proposal by German Chancellor Angela Merkel would impose a one percent income tax as a “demographic reserve” to make up for rising pension costs. “We have to consider the time after 2030, when the baby boomers of the ’50s and ’60s are retired and costing us more in health and care costs,” explained Gunter Krings, who drafted the new proposal for Germany’s ruling Christian Democrats.

Ultimately the next generation will be the biggest losers in Europe’s decline. Even though birthrates are very low, those young people now entering the workforce face extraordinarily high levels of unemployment ranging 20 percent and higher in countries such as Spain, Greece and France. No surprise that Europe’s young are widely described as “the lost generation.”

Political Chaos

Europe’s current political crisis has spawned a new level of political uncertainty most clearly seen in the rise of radical new parties—such as Greece’s Syriza—on both right and left. Two forces driving this shift in political balance have been immigration and a growing grassroots rebellion, such as has emerged in Greece, over EU budget and regulatory policies. In Spain, for example, the fastest rising party, Podemos, borrows directly from Syriza’s brand of quasi-Marxist radicalism.

But most of the thunder in other parts of Europe comes from the right. Many Europeans have come to see the EU not as a great unified superstate but instead as an oppressive, unelected, despotic power. The “common European home” dreamed of by Soviet President Mikhail Gorbachev is becoming a ramshackle collection of apartments, with neighbors who increasingly don’t get along and look elsewhere for succor.

Another key driver of opposition from the right is the EU’s generally lenient view about immigration. Despite their growing dependence on immigrants, Europeans are increasingly resentful of the newcomers, particularly those from Africa and the Middle East. Some two thirds of Spaniards, Italians, and British citizens, according to an Ipsos poll, believe there are already “too many immigrants,” while majorities in Germany, Russia, and Turkey also hold negative views about newcomers in their midst.

In France the long-standing fear of losing control of national destiny has combined with growing fear over immigration, stoked by the recent terrorist incidents there. This has allowed the far right National Front’s Marine Le Pen to emerge as an unlikely front runner in the next race for president. The rise of the United Kingdom’s Independence Party stems from a similar concern about threats to Britain’s sovereignty as well as angst over immigration, particularly among working and middle class voters. Even countries such as Denmark and the Netherlands, once considered paragons of liberalism, have seen the rise of similarly minded rightist movements.

Back to Bipolarity

Buffeted by a weak economy and a welter of social ills, the aforementioned visions of Jacques Attali and American Europhiles now seem like wishful thinking, if not delusional. In reality in everything from culture and high tech to military prowess, the continent is rapidly becoming a peripheral global power at best. Only Russia, the most powerful military power and the continent’s primary source of energy, seems to have seen the light. President Putin has made this clear as he develops closer ties to China, with whom he shares an authoritarian philosophy.

Other countries on the fringe of the continent, such as Greece and Serbia, also are looking increasingly at Russia, and its emergent Chinese alliance, rather than the E.U. Chinese plans for new bullet trains to Central Asia and eastern Europe could further enhance the Middle Kingdom’s linkage to Eurasia and central Asia.

“So what about us?” Anglo-Americans (culturally if not ethnically) may ask. In a globalized world that speaks and writes in English, the Anglosphere—comprising both the U.K. and its various colonial offspring, including the United States—retains some natural advantages. This is where the most elite colleges and universities are located, and where the top financial, technology, and key business service firms are concentrated. Equally important, the Anglosphere also controls much of what the developing countries will most need in the future—food—through the unsurpassed fecundity of the United States, Canada, Australia, and New Zealand.

Demographics and a unique ability to absorb a wide range of immigrants make the Anglosphere economically and demographically more vibrant than Europe. By 2050, the Anglosphere will be home to upwards of 550 million people, the largest population grouping outside China and India. English-speakers may not straddle the world like the 19th century empire-makers, but they are likely to remain first among equals well into the current century.

Ultimately, the various countries of the world will have to choose between the Anglosphere and the Chinese-led authoritarian alliance. This will become something of a new version of the Cold War (but with China not Russia in the lead position), with each bloc seeking to win influence across the world. Anglophone India and Japan, for example, may choose the Anglosphere due to democratic traditions and a feeling of foreboding about a future forged by Chinese economic and, increasingly, military power.

On the other hand, Latin American nations like Brazil and Argentina may consider “yankee imperialism” a greater threat to their autonomy and choose instead to embrace the Middle Kingdom and its Russian ally. This may also hold true for much of Africa, where China is making deep inroads. The Chinese-led New Development Bank and its $40 billion “Marshall Plan” for infrastructure in developing countries represents a bold move to secure ever more influence in the emerging world order.

In this bipolar world forged in the context of U.S. vs China competition, Europe will likely be a bit player, wooed by both but essential to neither. In the 21st century, the road to power will not run through Paris or Berlin but through Beijing and Washington. Like the great leaders of the post-war era, American politicians and statesmen need to acknowledge the new reality of the post-European world and begin to address its implications.

This piece first appeared at The Daily Beast.

Joel Kotkin is executive editor of NewGeography.com and Roger Hobbs Distinguished Fellow in Urban Studies at Chapman University, and a member of the editorial board of the Orange County Register. He is also executive director of the Houston-based Center for Opportunity Urbanism. His newest book, The New Class Conflict is now available at Amazon and Telos Press. He is also author of The City: A Global History and The Next Hundred Million: America in 2050. He lives in Los Angeles, CA.

February 21, 2015

50 Years of US Poverty: 1960 to 2010

Although inequality is the current focus of concern with income, it is in the end a story of the rich, the middle and the poor, who of course have not gone away. It is valuable to remind ourselves, particularly the young, about how pervasive poverty was 50 years ago, how poverty declined markedly between 1960 and 1980, after which it has risen again. Most important is to understand what led to the poverty reduction between 1960 and 1980, in order to further understand the power and lure of forces which would return us to the good old days of 1960, or before!. This piece is inspired by the pioneering book from 1970 on the Geography of Poverty, with Ernest Wohlenberg, based on 1960 data. The data updates come mainly from US Census Bureau.

I start with the basic data, the numbers of the poor and the percent below the poverty level for 1960, for 1980 and for 2010, plus a summary table. These are supplemented by some maps of the poverty rates for whites and for blacks (or non-whites), and for the elderly (only available for 1980).

Overall for the nation the poverty rate fell from 22% in 1960 steeply down to 12% in 1980 then moved up moderately to 15% during the current era of rising inequality. I look first at broad patterns of relative poverty for the three times, and then turn to the more interesting or surprising story of the differences in the reduction of poverty across the states, and then the story for whites, blacks and the elderly.

Broad Patterns

The United States was so different in 1960, with a poor rural south and southwest, and a fairly poor Great Plains. (Figure 1). While the west coast was better off and metropolitan, the main area of lower poverty was the historic urban-industrial core from IL and WI to southern New England, where unionized industry prevailed. CT was richest with less than 10 percent poverty; this compared to MS with a poverty rate of 55! The deep south was amazingly poor and not just for Blacks.

Changes by 1979 were indeed revolutionary (Figure 2). Areas of lower poverty extended from the old industrial core to the rest of New England and down Megalapolis to Virginia, and to the “old northwest”, MN, WI, IA, and to most of the US West. Most improved were the corners of the south, TX, OK, and FL, NC, due to energy development, new industries moving to the south and poor blacks escaping to the north. Only a small lower Mississippi region (AR, LA, MS, and AL) remained fairly poor.

2010 saw a rather general resurgence of poverty – related certainly to globalization and industrial off shoring, deindustrialization in the old northeastern core, and greater poverty across the southern tier from CA to FL, in part related to heavy immigration from Latin America. Some of this shift could, in my opinion, be pegged as well to the shift to more conservative Republican Party rule.

Numbers of States
				White	Black	Over 65
Rate	1960	1980	2010	1980	1980	1980
<12%	2	27	14	41	0	11
12-18%	19	19	30	10	7	21
18-24%	11	5	7		8	8
24-40%	14				36	11
>40%	5

Poverty rates fell broadly between 1960 and 1980, especially for the half of states with 1960 rates above the 22% average level, while the number of states with rates below the 1980 average of 12% rose from 2 to 27 states. Rates increased modestly in the ensuing years in the then states with the lowest rates.

The Relative Fates of States

Several states fared relatively best, with poverty rates falling at least in half or more in 2010 than in 1980. These are in two disparate sets: first southern states with very high poverty in 1960: AL, AR, KY, MS, NC, and VA, and another northern set in ME, NE, NH, ND, SD, UT, and VT. Other states in which poverty rates fell at least in half, but were lower in 1980 than in 2010 include GA, IA, SC, and TN. FL and TX poverty rates fell to less than half the 1960 rates in 1980, but poverty growth by 2010 showed some back-tracking. At the other extreme three states actually had higher rates of poverty in 2010 than way back in 1960: CA, NV, and NY.

The particular gains for the south reflect two dominant forces, the out-migration of large numbers of black people to the north and west, slowing the reduction in poverty rates for the north and west, as well as the successful shift of industry from the north to the south, both forces including millions of families and of jobs. TX and FL stand out because of high migration from Latin America. The exceptional story of CA and NY is similarly one of massive migration of minorities from the rest of the country but of even larger immigration from Latin America. The opposite story of very low poverty in NH, VT, and ME is one of overflow of opportunities and wealth from Massachusetts. The reason for ND, SD, NE, and UT is pre-oil development, and reflects broader forces for poverty reduction.

Poverty in White and Black

White poverty rates fell from 17 to 9.4 in 1979 but then edged up to 10% in 2010. At the same time, black poverty rates fell from a horrendous 55% in 1959 to just under 30% in 1979 and appears to have remained at 30 in 2010. Note that black poverty rates remain three times that of whites, and are comparatively as high as they were in 1959. The gap remains worse (Figure 6) in the south and extreme generally across the north, but much lower in places like the Dakotas and upper New England in 1979 in part because of small numbers, and also due to the fact that the 1959 rates included Native Americans while the 1979 numbers did not. The only good estimates for white poverty were for 1979, and reveal a remarkable uniformity across much of the country, lagging slightly in Appalachia-Ozarkia. (Figure 5)

Meanwhile, rates for blacks fell more in the parts of the South SC, VA, NC, FL, and TX, but even more so in the historic ”black belt” of AL, LA, MS, AR, and SC where the poverty rate dropped from 77 to 33 %. Less improvement is evident for early northern destinations of blacks from the south: NY, IL, MI, OH, and NJ, or in CA and OR.

