New Geography

Category: Policy

  • Telecommute Taxes On The Table

    The Obama Administration has recently been shining a spotlight on the need to eliminate barriers to telework and its growth. Now Congress has legislation before it that would abolish one of telework’s greatest obstacles, the risk of double taxation Americans face if they telecommute across state lines. The Telecommuter Tax Fairness Act (H.R. 2600)would remove the double tax risk.

    H.R. 2600 can and should be enacted as a stand-alone measure. However, Washington is also currently developing or considering a variety of other legislative packages, any one of which would be significantly strengthened if the provisions of H.R. 2600 were added to it. These packages include energy/climate legislation (expected to be unveiled later this month), transportation legislation and small business legislation. Each of these packages, we have been told, would double as a jobs bill.

    Telework is a critical component of any plan to create jobs, as well as any plan to improve our energy security, slow climate change, ease traffic congestion, reduce transportation infrastructure costs and boost small businesses. Congress must not miss the important opportunity that H.R. 2600 and these emerging packages provide to get rid of the tax barrier to telework.

    The Obama Administration’s Focus on Removing Obstacles
    On March 31, the White House hosted a first-of-its kind forum on workplace flexibility, bringing together businesses, employees, advocates, labor leaders and experts to talk about the importance of expanding the use of telework and other practices that enable workers to meet the competing demands of job and family. Obama identified workplace flexibility as an issue that affects “the success of our businesses [and] the strength of our economy – whether we’ll create the workplaces and jobs of the future we need to compete in today’s global economy.” Discussing a new effort within the federal government to increase the number of federal teleworkers, the President said,

    “…this isn’t just about providing a better work experience for our employees, it’s about providing better, more efficient service for the American people – even in the face of snowstorms and other crises that keep folks from getting to the office…. It’s about attracting and retaining top talent in the federal workforce and empowering them to do their jobs, and judging their success by the results that they get – not by how many meetings they attend, or how much face-time they log, or how many hours are spent on airplanes. It’s about creating a culture where, as [the Administrator of the General Services Administration] puts it, “Work is what you do, not where you are.”

    The Federal Communications Commission (FCC) is also urging greater reliance on telework. In the National Broadband Plan delivered to Congress on March 16, the FCC reported that “[m]aking telework a more widespread option would potentially open up opportunities for 17.5 million individuals.” For example, the FCC said, telework can spur job growth among Americans living in rural areas, disabled Americans and retirees. To make the telework option more available, the FCC recommended that Congress “consider eliminating tax and regulatory barriers to telework.”

    What regulatory barrier did the FCC target? The “convenience of the employer” rule – the state tax doctrine that subjects interstate telecommuters to the risk of double taxation. Specifically, a state with a “convenience of the employer” rule can tax nonresidents who telecommute part-time to an employer within that state on the wages they earn at home, even though their home states can tax the same income.

    For many people, the threat of owing taxes to two states can put a long-distance job out of reach. By making telework unaffordable for workers, the tax penalty also thwarts businesses and government agencies trying to tap the cost-saving and other economic benefits telework offers.

    The Telecommuter Tax Fairness Act would bar states from taxing the income nonresidents earn in their home states, and it would prohibit them from applying a “convenience of the employer” rule. Congress should follow the FCC’s counsel to “consider addressing this double taxation issue that is preventing telework from becoming more widespread.”

    Congressional Opportunities to Remove the Tax Barrier
    As noted above, H.R. 2600 can and should be passed as a stand-alone bill. However, Congress could also seize the opportunity to include the provisions of H.R. 2600 in the energy/climate package, the transportation package, or the small business package that lawmakers are working on, and, in the process, make that package more effective.

    How would telecommuter tax fairness strengthen energy and climate legislation? By substituting the use of broadband for the use of cars and mass transit, telecommuters conserve fuel and reduce greenhouse gas emissions. The National Broadband Plan reported that “[e]very additional teleworker reduces annual CO2 emissions by an estimated 2.6-3.6 metric tons per year. [Further, replacing] 10% of business air travel with videoconferencing would reduce carbon emissions by an estimated 36.3 million tons annually.” How can Congress enact an energy bill that does not include such savings?

    The same kind of fairness is a necessary addition to any transportation bill, because broader use of telework can slash transportation costs. By decreasing the demand for roads and rails, telework minimizes wear and tear on existing infrastructure and reduces the need to build more. As a result, telework limits the expense of repairs, maintenance and expansion. The new transportation funding bill should focus more on creating jobs laying broadband conduits and less on jobs laying asphalt. The transportation bill would also benefit from the addition of telecommuter tax fairness, because, by decreasing traffic congestion, telework decreases the hobbling cost of lost productivity.

    Small business legislation? Telework can help small firms hire new people at lower cost: Employers can increase staff without increasing real estate, energy and other overhead expenses. They can also select the most qualified applicants from the broadest geographic area while spending less on recruitment. Telework can increase company efficiency and, as President Obama noted at the workplace flexibility forum, help employers assure continuity of operations when emergencies arise. These are bottom line benefits Washington can offer small businesses without adding to the federal deficit.

    Finally, the success of any legislation designed to jumpstart hiring should include telecommuter tax fairness. It would enable the unemployed — especially those who cannot relocate because their homes are unsalable — to widen the area where they can look for work.

    The Telecommuter Tax Fairness Act was introduced by Representatives Jim Himes (D-CT) and Frank Wolf (R-VA). It has bi-partisan support from lawmakers all around the country. Stakeholders endorsing it include the Telework Coalition, the National Taxpayers Union, the American Homeowners Grassroots Alliance and the Small Business & Entrepreneurship Council, along with the Association for Commuter Transportation and Take Back Your Time. Workplace Flexibility 2010, a public policy initiative at Georgetown University Law Center, has also recommended the elimination of the telecommuter tax penalty.

    Telework is an important part of the solution to the nation’s most urgent problems, including unemployment, foreign oil dependence, climate change, clogged and crumbling travel arteries and the struggle workers face to meet their responsibilities as employees, family members and members of their communities. As federal lawmakers tackle these challenges, they should consider the Administration’s focus on getting rid of regulatory roadblocks to telework. They should heed the FCC’s call to take up the issue of the telework tax penalty, and they should finally enact the Himes-Wolf bill.

    Photo: Representative Jim Himes (D-CT)

    Nicole Belson Goluboff is a lawyer in New York who writes extensively on the legal consequences of telework. She is the author of The Law of Telecommuting (ALI-ABA 2001 with 2004 Supplement), Telecommuting for Lawyers (ABA 1998) and numerous articles on telework. She is also an Advisory Board member of the Telework Coalition.

  • The War For Jobs, Part II: Teamwork On The Frontlines

    So if we are in a new war — this one for business and job growth — what role does local government play?

    It would be a mistake to over-emphasize the role of government, especially at the local level. Despite the claims of politicians from both parties about how many jobs their policies “created,” governments don’t create jobs, at least not in the private sector. Ventura, for example, is estimated to generate about seven to eight billion dollars in annual economic activity. The sales and profitability of thousands of individual businesses are only marginally impacted by what goes on at City Hall, no matter what cheerleaders or critics might claim.

