New Geography

Category: Politics

  • A Lasting Solution to the Transportation Funding Dilemma

    President Obama’s FY 2014 budget request includes $77 billion for the Department of Transportation and an additional $50 billion  "for immediate transportation investments." His next transportation bill to follow the current MAP-21, calls for a 25 percent increase in funding over current levels and assumes a transfer of $214 billion to the trust fund over six years "to maintain trust fund solvency and pay for increased outlays." To offset this spending, the Administration proposes using the "savings" or "peace dividend" from winding down the war in Afganistan. 

    House T&I Committee Chairman Bill Shuster (R-PA) was not impressed.  "The President’s budget," he said,  "repeats his call to increase spending without identifying a viable means to pay for it. …. You can’t just keep on spending money that you don’t have."  "A proposal we have seen three times before," observed Rep. Tom Latham (R-IA), House Transportation Appropriation Subcommittee chairman referring to the $50 billion request. With massive stimulus spending politically out of fashion, the Administration is repackaging it as "transportation investment." Bill Graves, president of the American Trucking Association, spoke for many stakeholders when he remarked, "For five years, we’ve waited for President Obama to clearly state how we should pay for these critical needs and, I’m sad to say, we continue to get lip service about the importance of roads and bridges with no real road map to real funding solutions." As for the "peace dividend," the idea has been dismissed as "budgetary gimmickry"  by congressional Democrats and  Republicans alike.

    In sum, a large segment of congressional and public opinion has pronounced the White House proposals variously as "vague", "repetitive," "unrealistic," "implausible" and "politically unachievable." Even the President’s most loyal supporters in the transportation community, the liberal advocacy groups, seemed disappointed and circumspect in their comments.  

    This said, no one disputes President Obama’s and the infrastructure advocates’ claim that some of America’s transportation facilities are reaching the limit of their useful life and need reconstruction. Nor does any one disagree about the need to expand infrastructure to meet the needs of a growing population. But fiscal conservatives among infrastructure advocates (and we count ourselves among them) contend that this does not rise to the level of a national crisis requiring a massive $50 billion federal crash program as proposed in the President’s budget message, or the expenditure of more than $100 billion per year as recommended by the American Society of Civil Engineers (ASCE) in its latest "Report Card."

    Instead, as we have argued in recent columns, the challenge can be met if each state did its part to progressively bring up its transportation facilities (including its Interstate highway segments) to a "state of good repair," using its own tax revenues and its formula allocation of the Highway Trust fund dollars (which are expected to total $38-41 billion per year over the next decade.)  As numerous news dispatches attest, that’s precisely what is happening (see below). A large number of states are not waiting for the federal government to come to the rescue. They are using their own resources and raising additional revenue to pay for reconstruction and modernization of their aging facilities and to maintain their transportation systems in good working condition. "Governors and state legislatures realize that the level of federal assistance beyond 2014 is highly uncertain and they are acting on a credible assumption that federal funding will remain at current levels or may even be cut back," an association executive who is familiar with the thinking of senior-level state officials, told us.

    What about large-scale reconstruction and system-expansion projects that require billions of dollars—transportation investments that are beyond the states’ fiscal capacity to fund on a pay-as-you-go basis out of annual cash flow? Those investments,  provided they are credit-worthy (i.e. are revenue producing or backed by dedicated tax revenue),  will be mostly financed through long-term credit instruments  and public-private partnerships. The future of capital-intensive infrastructure projects is intimately tied to the financial involvement of the private sector and to a wider use of  tolling, "availability payments,"  and innovative credit instruments such as TIFIA and private activity bonds (PABs), a veteran facilitator of public-private partnerships told us. We list below some of the transportation megaprojects that are being financed (or are planned to be financed) largely with public and private credit rather than with federal dollars out of congressional appropriations.

