New Geography

Category: Policy

  • Political Footballs: L.A.’s Misguided Plans For A Downtown Stadium

    Over the past decade Los Angeles has steadily declined. It currently has one of the the highest unemployment rates (roughly 12.5%) in the U.S, and there’s little sign of a sustained recovery. The city and county have become a kind of purgatory for all but the most politically connected businesses, while job creation and population growth lag not only the vibrant Texas cities but even aged competitors such as New York.

    Rather than address general business conditions, which sorely need fixing, L.A. Mayor Mayor Antonio Villaraigosa and the other ruling elites have instead focused on revitalizing the city’s urban core, which has done little to boost the region’s overall economy in generations. The most recent example of such foolishness is a $1.5 billion plan to build a football stadium, named Farmers Field, downtown,unanimously approved by the city’s City Council and backed by the city’s “progressive” state delegation.

    Like most of  the dominant political class, California Senator and former City Council member  Alex Padilla cites the sad state of the local economy as justification for approving the plan. But, in reality, it’s hard to find something more profoundly irrelevant than a football stadium.

    Indeed years of independent investigations have discovered that urban vanity projects like sports teams and convention centers add little to permanent employment or overall regional economic well-being. As a Minneapolis Fed study revealed, consumers simply shift their expenditures from other activities to the new stadium. Certainly mega-stadiums have done little to boost sad-sack, depopulating cities such as St. Louis, Baltimore or Cleveland.

    Commitments to mega-projects tend to further drive urban areas into debt, largely by issuing more bonds that taxpayers are obligated to pay back. One particularly gruesome case can be found in Harrisburg, Pa., whose underwriting of a minor league baseball team helped push the city into bankruptcy. To get the stadium deal, Los Angeles, already over-indebted and suffering a poor credit rating, will issue another $275 million.

    Such projects often obscure the real and more complex challenge of nurturing broad-based economic growth. This would require substantive change in a city or regional political culture. Instead the football stadium services two basic political constituencies: large unions and big-time speculators, particularly in the downtown area. The fact that the stadium will be built with union labor, for example, all but guaranteed its approval by the city’s trade union-dominated council.

    Downtown developers and “rent-seeking” speculators, the other group behind the project, have siphoned hundreds of millions in tax breaks and public infrastructure in the past decade. They have done so – subsidizing companies from other parts of Los Angeles, entertainment venues and hotels — in the name of a long-held, impossible dream of turning downtown Los Angeles into a mini-Manhattan. Perhaps no company has pushed this more effectively than the stadium developer Anschutz Entertainment Group, a mass developer of generic entertainment districts around the world. AEG has expanded its influence by doling out substantial financial donations to Mayor Villaraigosa and others in the city’s economically clueless political class.

    This explains how the stadium was exempted from the state’s draconian anti-greenhouse gas legislation. The city promises that the stadium will be the “most transit-friendly” football stadium in the nation, which strikes locals as absurd. Football crowds tend to be drawn largely from  affluent types who don’t live anywhere close to downtown and rarely take public transit to their jobs, much less over the weekend. D.J. Waldie, a leading Los Angeles writer, described the entire project as “cloaked in green snake oil.”

    An even more nebulous claim is that downtown needs the investment in order to drive regional growth. To be sure, recent years have seen the growth of a central city restaurant scene, and some 30,000 residents now live in the area compared to closer than 20,000 a decade ago. Yet just outside the immediate, highly-subsidized core, population growth in the surrounding parts of central city over the past decade stood at a mere 0.7%, the lowest rate since the 1950s. The vast majority of the region’s population growth took place in the far-flung regions of the San Fernando Valley.

    As an economic engine, downtown LA simply does not warrant the attention, nor the special treatment,  that the city’s ruling elites give it. For one thing, it represents a far smaller part of the city’s economy when you compare it to the urban cores of Washington, D.C., or New York City. Indeed, in New York and D.C. roughly 20% of all employment is in the central core; in Los Angeles it’s barely 2.5%.

    And, despite all the hype, fewer people now work in downtown L.A than in the 1980s and 1990s, when the area was populated by corporations and small businesses, many in manufacturing and trade, instead of hip hangouts. A more recent analysis shows that, despite all the hype, the downtown area has created virtually no new net jobs over the past decade.

    LA’s leaders should therefore focus on the systematic causes for the region’s ailing economy. One source of the problem lies in tough environmental rules that, although lifted on behalf of football, clamp on growth of virtually every other industry, including the city’s port and manufacturing sector. Powerful green interests, for example, make any plan to modernize the port all but impossible. This could prove catastrophic when the widening of the Panama Canal will allow aggressive, cheaper posts in the Gulf or Southeast U.S. to compete with the Pacific Asian trade that has driven LA’s port economy for decades.

    Los Angeles’ huge industrial sector has also been a victim of the regulatory tsunami. Manufacturers have lost roughly one-third of their jobs over the past decade as firms head out to more congenial regions with less onerous regulatory burdens. Sadly, Los Angeles has benefited little from the recent upsurge in manufacturing nationwide when compared with metropolitan areas such as Detroit, Salt Lake City and San Antonio.

    Even Hollywood, an industry less affected by green regulations, has begun to lose steam. Film production has dropped by more than half over the past 15 years. LA’s share of film and television production has eroded as well, with much  of the new work headed to Toronto, New Mexico, New Orleans, New York and Atlanta. All these cities offer richer incentives to attract productions than the world’s self-proclaimed “entertainment capital.”

    Faced with these serious regional challenges, officials should place less emphasis on football and creating another generic downtown and more on the city’s uniquely vibrant and heavily immigrant-driven small-business sector, which has been stifled by the state’s regulatory excess as well as the city’s legendary bureaucracy. Business consultant Larry Kosmont notes that the system is particularly tough on smaller, less politically connected firms. “It usually takes two to three times more to process anything in L.A., compared even to surrounding cities,” Kosmont told the Wall Street Journal. “It makes a big difference if you are a major Korean airline or AEG or if you are an independent entrepreneur.”

    Yet to date these entrepreneurs  receive little respect from City Hall. They  are unlikely to be granted the sort of papal dispensations from green legislation so readily given to the football stadium and other downtown projects. Until the disconnect of the leaders from the city’s real economic essence ends, Los Angeles, a city uniquely blessed by its population, climate and location, will continue to flounder, a perpetual underperformer among America’s great urban areas.

    This piece originally appeared at Forbes.com.

    Joel Kotkin is executive editor of NewGeography.com and is a distinguished presidential fellow in urban futures at Chapman University, and an adjunct fellow of the Legatum Institute in London. He is author of The City: A Global History. His newest book is The Next Hundred Million: America in 2050, released in February, 2010.

    Photo "LA Night Lights" by flickr user Steve Jurvetson

  • Florida Gets Dragged Into the 21st Century

    Righteous cries of outrage and anger dominate Florida these days, as unreasonable assaults upon common sense seem to roll with regularity out of the governor’s office. Recently, Governor Scott   published a list of Florida’s higher education faculty, matching salaries to names.  This act was disingenuously styled as an effort towards transparency, but it was really a good old-fashioned right-wing poke at the eggheads. 

    Sadly, this does the Governor no favors, and reinforces the public’s perception of Scott as a reactionary Neanderthal with no heart or soul, perpetually on the wrong side of every issue.   Perception is important because Scott has done some very useful things:  cutting government, eliminating a bloated bureaucracy, stimulating private development, and questioning the economic benefits of all forms of higher education.  Unfortunately, he seems to cloak these actions in such vindictive, uncivil arrogance that the actions themselves remain mostly unexamined.

    The CEO-turned-Governor drove far-reaching budget cuts and deregulation, putting the state legislature into reactive mode, causing many to long for the days of milquetoast former Governor Charlie Crist.   The end result, however, was a budget that went down, not up, for the first time ever, an accomplishment that eluded Crist and his Republican predecessor, Jeb Bush.

    Along the way Scott also eliminated an entire state agency, the Department of Community Affairs (DCA). Some Floridians reacted badly, seeing their state stripped naked of its only protection against the large, out-of-state developers responsible for much of the economic growth in past decades.  While the governor claimed this move would allow towns and cities to determine their own destiny, no more protection from big brother could also mean that small towns, starved for tax revenue, will quickly cave to development pressure regardless of the broader consequences for property values.

