New Geography

Category: Politics

  • In the Future We’ll All Be Renters: America’s Disappearing Middle Class

    An Excerpt from Joel Kotkin’s Forthcoming book The New Class Conflict available for pre-order now from Telos Press and in bookstores September, 2014.

    In ways not seen since the Gilded Age of the late nineteenth century, America is becoming a nation of increasingly sharply divided classes. Joel Kotkin’s The New Class Conflict breaks down these new divisions for the first time, focusing on the ascendency of two classes: the tech Oligarchy, based in Silicon Valley; and the Clerisy, which includes much of the nation’s policy, media, and academic elites.

    The Proleterianization of the Middle Class

    From early in its history, the United States rested on the notion of a large class of small proprietors and owners. “The small landholders,” Jefferson wrote to his fellow Virginian James Madison, “are the most precious part of a state.” To both Jefferson and Madison, both the widespread dispersion of property and limits on its concentration—“the possession of different degrees and kinds of property”—were necessary in a functioning republic.

    Jefferson, admitting that the “equal division of property” was “impractical,” also believed  “the consequences of this enormous inequality producing so much misery to the bulk of mankind” that “legislators cannot invent too many devices for subdividing property.” The notion of a dispersed base of ownership became the central principle which the Republic was, at least ostensibly, built around. As one delegate to the 1821 New York constitutional convention put it, property was “infinitely divided” and even laborers “expect soon to be freeholders” was a bulwark for the democratic order.

    This notion of American opportunity has ebbed and flowed, but generally gained ground well into the 1960s and 1970s.  The very fact that the United States was more demographically dynamic, notes Thomas Piketty, naturally reduced the role of inherited wealth compared to Europe, most notably in France,  where population growth was slower.  Mass prosperity hit a high point in America in the first decades after the Second World War, the period where the country achieved its highest share of world GDP at some forty percent.  By the mid-1950s the percentage of households earning middle incomes doubled to 60 percent compared with the boom years of the 1920s. By 1962 over 60 percent of Americans owned their own homes; the increase in homeownership, notes Stephanie Coontz, between 1946 and 1956 was greater than that achieved in the preceding century and a half.

    But today, after decades of expanding property ownership, the middle orders—what might be seen as the inheritors of Jefferson’s yeoman class—now appear in a secular retreat.  Homeownership, which peaked in 2002 at nearly 70 percent, has dropped, according to the U.S. Census, to 65 percent in 2013, the lowest in almost two decade.  Although some of this may be seen as a correction for the abuses of the housing bubble, rising costs, stagnant incomes and a drop off of younger first time buyers suggest that ownership may continue to fall in years ahead.

    The weakness of the property owning yeomanry comes at a time when other classes, notably the oligarchs and the Clerisy, have gained power and influence. Over twenty years ago Christopher Lasch argued that “the new class” was arising that “begins and ends with the knowledge industry.”  For this group, the rest of society, he suggested, exists only “as images and stereotypes.” Progressive theorists, such as Ruy Texerira, have suggested that, in the evolving class structure, the traditional middle and working class is of little importance compared to the rise of a mass “upper middle class” consisting largely of professionals, tech workers, academics, and high-end government bureaucrats.

    The Economic Decline of the Yeomanry

    All this suggests what could be seen as the proletarianization of the yeoman class. In the four decades since 1971 the percentage of those earning between two thirds and twice the national median income has shrunk, according to Pew, from over sixty to barely fifty percent of the population. While middle class incomes have fallen relative to the upper income groups, house prices and health insurance, utilities and college tuition costs have all soared.

    This reflects some very dramatic changes in the nature of the employment market. For over a decade, job gains have been concentrated largely in the low-wage service sector, such as in retail or hospitality, which alone accounted for nearly sixty percent of job gains; in contrast middle income positions actually have been declining. Meanwhile, taxes on corporate profits, which are at an all time high, have fallen to near historic lows.

    This trend has continued even in the recovery.  Between 2010 and 2012, the middle sixty percent of households, did worse not only than the wealthy, but even the poorest quintile between 2010 and 2012.  In the years of the recovery from the Great Recession the middle quintiles income dropped by 1.2 percent while those of the top five percent grew by over five percent. Overall the middle sixty percent have seen their share of the national pie fall from 53 percent in 1970 to barely 45 percent in 2012. Of roughly one in three people born into middle class households, those earning between the 30th and 70th percent of income now fall out of that status as adults.

    This decline, not surprisingly, has engendered a dour mood among much of the yeomanry. For many, according to a 2013 Bloomberg poll, the American dream seems increasingly out of reach; this opinion was held by a margin of two to one among all Americans, and three to one among those making under $50,000, but also a majority earning over $100,000 annually. By margins of more than two to one, more Americans believed they enjoy fewer economic opportunities than their parents, and will experience far less job security and disposable income. This pessimism is particularly intense among white working class voters, and large sections of the middle class.

    Many people who once had decent incomes, and may have owned or hoped to own a house or start a business have slipped to the lower rungs of the economy. In the past decade, the number of people working part-time and receiving such benefits as food stamps has expanded well beyond inner cities and impoverished rural hamlets.  Many of the long-term unemployed are older, and often somewhat well-educated workers, who have fallen from the middle class over the past decade. The curse of poverty has also expanded more into suburban locations; something widely cited by the urban-centric Clerisy, but further confirms the yeomanry’s stark decline.

    The Assault on Small Business

    Perhaps nothing reflects the descent of the yeomanry than the fading role of the ten million small businesses with under 20 employees, which currently employ upwards of forty million Americans. Long a key source of new jobs, small business start-ups have declined as a portion of all business growth from 50 percent in the early 1980s to 35% in 2010. Indeed, a 2014 Brookings report, revealed that small business “dynamism”,  measured by the growth of new firms compared with the closing of older ones, has declined significantly over the past decade, with more firms closing than starting for the first time in a quarter century.

    Instead of stemming from the grassroots, the recovery after the latest crash was led, unlike in previous expansions, by larger firms while small company hiring remained relatively paltry. Self-employment rose, but increasingly this took the form of sole proprietorships as opposed to expanding smaller companies with employees. By 2013, smaller firms with under one hundred employees added far fewer jobs than in the prior decade. Unlike prior post-war recoveries, since 2007, grassroots companies did not lead the way out of recession and continued to lose ground compared with larger companies that either could afford the costs or avoid the taxes imposed by, the Clerical regime.

    This decline in entrepreneurial activity marks a historic turnaround.  In 1977, SBA figures show, Americans started 563,325 businesses with employees. In 2009, they started barely 400,000 Business start-ups, long a key source of new jobs, have declined as a portion of all businesses from 50 percent in the early 1980s to 35% in 2010.

    There are many explanations for this decline, including the impact of offshoring, globalization and technology.  But some reflects the impact of the ever more powerful Clerical regime, whose expansive regulatory power undermines small firms. Indeed, according to a 2010 report by the Small Business Administration, federal regulations cost firms with less than 20 employees over $10,000 each year per employee, while bigger firms paid roughly $7,500 per employee.  The biggest hit to small business comes in the form of environmental regulations, which cost 364% per employee more for small firms than large ones. Small companies spend $4,101 per employee, compared to $1,294 at medium-sized companies (20 to 499 employees) and $883 at the largest companies, to meet these requirements.

    The nature of federal policy in regards to finance further worsened the situation for the small-scale entrepreneur.  The large “too big to fail” banks received huge bailouts, but have remained reluctant to loan to small business. The rapid decline of community banks, for example, down by half since 1990, particularly hurts small businesspeople that depended on loans from these institutions.

    The Descent of the Yeomanry, with Cheers from the Clerisy

    Despite America’s egalitarian roots, the prospect of mass downward mobility has been embraced widely by some business oligarchs and much of the Clerisy. The future being envisioned is one dominated by automated factories and computer-empowered service industries that will continue to pressure both jobs and wages in the future. In this scenario, productivity will rise, but wages may stagnate or decline. This leads some to propose that the American middle and working classes has become economically passé. Steve Case, founder of America Online, has even suggested that future labor needs can be filled not by current residents but by some thirty million immigrants.

    Arguably the first group to feel the downward pressure has been blue collar workers, whose lot has declined over the past few decades. After World War Two, as the United Autoworkers’ Walter Reuther noted, “the union contract became the passport to a better life” that was creating “a whole new middle class.” But with the shifting of industry overseas and the decline of private sector unions, the path for blue collar workers to enter the middle class has become more difficult.

    Although they often claim to defend the middle class, the political stance adapted by the Clerisy, as well as the tech oligarchs and the investors, tends to worsen this trajectory. Environmental concerns impose themselves most against basic industries such as fossil fuels, agriculture and much of manufacturing. These employ many in highly paid blue-collar fields, with average salaries of close to $100,000. In the last decade, top U.S. firms, notes the liberal Center for American Progress, have cut almost three million domestic jobs.  Automation also leads to the diminution of traditional white collar professions as well as the shift of high-end service jobs offshore.

    Overall, it has become increasingly common to regard the middle class as threatened and even doomed. Indeed, as early as1988 Time magazine featured a cover story on the “declining middle class,” which at that time was considerably more healthy than today. After the great recession, the American blue-collar worker has been pitied, but certainly not helped by the clerisy, which believes that there is no hope for manufacturing or similar outmoded jobs in an information age. Blue collar workers were described in major media as “bitter,” psychologically scarred” and even an “endangered species.” Americans, noted one economist, suffered a “recession” but those with blue collars endured a “depression.”

    This perspective extends across ideological lines.  Libertarian economist Tyler Cowen suggests that an “average” skilled worker can expect to subsist on little but rice and beans in the future U.S. economy. If they choose to live on the East or West Coast, they may never be able to buy a house, and will remain marginal renters for life. Left-leaning Slate in 2012 declared that manufacturing and construction jobs, sectors that powered the yeomanry’s upward mobility in the past, “aren’t coming back. Rather than a republic of yeoman, we could evolve instead, as one left-wing writer put it, living at the sufferance of our “robot overlords,” as well as those who program and manufacture them, likely using other robots to do so.

    Contempt for the middle class is often barely concealed among those most comfortably ensconced in the emerging class order. Financial Times columnist Richard Tomkins declared that the middle class, “after a good run” of some two centuries, now faces “relative decline” and even extinction. This historical shift towards mass downward mobility elicited only derision, not concern: “Classes come and classes go” and that when the middle orders disappears about the only ones that will be sorry to see them go might be the “middle classes themselves. Boo hoo.”

    The Rise of the Yeomanry

    This reversal in class mobility and the slowing diffusion of property ownership in America, if not addressed, threatens to undermine the country’s traditional role as beacon of opportunity. Equally important, the diminution of the middle orders threatens one of the historic sources of economic vitality and innovation.

    The roots of America’s middle class reflects the critical role such small holders have played throughout history.  Dynamic civilizations tend to produce more than their share of “new men.”  But nowhere was this middle class ascendency more dramatic than in Europe, first in Italy and later in northern Europe. 