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    Lending credibility to the above funding scenario and hastening its adoption are the new realities underlying the federal role in transportation today. Those realities include: (1) a federal program that no longer has a clearly defined mission or purpose and many of whose functions are properly a state and local responsibility;  (2) a  Highway Trust Fund that has lost its capacity to support large-scale transportation investments and that has come to depend for its solvency on periodic injections of  general funds;  (3) a bipartisan absence of political will to raise the federal gas tax and (4) continued inability to identify another credible revenue source  to supplement or replace the gas tax.  

    In sum, having the states assume financial responsibility for fixing their aging transportation facilities and for preserving them in a state of good repair,  while employing public and private financing for major capital-intensive infrastructure investments, offers the best solution to the current  federal funding dilemma.

    NOTE: States that recently have undertaken to raise additional funds for transportation include: Virginia and  Maryland (broad transportation funding overhaul  that includes a dedicated sales tax applied to the wholesale price of gasoline.  A sales tax, it has been argued, is no less a "user fee" than the gas tax since every consumer who pays a sales tax also is served by or "uses"  the highway system for goods delivery );  Arkansas (one-half cent sales tax increase to back a $1.3 billion bond issue to fund highway construction over the next ten years);  Illinois (six-year $12.6 billion statewide construction program to improve roads and bridges);  Massachusetts ($13.7 billion bond-financed transportation plan); Maine ($100 million transportation bond proposal) Michigan ( $1.5 billion road plan funded with vehicle registration fees and a tax on fuel at the wholesale level); Missouri (proposal for a dedicated one-cent sales tax for transportation; the tax is expected to raise $7.9 billion over ten years); New Hampshire (12-cent hike in the gas tax over three years approved by the House; Senate approval uncertain);  Ohio (turnpike toll-backed $1.5 billion bond issue for highway and bridge improvements);  Pennsylvania ($2.5 billion Senate transportation funding plan; House approval uncertain); Texas (statewide tolling);  Wisconsin ($824-million boost to the state transportation fund);  Wyoming (10-cent fuel tax increase, the first in 15 years); and California, Oregon and Washington (exploring new mechanisms for project finance through the cooperative West Coast Infrastructure Exchange). In addition, several states which derive significant revenue from their tollroads have raised toll rates. See also, "State Transportation Funding Proposals,  AASHTO Center for Excellence in Project Finance, April 2013

    Recent major transportation infrastructure projects largely financed,or to be financed, with long-term credit instruments rather than federal dollars include: the I-495 Beltway HOT lanes project in Northern Virginia; New York’s Tappan Zee Bridge replacement; the San Francisco Bay Bridge Eastern Span replacement; the I-5 Columbia River Crossing;  the Highway 520 floating bridge and the Alaskan Way Viaduct in Seattle, the Midtown tunnel linking Norfolk and Portsmouth, VA; East End Crossing over the Ohio River near Louisville; and the PortMiami Tunnel. Please note that, except for the California High-Speed Rail venture, there are no transportation megaprojects currently being planned whose construction would depend primarily on federal appropriations.

  • Progessives, Preservation & Prosperity

    Conservatives often fret that Barack Obama is leading the nation toward socialism. In my mind, that’s an insult to socialism, which, in theory, at least, seeks to uplift the lower classes through greater prosperity. In contrast, the current administration and its core of wealthy supporters are more reminiscent of British Tories, the longtime defenders of hereditary privilege, a hierarchical social order and slow-paced economic change.

    The notion that the "progressives" are, in fact, closeted Royalists has been trotted out by a handful of Obama admirers, such as Andrew Sullivan, who calls the president "the conservative reformist of my dreams." Essentially, Sullivan argues, Obama has been a "Tory president," with more in common with, say, an aristocratic toff like British Prime Minister David Cameron than a traditional left-liberal reformer.

    The fundamental conservativism underlying the modern "progressive" marks the central thesis of an upcoming book by historian Fred Siegel, appropriately titled "Revolt Against the Masses." Siegel traces the roots of the new-fashioned Toryism to the cultural wars of the 1960s, when the fury of the "Left," once centered on the corporate elites, shifted increasingly to the middle class, which was widely blamed for everything from a culture of conformity to racism and support for the Vietnam War.

