New Geography

Category: Policy

  • Predicting the Future of British House Building

    People are expecting British house building to pick up. Sadly they will be disappointed, even as the housing market inflates into another bubble.

    There have been declines and recoveries in British house building before the 2007 collapse in construction activity. Data is in abundance. The total number of homes built annually has more than halved since the late 1960s, as successive governments withdrew from publicly funding the post-war welfare programme of council house building. There have been ups and downs in the volume of private housing built. After building 175,000 private homes in 2007 many expected that the market for new private housing would eventually recover from the financial crisis. The pent up demographic demand for new private housing would surely lead to a recovery of building if financing were made available. It seems irrational to suggest that the supply of housing will not recover to meet demand.

    In July 2008 audacity argued that British house builders would be collectively reduced in the planning regulated market to building 100,000 homes in 2009. They would shift from aspiring to build in “volume” to making their money from planning approved “eco-homes” for a luxury market. This has already occurred and there will be no necessary recovery of volume in a few years. Production may even decline from that level of inactivity.

    There seems little demand for new housing from the Public. Instead, we seem to be most concerned that housing continues to inflate in value as an asset. Most see obvious advantages in housing asset inflation, while complaining of the unaffordability of better housing. Britain is experiencing house price inflation again, but home owners know that the worsening gap between household income and the cost of buying a home, even on very low rates of interest, is frustrating new buyers, and the young in particular.

    Gordon Brown knows that playing the housing market is a mainstream activity for the electoral majority. New Labour is doing what is necessary to revive housing asset inflation. Some had hoped that the bursting of the bubble in 2007 would reconnect house prices with household income. Young people were understandably most hopeful of that prospect. Now prices are drifting upwards again to unaffordable highs. This is happening nationally, but is particularly true in greater London, where average house prices have recovered to nearly £270,000, which is where they were before the collapse of Lehman Brothers in September 2008. This makes an average house “affordable” to those earning more than £90,000 a year. That is a very small percentage of the region’s home buying public.

    Here’s what the restoration of higher prices means nationally, and in London in particular. There will be greater social immobility, expressed in more commuting, an extension of families, and several households living in the same home. Overcrowding will be more likely. Homelessness may slightly increase, but most housing difficulty will be accommodated within the existing stock.

    The mainstream majority of the electorate – those already owning homes – is likely to be grateful that the burst bubble did not turn into a crash. New Labour will try to take the credit for averting any further financial disaster. What will be ignored is that house price inflation suits Britain’s politicians, and the lending institutions in The City. The British economy is too weak to pay higher wages, and the mainstream majority are too politically weak to challenge that predicament. What other future is there for Britain except another asset inflation bubble?

    The problem then with restoring the Brown bubble is it solves none of our fundamental problems: notably a weak economy, low wages and lack of decent housing. David Cameron’s Conservative opposition will not make any difference to that predicament. They want to get rid of regional tiers of planners and to return control to local authorities, as was the intention of the 1947 Town and Country Planning Act. That is the legislation that stops the British public from building housing on cheap farmland.

    But it’s doubtful they will try to break the back of housing inflation and our country’s dependence on it. The British economy depends greatly on The City, which needs to expand the £1.2 trillion of mortgage lending in a secure way for lenders in the global financial system. This only happens when existing house prices are maintained well above the cost of constructing new ones, and best in a period of asset inflation. The trickle of new homes onto the market could reduce, and while any demographic demands of a growing population for the utility of housing would not be met, the political and economic demand for asset inflation and loan security will be satisfied.

    The way in which existing homes are made more expensive than the cost of building new ones is to inflate the price of land and keep it inflated. It is the high price of land approved for development within the 1947 legislation that is unaffordable. That is why government and house builders recognise there is “planning gain” to be negotiated over, as the uplift in land value that follows an approval to develop.

    Yet this stands in the way of a clear public interest. Government housing experts argue we need at least 240,000 new homes a year to meet demographic demand. Our inability, or even unwillingness, to tackle this issue would have shocked either the Conservatives or the Socialists of the last Century.

    What matters is to make materialist sense of the future. Society can’t live off asset inflation and debt. We must build new housing.

    We face a serious predicament today. Small quantities of highly subsidised and high density “eco-homes” are to be built by socially motivated architects, some working with the former “volume” house builders. How can building an insufficient number of homes be called “sustainable”? Instead of building new replacement homes Britain is also looking to finance a greener and endlessly refurbished housing stock, while producing too few “eco-homes” even to accommodate yearly household growth.

    The finance obsessed Green Capitalists of today are worse than their counterparts from a century ago. At least the Capitalists of the past were materialists, who believed in building more, and developing a construction industry based on materials manufacture and the skills of the workers they exploited. Those Capitalists were progressive materialists.

    The new capitalists in housing are not even interested in meeting the needs of the working and middle classes, but in pleasing environmentalists. Unsurprisingly, they also will not have to hire too many workers to build their meagre product. Today Capitalists are abandoning industrial production in favour of finance, and this is nowhere more evident than in housing. Hiding behind the moral claims of environmentalism the Capitalists of twenty-first century Britain have clearly abandoned any idea of social progress, when once they could claim to be materialists. What is noticeable is that they have so many moralistic Greens cheering them on.

    Sadly, there is no political association today to oppose Green Capitalists operating a nationalised planning system, in their effort to realise asset inflation in the form of a housing market. New Labour under Gordon Brown will not change this – indeed he clearly favours housing inflation and the City over the needs of aspiring families. So do the Conservatives under David Cameron. At the same time, they can play to a green constituency, which now dominates the media.

    Given the current planning regime and the moral imperative for building “eco-homes”, British house builders will be reduced to building around 100,000 homes for a very long time. They will aspire not to build in “volume” but instead take pride that their homes are “sustainable”.

    Only a political challenge will improve the situation. Gordon Brown faces no political challenge from David Cameron. He never will. Under New Labour or the Conservatives the only future for house builders will be to offer highly differentiated luxury “eco-homes” for the equity rich, or the top quintile of earners, supported with high subsidies in some form to build affordable “eco-homes”. Architects will particularly benefit from this shift in the market.

    New Labour will build a few council homes more as a publicity stunt to keep their middle class Old Labour supporters amused. Conservatives will not bother about such nonsense. They will both insist on “zero carbon” new housing by 2016. Both will focus on refurbishment of the existing stock, not replacement. Both will exclude more land from the planning system.

    The only people who will challenge this predicament, this retreat of Capitalism from population growth and industrial productivity, will be the working mainstream middle. Brown thinks he has bought off the majority of home owners with asset inflation, and temporarily he might have relieved many. Cameron thinks he can further mobilise established local residents attempting to extract more “gain” from the planning system. He imagines local opposition to development aggregating to a general protection of house price inflation nationally.

    These Red/Green and Blue/Green political leaders might be proved wrong. The construction industry matters, and with argumentative organisation materialists might push for house building against the greens of Britain. Most of all there is the new generation of British people – those entering their 20s and 30s – who will demand something other than over-priced, undersized and often miserably maintained housing for themselves and their families.

    A longer version of this article originally appeared at www.audacity.org/IA-07-11-09.htm

    Ian Abley, Project Manager for audacity, an experienced site Architect, and a Research Engineer at the Centre for Innovative and Collaborative Engineering, Loughborough University. He is co-author of Why is construction so backward? (2004) and co-editor of Manmade Modular Megastructures. (2006) He is planning 250 new British towns.

  • Honest Services From Bankers? Increasingly Not Likely

    Once you understand what financial services are, you’ll quickly come to realize that American consumers are not getting the honest services that they have come to expect from banks. A bank is a business. They offer financial services for profit. Their primary function is to keep money for individual people or companies and to make loans. Banks – and all the Wall Street firms are banks now – play an important role in the virtuous circle of savings and investment. When households have excess earnings – more money than they need for their expenses – they can make savings deposits at banks. Banks channel savings from households to entrepreneurs and businesses in the form of loans. Entrepreneurs can use the loans to create new businesses which will employee more labor, thus increasing the earnings that households have available to more savings deposits – which brings the process fully around the virtuous circle.

    As U.S. households deal with unemployment above 10% as a direct result of the financial crises caused by excessive risk-taking at banks, one bank, Goldman Sachs, posted the biggest profit in its 140-year history. According to Nobel laureate economist Joseph Stiglitz at Columbia University, Goldman’s 65% increase in profits is like gambling – the largest growth came from its own investments and not from providing financial services to households and businesses.