    Initially, this was a comparatively small, outside group, with much of the activity conducted by outsiders such as Jews and, later, Christian dissenters. They were the driving force of the expanding capitalist  market, the creators of cities and among the primary beneficiaries of economic progress. Peter Hall quotes a historian of 15th Century Florence:

    Apprentices became masters, successful craftsmen
    became entrepreneurs, new men made fortunes in
    commerce and money-lending, merchants and bankers
    enlarged their business. The middle class waxed more
    and more prosperous in a seemingly inexhaustible boom.

    These “new men,” which included some landless peasants, gradually overthrew the old  artisan-like traders, eventually supplanted the aristocracy, and in some instances, the royal families as well. In most cases, their ascendency, although at times exploitative, generally promoted the expansion of both freedom and individual choice. They also were among the first commoners to seek out land, often in the periphery, in part as a business decision, but also to mimic the lifestyles of the traditional aristocracy.

    As occurs in every economic transition some benefited some at the expense of others. Some “new men” from peasant and artisan backgrounds rose, but many others became part of an impoverished proletariat. Many urban artisans lost their jobs to machines, but many others used their expertise to move into the middle class, often through technical innovations that, in the words of the French sociologist Marcel Mauss, constituted “a traditional action made effective, ”notably in agriculture, metallurgy and energy.

    As a colony of Britain, the Americans reflected that island’s rapid ascendancy  of small holders in the 17th and 18th Century, which linked liberation from feudalism with a less hierarchical order and the dispersion of ownership. The rise of the yeoman class in Britain was particularly critical in foreshadowing the evolution of America. These small landowners played a critical role in the overthrow of the monarchy under Cromwell, and consistently pushed for greater power for those outside the gentry. 

    Yet ultimately many paid a great price for liberal reform, allowing for enclosures of what had been communal pasture; in the process productivity rose.  Some benefited, becoming gentry themselves, while many smallholders lost their lands, and flowed into the towns where they joined the swelling proletariat. Others, notably large merchants, bought political influence and marriage into old families. By 1750, according to Marx, the Yeomanry had disappeared, a claim denied by some who believed this class persisted, albeit weakened, well into the 19th Century.

    The American Model

    Many of these displaced yeoman found a more opportune environment in America, where diffusion of ownership, as both Jefferson and Madison noted, remained central to the very concept of the nation.  Small holders served, in the words of economic historian Jonathan Hughes, as  “the seat of Republican government and democratic institutions.”

    America’s focus on dispersed ownership was further enhanced by government actions throughout the country’s history.  In contrast to their counterparts in Britain, the yeomanry in the United States enjoyed access to a greater, and still largely economically underutilized land mass, as well as a persistently growing economy. “In America,” de Tocqueville noted, “land costs little, and anyone can become a landowner.”

    The Homestead Act was signed by President Lincoln in 1862. By granting land to settlers across the Western states, Lincoln was extending the notion of what historian Henry Nash Smith described as a  “agrarian utopia” ever further into the continental frontier. Yet in reality the Homestead Act, which offered for a $.25 registration fee $1 per 160 acres proved more symbolic than effective, impacting perhaps at most two million people in a nation over 30 million. Railways, using their land grants, actually sold more land than the government gave away.

    The westward expansion of the Republic created huge opportunities for expansion of land ownership.  Jefferson wanted the land sold to the public to be a source of one-time revenue and a permanent holding for the buyer.  In many ways, at least until the 1890s, a far higher proportion of Americans owned land—almost 48%—than countries such as Britain where ownership was far more concentrated. These lands, not surprisingly, also became the source of often wild speculative booms and busts, both on the agricultural frontier and the burgeoning cities.

    Many factors ultimately undermined the first old agrarian Jeffersonian dream. Capitalist-led industrial growth shifted the proportion of the population living in cities. Only 5 percent in 1790, it rose to almost 20 percent in 1850, and nearly 40% by 1900. The new order, as in England, also weakened the position of the old artisanal professions, which often made up the ranks of the small scale owners; in many cases they were replaced by women, children and new migrants, from the countryside or from abroad. They became, as the British reformist paper The Morning Star wrote, “our white slaves, who are toiled onto the grave, for the most part silently pine and die.”

    The movement into cities, and the industrial economy, turned many workers from owners to renters. In the new industrial centers, it became far harder to start a business or own property. Even white collar workers often lost out as the instrumental economic rationality of capitalism displaced a more locally focused economy based on tradition, religion and small-scale production.

    In the United States, conditions were generally less gruesome than in Britain or the rest of Europe,  but this did not slow the tendency towards ever great concentration of ownership. The rise of great entrepreneurs like Morgan, Vanderbilt, and Carnegie drove parts of the economy into the hands of  a relative handful of people. This concentration of power and land ownership engendered a powerful protest in both rural and urban areas. Henry George’s influential Progress and Poverty, published in 1879, maintained that “the ownership of land” was the “fundamental fact” determining the social, political and “moral condition of a people.” Land, he asserted, should be owned by the public and government funded by rents.

    George’s approach appealed to a population that was seeing land ownership slipping from their grasp. Even on the land, as farming itself modernized, there was a gradual shift , as  farms mechanized and markets became more global, toward tenancy; by 1900 one in three American farmers were landless tenants. The concentration of property ownership continually grew from the 1870s on well into the 1920s.

    By the early 20th century, as the original rustic yeoman dream was weakening, there was increased pressure for change from the growing urban population. Much of the pressure came from  a middle and upper-middle class who felt threatened by the concentration of ownership and political power in the hands of the industrial and financial oligarchies.

    The Homeownership Revolution

    As the nation moved from its agricultural roots, the yeoman class interest in property would find a new main expression in the form of homeownership. This would represent an opportunity both to escape the crowded city or, for the migrant from rural areas, live in a less dense urban environment. This drive was supported by both conservatives and New Dealers, who promulgated legislation that expanded homeownership to record levels. “A nation of homeowners,” Franklin Roosevelt believed, “of people who own a real share in their land, is unconquerable.”

    The great social uplift that occurred then, coming to full flower after the Second World War, saw a working class—not only in America but in Europe and parts of east Asia—now enjoying benefits before available only to the affluent classes.  In 1966, author and New Yorker reporter John Brooks observed in his The Great Leap: The Past Twenty-Five Years in America, that, “The middle class was enlarging itself and ever encroaching on the two extremes—the very rich and the very poor.” Indeed, in the middle decades of the 20th Century, the share of income held by the middle class expanded while that of the wealthiest actually fell.

    New Deal legislation—the Housing Act of 1934, creation of the Federal Housing Administration (FHA) and the Federal National Mortgage Association, or Fannie Mae—set the stage for the great housing boom of the 1950s. This was further augmented by the GI bill, which also provided low-interest loans to returning veterans.  The success of the private financial and construction interests who benefited from this boom, suggests author Eric John Abrahamson, was largely fostered by what he describes as a “planned” economy that consciously sought to expand ownership both during the New Deal and particularly in ensuing decades. Almost half of suburban housing, notes historian Alan Wolfe, depended on some form of federal financing. This egalitarian impulse was in part driven by people returning from WW II and Korea, many of whom benefited from the GI Bill.

    This resulted in an unprecedented dispersion of property ownership. This process was aided by a strong economy and the expansion of automobile ownership, which greatly expanded the yeomanry’s mobility. Increasing numbers of the middle class and even working class people become homeowners, sparking an enormous surge in home building. By 1953, the number of Americans owning their own homes climbed to twenty-five million, up from eighteen million in 1948. A country of renters was transformed into a nation of owners. Between 1940 and 1960 non-farm homeownership rose from 43 percent to over 58 percent. It was an accomplishment of historic proportions, notes historian Abrahamson, of “a transformed Jeffersonian vision.”

    New Class Conflict Over the form and Nature of Growth

    In recent decades, this vision of widening prosperity and property ownership has become increasingly threatened, as most evidenced by the housing bust of 2007-8. It also has come under increased attack from among the ranks of the clerisy. To be sure, many of those who bought homes in the last decade were not economically prepared, as some analysts suggest. But in the wake of the housing bust, the attack on homeownership expanded to include not only planners and pundits, but even parts of the investment community have seen in the yeomanry’s decline an opportunity to expand the base of renters for their own developments.

    The ideal of homeownership, particularly in the suburbs, have long raised the ire of many  academics and intellectuals in particular . Some have sought to de-emphasize increased wealth and seek instead to embrace what they consider a more moral, even spiritual standard. This movement, not so far from old feudal concepts, had its earliest modern expression in E.F. Schumacher’s 1973 influential Small is Beautiful and the writings of London School of Economics’ E.J. Mishan.

    Both writers rightly criticized the sometimes cruelly mechanistic nature of much technological change, but also revealed a dislike of the very kind of expansive growth that has lifted so many into the yeoman class after the Second World War, not only in America but in Europe and parts of East Asia. “The single minded pursuit for individual advancement, the search for material success,” Mishan wrote, “may be exacting a fearful toll on human happiness.”

    In the search for an alternative, both writers looked not forward, but backwards.  Schumacher described “the good qualities of an earlier civilization”, that is, the old rural English society identified not so much with progressivism, or socialism, but the old Tory class order.

    More recently, many advocates of slow, or no growth are finding inspiration in even less enlightened settings than old England. Some point to the small Himalayan kingdom of  Bhutan, the site of a 2014 pilgrimage by Oregon Gov. John Kitzhaber . This  “happiness”  poster child makes an odd exemplar for the 21st century. In contrast to the praise heaped on the tiny nation by Kitzhaber, one Asian development expert recently described the country  as ”still mired by extreme poverty, chronic unemployment and economic stupor that paints a glaring irony of the ‘happiness’  the government wants to portray.” In this “happiest place on earth” one in four lives in poverty, nearly forty percent of the population is illiterate and the infant mortality rate is five times higher than in the United States. It also has a nasty civil rights record of expelling its Nepalese minority of the country.  

    Bhutan, of course, is a pastoral country, but some urbanists also increasingly apply their “happiness” ideal to cities, particularly poorer ones. Canadian academic Charles Montgomery, for example, celebrates  what he sees as  high levels of happiness in the city slums of developing countries. Montgomery points to impoverished Bogota, for example,  as “a happy city” that shows the way to urban development. If we can’t do a Bhutanese village, maybe we  can be compelled to evacuate suburbia for the pleasures of life in some thing that more reflects life in a crowded favela.  

    Although this emphasis on happiness certainly has its virtues, and should be a consideration in how a society grows, lack of economic growth, and low levels of affluence, seems an unlikely way to make  people more content. Recent research, in fact, finds that, for the most part, wealthier countries are not only richer but happier than those assaulted by poverty. Indeed the happiest countries are not impoverished at all, according to the Earth Institute, but highly affluent countries led by Denmark, Norway, Switzerland, the Netherlands and Sweden; the lowest ranked countries were all very low-income countries in Africa.