    Tory progressivism’s most-unifying theme, Siegel notes, includes the preservation and conservation of the landed order enjoyed by the British ultrawealthy and upper-middle classes. In the 19th century, Siegel notes, Tory Radicals, like William Wordsworth, William Morris and John Ruskin, objected to the ecological devastation of modern capitalism and sought to preserve the glories of the British countryside.

    They also opposed the "leveling" effects of a market economy that sometimes allowed the less-educated, less well-bred to supplant the old aristocracies, with their supposedly more enlightened tastes. "Strong supporters of centralized monarchical power, this aristocratic sensibility also saw itself as the defender of the poor – in their place," writes Siegel. "Its enemies were the middle classes and the aesthetic ugliness they associated with the industrial economy borne of bourgeois energies."

    Today, this Tory tradition lives on in contemporary Britain, where industry remains widely disparaged and land use tightly controlled. There is no more strident defender of preserving the space of the landed gentry than the leading Tory mouthpiece, The Daily Telegraph. All efforts are made to restrict the expansion of suburbs and new towns, all the better to preserve the British countryside for the better enjoyment of the gentry.

    As a result, Britain now suffers some of the world’s highest housing prices – even in the economically devastated north of the country. Unable to afford decent accommodations, notes author James Heartfield, some British families have been forced to live in old restrooms, garden sheds, even abandoned double-decker buses.

    Until recent decades, such an "enlightened" conservatism has been rare in America, with its strong tradition of upward mobility and vast landscape for development. As early as the 1950s, however, intellectuals, architects, planners and aesthetes have railed against the banality of suburbanizing, and democratizing, America, but the real turn towards gentry progressivism took place with the rise of the environmental movement in the 1970s.

    Rightfully alarmed by the deterioration of the environment at that time, early green activists made contributions to a remarkable cleanup of the nation’s air and water, something that widely benefited millions of Americans. But the movement also fell ever more prone to all manner of hysterias; at the first Earth Day, in 1970, some scientists predicted that, by the 1980s, people would not be able to walk outside without a helmet. Then followed a series of jeremiads about "limits of growth" associated with the depletion of critical minerals, "peak oil" and, finally, the call for radical steps to address climate change.

    All these causes, sometimes based on fact or somewhat overheated extrapolation, gradually diverted American progressives from their historic interest in economic growth and social mobility to a primary focus on environmental purity, whatever the social or economic cost. Their Tory-like policies have helped stunt economic growth, particularly in the blue-collar industrial and construction sectors, promoting, albeit unintentionally, ever-narrowing opportunity for all but a few Americans.

    Despite its opportunistic use of populist rhetoric, the Obama administration has presided over widespread economic distress – with the average household now earning considerably less than it did four years ago. This trend has worsened during the current "recovery," even as the Federal Reserve’s policies have generated record profits for corporate and Wall Street grandees.

    It has been a particular boon time for a new rising class of oligarchs from Silicon Valley, which has embraced Obama with money and technical expertise. Not surprisingly, the ultra-affluent coastal areas have become primary supporters of the administration, which in November won eight of the nation’s 10 wealthiest counties, many of them handily.

    The growing gaps between the "1 percent" and everyone else have been particularly marked in those regions under the most complete progressive control. The Holy Places of urbanism, such as New York, San Francisco and Washington, D.C., also suffer some of the worst income inequality.

    In these regions, the so-called "creative class" is courted by politicians, developers and corporate big-wigs. Meanwhile their putative political allies, in places like Oakland and parts of New York’s the outer boroughs, experience seemingly irrepressible permanent unemployment and, increasingly, rising crime. Perhaps the most outrageous example of the dual nature of the new progressive economy, notes Walter Russell Mead, can be seen in Detroit, where a shrinking, debt-ridden and dysfunctional city that fails its largely poor residents has generated $474 million since 2005 for well-connected Wall Street bond issuers.

