Category: Politics

Obama: Only Implement Green Policies that Make Sense in a Time of Crisis

With the exception of African-Americans, the group perhaps most energized by the Barack Obama presidency has been the environmentalists. Yet if most Americans can celebrate along with their black fellow citizens the tremendous achievement of Obama’s accession, the rise of green power may have consequences less widely appreciated.

The new power of the green lobby — including a growing number of investment and venture capital firms — introduces something new to national politics, although already familiar in places such as California and Oregon. Even if you welcome the departure of the Bush team, with its slavish fealty to Big Oil and the Saudis, the new power waged by environmental ideologues could impede the president’s primary goal of restarting our battered economy.

This danger grows out of the environmental agenda widening beyond such things as conservation and preserving public health into a far more obtrusive program that could affect every aspect of economic life. As Teddy Roosevelt, our first great environmentalist president, once remarked, “Every reform movement has a lunatic fringe.”

Today, the “green” fringe sometimes seems to have become the mainstream, as well. While conservationists such as Roosevelt battled to preserve wilderness and clean up the environment, they also cared deeply about boosting productivity as well as living standards for the middle and working classes.

In contrast, the modern environmental movement often seems to take on a different cast, adopting a largely misanthropic view of humans as a “cancer” that needs to be contained. Our “addiction” to economic growth, noted Friends of the Earth founder David Brower, “will destroy us.” Other activists regard population growth as an unalloyed evil, gobbling up resources and increasing planet-heating greenhouse gases.

For such people, the crusade against global warming trumps such things as saving the nation’s industrial heartland, which is largely fueled by coal, oil and natural gas, even if it means the inevitable transfer of additional goods making it to far dirtier places such as India and China. Of course, the current concern over global warming could still prove to be as exaggerated as vintage 1970s predictions of impending global starvation or imminent resource depletion.

Certainly experience suggests we should not be afraid to question policies advocated by the true believers — particularly amid what threatens to be the worst economic downturn in generations. Actions taken now in the name of climate change could have powerful long-term economic implications.

We don’t have to imagine this in the abstract; just look at the economies of two of the greenest states — Oregon and California — whose land use, energy and other environmental policies have helped contribute to higher housing and business costs as well as an exodus of entrepreneurs.

Bill Watkins, head of the forecasting project at the University of California, Santa Barbara, notes that these two environmentally oriented states now have among the nation’s highest unemployment rates, pushing toward 10 percent — ahead of only the Rust Belt disaster areas farther east. In some places, such as central Oregon, it could hit close to 15 percent next year.

Many green activists, along with “smart growth” advocates and new urbanists, laud Oregon’s long-standing strict land use controls as a national role model. Recently imposed land use legislation in California, concocted largely to meet the state’s restrictions on greenhouse gas, has been greeted by them with almost universal hosannas.

Of course, there is nothing wrong at all with trying to curb excessive sprawl or energy use. Promoting a dense urban lifestyle is also commendable, but it is an option that appeals to no more than 10 percent to 20 percent of the population. This is even truer of middle-class people with children, few of whom can hope to live the urban lifestyles of the Kennedys, Gores and other elites — much less also afford one or two country homes to boot.

Tough land use policies are not only hard on middle-class aspirations, but they appear to have played a role in inflating the extreme bubble that affected the California and Oregon real estate markets. Limiting options for where people and business can locate, notes UCSB’s Watkins, tends to drive up the prices of desirable real estate beyond what it would otherwise cost.

Perhaps worst of all, it is not at all certain that a forced march back to the cities would necessarily produce a better, more energy-efficient country. Sprawling and multipolar, with jobs scattered largely on the periphery, most American cities do not lend themselves easily to traditional mass transit; in many cases, this proves no more energy efficient than driving a low-mileage car, using flexible jitney services or, especially, working at home. Big cities also have a potential for generating a “heat island” effect that can result in higher temperatures.

Energy policy represents another field where hewing too close to the green party line could prove problematic. Obama already has endorsed California’s approach as exemplary. And indeed, some things — like imposing tougher mileage standards, stronger conservation measures and more research into cleaner forms of energy — could indeed bring about both short-term and long-term economic benefits.

However, there are also downsides to adopting a California-style single-minded focus on renewable fuels such as solar and wind. Right now, these sources account for far less than 1 percent of our nation’s energy production. Even if doubled or tripled in the next few years, they seem unlikely to reduce our future dependence on foreign oil or boost our overall energy supplies in the short, or even medium, term.

Looking at the experience of these two states, bold claims about vast numbers of green jobs created by legislative fiat seem more about offloading costs to consumers, business and taxpayers than anything else, particularly at today’s current low energy prices. In contrast, new environmentally friendly investments in natural gas, hydro, biomass and nuclear are more likely to find private financing and may work sooner both to reduce dependence on foreign fuels and to keep energy prices down.

The Obama administration certainly should listen to the arguments of environmentalists. But given the clear priority among voters to deal first with the economy, the president should implement only those green policies that make sense at this time of crisis. A sharp break from the Bush approach is certainly welcome, but not in ways that promise more pain to ordinary Americans and our faltering economy.

This article originally appeared at Politico.

Joel Kotkin is executive editor of NewGeography.com and is a presidential fellow in urban futures at Chapman University. He is author of The City: A Global History and is finishing a book on the American future.

February 4, 2009
New York Should End Its Obsession With Manhattan

Over the past two years, I have had many opportunities to visit my ancestral home, New York, as part of a study out later this week by the Center for an Urban Future about the city’s middle class. Often enough, when my co-author, Jonathan Bowles, and I asked about this dwindling species, the first response was “What middle class?”

Well, here is the good news. Despite Mayor Bloomberg’s celebration of “the luxury city,” there’s still a middle class in New York, although not in the zip codes close to hizzoner’s townhouse. These middle-class enclaves are as diverse as the city. Some are heavily ethnic, others packed with arty types, many of them more like suburbia than traditionally urban.

This New York is vastly different from the one that appears in most movies. It is more like the New Jersey portrayed in “The Sopranos” or “All in the Family” (set in Queens) than Manhattan-centric “Seinfeld” and “Sex and the City”. Largely, this middle class stays in New York – despite the congestion, high taxes and regulatory lunacy – because that is where they are from, where they worship and where they are close to their places of work.

In many cases, they live in Bay Ridge, Bayside, Brighton or Bensonhurst, in the vast sprawl that is Brooklyn and Queens. New York’s middle class is also highly diverse. In many areas, the descendants of Italians or Poles live cheek by jowl with newer groups such as Koreans, Chinese, Indians, Jamaicans, Russians, Israelis and Pakistanis. They stay and raise their children, in large part because of their extended family networks. As Queens resident and real estate agent Judy Markowitz puts it, “In Manhattan people with kids have nannies. In Queens, we have grandparents.”

Some of the emerging middle class also cluster in places like Ditmas Park, a reviving part of Flatbush. The new population here is made up largely of information age “artisans” – musicians, writers, designers and business consultants who cluster in New York. They may have migrated there for the culture, but they stay because they find these neighborhoods congenial and family-friendly.

“It’s easy to name the things that attracted us – the neighbors, the moderate density,” explains Nelson Ryland, a film editor with two children who works part-time at his sprawling turn-of-the-century Flatbush house. “More than anything, it’s the sense of the community. That’s the great thing that keeps people like us here.”