    Under fraud statutes created in 1988, Congress criminalized actions that deprive us of the right to “honest services.” The law has been used generally to prosecute fraudsters and potential fraudsters – from Jack Abramoff to Rod Blagojevich – whenever the public does not get the honest, faithful service we have a right to expect.

    The theory of “honest services” was used in one of the best known U.S. cases of financial misbehavior – Jeff Skilling of Enron – who has been granted a hearing early next year with the U.S. Supreme Court on the subject. Prosecutors won the original 2006 conviction on the strategy “that Skilling robbed Enron of his ‘honest services’ by setting corporate goals that were met by fraudulent means amid a widespread conspiracy to lie to investors about the company’s financial health.” The U.S. Attorney argued that CEO Skilling set the agenda at Enron. In this case, the fraud and conspiracy were means by which corporate ends were met.

    Skilling’s defense attorney admitted in his appeal before the 5th Circuit in April that his client “might have only bent the rules for the company’s benefit.” The appeal was not granted – a move by the court that is viewed as an overwhelming success for the prosecution. The application of the theory of “honest services” to the Skilling case – targeting corporate CEOs instead of elected officials – has been the subject of debate which may explain why the Supreme Court agreed to hear the arguments.

    Regardless of the outcome of that or other cases on the subject, the fact remains that bankers are doing better for themselves than they are for American households. This is the number one complaint we have about banks today. If I had to summarize the rest of what bothers us about banks, I would start with the fact that they are secretive. They take advantage of a very common fear of finance to convince consumers that they know what’s good for you better then you do.

    Next in line is the fact that they have purchased Congress. Banks have access to the halls of power that – despite 234 years of egalitarian rhetoric – ordinary voters can never achieve. Finally, we resent banks because we are required to use their services, like a utility, to gain access to the American Dream.

    Financial services contribute about 6 percent to the U.S. economy. Manufacturing and information industries use financial services, but the industry increasingly depends on itself: recall the portion of Goldman’s earnings growth coming from using its own investment services. According to the latest data from the Bureau of Economic Analysis, the financial services industry requires $1.27 of its own output to deliver a dollar of its final product to users. Despite the fact that our economic reliance on financial services has been creeping up steadily since 2001, they remain one of the least required inputs for U.S. economic output – only wholesale and retail trade have less input to the output of other industries.

    So, why did Congress vote them nearly a trillion dollars worth of life-support bailout money at the expense of taxpayers? Why did Wall Street get swine flu vaccine ahead of rural hospitals and health care workers? Why did they get the bailout without accountability? By making banks account for what they did with the money, congress could have 1) prohibited spending on bonuses and lavish retreats; 2) ensured improved access to credit for small and medium enterprises; and 3) provided transparency to taxpayers on who got how much and what they did with it. Need more reasons to demand honest services from a banker? Try this list:

    1. Congress raised the FDIC insurance to $200,000 to make depositors comfortable leaving money in banks; then the banks passed the insurance premium on to customers – including those that never had $200,000 cash in the bank in their lives and probably never will. Seriously, how much money do you have to have before it makes sense to have $200,000 in cash in a savings account earning 0.25%?
    2. Banks can borrow at 0% from the Fed yet they raise the interest rates they charge even their best customers. The bank I use for my company willingly lent me $10,000 last year to open a new office and approved a $7,000 credit card limit. Last month they sent me a letter saying they are raising the interest rate by +1.9 percentage point – though I have never missed a payment deadline.
    3. The banks can use our deposits to purchase securities issued by the Federal government, which are yielding better than 3 percent. They pay us about 0.25 percent yet still find it necessary to tack on a multitude of fees – which amount to 53 percent of banks’ income today, up from 35 percent in 1995.

    For now, Brother Banker skips along as lively as a cricket in the embers. But remember this: Marie Antoinette didn’t know anything about the French revolution until they cut off her head. Matt Taibbi, in a recent Rolling Stone article called Goldman Sachs a “great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.” We are at risk for leaving the virtuous circle behind and entering a vicious circle of spiraling inflation. A massive increase in government debt is being paid down by printing more money. Between July 2008 and November 2008, the Federal Reserve more than doubled its balance sheet from $0.9 trillion to $2.5 trillion. A year later, there is no evidence that they are trying to rein it in. As Brother Banker fails to provide honest services, a briar patch of a different kind may be waiting around the corner.

    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.

  • Reducing Carbon Should Not Distort Regional Economies

    A pending bill in Congress to reduce carbon emissions via a “cap and trade” regime would have significant distorting effects on America’s regional economies. This is because the cost of compliance varies widely from region to region and metro to metro. This is all the more important since such legislation may do very little to reduce overall carbon emission according to two of the EPA’s own San Francisco lawyers.

    The Brookings Institution recently calculated the projected cost of compliance under the cap and trade plan on a metro by metro basis and produced the map below for The New Republic:

    The costs of compliance are highest in the lower Midwest through to the Mid-Atlantic and in the South. New England, the Upper Midwest, and the West are the winners from a cost standpoint.

    The actual costs vary from a high of $277 per household per year in 2020 in Lexington, KY to a low of $96 in Los Angeles among the 100 largest metros. Other hard hit metros include Washington, DC ($250), Indianapolis ($246) and Kansas City ($228). Among the winners are Portland ($107), San Francisco-Oakland-Fremont ($119) and Chicago ($135).

    In aggregate, this adds up to a significant amount of money. The Cincinnati metro had 815,000 households in 2008. Brookings did not include their household estimates for 2020, but even with no population growth at all, at $244 per household that still adds up to about $200 million per year in compliance costs. To put that in perspective, Cincinnati is proposing to construct a new downtown streetcar system for that same amount of money. It could conceivably build a new streetcar line every single year in perpetuity for the cost of compliance. Portland has 835,000 households, for an annual compliance cost of $90 million. Though they are about the same size regions, Cincinnati will be paying over $100 million more per year compliance costs. This creates a $100 million disincentive to live or locate a business in Cincinnati vs. Portland.

    In short, cap and trade creates disparities between metros. As the New Republic put it, “place matters” on cap and trade. And because the effects are geographically clustered, these disparities aren’t just local, they are regional. This is enough to immediately prompt the question as to whether or not this was an implicit design goal of the system.

    Among the biggest beneficiaries of cap and trade is California. Its large metros are clustered together at the bottom of the list. I noted previously how California is placing a huge bet on the green economy as its engine of economy renewal. In fact, beyond legacy industries such as high tech, agriculture, and entertainment, California’s political leaders are betting their entire future on green. With so much on the line for California, it should come as no surprise that the state would seek to federalize its policies and institutionalize the advantages it has in this arena through its state level climate regulations. One might even better name this bill “The California Economic Recovery and Competitor Hobbling Act of 2009”.

    This reality isn’t lost on Indiana Governor Mitch Daniels. With Indianapolis the fifth hardest hit metro in the country, it is no surprise he denounced the plan in a Wall Street Journal editorial, saying, “Quite simply, it looks like imperialism. This bill would impose enormous taxes and restrictions on free commerce by wealthy but faltering powers – California, Massachusetts and New York – seeking to exploit politically weaker colonies in order to prop up their own decaying economies.”

    It is clear that getting a bill out of Washington is not just a matter of cost, but of states and regions jockeying for position. The significant regional disparities in impact grind the legislative gears and might ultimately imperil getting legislation passed. Reducing regional disparities could help improve the chances of action on carbon.

    But shouldn’t places that implemented what is considered good policy be rewarded? To some extent, yes. Many places actually voted to cause economic pain for themselves for the sake of a better environment. Other places have fought environmental regulation every step of the way. Clearly, we do want to provide incentives for good behavior, and certainly not reward bad.

    On the other hand, not all the differences in current carbon emissions or abilities to reduce them are the result of good policy. Quite a bit of them are the result of simple good luck. Some places have climates that reduce the need for heating and air conditioning. Other places face more extreme weather.

    Plentiful clean energy sources are unequally spread throughout the country. Not every place has access to large amounts of solar, wind, or hydro power sources. Much of the Midwest and South built coal fired power plants due to plentiful coal supplies in the region. Technology and transportation costs made other sources cost prohibitive. Carbon emissions were not on anyone’s radar then. Some places like Chicago were fortunate to build nuclear plants, which were bitterly opposed by environmentalists at the time, but now are praised by some as a source of low carbon power.