    The argument against growth  has  gained currency with the rise of environmentalism, long focused, often with justification, on the negative impacts of economic expansion. This has engendered an understandable search for an alternative standard to measure societal well-being. Climate change campaigners such as The Guardian’s George Monbiot  than “a battle to redefine humanity” , essentially ending the era of “expanders” with that of “restrainers.” Some economists, particularly in Europe, have embraced the  notion of what they call “de-growth,” that is a planned, ratcheting down of mass material prosperity. 

    Winners and Losers in the ‘Happiness’ Game

    In any conflict over the preferred shape of society, there are winners and losers. The shift from a focus on growth to one on what is fashioned as sustainability has proven a boon both for the public sector, particularly those working in regulatory agencies and politicians who now have new ways to elicit contributors, and those parts of the private sector that work most closely with government. Other beneficiaries include connected investors, including many who benefit from “green” energy subsidies that, particularly when measured by their production of energy, are considerably higher than those secured over the past century by oil and gas interests.

    The downsizing of growth, naturally, also appeals to many who already enjoy wealth, such as Ted Turner, who then promote anti-growth policies through their foundations, and, as a bonus,  get to feel very good about themselves. Other winners include the media Clerisy, notably in Hollywood–who propagandize such views while living in unimaginable luxury—as well as academics. The successful and well-compensated producer and director James Cameron complains about “ too many people making money out of the system” and warns that growth must stop to save the planet.

    So who loses in the new anti-growth regime? Certainly these include large parts of the working class—farmworkers, lumberjacks, factory operatives, oil field workers and their families—who work in extractive industries most subject to regulatory constraints and higher energy prices. Particularly hard hit may well be young families who, perhaps forsaking the “slacker” life, now find their aspirations of a house and decent job blocked by the generally older, and better off, advocates for “happiness.”

    Wall Street and “Progressives” find Common Ground

    The rise neo-Feudalism, and the decline of the yeomanry is best understood as the consolidation of ownership in ever fewer hands. This process has been greeted with enthusiasm by financial hegemons, who have stepped in with billions to buy foreclosed homes and then rent them; in some states this has accounted for upwards of twenty percent of all new house purchases. Having undermined the housing market with their “innovations,” notably backing subprime and zero down loans, they now look to profit from the middle orders’ decline by getting them to pay the investment classes’ mortgages through rents.

    In the wake of the housing bust, and the longer than expected weak economy following the Great Recession, many financial analysts have insisted that we were headed towards a “rentership society” as homeownership rates plunged from historic highs in the three years following the crash. Part of this shift has been exacerbated by the movement of large investment groups like Blackstone to buy up single family houses for rent, representing a kind of neo-feudalist landscape, where landlords replace owner occupiers, perhaps for the long-run.

    The impact of the investor move into housing has had a negative effect on middle and working class potential buyers who find themselves frequently outbid by large equity firms.” There is the possibility that Wall Street and the banks and the affluent 1 percent stand to gain the most from this,” said Jack McCabe, a real estate consultant based in Deerfield Beach, Fla. “Meanwhile, lower-income Americans will lose their opportunity for the American Dream of building wealth through owning a home.”

    But, however convenient these developments may prove to investors on Wall Street, for society and the future of the democracy, the concentration of ownership in fewer hands is highly problematical. Rather than the yeoman with his own place, and the social commitment that comes with it, we could be creating a vast, non-property owning lower class permanently forced to tip its hat—and empty its wallet—for the benefit of his economic betters.

    One would expect that this diminution of the middle class would offend those on the left, which historically supported both the expansion of ownership and the creation of a better life for the middle class. Yet some progressives, going back to the period before the Second World War, have disliked the very idea of dispersed ownership; many intellectuals, notes Christopher Lasch, found  a society of “small proprietors” and owners “narrow, provincial and reactionary.”

    Increasingly, the media and many urbanists, who see a new generation of permanent renters as part of their dream of a denser America, also embrace this vision as being more environmentally benign than traditional suburban sprawl.

    The very idea of homeownership is widely ridiculed in the media as a bad investment and many journalists, both left and right, deride the investment in homes as misplaced, and suggest people invest their resources on Wall Street, which, of course, would be of great benefit to the plutocracy. One New York Times writer even suggested that people should buy housing like food, largely ignoring the societal benefits associated with homeownership on children and the stability communities.  Traditional American notion of independence, permanency and identity with neighborhood are given short shrift in this approach.

    This odd alliance between the Clerisy and Wall Street works directly against the interest of the middle and aspiring working class. After all, the house is the primary asset of the middle orders, who have far less in terms of stocks and other financial assets than the highly affluent. Having deemed high-density housing and renting superior, the confluence of Clerical ideals and Wall Street money has the effect on creating an ever greater, and perhaps long-lasting, gap between the investor class and the yeomanry.

    This piece originally appeared at The Daily Beast.

    Joel Kotkin is executive editor of NewGeography.com and Distinguished Presidential Fellow in Urban Futures at Chapman University, and a member of the editorial board of the Orange County Register. His newest book, The New Class Conflict is now available for pre-order at Amazon and Telos Press. He is author of The City: A Global History and The Next Hundred Million: America in 2050. His most recent study, The Rise of Postfamilialism, has been widely discussed and distributed internationally. He lives in Los Angeles, CA.

  • Democrats Risk Blue-collar Rebellion

    If California is to change course and again become a place of opportunity, the impetus is likely to come not from the perennially shrinking Republican Party but from working-class and middle-class Democrats.

    This group, long quiescent, has emerged most notably in opposition to the state’s anti-global warming cap-and-trade policies, which will force up energy prices. Recently, some 16 Democratic Assembly members, led by Fresno’s Henry Perea, asked the state to suspend the cap-and-trade program, which will add as much as a dollar to what already are among the highest gasoline prices in the nation.

    In some senses, this budding blue-collar rebellion exposes the essential contradiction between the party’s now-dominant gentry Left and its much larger and less well-off voting base. For the people who fund the party – public employee unions, Silicon Valley and Hollywood – higher energy prices are more than worth the advantages. Public unions get to administer the program and gain in power and employment while venture capitalists and firms, like Google, get to profit on mandated “green energy” schemes.

    What’s in it for Hollywood? Well, entertainment companies are shifting production elsewhere in response to subsidies offered by other states, localities and companies, so high energy costs and growing impoverishment across Southern California doesn’t figure to really hurt their businesses. Furthermore, by embracing “green” policies, the famously narcissistic Hollywood crowd also gets to feel good about themselves, a motivation not to be underestimated.

    This upside, however, does not cancel out hoary factors such as geography, race and class. One can expect lock-step support for any proposed shade of green from most coastal Democrats. Among lawmakers, the new Democratic dissenters don’t tend to come from Malibu or Portola Valley. They often represent heavily Latino areas of the Inland Empire and Central Valley, where people tend to have less money, longer drives to work and a harder time affording a decent home. Cap and trade’s impact on gasoline prices – which could approach an additional $2 a gallon by 2020 – is a very big deal in these regions.

    Many of these same people historically have worked in industries such as manufacturing and logistics, industries that rely on reasonable energy prices. Companies in these fields increasingly seek locations in lower-cost states, such as Washington, Oregon, Texas, Utah and Arizona, taking generally high-paying blue-collar jobs with them. It’s rare to find a manufacturer, for example, who would move to or expand in, California, outside of a handful of subsidized firms. Even ethnic-food companies are looking elsewhere, despite the fact that the raw materials and a large local market exist here.

    The dispute in California over cap and trade – where government limits businesses’ greenhouse gas emissions, and higher-emitting companies buy allowances to exceed their limits – may just be the harbinger of a wider conflict within the party nationally. In Washington, D.C., there is tension between East Coast and West Coast Democrats on one side and representatives from the Plains and the South on the other. Progressives shrug at the loss of these regions and the associated white working-class voters who, as the liberal website Daily Kos contended earlier this year, are just a bunch of racists, anyway.

    But, at least here in California, much of the working class is made up of minorities, who are increasingly the economic victims of the enlightened ones. One place to see this is in Richmond in Northern California, where a Green Party mayor and a similarly aligned planning department have tried to block the refurbishing of Chevron’s large refinery there, which is also the economic bulwark of the area.

    The dispute over the refinery suggests divisions that may become more commonplace. Essentially, you have on one side overwhelmingly white, often very-affluent greens, allied with powerful Democratic politicians, arrayed to obstruct the refinery. On the other side, you have minorities, many of them union members, whose livelihoods and high-paying jobs depend on the refinery.

    The incipient rift between such blue-collar workers and gentry Democrats is inevitable. The wealthy donors who dominate both local and national Democratic politics, like San Francisco hedge fund mogul Tom Steyer, may have made much of their fortunes in fossil fuels, as the New York Times, among others, have reported. But now, having embraced a stringent environmentalism, the gentry seek to impose their “green” agenda on the hoi polloi. If this hypocrisy isn’t disturbing enough, consider the increasingly top-down nature of environmentalist politics. In the past, conservationists focused on how to protect people from harm and preserve nature, in part, so people might enjoy it.

    Many of today’s progressives not only are determined to protect their privileges, but seek to limit the opportunities for pretty much everyone else. People like Steyer, for example, who is close to both the Obama White House and Senate Majority Leader Harry Reid, can enjoy their vast estates, while supporting policies that make it improbable for middle-class families to afford a home with a decent back yard.

    In many ways, their approach is reminiscent of the old British aristocracy, who combined a passion for preserving nature within their lands with a commitment to limiting its accessibility to the masses. People like billionaire venture capitalist Vinod Khosla are big on being green, but don’t want their less well-endowed neighbors to access the beach near their estates. It’s “Animal Farm” for the ecological age: Some animals, it seems, are more equal – and righteously green – than others.

    With virtual strangleholds on much of the media, academia and the punditry, the gentry and their allies may be able to limit coverage of this inherent conflict, but it will be difficult to suppress forever the essential contradictions between the gentry and everyone else.

    Democratic strategists hope that, by focusing on social issues – immigration, abortion and gay rights – they can keep the peasants in line. And to be sure, Republicans pushing nativism and social conservatism seem determined to distract Latinos, Asians, women and gays from focusing on the realities of an increasingly neofeudalist California. Political analyst Michael Lind contends this Democratic strategy may not succeed over time. For one thing, he notes, differences on many social issues are narrowing, in part, as more minorities, singles and gays move into suburban or exurban locales.

    As social issues become less heated, political divides figure to develop more along economic lines. This conflict may prove no easier to resolve than the GOP’s internal struggle between the Tea Party and corporatists. The Democratic divide will pit much of the party’s financial and media base, in Hollywood and Silicon Valley, against the interests and aspirations of middle- and working-class people who make up the vast majority of Democratic voters.

    For those who enjoy political combat, this schism guarantees more sharp divisions among the Democrats. More importantly, this conflict should generate greater debate about correcting our current course, which would be good news for the rest of us.

    This article first appeared in the Orange County Register.

    Joel Kotkin is executive editor of NewGeography.com and Distinguished Presidential Fellow in Urban Futures at Chapman University, and a member of the editorial board of the Orange County Register. He is author of The City: A Global History and The Next Hundred Million: America in 2050. His most recent study, The Rise of Postfamilialism, has been widely discussed and distributed internationally. He lives in Los Angeles, CA.