For these reasons, New York’s middle class may be hard to displace, but they certainly are under considerable stress. Urban life may have improved from its nadir in the 1970s, but our findings show that net out-migration from the city, particularly as people get into their late 20s and early 30s, has continued.

The now-imploding economic boom did not halt this pattern. Indeed out-migration in the last few years has been greater on a per capita basis than that of the early 1990s, when “escape from New York” was a recurring media theme. The reasons: the nation’s highest cost of living, poor public schools, inadequate transit, expensive housing, high taxes and lack of broad-based economic opportunity.

Much the same process is occurring in other great cities from San Francisco and Los Angeles to Chicago and Philadelphia. Indeed, even as gentrification brings in wealthy childless couples and students (often supported by their suburban parents) to urban areas, the number of middle-class neighborhoods has continued to decline, as demonstrated by a 2006 Brookings Institution paper.

This is true, for example, in the San Fernando Valley section of Los Angeles, where I live. Once overwhelmingly made up of home-owning, moderate-income earners, the Valley is becoming increasingly bifurcated between the affluent and a growing class of largely minority renters.

The hollowing of the New York middle class has been even more rapid. In 2006, Manhattan, the cradle of gentry liberalism, had achieved the widest gap between rich and poor in the nation. Overall, New York has the smallest share of middle-income families in the nation: The city’s middle class – those making between $35,000 and $150,000 a year – fell to 53% between 2000 and 2005, while remaining steady nationwide at 63%.

Up until now, these trends did not much bother New York’s media, business and political hegemons. Under its ruling Medici, Mayor Michael Bloomberg, New York has been shaped as a place for the masters and their servants. Such Bloombergian priorities as the Second Avenue subway, the taxpayer-subsidized construction of luxury-box-laden stadiums, as well as an orgy of a city-inspired luxury condominium construction and plans for ever more high-end office towers reflect this worldview.

Of course Bloomberg’s “luxury city” is largely a Manhattanite vision, with a few tentacles spreading to the adjacent parts of the outer boroughs. It takes its sustenance from the enormous wealth generated by Wall Street as well as the presence of a large “trustifarian” class. This is very much the New York of The New York Times: fashionably liberal in politics, self-consciously avant-garde, and devoted, more recently, to “green” consumerism.

At the height of the boom – say two years ago – some imagined there were enough folks such as these to sustain the city. They would now constitute a de facto new middle class, except their bank accounts would have extra zeros. When Jonathan and I interviewed a developer, he bristled at us for suggesting that New York’s middle class was shrinking. “Of course, there’s a middle class,” he stated flatly. “Why, my friend’s son just bought a place here in Manhattan.”

“Oh really?” I asked, a bit incredulously. “And how much was the apartment?”

“One and half million.”

“And how did he pay for it?”

“His dad.”

Now, with Wall Street’s money machine in reverse and the Manhattan real estate market unraveling, the surplus capital to finance million-dollar condominiums for kids may well have evaporated. Similarly, the parade of top graduates from business and law schools could slow, now that the big bonus regime may be coming to an end. If you are going to be paid bankers’ wages, why not live somewhere cheaper?

Yet despite the tough times, there is no real reason for New Yorkers to fear a return to the bad old days of the 1970s, as Reuters recently warned. New York used to have a diverse, middle-class economy that was remarkably recession-proof.

It could have such an economy in the future as well. A modern version may be less reliant on manufacturing, but focused instead on the talents of its citizens in such things as design, marketing and data analysis. Still, it would be a small business-oriented economy – one that could flourish outside Manhattan.

New York should cultivate such an economic shift and also turn its attention from the chic precincts to its middle-class neighborhoods. In the post-Wall Street era, the “luxury city” concept needs to be discarded just like other toxic manifestations from a discredited era.

This article originally appeared at Forbes.

Joel Kotkin is executive editor of NewGeography.com and is a presidential fellow in urban futures at Chapman University. He is author of The City: A Global History and is finishing a book on the American future.

February 3, 2009
A Sober Look at the New Year for Obama

Personal experience made me a skeptic about racial progress. When I was 8, I was upset when our Japanese neighbors in Los Angeles were sent off to internment. In 1963, I traveled across the Deep South, awed by the totality of poverty, segregation and discrimination.

But the election of Barack Obama restored a degree of faith in the American experiment, and hope for an economic and social turnaround. I was inspired by the inauguration and am encouraged by initial and intended actions. I’m reasonably sure that significant reforms will occur.

But my skepticism about more fundamental change remains strong. The Democratic Party is of the intellectual rich, not of the worker, and not very inclined to deep change. The most critical political story of the election was the 12 to 15 percent shift of the rich, educated and suburban to the Democrats, offsetting the shift of about 6 percent of the less educated or professional, but more religious and rural to the Republicans.

Karl Rove’s strategy of combining affluent economic conservatives and social conservatives ultimately failed. He thought tax cuts would keep the rich loyal, but they defected. But at the same time, the shift of the affluent has, in my mind, weakened the historic mission of the Democratic Party.

By far the greatest issue before us, one barely on anyone’s agenda, is the astounding degree of economic inequality, perhaps approaching the levels of 1929 or even 1913. This obscene outcome, an astounding concentration of wealth by the super-rich, is a consequence of market failure – the capacity of those at the top to exercise monopoly power over the economy, and whose tax cuts and deregulation contributed to the current financial crisis and deepening recession.

Not unrelated to this process are deindustrialization, over-globalization and overdependence on other nations for resources, products, and credit. The story of the rise of the United States to world power was based on production. Our success over Germany and Japan depended on massive production of war materials (yes, from the likes of General Motors, Ford and Chrysler) and our capacity to destroy the productive capacity of the enemy. Now we are willing to bail out the bloated financial and service sectors, and let industry die. Trade is overall beneficial and it is in our interest to aid in the economic development of all countries, but it is irresponsible and false savings to outsource basic production (and increasingly, even services). It is absurd to believe that we can safely prosper by trading, packaging, moving, storing, advertising, insuring, selling, brokering information, but not MAKING STUFF!

This system of import dependence has accentuated our growing class divide. We create high-end jobs for some, but very few of the middle class opportunities long associated with production. Production also creates a wide range of higher end service-related jobs. When you are selling things made in China, much of the non-production value added is also exported.

The increased bifurcation of our society can be seen in other fields. While the United States may have the “finest” education at the top, the general level of education is amazingly mediocre with astounding prevalence of ignorance and superstition, especially about science, economics and geography. I do not see even a hint of a turnaround here.

I suspect the power of the medical insurance and hospital sectors are sufficient to prevent serious reform of the dysfunctional health system. Nor are we close to abandonment of the hopeless war on drugs, or to real reform of criminal justice, and – despite the election of Barack Obama – the integration of millions of Black males into mainstream society. Do the ivory tower economic theorists, Democratic as well as Republican, have a clue about the disaster potential of 100,000 more unemployed workers in Detroit? Does no one remember the race riots in Detroit or Watts, and the long history of labor unrest in America?

This sad economic and social restructuring began around 1976. Believe it or not, the lowest level of economic inequality in US history was 1974 in the Nixon administration. Those of us at the top surely believe we earned our way there, but are in denial about the immense cost to the majority left behind.

I just hope I’m as wrong about prospects for real reform as I was about the election!

P.S.
A guy (Obama) who could do the Bump with a 9 year old girl at maybe his 10th inaugural ball is so cool that perhaps I’ll raise my optimism level!