    In short, much of the inequality in carbon emissions results from accidents of geography or history, not deliberate bad choices. People shouldn’t be punished for practices that were rational at the times. As Saul Alinksy put it, “Judgment must be made in the context of the times in which the action occurred and not from any other chronological vantage point.” And while one could say perhaps regions whose climates require excessive heating and cooling shouldn’t be favored places to live, one could say the same about much of the West, including California, whose existence depends on a vast edifice of what many consider environmentally destructive water works.

    To actually get action on carbon – the true imperative – we should adopt the following policy guiding principles:

    1. The goal is carbon reduction, full stop. Encumbering it with additional regional economic gamesmanship, or becoming overly enamored with particular means to that end should be avoided.
    2. Reducing carbon emissions will come with an economic cost. It isn’t realistic to expect that we will get away with pain free reductions. Obviously we should seek to get the best blend of costs and benefits, but let’s not pretend we can have our cake and eat it too, holding carbon action hostage to a standard that can never be met.
    3. The carbon reduction regime should not create significant regional cost disparities. As a purely practical matter, this helps ease passage and should be embraced. Complete equality is never realistic, but when some regions will pay twice as much as others, that by itself creates oppositional voting blocs. If a cap and trade scheme is the preferred approach, then perhaps assistance to high compliance cost areas should partially fund the transition away from coal and towards less polluting sources.
    4. The carbon reduction regime should not encourage business to migrate offshore. We should also not take action that reduces the attractiveness of America as a place to do business and especially to manufacture. Regulatory arbitrage already provides an incentive to move to China, where you can largely escape environmental rules, health and safety regulations, and avoid the presence of independent, vigorous unions. An ill chosen carbon regime could simply enhance China’s allure as a “carbon haven”. Again, this skews manufacturing regions and labor interests against action on carbon, while shifting production to areas with only minimal regulatory restraints.

    In short, action on carbon reduction may well be a good policy goal. But we shouldn’t embrace any means to that end uncritically if it creates huge distortions in regional economic advantage or further damages America’s industrial competitiveness.

    Aaron M. Renn is an independent writer on urban affairs based in the Midwest. His writings appear at The Urbanophile.

  • Obama Still Can Save His Presidency

    A good friend of mine, a Democratic mayor here in California, describes the Obama administration as “Moveon.org run by the Chicago machine.” This combination may have been good enough to beat John McCain in 2008, but it is proving a damned poor way to run a country or build a strong, effective political majority. And while the president’s charismatic talent – and the lack of such among his opposition – may keep him in office, it will be largely as a kind of permanent lame duck unable to make any of the transformative changes he promised as a candidate.

    If Obama wants to succeed as president he must grow into something more than movement icon, become more of a national leader. In effect, he needs to hit the reset button. Here are five key changes that Obama can implement to re-energize and save his presidency.

    1. Forget the “Chicago way.” The Windy City is a one-party town with a shrinking middle class and a fully co-opted business elite. The focused democratic centralism of the machine – as the University of Illinois’ Richard Simpson has noted – worked brilliantly in the primaries and even the general election campaign. But it is hardly suited to running a nation that is more culturally and politically diverse.

    The key rule of Chicago politics is delivering the spoils to supporters, and Obama’s stimulus program essentially fills this prescription. The stimulus’s biggest winners are such core backers as public employees, universities and rent-seeking businesses who leverage their access to government largesse, mostly by investing in nominally “green” industries. Roughly half the jobs saved form the ranks of teachers, a highly organized core constituency for the president and a mainstay of the political machine that supports the Democratic Party.

    The other winners: big investment banks and private investment funds. People forget that Obama, even running against a sitting New York senator, emerged as an early favorite among the hedge fund grandees. As The New York Times’ Andrew Sorkin put it back in April, “Mr. Obama might be struggling with the blue-collar vote in Pennsylvania, but he has nailed the hedge fund vote.”

    At best, the president’s policy seems like Karl Rove in reverse, essentially smooching the core and ignoring the rest. This is a formula for more divisiveness, not the advertised “hope” Americans expected last November.

    2. Focus on Real Jobs, Not Favored Constituencies . The Chicago approach works better in a closed political system controlled by a few powerbrokers than in a massive continental economy like the U.S. Health care and education, which depend on government largesse, are surviving. But the critical production side of the economy that generates good blue-collar jobs – like agriculture, manufacturing and construction – is getting the least from the stimulus.

    These industries need more large-scale infrastructure spending, as well as more focused skills training and initiatives to free capital for politically unconnected entrepreneurial businesses. Instead, productive industries face the prospect of more regulation while capital for small businesses continues to dry up.

    Those in post-industrial bastions tied to speculative capital – think Manhattan and the Hamptons – are the ones most benefiting from Obamanomics. College towns like Cambridge, Mass., Madison, Wis., Berkeley, Calif., and Palo Alto, Calif., will also prosper, becoming even richer and more self-important. It seems, then, that Obama has done best for elite graduates of Harvard and Stanford and other members of the “creative class.”

    The rest of America, however, is still waiting for a real sustained recovery. Industrial and office properties remain widely abandoned not only in Detroit but Silicon Valley. The future sustainability of our economy depends mostly on what happens to those who previously staffed these facilities – those who produced actual goods and services – not just on a relative handful of people working at Google or the national laboratories. In other words, we need jobs for machinists, welders and marketers as well as scientists with Ph.D’s.

    3. Step on the Gas. Providence has handed America – and Obama – an enormous gift in the now recoverable deposits of natural gas found across the continent. Proven levels have been soaring and now amount to 90 years’ supply at current demand. More will be found, and across a wide section of the country.

    Natural gas may be a fossil fuel, but it is relatively clean and thus the perfect intermediate solution to our energy problems. The problem: The president’s green advisers will seek to prevent developing these resources.

    Although Obama should support strong environmental controls on gas extraction, the greens should not be allowed to block this unique and historic opportunity to shift economic power back to North America. Along with modest increases in domestic and Canadian oil, natural gas could end our dependence on fossil fuels from outside North America. This would relieve our military from the onerous task of defending other people’s oil supplies. But most important, the new energy sources could expand our industrial and agricultural economies so they can capitalize on the huge potential growth from markets at home and in the developing world.

    The natural gas era could then finance continued research and deployment of renewable fuels. Let’s give it the 10 or 20 years that great transformations require. Quick fixes will lead us to subsidize the purchase of rapidly dated technology from China or Europe; we should aim at the energy equivalent of the moon shot, helping forge a huge technological advantage.

    4. Rediscover America. As a candidate, Obama spoke movingly about his Kansas roots, but lately he seems to have become all big city all the time. This administration offers very little to people who live in places like Kansas, as many of my heartland Democrat friends complain.

    Urbanites often forget that this is an enormous country. Crowded into dense cities themselves, they fail to look down from the window when crossing the country by plane. The vast majority of America is, well, vast – sparsely settled, if settled at all.

    Moreover, Obama’s people need to understand that 80% of America live in suburbs or small towns. They do not want to live in dense cities or realize a move there would mean living in less than idyllic conditions. If Obama wants to shape a green America, he must find ways that work with the majority’s preferences.

    But so far the president’s housing, transport and planning advisers seem to be pushing the death of suburbia and promoting ever more densification. It’s hardly surprising, then, that suburbs and small towns feel left out. After finally starting to inch toward the Democrats, they are now turning again to the right. If Democrats want to retain their majority, they need the strong support of these constituencies – without it the Congressional majority will be gone by the end of the second term, if not the first.

    5. Chuck the Nobel; Embrace Exceptionalism. Many progressives love Obama because they see him as one of them in the struggle with what the immortal Bill Maher calls “a stupid country.” But the president should remind himself that the country may not be quite as dumb as it sometimes looks from Oslo – or from Dupont Circle, Cambridge or Soho.

    Being smart was part of the reason the Republicans lost the majority. The voters understood the country was wasting resources – and young people – on internecine conflicts for energy that we could produce at home. The Bush years also undermined any GOP claim to fiscal responsibility.

    Initially Obama allowed us to redefine American exceptionalism as something more than monomaniacal use of force and overconsumption. He spoke to our traditions of inclusiveness, adaptability and idealism. He offered the perfect vehicle because he and his story are so exceptional. Yet Obama sometimes seems more interested in serving as the apologizer rather than as commander in chief. His vision appears less American than pseudo-European.

    This is not the path to success for American presidents. Whether Ronald Reagan or Franklin Roosevelt, Harry Truman or even Bill Clinton, a president has to be a spokesman for his country. Right now, on the world stage, Obama is looking more and more like Jimmy Carter.