Please refer back to the table. While whites had rates below 12% in 46 states, for blacks the number is 0. While 0 states had white rates above 18%, 44 states had black rates above 18%. This is shameful. I am unable to find any positive spin for this story. The racial gap remains deeply entrenched.

I close with a variant of the 2010 poverty map, showing the absolute numbers as well as the rates (Figure 8). Poverty remains serious across the southern tier, especially on CA, TX and GA, but also in the north, especially in NY and the eastern Great Lakes states. While direct causality is unlikely, one can understand the worry of the increased numbers and shares of the poor clear across the southern tier of the country- CA to FL.

Poverty of the Elderly

Compared to the generally poor picture of black poverty, the story for the elderly is much more positive. If anyone won the “war on poverty”, it was the elderly. Is this because of their political clout? Not just that, but it obviously matters. The data for 1959 and 2010 are not fully comparable, so the only map is for 1979. But the elderly poverty rate in 1959 was a striking 46 percent, not that much below the outcast blacks, so the fall in the rate to under 15% in 1979 is quite astonishing. The reasons for this are discussed below. Here we can compare the pattern for elderly with that for all persons.
Actually the correlation between age and poverty is quite high; elderly rates average about 5% above those for all people. CA, AZ, FL, and NY achieved lower senior poverty rates in 1979 than for all persons, probably a result of selective migration, perhaps a role of political influence in AZ and FL.

Why did poverty fall so much from 1960 to 1980, and then increase again? This is no big mystery! The two powerful and complementary forces reducing poverty were America’s robust economic expansion, in the 1960s especially, combined with social programs, starting with the New Deal (especially Social Security and the minimum wage), and the era of union growth, followed by the 60s Civil Rights revolution, including women’s rights, and the Great Society’s War on Poverty, above all Medicare and Medicaid. Of course these programs had to be paid for, but this was accomplished by vast economic investment and gains in productivity of the economy.

The elderly were a huge part of poverty in 1960 but a relatively low part by 1980. And despite the nation’s ongoing inability to overcome racial discrimination and unrest, the social programs have greatly helped the emergence of a black middle class, as much in the south as in the north.

Factoring in the Cost of Living

But wait! Isn’t the cost of living higher in New York and San Francisco than in West Virginia and Nebraska? Should this affect the estimates of poverty across the state? The answer is yes, and fortunately, the Census Bureau has just completed a new series of poverty estimates for 2010-2012 adjusting for variations in the cost of living, and compared these to their official figures. The effects are not trivial.

Essentially, the cost of living is significantly higher in the biggest, densest and richest metropolitan cores, and correspondingly lower is most of the rest of the country. The higher costs in these few giant but populous places is sufficient to raise the number in poverty nationally, by 2.6 million, raising the US rate from 15.1 to 16 percent.

The critical states for underestimating poverty are actually few: CA, 2,750,000 more, up 7.3%: NJ, 415,000 more, up 4.8%; FL, 771,000 more, 4.1%; MD, up 195,000, up 3.3%; NV, 102,000, 3.8%; and NY, up 308,000, 1.6%. California dominates the rise in poverty, by itself adding more poor than the country as a whole. But some other states with big metropolitan areas do not suffer this cost of living adjustment: TX, -338,000. -1.3%; OH, -252,000, -2.2%; MI, -130,000, -1.3%; IN -106,000, -1.7%; and NC, -249,000, 2.6%. I do not know that these states have in common, perhaps less stringent growth management and lower tax rates.

There are seven states with a drop in the number of poor of 3% or more after adjusting for cost of living, including MS, -136,000, -4.6%; NM, -86,000, -4.2%; WV, -75,000, -4.3%; and KY, -165,000, -3.8%. As a consequence, we end up with a US pattern that is counter-intuitive, and contrary to conventional long-term wisdom about poverty. Big, rich mega-urban California earns the nation’s highest poverty rate as well as in total numbers (24%), followed by DC with 22.7; NV, 19.8; and FL, 19.5. Long maligned poor states like MS has the same rate as the country, at 16%, AR, 16.5; SC, 15.8; and especially extreme, WV, 12.9 and KY, 13.6. Rather than having the lowest poverty rate at 9.6, CT moves up to 12.5, while IA, 8.6; ND, 9.2; WY, 9.2; and MN, 9.7, fall below 10% poor. Counter-argument can be made that the story is not so different as first appears, if the richest states with higher cost of living also tend to have higher levels of services to those in poverty. But this has not been measured.

Perusing the two new maps of the percent poor in 2010,cost of living adjusted, and the change in rates and numbers, highlights the key role of California-Nevada and of Megalapolis-Florida, historic cores of urban wealth, are also incubators of higher poverty. This also supports the idea that that immigration from Latin America must play a role in the heightened poverty along most of the southern border, and especially California. The curse of poverty remains everywhere, but it’s clearly become more severe in some places, and less so in others.

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

February 19, 2015

The New New Thing: Suburban Bunker Buildings

I have a theory about where the next culturally dynamic neighborhoods are likely to emerge and which building types will be the engine of that transformation. It may not be exactly what most people expect.

As American industry receded in the later half of the Twentieth Century it left behind an alluvial delta of redundant buildings that sat vacant for years, no longer useful or productive. All effort was focused on building the new suburbs. These abandoned inner city warehouse districts became so cheap and run down that they were eventually colonized by artists, immigrants, and bohemians seeking cheap rent and an environment where landlords and municipal authorities looked the other way. They weren’t necessarily safe, or clean, or attractive, but they provided a kind of freedom for the people who lived there.




The photos above are of friends in their 8,000 square foot live/work space in Philadelphia. The general dismissive attitude of many suburbanites is that such people exist outside the mainstream and are irrelevant to the lives of “real” people. Contrary to this common misconception all the creative types I know are highly skilled and hold down jobs as welders, carpenters, accountants, and technicians of various kinds. I know a couple who spend half the year in video production making car commercials and then pursue their art during the long hiatus. I know another guy who worked like a dog for a few years after college at a prototype lab for the pharmaceutical industry in order to pay off all his student loans and other debts. Now he’s free to do what he really wants without the burden of debt. These folks simply choose not to spend their money on a mortgage on a suburban home with multiple car payments, but their lives and economic productivity are very real.

Technically, living in an old warehouse involves breaking a hundred different rules and regulations, but they’ve been there for years and no one cares. It’s that kind of space and that kind of neighborhood. Unfortunately, the area is rapidly gentrifying and they may be priced out of the space soon as nearby warehouses are being converted to luxury lofts. That begs the question – where are the cheap funky emerging neighborhoods these days? You can’t live and work this way in a suburban tract home. Neither the physical space nor the local culture will allow it.

A couple of years ago I was in Salt Lake City having lunch with a prominent well-connected real estate agent. She’s the kind of charming knowledgable person I always seek out so it was a pleasure to see her again. I had explored various parts of Salt Lake from the downtown core all the way out to Daybreak in the distant suburbs. She spoke of the urban renaissance, the new streetcar system, and the many new developments in previously blighted areas. But I explained that the part of town that really interested me was the neglected and undervalued areas in the lackluster middle distance just beyond downtown that were neither sophisticated and urbane nor verdant and domestic. These semi-commercial, vaguely industrial, half-assed residential zones were neither fish, nor flesh, nor fowl. But they had the two qualities that fascinate me: they’re relatively inexpensive and generally ignored by the Upright Citizens Brigade. They’re close enough to downtown and the university that you could still ride a bicycle to access culture and employment, but just a short drive to suburban conveniences farther out. It’s the wrong combination for people with conventional tastes, but the perfect sweet spot for a certain kind of subculture that needs to be left alone in order to thrive. They need wiggle room that doesn’t exist in the highly supervised downtown or manicured suburbs. And many of these brick and concrete buildings are little bunkers where you could do just about anything within the raw space. They offer the one thing that’s in terribly short supply. Slack.



I sent these photos over to her and explained that these nondescript aging suburban bunker buildings were the next great building type. She was gracious and polite, but she obviously thought I was insane. Now granted, she isn’t the only person to come into contact with me to come to this conclusion – and not just because of my irregular taste in property.



This conversation came back to me this afternoon as I walked past a building that used to house a discount bakery outlet. As a much younger and poorer person twenty years ago I used to frequent this establishment myself to buy day old bread and not-quite-expired donuts. This month the bunker building was transformed into an upscale furniture store with in-house designer services. I poked around and explored the shop. I had no particular interest in the furniture itself and don’t think this kind of business could succeed anyplace other than a prosperous part of town. But it was the bones of the building itself that fascinated me.



It’s a big flexible durable space like the old inner city industrial buildings. The walls and floor are concrete and the ceilings are exposed wood and steel. The former loading docks make perfectly segmented rooms with high ceilings and the ability to adapt to many uses including indoor/outdoor applications. Paint and some inexpensive drywall partitions transform the space very quickly. The front room was mostly glass and open to the parking lot, but the vast majority of the building was entirely private. This is a perfect example of the new new thing. This is where the starving bohemians will end up if they want to continue doing their work in a big, affordable, mostly unregulated spot. In an expensive real estate market people will colonize any vacant building and make their luxury furniture showroom work. But in depressed suburban markets these buildings are ripe for economically displaced artists. Gather enough interesting and entrepreneurial types in one such neighborhood and it could be the social and cultural engine that pulls up an entire dying suburban strip.