    Still, local government can obviously contribute to a healthier economic climate — and it can certainly get in the way of one.

    There are four broad areas where our impact (good and bad) is greatest: services and infrastructure; taxation; regulation; and encouragement.

    When local Chambers of Commerce advocate for “business-friendly” policies, they usually underplay the most important function of local government: providing vital services (from policing to clean water) and key infrastructure (from roads to sewer pipes). That’s the core function of government, and the more cost-effectively local government does that, the better it is for local business.

    Yet it’s taxation, regulation and “encouragement” that advocates and critics focus on, and argue over endlessly. Important questions. But there is a catalytic spark when encouraging business starts with two simple words: teamwork and focus.

    That’s where we in Ventura are putting our energy to grow business and high value, high wage jobs.

    We’ve put together a team to focus on the business sectors that will drive economic recovery. Alex Schneider directs our successful Ventura Ventures Technology Center. With thirteen start-up high tech businesses, it’s the tangible outcome of our intense focus on new economy business development. On the first of May, Joey Briglio returns to work on green business development. We are transferring Eric Wallner from the Community Services Department to capitalize on his expertise in growing our visitor and creative business sector.

    These new assignments complete the team that also includes Economic Development Manager Sid White and Ventura Business Ombudsman Alex Herrera. White concentrates on Downtown Redevelopment, real estate, Auto Center redevelopment, general business assistance/loan programs, and ongoing work with County Economic Development organizations. Herrera provides personal access and follow-through for local businesses of all sizes. All are assigned to the Community Development Department under Director Jeff Lambert. As City Manager, I’m taking a hands-on approach to working directly with all of them on our new business strategy.

    This is our team. This is our focus.

    Past battles over land use gave Ventura a reputation for being “anti-business.” We can argue ‘til the cows come home whether this was fair or not. But why re-fight those battles? We’re in a new war and our goal is to change our reputation by winning the battles ahead.

    Almost nobody in Ventura wants to pave the city with oversized real estate overdevelopment. Almost everybody wants robust business growth to generate local jobs, enhance the range of private goods and services available to local residents, and to augment revenue to support public services. When 200 Ventura business and community leaders assembled last May for our Economic Summit, what emerged was a community consensus that is as wide as it is deep: focus on growing our own businesses, especially green ones — and increasingly, every business is turning greener.

    In all the buzz about ‘green jobs’ in the energy sector, it’s important to focus on ‘clean tech’ innovation in every field. Our own Patagonia is a blue-chip model for the green future. In recent years, top executives from Walmart, GE and other global giants have visited Patagonia’s downtown Ventura headquarters to study their rigorous focus on reducing waste and shifting to more sustainable supply chains. Is Patagonia a pioneer in renewable forms of energy? No, they make outdoor clothes. Their local workforce exemplifies the opportunity America – and even high-cost coastal California – still has to lead the world in producing globally-competitive quality products and services.

    It was a theme hammered home by Mayor Bill Fulton in his State of the City speech this year:

    “We are fortunate to be located close to two major economic engines… that constantly spin off startup businesses in the high-tech and biotech centers: UC Santa Barbara to our north and Amgen to our south.

    In the past two years, Ventura has made a major effort — unlike any other city in this region — to connect with these institutions, with startup entrepreneurs, and with venture capitalists, to encourage spin-off businesses to locate and grow here in Ventura. And it’s working. Today — for the first time — we are part of the high-tech/biotech business ecosystem.

    “This is a time of great change and uncertainty in our society. Old ways of doing things are falling by the wayside quickly, and new ways are emerging rapidly. Such times can be frightening, but they are also pregnant with great possibilities. We in Ventura are very determined and well positioned to take advantage of those opportunities in order to reinforce Ventura as a great place to live and work.”

    For a city committed to living within our means, we are focusing our team on earning a reputation that Ventura is serious about winning the new war for jobs. We hope to be a pioneer in forging strategy and tactics that will set the standard for other cities in California tackling the urgent task of reinventing the California dream. Reinvigorating the seventh largest economy on the planet will be based on victory in the war on jobs.

    This article is part two of a two-part series by Rick Cole on the war for jobs.

    Flckr photo of Ventura at night by Wink

    Rick Cole is city manager of Ventura, California, and 2009 recipient of the Municipal Management Association of Southern California’s Excellence in Government Award. He can be reached at RCole@ci.ventura.ca.us

  • The War For Jobs Trumps The War For Sales Tax Dollars: Part I

    At the beginning of every war, generals always try to fight the last one. Experienced professionals are often the last to realize the times and terrain have changed.

    Since the passage of Proposition 13 — the 1978 ‘taxpayer revolt’ against California property taxes — most California cities have focused on generating sales tax. Property tax, which had been the traditional backbone of local revenue, was slashed by 60%, sparking an intense Darwinian struggle between cities for sales tax market share. During the nineties, the cities along the 101 Corridor in Ventura County competed intensely in the “mall wars” over which cities would get auto dealers and major retailers. The City of Ventura won some and lost some, but during the last consumer boom we were still number two in the County in sales tax per capita, after Thousand Oaks.

    This intercity competition spawned redevelopment megadeals, tax sharing agreements and fawning over chain stores and “big boxes.” “Public-private partnerships” was the name given to deals cut with favored developers and retailers. Some cities won the lottery (Camarillo declared its strawberry fields next to the freeway “blighted” in order to grab redevelopment funding to build its successful outlet center), and some lost (Oxnard’s planned 600,000 square foot “Riverpark Collection” sits vacant and forlorn, and the city’s downtown theater and restaurant development scrapes along with continuing city subsidies).

    With the steep drop in sales tax revenue across California, cities are tempted to try that much harder to grab a bigger slice of a shrinking pie. That’s why a major retailer that pays low wages to mainly part-time employees stills gets more attention and help from cities than a similar size manufacturer or company headquarters paying top salaries. That’s why cities review detailed reports on their top 100 retailers every quarter and don’t even keep lists of their top 100 employers.

    But that is fighting the last war. In the debt-fueled boom that crashed in 2007, 70% of every dollar was going to consumer spending, as consumers tapped their credit cards and home equity loans. To cash in on that spending spree, developers could continue to build new shopping centers and auto malls.

    Now all that has changed. Consumers not only have less income and credit, they are saddled with more debt. Even a recovery in consumer buying power might not translate into needing more stores, as the Internet changes the way people live, shop and entertain themselves. Retail square footage will be slashed as inventory is digitized (think e-books) or as consumers take advantage of an electronic market that offers infinitely more variety than any store (think Zappos Shoes and More.)

    Today’s sharp drop in sales tax is an economic Pearl Harbor. The next war has already begun. Cities will need to fight, not for more stores, but for high wage private sector jobs that can directly compete in the brutal global economy. There are two basic ways to do that: provide value through local advantage, or provide world-class quality.

    Local advantage is not easy. Local retailers and service businesses still compete with corporate giants by adapting to serve a local clientele. Our downtown is primarily made up of these niche companies, serving local customers and clients. But economies of scale continue to favor bigger players.

    World-class quality is even harder. “Buy American” is a nice slogan, but most Americans pay no attention to labels on their underwear or their autos. To sustain high wage jobs, companies located here must overcome the cost disadvantage of operating in coastal California by providing products or services that are worth the premium.