    Auto manufacturing photo by BigStockPhoto.com.

  • Germany Also Having Big Problems Building Infrastructure

    Der Spiegel had an interesting article recently called “Angry Germans: Big Projects Face Growing Resistance.” The article (linked version is English) talks about how it is increasingly difficult to get infrastructure projects built in Germany.

    Wherever ambitious construction ventures loom on the horizon in Germany — from the cities to the countryside, from the coastlines in the north to the Black Forest in the south — opponents are taking to the streets…. As the public’s enthusiasm for constant innovation has lessened, so has the appeal of these sorts of projects, and, as a result, they now inevitably come accompanied by picketers. Germany’s graying society, it seems, is so cozy and settled that it resists anything threatening to upset the status quo. In the process, it has lost sight of the bigger picture.

    There are a lot of key points in this article that immediately raised parallels to the United States, where infrastructure projects are also under increasing siege. In fact, some of this reminded me of elements of the Tea Party movement. The protestors are uninterested in compromise. They are devoted, full time activists who are unrelentingly opposed to the projects in question:

    [Hartmut] Binner’s form of protest has a radical undercurrent: Well-informed, confrontational and devoid of respect for authority, he is typical of the new grassroots activism spreading across Germany.
    ….
    Binner’s entire life revolves around the campaign. He monitors the routes of departing and landing planes. He plays his self-designed noise simulator on market squares. He kicks off his court appearances by singing the Bavarian national anthem. “If you want to be heard as a member of the public, you need to push the envelope,” he shrugs.
    …
    These days, he sees grassroots protests, activism and political responsibility from a different perspective. “The typical protesters are gray-haired, know-it-alls and very networked,” [Freiburg Mayor Dieter Salomon] says. “But they’re not remotely interested in consensus-building, political processes and pluralism.”
    …
    Grassroots groups have become so livid, intransigent and single-minded that even the most respected politician in the country, Angela Merkel, is feeling their sting. In early May, hundreds of furious residents had gathered in central Ingolstadt to protest against the construction of a power line from Bad Lauchstädt in Sachsen-Anhalt to Meitingen in Bavaria.

    This certainly reminds me of the no-compromises view of the Tea Party. Also, a number of early American Tea Party activists were unemployed, and thus able to basically be full time activists. Even the singing of national anthem has echoes of the Tea Party and their tricorn hats. I don’t want to claim there’s a philosophical or other link between the Tea Partiers and Germany, however.

    Not everything lines up with the Tea Party, however. In Germany it seems to be disproportionately retirees who are the most engaged and militant:

    Germany’s graying society, it seems, is so cozy and settled that it resists anything threatening to upset the status quo. In the process, it has lost sight of the bigger picture.
    …
    Many of the protestors are pensioners with no vested interest in Germany’s future. “It’s striking that the leader of the protests against the Munich runway is a 75-year-old and not someone in the middle of his working life,” [Munich Airport CEO Michael Kerkloh] points out.
    …
    Salomon’s nemesis is Gerlinde Schrempp, a determined and argumentative 67-year-old retired teacher with attitude to spare. She’s the leader of the Freiburg Lebenswert movement, which translates roughly to “make Freiburg worth living in. The movement just got elected on to the district council and is first and foremost opposed to any new building in the city.

    There’s a stereotype out there of the average Republican voter as an old white guy. But the average Tea Party activist I’ve seen tends to be working age. I look at this one a bit differently. We need to see these types of controversies against the substrate of an aging population. Aging populations are not noted for dynamism, and older people’s self-interest is better served by starving investment for the future in order to save money and avoid uncomfortable change in the present. As a country whose population is projected to decline into the future thanks to this demographic inversion, we are seeing in Germany what’s likely a preview of coming attractions elsewhere around the world.

    Indeed, I’m reminded of what one analyst friend of mine in Indiana has said about the property tax caps there. He sees the push to cap property taxes as driven by an aging population in a stagnant state. Old people generally aren’t earning a lot of taxable income nor are they buying huge amounts of stuff, so they are disproportionately less affected by income and sales tax hikes, whereas they often own homes and are hit hard by property taxes. Thus property tax caps serve as another income transfer mechanism from young to old, holding revenue constant. They are in part an artifact of an aging society. Disinvestment in infrastructure can be seen in the same light.

    But there’s another part of this that shines a light on yet another group of opponents, namely the intelligentsia.

    The term “Wutbürger” (“enraged citizen”) was coined during the Stuttgart 21 fiasco to describe people like Hartmut Binner, and much has been written about them since. They often aren’t the “common man.” According to the Göttingen Institute for Democracy Studies, they tend to be highly educated people with steady incomes and white collar jobs. And while protests movements of the past were often steered by sociologists, today their leaders are more likely to stem from the technical professions, the researchers found.

    When we look at opposition to infrastructure in the United States, at least certain types of infrastructure, we see a similar profile of people (though not necessarily technical) behind it. It’s the leftist intelligentsia that oppose the Keystone Pipeline, suburban highway projects, fracking, and many other types of things, often with a militant unwillingness to compromise similar to the Tea Party.

    As with Germany, this opposition is enabled by environmental reviews and public participation laws that, while they serve important public purposes, make it easy to delay projects for years through repeated objections and scorched earth litigation. Traditionally environmental lawsuits were associated with the left, but conservatives have started saying, why not us too? Hence litigation against San Francisco’s regional plan. The Hollywood densification plan was recently overturned by lawsuits, and lawsuits have plagued California’s proposed high speed rail line as well.

    Whatever the project, it’s sure that somebody on the left and/or the right hates it, and thus will do everything in their power to kill it, which probably means years of delays and untold millions in increased costs.

    Also as with the United States, German governments have shot themselves in the foot with a series of financial debacles:

    Political and bureaucratic bodies are partly to blame for their own diminished authority. Every major venture seems to entail spiraling costs. Berlin’s new airport was supposed to cost €1.7 billion, a price tag that has shot up to well over €5 billion. Meanwhile, the €187 million earmarked for the Elbphilharmonie concert hall under construction in Hamburg is expected to exceed €865 million by the time the project is completed. Albig is well aware how bad this looks. “People see us as financially incompetent,” he says.

    Until politicians can convince the public they have a handle on this, the taxpayer will remain rightly skeptical of many major megaprojects. This is doubly true since it’s very clear, as has been documented by folks like Oxford professor Bent Flyvbjerg, that in many of these cases the politicians were simply lying all along about the real costs.

    I’m not sure what all the takeaways are, but there are clearly many forces operating on a global basis to inhibit the development of infrastructure in the West.

    Aaron M. Renn is an independent writer on urban affairs and the founder of Telestrian, a data analysis and mapping tool. He writes at The Urbanophile, where this piece originally appeared.

    “MittlererSchlossgartenKundgebung 2010-10-01” by Mussklprozz – Own work. Licensed under CC BY-SA 3.0 via Wikimedia Commons.

  • America Down But Not Out

    America, seen either from here or from abroad, doesn’t look so good these days. The country that maintained world peace for decades now “leads by behind,” or not at all. You don’t have to have nostalgia for George W. Bush’s foreign policy to wish for someone in the White House who at least belongs in the same room with the likes of Vladimir Putin. Some wags now suggest that President Barack Obama has exceeded Jimmy Carter in foreign policy incompetence – Carter certainly was more effective in the Middle East.

    What about space? Remember, we won the space race but now have to depend on Russian launch vehicles to do much of anything in orbit. President Obama thought we could rely on the Russians to provide us with cheap rides into orbit, but Putin squashed that notion after we objected to his actions in Ukraine. John Kennedy must be turning over in his grave.

    And as for our domestic economy, the best you can say is “It could be worse,” particularly if you look at what’s happening in torpid Europe. It’s a sign of our utter lack of confidence that the current administration, and much of the punditry, still thinks we should follow the Continent’s economic and social policies.

    Yet, despite all these challenges – and two presidencies the public ranks among the worst in history – it’s far too early to write off the United States. After all, no one else is doing very well. Even the widely touted BRICS countries – Brazil, Russia, India, China and South Africa – face slowing growth and mounting social problems.

    There are several factors that help explain why the USA’s long-term prospects are better than many Americans may assume.

    Entrepreneurial edge

    The essential strength of the U.S. economy has rested on having two things that rarely occur together – an innovative culture combined with massive natural resources. Whole industries, notably technology, years ago thought to be lost to Japanese and other Asian competitors, have recentralized in the United States. In 1990, six of the world’s top 10 semiconductor companies were Japanese; by 2011, five U.S. chip companies dominated the top 10, which included only two Japanese companies, Toshiba and Renesas. And their combined revenue in 2012 was less than half that of world leader Intel’s $49.7 billion.

    As of now, there’s not a key technology sector where the U.S. is not in the lead. We dominate social media, software and biotechnology. In fact, about the biggest technical threat we face is from the administration’s bizarre desire to surrender control of the Internet to foreign countries, many of whom, the president may acknowledge, do not share our values or relish our current predominance. Over time, to be sure, there will be challengers, notably China, South Korea and India, but none are likely to gain predominance in the near future. The same can be said in media; Hollywood still reigns supreme and U.S. dominance in fashion, lifestyle and music remains mostly in place.

    The advantage of size

    Other important countries are geographically large, but none – apart from Australia or Canada – is particularly rich. Russia is an oil plutocracy but beyond energy and weapons doesn’t export much else. China has a large land mass, but less resources, and its ability to feed itself will be increasingly constrained by pollution and diminishing water supplies. The country, by some estimates, has lost 28,000 rivers.

    In contrast, America has a huge agricultural base, spread across a vast continent. If California goes dry for a spell, for instance, there’s lots of water and fertile soil in the northern Plains, the Southeast, the Midwest and parts of the Northwest. Size is a form of arbitrage that allows production to move from one place to another. Others are investing heavily in farm land and other real estate, evidence not of American decline, but, instead, of the patterns of investment that led to the country’s great expansion in the 19th century.

    The energy revolution

    The United States could be on the cusp of another period of broad-based industrial expansion, spurred, in part, by its rapidly growing natural gas and oil production. The current energy and industrial boom, notes Joe Kaeser, president of the German multinational conglomerate Siemens, “is a once-in-a-lifetime moment.” Cheap and abundant natural gas is luring investment from manufacturers in Europe and Asia, who now must depend on often-insecure and more expensive sources of energy.

    The energy revolution has helped spark an industrial boom. There is already a shortfall, notes a recent Boston Consulting Group study, of some 100,000 skilled manufacturing positions in the U.S. By 2020, according to BCG and the government’s Bureau of Labor Statistics, the nation could face a shortfall of around 875,000 machinists, welders, industrial-machinery operators and other highly skilled manufacturing professionals.

    New capitalist revolution needed

    America’s capacity for perpetual renewal – what one Japanese scholar Fuji Kamiya calledsokojikara, a latent power to overcome seemingly insurmountable obstacles – persists but is limited by our political leadership in both parties as well as misguided economic policies. We need to alter contemporary capitalism’s tendency to favor and encourage transactions among investors and asset inflation, rather than fostering broad-based growth that rewards people adequately for their labor.