    Taking out the DCA was a bold swipe at a bureaucracy that had seen its day come and go.  Established in 1985 to “manage” growth, the DCA failed to manage its own growth, encountered few real estate deals that it didn’t like, and guaranteed that only the largest, most deep-pocketed developers would prevail.  In this moribund economy, developers have yet to gear up for the next boom.  Instead, smaller, more agile players that meet more specific, localized needs are becoming more active.  Now that this large, lawyer-intensive burden is removed, small businesses may have a chance to compete.  Public outcry at large developments may, in fact, be more effective than an easily co-opted bureaucrat when it comes to land values and protection of sensitive wetlands.

    Scott also made national news by rejecting high speed rail between Orlando and Tampa.  Floridians, who were promised this by Barack Obama, were shocked and surprised.  The loss of this vision, along with the potential jobs that it created, was widely bemoaned.  Scott’s move set off a domino effect that has now come to doom the whole program.

    Federal rail programs, given a bad name by the quaint but inefficient Amtrack, make little practical sense today between Tampa and Orlando.  The distance is so short that the train would not be really high-speed in the true sense of the word; just as it reached its cruising speed, it would have to slow down again for Lakeland and other stops.  Missing some key stops such as Disney and lacking connectivity with other rail systems diminishes ridership, there was a real possibility that it would become a white elephant.

    Typecast as a hatchetman, Scott went against type this summer to fund central Florida commuter rail, and it looks like this 19th century spine running north-south through the region will soon be home to Sunrail.  At the recent panel discussion put on by the Orlando Chapter of the American Institute of Architects , “Sunrail” presented plans for 62 miles of track, complete with dreams of low- to mid-rise density clusters at various stops.   Perhaps figuring that the real costs won’t be known until after he is out of office (Sunrail will be 50% federally funded until 2019), Scott threw the region a bone that will create jobs to build and operate the trains. 

    Symposiums on the best way to develop around train stops are already being held.  Job growth and employment-related cluster development plans at least are being discussed. This is some rare good news for Florida’s development community, whether or not the rail system is capable of supporting itself financially .

    True to his form, however, Scott drew hisses for publicly disparaging anthropology, rhetorically asking the Northwest Business Association if it wanted to spend tax money to “educate more people who can’t get jobs in this field ,” preferring instead to focus tax subsidies on science, engineering, and technology.  The remark reinforces the public’s perception of Scott as a man with no heart or soul who seems bent on alienating – often unnecessarily – many whom he needs for support.

    His words mirror the country’s irrational political rhetoric and serve little purpose other than to inflame emotions.  Intent on making enemies with the media, his abuse of the fourth estate prevents constructive dialogue from taking place.  Fatigue at this rancorous rivalry is so high that Scott has become a big turnoff , and whatever he is associated with could quickly be undone the moment he leaves office.  

    It is important to recognize that Florida, under Scott and previous governors, has made strides in diversifying its economy by adding biomedical research through some shrewd venture capital investment.  The state is badly in need of evolving its education system to support these science, technology, engineering, and manufacturing jobs, in order to keep these employers close to home. Bringing Scripps, Nemours, and other research laboratories to the Sunshine State will mean little unless they are reinforced by curriculums producing graduates that will remain in these fields. 

    Scott can and should promote these ideas with a positive spin, mostly because we don’t want to repeat our 1990s experience with the entertainment industry.   A similar state-sponsored effort to bring the film studios was not coordinated much with education, so when state subsidies vanished, moviemakers quickly relocated elsewhere, leaving little trace of their presence behind.

    Scott’s actions have set changes into motion that will all have long-lasting effects in the state of Florida, if they are allowed to remain in place.  It is important for Floridians to realize these achievements and not be too put off by nasty words, nastily delivered. The important long-term effect may be that Scott, while dividing Floridians often unnecessarily, has begun to position the state for recovery.    When the wounds heal, the Sunshine State will emerge more nimble and less bound to institutions that did not serve it well, and will be better positioned to take advantage of the growth potential of America’s fourth most populous state.

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

    Photo: Matthew Ingram

  • Arab Spring – American Winter

    2011 brought us the Arab Spring, a year of protests, turmoil, and revolution. 2012 will usher in the American Winter, a new era of withdrawal and separation for America and the Middle East. Contrary to conventional wisdom, America is poised to step back from the dominant role it has played in the Middle East since 1948.

    The author has traveled to the Middle East for more than two decades during which time there was little change among the dictators, strongmen and mullahs that ruled the desert lands. The author has watched Dubai convert itself from a dusty port to a world-class city with the world’s tallest building and biggest airport. Like most people, he has observed the price of oil rise from $17 per barrel to $145 per barrel at its peak. At $80 per barrel, the developed nations of the world ship a trillion dollars each year to the Persian Gulf, representing the largest transfer of wealth in the history of the world.

    It was said that the Arab people were not ready to embrace democracies like western civilizations. It was a clash of cultures like the Crusades a millennium ago. Suddenly, a political tsunami, known as the Arab Spring, swept away rulers in Tunisia, Algeria, Libya, Egypt and Yemen. It threatens next to topple Assad in Syria and may yet undermine the Islamic regime in Iran.

    The aftermath of the tsunami has been as unexpected as the Arab Spring itself. Ten months after its revolution, The Islamic Party of Tunisia, winners of that country’s free elections, will impose Sharia Law on its people. Sharia law is based on the Koran and the cornerstone of Islamic rule. The United States cannot complain. The elections were free, fair and represent the choice of the people. The Libyan National Transition Council announced they too would seek governance under Sharia law. Free elections are to be held in Egypt. The Muslim Brotherhood is expected to become the dominant party in Egypt. Islamic law will be imposed on all Egyptian citizens in what was a secular country.

    The Iraq Parliament refused to vote to keep American troops in that country, a decision that paves the way for closer relations with the Islamic government of Iran. In Afghanistan, President Karzai stated that in the event of a war he would side with Pakistan over the U.S. The Arab Spring, once believed to be a pro-democracy movement, friendly to the U.S., has not tilted that part of the world in our direction.

    After two decades of military involvement, a trillion dollars spent and the loss of 5,000 soldiers, America ends up withdrawing  from the Middle East with very little to show for its efforts. The fledgling democracies are not likely to be following the writings of Thomas Jefferson but the words of Mohammed and the strict laws of the Koran. The dreams of liberty and multiple democracies in the Middle East, unleashed by President Bush in 2003, have been replaced by popular votes for traditional rule under Islamic law. This could not have been foreseen by those – including many around President Bush – who believed that the people of the Middle East yearned for freedom as we did more than two hundred years ago.

    Welcome to the American Winter. 2012 brings new political realities to bear. America can no longer afford to spend a trillion dollars on foreign adventures and nation building. Its domestic needs are too pressing. One way or another, under a President Obama or a President Romney, America’s military adventure in Iraq and Afghanistan will wind down. In particular, Americans have Muslim fatigue, and rightly so. The cost and duration of the war in Afghanistan, the nation’s longest, the war on terror, the nation’s most invasive, and the two Iraqi wars have exhausted its collective patience, squandered our treasure and divided the country. The never-ending Israeli-Arab conflict that drains $6 billion each year from our Treasury has little to show for the effort. Americans do not believe Muslims appreciate the sacrifice of blood and treasure made to save the Bosnian Muslims from the Serbs, rescue Kuwait from Saddam, free Iraq, remove the Taliban in Afghanistan and now evict Gaddafi from Libya.

    Americans have had enough and, significantly, this now includes many conservatives who in the past supported interventions. Americans will never understand the Tunisians or the Libyans voluntarily voting to impose Sharia law on themselves. They especially are dumfounded by women who vote to legalize polygamy and agree to wear the burka. The American people are through with intimate ties to the Muslim Middle East.  They are ready for the American Winter.

    Overall, Americans will welcome a reprieve from the focus and expenditure of time and treasure on that part of the world. It will be good to take a break for a decade or two. It will be healthy for Americans to allow the Middle East to straighten out its own house. Our military has done a wonderful job decimating the terrorist infrastructure. Predator drones will keep Al Queda volunteers to a minimum. The CIA and FBI have infiltrated enough networks that they no longer have to play catch up. The Arab Spring will force Arabs to look inward to solve their own crisis and not to focus on American involvement in their affairs.

    And for us, there’s the opportunity to turn away from dependence on this region. We now have the energy to power our own economy, yet another reason to take a walk from Arabia.  There are more pressing security concerns – like our economy and mass unemployment at home – and the more potent challenge posed by China.