    I suggest these things because, for all his missteps over the past year, Barack Obama is my president and I want him to succeed. But to do so, first he needs to hit his own reset button – and the sooner the better. Unlike some, I do not believe the Obama presidency is already doomed. Presidents often grow in office: Despite his exceptionalism in other areas, let’s hope that Obama proves the norm here.

    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 next book, The Next Hundred Million: America in 2050, will be published by Penguin Press early next year.

    Official White House Photo by Pete Souza

  • Police Pensions and Voodoo Actuarials

    A key argument that public-safety officials use to justify their absurdly high pension benefits –- i.e., “3 percent at 50” retirements that allow them to retire with 90 percent or more of their final year’s pay as early as age 50 — is this: We die soon after retirement because of all the stresses and difficulties of our jobs. This is such a common urban legend that virtually every officer who contacts me mentions this “fact.” They never provide back-up evidence.

    Here is one article I’ve been sent by police to make their point. It was written in 1999 by Thomas Aveni of the Police Policy Council, a police advocacy organization. Here is the key segment: “Turning our attention back towards the forgotten police shift worker, sleep deprivation must be considered a serious component of another potential killer: job stress. The cumulative effect of sleep deprivation upon the shift-working policeman appears to aggravate job stress, and/or his ability to cope with it.

    “Even more troubling is the prospect that the synergy of job stress and chronic sleep indebtedness contributes mightily to a diminished life expectancy. In the U.S., non-police males have a life-expectancy of 73 years. Policemen in the U.S. have a life expectancy of 53-66 years, depending on which research one decides to embrace. In addition, police submit workman’s compensation claims six times higher than the rate of other employees …”

    I don’t doubt that police work can be very stressful, but many jobs are stressful, many have long hours, many are more dangerous, many involve sleep deprivation. As intelligent adults, we all need to weigh the risk and benefits of any career choice. Aveni uses the high amount of workers compensation claims as evidence of the dangers of the job, but given the tendency of police and firefighters to abuse the disability system – miraculously discovering a disabling injury exactly a year from retirement, thus getting an extra year off and protecting half the pension from taxes – I’m not convinced this proves anything. Given the number of officers who are retired based on knee injuries, back aches, irritable bowel syndrome, acid reflux, etc., this suggests that police game the system and know their fellows on the retirement board will approve virtually any disability claim.

    There are so many legal presumptions (if an officer develops various conditions or diseases it is legally presumed to be work related, whether or not it actually is work related) that bolster the scam. “Disabled” officers often go right out and get similar law enforcement jobs, which calls into question how disabling the injury really is. Regarding sleep deprivation, police and firefighters have secured schedules that minimize the long hours; then the officers often choose to work overtime for double salary, which perhaps is the real cause of sleep problems.

    The big whopper in the Aveni article, however, is the claim that officers live to be 53-66. If that were so, there would be no unfunded liability problem because of pension benefits. Police officers would retire at 50-55, then live a few years at best.

    But, for example, according to the state of California pubic employees’ retirement system (CalPERS) actuary, police actually live longer than average these days, which isn’t surprising given that the earlier people retire and the wealthier they are, the longer they tend to live. And according to a 2006 report to the Oregon Public Employees Retirement System, these are the age-60 life expectancies for the system’s workers (meaning how many years after 60 they will live):

    — Police and fire males: 22.6
    — General service males: 23.4
    — Police and fire females: 25.7
    — General service females: 25.7

    So we see that police and firefighters who retire at age 60 live, on average, well into their 80s. That’s real data and not the hearsay used by apologists for enormous police pensions.

    CalPERS actuary David Lamoureux sent me a CalPERS presentation called “Preparing for Tomorrow,” from the retirement fund’s 2008 educational forum. The presentation features various “pension myth busters.”

    Here is Myth #4 (presented as part of a Power Point presentation): “Safety members do not live as long as miscellaneous members.” CalPERS officials explain that “rumor has it that safety members only live a few years after retirement.” Actuarial data answers the question: “Do they actually live for a shorter time?” The presentation considers the competing facts: “Safety members tend to have a more physically demanding job, this could lead to a shorter life expectancy. However, miscellaneous members sit at their desk and might be more at risk to accumulating table muscle!” Fire officials, by the way, make identical claims about dying as early as police officials.

    For answers, CalPERS looked at an experience study conducted by its actuarial office in 2004. It looked at post-retirement mortality data for public safety officials and compared it to mortality rates for miscellaneous government workers covered by the CalPERS system.

    Here are the CalPERS life expectancy data for miscellaneous members:

    — If the current age is 55, the retiree is expected to live to be 81.4 if male, and 85 if female.
    — If the current age is 60, the retiree is expected to live to be age 82 if male, and 85.5 if female.
    — If the current age is 65, the retiree is expected to live to be age 82.9 if male, and 86.1 if female.

    Here is the CalPERS life expectancy data for public safety members (police and fire, which are grouped together by the pension fund):

    — If the current age is 55, the retiree is expected to live to be 81.4 if male, and 85 if female.
    — If the current age is 60, the retiree is expected to live to be age 82 if male, and 85.5 if female.
    — If the current age is 65, the retiree is expected to live to be age 82.9 if male, and 86.1 if female.

    That’s no mistake. The numbers for public safety retirees are identical to those of other government workers. As CalPERS notes, average public safety officials retiree earlier than average miscellaneous members, so they receive their higher level of benefits for a much longer time.

    Here is CalPERS again: “Verdict: Myth #4 Busted! Safety members do live as long as miscellaneous members.”

    The next time you hear this “we die early” misinformation from a cop, firefighter or other public-safety union member (most of them probably believe it to be true, given how often they have read this in their union newsletters), send them to CalPERS for the truth!

    I expected these numbers for the recently retired, given the pension enhancements and earlier retirement ages, but it seemed plausible that police in particular might have had a point about mortality rates in earlier days. But even that’s not true. A 1987 federal report from the National Criminal Justice Reference Center, “Police Officers Retirement: The Beginning of a Long Life,” makes the following point:

    “’The average police officer dies within five years after retirement and reportedly has a life expectancy of twelve years less than that of other people.’ Still another author states, ‘police officers do not retire well.’ This fact is widely known within police departments. These statements (which are without supporting evidence) reflect a commonly held assumption among police officers.

    “Yet, a search of the literature does not provide published studies in support. Two suggested sources, the Los Angeles City Police and Massachusetts State Police, have provided data which also appears to contradict these assumptions. Reported in this paper are results from a mortality study of retired Illinois State Police (ISP) officers. It suggests that ISP officers have as long, if not longer, life expectancy than the population as a whole. Similar results also arise when examining retirees from the Ohio Highway Patrol, Arizona Highway Patrol, and Kentucky State Police.”

    The report also casts doubt on the commonly repeated statistic that police have higher rates of suicide and divorce than other people. The federal report found the divorce rates to be average and suicide rates to be below average. This is important information because it debunks a key rationale for the retirement expansions, although more recent data need to be examined on divorce/suicide rates.

    Police have an oftentimes tough job, but many Americans have oftentimes tough and sometimes dangerous jobs. This needs to be kept in perspective. Public officials need to deal in reality rather than in emotionally laden fantasy when considering the public policy ramifications of pensions.

    This article was excerpted from Greenhut’s forthcoming book, “Plunder! How Public Employee Unions Are Raiding Treasuries, Controlling Our Lives And Bankrupting The Nation” to be published by The Forum Press in November.

  • Congress and the Administration Take Aim at Local Democracy

    Local democracy has been a mainstay of the US political system. This is evident from the town hall governments in New England to the small towns that the majority of Americans choose to live in today.

    In most states and metropolitan areas, substantial policy issues – such as zoning and land use decisions – are largely under the control of those who have a principal interest: local voters who actually live in the nation’s cities, towns, villages, townships and unincorporated county areas. This may be about to change. Two congressional initiatives – the Boxer-Kerry Cap and Trade Bill and the Oberstar Transportation Reauthorization Bill – and the Administration’s “Livability Partnership” take direct aim at local democracy as we know it.

    The Boxer-Kerry Bill: The first threat is the proposed Senate version of the “cap and trade” bill authored by Senator Barbara Boxer-Kerry (D-California) and Senator John Kerry (D-Massachusetts). This bill, the Clean Energy Jobs and American Power Act (S. 1733), would require metropolitan planning organizations (MPOs) to develop greenhouse gas emission reduction plans. In these plans, the legislation would require consideration of issues such as increasing transit service, improvements to intercity rail service and “implementation of zoning and other land use regulations and plans to support infill, transit-oriented development or mixed use development.” This represents a significant step toward federal adoption of much of the “smart growth” or “compact development” agenda.