John Sanphillippo lives in San Francisco and blogs about urbanism, adaptation, and resilience at granolashotgun.com. He’s a member of the Congress for New Urbanism, films videos for faircompanies.com, and is a regular contributor to Strongtowns.org. He earns his living by buying, renovating, and renting undervalued properties in places that have good long term prospects. He is a graduate of Rutgers University.

February 14, 2015
America Needs The Texas Economy To Keep On Rolling

In the last decade, Texas emerged as America’s new land of opportunity — if you will, America’s America. Since the start of the recession, the Lone Star State has been responsible for the majority of employment growth in the country. Between November 2007 and November 2014, the United States gained a net 2.1 million jobs, with 1.2 million alone in Texas.

Yet with the recent steep drop in oil prices, the Texas economy faces extreme headwinds that could even spark something of a downturn. A repeat of the 1980s oil bust isn’t likely, says Comerica Bank economist Robert Dye, but he expects much slower growth, particularly for formerly red-hot Houston, an easing of home prices and, likely, a slowdown of in-migration.

Some blue state commentators might view Texas’ prospective decline as good news. Some, like Paul Krugman, have spent years arguing that the state’s success has little to do with its much-touted business-friendly climate of light regulation and low taxes, but rather, simply mass in-migration by people seeking cheaper housing. Schadenfreude is palpable in the writings of progressive journalists like the Los Angeles Times’ Michael Hiltzik, who recently crowed that falling energy prices may finally “snuff out” the detested “Texas miracle.”

Such attitudes are short-sighted. It is unlikely that the American economy can sustain a healthy rate of growth without the kind of production-based strength that has powered Texas, as well as Ohio, North Dakota and Louisiana. De-industrializing states like California or New York may enjoy asset bubbles that benefit the wealthy and generate “knowledge workers” jobs for the well-educated (nationwide, professional and business services employment rose by 196,000 from October 2007 through October 2014), but they cannot do much to provide opportunities for the majority of the population.

By their nature, industries like manufacturing, energy, and housing have been primary creators of opportunities for the middle and working classes. Up until now, energy has been a consistent job-gainer since the recession, adding 199,000 positions from October 2007 through October 2014, says Dan Hamilton, an economist at California Lutheran University. Manufacturing has not recovered all the jobs lost in the recession, but last year it added 170,000 new positions through October. Construction, another sector that was hard-hit in the recession, grew by 213,000 jobs last year through October. The recovery of these industries has been critical to reducing unemployment and bringing the first glimmer of hope to many, particularly in the long suffering Great Lakes.

Reducing the price of gas will not change the structure of the long-stagnant economies of the coastal states; job growth rates in these places have been meager for decades. Lower oil prices may help many families pay their bills in the short run. But there’s also pain in low prices for a country that was rapidly becoming an energy superpower, largely due to the efforts of Texans.

Already the decline in the energy economy, which supports almost 1.3 million manufacturing jobs, is hurting manufacturers of steel, construction materials and drilling equipment, such as Caterpillar. Separately, the strengthening of the dollar promises harder times ahead for exporters in the industrial sector, and greater price competition from abroad, amid weakening overseas demand. Factory activity is slowing, though key indicators like the ISM PMI are still signaling that output is expanding.

Right now in Texas, of course, the pain is mounting in the energy sector. Growth seems certain to slow in places such as Houston, which Comerica’s Dye says is “ground zero in the down-draft.” Also vulnerable will be San Antonio, the major beneficiary of the nearby Eagle Ford shale. The impacts may be worst in West Texas oil patch towns like Midland, where energy is essentially the economy.

Yet there remain reasons for optimism. Cheaper energy prices will be a boon for the petrochemical and refining industries, which are thick on the ground around Houston and other parts of the Gulf Coast. The Houston area is not seeing anything like the madcap office and housing construction that occurred during the oil boom of the 1980s. Between 1982 and 1986 the metro area added 71 million square feet of office space; including what is now being built, the area has added just 28 million square feet since 2010. Compared to the 1980s, the residential market is also relatively tight, with relatively little speculative building.

The local and state economies have also become far more diversified. Houston is now the nation’s largest export hub. The city also is home to the Texas Medical Center, often described as the world’s largest. Dallas has become a major corporate hub and Austin is developing into a serious rival to Northern California’s tech sector.

Texas needs to increase this diversification given that oil prices could remain low for quite a while, and even drop further after their recent recovery.

This is not to deny that the state is facing hard times. Energy accounts for 411,372 jobs in Texas, about 3.2% of the statewide total, according to figures from Austin economist Brian Kelsey quoted in the Austin American-Statesman. If oil and gas industry earnings in Texas fall 20%, Kelsey estimates the state could lose half of those jobs and $13.5 billion in total earnings.

Low prices also could also devastate the state budget, which is heavily reliant on energy industry revenues. A reduction in state spending could have damaging consequences in a place that has tended to prefer low taxes to investing in critical infrastructure, and is already struggling to accommodate break-neck growth. The only good news here is that slower population growth might mitigate some of the turndown in spending, if it indeed occurs.

But in my mind, the biggest asset of Texas is Texans. Having spent a great deal a time there, the contrasts with my adopted home state of California are remarkable. No businessperson I spoke to in Houston or Dallas is even remotely contemplating a move elsewhere; Houstonians often brag about how they survived the ‘80s bust, wearing those hard times as a badge of honor.

To be sure, Texans can be obnoxiously arrogant about their state, and have a peculiar talent for a kind of braggadocio that drives other Americans a bit crazy. But they are also our greatest regional asset, the one big state where America remains America, if only more so.

This piece first appeared at Forbes.

Joel Kotkin is executive editor of NewGeography.com and Roger Hobbs Distinguished Fellow in Urban Studies at Chapman University, and a member of the editorial board of the Orange County Register. He is also executive director of the Houston-based Center for Opportunity Urbanism. His newest book, The New Class Conflict is now available at Amazon and Telos Press. He is also author of The City: A Global History and The Next Hundred Million: America in 2050. He lives in Los Angeles, CA.

Photo:
“West Texas Pumpjack” by Eric Kounce TexasRaiser – Located south of Midland, Texas. Licensed under Public Domain via Wikimedia Commons.

February 12, 2015
The Emerging New Aspirational Suburb

Urban form in American cities is in a constant state of evolution. Until recent years, American suburbia was often built without an appreciation for future evolution. This has left many older suburbs in a deteriorated state, and has accelerated claims of a more generalized suburban decline.

The Indianapolis suburb of Carmel represents a response to this historic pattern. While responding to today’s market demands with a new aspiration level designed to make it nationally competitive, it’s also trying to position itself for success tomorrow and over the longer term.

This is a critical issue for many suburbs. Like big cities before them, many older suburbs have now aged, and no longer necessarily meet the requirements of the marketplace.

There are many reasons for this. The early, usually small-scale Cape Cod-style housing common to many 50s vintage suburbs is not what today’s market is demanding. It’s the same for older enclosed malls – today “lifestyle centers” and other formats are preferred – many of which are now vacant, their grim remains featured on web sites such as DeadMalls.com. Many suburban areas were also built out with “infrastructure light” without upgraded streets, sidewalks, etc. leaving a big backlog of infrastructure need.

Across the country many of these older districts have fallen into decay and become increasingly poor, taking on many of the characteristics of the inner city. As the Brookings Institution noted over a decade ago, they “are experiencing some signs of distress—aging infrastructure, deteriorating schools and commercial corridors, and inadequate housing stock.”1 Today, the public is more aware of the trend, and events in Ferguson, MO recently gave a wakeup call to newer and still-thriving suburbs that they too may be troubled at some point.

Like other American cities, Indianapolis has many of these older, struggling suburban areas. In its case, many of them are within the core city limits due to a 1970 city-county merger. As regional growth continues to expand outside the central urban county, newer generation suburbs have a chance to learn from the struggles of many of their predecessors.

Carmel – pronounced like the Biblical Carmel – is the first suburb directly north of the city of Indianapolis. It is an upscale residential and business suburb similar to many others around the country such as Dublin, OH; Naperville, IL; and the Cool Springs, TN area. Its 2013 population of 83,573 made it the 5th largest municipality in the state. While not monolithically wealthy, its 2013 median household income of $100,358 is the 14th highest in the United States among communities of 65,000 people or more.2 It’s a preferred area for the estate homes of wealthy Indianapolis area residents, such as Indianapolis Colts owner Jim Irsay. But it’s not just a bedroom suburb; real estate brokerage Cassidy Turley reports that the Carmel submarket has over six million square feet of office space.3

Being located in the center of the favored quarter of the Indianapolis region, Carmel grew as an upscale area. This gives it a leg up in long term sustainability out of the gate.

Yet Carmel has not relied just on its wealth to insure against decline. Rather, it has embarked on a transformation program now nearly 20 years old from which three major themes emerge:

1. Responding to current market forces to build a “state of the art” community that is competitive globally, not just within the Indianapolis region.

2. Building a full spectrum of amenities and infrastructure to create a “complete city” with a high quality of life and intrinsic appeal that is a) not based solely on newness or low costs, and b) which has broad demographic appeal.

3. Attempting to create unique cultural and regional attractions to turn Carmel into a destination in its own right, as much city as suburb.

The primary driver of this transformation has been Mayor Jim Brainard, a Republican currently in his fifth term. Carmel long had top performing schools – it’s the top rated district in the state – houses with generous yards, low taxes, and other standard attractors of suburbia. Previous administrations had put in place key policies such as reserving the Meridian St. corridor for high end office space and banning billboards. But Brainard brought numerous changes in Carmel during his tenure including:

Annexation. Carmel has undertaken a series of annexations – nearly 20,000 acres since 2001 alone.4 With over 47 square miles of territory, Carmel has now largely achieved its desired geographic scale.

Parks. Carmel’s park acreage increased from 50 to 1000 acres and it has spent heavily on building out its parks. This includes building a $55 million Central Park, which includes a showplace community and fitness facility called the Monon Center.5 And the popular Monon Trail, a rail-trail through the length of the city that extended a previous project built by the City of Indianapolis.