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

February 1, 2009
Obama’s Other History

The coverage of President Barack Obama’s first days in office has been intense, to say the least. Yet it has still managed to overlook an historical comparison that is worthy of our consideration.

Obama took office just a few months after a stock market crash that left no doubt about the rugged shape of our economy. The ensuing decline has been swift and scary, leading some to talk about a possible fall into an outright depression.

Now consider Herbert Hoover, the president who took office just a few months before a stock market crash that signaled the Great Depression in 1929. Hoover remains a figure of historical disfavor to this day because of what he did — and particularly what he didn’t do — after the crash. He served nearly four years in the Oval Office as the Great Depression raged, continuing to view government’s role in the economy as largely limited. He offered no enormous economic stimulus plans or social programs. Clusters of tent cities occupied by the dispossessed of our land became known as “Hoovervilles.”

Then came Franklin Roosevelt, who immediately put enormous economic stimulus plans into action and launched a whole host of social programs.

Timing can be everything — in politics, economic matters, and life in general.

Our timing might be just right with Obama because our economy’s nose-dive came just a month or so before the presidential election. Obama came to the job at a moment when he has a chance to move on our problems before they settle in to another Great Depression. What if Roosevelt had gotten a shot a few months after the stock market crash in 1929 instead of nearly four years into the mess?

Here’s another historical comparison worth noting: Hoover won election as a Republican in 1928 in part because of widespread prejudice against Roman Catholics, a sentiment that worked against New York Governor Al Smith, who ran as the Democratic nominee in the race.

There’s true irony in this piece of history, because Smith had recognized the shaky nature of the economy well before the crash that signaled the start of the Great Depression. The actions he took in New York during the 1920s could be viewed as a state version of what would become Roosevelt’s famous New Deal package of economic stimulus and social programs.

Bigotry ravaged Smith’s campaign, though. He might not have won in any case, but the anti-Catholic emotions that took wing in large parts of the populace, media and other parts of the power structure left him without a fighting chance.

Smith’s loss spelled a wait of nearly four years before the federal government became fully engaged in putting its might against the Great Depression. It was just a few months ago that Americans could have again allowed prejudice — this time against African/Americans — to override a presidential campaign. That might have led to another slow response to an economic crisis. It’s not a perfect comparison to match recent Republican nominee John McCain to Hoover, but the Arizona Senator has long favored smaller government, which is nowhere near what we saw from Roosevelt or are seeing from Obama.

Now here’s the hard part of this history lesson: There’s still plenty of debate among scholars and economists on whether Roosevelt’s massive government programs worked. The New Deal brought immediate relief to millions in dire straits, an invaluable record in its own right. But there is data to indicate that the programs ultimately failed to put the economy back on track. Indeed, the Great Depression didn’t really end until World War II led factories and farms to crank up production. Some would argue that the New Deal amounted to short-term fixes that did more harm than good over the long haul.

That leaves us to wonder whether the current plans to spend $700 billion to bail out banks and automakers — and hundreds of billions more on roads and bridges — will bring improvements that make such outlays worthwhile.

The effort will be made sooner rather than later, though, and that’s because Americans didn’t hold a fellow back from the highest office in the land based on prejudice this time around.

That’s real progress — even if it’s the only progress we can claim for certain as we fight through our tough economy.

Jerry Sullivan is the Editor & Publisher of the Los Angeles Garment & Citizen, a weekly community newspaper that covers Downtown Los Angeles and surrounding districts (www.garmentandcitizen.com)

January 31, 2009
Obama, Fight The Green Agenda

In his remarkable rise to power, President Barack Obama has overcome some of the country’s most formidable politicians – from the Bushes and the Clintons to John McCain. But he may have more trouble coping with a colleague he professes to admire: former Vice President Al Gore.

To date, motivations from sweet reason to hard-headed accommodation have defined Obama’s Cabinet choices, most notably in such areas as defense and finance. Oddly enough, though, his choices on the environmental front are almost entirely Gore-ite in nature. Obama’s green team, for example, includes longtime Gore acolyte Carol Browner as climate and energy czar, physicist Steven Chu as energy secretary and, perhaps most alarmingly, John Holdren as science adviser.

These individuals are not old-style conservationists focused on cleaning up the air and water or protecting and expanding natural areas. They represent a more authoritarian and apocalyptic strain of true believers who see in environmental issues – mainly, global warming – a license to push a radical agenda irrespective of its effects on our economy, our society or even our dependence on foreign energy.

We should not underestimate the power of these extreme greens. They can count on the media to cover climate and other green issues with all the impartiality of the Soviet-era Pravda. Stories that buttress the notion of man-made global warming – like reports of long-term warming in Antarctica – receive lavish attention in The New York Times and on Yahoo!.

Meanwhile, other reports, such as new NASA studies indicating cooling sea temperatures since 2003, or the implications of two unusually cool winters, are relegated to the mostly conservative blogosphere.

I am no scientist. For all I know, both sides are lying or exaggerating. However, we do need to take history into account. Scientists have not been and are not immune to hysteria or groupthink, particularly when taking the “correct” view means a lush supply of cash from foundations and governmental labs. Nor is “consensus,” however constructed, always right.

In fact, lockstep “official” science is often very wrong – from the pre-Copernican view of the solar system, to the decades spent ridiculing the now undisputed reality that continents drift over time, to eugenics or even, back in the 1970s, concern over “global cooling.”

The past also suggests we should be particularly leery of purveyors of impending natural apocalypse. Holdren, the new science czar, for example, is a longtime disciple of the largely discredited neo-Malthusian Paul Ehrlich, who in the early ’80s bluntly predicted that global mass starvation was imminent and that critical metals would suffer severe shortages. Neither calamity has occurred – even as both global population and economic activity have surged dramatically.

Obama may also want to consider the consequences of following the catastrophists. Supporting green causes might have been useful for bludgeoning George Bush and for raising cash over the Internet from affluent urban professionals. But now these environmentalists could obstruct his program for creating broad economic recovery and meeting the nation’s energy challenges – and they could even slow his party’s quest to secure a permanent electoral majority.

For one thing, the economic crisis has shifted the public’s attention away from environmental issues. Recessions may reduce greenhouse gases and halt development, but they terrify voters and shift their priorities. A recent Pew survey of 20 top priorities for 2009 shows the public places a growing emphasis on strengthening the economy and particularly creating jobs, each cited by over 80% of respondents.

In contrast, concern over the environment has dropped to 41% – down from 57% in 2007. Global warming ranked dead last; 30% of respondents named it a priority, a figure down from 38% just two years ago.

Green activists might force the administration to eschew some of the tools that could best restore the economy. For example, they often oppose expenditures that drive industrial and agricultural growth – investments in ports, roads, bridges and even freight rail – which some see as greenhouse gas boosters. With the likes of Browner, Chu and Holdren in charge – no matter what Congress’s intentions are – an emboldened regulatory apparatus could use their power to slow, and even stop, many infrastructure improvements.

At the same time, greens can be expected to line up with the information-age lobby, whose notion of stimulus focuses largely on universities, health care, arts, culture and media. This “post-industrial strategy,” notes author Michael Lind, may be fine for Manhattan and San Francisco, but it’s not so appealing in Michigan, Ohio, Appalachia or the Great Plains.