    An American Winter is coming.   The season couldn’t have turned at a more opportune time.

    Robert J Cristiano PhD is a Contributing Editor at New Geography, the Real Estate Professional in Residence at Chapman University in Orange, CA, Senior Fellow at The Pacific Research Institute and President of the international investment firm, L88 Investments LLC. He has been a successful real estate developer in Newport Beach California for thirty years.

    Arab protest photo by Bigstockphoto.com.

  • HELP WANTED: The North Dakota Boom

    The nation’s unemployment rate has been hovering at nearly nine percent since 2009. But not every state is suffering an employment crisis. In the remote, windswept state of North Dakota, job fairs often bustle with more recruiters than potential workers. The North Dakota unemployment rate hasn’t risen above five percent since 1987.  In the state’s oil country, unemployment hovers at around two percent, and pretty much everyone who wants a job—as long as they are old enough and not incarcerated—is employed.  North Dakota has either tied for or had the lowest unemployment in the country since 2008.   

    The job base of the state (population 672,500) has grown five percent in the past two years. Even more astonishing, there are over 16,000 unfilled jobs, and projections indicate that 45,000 more workers will be needed in the next two years.  Of those jobs, one out of three will be in oil and gas.

    The Booming West

    If you are willing to endure the blazing hot summers and bitterly cold winters, come to western North Dakota, young (or not) man (or woman) and you can get a job. Michael Ziesch has worked with Job Service of North Dakota for the past 15 years and is currently a manager in the Labor Market Information Center. “The average wage in oil and gas is $80,000 plus overtime, and there will likely be plenty of that,” said Ziesch.  Development of the massive Bakken oil field in the western part of the state has tapped out the local workforce.

     If you are not interested in an energy job, consider retail. Employers are paying $15 an hour for convenience store employees and fast food workers. Drive through any community in the area and you will be hard pressed to find a store front devoid of a sign shouting “Help Wanted, Now!” It seems that everything in the state these days ends with an exclamation mark, and for a state filled with unassuming, hardworking, family-centered kind of folks, it’s a little disconcerting.

    New North Dakotans

    Job seekers from outside the state are flocking to Williston, the unofficial capital of the oil boom, located in the remote northwestern corner of North Dakota. The population here has grown from 12,500 to an estimated 22,000 in the past five years.

    Williston is home to 350 oil service companies. Willistonlife.com, an employment and informational website built with the objective of attracting workers to the area, boasts that at any given time, over 1,200 job openings are available in the Williston area alone. On its home page, the website beckons to the nation’s unemployed in large white letters brightly juxtaposed against a black background, “Make Your Move!”

    The wildcat oil culture that the newly arrived encounter, though, is distinctly different than the risk-averse culture of the state. One “New North Dakotan” noted that although long-time residents of the state are pleasant (we smile a lot), helpful (there’s no better place to have a flat tire), kind (we’ll bring you a hot dish if you are sick), and polite (we almost always hold the door open for the person behind us), we are not quite “friendly.” We are a little guarded with folks we didn’t grow up with. Ethnic to us means Norwegian or German. We’re not used to accents other than our own. (And, no, we don’t talk like the actors in the movie Fargo.) One more thing — and this is important — we talk about the weather a lot.

    What should you know before you throw your last $100 in your gas tank and head up to Williston to make cold calls for jobs? Don’t come without a housing plan, or you may find yourself among the hundreds of parking lot denizens, living out of your car.

    New North Dakotans need places to live, creating an enormous construction boom. Williston formerly saw about five new homes a year. So far this year, 2,000 new homes have sprouted up. In 2012, the expectation is for 4,000 more along with apartments, hotels and, outside of town, dormitory-style housing facilities known as ‘man camps’. According to the Williston Herald, since the boom began, the market price of rental housing in Williston has jumped from $300 to $2,000 per month for a modest apartment. Hotels are full and booked for months, charging $170 to $200 a night.  

    Service is hard to come by. Waits of 45 minutes or more are not uncommon at fast-food restaurants. The Dairy Queen closes at 5:00 pm because they can’t retain enough staff to stay open any later, and many small businesses have simply closed their doors for lack of employees. The town’s Wal-Mart doesn’t have enough employees to stock the shelves, so boxes are simply laid open in the middle of the aisles for customers to grab what they need. Locals have discovered a “secret route” into the store to avoid the worst of the incoming traffic, and even the local Luddites have managed to learn how to use the self-checkout lanes as a matter of self-preservation. A professor at Williston State College complained recently that she had to text her husband with a request to pick up clothes hangers while he was out of town visiting relatives because local stores were completely sold out. It’s not only hangers; long lines and low inventory have made running everyday errands a vexing challenge. “It sounds crazy,” this same professor says, “but I order laundry detergent online and have it delivered by UPS to my front door.”

    At Williston State College, faculty often take out their own garbage to help out the strapped maintenance staff.  The school is seeing lower enrollments as students are drawn away from post-secondary education by the lure of instant cash.

    The law of supply and demand has kicked in across all sectors of the community. A severe shortage of contractors, plumbers and electricians means that homeowners wait weeks or even months for simple home projects. The local community college is putting out a second bid for a parking lot because, the first time, they didn’t get any bids at all.

    Even more disturbing in Williston are rumors of impending electricity shortages. Worried about brownouts and blackouts during the long North Dakota winter, many townspeople have picked up generators in Fargo, where they sell for $700, compared to the “sale” price of $1300 in Williston.

    Officials are quick to point out that the state’s larger cities, Bismarck and Fargo, are also thriving. In the Governor’s most recent State of the State address, he posited his explanation of ‘The North Dakota Miracle’: “It is about an educated workforce, low taxation, a friendly regulatory climate.” And if your state happens to be sitting atop 400 billion barrels of oil … hey, it can’t hurt.

    Energy Economics: Boom and Bust

    Oilmen have known for fifty years that beneath North Dakota’s surface lay billions of barrels of oil, perhaps as much as 4 million barrels per square mile.

    In 1952, The Wall Street Journal reported that Williston was receiving a “cornucopia of riches.” Banks were setting new deposit records weekly, and the population had jumped from 7,500 to 10,000.  In the early 1980s, oil prices skyrocketed and the region again became an exploration target as its vast deposits became economically feasible to drill. When prices began to slip, hitting a low of $9 a barrel by 1986, the boom faltered and, even more quickly than it began, it was over. The state spent the later part of the 1990s trying to recover from a brutal bust.

    Today, a perfect storm of two 21st century technologies, hydraulic fracturing and horizontal drilling, along with high prices and unprecedented demand, have come together to make drilling profitable, triggering a new boom that some experts say will be the biggest and longest lasting in the cycle of boom and bust. Conventional wisdom is that this time around the oil boom will be steadier and longer, because oil prices are no longer being defined by the cartels that once controlled the world’s oil prices and, therefore, the economics of energy. In the meantime, the oil pump jacks that dot the skyline are nodding their heads in greeting. Welcome to North Dakota.

    Debora Dragseth, Ph.D. is professor of business at Dickinson State University in Dickinson, North Dakota.

    Photo of Williston, ND traffic jam courtesy of Williston Department of Economic Development.

  • America’s Demographic Opportunity

    Among the world’s major advanced countries, the United States remains a demographic outlier, with a comparatively youthful and growing population. This provides an unusual opportunity for America’s resurgence over the next several decades, as population growth elsewhere slows dramatically, and even declines dramatically, in a host of important countries.

    This demographic vitality, however, can only work if there is substantive increase in the economic growth rate and particularly in employment. A growing population brings new entrants into the labor force at a rapid rate. Historically, a relatively positive relationship between workforce entrants and dependents, both old and young, has generated waves of growth across the past several decades. This is widely known as “the demographic dividend.”

    In the 1950s and 1960s, a relatively youthful population helped drive rapid economic growth first in Europe and then in Japan. By the 1970s, this “youth bulge” shifted to developing nations of east Asia, notably Singapore, South Korea, Malaysia and Indonesia. China experienced this surge in workers in the 1980s and 1990s. More recently, the big winners in youth demographics could be found in countries such as Vietnam, Turkey and Brazil.

    Yet remarkably throughout this period, the United States has retained its relative youthfulness. The last census showed the nation experienced 10 percent population growth over the first decade of the 21st Century, with a final count approaching 310 million people. This is in large part a product both of immigration and higher birthrates.