    Under the progressive Tory regime, the best that can be offered the middle class is an outbound ticket to less-Tory-dominated, albeit often less culturally "enlightened" places, such as Texas, the Southeast or Utah. There, manufacturing, energy and agricultural industries still anchor much of the economy. Despite their expressions of concern for the lower orders, gentry progressives don’t see much hope for the recovery of blue-collar manufacturing or construction jobs, at least not in their bailiwicks. Instead they suggest that the hoi polloi seek their future in what the British used to call "service," that is, as caregivers, haircutters, dog walkers, waiters and toenail painters for their more-highly educated betters.

    Such kindness, however, is no replacement for the kind of broad-based economic growth that historically has promoted self-sufficiency and upward mobility, both in California and elsewhere. Due in large part to the new progressive policies, this is now increasingly out of reach for many in the middle class, as well as the increasingly Latino working classes. Indeed, a recent report from the Public Policy Institute of California reveals that class stratification in the state has expanded far faster than the national average.

    "We have created a regulatory framework that is reducing employment prospects in the very sectors that huge shares of our population need if they are to reach the middle class," notes economist John Husing. A onetime Democratic activist, Husing laments how, in progressive California, green energy policies have driven up electricity costs to twice as high as those in competitor states, such as Utah, Texas and Washington, and considerably above those of neighboring Arizona and Nevada. These and other regulatory policies, he suggests, are largely responsible for the Golden State missing out on the country’s manufacturing rebound, losing jobs, while others, not only Texas but also in the Great Lakes, have expanded jobs in this sector.

    Similarly, Draconian land-use regulations have not only kept housing prices, particularly on the coasts, unnecessarily high, but slowed a potential rebound in the construction sector, traditionally a source of higher-wage employment for less-than-highly educated workers. So, while Google workers are pampered and celebrated by the progressive regime, California suffers high unemployment and a continued exodus of working-class and middle-class families.

    Sadly, there currently is no strong counterweight to the new Tory ascendency. Until traditional social democrats awake to realities, or the GOP acknowledges the painful reality of class, America will continue to lurch towards the very Tory model that our forefathers had the wisdom to reject throughout most of our history.

    Joel Kotkin is executive editor of NewGeography.com and a 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.

    This piece originally appeared in the Orange County Register.

    Photo by: conservativeparty

  • Will Obama Play his Aces?

    With the stock market hitting new highs, and unemployment easing, albeit slightly, President Obama can now seize his moment. After spending four years blaming George W. Bush for his lousy hand, the president now sits at the table with three strong aces among his cards.

    The key question is: Will he play them?

    One reason he might not is that most of his good hand stems primarily not from his stewardship but America’s economic and demographic kismet. In fact, this resurgence is primarily not taking the "green," urban and high-tech form, as preferred by most coastal Democrats, but stems largely from the productive forces being unleashed in the nation’s largely red heartland.

    But Barack Obama is president, and if the country resurges on his watch, he will get much of the credit. This country, for all its problems, is naturally blessed, with both human and physical resources. It is beginning to both pull away from laggard Europe and Japan and seems far more well-positioned to compete with China than most observers believe. The choice for the president is whether to ride this resurgence, or throw it away as incompatible with his political agenda.

    This dichotomy starts with energy, the thing most propelling the real, as opposed to the paper, economy. The current energy boom is taking place in a manner precisely what Obama and, certainly, many of his strongest backers, least likely would have preferred. In his first term, Obama charted a path on energy typical of the university faculty lounge. His departing energy secretary, Steven Chu, embraced the idea that Americans used fossil fuels irresponsibly, comparing them to teenagers. He liked forcing higher costs for energy while using our tax dollars to subsidize often-dodgy renewable schemes.

    Yet, history, as is often the case, played out quite differently than the expected script. Rather than being required to accept enforced scarcity, Americans, largely due to new drilling techniques and advanced technology for identifying previously undiscovered fields, now are on the cusp of a massive energy boom. This has changed the country’s trade and economic prospects immeasurably. Since 2009, the industry, according to the consultancy EMSI, has added some 430,000 jobs, in contrast to the much subsidized "green" energy industry, which has suffered a spate of embarrassing failures.