All this green-blessed employment would likely produce precious few well-paying, long-term, private-sector jobs for middle- or working-class Americans. Obama should understand, as much as anyone, that the votes that won him the presidency came largely from suburban voters who are concerned about their economic futures.

Of course, suburbanites care about the environment too, but they would rather see practical steps to clean up air and water quality and expand public open space. In contrast, the greenocrats are generally hostile to cars and single-family homes – the suburbs themselves. In other words, they largely detest many of the very things middle-class voters cherish.

Perhaps nowhere will this green agenda create more potential problems than in the energy arena. I have long held that conservation should be encouraged in every reasonable way possible. However, it is clearly fanciful to believe that solar, wind and other renewables can supply the bulk of the new power we need now to, as President Obama put it, “fuel our cars and run our factories” – much less meet the needs of the 100 million or more American who will be online by 2050.

Just look at the numbers. According to the latest (2007) figures from the Energy Information Agency, renewable energy accounts for less than 7% of U.S. consumption – and almost all of that is derived from burning wood and waste and hydroelectric power. Nuclear generation accounts for over 8%, while fossil fuels meet nearly 85% of America’s energy needs. On the other hand, wind and solar power, which the new president has promised to “harness,” account for just 0.39% of total American energy.

Even doubling renewables in the next few years – itself an expensive and difficult goal – would do relatively little to meet the nation’s demand for energy. In this light, the incoming energy secretary’s strong antipathy to fossil fuels – particularly coal, which he once described as his “worst nightmare” – coupled with his lack of enthusiasm for nuclear power, which is collectively the source of over 93% of U.S. energy, seems a bit problematic.

We can only solve America’s energy needs by blending a variety of alternative solutions – renewables, conservation, nuclear – with fossil fuel-based energy. This approach, which would vary by region, would also help revive manufacturing, agriculture and other productive industries. A renewables-only approach, in contrast, would impose very high prices and require massive subsidization, leading to greater dependence on overseas energy and also, perhaps, to a permanently shrunken economy.

These challenges, along with recent shifts in the public’s priorities, suggest that the president may need to distance himself from his extreme green advisers – or, somehow, get them to toe a more sensible line.

In his new job, President Obama must confront many dangerous ideologues from organizations like Hamas and al-Qaida. His political future, however, may ultimately hinge on how he handles the dogmatic ideologues he has now lifted to the highest levels of our government.

This article originally appeared at Forbes.

Joel Kotkin is executive editor of NewGeography.com and is a presidential fellow in urban futures at Chapman University. He is author of The City: A Global History and is finishing a book on the American future.

January 27, 2009
Height of Power: The Washington Fiefdom Looms Larger Than Ever

For more than two centuries, it has been a wannabe among the great world capitals. But now, Washington is finally ready for its close-up.

No longer a jumped-up Canberra or, worse, Sacramento, it seems about to emerge as Pyongyang on the Potomac, the undisputed center of national power and influence. As a new president takes over the White House, the United States’ capacity for centralization has arguably never been greater. But it’s neither Barack Obama’s charm nor his intentions that are driving the centrifocal process that’s concentrating authority in the capital city. It’s the unprecedented collapse of rival centers of power.

This is most obvious in economic affairs, an area in which the nation’s great regions have previously enjoyed significant autonomy. But already the dukes of Wall Street and Detroit have submitted their papers to Washington for vassalage. Soon many other industries, from high-tech to agriculture and energy, will become subject to a Kremlin full of special czars. Even the most haughty boyar may have to genuflect to official orthodoxy on everything from social equity to sanctioned science.

At the same time, the notion of decentralized political power – the linchpin of federalism – is unraveling. Today, once proudly independent – even defiant – states, counties and cities sit on the verge of insolvency. New York and California, two megastates, face record deficits. From California to the Carolinas, local potentates with no power to print their own money will be forced to kiss Washington’s ring.

Americans may still possess what the 19th-century historian Frederick Jackson Turner described as “an antipathy to control,” but lately, they seem willing to submit themselves to an unprecedented dose of it. A financial collapse driven by unrestrained private excess – falling, ironically, on the supposedly anti-Washington Republicans’ watch – seems to have transformed federal government cooking into the new comfort food.

To foreigners, this concentration of power might seem the quintessence of normalcy. As the sociologist E. Digby Baltzell wrote in 1964, elites have dominated and shaped the world’s great cosmopolitan centers – from Athens to Rome to Baghdad – throughout history. In modern times, capital cities such as London, Paris, Moscow, Berlin and Tokyo have not only ruled their countries but have also largely defined them. In all these countries (with the exception of Germany, which was divided during the Cold War), publishing, media, the arts and corporate and political power are all concentrated in the same place. Paris is the undisputed global face of France just as London is of Great Britain or Tokyo is of Japan.

Although each had their merchant classes, these cities were strongly hierarchical, governed by those closest by blood or affiliation to the ruling family and populated largely by their servants. In contrast, Baltzell observed, U.S. cities such as New York have been “heterogeneous from top to bottom.” Their power came not from the government or the church but from trade, the production of goods and scientific innovations, as well as the peddling of ideas and culture.

But Washington has always occupied a unique and somewhat incongruous niche among U.S. cities. It came into being not because of the economic logic of its location, but because it was a convenient compromise between North and South. It never developed into a center of commerce or manufacturing. Nor was it meant to be a fortress. Instead, it was designed for one specific purpose: to house the business of governance.

Pierre Charles L’Enfant, the French-born classicist and civil engineer who developed the plan for the city, envisioned a majestic capital that would “leave to posterity a grand idea of the patriotic interest,” as he wrote in 1791. Yet for most of its history, Washington failed to measure up to the standards of European or Asian capitals. In January 1815, a South Carolina congressman described the capital to his wife as a “city which so many are willing to come to and all so anxious to leave.”

This lowly status stemmed, to some extent, from what the historian James Sterling Young has defined as the “anti-power” ethos of early Americans. The revolutionary generation and its successors loathed the confluence of power and wealth that defined 19th-century London or Paris. A muddy outpost in the woods seemed more appropriate to republican ideals.

Even as other American cities, such as New York and Baltimore, expanded rapidly, Washington grew slowly, at a rate well below the national average. Bold predictions that the city would boast a population of 160,000 by the 1830s fell far short. Instead, it had barely reached 45,000 people, including more than 6,000 slaves. It remained eerily bereft of all the things that make cities vital – thriving commerce, a busy port, decent eateries and distinguished shops. Visiting the city in 1842, Charles Dickens marveled at a city of “spacious avenues that begin in nothing and lead nowhere.”

To some observers, such as Alexis de Tocqueville, Washington’s relative decrepitude reflected one of the glories of the young republic. The fact that the country had “no metropolis” that dominated it from the center struck the young noble, on his visit to America in the early 1830s, as “one of the first causes of the maintenance of Republican institutions.”

Washington’s status improved only marginally in the next century, even as other brilliant centers of power, culture and commerce emerged on the Eastern Seaboard and then across the Midwest and West. The rapid rise of New York was challenged in quick succession by the even more sudden emergence of Chicago in the industrial Midwest and San Francisco on the Gold Rush coast of California. Washington was surely the nerve center of politics, but commerce, culture and the vast majority of the media chose to concentrate elsewhere.

It would take enormous misfortune – the Depression – to provide Washington with its first great growth spurt. As the business empires of New York, Chicago, Detroit and Cleveland buckled and the New Deal took control of the economy, power shifted decisively to the capital. This expansion of influence continued with the onset of World War II and then during the Cold War.