    Today, the U.S. fertility rate of over two children per woman remains as much as twice as high as many countries, including Russia, Germany, Japan, Italy, Singapore and Korea. As a result, according to U.S. census projections, the United States will continue to grow to upwards of 420 million by 2050.

    In contrast, the populations of longterm competitors among advanced countries—including the European Union, Japan and Russia—are all expected to stagnate and then decline. Japan is a particularly hard case. Its fertility rate has dropped by a third since 1975. By 2015, a full quarter of the Japanese population will be over 65. Generally inhospitable to immigrants, Japan could see its population drop from a current 127 million to 95 million by 2050, with as much as 40 percent of the population over 65 years of age. By then, no matter how innovative the workforce, Dai Nippon will simply be too old to compete.

    To a large extent, Europe shares this dilemma. By 2050, Europe’s population, now numbering 730 million people, will shrink by 75 to 100 million. Italy’s population alone is slated to drop by 22 percent, while Poland’s will be reduced to 15 percent.

    Due to the one child policy and rapid urbanization, China’s population growth is also expected to slow significantly in coming years while the proportion of seniors soars. In the longer run, population growth will be stymied by a large surplus of boys over girls. As a result, notes demographer Nicholas Eberstadt, more than 25 percent of men in their late 30s by 2030 are likely never to marry.

    Perhaps even more challenged will be Russia, whose low birth and high mortality rates suggest that its population will drop 30 percent by 2050 to less than one-third of that of the U.S. Even Prime Minister Vladimir Putin has spoken of "the serious threat of turning into a decaying nation."

    Russia’s de facto tsar has cause for concern. Throughout history, low fertility and socioeconomic decline have been inextricably linked, creating a vicious cycle that affected once-vibrant civilizations such as ancient Rome and 17thcentury Venice.

    Within the next four decades, most of the developed countries in East Asia, as well as Europe, will become veritable old-age homes: A third or more of their populations will be over 65. The U.S. will also have to cope with an aging population and lower population growth. Comparatively speaking though, the U.S. will maintain a relatively youthful, dynamic demographic. In comparison, the percentage of the population over 65 will be only one in five in the United States.

    The reasons for this divergence with other advanced countries likely includes such things as continuing immigration, greater space, larger houses, a strong aspirational culture and a higher degree of religious affiliation. Whatever the cause, a younger demography could lead to a relatively brighter future for America than is now commonly assumed.

    In the near future, the U.S. could reap a potential critical advantage from a particularly large baby ‘boomlet’ among the Millennial generation, the children of the boomers. This next surge in population may be delayed if tough economic times continue, but over time it will translate into a growing workforce, sustained consumer spending and produce a youthful population likely to push innovation.

    The most critical shift will be in the growth of the American workforce which is expected to grow by over 40 percent between 2000 and 2050. In contrast, during the same period the number of entrants to the labor pool will decline by 25 percent in the European Union and Korea and plummet over 40 percent in Japan.

    Due to the rapid aging of China’s population, largely due to the impacts of urbanization, that emerging superpower’s workforce is expected to decline by 10 percent. These demographics suggest a far more difficult future for all these countries, as fewer workers support ever-growing numbers of retirees. China’s lack of an established social welfare system makes this transition even more problematic.

    Persistently low birthrates and sagging population growth inevitably undermine the growth capacity of an economy. In large part due to demographic forces, by 2050 Europe’s economy could be half that of the United States’ economy.

    Even frugal Germany, by far Europe’s strongest economy, can expect its growth to be constrained by ever higher spending on seniors and a diminished workforce. By 2030, notes demographer Nicholas Eberstadt, Germany’s public debt will exceed 200 percent of GDP, with annual debt service accounting for 10 percent of GDP. To put this in perspective, that’s nearly twice Greece’s current burden of debt service.

    Other negative consequences of an aging and stagnant (or declining) population are less tangible, but no less real. Similarly, it is generally younger workers who drive innovation. Children provide a large consumer market and push their parents to work harder. By having children, people also make a commitment to the future for themselves, their communities and their country.

    In contrast, a largely childless society generally produces other attitudes. It tends to place greater emphasis on leisure activities over work. It also promotes a shift away from a focus on future growth and toward paying pensions for the aging. An aging society is likely to resist risky innovation or infrastructure investments meant to serve future generations.

    Yet in the immediate future, population and labor force growth present us with enormous challenges. Perhaps the greatest challenge in this era of economic stagnation lies in providing employmen—and adequate education—to a growing workforce. One cause of the U.S.’s persistently high unemployment and underemployment lies in the rapid expansion of the workforce from the large baby boom “echo” or Millennial generation.

    This growing workforce means the country needs to create 250,000 new jobs a month—twice what we produce in a “good” month today—just to stay even. Younger Americans may be unemployed at rates similar to their European counterparts, but in Europe the labor force will be shrinking. For the US to take advantage of its demographic dividend, we need to create the kind of rapid economic growth that sparks widespread job creation.

    One possible, if unpalatable, alternative to meeting the growth challenge would be for the US to follow the path of demographic decline well under way in Europe and Japan. American birthrates, which were rising during the first part of the 2000s, have fallen with the recession and could conceivably become permanently depressed—as occurred in the 1930s—if prospects for economic growth fade.

    A weaker economy could also slow immigration, which has been one of the main causes for the country’s relatively favorable demographics. Roughly one-quarter of all the country’s elementary school students are either immigrants or the children of immigrants. Overall, Mexican immigrants, the largest group coming to the country, average 2.5 children per family compared to 1.8 to their Caucasian counterparts.

    Immigrants, particularly from Mexico, have been hard-hit by the recessions, in large part due to declines in construction and manufacturing where their losses have been higher than native-born Americans. This, not surprisingly, has created diminishing immigration levels across the country.

    Overall, migrants leaving Mexico, both legally and illegally, have dropped by more than two-thirds since 2005, according to that country’s census. Illegal immigration, according to the Pew Center, has fallen even more precipitously, from over 500,000 in 2000- 2004 to barely 100,000 in 2010. This pattern may continue in part due to lower birthrates in Mexico itself—where the average family size has decline from 6.8 children to barely 2.0—and by improving economic conditions.

    A drop-off in immigration from Mexico and elsewhere could be particularly problematic for cities such as New York or Los Angeles, long reliant on newcomers to make up for high levels of domestic outmigration. Already, migration to these cities is roughly 50 percent below the levels in 2000. In 2001, for example, New York welcomed almost 160,000 newcomers; in 2009, that number had dropped to barely 100,000.

    If tough times continue, these levels could drop even further, with profound consequences. Immigrants, for example, fuel much of the urban workforce.

    In Los Angeles, where immigration dropped by 40,000 annually over the past decade, immigrants constitute roughly half the total of those employed.

    Perhaps even more importantly, these immigrants have become critical to creating the kind of grassroots capitalism necessary to create jobs. In the last decade, largely immigrant populations such as Hispanics and Asians expanded their number of businesses at 50 percent higher rates than the overall average. According to the Kaufmann Foundation, the immigrant share of all new startups doubled from 14 percent in 1996 to 29 percent in 2010.

    The future of these new businesses could now be clouded both by diminishing immigration as well as stirring antiimmigrant sentiment. It is perhaps too early to know if strict controls on illegal immigration—enacted in states such as Georgia and Arizona—will slow down migration to other metropolitan regions but this has to be considered as a possibility. Ironically, many of these same areas have been those that were becoming increasingly attractive to newcomers escaping high housing costs in traditional coastal urban magnets.

    Another potential threat to America’s demographic vitality lies in the potential imposition of strong controls on suburban housing development. This is a policy widely supported among Administration officials and their green allies. In places like coastal California where such policies are already in place, housing prices remain artificially elevated, driving large numbers of young families into the interior and further out to other states.

    Generally speaking, people are far more likely to have children in singlefamily homes than in apartment complexes. These potential families also may be impacted by rising tax rates and fiscal burdens, particularly at the state and local levels. Without strong economic growth, it’s difficult to see how even the current level of public education—which is paltry, at best—can be maintained.

    Already poor schools in cities constitute a major reason why so many “young and restless” move from cities to suburbs; but if suburban education also declines, they may be left to send their children to private schools as well. It is logical to assume that, once forced to pay for schools, many parents will become hesitant to have multiple offspring.