    Fortunately, the capitalist system, particularly one under democratic control, allows for the possibility of reform, as occurred in 19th century Britain and early 20th century America. What is needed now is structural reform that can shift priorities away from rent-seeking and towards true wealth creation.

    One clear priority is to reduce “financialization” of the economy. Over the past three decades, financial-services firms have doubled their share of the economy. The Obama recovery, with its bailouts of large banks and free-money policies for investors, has accelerated this trend, as companies have tended to be slow to reinvest profits in new products and innovations, preferring, instead, to engage in mergers or stock buybacks that raise share prices and reward investors, but do little for the overall economy.

    In contrast, financial institutions often regard productive industries – notably manufacturing – as hampering short-term financial gains. This has repeatedly pushed companies to strip their industrial assets, typically moving them overseas.

    Reforming capitalism toward a broader and more inclusive focus may not appeal to some – Wall Street investors, speculators in high-end real estate and tech oligarchs – who have done just fine the past five years. But, when asked what mattered more to them, most Americans preferred economic growth to redistribution, noted a 2014 studyconducted by the Global Strategy group, a Democratic consulting firm.

    Polls of popular opinion in the United States and the United Kingdom find key ecological concerns, such as climate change, well down the list, behind such issues as the economy, immigration, crime, unemployment and even the state of morality. What Americans want most, notes political commentator Mike Barone, is “an economic boom.”

    Such a broad-based economic boom is necessary if we are to restore America’s promise for this generation and, more importantly, the next. The country still has all the requisite advantages to lead in the next century and restore the middle class – if only the political leaders either rise to the occasion, or get thrown out.

    This article first appeared in the Orange County Register.

    Joel Kotkin is executive editor of NewGeography.com and Distinguished Presidential Fellow in Urban Futures at Chapman University, and a member of the editorial board of the Orange County Register. He is author of The City: A Global History and The Next Hundred Million: America in 2050. His most recent study, The Rise of Postfamilialism, has been widely discussed and distributed internationally. He lives in Los Angeles, CA.

    USA map image by BigStockPhoto.

  • Growth, Not Redistribution the Cure for Income Inequality

    Ever since the publication this spring of Thomas Piketty’s book “Capital in the 21st Century,” conservatives and much of the business press, such as the Financial Times, have been on a jihad to discredit the author and his findings about increased income inequality in Western societies. Some have even equated growing attacks on inequality with anti-Semitism, with at least one Silicon Valley venture capitalist, Tom Perkins, comparing anti-inequality campaigners to Nazis.

    For their part, progressives have taken to embracing the book like acolytes who have found a new gospel for their talking points. Paul Krugman predictably describes the bookas “the most important economics book of the year – and, maybe, the decade.”

    Piketty’s book is neither the Sermon on the Mount nor the “Communist Manifesto.” Its findings are, to be sure, far from conclusive, and may well have omitted some relevant points. The French economist’s solutions, as we will discuss, are also wanting. But conservatives, and business interests, should not see these shortcomings as a “get out of jail free” card on the pressing issues of class, inequality and reduced upward mobility.

    Conservatives, Businesses Need to Wake Up

    There are numerous measurements of reduced upward mobility from many other sources, notably the Federal Reserve, which are based on different data sets. Virtually all the conclusions are stark: The middle-class share of the economy is dropping as the vast majority of new dollars flow into the hands of a relative few.

    During the recovery from the Great Recession, income among the three middle quintilesdropped by 1.2 percent, while those of the top 5 percent of incomes grew by over 5 percent. This represents the acceleration of a long-term trend. Overall, the middle 60 percent of Americans have seen their share of the national pie fall from 53 percent in 1970 to barely 45 percent in 2012.

    More important, still, may be perceptions. Conservative economists can scoff at Piketty’s findings, but more and more Americans are alienated from the current economic system. For many, according to a 2013 Bloomberg poll, the American Dream seems increasingly out of reach. This opinion prevails by a 2-1 margin among Americans, rising to 3-1 among those making under $50,000 a year, but also is held by a majority earning over $100,000.

    At the same time, Americans, by more than 2-1, believe they enjoy fewer economic opportunities than did their parents and feel they will experience far less job security and disposable income. They also see growing ties between powerful business interests and government, with the vast majority feeling that government contracts go to the well-connected. Less than one-third believe the country operates under a free-market system.

    For business and for free-market conservatives these attitudes have consequences.Nearly 60 percent of the public, notes Gallup, favor some steps to increase the redistribution of wealth, almost twice as many who felt the current system was “fair.” Sentiments in this direction are even stronger among millennials, with some surveys suggesting that the majority are even sympathetic to socialism. Business needs to learn this lesson: Capitalism can only be sustained if it achieves a semblance of social democratic aims; without this, the system loses credibility and is seen as more oppressive than liberating.

    Good news for Democrats

    All this could be considered good news for Democrats, particularly the party’s left wing, which has gained growing sway over the party, particularly in urban areas. But there’s this problem with the Obama record: Rather than a shift to a more broad distribution of income, some 95 percent of the income gains during President Obama’s first term went to barely 1 percent of the population while incomes declined for the lower 93 percent of earners. As one writer at the left-leaning Huffington Post put it, “The rising tide has lifted fewer boats during the Obama years – and the ones it’s lifted have been mostly yachts.”

    Leftist reaction to this failure has been building in recent years, not only during the Occupy movement, but in the increasingly open criticism of the Obama approach by populist – as opposed to gentry – liberals. Progressives, such as Massachusetts U.S. Sen. Elizabeth Warren, have made it clear that, on this issue, at least, the administration has had few, if any, answers.

    Searching for Solutions

    This leads us into what could be “terra incognita.” Over the past several decades, we have seen two basic approaches to economic policy. One approach can be called “trickle down,” with tax cuts designed particularly to provide incentives for investors.

    Obama has tried a different approach, imposing higher taxes on upper-income professionals and small-business owners (while not touching the lower capital-gains rate for the very rich) as well as a regulatory regime particularly tough on firms without a strong lobbying presence.

    The failure of the Obama approach convinces some of the Left that the solution lies with the expanded “social state” advocated by their new guru, Piketty, steps which, they hope, will forcibly redistribute wealth. Like Piketty, they seem to feel that economic growth, traditionally a prime source of social uplift, is little more than an “illusory” solution.

    In reality, redistribution by the state would certainly help some, notably lower-income workers, but it’s doubtful it would improve material conditions for much of the middle class or the poor. Such a state is unlikely to increase upward mobility. The 50-year “war on poverty” in the United States, for example, initially helped reduce the percentage of the poor, but has achieved few gains since the 1960s.

    Despite $750 billion spent annually on welfare programs, up 30 percent since 2008, a record 46 million Americans were in poverty in 2012. Indeed, racial and ethnic economic disparities have grown under Obama.

    In much the same way, the European welfare state – held up as an exemplar by many progressives – has fallen on hard times, attracting the lowest levels of political support in several decades. Certainly, it holds little hope for young people, whose interests wane before a government increasingly focused on the growing ranks of pensioners. Overall unemployment rates in Europe are generally higher than in the U.S., and particularly for the young, where joblessness reaches 20 percent and higher in some countries. Indeed, much of the continent’s youth are widely described as “the lost generation.”

    Pervasive inequality and limited social mobility have been well-documented in larger European countries, including France, which has among the world’s most-evolved welfare states. The same is true in Scandinavia, often held up as the ultimate exemplar of egalitarianism. The Nordic countries have much to recommend them, but they, too, face rapidly growing inequality. Indeed, over the past 15 years, the gap between the wealthy and other classes has increased in Sweden four times more rapidly than in the United States.

    Ultimately, expanding welfare states, which can ameliorate class inequality, also depress economies and create the conditions for social stagnation. Indeed, as New Deal architect Franklin Roosevelt warned, a system of unearned payments, no matter how well-intended, can serve as “a narcotic, a subtle destroyer of the human spirit” by reducing people’s incentives to better their lives.

    In contrast, significant gains in poverty reduction, among those employed, at least, have come when both the economy and the job market expand, as occurred during both the Reagan and Clinton eras. Clearly, as both of these presidents recognized, the best antidote to poverty remains a robust job market. As Mike Barone has pointed out, the best economic results for the middle class have come under either free-market leaders like Reagan or Margaret Thatcher, or moderate liberals, like Clinton or Tony Blair.

    What we need, then, is a new focus on economic growth, accompanied by tax changes that both allow marginal rates to fall while equalizing capital gains with income taxes. This would lower the increasingly onerous burden on small businesses and middle-class families, and spark more grass-roots “up from the bottom” growth. It would also shift the economic paradigm away from speculative investment and toward rewarding work and enterprise. Critically, it could slow, perhaps reverse, the precipitous drop in labor force participation rates, particularly among young Americans, a harbinger of Europeanization in the worst sense.

    We should neither dismiss the issue of inequality, as many conservatives might wish to, or take the wrong steps to address it. Americans need to have a serious debate on how to confront the most important issue of our times – the growing class divide – with not just ceaseless rhetoric from the political class that, for the most part, to recall Shakespeare’s “MacBeth,” “is full of sound and fury, signifying nothing.”

    This article first appeared in the Orange County Register.

    Joel Kotkin is executive editor of NewGeography.com and Distinguished Presidential Fellow in Urban Futures at Chapman University, and a member of the editorial board of the Orange County Register. He is author of The City: A Global History and The Next Hundred Million: America in 2050. His most recent study, The Rise of Postfamilialism, has been widely discussed and distributed internationally. He lives in Los Angeles, CA.

  • Michael Lind’s New Paradigm and the “End” of Social Conservatism

    Michael Lind has released a new essay titled “The Coming Realignment” in The Breakthrough Journal, one of the most innovative magazines around today. He predicts that social conservatism as we know it will fade away, but that does not mean we will have political consensus; only that the terms of engagement may change.

    Lind suggests will be two camps, one he calls “liberaltarian” based in the denser urban areas that he calls “Densitaria”; the other, “populiberalism,” will flourish in more  loosely settled suburban areas he calls “Posturbia.” He contends that Densitaria will be primarily occupied by wealthy urbanites and their poor, often immigrant servants, while Posturbia, being dominated by the single family home, will occupy the middle ground. It may not be accessible to the poorest, and not very desirable to the richest; but it will be, however, racially diverse. In many regions  already, suburbs are now more diverse than core cities.

    Neither of these cultures will be hostile to the welfare state, but they will have different preferences about what to expect from it. Densitaria will support the means tested welfare programs that have been called “welfare” in American political discourse, but it will want to control their costs, and will want to put restrictions on things that damage the health of potential welfare clients, like smoking and getting fat.  The Posturbians will favor the type of welfare that comes out of the New Deal, which in American political discourse has not been called “welfare”; non-means tested programs like Social Security and Medicare and other forms of social insurance, public libraries and schools, and other government programs available to all and not just the “poor.” The Republican Party could actually become representative of either camp, depending on how things go.