The ensuing rise of the military and domestic bureaucracies transformed Washington from a small provincial city into a major metropolitan area. The greater economic shift from a predominantly manufacturing to a high-tech, information-centered economy also played to Washington’s strengths. In his groundbreaking 1973 book The Coming of Post-Industrial Society, the sociologist Daniel Bell predicted that the country’s prevailing “business civilization” would inevitably become dominated by the government bureaucracy. Corporations would eventually look to Washington’s lead for regulatory standards, to sponsor research and make critical science-related decisions.

In the past half-century, this confluence of technology and bureaucracy has transformed Washington and its surrounding suburbs into the most dynamic large metropolitan economy in the Northeast. Between 1950 and 1996, the region’s population expanded by roughly 150 percent, three or more times faster than other cities along the Boston-Washington corridor.

By the mid-1970s, Washington and its environs had also emerged as the richest region in the country. Since then, it has remained at or near the top of metropolitan areas in terms of both per capita income and level of education. Despite deplorable concentrations of poverty, particularly in the city proper, the region’s average household incomes remain the highest in the country – nearly 50 percent above the national average. The percentage of adults with a bachelor’s degree or higher, nearly 42 percent, surpasses even such brainy-seeming places as greater Boston, Seattle and Minneapolis.

The contrast between Washington and most of the United States has gradually become more pronounced. In good times and in bad, lawyers, lobbyists and other government retainers have continued to enrich themselves even as the Midwest industrial-belt cities have cratered and most others struggled to survive. “The vision of generations of liberals,” admitted the New Republic in the mid-1970s, “has created a prosperous and preposterous city whose population is completely isolated from the people they represent and immune from the problems they are supposed to solve.”

In today’s crisis, the Washington area remains somewhat aloof, with the second-lowest unemployment rate among major metropolitan areas of more than 1 million. (Only Oklahoma City, largely insulated from both the financial and housing bubbles, is doing better, although collapsing energy prices could threaten its prosperity.) The rate of job growth, although slower, is still among the highest in the country, and unemployment is below the national average.

This disparity will grow in the coming years, as rival regions reel from the recession. Many once-powerful places are already losing their independence and allure. Wall Street, formerly the seat of privatized power, has been reduced to supplicant status. The fate of New York Mayor Michael Bloomberg’s “luxury city” will be determined not in deals with London, Dubai or Shanghai but by the U.S. Treasury. Similarly, the vast auto economy of the upper Midwest will take direction from congressional appropriations and whoever is named the new “car czar.”

This loss of power in the provinces will broaden in scope during the coming months. Even proud Texas has lost its unique political influence. Its energy barons will now be forced to do the bidding of the lawmakers and regulators, instead of carrying them in their hip pockets.

Even industries that are well plugged in to the new Obama regime – such as venture capital and alternative energy – are facing financial ruin from the downturn in both markets and energy prices. To win new funding and subsidies for their next bubble, they’ll increasingly rely not on their ballyhooed cleverness but on their pull with the White House, Congress and the new science apparat, under the green-oriented Energy Secretary Steven Chu and Obama’s neo-Malthusian pick for White House science adviser, physicist John Holdren.

All this is bad news for much of America, but it should mean great business for many residents of greater Washington. Sudden interest in District pied-a-terres among investment bankers, venture capitalists, energy potentates and their hired help could do a lot to restore the battered condominium market. Office buildings in the District and surrounding environs can now expect a new rush of tenants, both from the private sector and the soon-to-be expanding federal bureaucracies.

The transfer of cultural power to Washington will also accelerate. After all, Washington is more than ever where the action is. Media outlets have already been shifting out of New York and other cities – the Atlantic Monthly moved from Boston to Washington in recent years, and USA Today, National Public Radio and XM Radio are headquartered in or near the capital. A city that, according to one 19th-century account, had a cuisine consisting largely of “hog and hominy grits” now boasts world-class restaurants, draws top-line chefs to its food scene and will continue to develop into a serious epicurean center. The area already ranks third in film and television production, largely because of a thriving news and documentary business, as embodied in National Geographic, the Public Broadcasting Service and the Discovery Channel.

Over time, those of us in the provinces may grow to resent all this, seeing in Washington’s ascendancy something obtrusive, oppressive and contrary to the national ethos. But don’t expect Washingtonians to care much. They’ll be too busy running the country, when not chortling all the way to the bank.

This article originally appeared at the Washington Post.

Joel Kotkin is executive editor of NewGeography.com and is a presidential fellow in urban futures at Chapman University. He is author of The City: A Global History and is finishing a book on the American future.

January 25, 2009
George W. Bush: Welcome Back to Dallas, Sort Of

Any moment now I expect to see the familiar face of our former President, George W. Bush, in the parking lot of our local grocery store. Maybe I’ll run into Laura Bush on the treadmill at the Cooper Aerobics Center where both worked out on trips to Dallas. Once they are settled into 10141 Daria Place, I expect her mailbox to runneth over with invitations from countless charitable organizations, asking her as a former First Lady to be honorary chair and spearhead fundraising. And if only I attended Highland Park United Methodist Church, I may even have the benefit of praying with both the former President and his wife in that venerable Dallas institution: Bible Study.

But the Bush family’s return to Dallas may not be as spectacular as they are hoping. Not that local journalists would be so rude as to throw a shoe, but when your 27 year-old hairdresser tells you she would refuse to style the former First Lady’s locks, you know something ain’t right.

When George and Laura Bush left Dallas in 1994, we were sad to see them move. They sold a 3600 square-foot Austin stone home with a gravel driveway in Preston Hollow – a grassy, treed Dallas neighborhood known for its rich share of high net worth individuals. The Bushes lived in a lovely but modest part of PH – they owned a half-acre lot, a far cry from the one to 12 acre mansions west of Preston Road

Texas pretty much loved his leadership, though it has been said that the governor of Texas really doesn’t do much of anything. “In 35 years of hanging around the Capitol…I have never seen anyone that good at the game of politics,” wrote Texas Monthly’s Paul Burka in 2004. “It was impossible to be around the guy and not like him. He filled a room. He was always himself. He said what he thought. He had the ability to let down his guard without losing the dignity of ‘I am your governor’. Not the governor – your governor.”

In the Capitol, Bush was a uniter, not a divider and, as Burka writes, he fought the extremists in both parties. “He had the courage to tackle the most important issues: public education and the tax structure. He had a great staff. He made appointments based on ability, not litmus tests. He had the decency to stay above petty politics.” Their twin girls, who had attended the same exclusive private girl’s school in Dallas as my own daughter, opted for Austin public schools. That choice clearly planted the new governor as a “man of the people”.

Down here, we thought Washington was a mess led by a shameful president. Bush would go to Washington and ditch most of the BS.

In 2000, he was the man of the hour. A devout Christian, a conservative; nod nod, wink wink, we never believed Laura really was all that conservative. We didn’t think the President was, either. After all, this was the man who lost his 1978 run for Congress to a conservative Christian Democrat named Kent Hance, who stung the Bush campaign by spreading word that young Bush was plying college voters with alcohol, the drink of the devil.

Then our attention turned to the fact that religious fanatics from another part of the world murdered 2,000 Americans at the Pentagon, World Trade Center, and in a wooded Pennsylvania field on September 11, 2001. Stem cell research, abortion rights, the $1.6 trillion tax cut were no longer Job One – we feared for our safety and couldn’t even open the mail without concern the envelope was laced with Anthrax.