    Yet ultimately the question of demographics—and its close link to the need for economic growth—represents a kind of existential question for civilizations. This is understood by some in Europe and Japan, where there have been attempts to increase benefits for families as concerns over demographic declines have grown.

    But can policy really change a society that is falling into demographic decline? So far state measures to encourage child-bearing have failed in a host of countries in both Europe and Asia. One possible solution for Europe, immigration, is now being curbed largely due to fears connected to people of Islamic heritage.

    Similarly, it is difficult to imagine how historically homogeneous China, Korea or Japan would be willing to accommodate large numbers of newcomers. Among the advanced Asian countries, only Singapore, with one of the world’s lowest birth rates, has contemplated using immigrants to stabilize workforce growth and prevent a process of hyper-aging.

    Some in the U.S., particularly on the far right, also oppose greater immigration, in part due to fears of the resultant ethnic shift away from a white majority. In addition, many environmental groups around the world oppose steps to revive birthrates. Some even consider procreation of new carbon-belching citizens as something close to anathema. In Great Britain, Jonathan Porritt, chair of the U.K.’s Sustainable Development Commission has advocated cutting the island’s population in half as a way to reduce global greenhouse gases.

    For their part, some America greens have expressed concern over our country’s relative fecundity. Groups like the Center for Biological Diversity and Greenpeace seek to see a cut in our slightly above replacement level birthrate.

    These pressures, as well as persistently low economic growth, could lead America into a Japanese or European style demographic decline. A growing population may create great environmental and economic challenges, but it seems clear that a scenario of persistent decline and rapid aging presents a far worse prospect.

    This piece originally appeared in Business Horizon Quarterly, published by the National Chamber Foundation.

    Joel Kotkin is executive editor of NewGeography.com and is a distinguished presidential fellow in urban futures at Chapman University, and an adjunct fellow of the Legatum Institute in London. He is author of The City: A Global History. His newest book is The Next Hundred Million: America in 2050, released in February, 2010.

  • Primatene And The War on (Asthma) Drugs

    On December 31, 2011, Primatene Mist, the only over-the-counter asthma inhaler still available, will be taken off the market. The ban is being pointed to as an example of regulatory overreach by the Obama administration. As a physician and asthma specialist, I have been observing the Primatene controversy for — without exaggeration — decades, and have concluded that there’s blame enough to share between both the pro and con government regulation camps, as well as the pharmaceutical and financial industries.

    The official reason for the ban is the danger Primatene poses to the environment. I have always thought that extending the ban on chlorofluorocarbon propellants (CFCs) to medication was an example of regulatory overkill, because medication is such a small part of the problem. However, it does help to look at the context. Back in 1987, when Ronald Reagan was President and the Montreal Protocol was written, there was international consensus that we needed to do something about depletion of the ozone layer high in the atmosphere, which was causing problems for us here on earth. For many of the products releasing these gasses into the atmosphere — car air-conditioners, hairspray, and deodorant, for example — alternatives could plausibly be found. I wish we could find a way to relieve asthma attacks with a roll-on, but we can’t.

    Medical aerosols were given more time than other products, and, frankly, I don’t think we’ve done a very good job of replacing them. The new inhalers don’t deliver medication as efficiently as Primatene delivers its active ingredient. Still, anyone who looks at the timeline for the upcoming restriction can see that the key decisions were made in 2006 and in 2008. The current administration is following the timetable set by its predecessors.

    The charges of over-regulation have been accompanied by newly expressed sympathies for the plight of poor people with asthma. I think the greater disservice was done recently when stronger air-quality regulations were postponed. The best way to treat asthma is to reduce its incidence, and air quality is one of the biggest factors. It’s unfair to generalize, but I have a feeling that some of the people looking to demonize Big Government for regulating Primatene were also calling tighter air-quality regulations “job-killers” a few weeks ago.

    The best argument against Primatene falls outside of the environmental realm, and that is the medical case. The active agent is epinephrine, which is pharmaceutical adrenaline. This has the ability to relieve the airway tightness produced by an asthma attack, also known as bronchoconstriction. In this, it resembles the action of the preferred asthma-relief medicine known generically as albuterol. However, epinephrine also stimulates the heart. This makes it unsuitable for large numbers of asthmatics who also have heart problems. Most of the people who rely on Primatene are poor, and often overweight and hypertensive. These regular jolts to the heart are not doing them any good.

    In addition, it does nothing to control asthmatic inflammation, which is best accomplished with systematic, daily doses of inhaled corticosteroids, a very different kind of drug. Asthmatic lungs are what British doctors called “twitchy,” i.e., they are chronically inflamed and primed for any asthma trigger, such as diesel fumes, airborne allergens, or viruses, to touch off an attack. Primatene treats symptoms, not causes, and I have no doubt that users miss a lot of work or school and are sub-par performers when they do go. Uncontrolled inflammation is remodeling their airways, costing them lung capacity for the long haul.

    Many who decry the passing of Primatene believe the ban was contrived to squeeze more money out of those who can least afford it. They probably have a point. I would love to see the FDA memos and transcripts from 2006 when the Primatene decision was made, or from 2008 when the fuse was lit, not to mention those of the current owners when they decided to acquire the drug. Even without access to these secrets, we know that drug makers like to tweak existing medicines and bring them back on the market at higher prices than they command over the counter, and that investors sometimes buy up the rights to older drugs with exactly this in mind.

    It doesn’t always work. The next generation drugs are sometimes no improvement over the previous ones. Last year I wrote a post commemorating a landmark: Never before in over 30 years of practice had an entire month passed in which I hadn’t written a prescription for an oral antihistamine. The OTC versions were good, and the new drugs weren’t so much better that they justified prescribing.

    When it comes to asthma, I believe in active intervention. The economics of good asthma care have proven themselves again and again. Want to do something for poor people with uncontrolled asthma? Pay for systematic care. Want to lower the nation’s emergency room bills? Help people control inflammation in their airways through daily use of medication and reducing exposure to triggers. Treating asthma symptoms, whether with Primatene or albuterol, is not asthma treatment, any more than a ride in an ambulance is health care.

    Dr. Paul Ehrlich is co-author with Dr. Larry Chiaramonte and Henry Ehrlich of Asthma Allergies Children: A Parent’s Guide (Third Avenue Books), available only from Amazon.com and from Barnes & Noble. He is co-founder of the website www.asthmaallergieschildren.com, and president of the New York Allergy and Asthma Society. He has been featured as one of the top pediatric allergy and immunology specialists in New York Magazine for the last 10 years.

    Photo by eo was taken: Asthma Map

  • Obama’s Off-target Class War

    For many conservatives, the notion of class warfare that President Barack Obama now evokes is both un-American and noxious — a crass attempt to cash in on envy among the masses. Yet the problem is not in class warfare itself — but in being clear what class you are targeting.

    In this sense, Obama’s populism is little more than a faux version. He is not really going after the privileges of the super-rich — that would involve actions like removing the advantages of capital gains over earned income or limiting dodges to nonprofit foundations or family trusts. Rather than a war against plutocrats, Obama’s thrust is against the upper end of the middle class, whose income is most vulnerable to higher taxes.

    The president is within his rights to use these class warfare tactics; it’s just too bad he is aiming at the wrong target. Exploiting class divisions, in fact, has long been a part of American politics — from the Jacksonian era through Abraham Lincoln, the New Deal and even Bill Clinton. Obama’s sudden tilt toward class warfare may thrill left-wing commentators such as The American Prospect’s Robert Kuttner. But it’s no real threat to the real ruling classes.

    Though the president’s rhetoric focuses on “millionaires and billionaires,” his proposals do less harm to the ultrarich and their trustifarian offspring than to the large professional and entrepreneurial classes, whose members are earning more than $200,000 a year. More affluent than most Americans, these members of the upper middle class hardly constitute oligarchs. Ninety percent of the targeted class earns less than $1 million annually. Only a tiny sliver, or .01 percent, are billionaires.

    Senate Majority Leader Harry Reid’s proposal to raise the target income level closer to $1 million is a concession to political common sense — but still avoids the big distinction between investor and income earner. Meanwhile, the administration’s rhetorical gambit of using Warren Buffett as the class warfare poster boy reveals its fundamental disingenuousness.