    At first glance, it may seem that merely requiring MPOs to consider such zoning and land use regulations seems innocent enough. However, the incentives that are created by this language could well spell the end of local control over zoning and land use decisions in the local area.

    True enough, the bill includes language to indicate that the bill does not intend to infringe “on the existing authority of local governments to plan or control land use.” Experience suggests, however, that this would provide precious little comfort in the behind-the-scenes negotiations that occur when a metropolitan area runs afoul of Washington bureaucrats.

    The federal housing, transportation and environmental bureaucracies have also been supportive of compact development policies. As these agencies develop regulations to implement the legislation, they could well be emboldened to make it far more difficult for local voters to retain control over land use decisions. There could be multiple repeats of the heavy-handedness exercised by the EPA when it singled out Atlanta for punishment over air quality issues. In response, the Georgia legislature was, in effect, coerced into enacting planning and oversight legislation more consistent with the planning theology endorsed by EPA’s bureaucrats. No federal legislation granted EPA the authority to seek such legislative changes, yet they were sought and obtained.

    There is also considerable support for the compact development agenda at the metropolitan area level. The proclivity of metropolitan and urban planners toward compact development is so strong as to require no encouragement by federal law. The emerging clear intent of federal policy to move land use development to the regional level and to densify existing communities could encourage MPOs to propose plans that pressure local governments to conform their zoning to central plans (or overarching “visions”) developed at the regional level. Along the way, smaller local jurisdictions could well be influenced, if not coerced into actions by over-zealous MPO staff claiming that federal law and regulation require more than the reality. It would not be the first time. Further, MPOs and organizations with similar views can be expected to lobby state legislatures to impose compact development policies that strip effective control of zoning and land use decisions from local governments.

    Surface Transportation Reauthorization: The second threat is the Surface Transportation Authorization Act (STAA or reauthorization) draft that has been released by Chairman James Oberstar (D-Minnesota) of the House Transportation and Infrastructure Committee. This bill is riddled with requirements regarding consideration of land use restrictions by MPOs and states. Unlike the Boxer-Kerry bill, the proposed STAA includes no language denying any intention to interfere with local land use regulation authority.

    Like the Boxer-Kerry Bill, the Oberstar bill significantly empowers the Department of Transportation and the Environmental Protection Agency and poses similar longer term risks.

    The Administration’s “Livability Agenda:” These legislative initiatives are reinforced by the Administration’s “Livability Agenda,” which is a partnership between the EPA, the Department of Housing and Urban Development and the Department of Transportation. Among other things, this program is principally composed of compact development strategies, including directing development to certain areas, which would materially reduce the choices available to local government. Elements such as these could be included in an eventual STAA bill by the Obama Administration.

    The Livability Agenda: Regrettably, the Boxer-Kerry bill, the Oberstar bill and the “Livability Agenda” will make virtually nothing more livable. If they are successful in materially densifying the nation’s urban areas, communities will be faced with greater traffic congestion, higher congestion costs and greater air pollution. Despite the ideology to the contrary, higher densities increase traffic volumes within areas and produce more health hazards through more intense local air pollution. As federal data indicates, slower, more congested traffic congestion produces more pollution than more freely flowing traffic, and the resulting higher traffic volumes make this intensification even greater.

    There are also devastating impacts on housing affordability that occur when “development is directed.” This tends to increase land prices, which makes houses more expensive. This hurts all future home buyers and renters, particularly low income and minority households, since rent increases tend to follow housing prices. It is particularly injurious to low income households, which are disproportionately minority. The large gap between majority and minority home ownership rates likely widen further. So much for the American Dream for many who have not attained it already.

    The Marginal Returns of Compact Development Policies: These compact development initiatives continue to be pursued even in the face of research requested by the Congress indicating that such policies have precious little potential. The congressionally mandated Driving and the Built Environment report indicates that driving and greenhouse gas emissions could be higher in 2050 than in 2000 even under the maximum deployment of compact development strategies.

    Local Governments at the Table? The nation’s local governments should “weigh in” on these issues now, while the legislation is being developed. If they wait, they could find bullied by EPA and MPOs to follow not what the local voters want, but what the planners prefer. Local democracy will be largely dead, a product of a system that concentrates authority – and perceived wisdom – in the hands of the central governments, at the regional and national level.

    Even more, local citizens and voters need to be aware of the risk. It will be too late when MPOs or other organizations, whether at their own behest or that of a federal agency, force the character of neighborhoods to be radically changed, as Tony Recsei pointed out is
    already occurring in Australia.

    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.”

  • Detroit: Urban Laboratory and the New American Frontier

    The troubles of Detroit are well-publicized. Its economy is in free fall, people are streaming for the exits, it has the worst racial polarization and city-suburb divide in America, its government is feckless and corrupt (though I should hasten to add that new Mayor Bing seems like a basically good guy and we ought to give him a chance), and its civic boosters, even ones that are extremely knowledgeable, refuse to acknowledge the depth of the problems, instead ginning up stats and anecdotes to prove all is not so bad.

    But as with Youngstown, one thing this massive failure has made possible is ability to come up with radical ideas for the city, and potentially to even implement some of them. Places like Flint and Youngstown might be attracting new ideas and moving forward, but it is big cities that inspire the big, audacious dreams. And that is Detroit. Its size, scale, and powerful brand image are attracting not just the region’s but the world’s attention. It may just be that some of the most important urban innovations in 21st century America end up coming not from Portland or New York, but places like Youngstown and, yes, Detroit.

    Let’s refresh with this image showing the scale of the challenge in the city of Detroit proper:


    There are zillions of pictures to illustrate the vast emptiness in Detroit. Kaid Benfield at NRDC posted these:


    This phenomenon prompted someone to coin the term “urban prairie” to capture the idea of vast tracts of formerly urbanized land returning to nature. The folks at Detroit’s best discussion site, DetroitYES, posted this before and after of the St. Cyril neighborhood. Before:


    After:


    A site named “Sweet Juniper” recently had a fantastic photo of the spontaneous creation of “desire line” paths across all this vacant land. You should click to enlarge this photo.


    One natural response is the “shrinking cities” movement. While this has gotten traction in Youngstown and Flint, as well as in places like Germany, it is Detroit that provides the most large scale canvas on which to see this play out, as well as the place where some of the most comprehensive and radical thinking is taking place. For example, the American Institute of Architects produced a study that called for Detroit to shrink back to its urban core and a selection of urban villages, surrounded by greenbelts and banked land. Here’s a picture of their concept:


    It seems likely that this will get some form of traction from officialdom, as this article suggests, though implementation is likely to be difficult.

    Detroit is also attracting dreams of large scale renewal through agriculture, as Mark Dowie writes in Guernica (hat tip @archizoo).

    Were I an aspiring farmer in search of fertile land to buy and plow, I would seriously consider moving to Detroit. There is open land, fertile soil, ample water, willing labor, and a desperate demand for decent food. And there is plenty of community will behind the idea of turning the capital of American industry into an agrarian paradise. In fact, of all the cities in the world, Detroit may be best positioned to become the world’s first one hundred percent food self-sufficient city.

    This isn’t just a crazy idea from some guy who lives in California. He documents several examples of people right now, today growing food in Detroit. It wouldn’t surprise me, frankly, if Detroit produces more food inside its borders today than any other traditional American city.

    About five hundred small plots have been created by an international organization called Urban Farming, founded by acclaimed songwriter Taja Sevelle. Realizing that Detroit was the most agriculturally promising of the fourteen cities in five countries where Urban Farming now exists, Sevelle moved herself and her organization’s headquarters there last year. Her goal is to triple the amount of land under cultivation in Detroit every year. All food grown by Urban Farming is given free to the poor. According to Urban Farming’s Detroit manager, Michael Travis, that won’t change.

    The fact that Urban Farming moved to Detroit is exactly the effect I’m talking about. To anyone with aspirations in this area, it is Detroit that offers the greatest opportunity to make your mark. It is the ultimate blank canvas. For urban agriculture and many other alternative urban dreams, it is Detroit, not New York City that is the ultimate arena in which to prove yourself.

    It’s not just farmers; intellectuals and artists of various types are drawn to Detroit, both to study it and pursue ideas about the remaking of the city:

    Detroit has achieved something unique. It has become the test case for all sorts of theories on urban decay and all sorts of promising ideas about reviving shrinking cities.