    Patagonia, the outdoor specialty clothing powerhouse, is a high profile success story for competing in the world economy. Although they do nearly $400 million in annual sales, most of the company’s actual work (manufacturing, shipping, back office functions and retailing) takes place elsewhere. But its highest-value headquarters function remains in Ventura, providing 200 high quality, high wage jobs. Their unique passion for a green supply chain landed them on the cover of Fortune as “The Coolest Company on the Planet.”

    Can cities be as effective at growing these kinds of companies as they have been at luring Walmarts and Lexus dealers?

    Ventura is a test case. Our Ventura Ventures Technology Center and quest for Google Fiber are innovative experiments. We are “incubating” thirteen tiny start-ups – and fostering what Lottay CEO Harry Lin, an experienced high tech entrepreneur, calls a “technology ecosystem” of connected players in the new company game.

    If we succeed in our efforts to promote new and expanded “world class quality” companies and the high wage, high value jobs they produce, will that help pay the bills for city services? Isn’t a new Walmart still a better bet?

    The answer is not clear-cut. A new Walmart will provide some tangible real revenue, particularly if it diverts Ventura residents from driving to Oxnard to shop at their Walmart. But if Walmart primarily takes customers away from our two Targets and our other retail outlets, there’s little actual gain in revenue. And the point is, in a shrinking retail market (lower incomes, lower spending, more diversion to the Internet), there isn’t much opportunity to keep adding new stores, especially in a competitive market where Oxnard is trying to fill up the brand new center they have sitting vacant. To refill our recent sales tax declines, we’d need the net sales tax of about ten new Walmarts, or their equivalent. For obvious reasons, that can’t happen and won’t. It still makes sense to “buy local” where a penny on every dollar stays home to fund city services. But we can’t build enough stores to restore a prosperous economy or the community services we’ve had to slash.

    So while Ventura’s entrepreneurial emphasis on high wage jobs may be experimental, at least we are fighting the right war. It will be a while before we know whether we are winning. But fighting the last war is a sure loser. Even if the economy “recovers,” it will be years before the region’s retail space is filled — if ever. The best thing we can do to create a healthy retail environment is to generate new wealth in our region through robust business and job growth.

    In the early years following Proposition 13, some cities led the way toward retail development in the war for sales tax dollars. Today, Ventura is adopting new tactics and weapons in the war for jobs. That may seem like a new and untested strategy. It is. Yet in a changing world, there is great opportunity to rebuild local prosperity on a new and stronger foundation.

    This article is part one of a two-part series by Rick Cole on the new war for jobs.

    Flckr photo of Ventura by ah zut

    Rick Cole is city manager of Ventura, California, and 2009 recipient of the Municipal Management Association of Southern California’s Excellence in Government Award. He can be reached at RCole@ci.ventura.ca.us

  • Power in Los Angeles: The High Price of Going Green

    Greece and Los Angeles are up against a financial wall. Los Angeles had its bond rating cut on April 7. Greece managed to hold out until April 9. Greece has endured public employee strikes as it has attempted to reign in bloated public payrolls. Los Angeles Mayor Antonio Villaraigosa drew the ire of the city’s unions and city council opposition in proposing two-day a week furloughs for city employees.

    A Bankrupt Los Angeles?

    Most recently, the context of discussions has been an expected $73 million payment to the city from the Los Angeles Department of Water and Power (DWP). Mayor Villaraigosa raised the possibility of a city bankruptcy if the payment was not received.

    The Mayor attempted to encourage the city council to approve an electricity rate increase, which was sought by DWP. In support of the rate increase, Villaraigosa submitted a report to the city council saying that “Council rejection of the DWP board’s action [to increase rates] would be the most immediate and direct route to bankruptcy the city could pursue.”

    DWP Interim General Manager S. David Freeman added such action would lead the “utility would think twice about sending” the money o to the city. Despite these warning, the city council then rejected the proposed rate increase.

    The Price of Renewable Energy

    For its part, DWP says that that the rate increase is necessary to cover the costs of investing in renewable energy sources, as required by state and federal regulations. They cited a Mayoral directive to increase generation from renewable sources (solar and wind). Right now the bulk of Los Angeles’ power comes from fossil fuels, much of it from coal-fired plants outside the state.

    Switching from this relatively inexpensive energy is proving very expensive. Indeed, the rejected rate increase is just the first of four planned hikes. The result, if all four increases are ultimately granted by the city council, would be to increase residential electricity bills up to 28% and commercial electricity bills up to 22%.

    How Much Will the People Pay?

    There is a much larger story here than the immediate financial difficulties faced by the city of Los Angeles. It is clear that council members are concerned about the impact of rate increases on their constituents. It is a particularly challenging for consumers in the city of Los Angeles. Unemployment is high, with Los Angeles County consistently above the national average The city, with its higher concentration of poverty, is likely to be somewhat higher. Many households are having difficulty paying their inflated mortgages and hardly in the position less more for electricity. The city has more than its share of poverty. And, finally, the city’s lack of business competitiveness is so legendary that it repeatedly ranks near or in the Kosmont “cost of doing business” surveys.

    This larger story is likely to be played out in communities around the nation, as politicians, such as the President, who expect and perhaps even would favor that electricity bills “skyrocket.” One would think rising expenses in any critical sector are a “non-starter” in the presently hobbled economy. It will be interesting to see what eventually gives in Los Angeles those who advocate for consumers (including some on the city council) , or those, including the DWP and its unions, who wish to add additional costs to the budgets of those already in distress. In the longer run, this will not be sustainable, in Los Angeles or anywhere else, because the public appetite for higher prices is not unlimited.

    But the behavior of DWP is a matter of curiosity, regardless of how or why the city of Los Angeles reached its present financial embarrassment.

    What if it Were Southern California Edison?

    As is indicated from its name, DWP is a publicly owned utility, owned by the city of Los Angeles. Its rate increases are subject to approval by the city council. DWP appears intent on withholding payment from the city because its proposed rate increase have not been approved. Imagine, if instead, the city of Los Angeles were served by a private but publicly regulated electricity utility, such as Southern California Edison (SCE). Imagine further that the California Public Utilities Commission denied a rate increase and that, in response, SCE announced that it “would think twice” about sending some or all of its taxes to the state in response. When DWP officials undertake such a strategy, there is apparently no legal sanction. The legal sanctions against SCE would be manifold. It is a paradox that a publicly owned utility can be less subject to restraint than one that is, in essence, owned by the taxpayers.

    Who is in Charge?

    But there is an even more curious situation. The Los Angeles Department of Water and Power is, in fact, an agency completely under the control of the city of Los Angeles. The Mayor and the city council represent the sum total of the policy authority over the city of Los Angeles and all of its commissions, departments and other instrumentalities. The DWP board of directors is appointed by the Mayor and must be confirmed by the city council.

    Regardless of the Mayor’s authority to remove DWP board members, he has considerable persuasive political power, which could be used to encourage a more cooperative attitude on the part of the DWP. This was proven in 1984, when predecessor Mayor Tom Bradley asked for (Note 1), and received, the resignations of all 150 city commissioners, as well as his two appointees to the Southern California Rapid Transit District.