    Many rich do avoid high taxes through dynastic trusts concocted largely to avoid the Internal Revenue Service. Others, like Buffett, put vast amounts into foundations — in his case, the Bill and Melinda Gates Foundation, where it sits tax free. In addition, the patrician class, because its members tend to be more active investors, also pays less, largely because its capital gains earnings are taxed at a low 15 percent rate, less than half that paid by high-income professionals.

    Obama’s biggest problem with class is that his policies have made a bad situation worse. During both the Clinton administration and most of the George W. Bush years, the rich prospered. But so, too, did middle- and working-class homeowners, professionals and construction workers.

    Today, however, only the high-end housing market, roughly 1.5 percent of the market, is flourishing. The vast majority have seen their property values shrink — down 30 percent since 2006. Markets, like Manhattan , which is increasingly dominated by foreign investors, have surged — the average price of a New York condo or co-op has topped $1.4 million, a nifty 3 percent increase over last year.

    But to a large degree, this reflects those who are the biggest beneficiaries of the largesses of Treasury Secretary Timothy Geithner and Fed Chairman Ben Bernanke: hedge fund managers, investment bankers, the corporate aristocracy and officials of “too big to fail” banks. For these financiers, the time since the economic collapse has been very fat years — at least until the European debt crisis.

    The situation, however, has been far worse for small businesses — with serious consequences for job creation. The number of start-ups with employees — the traditional source of new jobs — has dropped 23 percent since 2008. Most entrepreneurs, according to the National Federation of Independent Business, expect the job market to weaken and unemployment to stay high for the foreseeable future.

    “Corporate profits may be at a record high,” said Bill Dunkelberg, chief economist of the National Federation of Independent Business, “but businesses on Main Street are still scraping by.”

    Obama’s phony class war also carries considerable political risk. As Mark Penn, the former Clinton adviser, and others have pointed out, the newest Obama tax strategy most penalizes the professionals who flocked to his cause in 2008 . These voters — concentrated largely in high-tax, high-cost blue states — are also particularly vulnerable to any reduction of write-offs for mortgage interest and state taxes.

    Obama’s left turn also fails to address the America’s biggest problem: how to ignite broad economic growth.

    It should now be clear to all but the most deluded that the administration’s bankrolling of massive solar projects and embrace of hopeless causes like high-speed rail have not reaped much of a bonanza. Indeed, in many places where the administration’s “green” agenda has been adopted most fervently, like California, unemployment rates now surpass even Michigan’s.

    Obama’s misguided economic notions can be seen even when he looks to solve our critical jobs shortage. In addition to the “green jobs” fiasco, the president is looking to Silicon Valley and the information economy — which have lost jobs since 2006. Facebook, Apple, Google and the rest may be swell representatives of American ingenuity — but employ relatively few people in America, and mostly the best educated and thus least vulnerable.

    In contrast, the administration displays relatively little support — and passion — for the many middle-income Americans who depend, directly or indirectly, on industries like oil and gas, warehousing, construction and, except for the bailed-out auto firms, manufacturing. In these sectors, only the fossil-fuel industry has done well — adding more than 500,000 generally well-paying jobs since 2006, despite the Environmental Protection Agency’s best efforts to slow its progress.

    Workers in the energy field – in which salaries average more than $100,000 annually — reasonably fear their jobs could be threatened if Obama is reelected. This could damage his appeal in states like Ohio and Pennsylvania, where many working-class voters are now counting on new oil and gas finds to spur the growth of high-wage employment.

    So how best to confront America’s growing class division? With serious economic growth beyond Wall Street. A flatter tax system with fewer exemptions, limiting trusts and foundations and ending the preference for capital gains would force the wealthy to re-engage the economy. They would have fewer ways to hide their money. Sweep aside both subsidies for oil and gas companies and the renewable industry, regulate sensibly and market forces can drive exploration and development.

    Will Republicans support this approach? Many seem almost incapable of acknowledging the threat to democracy and our social order now posed by the growing concentrations of wealth that eerily recall the 1920s. Others prostitute themselves to fossil-fuel industries — the way the Democrats kowtow to rent-seeking green capitalists. Meanwhile, with Obama’s once strong support on Wall Street weakening, they seem all too eager to dance to big money’s tune to fill their own coffers.

    It’s time to finally acknowledge that the whole “trickle down” from Wall Street approach has been discredited — and with it the current regime of class privilege. You don’t have to be a member of Occupy Wall Street to doubt that what’s good for the top investment bankers is necessarily good for the vast majority of the country.

    Neither mindless budget-cutting nor politically motivated redistribution can solve the growing economic divide or create new wealth. Instead, we need a tax and policy regime that stops favoring financial insiders and instead focuses incentives on the grass-roots hard work and ingenuity that have long been America’s greatest economic asset.

    This piece originally appeared at Politico.com.

    Joel Kotkin is executive editor of NewGeography.com and is a distinguished presidential fellow in urban futures at Chapman University, and an adjunct fellow of the Legatum Institute in London. He is author of The City: A Global History. His newest book is The Next Hundred Million: America in 2050, released in February, 2010.

    Photo of protected Wall Street bull by hunter.gatherer.

  • Australia’s Carbon Tax Battle: Where it Fits into the Global War

    Next week Australia’s Parliament is set to pass a carbon tax that has proven so divisive it may bring down the Labor-Green government. By setting a low price on carbon, returning the money raised to industry and consumers, and relying so heavily on offsets, the legislation is further proof of the iron law of climate policy. A better way forward would be for Australia to impose a modest fee on coal mining and use the money to support its advanced manufacturing industries and innovation to make clean energy cheap. Below is our take on the legislation in Australia’s news magazine, Crikey.

    As two Americans watching from the sidelines as Australia tears itself apart over a carbon tax, it is impossible not to be reminded of our own country’s self-destructive battle over cap and trade in 2009 and 2010. And little wonder why: the Left and Right parties in Australia have adopted virtually wholesale the positions taken by Left and Right parties in America.

    The Labor Party has borrowed from American Democrats the strategy of giving out money to win over consumers, powerful industries, and unions. The Liberal Party has borrowed from American Republicans the strategy of attacking climate scientists and mobilising a populist backlash.

    Of course, the great difference is that while Democrats did not get their cap and trade law, it now seems that the Australian Labor-Green coalition will get its carbon tax. But Australia’s populist backlash against the legislation will, at minimum, slow its implementation and, at most, result in a change of government and its ultimate repeal.

    Not that its rapid implementation would have any effect on emissions. The carbon tax will be far too small to make clean energy cost-competitive with coal. And the government has announced it will give back to consumers more than it collects through redistributive tax policies. As in Europe, Australia can meet its emissions targets only by purchasing dubious carbon offsets.

    While the Liberal Party has, like the Republican Party, behaved badly and rejected good science in reaction to bad policy, the real blame for the inevitable policy failure lies with the green movement. In Europe, the US and Australia, environmental NGOs and the center-left generally has grossly oversold the impact of pricing carbon, the readiness of renewable energy, and the political sustainability of their schemes.

    Though some greens try to fudge the numbers, no climate or energy analyst today can credibly claim that renewables are cheap enough to compete broadly with fossil fuels. Solar is three to five times more expensive than coal, and that’s not counting the high cost of storage and transmission. No nation — not Australia, not Germany, not China — will raise carbon prices significantly enough to make solar and wind competitive with coal, much less natural gas.

    For this reason, every framework to mandate emissions reductions — whether Europe’s Emissions Trading Scheme (ETS), cap and trade, or Labor’s carbon tax — contains numerous loopholes designed to rebate or otherwise blunt higher energy costs to industry and consumers, greatly lowering the effective carbon price.

    The right-wing everywhere blusters that efforts to price carbon will destroy the economy. This is nonsense. Everywhere the carbon prices have been too low to have any discernible impact. Australia’s carbon price would cost households less than $5 per week more in groceries. Many households will get back in assistance more than the carbon tax costs. If the plan applied to petrol, it would raise the cost per litre by a few cents. In any case, in recent years the price of most fossil fuels has already increased by much more than any proposed carbon tax, and we still see economic growth coupled with increasing use of those fuels.

    Climate analyst Roger Pielke, Jr. calls this “the iron law of climate policy.” Governments might impose a carbon tax, but never high enough to actually send the “market signals” the Labor-Green alliance has come to believe it will. That would be political suicide.