Monon Trail at Main St.

Road Infrastructure. Carmel has invested heavily in upgrading the legacy network of county roads that it overgrew. This includes an aggressive deployment of modern roundabouts. Carmel now has over 80 of these, more than any community in the United States.6 It has upgraded miles of collector roads to urban standards with enclosed drainage, curbs, extra-wide travel lanes, landscaped medians, eight foot multi-use side paths on both sides of the street protected by a landscaped buffer zone, and decorative street signs and other detailing.

Roundabout at Main St. and Illinois St. in the fall

An upgraded segment of River Rd. in early winter

Two major state highways passed through the town, Meridian St. (US 31) and Keystone Ave. (SR 431). These were designed as rural style divided surface highways as is common in Indiana. Carmel convinced the state to relinquish Keystone Ave. to the city and give it $90 million for upgrades and future maintenance. Carmel converted this into a mostly free flowing parkway by spending $108 million to replace stoplight intersections with roundabout interchanges. These not only dramatically improved traffic flow, the bridges over the busy highway provided a high quality, safe connection – especially for pedestrians and bicyclists – connecting eastern and central Carmel, which had previously been separated by this “great wall” of a road. The state is currently performing a similar freeway upgrade on Meridian St., the principal office corridor.

Roundabout interchange at 126th St. and Keystone Parkway.

Water and Sewer Upgrades. Part of Carmel previously received water from the Indianapolis water utility. The City of Indianapolis had privatized this utility but sought to repurchase it. Carmel intervened in the process to pressure Indianapolis into selling it the water lines inside Carmel. Carmel has since undertaken significant infrastructure upgrades such as new wells and pumping stations. During a recent summer drought, Carmel, unlike Indianapolis, did not put in place a mandatory restriction on lawn watering.7

New Urbanism. Beyond core infrastructure, Carmel under Brainard has sought to change its style of development to embrace some of the more positive aspects of New Urbanism such as creating more urban nodes and walkability.

Unlike some traditional railroad suburbs or county seats, the historic center of Carmel was very tiny, and its Main Street populated mostly with one story buildings and empty lots. This was the first focus area, and started with fixing the physical infrastructure.

The city rebranded the area as the “Arts and Design District” and utilized Tax Increment Financing to promote multi-story, mixed use development. The result is a mostly occupied and often well-patronized Main Street district. The surrounding historic residential blocks have seen significant redevelopment activity as well.

Main St. at western fountain and gateway arch entryway to rebranded “Arts and Design Distrct.”

Beyond the historic downtown, Carmel has also implemented multiple New Urbanist style zoning overlays, including on Old Meridian St. and Range Line Rd. (the city’s original suburban commercial strip). These promote mixed use development, buildings that front the street, and multi-story structures. Infrastructure improvements and TIF have been used in these areas as well. There’s also a major New Urbanist type subdivision in western Carmel called the Village of West Clay.

Strip mall and traditional suburban development along Range Line Rd.

New Urbanist style development along Range Line Rd.

New Urbanist development and street improvements under construction on Old Meridian St.

The historic downtown was deemed too small to function effectively as the downtown of a city the size of Carmel today. The city thus decided to create a new downtown area called City Center. The location for this is an area south of the historic downtown area in an older suburban industrial zone that had fallen into a blight pattern. Much of it was vacant and what’s now the principal City Center development was built on the site of a failed strip mall. TIF was aggressively used here as well to redevelop the area.

The City Center development is only partially complete. A veterans memorial and other civic spaces are complete, as are several small office buildings, apartments, and a large mixed use complex. The anchor is a publicly funded $175 million concert hall called the Palladium and an associated theater complex with three stages.8 While these are complete, significant development remains to complete the City Center vision. The city also wants to redevelop the area between City Center and the old downtown, which they now label Midtown, but very little has been done to date.

Interior street of City Center development.

The goal of all this development is not the full urbanization of Carmel; this city does not aspire to be dense metropolis, or even Indianapolis. It’s rather about creating more town center type districts with the walkable feel that’s increasingly in favor, but without compromising the fundamental suburban character of the city. It’s also designed to create a city with options. Having a diversity of development styles within the city is part of a strategy of appealing to a more diverse demographic base, including singles and retirees, not just the stereotypical younger family with kids. Traffic flow has been improved, but short trips are now easier to undertake by foot or bicycle, not just by car.

Retro Architecture. Carmel has de facto mandated traditional architectural styles. There’s no one consistent style. Major buildings have been done in Georgian, Second Empire, and Neoclassical type designs. But modernism has been rejected, further differentiating suburban Carmel from urban areas that frequently elect for starchitecture that is unapologetically “of the now.”

The city has also attempted to prevent large corporations from building their standard architectural templates. Brick is effectively mandated, even for big box retailers like Lowes. Retailers like CVS and Kentucky Fried Chicken were forced to build second stories on their structures to locate in certain areas. Another Carmel CVS has an art deco façade.

The city wants high quality aesthetics and a unique sense of place. They also want “timeless” design, though like much New Urbanism architecture it can sometimes come across as pastiche.

Arts and Culture. As part of the attempt to appeal to more arts minded middle aged consumers, as well as members of the so-called “Creative Class,” Carmel has heavily invested in the arts. The City Center performing arts center was paid for almost entirely with public funds (TIF), an investment in the arts dwarfing even that of Indianapolis. The city has also paid for an extensive public art program, mostly statues by Seward Johnson. And it makes operating grants to local arts organizations such as the Carmel Symphony Orchestra.

Interior of the Palladium concert hall. Photo by Zach Dobson.

Seward Johnson is not a favorite of urban sophisticates. His statutes illustrate the type of play it safe art generally featured by Carmel. More sophisticated or cutting edge fare is not as prevalent. And there have even been some complaints by a limited number of citizens about items such as the classical nudes featured on the door handles of the Evan Lurie Gallery.

Brainard is thinking about the long term when Carmel is no longer the shiny new thing. As he put it, “Because we are designing a new city that will be in place for hundreds of years, the responsibility of doing it right falls to this generation…Carmel is a young city – we are still building our parks, trails, roads and sanitary sewer and water systems that will be here for centuries.”9

He’s also keenly aware of global economic competition and the fact that Indiana lacks the type of geographic and weather amenities of other places. He frequently uses slides to illustrate this point. In one talk he said, “Now this picture, guess what, that’s not Carmel; but this picture is the picture of some of our competition. Mountains – that’s San Diego of course, mountains, beautiful weather, you know I think they have sunshine what, 362 days out of the 365…. What we’ve tried to do is to design a city that can compete with the most beautiful places on earth. We’ve tried to do it through the built environment because we don’t have the natural amenities.”10 While the claims to want to equal the most beautiful places in the world may be grandiose, the key is that mayor believes Carmel’s undistinguished natural setting and climate requires a focus on creating aesthetics through the built environment.

What have the results been to date? Economically and demographically, the city has performed well. It has managed to create an environment that is proving competitive for business opportunities that might have previously bypassed Indiana. For example, American Specialty Health relocated its headquarters to Carmel from San Diego, with the CEO of the company personally making the move from La Jolla to Carmel.11 Geico also recently expanded. Numerous other corporations are either based in Carmel or have major white collar facilities there. The income levels are very strong, as noted above.

The city’s demographics have also expanded to become much more diverse. The minority population grew 295% between 2000 and 2010, adding 9,630 people and growing minority population share from 8.7% to 16.3%.12 12% of the city’s households speak a language other than English at home.13 Many of these are highly skilled Chinese and Indian immigrants working for companies like pharmaceutical giant Lilly. Even black professionals are increasingly moving to Carmel, with the black population growing 324% in the 2000s and black population share doubling to 3%.14 Carmel is not a polyglot city today, but it’s far more diverse than in the past.

Carmel has also attracted both national press and national awards. Money magazine ranked Carmel as the #1 best small city to live in 201215, and it’s scored highly in other surveys as well. Drew Klacik of the Indiana University Public Policy Institute notes that in an echo of the transformation of the city of Indianapolis since the 1970s, “Carmel has transformed itself from a desirable community within Indiana to a desirable and competitive community nationally.”16

However, it’s hard to argue that Carmel’s results materially outperform peer cities in other regions. Places like Dublin, OH and Cool Springs, TN have significantly more office space, for example. Many of those places are, however, implementing policies similar to those in Carmel . Most Carmel New Urbanist development continues to require TIF subsidies and is not yet sustainable at market rates. The city has obtained better financial terms in some recent deals, however. And despite major public investment and construction in the central city, many central area census tracts lost population during the 2000s.

The changes have also attracted significant criticism and opposition in some quarters. While the public remains largely positive on the results, there have been many critiques of the way they were done, some of them legitimate. A number of the projects had significant cost overruns. The mayor originally said that the Keystone project could be completed for the $90 million the state gave it. The actual cost was nearly $20 million higher.17 The Palladium was originally sold as an $80 million facility, but ended up costing $175 million. The city also said it planned to pay for ongoing operations by raising a $40 million endowment, but was unable to raise the funds, leaving it on the hook for $2 million in annual operating costs. These are not small misses.

Critics also pointed to state figures showing Carmel with nearly $900 million in total debt.18 While it is a wealthy community that can afford the payments, in a conservative state like Indiana, a suburb accumulating nearly a billion dollars in debt raises eyebrows. Carmel’s tax rates remain among the lowest the state, however.

The way the debt was accumulated has been criticized as well. The Palladium was paid for with TIF funds. Rather than bonds, the Carmel Redevelopment Commission – the authority that manages the TIF program and which was controlled by mayoral appointees – structured the Palladium debt as Certificates of Participation to circumvented the need for city council approval, incurring higher interest rates in the process. The city council later refinanced the debt at a lower rate using a general taxing power guarantee in what some called a bailout. In return for the refinancing, the council obtained more oversight over TIF activity.19

Though some controversy is inevitable and some criticisms are legitimate, ultimately the change program in Carmel has proven popular with the public and the city is booming, a boom that’s lending an increasingly bitter tone to the longstanding hostility Carmel has enjoyed from the region due to its status as the highest profile “rich suburb” in the region.