    The Republican Party, as of 2014, could have become the representative of either camp, according to Lind. But with the appearance and rise of President Trump, that decision has now been made!

    I would add that polls of Millennials seem to indicate that opposition to abortion and euthanasia continue to resonate with them, even as other forms of social conservatism, such as opposition to same sex marriage at civil law, fade. Pro-lifers will no longer be able to consider sexual abstinence as the only solution to unwanted pregnancy; they will tolerate contraception, especially Long Acting Reversible Contraceptives, or LARCs. I hope that pro-lifers will not automatically hook up with one of the two camps but will operate in both. But since Densitarians are so concerned with controlling the costs of welfare, Densitarians may be reluctant to accept restrictions on abortion and euthanasia.

    Lind says “the property-owning majorities of Posturbia are likely to be more sensitive to restrictions on what property owners can do with their property” than Densitarians, who will mostly rent or live in condos anyhow, and largely live off Finance, Insurance, and Real Estate industries. I am not so sure. In most of Posturbia, as opposed to small towns or rural areas, “property values” are set not by what you can do with your property, but from what surrounds it; and because of this, and because of not wanting to be densified, the Posturbians will probably favor stringent regulations on the use of their neighbors’ property. Also, they will not be abandoning the automobile, but they will want restrictions on the use of land to keep too many other cars from crowding the roads that they use.

    But not everything about the Posturbians will be restrictive. They are expected to be a lot more open to fracking and to other things that will enable them to have the affordable energy supplies that they need. I think the class divisions in Posturbia will be a little greater than Lind thinks; the 1% will probably not be there, but fair numbers of the top 20% will be there, and if not the poorest of the poor, fair numbers of the bottom 40%. I personally believe that class hatred in America is not between the poorest and the richest – class resentment tends to be directed mainly at the classes (or income brackets, often misunderstood by Americans to be classes) just above and below one’s own. The desire to “soak the rich”, except among the near-rich, arises not from resentment but from fantasy, the belief that “the rich” have enough resources to bear most of the burden of society without raising taxes on the rest. They do not, although I admit they have more than they used to.

    I’m not sure where I would end up in such an alignment. My preference will be swayed most by which alternative is better for the poor and for the marginalized among us.

    Howard Ahmanson of Fieldstead and Company, a private management firm, has been interested in these issues for many years.

  • There Will Be No Real Recovery Without The Middle Class

    What if they gave a recovery, and the middle class were never invited? Well, that’s an experiment we are running now, and, even with the recent strengthening of the jobs market, it’s not looking very good.

    Over the last five years, Wall Street and the investor class have been on a bull run, but the economy has been, at best, torpid for the vast majority of the population. Despite blather about our “democratic capitalism,” stock ownership is increasingly concentrated with the wealthy as the middle class retrenches. The big returns that hedge funds, real estate trusts or venture capitalist receive are simply outside the reach of the vast majority.

    A recent study by the Russell Sage Foundation suggests these patterns of inequality, which have been developing over the last several decades, have become more pronounced in the post-Recession years. In 2013 the wealth of those at the 90th and 95thpercentiles was actually higher than 10 years ago. Everyone else is lower.

    The labor market may be strengthening, with the unemployment rate falling to 6.1% last month, but too many of the new jobs are low wage or part time. They aren’t providing the kick the economy got in the last, more broad-based expansion from robust consumer spending.

    Wage growth has been weak, rising 2.5% annually since 2009, according to Bloomberg, compared with a 4.3% annual rise from 2001 to 2007. Consumer spending, which makes up roughly 70% of the economy, has expanded an average 2.2% since the recession ended, behind the 3% advance in the prior expansion.

    And many working-age people are still sitting discouraged on the sidelines – the labor force participation rate remains the lowest since 1979.

    People in marginal or part-time jobs are not likely to drive consumer spending. Instead we have seen the emergence of a new, top-heavy consumer market. Since 1992 the top 5% of households have increased their share of total spending to almost 40%, up from 27% in 1992.

    Former Citigroup economist Anjay Kapur has described this situation as a “plutonomy,” in which the economy is increasingly based on the global wealthy and their tastes and predilections.

    Meanwhile broader consumer confidence remains weak. Last year some two-thirds of Americans polled by the Washington Post and the Miller Center said they felt life had become tougher over the last five years compared to just 7% who thought theirs had improved. Pollsters also have found almost two-thirds of parents felt their children would do worse in life, a stunning shift from far more optimistic readings back in 1999.

    The Housing Market

    Historically housing has been the primary asset held by the middle and working class. Despite government efforts to keep mortgages affordable, post-crash, growth has been slow, and much of the buying restricted to investors, including major financial interests. Particularly damaging, there has been a marked decline in the “trade up market” and even more so, sales to first-time buyers, whose share of the market has declined to under 30%, well below the historic average of 40%. This reflects the weak economy, tighter lending standards, and, for younger customers, the heavy burden of student loans.

    Some on Wall Street hope to profit from a perceived shift in America to a “rentership society.” Housing more of the population in rental apartments would do little to improve social mobility, as people end up working not for their own equity but to pay the mortgage of their landlords. Nor can the economic payoff from apartment construction come close to that of single-family homes. According to the National Association of Home Builders, building 100 new single-family homes adds 324 jobs to the average metropolitan economy in the year of their construction and 53 jobs annually in the following years. This compares to 122 jobs per 100 new apartments in the year of construction and 32 in the following years. With home starts at less than a third their 2005 level, lack of construction employment also deals a body blow to one of the primary sources of higher-paying blue collar jobs.

    The Emasculation Of Small Business

    In previous recoveries, small businesses have provided much of the spark and job creation. Not so this time. Small business start-ups have declined as a portion of all business growth from 50% in the early 1980s to 35% in 2010, while its share of employment dropped down from 20% to 12%. Indeed, a 2014 Brookings report revealed that small business “dynamism,” measured by the growth of new firms compared with the closing of older ones, has declined significantly over the past decade, with more firms closing than starting for the first time in a quarter century.

    Nor is the future prognosis too good. The rise of the regulatory state, including the Affordable Care Act and higher taxes, amplified in deep blue states such as California, has hit smaller businesses hard. The gradual culling of smaller banks, traditional lenders to entrepreneurs, and the growing concentration of assets in the “too big to fail” banks, historically unfocused on the needs of small companies or individual proprietors, suggests credit may remain tough for grassroots entrepreneurs.

    Needed: A New Paradigm

    The recession and the weak recovery have taught us you cannot have strong economic growth without the participation of the vast majority of Americans. We’ve run an experiment under Bernanke, Bush and Obama to pump up the economy from above, and what we’ve done is squash the aspirations of those middle orders, particularly small business and the self-employed.

    This issue should be at the center of the political debate.  I would welcome suggestions from the right and left about how best to restart a broad-based economic recovery. The best ideas may come from across the spectrum, such as flatter taxes, supported by many conservatives, as well as new spending on major infrastructure projects as improved roads, rivers and ports that generally come from more liberal groups.

    The good news is the fundamentals for a broader-based prosperity, including the creation of high-paying blue-collar jobs, remain in place. Progress is already evident in the energy and some manufacturing-oriented regions. Restarting the housing sector — particularly the single-family home component — would do wonders for middle and working class people in many regional economies, as can be seen, for example, in Houston, where more homes will be built this year than in the entire state of California. Nationwide, the gap between  between demand and potential housing, according to the NAB, is roughly 1 million homes, which translates into close to 3 million jobs.

    How to drive growth to these and other productive sectors may require not only changes in government policy but also reacquainting the investor class with the virtues of long-term growth, productivity and the revival of the mass economy. Perhaps once they do investors might earn something other than intense dislike from the rest of the population.

    This story originally appeared at Forbes.

    Joel Kotkin is executive editor of NewGeography.com and Distinguished Presidential Fellow in Urban Futures at Chapman University, and a member of the editorial board of the Orange County Register. He is author of The City: A Global History and The Next Hundred Million: America in 2050. His most recent study, The Rise of Postfamilialism, has been widely discussed and distributed internationally. He lives in Los Angeles, CA.

  • One-party Rule is No Party in California

    Forty years ago, Mexico was a one-party dictatorship under the Partido Revolucionario Institucional, hobbled by slow growth, soaring inequality, endemic corruption and dead politics. California, in contrast, was considered a model American state, with a highly regarded Legislature, relatively clean politics, a competitive political process and a soaring economy.

    Today these roles are somewhat reversed, and not in a good way for the Golden State. To be sure, corruption remains endemic in Mexico, where the PRI ruled for some seven decades. But now, there is a vibrant, highly competitive political culture, with three strong parties and at least some movement toward economic reform. Thirty percent of Mexicans, according to Gallup, trust their federal government, a level not all that different than in the United States.

    But if Mexico’s governance can be seen as at least gradually improving, it’s more difficult to reach that conclusion about the Golden State. California is now a one-party state, with increased corruption and little to no willingness to reform its creaky, scarily unbalanced economy. Californians, by a large margin, think things are getting worse, rather than getting better.

    We can call this trend PRI-ization, and nowhere is it more evident than in our state’s increasingly torpid politics. As there is no real competition for power or for ideas, voter turnout, at both the local and state levels, has plummeted to the lowest levels on record. June’s primaries attracted barely 25 percent of the electorate, while the Los Angeles County turnout was just over 17 percent.

    When I voted this month in my San Fernando Valley precinct, I brought my 9-year-old daughter, but she didn’t get to see democracy in action. She saw an empty church basement with a bunch of pleasant election workers sitting around with not much to do.

    This lack of voter enthusiasm could be explained, in part, by a lack of competition between the parties statewide. But it goes deeper than that; even the nominally nonpartisan recent Los Angeles mayor’s race, while highly competitive, also broke modern records for low turnout.

    Monopolistic mess

    Let’s be frank. California’s democracy is fading, the result of one-party politics, a weak media culture and a sense among many that politicians in Sacramento (or city hall) will do whatever they please once in office. As under the old PRI in Mexico, a lack of competitive politics has also bred the kind of endemic corruption with which California, in recent decades, was not widely associated.

    The case of state Sen. Leland Yee, the Bay Area crusading liberal now accused of being a wannabe gun-runner, was just the most extreme example. If Yee is convicted and sent to jail, he might be joined by two Senate colleagues, one convicted of voter fraud and the other of bribery. The scandals have damaged the Legislature’s approval ratings.

    Republicans and conservatives tend to blame such embarrassments on Democrats, just as the long out-of-power outsiders linked Mexico’s corruption to the PRI monopoly. But, in many ways, it reflects the dynamic, also seen in Republican-dominated states, such asMississippi, or in Vladimir Putin’s Russia, of those who see no threat to their monopoly taking license to steal or otherwise abuse the law.

    Arguably more disturbing than petty corruption is the inability of our politicos, as during the PRI’s heyday, to confront serious challenges facing the state. Low voter turnouts basically mean politicians don’t have to answer to middle-class or working-class voters; instead, they listen mostly to outside special interests such as public employee unions, environmentalists and social-issue lobbies. Union members have an incentive to show up at the polls to protect their pay and pensions, and issue activists will vote for those who support their line. It just seems that the rest of us have given up.