    Mayor Bradley then announced a practice that required new appointees to submit an undated letter of resignation upon appointment, to ease removal should it be necessary. This became a bi-partisan practice, also followed by Bradley’s successor, Mayor Richard Riordan (Note 2).

    The Crisis Passes

    Within the last couple of days, the immediate crisis appears to have passed, but the fundamental problems wil continue to fester. The city has found $30 million, the result of higher property tax collections. The Mayor is now asking DWP to pay $20 million, instead of $73 million. However, as Mayor Bradley showed, the Mayor can do much more than “ask.”

    The Mayor’s two-day furlough plan for city workers now has been shelved. Ray Ciranna, the city’s Acting Administrative Officer told the Los Angeles Times that: “We are still in a budget crisis, but we will end the year paying all of our bills.” Things, however, may not be so rosy for residents facing stiff electricity rate hikes tied to the inordinate costs of renewable energy. Many of them already face financial distress every bit as serious as the city’s was just a few days ago. This is one Hollywood movie that, sad to say, we may see repeated in other locations around the country as cities, localities and citizens try to cope with the high costs of draconian “green” energy policies.

    Note 1: The author was, at the time, a Tom Bradley appointee to the Los Angeles County Transportation Commission. He was not included in the Mayor’s call for resignations.

    Note 2: While elective offices in the city of Los Angeles are non-partisan, Bradley was a Democrat and Riordan was a Republican.

    Photo: John Ferraro Department of Water & Power Building (City Council President Ferraro was the first chairman of the Los Angeles County Transportation Commission, whose meetings were normally held in the DWP board room).

    Wendell Cox is a Visiting Professor, Conservatoire National des Arts et Metiers, Paris. He was born in Los Angeles and was appointed to three terms on the Los Angeles County Transportation Commission by Mayor Tom Bradley. He is the author of “War on the Dream: How Anti-Sprawl Policy Threatens the Quality of Life.”

  • Jobs Will Rule November

    Health care lays behind him, financial reform and climate change ahead, but for President Barack Obama–and his opponents–there is only one real issue: jobs. The recent employment reports signal some small gains, yet the widespread prognosis for a slow, near-jobless recovery threatens the president and his party more than any major domestic challenge.

    Tea party activists and conservative ideologues often link the president’s dwindling popularity to an overreach on health care, but it all boils down to the old Clintonian adage: It’s the economy, stupid. Health care reform is simply too complex and its long-term effects too unknowable to be a winning issue for either side.

    The jobs deficit, on other the hand, is immediate and affects tens of millions of families. You can start with the highest-ever percentage of long-term unemployed on record. In recent months there have been roughly five to six applicants for every open position. Youth unemployment reaches near 20% for workers in their 20s–more than 25% for teenagers and over 43% for black teens. Even if the economy improves, according to the administration predictions, unemployment could remain close to double digits by the mid-term elections and over 8% by 2012.

    The prospect of long-term unemployment, and underemployment, is clearly damaging the “hope” brand once associated with the president. Recent CBS poll data show that 84% of Americans are worried about the economy.

    Over a third of those polled were concerned that someone in their household might lose their job. Some 52% identify the economy as the most important issue, while health care registered only 13%. Given the administration’s focus on health care and other issues–such as climate change–it’s not surprising that barely two in five of those polled approve of the president’s handling of the economy.

    Those inside the Washington bubble are too absorbed with political maneuverings to focus on the basic. The primary domestic challenges for the country lie not in addressing climate change, suburban sprawl or gay marriage, but spurring employment and generating new wealth.

    Part of our problem is that the two main parties are committed primarily to serving the interest of aligned constituencies .Republican dogmatism and canine-like obedience to short-term corporate profits contributed mightily to the economic meltdown. In its period in power , the GOP failed to either restrain Wall Street or address the nation’s indebtedness. No surprise then that many even moderate, middle-class voters opted for the Democrats over the past two elections.

    The question now is whether the Democrats are squandering their advantage. After almost 15 months in office, Democratic dogmatism–a mixture of faith in all forms of federal spending, “green jobs” and ever more regulation–has not exactly turbo-charged the economy. As a result, middle-class voters–those making $50,000 to $75,000 annually, have been slipping from the Democrats, according to a recent Wall Street Journal poll. These are precisely the voters who also put Scott Brown into the Senate.

    Yet the president’s situation is far from hopeless. Manufacturing payrolls are slowly beginning to grow, and industrial production is on the upswing. Survivor sectors such as health care continue to create new jobs. The bleeding may have finally stopped in construction, where the recession has been particularly devastating. Although the generally high-wage finance and information sectors continue to shrink, rapid growth in temporary business services could presage a new wave of permanent hires.

    These improvements suggest new opportunities for Obama. It allows him to point to a relatively stronger economy–particularly compared with Japan and the E.U.–as proof both of his policy acumen and our country’s overall vitality.

    This is when we really find out whether Obama is a thoughtful moderate of the campaign trail who embodies American exceptionalism or the hard-edged tool of the Democratic constituency groups. So far he has been a man of the left more comfortable with expanding the public sector than finding ways to boost private sector payrolls.

    The stimulus, crafted by old-dog Democrats like Nancy Pelosi and Harry Reid, with its emphasis on government workers and the university-industrial complex, solidified this notion. A public-sector-oriented approach has proved to have limited popular appeal, particularly at a time when many in the private sector regard the public workforce as an oppressive and overcompensated privileged class.

    Administration fiscal policy also erred in its focus on Wall Street. Obama, described during the 2008 campaign as the “hedge fund” candidate, has indeed done very well for this privileged class. Yet Democrats are hard-pressed to make the case that what’s good for George Soros is good for the USA.

    Now the question is whether the president can refocus on jobs. This will take, among other things, backing off the economically ruinous climate change agenda. Even the most gullible economic development officials are beginning to realize that “green jobs” are no panacea.

    In fact, as evident in Spain, Germany and even Denmark, over-tough green legislation can destroy the productive capacity of the most enlightened industries. Similarly in green strongholds like California and Oregon, the mounting climate change jihad could slow and even explode the incipient recovery by imposing ever more draconian regulation on businesses that can choose to migrate to less onerous locales.

    There are some hopeful signs of Obama’s repositioning. His recent moves embracing nuclear power and off-shore oil drilling, however inadequate, show that he’s at least trying to triangulate between the green purists and the unreconstructed despoilers. Some sort of moderated energy legislation–there’s no way to get the more radical House version through the Senate–would reassure businesses and the public that the president has jobs as his No. 1 priority.

    The well-funded, politically connected environmental lobby, no doubt, will try to head off any dissent from its agenda. But the same hard-boiled pol who threw his own pastor under the bus–remember Rev. Jeremiah Wright?–would seemingly be willing to diss pesky affluent white greens who, after all, have nowhere else to go politically.

    An equally good opportunity lies in the push for financial reform. As in the case of health care, the Republicans have a miserable record to defend. After all, the GOP dominated Congress and White House did little to rein in the out-of-control financial sector. Sure, there’s blame to go around for folks like Barney Frank but the buck was definitely with the Republicans, and they failed.