Yet for all the controversy, many regional suburbs are copying some aspects of Carmel’s approach, with roundabouts now a regular feature in area communities and major park programs and New Urbanist style town center developments as well. This includes the massive sports-oriented Grand Park in Westfield and the Nickel Plate District in next door Fishers’ town center.20

It’s also clear that peer type suburbs around the country are adopting similar strategies, such as Dubin, OH’s Bridge Street Corridor proposal21 or Sugar Land, TX’s $84 million performing arts center.22 Imitation, they say, is the sincerest form of flattery. Carmel represents the leading edge of the emergence of a new type of post-Edge City aspirational suburb. It’s something we may be seeing a lot more of in the future.

Aaron M. Renn is a senior fellow at the Manhattan Institute and a Contributing Editor at City Journal . He writes at The Urbanophile.

————————————-

1 Robert Puentes and Myron Orfield. “Valuing America’s First Suburbs: A Policy Agenda For Older Suburbs in the Midwest,” Brookings Institution, 2002.

2 U.S. Census Bureau, “American Community Survey 2013 1-yr”, Table B19013.

3 Cassidy Turley, Indianapolis Office Market Snapshot (Third Quarter 2014), 3.

4 Ellen Cutter. “Explaining the annexation process,” Greater Fort Wayne Business Weekly, June 12, 2014. Accessed January 8, 2015. http://www.fwbusiness.com/opinions/columnist/businessweekly/article_f42da036-6182-575a-8445-274cd82ca296.html

5 Matthew VanTryon. “Carmel then and now: World’s Apart,” IndianapolisNewsBeat.com, December 16, 2014. Accessed January 8, 2015. http://blogs.butler.edu/multimedia-journalism/2014/12/16/carmel-worlds/

6 James Brainard, transcript of speech at 2014 International Making Cities Livable Conference, June 23-27, 2013.

7 “Why no watering ban in Carmel,” WISH-TV News, July 12, 2012. Accessed January 8, 2015. https://www.youtube.com/watch?v=y51BJYM4Fgc

8 David Hoppe. “The Palladium’s boffo budget,” Nuvo Newsweekly, June 20, 2011. Accessed on January 8, 2015. http://www.nuvo.net/indianapolis/the-palladiums-boffo-budget/Content?oid=2275080

9 James Brainard, notes for 2014 State of the City Address.

10 James Brainard, transcript of speech at 2014 International Making Cities Livable Conference, June 23-27, 2013.

11 Andrea Muirragui Davis. “Wellness provider beefing up new Carmel office,” Indianapolis Business Journal, October 29, 2014. Accessed on January 8, 2015. http://www.ibj.com/blogs/11-north-of-96th/post/50241-wellness-provider-beefing-up-new-carmel-office?id=11-north-of-96th

12 U.S. Census Bureau, calculations by author from Census 2000 and Census 2010.

13 U.S. Census Bureau, “American Community Survey 2013 1-yr”, Table B05007.

14 U.S. Census Bureau, calculations by author from Census 2000 and Census 2010.

15 “CNNMoney Ranks Americas Best Places to Live,” Daily Finance, August 20, 2012. Accessed January 8, 2015. http://www.dailyfinance.com/2012/08/20/cnn-money-ranks-americas-20-best-places-to-live/

16 Drew Klacik, telephone interview with author, December 29, 2014.

17 “Brainard seeks bonds to finish Keystone,” The Indianapolis Star, October 18, 2009. Accessed January 8, 2015. http://archive.indystar.com/article/20091018/LOCAL/910180409/Brainard-seeks-bond-finish-Keystone

18 Indiana Department of Local Government Finance. “Local Government Debt Report,” September 21, 2012, 15.

19 Kathleen McLaughlin. “Brainard seeks deal on maxed-out TIF,” Indianapolis Business Journal, March 31, 2012. Accessed January 8, 2015. http://www.ibj.com/articles/33569-brainard-seeks-deal-on-maxed-out-tif

20 Cara Anthony. “New look for the Nickel Plate District in Fishers,” The Indianapolis Star, June 28, 2014. Accessed January 16, 2015. http://www.indystar.com/story/news/local/hamilton-county/fishers/2014/06/27/new-look-nickel-plate-district-fishers/11537251/

21 Brent Warren. “Dublin Moves Ahead With Bridge Street Corridor Plans, Connecting Across River,” Columbus Underground, March 23, 2013. Accessed January 8, 2015. http://www.columbusunderground.com/dublin-moves-ahead-with-bridge-street-corridor-plans-looks-to-connect-across-river-bw1

22 Rebecca Elliott. “Sugar Land breaks ground on $84 million performing arts center,” Houston Chronicle, December 9, 2014. Accessed January 12, 2015. http://www.houstonchronicle.com/neighborhood/fortbend/news/article/Sugar-Land-breaks-ground-on-84M-performing-arts-5946247.php

February 10, 2015
Go East, Young Southern California Workers

Do the middle class and working class have a future in the Southland? If they do, that future will be largely determined in the Inland Empire, the one corner of Southern California that seems able to accommodate large-scale growth in population and jobs. If Southern California’s economy is going to grow, it will need a strong Inland Empire.

The calculation starts with the basics of the labor market. Simply put, Los Angeles and Orange counties mostly have become too expensive for many middle-skilled workers. The Riverside-San Bernardino area has emerged as a key labor supplier to the coastal counties, with upward of 15 percent to 25 percent of workers commuting to the coastal counties.

In a new report recently released by National Core, a Rancho Cucamonga nonprofit that develops low-income housing, I and my colleagues, demographer Wendell Cox and analyst Mark Schill, explored the challenges facing the region. Although we found many reasons for concern, the region’s overall condition and its long-term prospects may be better than many might suspect.

Population trends

The region’s once-explosive growth has slowed considerably. From 1945-2010, the area’s population soared from 265,000 to 4.25 million. Already the nation’s 12th-largest metropolitan area, the I.E. could pass San Francisco and Boston by 2020 (unless faster-growing Phoenix does so first).

Yet, contrary to expectations (and, perhaps, hope among anti-sprawl campaigners), the area continues to be a beacon for people from the rest of the region. There is a notion, widely expressed in the mainstream media, that Southern California’s growth will now focus more on the urban core around Downtown Los Angeles. Yet, as is often the case, what planners and pundits desire is not widely shared by the vast majority of people.

People continue to vote for the Inland Empire – and other peripheral areas – with their feet. Census Bureau data indicates that, from 2007-11, nearly 35,000 more residents moved from Los Angeles County to the Inland Empire than moved in the other direction. There was also a net movement of more than 9,000 from Orange County and more than 4,000 net migration from San Diego County.

Several long-standing demographic trends favor a continued shift to the Inland region, according to Cox and Schill. Immigrants and their offspring may prove the critical factor. Over the past decade, the Inland region dramatically increased its population of foreign-born residents, more than three times the number and at nearly 18 times the rate of the coastal counties.

The influx of immigrants and their children is largely responsible for the region’s relatively young population, compared with the rest of Southern California. As recently as 2000, the proportion of population ages 5-14 in Los Angeles and Orange counties stood at 16 percent, the sixth-highest level among the nation’s 52 largest metropolitan areas. Thirteen years later, that proportion had dropped to 12.8 percent, 33rd among the 52 largest metropolitan areas. In terms of a dropping share of youngsters, the area experienced a 20 percent reduction, the largest in the nation.

In contrast, the Inland Empire remains a bastion of familialism, with 15.3 percent of the population aged 5-14, among the highest levels in the nation. This follows a general pattern; according to recent analysis of Census data, high-cost areas tend to repel families. Of the nation’s most expensive areas, such as the Bay Area, New York and Boston, all tend to have well below national norms in terms of families among their populations.

Perhaps more surprising, younger educated workers also are heading to the region. In fact, from 2011-13, according to American Community Survey data, Riverside-San Bernardino witnessed the 12th-largest increase among the 52 major metro areas in the share of college-educated residents ages 25-34. No major California metro area, including Silicon Valley, could match it. From 2000-13, the Inland region experienced a 91 percent jump in population with bachelor or higher degrees, just less than twice the increase for either Orange or Los Angeles counties.

Overall, the I.E. has become something of a growth area for millennials – basically, adults ages 20-29. San Bernardino-Riverside ranked second among 52 metro areas, adding 50,000 millennials, an 8.3 percent increase since 2010. Los Angeles and Orange counties – older, settled areas with far lower population growth – together registered 18th.

Economic Restructuring

These trends also may reflect improving prospects for the region’s economic recovery. The area remains some 30,000 jobs below its 2007 level, notes California Lutheran University economist Dan Hamilton, but is now growing faster than the rest of the Southland. The region created jobs over the past year at a 2.2 percent rate, well above the 2.0 percent increase in Orange County and almost twice that of L.A.’s 1.3 percent. Foreclosures have diminished to the lowest levels since 2007 and appear back to something resembling normalcy.

One important source of new employment is grass-roots entrepreneurship. Overall, the Inland Empire accounted for a large proportion of the new businesses created statewide from 2012-13 – despite hosting only 7.4 percent of the total businesses in California. A recent report by Beacon Economics suggested that growth will accelerate over the next five years.

At the same time, some of the core industries – such as manufacturing and warehousing – have shown signs of recovery. Industrial vacancy rates have fallen from nearly 12 percent in 2009 to roughly half that level today.

Much of the growth has been for “middle-skilled jobs,” paying $14 to $21 per hour, including positions in medical services, trucking and customer service. Overall, according to one recent survey, the Inland Empire ranked 13th among the nation’s large metropolitan areas in creating such positions. These jobs, notes economist John Husing, are critical to a region where almost half the workforce has a high school education or less.