    Energy employment

    One problem for the president: The big winners to date have come from outside the coastal strips whose residents constitute his base. Over the past decade, Texas alone has added 180,000 mostly highly paid energy-related jobs. Oklahoma added 40,000, and the Intermountain West well over 30,000. In what could be a persuasive case, Pennsylvania, a blue state with a hunger for jobs, has joined the party; the original center of the U.S. energy industry is now enjoying a resurgence.

    In contrast, energy-rich California, despite the nation’s third-highest unemployment rate, has chosen to stand largely on the sidelines, creating a mere 20,000 such energy-related jobs. The same can be said about New York, which so far has chosen to follow the lead of celebrity "fracktivists" and is refusing to exploit its rich natural gas resources. Yet even in California, some normally progressive voices, such as former longtime Los Angeles Times columnist Tim Rutten, suggest that, in order "to jump-start" its economy, the state ought to climb on the energy bandwagon.

    To be a successful president, Obama can embrace this growth while maintaining his green bona fides. As the environmentalists at the Breakthrough Institute have noted, America’s recent remarkable progress in reducing greenhouse gases primarily is not the result of the sort of green technologies financed by the president’s venture-capitalist friends and embraced by his media allies. Instead, it has been overwhelmingly the result of the gradual replacement of coal usage with natural gas.

    Embracing gas – not only to generate electricity but also for transportation – serves both Obama’s interest and the country’s long-term interest. But his task is made more perilous by his efforts to appease his urban, green constituency, once strongly supportive of natural gas, but now decisively against it. Two contrarian environmentalists, an increasingly endangered species, have labeled the celebrity-driven protesters of hydraulic fracturing drilling techniques as "fracktivists for global warming."

    Some observers, such as former Al Gore aide Morley Winograd, suggest that Obama’s appointment of Ernie Moniz as energy secretary will bolster the notion that the president has shifted towards "pragmatic idealism" on energy. Obama may still be reluctant to allow much drilling in publicly held land but he could countenance a negotiated reasonable solution to the contentious issue of fracking.

    High-flying farming

    Energy is only one, albeit the most dramatically apparent, ace in the presidential hand. Another is agriculture, which is on a historic tear. This has been led, particularly in the Great Plains and the Midwest, by a boom in agriculture exports: The U.S. exported a record $135 billion in 2011, with a net favorable trade balance of $47 billion, the highest in nominal dollars since the 1980s.

    What accounts for this boom? One driver is growing markets in the developing world – notably, China, which consumes almost 60 percent of the world’s soybean exports and 40 percent of its cotton. The Great Plains Corridor, in particular, produces both these crops in abundance, which is one reason for its increased share of U.S. exports.

    Most farmers and farm communities – outside of some who might ship to lovocore (eat local) restaurants – tilt conservative, but the exports of this sector drive growth in services and even technology. Farming today is increasingly tied to science, and that includes efforts to reduce the use of fertilizers and water. Cities from Omaha, Neb., to Kansas City to New Orleans all benefit from agricultural trade.

    Cars come back

    The last of Obama’s aces comes from manufacturing, whose resurgence has been among the most surprising developments of the past five years. Some of this is tied to the energy boom, which is boosting industry along the Gulf Coast, with its burgeoning petrochemical complex. By itself, the expansion of energy – particularly cheap and plentiful natural gas – will create, according to a recent PricewaterhouseCoopers study, more than 1 million industrial jobs nationwide.

    But more politically important for the president is the resurgence of the U.S. auto industry. Whatever one thinks of how the GM and Chrysler bailouts were conducted, the return to profitability in Detroit represents a big win for Obama and may be one of the reasons for his surprisingly strong electoral showing in the industrial Great Lakes. In comparison with Europe and, increasingly, even China, American manufacturers are showing great resiliency and growing competitive strength.