    Main Street businesses that felt ignored by the stimulus might look favorably on tough administration polices against big banks. Republicans could yet score points by opposing “too big to fail” provisions, as Mike Barone suggests, but one has to wonder if Republicans possess the moxie to stand up to large corporate interests, even detested ones.

    But right now the burden is on the president. Building on what is still a weak recovery, he must make clear that jobs and growth are his top domestic priorities. If he fails to communicate that message adequately, the voters, however leery of the Republicans, will rebuke him.

    This article 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. He is author of The City: A Global History. His newest book is The Next Hundred Million: America in 2050, released in Febuary, 2010.

  • Financial Crisis: Too Late to Change?

    A travelling salesman is driving down a country road when he runs over a cat. Seeing a farmhouse nearby, he approaches to confess this unfortunate situation to the pet’s owner. When a woman answers the door, he says, “I’m sorry, but I think I just ran over your cat.” She asks him, “Well, what did it look like?” “Oh, m’am,” he replies, “I completely ran over it, so it was very awful, just a smear on the road…” “Oh, no,” she interrupts, “I mean, what did it look like before you ran over it.”

    Congress and the Administration are trying to find ways to spend more money in their quest to stimulate the economy. But just like that travelling salesman, they are working with the picture after the wreck – and they can’t seem to focus on what things looked like before it happened. In other words, they are so happy to be spending money without restraint that they have neglected to figure out how we got into this mess in the first place. We all know that the problem started in the financial sector – I don’t know anyone who would disagree with that. In fact, the banks were the first to get money from the federal government – the October 3, 2008 act of Congress that will forever be known as The Bank Bailout.

    Sadly nothing is different than it was on September 17, 2008 – the day that your 401k turned into a 201F. The now officially “to big to fail” banks are no more restrained in their activities today than they were in the days, weeks, months and years leading up to the crisis. If anything, they are a little freer because now they are all “banks” with a federal guarantee for ever more risk-taking behavior without consequences.

    Becoming a bank means that the money they hold can be protected by the Federal Deposit Insurance Corporation (FDIC). The FDIC has been “so depleted by the epidemic of collapsing financial institutions” that analysts thought it would be forced to borrow money from the Treasury before the end of 2009. Since January 1, 2010, another 41 banks have failed. To hold the wolves at bay, the FDIC board eased the rules on buyers of failing banks, opening the door for hedge funds and private investors to gain access to “bank” status – and the protections that go with it. At the end of the third quarter of 2009, the FDIC’s fund was already negative by $8.2 billion, a decrease of 180 percent in just three months (from July to September 2009). According to the Chief Financial Officer’s report, the FDIC projects that the fund “will remain negative over the next several years” as they absorb some $75 billion in failure costs through the end of 2013. Taking their lead from Congress – that is a policy of robbing the future to pay off the past – the FDIC is proposing that banks pre-pay their insurance fees for the next three years.

    There is no relief in sight, either. Just this week, a case of “insider trading” in New York was dismissed because the deal involved credit default swaps which – as I explained here last March – payoff losses “like” insurance but not regulated like insurance and which are bought and sold “like” securities but not regulated like securities. Although they are at the root of the causes of the financial crisis, not one new rule, regulation or law has been implemented to stop this nonsense from continuing. If you look at who’s in charge of figuring out what went wrong – and making recommendations on how to prevent it from happening again – you will find the Financial Crisis Inquiry Commission consists of political appointees who “have consulted for legal firms involved in lawsuits over the crisis.”

    That’s not reassuring. A Commission composed of members who earn their livelihood from financial institutions – including those that precipitated the crisis – is unlikely to solve or have any incentive to discover the mystery of the causes of the greatest financial collapse in the history of the world. This group is part of the problem – not the solution.

    Eighteen months after Wall Street roasted weenies on the bonfire of your 401k, the one noticeable difference is that the stock market is higher than it was on that fateful day in 2008. Unfortunately, this version of “economic recovery” is being driven by the financial services industry instead of the real economy. As rising stock prices encourage more savers and investors into the stock market, they create an increasing supply of investable funds in the hands of the banks – who remain as free to speed down our financial highways today as they were when they ran over the economy like that poor cat on a country road, leaving nothing but a stain on the pavement.

    Susanne Trimbath, Ph.D. is CEO and Chief Economist of STP Advisory Services. Her training in finance and economics began with editing briefing documents for the Economic Research Department of the Federal Reserve Bank of San Francisco. She worked in operations at depository trust and clearing corporations in San Francisco and New York, including Depository Trust Company, a subsidiary of DTCC; formerly, she was a Senior Research Economist studying capital markets at the Milken Institute. Her PhD in economics is from New York University. In addition to teaching economics and finance at New York University and University of Southern California (Marshall School of Business), Trimbath is co-author of Beyond Junk Bonds: Expanding High Yield Markets.

    Photo by David Reber’s Hammer Photography

  • EPA Joins the Green Building Party

    By Richard Reep

    Well into the last decade, green design and smart growth operated as two separate and distinct reform movements. Both were widely celebrated in media, academic and planning circles, seeing themselves as noble causes albeit underdogs in the struggle against the mighty capitalistic enterprise of real estate development. Starting in 2009, the frozen credit market has kept private development moribund, and these two movements are somewhat moot as development takes a cease-fire.

    Yet now the two movements appear to be joined at the hip, a move encouraged by a federal bureaucracy and an Administration that embraces both groups’ agenda. In the process, what was once seen as an alternative to conventional development appears to be well on the way to becoming federally-mandated regulatory policy. The EPA, DOT, and HUD recently signed a memorandum of understanding to start making policy around green design and smart growth, turning these choices into federal standards.

    The standard bearer for green building, LEED certification, is the U. S. Green Building Council’s definition of energy efficiency and green design. A reform-focused movement, LEED established criteria by which a building’s energy and water use could be measured against a baseline, and the USGBC awards credits to the building when energy efficiency measures are achieved. LEED increases a building’s construction cost but reduces the building’s life cycle cost – monthly electric bills – and real estate developers, who gain nothing from lower energy costs, were slow to become interested in this choice. LEED was the domain of owner-operators like governments, who have a vested interest in keeping their future costs as low as possible, and was adopted as a criterion for capital expenditures by the GSA as well as many cities and counties by the close of the last millennium.

    Smart growth’s official champion is the Congress of the New Urbanism, which offers a design style choice for real estate developers. Developers, being profit oriented, historically have been loathe to tinker with what sells, and thus only in a few areas has New Urbanism gained a foothold. At its best, new urbanism represents a choice for homeowners who prefer dense, mixed-use communities that resemble traditional American towns, accentuating walkability and reducing residents’ dependence upon the car. In this key feature, Smart Growth advocates lobbied the U. S. Green Building Council to create a special category of LEED for Neighborhoods.

    Both movements promised reform. Both movements increased cost. Neither program was particularly effective at penetrating the real estate development market as long as the investment community favored large, formula-driven, profit-oriented real estate developers, and innovation consisted of product cost-cutting. The cost premium associated with each movement left them largely the playthings of boutique, niche-oriented developers aspiring to nobility while protecting their bottom line.