    “It’s unbelievable,” said Sue Mosey, president of the University Cultural Center Association, who has been interviewed recently by two separate PBS crews and an Austrian journalist writing about Detroit.

    “All of us have been inundated with all of these people who somehow think that because we’re so bottomed out and so weak-market, that this is this incredible opportunity,” Mosey said.

    Robin Boyle, a professor of urban planning at Wayne State University who has been interviewed by numerous visitors, echoed that sentiment.

    “They realize that there is an interesting story to tell, that has real characters, but even more, they discover a place that is simply not like everywhere else,” he said.

    Toby Barlow wrote in the New York Times about out of towners buying up $100 houses, moving to Detroit, and doing all sorts of interesting things with them:

    Recently, at a dinner party, a friend mentioned that he’d never seen so many outsiders moving into town…Two other guests that night, a couple in from Chicago, had also just invested in some Detroit real estate. That weekend Jon and Sara Brumit bought a house for $100.
    ….
    A local couple, Mitch Cope and Gina Reichert, started the ball rolling. An artist and an architect, they recently became the proud owners of a one-bedroom house in East Detroit for just $1,900. Buying it wasn’t the craziest idea. The neighborhood is almost, sort of, half-decent. Yes, the occasional crack addict still commutes in from the suburbs but a large, stable Bangladeshi community has also been moving in.

    So what did $1,900 buy? The run-down bungalow had already been stripped of its appliances and wiring by the city’s voracious scrappers. But for Mitch that only added to its appeal, because he now had the opportunity to renovate it with solar heating, solar electricity and low-cost, high-efficiency appliances.

    Buying that first house had a snowball effect. Almost immediately, Mitch and Gina bought two adjacent lots for even less and, with the help of friends and local youngsters, dug in a garden. Then they bought the house next door for $500, reselling it to a pair of local artists for a $50 profit. When they heard about the $100 place down the street, they called their friends Jon and Sarah.
    ….

    But the city offers a much greater attraction for artists than $100 houses. Detroit right now is just this vast, enormous canvas where anything imaginable can be accomplished. From Tyree Guyton’s Heidelberg Project (think of a neighborhood covered in shoes and stuffed animals and you’re close) to Matthew Barney’s “Ancient Evenings” project (think Egyptian gods reincarnated as Ford Mustangs and you’re kind of close), local and international artists are already leveraging Detroit’s complex textures and landscapes to their own surreal ends.

    In a way, a strange, new American dream can be found here, amid the crumbling, semi-majestic ruins of a half-century’s industrial decline. The good news is that, almost magically, dreamers are already showing up. Mitch and Gina have already been approached by some Germans who want to build a giant two-story-tall beehive. Mitch thinks he knows just the spot for it.

    It’s what Jim Russell likes to call “Rust Belt chic”, and Detroit has it in spades.

    This piece also highlights the absolutely crucial advantage of Detroit. It’s possible to do things there. In Detroit, the incapacity of the government is actually an advantage in many cases. There’s not much chance a strong city government could really turn the place around, but it could stop the grass roots revival in its tracks.

    Can you imagine a two-story beehive in Chicago? In many cities where strong city government still functions effectively, citizens are tied down by an array of regulations and permits that are actually enforced in most cases. Much of the South Side of Chicago has Detroit like characteristics, but the techniques of renewal in Detroit won’t work because they are likely against code and would be shut down the minute someone complained. Just as one quick example, my corner ice cream stand dared to put out a few chairs for patrons to sit on while enjoying a frozen treat on a hot day. The city cited them for not having a license. So they took them away and put up a “bring your own chair” sign. The city then cited them for that too. You can’t do anything in Chicago without a Byzantine array of licenses, permits, and inspections.

    In central Indianapolis, which is in desperate need of investment, where the city can’t fill the potholes in the street, etc., the minute a few yuppies buy houses in an area and fix them up, they immediately petition for a historic district, a request that has never been refused, ensuring that anyone who ever wants to do anything will be forced to run a costly and grueling gauntlet of variances, permits, hearings, etc. Only the most determined are willing to put up with that.

    In most cities, municipal government can’t stop drug dealing and violence, but it can keep people with creative ideas out. Not in Detroit. In Detroit, if you want to do something, you just go do it. Maybe someone will eventually get around to shutting you down, or maybe not. It’s a sort of anarchy in a good way as well as a bad one. Perhaps that overstates the case. You can’t do anything, but it is certainly easier to make things happen there than in most places because the hand of government weighs less heavily.

    What’s more, the fact that government is so weak has provoked some amazing reactions from the people who live there. In Chicago, every day there is some protest at City Hall by a group from some area of the city demanding something. Not in Detroit. The people in Detroit know that they are on their own, and if they want something done they have to do it themselves. Nobody from the city is coming to help them. And they’ve found some very creative ways to deal with the challenges that result. Consider this from the Dowie piece:

    About 80 percent of the residents of Detroit buy their food at the one thousand convenience stores, party stores, liquor stores, and gas stations in the city. There is such a dire shortage of protein in the city that Glemie Dean Beasley, a seventy-year-old retired truck driver, is able to augment his Social Security by selling raccoon carcasses (twelve dollars a piece, serves a family of four) from animals he has treed and shot at undisclosed hunting grounds around the city. Pelts are ten dollars each. Pheasants are also abundant in the city and are occasionally harvested for dinner.

    This might sound awful, and indeed it is. But it is also an inspiration and a testament to the human spirit and defiant self-reliance of the American people. I grew up in a poor rural area where, while hunting is primarily recreational, there are still many people supplementing their family diet with wild game. Many a freezer is full of deer meat, for example. And of course, rural residents have long gardened, freezing and canning the results to help get them through the winter. So this doesn’t sound quite so strange to me as it might to you. The fate of the urban poor and the rural poor are more similar than is often credited. And contrary to stereotypes the urban poor often display amazing grit and ingenuity, and perform amazing feats to sustain themselves, their families and communities.

    As the focus on agriculture and even hunting show, in Detroit people are almost literally hearkening back to the formative days of the Midwest frontier, when pioneer settlers faced horrible conditions, tough odds, and often severe deprivation, but nevertheless built the foundation of the Midwest we know, and the culture that powered the industrial age. No doubt in the 19th century many of those sitting secure in their eastern citadels thought these homesteaders, hustlers, and fortune seekers crazy for leaving the comforts of civilization to head to places like Iowa and Chicago. But some saw the possibilities of what could be and heeded the call to “Go West, young man.” We’ve come full circle.

    More Detroit

    Detroit: Do the Collapse
    Detroit: Not the Future of the American City
    For talent – good jobs, cools places, new narrative (Crain’s Detroit Business – featuring Yours Truly)

    Aaron M. Renn is an independent writer on urban affairs based in the Midwest. His writings appear at The Urbanophile.

  • Getting Real About “Green” Jobs

    Over the past year, Economic Modeling Specialists, Inc. (EMSI) has been fielding questions from local planners (workforce boards, community colleges, and economic developers) on how to look at green jobs, particularly at the regional level. Perhaps nothing has been more hyped, or misunderstood, than the potential impact of this sector on local economies.

    In order to wade through the rhetoric and often overblown expectations, we’ve been doing our best to link labor market data to potential green sectors so people can gain an understanding of trends, earnings, education levels, and skills associated with “green occupation clusters”. So far, we have made three general observations:

    1. Many of these jobs are going to fall within the construction and manufacturing sectors (e.g., welders, roofers, HVAC installers, etc.),
    2. Based on a lack of understanding, concrete information, and large scale demand, green jobs pose a very difficult development mission for local planners, and
    3. It is vital to speak “from the data” as much as possible.

    Such realism is necessary. Given the recession, job loss, and our nation’s otherwise dismal financial condition, many are now questioning the continued emphasis on green jobs, climate change, and cap-and-trade legislation. In recent months we have seen a sizable pushback against some of this policy from groups ranging from the American Farm bureau and even the educational community. Recently, for example, Inside Higher Ed wrote about how “some leaders in workforce development are concerned that more traditional skill trades within the manufacturing and construction fields are being deemphasized by community colleges looking for federal dollars to support newfangled programs.”

    The public is also getting skeptical. A Gallup poll indicated that the recession has dried up some of the support for increased environmental regulation. Similar surveys by Rasmussen and Pew suggest a similar trend in popular opinion.

    None of this suggests that most Americans, or most business, oppose environmental protection. It’s just that that economic growth and environmental protection should not be mutually exclusive.