    Perhaps the biggest shift in California’s balance of power is in the diminished role of business. In the days when California produced contending political giants – like the late Govs. Edmund G. “Pat” Brown and Ronald Reagan – businesses lined up on both sides of the aisle, albeit more on the Republican side – but there also was a strong contingent of “business” Democrats.

    Today, California business operates solely for the purposes of accommodating the economic agenda of an increasingly left-oriented Democratic Party; supporting an opposing party – or even more moderate Democrats – increasingly is no longer an option to influence policy.

    Mainstream doesn’t matter

    Indeed, one of the negative products of one-party politics has been an ever greater shift away from the political mainstream. With turnouts tiny and business largely gelded, the “base” of the ruling party tends to get its way. So, California gets to try being the greenest state in the land, even as much of the state lives in a virtual permanent recession. In the process, politics becomes ever more marginal, and ever less responsive to what is happening to the citizenry.

    We see much the same on the local level. Los Angeles, even much of its establishment admits, is becoming a “city in decline,” with the highest job losses, some 3.2 percent, of any of the 32 largest U.S. metro areas since 1990. But L.A. city and county leaders have little stomach for the reforms that would be necessary to turn the region around, in large part because it might offend their public employee paymasters. Fixing the potholes mightplease neighborhood residents, but since they mostly don’t vote, who cares?

    So instead of a tough problem solver, we have a mayor who likes to take “selfies” to show how “with it” he is, and a City Council that thinks ultraexpensive solar energy projectsand subsidizing Downtown hotels will actually turn around a torpid municipal economy. But such largesse will reward the special interests who build these systems, the unionized workers at the new hotels and speculators in Downtown real estate.

    None of this will do anything to help the Valley, East L.A., Watts or even the Westside.

    Chances for rebound?

    Sadly, it’s hard to see how this trend will turn around soon. Tax and regulatory policies are making the state toxic for many businesses and middle-class families. The number of poor, state-dependent voters grows, and business, outside of a few sectors, is stagnant or in decline. In the glory days of California politics, Democrats and Republicans vied for suburban middle-class voters; now, they don’t have to bother.

    This is all made worse by the descent of the Republicans into near irrelevancy. The GOP barely escaped nominating for governor a nativist, Tim Donnelly, who accused his Hindu opponent Neel Kashkari of wanting to import Shariah law. It might have occurred to Donnelly that Hinduism is very different from – and often in serious conflict with – Islamic fundamentalism.

    Until the Republicans develop some basic sense and offer a compelling social and economic message for an increasingly diverse state, they will remain bit players.

    Oddly, unless this trajectory is reversed, we may look back at this time and wax nostalgic about the Jerry Brown years; Brown may be a bit over-the-top on some issues, such as his dodgy high-speed rail plan, but at least he’s not mindlessly ideological.

    Just wait four years, when a full-bore true believer, the glamorous Attorney General Kamala Harris, could well become governor and tries to remake this amazing, diverse state into a more impoverished version of California’s real political capital, San Francisco. If business finds getting along with the somewhat mercurial Brown to be, literally, taxing, they will find the more pure-left regime that may follow him a far more onerous task.

    Ultimately, the only hope may come when the grand delusions of our political elites – financed by the social media bubble, the stock market and high-end real estate speculation – finally come crashing down. When there is no one left to tax, and no way to borrow more, and the shift elsewhere of high-wage employment too obvious, perhaps then middle-class and working-class Californians will demand alternatives to the status quo. At that point they might even find reasons to go to the polls again.

    This article first appeared in the Orange County Register.

    Joel Kotkin is executive editor of NewGeography.com and Distinguished Presidential Fellow in Urban Futures at Chapman University, and a member of the editorial board of the Orange County Register. He is author of The City: A Global History and The Next Hundred Million: America in 2050. His most recent study, The Rise of Postfamilialism, has been widely discussed and distributed internationally. He lives in Los Angeles, CA.

    Photo: Troy Holden

  • Energy Preferences to Play Big Role in November

    The November election will be played out along all the usual social memes – from gay marriage, racism and immigration to the “war against women.” But what may determine the outcome revolves around one key economic issue: energy. This has all come to a boil now as President Obama has backed an Environmental Protection Agency effort to accelerate tougher emissions standards, something that could shutter hundreds of coal-fired power plants and slow fossil fuel development across the country.

    The energy issue has become in our era what tariffs were in the 19th century: an increasingly insurmountable partition that separates Americans by region and class and which, ultimately, touches on the long-term economic trajectory of the country.

    Of course, we have always had politics over energy – given regional variations in sources and kinds of supplies – but, until recently, both parties generally favored developing more oil and natural gas, largely because of the associated high-wage employment growth and potential for reducing the nation’s trade deficit. Now, energy increasingly has become a deeply partisan issue, with Democrats largely in opposition to fossil-fuel development and Republicans, fairly predictably, in support.

    Reflecting this trend has been the rise of opposing sets of contributors whose primary concerns are wrapped around energy. On the Republican side, energy industry contributors, including the billionaire industrialist Koch brothers, have become increasingly dominant. More than 90 percent of campaign donations from the oil and gas industries in 2012 went to Republicans.

    At the same time, environmentally focused Democratic contributors, led by hedge-fund manager Tom Steyer, have made being anti-fossil-fuel de rigueur for most candidates in the party. Steyer and his allies have become the favorite place to go for cash for Senate Majority Leader Harry Reid of Nevada and other top Democrats.

    The Geography of Energy

    The most-evident division – and most politically relevant – is geographic. A huge swath of the country, mainly along the Gulf Coast, Texas and the Great Plains, where shale-oil production has grown fourfold since 2007, is enjoying an energy boom that has created a surge in other high-wage, blue-collar fields such as manufacturing and construction. With the delays in approving the Keystone XL oil pipeline and looming new EPA emissions standards, Democratic senators and candidates from these states are, understandably, trying to distance themselves from their party’s increasingly anti-fossil-fuel policies.

    More significant, over time, may be how energy plays out in the country’s major political battleground, the rust-belt states. Most of these states are highly dependent on coal for electricity, and some, such as Pennsylvania, Ohio and West Virginia, are seeking to develop new oil and gas finds. Policies that limit fossil-fuel development, may prove a tough sell in some districts and could cost the Democrats several additional Senate seats.

    In contrast, the most fervent support for strict climate-change legislation comes mostly from states – notably, the Northeast – that produce little in the way of energy and use relatively little carbon to power their economies. These states need less power than other areas as they already have deindustrialized and have very little population growth.

    Two other ultrablue bastions, California and the Pacific Northwest, also advocate a green energy position. The Northwest relies largely on hydro power for its robust industrial sector, lessening dependence on carbon-based energy for electricity. California, itself rich in fossil fuels, largely disdains its resources, and its leaders prefer, for ideological reasons, to subsidize expensive renewable energy. Roughly one-fourth of all energy used in California comes from out of state, much of it from coal. But since this “dirty” power comes from elsewhere, the progressives in places like Hollywood and Silicon Valley can still feel good about our state’s “enlightened” policies, whatever their real effect.

    The Class Divide

    Historically, Democrats have been big supporters of expanding the energy sector, which includes such things as dams, nuclear power plants and pipelines. But the growing influence of the green movement has reversed that. Green policies are widely embraced by largely Democratic crony capitalists in places like Silicon Valley. They also enjoy almost universal support in academia, where boycotts of fossil-fuel companies are increasingly common. The media, too, is an ally, as is the predictably progressive entertainment industry.

    Rest assured, we will never see an HBO series that celebrates George Mitchell, the entrepreneur most responsible for developing fracking. But campus-climate scientists who diverge in any way from the party line on global warming are routinely excoriated as“deniers” of “settled” science, even in the face of 15 years of relatively stable global temperatures. The media has also become a fierce defender of climate orthodoxy. TheLos Angeles Times, as well as the website Reddit, have chosen to exclude contributions from skeptics.

    Of course, many traditional Democrats, notably in the construction trades and manufacturing, oppose this drift. Construction unions are apoplectic about the president’s endless delays on Keystone XL, which has two-thirds support from the public. The United Mineworkers, not surprisingly, oppose the new EPA emissions limits, claiming they will cost upward of 75,000 mining jobs.

    Some Ohio construction unions, incensed by green opposition to both Keystone and fracking, have shifted support to prodevelopment GOP Gov. John Kasich, despite his conflict with public employee groups. The only prominent national Democrat to identify as pro-fossil-fuel is former Montana governor Brian Schweitzer whose possible run for the presidential nomination seems a bit quixotic in a party increasing dominated by environmental activists and their gentry allies.

    What Kind of America do we want?

    Ultimately, the energy debate reflects a larger discussion about the future of the country and the economy. This is not merely about emissions and climate change, per se. California’s Draconian laws, even supporters admit, will have no appreciable effect on a global basis, particularly given the state’s already relatively low carbon footprint (largely a factor of the mild climate and the slow growth in its interior in recent years). Indeed, virtually all the world’s significant increases in CO2 are coming from developing countries; since 1990, China has increased its emissions almost threefold, while America’s have dropped. China now emits roughly twice as much greenhouse gas as the U.S.

    Some of the steps taken by environmental and renewable-energy interests against natural gas development can even be seen as counterproductive. The U.S.’s better recordon reducing emissions reflects overwhelmingly the shift from coal to natural gas for generating electricity, which has helped the U.S. reduce its carbon emissions more than either Asia or Europe.

    Fracking, like any energy technology – including wind and solar – clearly creates environmental problems. There should be strong rules to regulate fracking to make it safer, as Colorado’s Democratic Gov. John Hickenlooper has worked to pass in his state. In addition, major reductions can be achieved through a shift away from oil and coal and toward natural gas, as well as conservation efforts.

    Progressives, in particular, need to focus far more on what effects an ultrahigh-cost energy economy would have on the middle and working class. More attention should be paid in accelerating the current spike in job-creating foreign investment into the country, attracted in large part by the development of low-cost, clean natural gas. In contrast, policies hostile to fossil fuels will drive industry to less-environmentally conscious countries, particularly in the developing world.

    Sadly, none of this is necessary. America’s economic future is best guaranteed by marrying the successes of Silicon Valley and Hollywood with a robust blue-collar sector that includes fossil fuels, manufacturing, logistics and construction. Emissions can be cut, for the time being, by such steps as replacing coal for generating electricity, improving efficiencies, promoting telework and boosting the use of natural gas for transportation.

    Dividing the country, and the electorate, into totally polarized camps over energy may benefit the consultants in both camps who feed off contentious and expensive election campaigns, but will do little to help the futures of most Americans.

    This article first appeared in the Orange County Register.

    Joel Kotkin is executive editor of NewGeography.com and Distinguished Presidential Fellow in Urban Futures at Chapman University, and a member of the editorial board of the Orange County Register. He is author of The City: A Global History and The Next Hundred Million: America in 2050. His most recent study, The Rise of Postfamilialism, has been widely discussed and distributed internationally. He lives in Los Angeles, CA.