    Changes afoot in the last several months, however, are combining these two movements into one powerful force that turns these laudable movements away from choice and towards a prescriptive, and ultimately restrictive policy. Beginning in 2006, the Environmental Protection Agency encouraged communities to build walkable, energy-efficient growth within their boundaries, rather than continue spreading out – a surprising focus for an agency created to reduce pollution. Little else happened until late 2009, when suddenly the EPA began linking Energy Star (a Department of Energy program) to New Urbanist values such as walkability and mixed-use development. The EPA, which regulates pollution, has suddenly moved front-and-center into regulating growth, as if it were another type of pollution.

    At the same time, the U. S. Green Building Council yielded to heavy lobbying by the New Urbanist movement to create a new criterion, LEED Neighborhood Development. A developer may now submit a new land plan for certification to this LEED standard, and “smart growth” is being codified and standardized into a checklist and formula to be measured against a baseline. Like LEED for New Construction, these standards will also increase the cost for the developer desiring to build to these standards.

    Investors and developers may, on the surface, appear to have lost these dramatic battles. In the bigger picture, however, while the economy retools itself, it is not unusual to see regulation increase. If anyone remembers the S&L crisis of 1990-92, one of the biggest regulatory acts to affect real estate in modern times hit developers right between the eyes: The Americans with Disabilities Act. This reform removed physical barriers for all citizens with disabilities, but as a cost burden to developers it pales in comparison to the premiums that will be paid to meet the smart/green regulations currently being formulated by the Feds.

    Banks – hardly institutions with widely popular standing – stand to gain the most, because a developer who borrowed $10 million for a project in 2006 will probably need to borrow $11 or $12 million for the same project by the time bankers get around to discussing credit again. Developers also stand to gain, because as the cost goes up, so does the price. Coming out of the Millenial Depression, new construction will be faced with higher energy performance requirements, the higher costs associated with urban development, and a longer regulatory review process than ever before seen.

    The losers, of course, will be the vast majority of Americans who work hard and earn modest incomes. New home prices will increase, and renters will have to pay their landlords more to cover the increased costs of politically sanctioned development. While the affluent will be able to enjoy the benefits of a green, urbane lifestyle, the grocery store cashiers, dry cleaner clerks, housekeepers and artists who make up so much of our community will be forced out by the sheer cost of this movement – out to the suburbs, out to the exurbs, and out to the trailer parks beyond them. No green for you: your commute time just got much longer.

    Technology, of course, will eventually decrease in price and become more affordable; like VCRs and DVD players, the early adopters pay the freight until the appliance becomes a commodity. The same is likely true for exotic solutions like photovoltaics or low-voltage lighting as the marketplace sorts out what works from what doesn’t. So the impetus to go green will impose a crushing cost burden on new construction, which may gradually, over time, be absorbed into the mix.

    An affordable starter home in a low-cost subdivision, however, may be as doomed as leaded gasoline, and the American Dream will likely shift away from the landowner-based society once vaunted by Thomas Jefferson. The walkable lifestyle, now being exercised by free will, is well on its way to becoming federal government policy in a grand effort to incorporate reform and regulation into our lives from above.

    Whether or not this achieves the EPA’s mission to reduce pollution will only be discovered in the decades ahead as we incorporate the next hundred million Americans into the urban boundaries we have already set upon the land. It may be entirely possible to reach some of these goals without prescriptive overly burdensome regulation, yet this may only occur if political realities begin to reign in the current regulatory onslaught.

    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 by eng1ne

  • Freeing Energy Policy From The Climate Change Debate

    The 20-year effort by environmentalists to establish climate science as the primary basis for far-reaching action to decarbonize the global energy economy today lies in ruins. Backlash in reaction to “Climategate” and recent controversies involving the Intergovernmental Panel on Climate Change (IPCC)’s 2007 assessment report are but the latest evidence that such efforts have evidently failed.

    While the urge to blame fossil-fuel-funded skeptics for this recent bad turn of events has proven irresistible for most environmental leaders and pundits, forward-looking greens wishing to ascertain what might be salvaged from the wreckage would be well advised to look closer to home. Climate science, even at its most uncontroversial, could never motivate the remaking of the entire global energy economy. Efforts to use climate science to threaten an apocalyptic future should we fail to embrace green proposals, and to characterize present-day natural disasters as terrifying previews of an impending day of reckoning, have only served to undermine the credibility of both climate science and progressive energy policy.

    The Endless Weather Wars

    The habit of overstating the current state of climate science knowledge, and in particular our understanding of the relationship between global warming and present-day weather events, has been difficult for environmentalists to give up because, on one level, it has worked so well for them.

    Global warming first exploded into mass public consciousness in the summer of 1988, when droughts, fires in the Amazon, and heat waves in the United States were widely attributed as warning signs of an eco-apocalypse to come. Former U.S. Senator Tim Wirth held the first widely covered congressional hearing on the subject that summer and admits having targeted the hearing for the hottest day of the year and turned off the air conditioning in the room to ensure that the conditions would be sweltering for the assembled media.

    Such tactics have only intensified over the past two decades. In the run-up to U.N. climate talks in Kyoto in 1997, the Clinton Administration recruited Al Roker and other weathermen to explain global warming to the public. In 2006, Al Gore used his “Inconvenient Truth” slide show to link Hurricane Katrina, droughts, and floods to warming. And some environmental groups have routinely implied that present-day extreme weather and natural disasters are evidence of anthropogenic warming.

    But it turned out that both sides could play the weather game. Skeptics also started pointing to weather events like snowstorms as evidence of no warming. While environmental advocates frequently criticize opponents such as Sen. James Inhofe for conflating weather with climate, the reality is that both sides abuse the science in the service of their political agendas. Climate change models, created in an effort to understand the potential long-term effect of global warming on regional weather trends, can no more tell us anything useful about today’s extreme weather events than last month’s snow storms can inform us as to whether global warming is occurring.

    Climate Science Disasters

    For more than 20 years, advocates have simultaneously overestimated the certainty with which climate science could predict the future and underestimated the economic and technological challenges associated with rapidly decarbonizing the energy economy. The oft-heard mantra that “All we lack is political will” assumes that the solutions to global warming are close at hand and that the primary obstacle to implementing them is public ignorance fed by fossil-fuel-funded skeptics.

    Environmental advocates — with help from pollsters, psychologists, and cognitive scientists — have long understood that global warming represented a particularly problematic threat around which to mobilize public opinion. The threat is distant, abstract, and difficult to visualize. Faced with a public that has seemed largely indifferent to the possibility of severe climactic disruptions resulting from global warming, some environmentalists have tried to characterize the threat as more immediate, mostly by suggesting that global warming was already adversely impacting human societies, primarily in the form of increasingly deadly natural disasters.

    The result has been an ever-escalating set of demands on climate science, with greens and their allies often attempting to represent climate science as apocalyptic, imminent, and certain, in no small part so that they could characterize all resistance as corrupt, anti-scientific, short-sighted, or ignorant. Greens pushed climate scientists to become outspoken advocates of action to address global warming. Captivated by the notion that their voices and expertise were singularly necessary to save the world, some climate scientists attempted to oblige. The result is that the use, and misuse, of climate science by advocates began to wash back into the science itself.