    Europe has convinced Labor and the Greens that it has reduced its emissions, but it can only make this claim because it arranged for Kyoto to count reductions beginning in 1990, not in 2000, when the treaty was implemented. This allowed Britain to count as part of its reductions its move to natural gas and Germany to count the closure of inefficient Eastern Bloc coal plants — both of which happened for reasons that had nothing to do with global warming.

    To avoid the economic pinch, the carbon tax legislation will allow half of emissions reductions to come from offsets. But it is hard, after more than three years of investigative reporting and reports by independent auditors, to conclude that carbon offsetting is little more than an elaborate scam — some companies and landowners get paid for doing what they would have done anyway, and others game the system.

    Advocates for the carbon tax defensively insist that, though Australia’s contribution to global emissions is, for all practical purposes, nil, it is important to join up with the international community.

    But the international community is more divided than ever, with China, the world’s largest emitter and energy user, insisting that only rich countries should be required to reduce its emissions, so it supports extending the Kyoto protocol, which exempts China from making any reductions. Europe mostly sides with China on extending Kyoto, but Japan and Canada side with the United States on the need for any agreement to include China.

    These differences will not be resolved in Durban, later this year. The idea that the United Nations will oversee shared economic sacrifice through higher energy prices — the idea that captivated greens in the developed world over the last decade — is dead.

    While the carbon tax allows the Labor-Green coalition to show Australia’s cosmopolitan face to the world, the loopholes and carve-outs reveal the reality of Australia’s mining economy. Australia exports more emissions every year in the form of coal sent to Japan, China and elsewhere than it generates domestically. Given the importance of coal to the Australian economy, it’s little wonder that Labor will allow coal exports to double over the next 10 years.

    But Labor need not worry that Europe will make note of its hypocrisy. The German environment minister famously boasted that the great thing about carbon offsets is that they allowed Germany to keep building coal plants. Over the last decade Germany has brought 11 gigawatts of coal-fired generation online, about six times the electricity it gets from its much-vaunted solar panels. Today, having shut down its nuclear plants in a reaction to Fukushima, Germany’s dependence on fossil fuels will only deepen.

    There is a better way. Instead of trying to make fossil energy more expensive, Australia should work to make clean energy cheap. This can be done through a concerted R&D and innovation push funded by the government. A much smaller fee levied on coal production could generate $10 to $20 billion a year for Australia to spend on research labs, prizes, and procurement contracts with private firms, all aimed at getting the technological breakthroughs needed for renewables to be in a position where they can compete with fossil fuels. Such a strategy might also help Australia reduce its dependence on mining and start to engage in more advanced technology manufacturing and innovation.

    The climate war between greens and skeptics will rage on, but there is no reason a reasonable bloc of centrist thinkers inside and outside of the Labor and Liberal parties cannot put forward a new, more pragmatic approach. Perhaps Australia can be the first to move the international focus away from unrealistic dreams and economic sacrifice and toward technological innovation and economic opportunity.

    Shellenberger and Nordhaus are co-founders of the Breakthrough Institute, a leading environmental think tank in the United States. They are authors of Break Through: From the Death of Environmentalism to the Politics of Possibility, and will be appearing at the Adelaide Festival of Ideas, which runs Oct 7 – 9. Check out the full festival program here, most sessions are free.

    Photo by Jarrod Carruthers

  • Florida Repeals Smart Growth Law

    The state of Florida has repealed its 30-year old growth management law (also called "smart growth," "compact development" and "livability"). Under the law, local jurisdictions were required to adopt comprehensive land use plans stipulating where development could and could not occur. These plans were subject to approval by the state Department of Community Affairs, an agency now abolished by the legislation. The state approval process had been similar to that of Oregon. Governor Rick Scott had urged repeal as a part of his program to create 700,000 new jobs in seven years in Florida. Economic research in the Netherlands, the United Kingdom and the United States has associated slower economic growth with growth management programs.

    Local governments will still be permitted to implement growth management programs, but largely without state mandates. Some local jurisdictions will continue their growth management programs, while others will welcome development.

    The Need for A Competitive Land Supply: Growth management has been cited extensively in economic research because of its association with higher housing costs. The basic problem is that, by delineating and limiting the land that can the used for development, planners create guides to investment, which shows developers where they must buy and tells the now more scarce sellers that the buyers have little choice but to negotiate with them. This can violate the "principle of competitive land supply," cited by Brookings Institution economist Anthony Downs. Downs said:

    If a locality limits to certain sites the land that can be developed within a given period, it confers a preferred market position on those sites. … If the limitation is stringent enough, it may also confirm a monopolistic powers on the owners of those sites, permitting them to raising land prices substantially.

    This necessity of retaining a competitive land supply is conceded by proponents of growth management. The Brookings Institution published research by leading advocates of growth management, Arthur C Nelson, Rolf Pendall, Casey J. Dawkins and Gerrit J. Knapp that makes the connection, despite often incorrect citations by advocates to the contrary.   In particular they cite higher house prices in California as having resulted from growth management restrictions that were too strong.

    …even well-intentioned growth management programs … can accommodate too little growth and result in higher housing prices. This is arguably what happened in parts of California where growth boundaries were drawn so tightly without accommodating other housing needs

    Nelson, et al. also concluded that “… the housing price effects of growth management policies depend heavily on how they are designed and implemented. If the policies tend to restrict land supplies, then housing price increases are expected” (emphasis in original). 

    In other words, if growth management policies do not maintain a competitive land supply, house prices are likely to rise in response. This is basic economics. Restricting the supply of any good or service in demand is likely to lead to higher prices, all things being equal.

    The loss of a competitive land supply was seen during the real estate bubble in the unprecedented escalation of house prices in California (which was already high), Oregon, Washington, Phoenix, Las Vegas, parts of the Northeast and Florida. In these markets, the demand from more liberal lending standards was much greater than the land available for development under growth management plans and government land auctions.  By contrast, house prices generally stayed within historic norms in metropolitan areas where land supplies were not constrained by growth management programs, such as Dallas-Fort Worth, Houston, Atlanta, Austin, Indianapolis, Kansas City and elsewhere.

    Housing Price Escalation in Florida: In 2000, the four Florida metropolitan areas with more than 1,000,000 population had Median Multiples (median house price divided by median household income) near or below the historic norm of 3.0. By late in the next decade, all four metropolitan areas reached unprecedented levels of unaffordability. In Miami, the Median Multiple reached 7.2. In Orlando, the Median Multiple peaked at 5.2, 70 percent above the historic norm. In Tampa-St. Petersburg, the Median Multiple peaked at 4.8, 60 percent above the historic norm. The peak in Jacksonville was a more modest 3.6, though this was still an 80 percent increase.

    By 2010, the Median Multiple has declined to hear the historic norm in Orlando and Tampa-St. Petersburg and slightly below in Jacksonville. The Median Multiple remained well above the historic norm in Miami, at 4.7.

    When Supply Lags Behind Demand: Florida’s housing cost escalation may have been surprising, since Florida has a reputation for liberal land-use regulation. However, the growth management act had long since turned the state toward a shortage of land supply relative to demand as described by Wachovia Bank in a 2005 analysis.

    "While all the stars seem to be perfectly aligned on the demand side, the supply of housing in Florida has been much more problematic. Even though residential construction has soared to new highs recently, the supply of housing has lagged woefully behind demand in recent years. This has been particularly true for single-family homes, where population growth, a rising homeownership rate, and strong demand for second homes and vacation properties created a demand for 560,000 new single-family homes between mid 2000 and mid 2004. During this period builders only delivered 540,000 units. When you add in the growing demand for townhouses and condominiums, buyers were looking to purchase 675,000 new homes during this period, while builders were supplied just 570,000 units. No wonder prices have been surging!

    The chief impediment to new construction has been a shortage of developable land. The shortage primarily results from a growing resistance to new development. The state is not running out of space. Nearly every community in Florida and the state itself are looking at some type of limitations on new residential development. While well intentioned, these initiatives are making it more time consuming and expensive to build homes in Florida. Others are taking land off the market, designating areas for green space, or preserving space for industrial development. The net result has been dramatically higher land prices across much of the state."

    The point of the Wachovia analysis is that unless there is a sufficient supply of land, the price of housing is likely to rise. Having a lot of land is not enough. There must be enough land to accommodate demand at affordable land and housing prices (Note).

    The Florida action is the most successful reversal of house price increasing growth management regulations to date.

    Other Advances: There have, however, then more modest advances.