Post 9/11, Dallas was solidly supportive of the Bushes. Then came the Iraq invasion and all the other disastrous bookmarks of his dual terms that made even the most loyal hometown supporters wonder – what is up with him? What happened to our governor? Bush had promised us a crisp, tight-ship of state. Instead, we got two wars and evidence of more disorganization, culminating with the worst financial meltdown since the Great Depression.

America was fed up; even Dallas was losing patience. Prior to the November election, I gasped one day while driving through the backstreets of Preston Hollow. The Bushes’ own neighborhood had more Obama yard signs than McCain, even in the yards of the homes flanking his old one. President Obama picked off the three largest urban counties in Texas – Dallas, Harris (Houston, home of papa Bush) and Bexar (San Antonio, heavily Hispanic). McCain did win Texas, but Obama racked up 43.8 percent of the total vote.

Texas has changed in the 15 years since the Bushes left Dallas. We are more diverse, and a Hispanic majority is on the horizon. Not sure how they view the former president, but they adore his nephew, handsome and half-Latino George P. Bush – someone to watch closely.

Meanwhile Dallas’s population has expanded exponentially, and we are poised to become one of the largest urban centers in the country. Our population is younger, a combination of maturing offspring – children of the Baby Boomers like Jenna and Barbara – and an influx of people who moved here from other metro areas, many post 9/11.

We are finally developing an urban core, though the recession and credit crunch has slowed progress and put several developments on hold. We have a Ritz Carlton, a W Hotel and Residences. Even Philippe Starck has his imprint etched on Dallas glass. The Perots and Tom Hicks built a magnificent downtown sports arena that promises to be a Times Square. The Mandarin Oriental got us all stirred up then put on the brakes. More recently, one charming high rise project halted construction, leaving a skeleton shell and returning the few buyers’ deposits. Other ambitious projects are leasing cheaply just to pull in warm bodies.

We have more foreigners living in Dallas; Mexican food is no longer the only exotic fare in town. Travel north of LBJ/Interstate 635, the major highway that divides blue-ribbon real estate from the ‘burbs, and you find entire communities of Sikhs, Buddhists, Muslims – including a sprawling mosque.

George Bush may have super-glued himself to the religious right, but while he was gone, Dallas grew more liberal and tolerant. Gay men hold hands, kiss in public, and lead corporations. A gay Dallas couple has just filed the state’s first same-sex divorce case. You see more crunchy people and Birkenstocks: Whole Foods has stores across the city. We eat more granola and yogurt and shun the preservatives.

Even our garbage collection has changed: the president will have to divide paper from plastic into big blue bins to be rolled out bi-weekly.

There are vestiges of the past: Harvey Goff sold his family hamburger shop, famous locally for insulting their own customers even as they munch on a thick, greasy burger. Jimmy Francis – a Bush supporter – bought the stores and shut down the Lover’s Lane location to make room for a Geek Squad. But there is still a store near SMU.

Most significant, however, is how the Housing boom changed the face of North Dallas, including Preston Hollow. Dallas may remember how the economy Bush inherited was not in the best of shape, either, and was in fact sinking into recession. The Bush housing policy aimed to make home ownership a dream come true for every American via low interest rates. The cheap money made Dallas a crane-city. The mid-century ranches were scrapped to make way for everyone’s dream home – a 7000 square-foot stone castle-ette with turrets, porte cocheres, media rooms. While this began at the tail of the 90s dot.com boom, Bush housing policies – those low interest rates – magnified the momentum. Now even homes built in 1994 are looking worn.

So you can’t say that George Bush didn’t change Dallas. But as the Bushes settle in, they also might notice how much the place has changed while they were gone.

Candace Evans is the Editor of DallasDirt, a Dallas-based real estate blog for D Magazine Media Partners.

January 24, 2009
What Way for the Stimulus? Post-Industrial America vs. Neo-Industrial America

As a result of the economic crisis, there is a broad consensus in favor of large-scale public investment in infrastructure in the U.S., both as part of a temporary stimulus program and to promote long-term modernization of America’s transportation, energy, telecom and water utility grids. But this momentary consensus masks the continuing disagreement on whether the U.S. government can legitimately promote American industries, and, if so, which industries. This is a problem for infrastructure policy, because different national infrastructures correspond to different national economic strategies.

Consider the antebellum U.S. in Henry Clay’s American System: federal infrastructure investment in canals and later railroads (“internal improvements”) was part of a package that included import-substitution tariffs to protect infant U.S. industries from British competition. For Clay and his Whig allies and followers, including future Republicans such as Abraham Lincoln, internal improvements and tariffs were not ends in themselves. They were instruments to be used in the pursuit of the Whig-Republican vision of a decentralized, mixed industrial and agricultural economy where business owners, mostly small, and free workers, mostly prosperous, could realize the utopia of Clay’s “self-made man.”

From Thomas Jefferson to Jefferson Davis, the Southern planters who opposed such ambitious schemes had no objection to infrastructure as such. They favored infrastructure tailored to suit the needs of their semi-colonial slave plantation economy, based on exports of cotton and other commodities to British and Western European factories. Local wharves and harbors that facilitated the shipment of crops to industrial Britain were acceptable to the planters. They opposed infrastructure that would encourage industrialization in the South or the U.S. as a whole, out of fear that urbanization and industrialization would threaten their local dominance over both black slaves and poor white yeoman farmers. They also feared they would be marginalized in national politics – as they indeed were – by industrialists, merchants and financiers.

Today, the rivalry is not between the champions of an industrial America and an agrarian America. Rather, it is a rivalry between the champions of a neo-industrial America, which includes world-class industrial agriculture, and a post-industrial America, in which most if not all manufacturing and even agriculture will be outsourced. In this formulation, post-industrial America emerges as a consumerist paradise populated by investors, executives of multinational companies, rentiers, realtors, government and nonprofit bureaucrats, and a supporting cast of service sector proletarians including nursing aides, nannies, gardeners, security guards and restaurant and hotel workers.

Just as there was one logical infrastructure for the industrializing North and one for the anti-industrial plantation South in the nineteenth century, so in the twenty-first century a different infrastructure would be appropriate, depending on whether the goal is a post-industrial America or a neo-industrial America.

A post-industrial infrastructure can be simple, local and substantially foreign.

The post-industrial infrastructure can be simple since it involves little more than the roads and harbors needed to bring in high-value-added imports from abroad and ship out low-value-added American commodities. Adequate harbors are necessary, as are adequate highways to help ship U.S. soybeans and timber to industrial Asia while bringing Chinese, Japanese and Korean goods to Wal-Marts for distribution.

The post-industrial infrastructure can also be local. Just as the Southern planters were indifferent or hostile to regional or national infrastructure projects, so the elites of the service sector are interested chiefly in the infrastructure needs of the half dozen or so coastal megalopolitan areas where they live. Many favor high-speed rail to connect nearby big cities on the coasts, while denouncing federal investment in non-metropolitan areas as boondoggles. The FIRE (Finance, Insurance, Real Estate) economy of post-industrial America could function reasonably well as long as a handful of colossal city-states – Boswash, Northern California, Greater LA, the Texas Triangle – had state-of-the-art local telecom and transportation and energy grids. So what if the rest of the continent decayed?