    Increasingly we find ourselves at a crossroads between two competing points of view – one that thinks that we need to restore economic stability before we deal with environmental issues, and one that believes that if we fail to address environmental concerns aggressively right now, we are forfeiting our future.

    Chasing Trends vs. Being Demand Driven

    The promise of “green jobs” has the allure to square this circle, and reconcile the needs of the economy and the environment. This causes a kind of thinking reminiscent of that associated with the ‘90s dot-com boom. In that era, software and information was the next big thing. Many regional developers tried to get into the game, and some failed miserably. When the bubble burst, many were left empty-handed and embarrassed that they had essentially just wasted a lot of the public’s time, energy, and money on something that they frankly didn’t understand or have any real reason (in a regional context) to be pursuing.

    Given this experience, it’s not surprising that green is being met with skepticism by some local planners, who can and should be rigorously dedicated to spending their dollars wisely and only on things that will advance their region’s businesses and people. This seems to come from an understandable concern that economic development should essentially be “demand-driven” and in touch with needs of the local community.

    At the same time, regional development can be traced back to the needs of local industry. The activities, interests, and employment of local industries directly and indirectly drive much of the employment and earnings in an area (the concept of an economic base). This leads some loath to invest resources into an emerging sector or a new policy, such as green, where there is little demand, enough jobs, or the background to justify the efforts.

    “Policy” vs. “Environment”

    Right now, the primary struggles with green development come from: (1) actually understanding what “green” is and (2) knowing which industries people need to be prepared/trained for. Some of the problem stems from the fact that green is happening according to a top-down, policy driven approach rather than an industry driven one.

    In the U.S. we often see industry development happening from the ground up (e.g., from the local level and up to the national level). Industries develop hubs of production (e.g., Silicon Valley, the Research Triangle, and Hollywood). Regions benefit from this and become specialized and competitive at producing and exporting something that is demanded by the larger economy. This gives rise to specific skill and knowledge sets which further enhance the development of a region. Green jobs don’t really work this way. The “greening” of our economy has sprouted from a particular ideological point of view (global warming, overpopulation, etc.), that drive the initiatives, many of them associated with the stimulus.

    As is often the case, it is not particularly easy to translate the broad rhetoric, concepts, and policy (things like “clean tech”) into local industries, impacts, skills, training programs, and demand. At the local level, it is also incredibly difficult to project future trends of what jobs and industries will begin to thrive or fail. Those who try to use only national predictions to implement new regional training programs or to develop local policies could find their new programs may not result in tangible benefits to the region. In a recession folks need and want jobs (in some cases, any job will do), and discussions about how something like clean tech is going to be the next big thing can be really frustrating (think “dot-com” bubble).

    Finally, a big part of the frustration around green jobs actually comes down to semantics. Politicians and news anchors often refer to green jobs as some sort of new “industry.” Yet in reality green is much less about “what” is being produced than “how” things are produced.

    In this sense, in order to have “green” industry, you first need to have an industry that can be, if you will, “greened”. Here is an illustration that points out the nuance: let’s imagine you have two tire manufacturers. One produces tires using traditional “non-green” methods and the other uses recycled materials and can be classified as “green.” At the end of the day are they both manufacturing tires? Well, yes of course. Are they part of different industries? No. Both companies also likely employ the same sort of people, use the same sort of equipment, and have similar sales and supply chains. Also, from a training/workforce development perspective these industries are going to look pretty identical – with maybe a few minor skills differences.

    Seen from this angle, green is not actually about creating a new industry sector in either a general or specific sense. Rather, it’s more about changing and retooling all existing industry sectors to make them operate differently.

    It Needs to Be Data-Driven

    In the United States, we have a huge amount of data at our disposal for development decisions. Our nation has over 1,800 (and counting) well-established industry codes (NAICS codes) that are standardized for the entire country. The 20 big industry sectors that compose our economy exist because of broad, long-lasting, nationwide demand. But right now, local developers cannot take such a well-researched, data-driven approach to green. There are a lot of people who are highly in favor of green, but in many ways, they don’t bring the sort of objectivity needed to hash things out for the sake of the local workforce. What if green actually isn’t a good idea for a specific community? Something like Biotech is great if you can have it, but if it’s not the right fit for the community, forcing it can be a bad thing.

    Final Remark

    For green to work at the local level, it needs to be demand-driven. It needs to be harmonized with local development efforts, and it must complement and not fight against regional economies. This means helping and not hurting local industries with too much regulation, and allowing regional developers to stay focused on longer-term efforts as opposed to short-term trends.

    Do we want green to succeed? Well, sure. However, as the polls show, we will not have these things at the expense of economic growth. All this is to say that people are going to be more supportive of the green movement if it embraces another aspect of sustainability – economic sustainability. The green movement and economic considerations are not mutually exclusive. If the economy continues to suffer, the green movement will suffer as there will be no money or opportunities to invest in green technologies. Only a broad based economic recovery – based in the revival of productive industry – can make green industry not only desirable, but practicable.

    Rob Sentz is the marketing director at EMSI, an Idaho-based economics firm that provides data and analysis to workforce boards, economic development agencies, higher education institutions and the private sector. He is the author of a series of green jobs white papers.

    Illustration by Mark Beauchamp

  • Numbers Don’t Support Migration Exodus to “Cool Cities”

    For the past decade a large coterie of pundits, prognosticators and their media camp followers have insisted that growth in America would be concentrated in places hip and cool, largely the bluish regions of the country.

    Since the onset of the recession, which has hit many once-thriving Sun Belt hot spots, this chorus has grown bolder. The Wall Street Journal, for example, recently identified the “Next Youth-Magnet Cities” as drawn from the old “hip and cool” collection of yore: Seattle, Portland, Washington, New York and Austin, Texas.

    It’s not just the young who will flock to the blue meccas, but money and business as well, according to the narrative. The future, the Atlantic assured its readers, did not belong to the rubes in the suburbs or Sun Belt, but to high-density, high-end places like New York, San Francisco and Boston.

    This narrative, which has not changed much over the past decade, is misleading and largely misstated. Net migration, both before and after the Great Recession, according to analysis by the Praxis Strategy Group, has continued to be strongest to the predominately red states of the South and Intermountain West.

    This seems true even for those seeking high-end jobs. Between 2006 and 2008, the metropolitan areas that enjoyed the fastest percentage shift toward educated and professional workers and industries included nominally “unhip” places like Indianapolis, Charlotte, N.C., Memphis, Tenn., Salt Lake City, Jacksonville, Fla., Tampa, Fla., and Kansas City, Mo.

    The overall migration numbers are even more revealing. As was the case for much of the past decade, the biggest gainers continue to include cities such as San Antonio, Dallas and Houston. Rather than being oases for migrants, some oft-cited magnets such as New York, Boston, Los Angeles and Chicago have all suffered considerable loss of population to other regions over the past year.

    Much the same pattern emerges when you look at longer-term state demographic patterns. A recent survey by the Empire Center for New York State Policy found that the biggest net losers in terms of per capita outmigration between 2000 and 2008 were, with the exception of Louisiana, all blue state bastions. New York residents lead in terms of rate of exodus, closely followed by the District of Columbia, Michigan, Pennsylvania, Massachusetts and California.

    An even greater shock to the sensibilities of the insular, Manhattan-centric media, the report found that most of the movement from the Empire State was not from the much-dissed suburbia, but from that hip and cool paragon, New York City. This can not be ascribed as a loss of the unwanted: According to the report, those leaving the city had 13% higher incomes than those coming in.

    How can this be, when everyone who’s smart and hip is headed to the Big Apple? This question was addressed in a report by the center-left, New York-based Center for an Urban Future. True, considerable numbers of young, educated people come to New York, but it turns out that many of them leave for the suburbs or other states as they reach their peak earning years.

    Indeed, it’s astonishing given the many clear improvements in New York that more residents left the five boroughs for other locales in 2006, the peak of the last boom, than in 1993, when the city was in demonstrably worse shape. In 2006, the city had a net loss of 153,828 residents through domestic out-migration, compared to a decline of 141,047 in 1993, with every borough except Brooklyn experiencing a higher number of out-migrants in 2006.

    Of course, blue state boosters can point out that the exodus has slowed with the recession, as opportunities have dried up elsewhere. True, the flood of migration has slowed across the nation. Yet it has only slowed, not dried up. When the economy revives, it’s likely to start flowing heavily again.