Even the housing sector, the driver of the post-crash employment decline, has improved considerably. Today, the Inland Empire is experiencing a far greater increase in construction permits than either Los Angeles or Orange counties. This has also helped boost construction employment, although not to anything like the levels experienced a decade before. Construction employment, although up recently, still totals barely half the people it did in 2006.

Some, such as University of Redlands economist Johannes Moenius, express concern that important industries, like warehousing and manufacturing, are increasingly using part-time workers. Positions paying $15,000 to $30,000 annually constitute nearly half of all new jobs.

The ambiguity in the recovery is reflected in a recent survey by Cal State San Bernardino, which found the percentage of those saying the economy was excellent or good had almost doubled since 2010, from 9 percent to 17 percent, but this was considerably below the 40-plus percent seen before the crash.

The Path Ahead

The fate of the Inland Empire remains in the balance. The recovery of the region depends largely on continued widespread population growth, largely stimulated by the production of affordable housing. Yet, at the same time, state regulations, spurred on by the environmental lobby, which seeks to slow, or even eliminate, single-family construction, threaten to force up prices and drive young families outside the state.

Many other core industries of the area – such as warehousing and manufacturing – also face growing regulatory barriers. High taxes and energy costs originating from Sacramento are particularly difficult for industries that require power to operate. Southern California Edison’s rates, for example, are almost twice those found in Salt Lake City, Seattle or Albuquerque.

Some may celebrate these policies that encourage people to say “good riddance” to a region too sprawling and insufficiently cultured. Yet, it’s hard to see how Southern California can continue to add workers – notably, younger middle-class families – without a vibrant Inland Empire. It remains the one Southern California region with the land, and the housing cost structure, to accommodate much of the hard-pressed middle class. Without growth inland, Southern California will be largely relegated to a torpid economy and rapidly aging demographics, a fate that would compromise the aspirations of future generations.

This piece originally appeared in The Orange County Register.

Joel Kotkin is executive editor of NewGeography.com and Roger Hobbs Distinguished Fellow in Urban Studies at Chapman University, and a member of the editorial board of the Orange County Register. He is also executive director of the Houston-based Center for Opportunity Urbanism. His newest book, The New Class Conflict is now available at Amazon and Telos Press. He is also author of The City: A Global History and The Next Hundred Million: America in 2050. He lives in Los Angeles, CA.

February 9, 2015
The Argument for Less Infrastructure

What would our neighborhoods look like if we voluntarily reduced the amount of infrastructure? This isn’t a purely academic question. As municipal, state, and federal budgets get squeezed there’s going to be a point at which we have no choice but to stop building new roads and even reduce the amount of maintenance on the roads we already have. We could approach this situation with dread and a sense of loss, or we could embrace it as an opportunity to get a better quality of life for a whole lot less money.

I grew up in New Jersey. Like most states the New Jersey Highway Trust Fund is just about bankrupt this year. Unless the gas tax is raised all revenue will go exclusively to debt service. If revenue were to drop below a certain point, due to lower gas prices or lower demand for gas, there won’t be enough money to service the debt either. We’re likely to see triage one way or another.

Google

Google

Google

Google

Google

This is the historic Water Witch subdivision above Sandy Hook that was first built in 1895, not too far from New York City. Twenty five years ago I had friends who bought an old house here when the neighborhood was only beginning to come back after a long period of decline. Back then the houses were old and in varying states of disrepair. My friends saw the potential and started renovating their place and helped spearhead a revitalization of the neighborhood. These days it’s a posh address with rather expensive homes. But notice the narrow gravel roads.

Google

Google

Google

Water Witch is a private community, although it isn’t “gated” in the contemporary sense. That means the HOA members pay to maintain the roads not the government. This is a really important distinction. When people believe their property tax money entitles them to certain things they often have high expectations. They tend to have a very different attitude when they know they’re going to be writing a check directly for the level of service they ask for. This difference in who pays for the roads leads to different outcomes. Back in the late 1980’s I was privy to HOA meeting debates where some members demanded that the roads be paved. They were tired of the ruts, mud puddles, and problems of snow removal. The dirt roads were one of the things that had kept property values depressed for decades. So a consulting engineer was brought in and explained exactly what it would cost to pave the roads. It would be many millions of dollars divided by the forty two homes in the community. That conversation came to a halt instantly. So much for paved roads at Water Witch. The compromise was to maintain the gravel roads to a slightly higher standard with annual adjustments that were far more cost effective. The resulting bucolic country lanes twist up the hill and provide a feeling of retreat from both the nearby city as well as the surrounding suburban sprawl. It also ensures that no one will ever be temped to speed since the roads won’t physically allow it. This keeps the neighborhood safe for pedestrians and cyclists. And it also happens to be more ecological as an extra bonus.

Justin Tinapay Photography

Justin Tinapay Photography

Justin Tinapay Photography

Now, there were some people in the HOA that didn’t even want to pay for the annual gravel upgrades. These weren’t what you would call poor people, but no one wants to pay for anything if it isn’t absolutely necessary. It was suggested that the community clubhouse could be rented out for special events to generate the needed revenue to pay for road maintenance. Other people objected. Why live in a private community if an army of strangers would come marching in day and night? So the HOA found a sweet spot. The clubhouse would be rented for only twelve events per year between April and October. Valets would be hired at the expense of the renters to manage traffic. Those twelve days would bring in enough money to pay for the road work each summer. It was a reasonable compromise and a good financial deal for everyone. The fact that Water Witch was distinctive and countryfied compared to the unrelenting highways and strip malls of most of New Jersey made it that much more desirable for people looking for a unique event space. People pay extra for charm.

Google

Google

By the way, notice how some people have paved their private driveways with asphalt or stone while the HOA roads and the parking lot at the Clubhouse are gravel. It matters who’s responsible for paying for things and how those decisions are made.

Google

Google

Google

Google

In contrast, here’s a newer upscale residential subdivision not far from Water Witch. Notice the massively wide paved roads and enormous cul-de-sac. I have to ask… What does all that paving really do for the neighborhood? You could land an Airbus A380 on this much tarmac. But what’s the point? You can be quite sure that when these roads become cracked and potholed the wealthy well-connected residents of these grand homes will mobilize and bang heads at the public works department. Somehow the government will be made to absorb the expense of repave things even if the (very high) property taxes from these specific homes doesn’t come close to covering the real cost of maintenance. Would these home owners accept a different standard if they were directly responsible for maintaining their own road?

Google

Google

Google

Google

Now let’s look at a more reasonably priced home in a middle class neighborhood. This is my sister’s house in another part of the state. She and her family live in a respectable 1960’s tract house on a half acre lot. Look at the cul-de-sac in front of her place. It’s nearly a half acre as well. Look how tiny the parked cars are compared to the amount of pavement. Again, what exactly does the neighborhood get out of this arrangement other than a massive heat island effect in summer, a storm water runoff problem, and a lot of high speed traffic that puts children, pedestrians, and cyclists in danger? Think of all the ways that much land could be put to better use to add value to the neighborhood instead of just chipping away at the county budget.

At a certain point hard choices are going to have to be made. The current political conversation involves questions about how to raise taxes while lowering levels of service. But there is another way. We could spend a whole lot less money both publicly and privately and still get a higher quality of life. I’m not sure we as a society are really ready to have that conversation.

John Sanphillippo lives in San Francisco and blogs about urbanism, adaptation, and resilience at granolashotgun.com. He’s a member of the Congress for New Urbanism, films videos for faircompanies.com, and is a regular contributor to Strongtowns.org. He earns his living by buying, renovating, and renting undervalued properties in places that have good long term prospects. He is a graduate of Rutgers University.

February 6, 2015
America A House Divided Over Race

The election of Barack Obama six years ago was hailed as a breakthrough both for minorities, particularly African Americans, and for his being the first “city guy” elected president in recent history. Both blacks and urbanistas got one of their “own” in power, and there were hopes that race relations and urban fortunes would improve at a rapid pace.

Instead, the recent controversies over police killings of African American men have revealed a shocking deterioration of race relations not seen in a generation. Since the racial euphoria that accompanied the president’s election, views of race relations held by blacks and whites, according to Pew, have become decidedly less optimistic. Nearly half of whites and roughly two in five blacks, according to a recent Politico poll, say race relations have worsened under Obama. Only 4 percent of whites and 13 percent of African Americans thought relations had improved. Another recent survey, this one by Bloomberg, finds 53 percent of Americans opining that race relations have declined under Obama.

For the most part, the current racial discord has been traced largely to the long, uneasy relationship between minorities, notably African Americans, and the police. The disparity in perceptions between whites and blacks are most notable here, says Pew, with 70 percent of African Americans, but barely 25 percent of whites, disputing that police do a good job treating the races “equally.”

Here’s the real tragedy: Some 50 years after the passage of sweeping nationwide civil rights legislation, the institutionalization of affirmative action and billions poured into addressing urban poverty, many African American youth remain well outside the mainstream, unmoored to the economy and far too liable to get into confrontations with law enforcement. This is clearly connected with such factors as the preponderance among African Americans of 70 percent single-female-headed households, nearly half of which are poor.

Then, there are the murder statistics. Columnist Walter Williams has noted that, out of roughly 7,000 blacks murdered last year, 94 percent were killed by another black person. Half of all homicide victims are black, while blacks account for barely 13 percent of the nation’s population. Williams calculates that the black homicide victimization rate is six times that of whites, and in some cities, more than 22 times higher.

Pervasive poverty

Not surprisingly, these sad numbers are also reflected in economic statistics. African American unemployment remains twice that of whites. The black middle class, so responsible for, and understandably proud of, Obama’s elevation, according to the Urban League, in the past decade has conceded many of the gains made over the prior 30 years.

Despite the hoopla about urban revival, a recent study reveals that entrenched urban poverty – places where 30 percent or more of the population lives below the poverty line – actually grew in the first decade of the new millennium, from 1,100 to 3,100 neighborhoods. Meanwhile, the population of these areas doubled, to 4 million. “This growing concentration of poverty,” notes researchers Joe Cortright and Dillon Mahmoudi, “is the biggest problem confronting American cities.”