Finally, the post-industrial infrastructure can be largely foreign. Most of the urban service sector elite favors both outsourcing American industry and importing a new metropolitan immigrant proletariat willing to work for lower wages and fewer benefits than native Americans. To be sure, someone must build the components of the metro infrastructure and put them in place. But steel can be shipped in from Asia and assembled in New York, San Francisco, Atlanta, Chicago and Houston by immigrants, legal or illegal. Better yet, the metro-supportive infrastructure can be leased or permanently sold to foreign consortiums and even foreign sovereign wealth funds, in order to avoid the need to raise taxes to pay for upfront costs or repay bonds over the long term. The “leakage” of federal stimulus spending to benefit Chinese factories, law-breaking Latin American illegal immigrants and petrostate sovereign wealth funds will not bother elites who are not only post-industrial but to a large extent too sophisticated to worry about narrow patriotism.

If the infrastructure of a post-industrial America would be simple, local and largely foreign, the infrastructure of a neo-industrial America should be complex, national and predominantly American.

A neo-industrial infrastructure necessarily must be complex, because the purpose of a neo-industrial infrastructure would be onshoring – arresting and in some cases reversing the transfer of high-value-added manufacturing and services to other countries. This requires something more than freight rail bringing Chinese imports to Wal-Mart and airports helping to deliver Amazon.com boxes to urban apartments. It requires an infrastructure tailored to the needs of an entire complex ecosystem of factories, design offices, and their suppliers and contractors. And that infrastructure not only must be rebuilt in existing industrial areas like Detroit but also built from scratch in areas such as the Great Plains. It would aim to put many of tomorrow’s factories and research parks in today’s depopulating rural areas and derelict inner cities.

A neo-industrial infrastructure must be national and inclusive in scope. Its goal resonates with the aspiration of Henry Clay Whigs, Lincoln Republicans and William Jennings Bryan Populists – a decentralized, prosperous middle-class society of small and medium-sized towns as opposed to a country where half a billion people are crammed into a few plutocratic megacities and forced to live in dense apartment blocks.

Such decentralization – contrary to the claims of some urbanists and greens – need not mean excessive “sprawl.” This is still a very large country with lots of land, as anyone who spends time away from the coasts recognizes.

But more important, there can only be an independent middle-class majority in a United States with 400 or 500 million people in 2050 if most Americans live and work in relatively low-density areas where homes are affordable and small business rents are not crippling. That means building new towns and new industrial centers away from the existing ones, to spread out the population and accommodate tens of millions of new immigrants with desirable skills. The rich, who will remain concentrated in a few metro areas, where they can socialize, compete and conspire with one another, must be taxed by the federal government to subsidize the infrastructure of the entire continental U.S., not just their own cities, metro areas and states.

Last but not least, a neo-industrial infrastructure must be predominantly national with respect to its components and its workforce. It would be self-defeating to design an infrastructure friendly to American industries and workers and then hire foreign industries and foreign workers to build it. Most or all federal infrastructure spending should be reserved for corporations and suppliers whose high-value-added production takes place on American soil. And all jobs directly or indirectly related to infrastructure construction should be reserved for citizens or legal immigrants. Law-abiding American citizens should not be taxed to subsidize law-breaking illegal immigrant workers and the unpatriotic, criminal contractors who employ them. This is not “nativism.” The right kind of legal immigration would be an important part of any neo-industrial strategy, as would taking advantage of foreign direct investment by foreign companies and sovereign wealth funds in mutually beneficial ways.

The debate about infrastructure, then, is also a debate about the future industrial profile of America. Will America in the twenty-first century be neo-industrial or post-industrial? This debate, in turn, may well determine whether the U.S. will become a decentralized, continental middle-class society or a collection of plutocratic, hierarchical city-states. The stakes could not be higher.

Michael Lind is Whitehead Senior Fellow at the New America Foundation and Director of the American Infrastructure Initiative.

January 23, 2009

Should We Bailout Geithner Too?

This morning the Senate Finance Committee approved the nomination for treasury secretary of Timothy F. Geithner, head of the Federal Reserve Bank of New York. Geithner is a Wall Street darling, but taxpayers may have a different take. Senator Jim Bunning (R-KY) reminded us at the Senate confirmation Hearing January 20 that Geithner was part of every bailout and every failed policy put forth by the current Treasury secretary. After you read this, you should begin to see why I’m so opposed to Geithner’s appointment – I don’t want the fox any closer to the hen house than he already is.

For starters, look at what the Fed has admittedly been up to – this is from a recent speech by the President of the San Francisco Fed, Janet Yelin. The Federal Reserve Act authorizes the Fed to lend to “individuals, partnerships, or corporations” in extraordinary times. For the first time since the Great Depression, the Fed is invoking this authority to make direct loans to subprime borrowers – that is, those who can’t get credit from a bank.

Basically, the New York Fed, under Geithner’s direction, created a couple of special companies so they could print money to get around restrictions on what the Fed can do directly. Now, be perfectly clear on this first point – this is not Treasury or TARP or Congress that’s spending this money. It’s the Federal Reserve. They don’t have to ask Congress for money, they just print it. The Fed is providing “credit to a broad range of private borrowers.” And by-and-large, they don’t have to tell you who they give the money to, either. Here’s how Yelin put it:

“It is worth noting that, as the nation’s central bank, the Fed can issue as much currency and bank reserves as required to finance these asset purchases and restore functioning to these markets. Indeed, the Federal Reserve’s balance sheet has already ballooned from about $900 billion at the beginning of 2008 to more than $2.2 trillion currently—and is rising.”

Notice how easy it is to double our money – they just keep the printing presses running. In fact, the recent expansion is extraordinary. Since 2003 the Fed’s balance sheet averaged only $838 billion. So this doubling has all taken place in the past year. In the last recession, around 2002, the Fed’s balance sheet increased by only 13%. If the current recession started in 2007, and if the Fed’s balance sheet is any gauge, then we’re in for much worse.

Average Federal Reserve balance sheet

Year	Reserves	% change
2000	$625,822,500,000
2001	$653,774,500,000	4.5%
2002	$740,502,000,000	13.3%
2003	$762,853,509,434	3.0%
2004	$803,004,846,154	5.3%
2005	$843,397,519,231	5.0%
2006	$877,922,692,308	4.1%
2007	$907,023,653,846	3.3%
2008	$1,228,848,679,245	35.5%
2009	$2,175,364,000,000	77.0%

2000-2002 are for last 2 weeks only; 2009 is for first 2 weeks only. Data available from http://www.federalreserve.gov/releases/h41/hist/

Where are they spending all this cash? You probably didn’t hear that the Fed started buying commercial paper through these “private-sector vehicle[s]” created to sidestep an act of Congress. (Commercial paper is the short term debt of corporations.) Another thing you aren’t hearing about is that back in November 2008, the Fed bought $600 billion of mortgage-backed securities from AIG. This action, if taken without subterfuge, would not be legal. The Federal Reserve Act limits the Fed to buying securities that were issued or guaranteed by the U.S. Treasury or U.S. agencies. In order for the Executive Branch to get around a limit placed by the Legislative Branch, the Fed got help from the Treasury.

Yelin laid it out unabashedly: “Cooperation with the Treasury is necessary because the program entails some risk of loss and, under the Federal Reserve Act, all Fed lending must be appropriately secured. The Treasury has committed $20 billion of TARP funds to protect the Fed against losses on the Fed’s lending commitment of up to $200 billion.” Don’t kid yourself: this is a credit default swap on a national level.