    Little surprise then, that most of the recent controversies besetting climate science involve efforts to move the proximity of the global warming threat closer to the present. The most
    explosive revelations of Climategate involved disputed methodological techniques to merge multiple data sets (e.g., ice cores, tree rings, 20th century weather station readings) into a single global temperature trend line, the “hockey stick” graph. Whatever one thinks of the quality of the data sets, the methods used to combine them, or the efforts by some to shield the underlying data from critics, it is difficult to avoid the conclusion that those involved were trying to fit the data to a trend that they already expected to see – namely that the spike in global carbon emissions in recent decades tracked virtually in lockstep with a concomitant spike in present-day global temperatures.

    Other faulty or sloppy claims in the IPCC’s voluminous reports — such as the contention that global warming could melt Himalayan glaciers by 2035 — followed the same pattern.

    Perhaps most problematic of all, with some environmentalists convinced that connecting global warming to natural disasters was the key to climate policy progress, researchers felt enormous pressure to demonstrate a link. But multiple studies using different methodologies and data sets show no statistically significant relationship between the rising cost of natural disasters and global warming. And according to a review sponsored by the U.S. National Science Foundation and Munich Re, researchers are unlikely to be able to unequivocally link storm or flood losses to anthropogenic warming for several decades, if even then. This is not because there is no evidence of increasing extreme weather, but rather because the rising costs of natural disasters have been driven so overwhelmingly by social and economic factors — more people with more wealth living in harm’s way.

    Yet prominent environmental advocates, including Al Gore, have continued to make claims linking global warming to natural disasters. And in its 2007 report, the IPCC — ignoring evidence to the contrary — misrepresented disaster-loss science when it published a graph linking global temperature increases with rising financial losses from natural disasters.

    Action in the Face of Uncertainty

    It was only a matter of time before such claims would begin to undermine public confidence in climate science. Weather is not climate and linguistic subterfuges, such as the oft-repeated assertion that extreme weather events and natural disasters are “consistent with” climate change, do not change the reality that advocates and scientists who make such assertions are conflating short-term weather events with long-term climactic trends in a way that simply cannot be supported by the science.

    For 20 years, greens and many scientists have overstated the certainty of climate disaster out of the belief that governments could not be motivated to act if they viewed the science as highly uncertain. And yet governments routinely take strong action in the face of highly uncertainty events. California requires strict building codes and has invested billions to protect against earthquakes even as earthquake science has shifted its focus from prediction to preparedness. Recently, the federal government mobilized impressively and effectively to prevent an avian flu epidemic whose severity was unknown.

    In the end, there is no avoiding the enormous uncertainties inherent to our understanding of climate change. Whether 350 parts per million of CO2 in the atmosphere, or 450 or 550, is the right number in terms of atmospheric stabilization, any prudent strategy to minimize future risks associated with catastrophic climate change involves decarbonizing our economy as rapidly as possible. Stronger evidence of climate change from scientists was never going to drive Americans to demand economically painful limits on carbon emissions or energy use. And uncertainty about climate science will not deter Americans from embracing energy and other policies that they perceive to be in the nation’s economic, national security, and environmental interest. This was the case in 1988 and is still largely the case today.

    But the danger now is that having spent two decades demanding that the public and policy-makers obey climate science, and having established certainty and scientific consensus as the standard by which climate action should be judged, environmentalists risk undermining the case for building a clean-energy economy. Having allowed the demands of advocacy efforts to wash back into the production of climate science, the danger today is that the discrediting of the science will wash back into the larger effort to transform our energy policy.

    Now is the time to free energy policy from climate science. In recent years, bipartisan agreement has grown on the need to decarbonize our energy supply through the expansion of renewables, nuclear power, and natural gas, as well as increased funding of research and development of new energy technologies. Carbon caps may remain as aspirational targets, but the primary role for carbon pricing, whether through auctioning pollution permits or a carbon tax, should be to fund low-carbon energy research, development, and deployment.

    No longer conscripted to justify and rationalize binding carbon caps or the modernization and decarbonization of our energy systems, climate science can get back to being primarily a scientific enterprise. The truth is that once climate science becomes detached from the expectation that it will establish a standard for allowable global carbon emissions that every nation on earth will heed, no one will much care about the hockey stick or the disaster-loss record, save those whose business, as scientists, is to attend to such matters.

    Climate science can still usefully inform us about the possible trajectories of the global climate and help us prepare for extreme weather and natural disasters, whether climate change ultimately results in their intensification or not. And understood in its proper role, as one of many reasons why we should decarbonize the global economy, climate science can even help contribute to the case for taking such action. But so long as environmentalists continue to demand that climate science drive the transformation of the global energy economy, neither the science, nor efforts to address climate change, will be well served.

    Ted Nordhaus and Michael Shellenberger are the authors of Break Through: From the Death of Environmentalism to the Politics of Possibility and a recent collection of energy and climate writings, The Emerging Climate Consensus, with a preface by Ross Gelbspan, available for download at www.TheBreakthrough.org. In previous articles for Yale Environment 360, they have written about what they consider flaws in the cap-and-trade debate and why public concern in the U.S. about global warming has declined.

    Photo by ItzaFineDay

  • Immigrants Key to Economy’s Revival

    In Washington on Sunday, the tens of thousands of demonstrators demanding immigration reform looked like the opening round of the last thing the country needs now: another big debate on a divisive issue.

    Yet Congress seems ready to take on immigration, which has been dividing Americans since the republic was founded.

    But identifying immigrants as a “them,” as both their advocates and nativists do, misses the point. Immigrants — and their children — are the people who will help define the future “us.” They are also critical to the revival of the U.S. economy.

    This is particularly true on the entrepreneurial frontier.

    Overall, some of the country’s highest rates of entrepreneurship are found among immigrants from the Middle East, Cuba, South Korea and countries of the former Soviet Union. These recent arrivals regularly build new businesses — from street-level bodegas to the most sophisticated technology firms.

    Immigrants started one-quarter of all venture-backed public companies between 1990 and 2005. In addition, large U.S. firms are increasingly led by executives with roots in foreign countries, including 14 CEOs of the 2007 Fortune 100.

    Nowhere is this contribution more critical than in our major cities, many of which would be economically destitute without these immigrant communities.

    In Los Angeles County, for example, the self-employment rate among immigrants is more than 10 percent — almost twice that for the native-born. Nationwide, according to the last economic census, the number of all Latino establishments increased by nearly three times the national average, while those owned by all Asians expanded by two times.

    Immigrant contributions extend across a range of activities, from retail and food to culture. Asian immigrants, like the Italians and Jews before them, have concentrated in specific niche markets and then expanded beyond historic ghettos.

    Asian Indians, who began emigrating in large numbers starting in the 1970s, specialized in hotels and motels across the country. South Koreans opened greengroceries in New York and Los Angeles. Vietnamese became known for nail parlors, and Cambodians for doughnut stores. Overall, Asian enterprises expanded at roughly twice the national average in the first years of the new century.