These trends dwarf the oft-celebrated movement of young professionals and empty-nesters into the urban core. Indeed, notes demographer Wendell Cox, roughly 80 percent of population growth in cities during 2000-10 was from poor people. Not surprisingly, many African Americans have moved to suburbs, where a majority of them now live, according to the Census Bureau.

Also not surprising is that poverty and conflicts with law enforcement are now found in some suburban areas, as was clear in the case of Ferguson, Mo. Yet, poverty in the core cities remains considerably worse than in the suburbs. Despite trite talk about “suburban ghettos,” the poverty rate in the suburbs remains roughly half that of urban centers (as of 2010, 20.9 percent in core compared with 11.4 percent in the suburbs).

Much the same can be said about crime. The overall violent-crime rate in urban cores, although down from 2001, remains almost four times higher than in the suburbs, according to FBI data. Many of the most crime-ravaged cities are heavily African American: Detroit, Oakland, St. Louis, Memphis, Tenn., Cleveland and Atlanta.

Big-city class chasms

The fundamental preconditions for increased racial tensions can be seen in the growing class chasm within cities, particularly gentrifying ones. In New York City, the epicenter of the current debate over policing, good times on Wall Street and among the glitterati has not trickled down into the ghetto. The majority of people in hip Brooklyn, notes researcher Daniel Hertz, have seen their incomes drop over the past decade; roughly one in four Brooklynites, a cohort overwhelmingly black and Hispanic, lives in poverty. Over the entire borough, he points out, residential patterns have become more segregated, and Brooklyn now is second, only to Milwaukee, in terms of racial separation.

In Chicago, like most cities, areas of concentrated poverty have expanded in recent years. Chicago is widely hailed as the progenitor of Alan Ehrenhalt’s “great inversion,” which predicts a continuing shift of rich people into cities while the poor exit to the dreary suburban wasteland. But the reality is far more complicated, as employment in Chicago has dropped below 2001 levels, and middle-class neighborhoods have continually shrunk.

Essentially, amidst renewal, there is greater bifurcation. Prosperous and greatly hyped “super-global Chicago,” notes urban analyst Pete Saunders, enjoys income and education levels well above those of the suburban areas. Most Chicagoans, however, live in “rust belt Chicago,” with education and income levels well below suburban levels. Rather than simply bifurcated, Saunders suggests, “Chicago may be better understood in thirds – one-third San Francisco, two-thirds Detroit.”

The tensions exacerbated by this growing divide are widely evident. Violence is slowly shifting from Chicago’s poorest neighborhoods and into some of the city’s nicest redoubts; Mayor Rahm Emanuel’s 17-year-old son was mugged outside his home. Chicago’s violent-crime rate remains far higher than that of New York or Los Angeles; by some estimates, the city is more dangerous now than during the Al Capone era during Prohibition.

Chicago’s predicament – with a slight increase in murders in 2014 – could prove a harbinger. In some big cities, like Chicago, New York and Atlanta, populations entrenched in poverty will likely remain for the foreseeable future. It’s hard to imagine East New York or the westside of Chicago, much of south Atlanta, or Watts, for that matter, gentrifying anytime soon.

Indeed, Los Angeles, which also experienced a big drop in violent crime over the past decade, now expects to report a 7 percent increase this past year. Late last month, L.A. also experienced a possible attempted assassination of police officers, although the assailants, thankfully, missed.

In some cities, usually smaller and whiter to start with, we are seeing a pattern of what amounts to “ethnic cleansing,” as increasingly isolated communities get driven out of their enclaves by relentlessly rising rents and the loss of blue-collar jobs.

This process is particularly notable in San Francisco, where the black population already is roughly half what it was in 1970. In the nation’s whitest major city – Portland, Ore. – African Americans are being pushed out of the urban core by gentrification, partly supported by city funding. Similar phenomena can be seen in Seattle and Boston where longtime black communities faced near extinction.

Under these circumstances, a degree of racial animus seems inevitable. Some Brooklyn residents, reports theDaily Beast,even justified the targeting of law enforcement officers. For their part, many NYPD officers feel betrayed by Mayor Bill de Blasio’s sympathetic comments about anti-police demonstrations. Some officers have expressed their distaste, inappropriately, by being rude to the mayor and staging slowdowns in arrests.

These racial tensions already are seeping into the political realm. African Americans in New York supported de Blasio’s policing strategy, 2-1, while a strong majority of whites opposed his stance.

The resurgence in racial animus remains arguably the biggest surprise – and one of the greatest failures – not only of Obama, but of our society. In this respect, neither conservative attempts to blame increased racial discord on the president and, now, attempts by his progressive claque to absolve him of any responsibility, really address the more serious issues behind the widening of the racial divide. Cities and communities, divided against themselves by race and class, cannot thrive in the long run, no matter how many publicists and pundits proclaim the battle for urban America already has been won.

This piece first appeared at The Orange County Register.

Joel Kotkin is executive editor of NewGeography.com and Roger Hobbs Distinguished Fellow in Urban Studies at Chapman University, and a member of the editorial board of the Orange County Register. He is also executive director of the Houston-based Center for Opportunity Urbanism. His newest book, The New Class Conflict is now available at Amazon and Telos Press. He is also author of The City: A Global History and The Next Hundred Million: America in 2050. He lives in Los Angeles, CA.

February 4, 2015
Military Memorials: Is This Really the Best We Can Do?

I was researching material for a blog post about the town I grew up in (Toms River, New Jersey) and accidentally stumbled on something completely unrelated that I find deeply disturbing on multiple levels. It was a roadside memorial dedicated to a fallen soldier. I looked up his name and realized that he had gone to my high school and his family lived very near the house I had once lived in. United States Navy SEAL Denis Miranda was twenty four years old when he perished in Qalat, Afghanistan. He has two surviving brothers on active duty.

Google

Google

Google

Google

Denis Miranda is currently being “honored” by a cheap metal highway sign at the back of a ShopRite supermarket next to the employee parking lot and a storm water retention ditch. The chain link fence behind the sign is used to pin up banners advertising cold beer on sale. It isn’t dignified enough to commemorate the death of a native son. What exactly is his mom supposed to think as she drives past this sign on the way home from church? Is it comforting? Do his father and brothers meet at the sign to have a solemn moment of prayer and remembrance while summer traffic backs up at the intersection waiting for the light to turn green? Is the placement of the sign meant to inspire passing motorists to think deep thoughts about the nature of war and patriotism? And what does this kind of monument say about the way our society values its fallen? What does it say about the fact that this might actually be the best spot in town to express public gratitude or collective loss?

www.njrunforthefallen.org

Then I realized there was an entire state wide trail of these memorial signs all along the New Jersey coast, each marker representing a veteran who never returned home. The tragedy of all those lost lives and family sacrifices worked on me and I got angry at the memorials themselves. Is this really the best we can do?

The Star-Ledger Archive

Google

Google

Google

This is the sign commemorating the loss of Marine Private First Class Vincent Frassetto who died in Al Anbar Province, Iraq. His memorial is on the side of a cloverleaf intersection near the Ocean County Mall. This same roadside spot is also favored by people placing signs advertising rug sales and warnings about pedophiles who may be lurking in public places. Will anyone ever make a pilgrimage to this sign by parking on the edge of the mall and walking across the grassy cloverleaf with loved ones to ponder the life and death of Vincent Frassetto? Or is the public assumed to be too busy to get out of the car so we better catch them while they’re trapped at a red light? Again, the quality and location of the memorial simply isn’t in keeping with the scale of the sacrifice.

marines.togetherweserved.com

Google

Google

Major James Weis of the U.S. Marine Corps died in Helmand Province, Afghanistan. Here’s his home town roadside war hero monument. It got me thinking about the people who organized these memorials – all devoted and well intentioned no doubt. Did they truly believe that these arrangements were appropriate? Were the folks on the committee looking around for a sacred place of honor and decide, “Hey, how about we put these cheap highway signs next to the left hand turn lane by the muffler shop and the Krispy Kreme.”?

So… where exactly should we put memorials to fallen veterans these days? What form should those monuments take? We used to live in the kinds of towns were there were obvious places to erect an obelisk or a bronze statue. Now most of us live in tract home subdivisions, work in office parks on the side of a highway, and shop at strip malls. Could it be that these flimsy sheet metal markers reflect our true values and who we really are? Am I the only one who thinks this is weird and distasteful?

John Sanphillippo lives in San Francisco and blogs about urbanism, adaptation, and resilience at granolashotgun.com. He’s a member of the Congress for New Urbanism, films videos for faircompanies.com, and is a regular contributor to Strongtowns.org. He earns his living by buying, renovating, and renting undervalued properties in places that have good long term prospects. He is a graduate of Rutgers University.

January 30, 2015
U.S. Economy Needs Hardhats Not Nerds

The blue team may have lost the political battle last year, but with the rapid fall of oil and commodity prices, they have temporarily gained the upper hand economically. Simultaneously, conditions have become more problematical for those interior states, notably Texas and North Dakota, that have benefited from the fossil fuel energy boom. And if the Obama administration gets its way, they are about to get tougher.

This can be seen in a series of actions, including new regulations from the EPAand the likely veto by the president of the Keystone pipeline, that will further slow the one sector of the economy that has been generating high-paid, blue collar employment. At the same time, housing continues to suffer, as incomes for the vast majority of the middle class have failed to recover from the 2008 crash.

Manufacturing, which had been gaining strength, also now faces its own challenges, in large part due to the soaring U.S. dollar, which makes exports more expensive. Amidst weakening demand in the rest of the world, many internationally-oriented firms such as United Technologies and IBM forecast slower sales. Low prices for oil and other commodities also threatens the resurgence of mainstream manufacturers such as Caterpillar, for whom the energy and metals boom has produced a surge in demand for their products.