On June 26, 2008, the Fed used this scheme to buy the assets of Bear Stearns. That money went to JP Morgan. On November 25, 2008, Geithner’s New York Fed bought out the underlying assets for which American International Group had written credit default swaps, saving AIG from having to pay off the swaps when the assets failed. On December 12, 2008, they bought more residential mortgage-backed securities from AIG. Those two bailout packages currently stand at about $73 billion. The big ones are those where the recipients are not being named. On October 27, 2008, they bought commercial paper from “eligible issuers.” On November 24, 2008, they bought “certificates of deposit, bank notes, and commercial paper from eligible issuers.”

In an odd twist of democracy, you can read all about Geithner’s personal income tax problem but you won’t find anywhere information on who is benefiting from this particular bailout money which Geithner is in charge of passing out. The commercial paper bailout from the Fed (this doesn’t include anything that Treasury is doing or that Congress has authorized) stands at $333 billion.

They aren’t done, either. According to Yelin, there are plans in place to substantially expand this spree of lending, buying, and guaranteeing to include more kinds of assets issued by more kinds of institutions, like commercial loans and non-agency mortgage-backed securities.

Senator Chuck Grassley (R-IA) referred to this as Geithner’s participation in “a monstrous act of government intervention and ownership over our financial markets.” While TARP has a Special Inspector General and various congressional oversight duties, similar transparency and oversight does not exist for the bailouts conducted by Geithner in New York. Geithner may be, as Grassley asked him, “the general, drawing on your financial sector expertise, who will marshal the financial troops and assets of the Treasury Department.” But he can’t “lead our nation to prosperity.”

He couldn’t, in six years, stop the primary dealers in US Treasuries from selling more bonds than Treasury issued. The only way this could go on to the extent that it did, with an average of $2.1 trillion of Treasuries sold but undelivered for seven weeks from September 24 to November 5, is because Geithner did not have the support of the “financial troops” to stop it. In fact, I will suggest to you that this level of abuse, in what amounts to massive naked short selling of US Treasury securities, could only be done with complicity.

Finally, it is a simple matter to compare Geithner’s activities at the Fed to those of Ken Lay at Enron. Remember all those “partnerships” with cool names derived from Star Wars movies? Geithner’s New York Fed created Delaware Limited Liability Companies with the name “Maiden Lane” which is the Fed’s street address in New York. They are using unregulated companies to make loans and to buy and sell assets completely outside the view of the public. The Senate Finance Committee approved Geithner’s nomination on January 22, 2009 in an Open Executive Session. Geithner has proven he can hide the ball; let’s not let this scheme move to Treasury.

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.

January 22, 2009

The Dawn of a New Age in the War on Poverty

An article published in the Chicago Tribune on June 29, 1992 is entitled “The Great Society’s Great Failure.” It profiles the Inez, Kentucky family that appeared in the famous front porch photo that launched LBJ’s War on Poverty in 1964. Suffice it to say without revealing the particular gory details of their thwarted lives, the family’s fate was as dismal as the outcome of the War on Poverty. Mike Duncan, an Inez banker and now chairman of the Republican National Committee – battling to retain his position – put it mildly: “The War on Poverty did not succeed.”

In 2009 where do we stand with America’s War on Poverty? Inez and the rest of Martin County were described in the article as “one of the poorest counties in a poor state. Of its 12,526 people, all but 27 are white.” The image stuck and Inez has been digging out ever since.

The community’s lack of progress over the past several decades has been particularly ironic: until recently, the rest of America has been experiencing one of the greatest economic expansions in history.

Now we have elected our first African American to the office of the presidency, a man who cut his political teeth working among the black poor of Chicago’s Southside. Barack Obama’s election has no doubt raised hopes around the Southside and other predominately African American distressed communities. But can the same be said for the more numerous, equally intractable neglected communities – labeled poor, white, aging, and rural (PWAR) – like Inez?

This line of thinking has become even more popular as evidenced by the racial overtones, masquerading as satire, included on a CD released by a challenger of Mike Duncan for the RNC chair position. Politicos say there is a divide within both of the major political parties – appeal to the PWAR and die or reach out to gather more under the tent. PWARs are rarely spoken of in the media except in pejorative terms

So far, there is little evidence that poor rural whites – epitomized by Appalachia – have any strong advocates in the new administration. There is not a single cabinet officer from anywhere in the deep or mid-south nor any important figure in the majority party from the region.

So, what happens to the fortunes of the regions – the South in particular – in the new order? Will the battle of red versus blue gain new ground or will other rivalries and labels rise up? Will a region whose economy revolves around coal have a chance in a “new green world?”

Right now places like Kentucky – decidedly red – could well be marginalized. The media enjoys painting our citizens as ignorant rubes (how else could they have voted against Obama?) This was implied in the mainstream news. (CNN had particular fun with it while profiling Clay County, Kentucky before the election and conducting a trailer escapade in Carlisle, Kentucky after the election).

Seventeen years after the Tribune’s article, Inez and the rest of Martin County have chosen to declare their own war to overcome the endemic national stereotype that the War on Poverty placed upon them. This new spirit of localism was born first among the community’s young professionals who left Inez as high school graduates and have now returned as educated professionals seeking to earn their own piece of the American Dream. Their hope has been burnished in the fire of experiences gained as they saw and experienced the rewards of hard work and determination in other places. They concluded that Inez and Martin County could be something different, and they have returned to make it so.

It is clear that President-elect Obama has a choice: be a great president and a uniter, or not. They say FDR was great because he reached out to those who were not for him. The times now are eerily similar. One hopes that a man who grew up as an outsider might realize that the “hill” people of Appalachia or the deep South aren’t all pathetic as portrayed in the news media; perhaps they don’t understand the message of hope because they have been betrayed before by “outsiders” attempting to convert them to the “mainstream.” The failures of the ‘war on poverty’ are still well remembered here.

Not all 100 or more million new Americans who will be here by 2050 will head for the eight supercities. The vast majority won’t find work that will allow them to settle in the so-called “creative” hotbeds. Many will head for small to mid-sized towns with more affordable lifestyles, and perhaps more durable values. Perhaps others will begin to believe in the old adage that we can live and work anywhere and will do so, taking the opportunity to bring change to our communities.

For its part, Inez, Kentucky has decided to rewrite its story and believes it can do so. As an Appalachian native, I believe it too. Their story is one of grit, determination, and sheer willpower to change the course of the future in a positive way. At a recent public meeting, an African American woman who had moved to Inez from D.C. stood up and provided a testimonial of faith and belief in her newfound home. She hoped others would come and begin to appreciate the lifestyle of a small town in hill and coal country. I had to ask afterward – is she for real? “Yes” came the reply, “she is very real.”

A recent Esquire magazine feature called on “natives” to describe each of the 50 states. Actor Harry Dean Stanton, in the midst of philosophical ramblings, said: “There’s no answer to the state of Kentucky.” I don’t believe that’s entirely true.

Sylvia L. Lovely is the Executive Director/CEO of the Kentucky League of Cities and the founder and president of the NewCities Institute. She currently serves as chair of the Morehead State University Board of Regents. Please send your comments to slovely@klc.org and visit her blog at sylvia.newcities.org.

January 21, 2009