    Perhaps most remarkable has been the movement of Asian immigrants into technology. In California, they account for a majority of such firms. Regions at the center of the high-tech economy — including Silicon Valley, Orange County and parts of suburban Seattle — are now heavily Asian-American. Although most of these new companies are small, some have grown sizable. The founders of Sun Microsystems, Yahoo, AST Research and Solectron are all of Asian descent — and are largely immigrants.

    This immigrant experience, says John Tu, president and co-founder of Kingston Technologies, the world’s largest independent producer of computer memory, has forced them to think differently.

    “The key thing is,” Tu said, “being an immigrant makes you flexible. … IBM, Apple and Compaq were inflexible. They told the memory customers: Take it or leave it. We thought about the customer and the relationship with the employees. I guess we didn’t know any better.”

    Yet the immigrant contribution goes beyond high-tech. In the years ahead, these new Americans, nonwhites and the “blended” population could reshape the national marketplace. Taken together, purchases by Asians, African-Americans and Native Americans, according to the Selig Center for Economic Growth at the University of Georgia, have exploded, growing far more rapidly than the national average.

    Combined with Latinos, these minorities could account for more than $2.5 trillion by 2010 — nearly one in every $4 of U.S. consumer spending.

    Perhaps nothing better illustrates these changes — and immigrants’ effect on daily life — than the shifts in that most basic of industries: food.
    In the old paradigm, ethnic groups such as Italians might cook traditional foods, like pizza, for their compatriots. Then, in a generation or two, they would reach out to the mainstream population. Meanwhile, immigrants, and particularly their children, acclimated to “American fare” like McDonald’s.

    But today, the shift from ethnic niche to mainstream is rapid. In Houston, once dominated by Southern cuisine, nearly one in three restaurants — overwhelmingly small, family-run businesses — serves Mexican or Asian cuisine. They account for more establishments than all the hamburger, barbecue and Italian restaurants put together.

    Nationwide, while pizza, hamburger and other traditional fast-food restaurants have stagnated, new chains selling quick, inexpensive Asian or Mexican food have flourished. Consider the successful Panda Express, started and owned by immigrants.

    By embracing, and being embraced by, immigrants, America can continue to build on its diversity. This allows the nation to retain its youthfulness, tap the global market and provide critical new spurs to innovation.

    America increasingly resembles Walt Whitman’s description, “not merely a nation, but a teeming Nation of nations.” The mid-21st-century United States can reflect that description — and aspiration — to our substantial long-term benefit.

    This article first appeared at Politico.

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

    Photo by SEIU International

  • A Big Company Recovery?

    After the release of the 2009 fourth-quarter GDP estimate, some forecasters are now predicting a rapid recovery in 2010. Certainly, the fourth-quarter growth rate was impressive, particularly following the modest pickup reflected in the third-quarter results and the terrible results of the previous several quarters. Implicitly, these optimistic forecasts are based on the assumption that the United States economy has been fundamentally unchanged by the recession.

    I suppose an assumption that the economy has been fundamentally changed in a good way could motivate a positive forecast, but I’ve not seen anyone make that argument. If someone does, I’d like the chance to debate them. We certainly haven’t addressed the too-big-to-fail problem, the bank health issue, or Fed-induced moral hazard problem created by Greenspan’s repeated easing in response to market declines.

    On the other hand, we are promised increased regulation for many sectors and higher taxes. I’d like to know which sectors, besides legal and accounting perhaps, were the winners, and how they are poised for imminent booms.

    If the economy is unchanged, we would expect to see economic growth in small businesses, and a recovery in real estate markets and construction. I don’t see how that happens. I have a hard time seeing how the flow of capital to small businesses can be restored soon, and imagining a near-term robust real-estate and construction recovery is even harder, while foreclosures are still climbing and homeownership rates still high.

    Given these facts, most forecasts these days are, unsurprisingly, more modest. Forecasts of tepid economic growth with slow job gains are typical. Some are more pessimistic, anticipating a new slowdown brought about by increasing taxes or new financial crises.

    Certainly, the United States faces continued economic challenges. When one looks more closely at the past-two-quarter’s GDP estimates, it is difficult not to conclude that they were elevated by temporary factors, such as home-buying incentives, auto buying incentives, and inventory changes.

    Other data compel one to even less sanguine conclusions. Bank charge-offs, driven by weak real estate markets and weak economic activity, are still climbing, hitting new records every quarter. Jobs are still being lost, albeit at slower rates than those disastrous rates we saw in 2009’s first half. Residential foreclosures are still climbing. Many commercial real estate markets appear to be collapsing. Normalized TED spreads, the cost of an incremental increase in risk, are still high, implying continued risk aversion among market participants.

    The human costs of this recession have been even greater. About 15 million Americans are unemployed, over half of whom have been unemployed for 19 weeks. That doesn’t include the almost-five-million discouraged workers who have left the job market, or the over-nine million who are underemployed, involuntarily working at jobs below their capabilities or part time.

    The employment numbers are sobering, but they don’t do justice to the personal costs those without gainful work are enduring. The average unemployment duration is now about 30 weeks. Many of our new workers and long-term unemployed will never see their careers recover. Instead, they will toil at jobs below their abilities, earning lower salaries than would have been the case without the recession.

    For the rest of us, these workers represent underutilized human capital, perhaps even a financial burden. They imply slower long-term economic growth and suggest our economy has undergone a fundamental change.

    The magnitude and duration of unemployment are not the only changes we’ve seen. It appears that, for the next decade at least, the potential growth of small business has changed, for the worse.

    Many of our banks are essentially zombies, existing, but incapable of serving an economic purpose, and I see no initiative to fix the banks. Small businesses need financial intermediation to grow. They cannot grow without an active and vigorous banking sector. Big business, with its direct access to capital markets, does not need financial intermediation. It can grow without an active and vigorous banking sector.

    Big business also operates, if it is big enough, with a free insurance policy against failure. Some big businesses are not big enough to be considered too big to fail, but many of them are large enough to attract or lobby for subsidies or government protection.

    Small businesses, on the other hand, are on their own. No one insures or subsidizes small business. Few even notice when a small business fails.

    Big businesses are also likely to benefit from an increased regulatory environment. Proportionately, the compliance burden is far less for larger businesses than small businesses. Regulation often serves as a tax on entrepreneurs, but a boon for big company bureaucrats.

    Yet we cannot expect big business to rescue or re-invent the economy since they have little stake in pushing the envelope on innovation. Big businesses tend to be bureaucratic and risk averse. They do not innovate.

    However, small businesses are key to economic innovation and growth. There is a reason that the computer business is dominated by relatively young firms such as Microsoft and Google, instead of IBM. There is a reason that the old, protected, United States automobile companies couldn’t compete when the younger and more nimble, Japanese manufacturers entered the market with the higher-quality and more fuel efficient products.

    If the balance between large and small companies has been changed, fundamentally and at least semi-permanently, we are in big trouble. As our small firms are being stymied, the fundamental potential United States economic growth rate has shifted down, and the “natural” unemployment rate has shifted up. That is, we can expect slower growth and higher unemployment that we have become accustomed to in the past-unless somehow economic policy again favors entrepreneurs over corporate and government bureaucracies.

    Bill Watkins is a professor at California Lutheran University and runs the Center for Economic Research and Forecasting, which can be found at clucerf.org.

    Photo by Angela Radulescu