Left largely unscathed, for now, have been the other, less tangible sectors of the economy, notably information technology, including media, and the financial sector, as well as health services. In sharp contrast to manufacturing, energy, and home-building, all of these sectors except health care are clustered in the high-cost, blue state economies along the West Coast and the Northeast. As long as the Fed continues to keep interest rates very low, and maintains its bond-buying binge, these largely ephemeral industries seem poised to appear ever more ascendant. No surprise then that one predictably Obama-friendly writer called the current economy “awesome” despite weak income growth and high levels of disengagement by the working class in the economy. If Wall Street and Silicon Valley are booming, what else can be wrong?

Should the whole economy become more bluish?

One consistent theme of blue-state pundits, such as Richard Florida, is that blue states and cities “are pioneering the new economic order that will determine our future.” In this assessment, the red states depend on an economy based on energy extraction, agriculture and suburban sprawl. By this logic, growing food for mass market consumers, building houses for the middle class, making cars, drilling for oil and gas—all things that occur in the red state backwaters—are intrinsically less important than the ideas of nerds of Silicon Valley, the financial engineers of Wall Street, and their scattered offspring around the country.

But here’s a little problem: these industries do not provide anything like the benefits that more traditional industries—manufacturing, energy, housing—give to the middle and working classes. In fact, since 2007, according to the Bureau of Labor Statistics, the information and technology sectors have lost more than 337,000 jobs, in part as traditional media jobs get swallowed by the Internet. Even last year, which may well prove the height of the current boom, the information and technology industry created a net 2,000 jobs. And while social and on-line media may be expanding, having added 5,000 jobs over the last decade, traditional media lost ten times as many positions, according to Pew.

In contrast, energy has been a consistent job-gainer, adding more than 200,000 jobs during the same decade. And while manufacturing lost net jobs since 2007, it has been on a roll, last year adding more than 170,000 new positions. Construction, another sector hard hit in the recession, added 213,000 positions last year. The recovery of these industries has been critical to reducing unemployment and bringing the first glimmer of hope to many, particularly in the long suffering Great Lakes region.

These tangible industries seem to be largely irrelevant to deep blue economies. A prospective decline of energy jobs, for example, does not hurt places like California or New York, which depend heavily on other regions to do the dirty work. Overall, for example, California, despite its massive energy reserves, created merely 15,000 jobs since 2007, barely one-tenth as many as in Texas. Energy employment in key blue cities such as New York and San Francisco has remained stagnant, and actually declined in Boston.

Similarly, a possible slowdown in manufacturing—in part due to an inflated dollar, depressed international demand, and the loss of industrial jobs tied to energy—will affect different regions in varying degrees. Since 2009, the manufacturing renaissance has been strongly felt in traditional hubs like Detroit, Grand Rapids, and Louisville, as well as energy-charged places such as Houston and Oklahoma City. All saw manufacturing growth of 10 percent or more. Meanwhile New York, Los Angeles, Chicago, San Francisco, and Boston all lost industrial positions.

Finally, there remains the housing sector, a prime employer of blue collar workers and the prime source of asset accumulation for middle class families. Sparked by migration and income growth, construction growth has been generally stronger in Texas cities but far more sluggish in New York and California, where slower population growth and highly restrictive planning rules make it much tougher to build affordable homes or new communities. Last year at the height of the energy boom, Houston alone built more single family homes than the entire state of California.

If you think inequality is bad now …

The new ephemera-based economy thrills those who celebrate a brave new world led by intrepid tech oligarchs and Wall Street money-men. The oligarchs in these industries have gotten much, much richer during the current recovery, not only through stocks and IPOs, but also from ultra-inflated real estate in select regional areas, particularly New York City and coastal California. As economist George Stiglitz has noted, such inflation on land costs has been as pervasive an effect of Fed policy as anything else.

Even in Houston, some academics hail the impending “collapse of the oil industrial economy,” even as they urge city leaders to compete with places like San Francisco for the much ballyhooed “creative class.” Yet University of Houston economist Bill Gilmer notes that low energy prices are driving tens of billions of new investment at the port and on the industrial east side of the city. This growth, he suggests, may help offset some of the inevitable losses in the more white collar side of the energy complex.

The emergence of a new ephemera-led economy bodes very poorly for most Americans, and not just Texans or residents of North Dakota. The deindustrialized ephemera-dominated economy of Brooklyn, for example, has made some rich, but overall incomes have dropped over the last decade; roughly one in four Brooklynites, overwhelmingly black and Hispanic, lives in poverty. Similar patterns of increased racial segregation and middle class flight can be found in other post-industrial cities, including one-time powerhouse Chicago, where areas of concentrated poverty have expanded in recent years.

Nowhere is this clearer than in ephemera central: California. Once a manufacturing juggernaut and a beacon of middle class opportunity, the Golden States now suffers the worst level of poverty in the country. While Silicon Valley and its urban annex, San Francisco, have flourished, most of the state—from Los Angeles to the Inland regions—have done poorly, with unemployment rates 25 percent or higher than the national average. The ultra-“progressive” city now suffers the most accelerated increase in inequality in the country.

Similar trends have also transformed Silicon Valley, once a powerful manufacturing, product-producing center. As the blue collar and much of older middle management jobs have left, either for overseas or places like Texas or Utah, the Valley has lost much of its once egalitarian allure. San Jose, for example, has long been home to the nation’s largest homeless encampment. Black and Hispanic incomes in the Valley, notes Joint Venture Silicon Valley, have actually declined amidst the boom, as manufacturing and middle management jobs have disappeared, while many tech jobs are taken by predominately white and Asian younger workers, many of them imported “techno-coolies.”

In contrast, the recoveries in the middle part of the country have been, to date, more egalitarian, with incomes rising quickly among a broader number of workers. At the same time, minority incomes in cities such as Houston, Dallas, Miami, and Phoenix tend be far higher, when compared to the incomes of Anglos, than they do in places like San Francisco, New York, or Boston. In these opportunity cities, minority homeownership—a clear demarcation of middle income aspiration—is often twice as high as it is in the epicenters of the ephemeral economy.

To succeed in the future, America needs to run on all cylinders.

The cheerleaders of the ephemeral economy often point out that they represent the technological future of the country, and concern themselves little with the competitive position of the “production” economy—whether energy, agriculture, or manufacturing. They also seek to force the middle class into ever denser development, something not exactly aspirational for most people.

Nor is the current ephemera the key to new productivity growth. Social media may be fun, but it is not making America more competitive or particularly more productive (PDF). Yet there has been strong innovation in “production” sectors such as manufacturing, which alone accounts for roughly half (PDF) of all U.S. research and development.

What is frequently missed is that engineering covers a lot of different skills. To be sure the young programmers and digital artists are important contributors to the national economy. But so too are the many more engineers who work in more mundane fields such as geology, chemical, and civil engineering. Houston, for example, ranks second (PDF) behind San Jose in percentage of engineers in the workforce, followed by such unlikely areas as Dayton and Wichita. New York, on the other hand, has among the lowest percentage of engineers of major metropolitan areas.

To be sure, an aerospace engineer in Wichita is not likely to seem as glamorous as the youthful, urbanista app-developers so lovingly portrayed in the media. Yet these engineers are precisely the people, along with skilled workers, who keep the lights on, planes flying and cars going, and who put most of the food on people’s tables.

The dissonance between reality and perception is most pronounced in California. The state brags much about the state’s renewable sector to the ever gullible media. But in reality high subsidized solar and wind account for barely 10 percent ofelectrical production, with natural gas and coal, now mostly imported from points east, making up the vast majority. In terms of transportation fuels, the state has a96 percent dependence on fossil fuels, again large imported, despite the state’s vast reserves. Los Angeles, although literally sitting on oil, depends for 40 percent of its electricity on coal-fired power from the Intermountain West.

Equally critical, the now threatened resurgence of the industrial and energy sectors could reverse trends that have done more to strengthen the U.S. geopolitical situation than anything else in recent decades. Foreign dictators can easily restrict a Google, Facebook, or Twitter, or create locally-based alternatives; for all its self-importance, social media has posed no mortal danger to authoritarian countries. In contrast, the energy revolution has undermined some of the world’s most venal and dangerous regimes, from Saudi Arabia and Iran to Russia and Venezuela.

In no way do I suggest we don’t need the ephemeral sectors. Media, social and otherwise, remain important parts of the American economy, and testify to the country’s innovative and cultural edge. But these industries simply cannot drive broader based economic growth and opportunity. Part of the problem lies in the nature of these industries, centered largely in Silicon Valley and San Francisco, which require little in terms of blue collar workers. Another prime issue is that these areas can only import so many people from the rest of country due to extraordinary high housing costs.

Under current circumstances, the centers of the ephemeral economy such as New York or San Francisco cannot accommodate large numbers of upwardly mobile people, particularly families. These, for better or worse, have been vast gated communities that are too expensive, and too economically narrow, to accommodate most people, except those with either inherited money or elite educations. This is why Texas—which has created roughly eight times as many jobs as California since 2007 and has accounted for nearly one-third of all GDP growth since the crash—remains a beacon of opportunity, and the preferred place for migrants, a slot that used to belong to the Golden State.

As a country, we stand at the verge of a historical opportunity to assure U.S. preeminence by melding our resource/industrial economy with a tech-related economy. Our strength in ephemera can be melded with the power of a resource and industrial economy. In the process, we can choose widespread and distributed prosperity or accept a society with a few pockets of wealth—largely in expensive urban centers—surrounded by a downwardly mobile country.

The good news is America—alone among the world’s largest economies—has demonstrated it can master both the ephemeral and tangible economies. To thrive we need to have respect not for one, but for both.

This piece first appeared at The Daily Beast.

Joel Kotkin is executive editor of NewGeography.com and Roger Hobbs Distinguished Fellow in Urban Studies at Chapman University, and a member of the editorial board of the Orange County Register. He is also executive director of the Houston-based Center for Opportunity Urbanism. His newest book, The New Class Conflict is now available at Amazon and Telos Press. He is also author of The City: A Global History and The Next Hundred Million: America in 2050. He lives in Los Angeles, CA.

January 25, 2015