    More important, the key group leaving New York and other so-called “youth-magnets” comprises the middle class, particularly families, critical to any long-term urban revival. This year’s Census shows that the number of single households in New York has reached record levels; in Manhattan, more than half of all households are singles. And the Urban Future report’s analysis found that even well-heeled Manhattanites with children tend to leave once they reach the age of 5 or above.

    The key factor here may well be economic opportunity. Virtually all the supposedly top-ranked cities cited in this media narrative have suffered below-average job growth throughout the decade. Some, like Portland and New York, have added almost no new jobs; others like San Francisco, Boston and Chicago have actually lost positions over the past decade.

    In contrast, even after the current doldrums, San Antonio, Orlando, Houston, Dallas and Phoenix all boast at least 5% more jobs now than a decade ago. Among the large-narrative magnet regions only one–government-bloated greater Washington–has enjoyed strong employment growth.

    The impact of job growth on the middle class has been profound. New York City, for example, has the smallest share of middle-income families in the nation, according to a recent Brookings Institution study; its proportion of middle-income neighborhoods was smaller than that of any metropolitan area except Los Angeles.The same pattern has also emerged in what has become widely touted as America’s “model city”–President Obama’s adopted hometown of Chicago.

    The likely reasons behind these troubling trends are things rarely discussed in “the narrative”–concerns like high costs, taxes and regulations making it tough on industries that employ the middle class. One clear culprit: out of control state spending. State spending in New York is second per capita in the nation (anomalous Alaska is first); California stands fourth and New Jersey seventh. Illinois is down the list but coming up fast. Over the past decade, while its population grew by only 7%, Illinois’ spending grew by an inflation-adjusted 39%.

    The problem here is more than just too-large government; it lies in how states spend their money. Massive public spending increases over the past decade in California, New Jersey, Illinois and New York have gone overwhelmingly into the pockets and pensions of public employees. It certainly has not flowed into such basic infrastructure as roads, bridges and ports that are needed to keep key industries competitive.

    The American Association of State Highway Transportation, for example, ranked New York 43rd in the country and New Jersey dead last in terms of quality of roads. Some 46% of the Garden State’s roads were rated in poor condition, compared with the national average of 13%, even as the state’s spending reached new highs. The typical New Jersey driver spends almost $600 a year in auto repairs necessitated by the poor conditions of the roads.

    In contrast, states in the South and parts of the Plains tend to pour their public resources into productive uses. Cities like Mobile, Ala., Houston, Charleston, S.C., and Savannah, Ga., have been investing in port facilities to take advantage of the planned widening of the Panama Canal. The primary goal is to take business away from the increasingly expensive, overregulated and under-invested ports of the Northeast and West Coast. Similarly, places like Kansas City and the Dakotas are looking to boost their basic rail and road networks to support export-heavy industries.

    Even in the face of the Obama administration’s strongly urban-centric, blue state-oriented economic policy, these generally less than hip places appear poised to grow as the economy recovers. Virtually all the top 10 economies that have withstood the recession come from outside the “youth-magnet” field: San Antonio; Oklahoma City; Little Rock, Ark.; Dallas, Baton Rouge, La.; Tulsa, Okla., Omaha, Neb.; Houston and El Paso, Texas. The one exception to this rule, Austin, also benefits from being located in solvent, generally low-tax Texas.

    This continued erosion of jobs and the middle class from the blue states and cities is not inevitable. Many of these places enjoy enormous assets in terms of universities, strategic location, concentrations of talented workers and entrenched high-wage industries. But short of a massive and continuing bailout from Washington, the only way to reverse their decline will be a thorough reformation of their governmental structure and policies. No narrative, no matter how well spun, can make up for that reality.

    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 next book, The Next Hundred Million: America in 2050, will be published by Penguin Press early next year.

  • Healthcare Reform or Health Insurance Bailout?

    What is the real endgame of healthcare debate in Washington? Is it going to be a bailout of the insurance industry as opposed to a plan to provide healthcare for every American? The original jumping off point for this entire debate was that the United States is the only major industrialized country that does not have a national healthcare system. The debate has moved away from “how do you get healthcare” to “how do you get health insurance.”

    Even if we accept that the discussion is more properly about reforming insurance than providing healthcare, the debate still focuses on how insurance could be paid for rather than how insurance could be fair. Funny thing is, when Congress voted to bailout the financial institutions, no one asked how they would pay for it. Millions of Americans wrote, emailed, faxed and called their representatives in Washington in opposition to the 2008 bailout. That bill was passed. Yet, with millions of Americans clamoring for healthcare, decades passed with no action. Even now, as we become accustomed to the idea that the federal government will take a stand on how healthcare is paid for – without the government actually paying for it – there are 5 different bills, topping 1,500 pages each, and nothing is even close to being done. George Will told This Week anchor George Stephanopoulos that Congress won’t spend the five minutes it would take to put all five versions of the bill on the internet because then people will know what’s in it – and Congress doesn’t want that. Imagine the hell we-the-voters would rain down on them if we knew what they are up to?

    The scariest part of the potential legislation is the notion of creating an “insurance exchange.” It appears the federal government has already forgotten the trouble that these market exchanges create. The requirement that you give your retirement money (IRA, 401k, etc.) to a financial institution to qualify for favorable tax treatment from the IRS may have done more to inflate the stock market (investment exchange) bubble than all the risk-loving financial institution CEOs combined. All that pension and retirement money is the fuel that the financial institutions used to inflate the bubble. The “market exchange” idea did nothing for air pollution. Similarly, it will likely do nothing for improving access to or the cost of healthcare.

    All of the Sunday morning talk shows (October 25, 2009) debated the “public option.” This sub-debate apparently holds the political key to getting legislation passed, whether or not enough senators and representatives will vote “yes” that there won’t be a filibuster or a veto. The “public option” comes in three flavors. One version is that health insurance will be mandatory and the government will provide an insurance program at a (presumably) very competitive price to consumers. The second version has an opt-out component: insurance is not mandatory so you could opt-out of coverage even under the government’s insurance program. The third version, known as the “trigger”, would set up a deadline, say two to three years after passage, during which time either the insurance industry will stop abusing policyholders – for example, by canceling your insurance the first time you get sick – or the federal government will enter the industry and provide some real competition. According to John Podesta, President and CEO of the Center for American Progress, the public option is key to getting enough votes to pass this in the Senate. He seems to have forgotten that only the House of Representatives can authorize the federal government to spend money – this is not properly the Senate’s turf.

    Cynthia Tucker, of the Atlanta Journal-Constitution, stated it with perfect clarity on ABC’s This Week: The provision of the public option is only a sliver of healthcare reform. It is neither the panacea that the left-wing believes it to be nor the evil plan envisioned by the right-wing. It is all about the 60 votes required to overcome a filibuster in the Senate.

    If only it were as simple as right-wing/left-wing, red-state/blue-state divisions. Democratic Senator Russ Feingold told CBS’s Bob Schieffer on Face the Nation that the lack of a public option “would be a serious gap” in any legislation. He spoke forcefully about the need to control abuses by insurance companies. He went so far as to say that the trigger version of the public option would simply give the insurance companies two or three years to manipulate the system to their advantage. “We need to take action now,” Feingold said, to slow insurance company abuse.

    Not surprisingly, Feingold was not among the Senators receiving Clusters of Cash from the Health Care lobbyists and their clients in the most recent campaign fundraising cycle, according to the Center for Responsive Politics. That might explain his position – or maybe his position explains the lack of contributions.

    Back in October 2008, then Treasury Secretary Paulson advised insurance companies they could qualify for TARP bailout funds. On April 8, 2009, now Treasury Secretary Geithner opened the tap to send TARP funds to insurance companies. One month later, Neal S. Wolin was confirmed by the Senate to serve as the Deputy Secretary to Geithner at Treasury. Until 2008, Wolin worked for The Hartford Financial Services Group, Inc. as President and Chief Operating Officer. On June 12, 2009, Hartford announced that it would receive $3.4 billion under the TARP. Several other insurance companies that applied back in October eventually declined to take TARP money.

    If you still don’t see how cozy the insurance industry is with the federal government in that series of events, listen to Bill Moyers explain it on PBS. “Money not only talks, it writes the prescriptions.”

    During the summer, I thought the Republicans were opposed to the public option as a Trojan Horse – meant only to move us one step closer to a single payer system that would have the federal government paying for all healthcare. Now that it’s just about the federal government paying for all health insurance, Republicans seem to be favoring it. Wonder who will end up the loser at the end?

    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.