    Yet, even here Obama needs to be careful. What a recent Boston Consulting Group report described as the incipient "reallocation of global manufacturing" will primarily benefit lower-cost, nonunion red states such as South Carolina, Alabama and Tennessee. This is where most new investment from German, Japanese and Korean firms is going. Yet, if this growth continues, Obama is helping his core constituencies, notably African-Americans, who now can see the prospect of higher-wage employment with benefits.

    Ultimately, as the former Gore aide Winograd suggests, how Obama plays these cards may well determine the success of his tenure.

    He could choose to throw out his trump cards in a gesture to placate his gentry funding base, urban progressives and his most devoted media claque. Or he could, like most great politicians, choose, instead, to play the great hand providence has provided him, irrespective of his core supporters, thereby all but assuring his stature as one of the more successful presidents in recent history.

    Joel Kotkin is executive editor of NewGeography.com and a 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.

    This piece originally appeared in the Orange County Register.

    Barack Obama photo by Bigstock.

  • U.S. Could be Courting Trouble in Europe

    One of the most fascinating aspects of Barack Obama’s presidency stems not so much from his racial background, but his status as America’s first clearly post-European, anti-colonialist leader. Yet, after announcing his historic "pivot" to vibrant Asia, the president, the son of an anti-British Kenyan activist, recently announced as his latest foreign policy initiative an economic alliance with, of all places, a declining, and increasingly decadent, Europe.

    Some analysts, such as Walter Russell Mead, suggest the possible "ratting out" of the new Asia focus could constitute "a mistake of historic proportions." In East Asia, leaders, from Vietnam and Singapore to Japan, have been counting on a strong U.S. presence to ward off Chinese hegemony in the region. The idea of a reduced naval presence and a weakening commitment to allies would undermine our influence in this increasingly critical economic region.

    At the same time, the president’s desire to integrate our economies more closely to that of Europe reflects a longtime prejudice within the Democratic Party favorable to the old Continent. The notion of a new trade tie to the European Union set longtime Eastern policy types, such as former Bill Clinton aide and onetime Woodrow Wilson School head Anne-Marie Slaughter into rhapsodies about an emerging new "Atlantic Century." Vice President Joe Biden, for his part, told a recent Munich security conference that Europe represents "the cornerstone of our engagement with the rest of the world."

    This is delusional, to say the least. Republicans have their faults, but at least they know how to tell historic time. In contrast, largely Democratic Europhiles simply want to relive the glorious past, and consume a legacy of affluence. And to be sure, generally it’s more pleasant to attend – as long as someone is paying the bill – a conference in London, Paris or Zurich than Beijing, Mumbai or Mexico City. Europe, as we know from the debates over compensation of EU bureaucrats, knows how to treat functionaries with the comfort to which they easily can become accustomed.

    Pumping for greater Euro-ties seems almost insane under current conditions. The Continent’s unemployment rate, nearly 12 percent among the 17 EU member countries, is already at record levels, and its younger generation suffers unemployment approaching 30 percent or higher in at least five EU countries, including Greece, Spain and France. In Portugal, 2 percent of the population has migrated just in the past two years, not only to Northern Europe but, amazingly, also to Portugal’s booming former African colonies.

    This does not seem to be setting up the prime conditions for Ms. Slaughter’s imagined new "Atlantic Century." Although North America retains the resources, demographics and innovative culture to compete with Asia and other rising powers, Europe is in a notably downward trajectory. Its share of the world economy has plummeted from nearly 40 percent in 1900 to 27 percent today and continues to shrink rapidly. By 2050, not only the United States, but China and the rest of the developing world, according to the European Commission, will have surpassed the total of the 27 countries in the EU.

    One has to be a cockeyed optimist not to see that the long-term prognosis, even without the current euro crisis, is not good. Manufacturing, long a Continental bastion, is weak and falling behind that of the U.S. as well as Asia. German engineering may still be first-class, but much of the production and design will be moving to Mexico, the U.S., Latin America and Asia.