    Photo by gfpeck

  • Dawn of the Age of Oligarchy: the Alliance between Government and the 1%

    When our current President was elected, many progressives saw the dawning of a new epoch, a more egalitarian and more just Age of Obama. Instead we have witnessed the emergence of the Age of Oligarchy.

    The outlines of this new epoch are clear in numerous ways. There is the diminished role for small business, greater concentration of financial assets, and a troubling decline in home ownership. On a cultural level, there is a general malaise about the prospect for upward mobility for future generations.

    Not everyone is suffering in this new age. For the entitled few, these have been the best of times. With ever more concentration of key industries, ever greater advantage of capital over labor, and soaring real estate values in swanky places such as Manhattan or San Francisco which , as one journalist put it, constitute “vast gated communities where the one percent reproduces itself.” The top hundred firms on the Fortune 500 list has revenues, in adjusted dollars, eight times those during the supposed big-business heyday of the 1960s.    

    This shift towards oligarchy well precedes President Obama’s tenure. It was born from a confluence of forces: globalization, the financialization of the economy, and the shift towards digital technology. Obama is not entirely to blame, it is more than a bit ironic that these measurements have worsened under an Administration that has proclaimed income inequality abhorrent.

    Obama’s Oligarchs

    Despite this administration’s occasional rhetorical flourishes against oligarchy, we have seen a rapid concentration of wealth and depressed conditions for the middle class under Obama. The stimulus, with its emphasis on public sector jobs, did little for Main Street. And under the banner of environmentalism, green cronyism has helped fatten the bank accounts of investment bankers and tech moguls at great public expense.

    Wall Street grandees, many of whom should have spent the past years studying the inside of jail cells for their misbehavior, are only bothered by how to spend their ill-gotten earnings, and how not to pay taxes on it. The Obama Administration in concert with the Congress , have consented to allow  the oligarchy to continue paying capital gains taxes well below the income tax rate paid by poor schmuck professionals, small business owners and high-skilled technical types. 

    In this, both political parties are to blame. Republican fealty to the interests of the investor class has been long-standing. But Obama and the Democrats are also increasingly backed in their “progressive” causes by the very people — Wall Street traders, venture capitalists and tech executives — who benefit most from the federal bailouts, cheap money, low interest rates, and low capital gains tax rates.   

    Large financial institutions also have benefited greatly from regulations that guaranteed their survival while allowing for increased concentration of financial assets. Indeed in the first five years of the Obama Administration the share of financial assets held by the top six “too big to fail” banks soared 37%, and now account for two-thirds of all bank assets.  

    “Quantitative easing,” the government’s purchase of financial assets from commercial banks, essentially constituted a “too big to fail” windfall to the largest Wall Street firms, notes one former high-level official. By 2011, pay for executives at the largest banking firms    hit new records, just three years after the financial “wizards” left the world economy on the brink of economic catastrophe. Meanwhile, as “too big to fail” banks received huge bailouts, the ranks of  community banks continues dropping to the lowest number since the 1930s, hurting, in particular, small businesspeople that depend on loans from these institutions.

    This tilt towards of the financial elites, as Elizabeth Warren has noted, occurred during both the Bush and Obama Administrations. “The government’s most important job,” she remarks, “was to provide a soft landing for the tender fannies of the banks.”

    Warren’s observation reflects the influence exercised by the oligarchs in both parties, a bipartisan alliance of the super-rich to buy government influence and protect theior wealth. A recent Mercatus Center report found that politically connected banks received larger bailouts from the Federal Reserve during the financial crisis than financial institutions that spent less or nothing on lobbyingand contributions to political campaigns. Another study by two University of Michigan economist found a strong correlation between receiving TARP assistance and a company’s degree of connectedness to members of congressional finance committees.

    As well as they have done lately, Wall Streeters have not been the only oligarchs to thrive under Obama. The tech industry, once an exemplar of dynamic capitalism, has become increasingly dominated by a handful of firms and their venture capital backers. These tech fortunes are greatly enhanced by monopolistic control of key markets, whether in search (Google); computer operating systems (Microsoft); internet retail sales (Amazon); or social media(Facebook). All of the tech giants are incessantly trying to extend their dominion into control of people’s lives, whether by tying them to a device, like the newAmazon phone, or by re-selling people’s data to advertising.

    These tech companies, which author Rebecca MacKinnon (labels) calls “the sovereigns of cyberspace,” all enjoy strong, even intimate, ties to the Obama Administration. They have little reason to fear anti-trust crackdowns or scrutiny of their increasingly gross violations of privacy from friendly government lawyers.

    Of course, if thing ever soured with the Democrats, the oligarchs can always look for benefactors among Republicans legislators, as Facebook and Google are already doing,. After all, most Republicans, particularly in the Senate, embraced the bailout of the large financial institutions — the very essence of the crony capitalism that favors large, well-connected institutions over smaller ones.

    For the most part, the oligarchs have lined up with Obama from the start. Indeed, at his first inaugural, notes one sympathetic chronicler, the biggest problem for donors was to find sufficient parking space for their private jets. As an observer at the left-leaning Huffington Post put it, “the rising tide has lifted fewer boats during the Obama years -and the ones it’s lifted have been mostly yachts.”      

    The War Against Small Business

    If Obama has proven a god-send for the oligarchs, he has been less solicitous of small business. Long a key source of new jobs, small business start-ups have declined as a portion of all business growth from 50 percent in the early 1980s to 35% in 2010. Indeed, a 2014 Brookings report, revealed small business “dynamism,” measured by the growth of new firms compared with the closing of older ones, has declined significantly over the past decade, with more firms closing than starting for the first time in a quarter century.

    There are many explanations for this decline, including the impact of offshoring, globalization and technology. But much can be traced to the expansion of regulatory power. Small firms, according to a 2010 report by the Small Business Administration, spend one-third more per employee than larger firms on staff  who can help them meet with federal dictats. The biggest hit to small business comes from environmental regulations, which cost 364% per employee more for small firms than large ones. Small business owners and self-employed professionals also have also been among those most impacted, through the cancellations of their health care policies, by the Affordable Care Act.

    The Politics of Oligarchy

    To be sure, every society has its Oligarchs, those who take leadership and lay foundations for the future. Economically, the oligarchs are necessary as creators and investors in new economic potential. The great 19th century robber barons, though often exceedingly ruthless in their practices, left an enormous legacy in the form of industries such as steel, utilities and railroads that underpinned the industrial era. But only later, due to reforms and the further expansion of the economy, did the oligarch’s work translate into mass affluence.

    The need to put limits on oligarchic power was clear to leaders such as Theodore Roosevelt who labeled his era’s moguls as “malefactors of great wealth.” In the early 20th century, many progressives and populists, as well as a growing socialist movement, rose to oppose oligarchy. But for most this was not so much an anti-capitalist, or even anti-market movement as a concern great power and wealth concentrated in the hands of the few. That seem fear of concentrated, anti-democratic power worried the founders, like Jefferson and Madison, who confronted a very different kind of oligarchy during the war for independence. 

    “We can have democracy in this country, or we can have great wealth concentrated in the hands of a few,” Supreme Court justice Louis Brandeis once noted, “but we can’t have both.”

    These sentiments are still valid. Many, if not most Americans, recognize that our political economy is not working for the majority of the country. The vast majority recognize the reality of crony capitalism and understand that government contracts go to the politically connected. More troubling still, less than one third believe the country even operates under a free market system. Most suspect that the American dream is falling increasingly out of reach. By margins of more than two to one, Americans say they enjoy fewer economic opportunities than their parents, and that their offspring will have far less job security and disposable income.     

    Today, Americans increasingly see the same threat Brandeis saw. American politics has ceased to function as a rising democracy and come to resemble an emerging plutocracy. These days, political choice is fought over by dueling groups of billionaires appealing to right and left to see who will best look after their interests. This can be seen in the emergence of conservative oligarchs like the energy billionaire Koch Brothers or the heirs to the Wal-mart fortune, who have emerged as the ultimate bêtes  noires for Democrats like Senate Majority Leader Harry Reid.

    Yet Reid and other Democrats have less problem with their own oligarchs. Among the .01 percent wealthiest Americans who increasingly dominate political giving, the largest contributions besides the conservative Club for Growth went to Democrat aligned groups such as Emily’s list, Act Blue and Moveon.org. Seven of the ten Congressional candidates most dependent on the money of the ultra-rich were Democrats. In 2012, President Obama won eight of the country’s ten wealthiest counties, sometimes by margins of two-to-one or better. He also triumphed easily in virtually all the top counties with the highest concentrations of millionaires and among wealthy hedge fund managers.  

    The Oligarchs pervasive influence buying from both parties undermines the very structure of the democratic system as well as a competitive economy. It allows specific interests -developers, Wall Street, Silicon Valley, renewable or fossil fuels producers – enormous  range to make or break candidates. As the powerful battle, the middle classes increasingly become spectators.  It’s not far off from the decadent phase at the end of Greek democracy or the late Roman Republic, examples that resonated with our classically educated founders.

    Many Americans today are alarmed, and rightfully so, by this concentration of wealth and power. But right now this grassroots reaction mainly finds its expression from the political fringes. The Tea Party, for example, had its origins in opposition to the bank bailouts that followed the financial crisis. This, not surprisingly, has made some large bank executives as wary of this right-wing movement as they were of Occupy Wall Street.

    In contrast, the oligarchs have little to fear from the mainstream of either party, though there are signs that smoke is wafting over the political horizon. The defeat of house majority leader Eric Cantor partly reflected concern over his incessant lobbying and cozying up to Wall Street. Similarly, nascent opposition to Hillary Clinton’s corporatist campaign is coming from at least some Democrats, notably Massachusetts Senator Elizabeth Warren. The recent shift leftwards of the Democratic Party, epitomized by New York’s Bill de Blasio but spreading nationwide testifies to growing unrest among the grassroots.

    These voices, both right and left, are still far from the main corridors of federal power but they are getting closer. The oligarchs should not rest too comfortably. An observer of gilded age America may have also assumed that the oligarchic power of the robber barons and industrial magnates would continue to wax inexorably. Yet, there comes a time — as occurred in the early years of the last century and again in the 1930s — when the political economy so poorly serves the vast majority that it ignites a political prairie fire. We are not there yet, in either party, but if the corrupt bargain between the oligarchs and the political class goes unbroken, the wait may not be long.

    This story originally appeared at The Daily Beast..

    Joel Kotkin is executive editor of NewGeography.com and Distinguished Presidential Fellow in Urban Futures at Chapman University, and a member of the editorial board of the Orange County Register. His next book The New Class Conflict is now available for pre-order. He is author of The City: A Global History and The Next Hundred Million: America in 2050. His most recent study, The Rise of Postfamilialism, has been widely discussed and distributed internationally. He lives in Los Angeles, CA.

    Barack Obama photo by Bigstock.