    After taking office in 2003, Minnesota Governor Tim Pawlenty replaced the board of directors of the Metropolitan Council in Minneapolis-Saint Paul. The previous board had been spent on the following Portland style growth management policies, including the enforcement of a variant of the urban growth boundary. The new board exhibited more liberal attitudes toward residential development, and the housing bubble did not produce the extent of housing affordability in the Twin Cities that occurred in growth management areas such as Portland, California and Florida.

    The Conservative- Liberal coalition government of the United Kingdom has proposed modest relaxation of some of the world’s most restrictive land use regulations, which could lead to an improvement of housing affordability in the nation. Kate Barker, who was then a member of the Monetary Policy Committee of the Bank of England was commissioned to examine land-use regulation and housing affordability in England and found a strong association between the loss of housing affordability and restrictive land use policies. This association between Britain’s strong land use regulation and higher house prices was noted in the early 1970s research led by Sir Peter Hall of the University College, London.

    For the Future: The relaxation of overly restrictive growth management policies could not have come at a better time. With the squeeze on the middle-class getting tighter, fewer households can afford higher   housing costs associated with growth management areas. Moreover, responsive to the political consensus for job creation, more home construction will bring return more good-paying construction jobs in Florida.

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

    —–

    Note: There has been a similar misunderstanding of the housing markets in Las Vegas and Phoenix, where developable land appears to stretch virtually to the horizon. However, what is usually missed is that both metropolitan areas are hemmed in by government land, some of which is periodically auctioned. During the housing bubble, the price per acre of residential land at auction in both metropolitan areas rose as much as the price for land rose over a similar period in Beijing, with its huge land price increases.

    Photo: Orlando (by author)

  • Are We Headed For China’s Fat Years?

    Chan Koonchung’s chilling science fiction novel The Fat Years — already an underground sensation in China — will be published in the U.S. January 2012. The book, first published in Hong Kong in 2009, is partly so chilling because it reveals a scenario that is all too plausible. Set in 2013, it takes place after a second financial crisis  (euros, anyone?) that all but destroys the Anglo-American economies and ushers in “China’s golden age of ascendancy.”

    The nation that leads the world in The Fat Years is less bleakly dystopian than the Stalinist state portrayed in George Orwell’s 1984 or the biologically controlled society of Aldous Huxley’s Brave New World. Yet it is supremely authoritarian — harassing and even executing the rare dissident and putting drugs in the water supply to inflate a sense of well-being among the masses.

    This all-powerful Chinese state looks very familiar. It pursues a commercial strategy of plundering resource-rich regions around the world, often working with the most despicable of regimes such as Zimbabwe. And it harnesses and promotes information technology while maniacally censoring the Internet, rendering cyberspace just another outlet for propaganda.

    It is also increasingly self-confident. As one character — a highly placed party cadre in the story — suggests, this new Chinese model represents “the best option in the world as it really exists.”

    Many in the West already accept this notion. According to a recent Pew survey, nearly half of all Americans believe China will surpass America as the world’s leading power. The same poll found that roughly two-thirds of Britons — and many Europeans — believe similarly.

    The higher circles in Washington and New York generally view the Anglo-Saxon democracy as unable to compete with the more ordered, authoritarian Chinese model. Thrilled by what he sees as “China’s green leap forward,” New York Times columnist Thomas  Friedman proclaims the greater advantages of “one-party autocracy.” After all, Chinese autocrats can adopt “policies needed to move a society forward in the 21st century” without needing to check in with the voters. Even conservative pundit Francis Fukuyama, once a believer in the inevitable triumph of market liberalism, feels that “Anglo Saxon capitalism” has squandered its historic moment. “Democracy in America,” he notes, “has less than ever to teach China.”

    Former Obama Management and Budget chief Peter Orszag is the latest to endorse the down-with-democracy movement. Concerned with our inability to deal with our fiscal problems, climate change and rebuilding the economy, Orszag proposes shifting power from Congress to more “independent institutions” made up of unelected policymakers.  He argues that democracy can be “too much of a good thing.”  Comfortably ensconced at bailed-out Citigroup, Orszag has benefited from a financial system that increasingly resembles China’s, with its intimate ties between the state and banks. Crony capitalism, on both sides of the Pacific, it appears, has its rewards.

    Yet perhaps it is too early for the English-speaking democracies to throw in the towel.  Many who now espouse Chinese supremacy previously argued that Japan, and even Europe, was destined to dominate the world.  Yet Pax Niponica never got past the early 1990s; one former inevitable global hegemon has been downgraded to the sick man of Asia.

    Like Japan, China faces many great, if often overlooked, challenges. There’s a devastated environment, growing social unrest and rising competition from other countries, notably the Indian subcontinent. Labor force growth is slowing rapidly, and the country now has up to 30 million more marriage-age boys than girls, an all but certain spur to political unrest. Misallocation of resources by both central and local authorities threatens to create a major property bubble.

    Throughout modern history authoritarian and more centrally controlled countries have proved very good at playing “catch up” and impressing journalists. China’s Communist regime can order investment into everything from high-speed trains to green technology and massive dam construction. The results — like those previously seen in Nazi Germany and Soviet Russia — are often as physically and technologically impressive, although often cruel to both the environment and people stuck in the way.

    But once a country reaches a certain plateau of development, as Japan did in the 1990s, the nature of the competition changes; it becomes harder to target industries that are themselves in constant flux. Workers who have already achieved considerable affluence tend to be harder to bully or motivate.

    Take the battle for cyberspace. Japan’s ballyhooed bureaucracy sought to conquer this frontier through traditional channels. This allowed the internet to become a competition largely among relative young U.S. companies such as Apple, Amazon, Google and Facebook. The much-feared Japanese takeover of the computer and cultural industries back in the 1980s now has petered out into a historical footnote.

    And despite the recent, often spectacular gains of China , the primary English-speaking countries — the  U.S., U.K., Canada, Australia and New Zealand — still control a quarter of the world’s GDP, compared with 15% for the Sinosophere. Their combined per capita income is six times higher.

    Critically the U.S. and its closest cultural allies — New  Zealand, Australia and Canada —  also have enormous physical advantages. These four countries all stand among the eight largest food exporters in the world.  Recent discoveries on the energy front have made North America, particularly the Great Plains, a potentially dominant force in the global oil and gas industries. China lacks the water, and likely to resources, to match up.

    But the real edge lies with culture, particularly the English language, which has decimated all its traditional competitors — French, German and Russian — over the past two decades.  Difficult to learn, Chinese is not likely to replace English any time soon as the dominant language of culture, air travel, science and technology.

    This cultural dominion can be seen in the media as well. The U.S. and its English-speaking allies account for roughly half of all the world’s audio-visual exports. To an extent never seen before, Anglophones dominated how people think, dress and recreate.

    Arguably our biggest advantage lies in the very thing our upper echelons increasingly disdain — our messy multicultural democracy and our addiction to the rule of law. “The secret of U.S. success is neither Wall Street or Silicon Valley but its long-surviving rule of law and the system behind it,” Liu Yazhou, a Chinese two-star general, recently said. “The American system…is designed by genius and for the operation of the stupid.”

    The stunning lack of such constitutional guarantees is just one reason why many of China’s entrepreneurial elite seek to immigrate to the U.S., Canada or Australia.   Indeed, among the 20,000 Chinese with incomes over 100 million Yuan ($15 million), 27% have already emigrated and another 47% have said they were considering it, according to an April report by China Merchants Bank and U.S. consultants Bain & Co.

    To be sure, the U.S. and its allies need to change in order to compete.  Greater incentives for savings, investments and productive industries must supplant those that promote asset speculation and financial manipulation. But we can do this without importing Asia’s   hierarchical structures. Rather than trying to outdo the Politburo in developing crony capitalism we should seek to reinvigorate our diverse, grassroots economy.

    In any competitive race you do not win by emulating your rivals but by building on your intrinsic strengths.  The best way to avoid the scenario laid out in The Fat Years lies not in abandoning the very strengths that drove our historic ascendancy, but by tweaking and enhancing them so that they propel us in the coming decades.

    This piece originally appeared at Forbes.com.

    Joel Kotkin is executive editor of NewGeography.com and is a distinguished presidential fellow in urban futures at Chapman University, and an adjunct fellow of the Legatum Institute in London. He is author of The City: A Global History. His newest book is The Next Hundred Million: America in 2050, released in February, 2010.

    Shanghai photo by flickr user Sprengben

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