    Energy may prove a particular vulnerability. Although the region has shale and other energy resources, greens are far more powerful in Europe than in America and hostile to the hydraulic fracking that has created the current U.S. boom in oil and gas. The combination of radical green policies favoring expensive, often unreliable renewables, as well the shuttering of the Continent’s once-strong nuclear industries, are creating both high prices and wobbly reliability of electricity supplies. (Ironically, the reluctance to maintain nuclear power and oppose fracking for natural gas has led to a rise in greenhouse gas emissions and even some increased use of coal.) Tulane’s Eric Smith suggests many of Germany’s manufacturing powers are intensifying efforts to shift operations, notably to the southern United States, for cheap electricity and lower overall costs.

    Demographics, however, may be Europe’s weakest suit. Although East Asia is now experiencing low fertility, Europe has been demographically stagnant for at least a generation longer. By 2050, Europe’s workforce is expected to decline by 25 percent from 2000 levels; the U.S. is expected to see expansion of upward of 40 percent.

    This phenomenon threatens Europe’s lone serious economic power, Germany. The country now produces fewer children than in 1900. Given the expansive welfare state, the fiscal burdens being faced in Germany and other EU countries will dwarf those of the United States; by 2050 Germany will have nearly twice as many retirees per active worker as America.

    Yet remarkably, for all its manifest failings, Europe remains a Mecca and role model for many American progressives, like Ms. Slaughter. The past decade has seen the publication of a spate of books, such as Jeremy Rifkin’s "The European Dream" and Steven Hill’s "Europe’s Promise," that see Europe’s regulation state and "soft power" an alluring alternative to America. Some hail the EU as the prototype of a benign "new kind of empire" based on culture and pacifism.

    If so, it’s an empire rapidly hurtling into its dotage. The great European historian Walter Lacquer has pointed out that such optimism about the Continent becoming "united and prosperous" is likely "misplaced." In policy terms, for the U.S. to follow Europe’s model is an almost sure recipe for our own decline. Even the usually pro-free-trade Wall Street Journal is concerned that any attempt to "harmonize" American policies with those of the "European model" will simply expand government power and bureaucratic hegemony.

    To be sure, there remain parts of Europe, particularly in the Northern rim, that are doing better. These countries – the Netherlands, Scandinavia and Germany – have enacted significant labor market reforms, retain some strong industries and have tried to be responsible fiscally. If they broke off from the EU and set up a modern-day Hanseatic League, it may make sense for us to embrace stronger ties with them. But that can’t be said of an alliance with the weak sisters of the EU’s southern and eastern fringes, or even dirigiste state-dominated France.

    In reality, the EU will never become a giant Sweden. Scandinavia possesses a unique history, shaped by massive outmigration in the past century and a largely homogeneous population; many of these countries possess great natural resources, such as oil, iron ore or hydroelectricity. In contrast, the eastern edge of the zone contains some of the most depopulating parts of the planet, as people seek opportunities in the more economically viable North. The comic political economy of Italy, the political violence of Greece and the mass disenchantment of Spain presage a European future that contrasts greatly with the relative prosperity and order of the North.

    None of this suggests that, if the political strings are not wound too tight, that a free-trading arrangement with Europe may prove useful. But if an agreement becomes a wedge for accelerating the adoption of Euro-style policies, it could allow us to squander an opportunity to maintain our pre-eminence in the post-colonial, and post-European-centered, world.

    Joel Kotkin is executive editor of NewGeography.com and a 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.

    This piece originally appeared in the Orange County Register.

  • Wanted: A Reasoned Approach to Dealing with America’s Infrastructure Needs

    It seems like not a week goes by without fresh warnings about the nation’s”crumbling infrastructure" and renewed appeals to rebuild our aging highways and bridges.  President Obama reinvigorated the campaign with his State-of-the-Union proposal for a $50 billion program of infrastructure investments, $40 billion of which would be devoted to a "fix-it-first" program targeted at urgent improvements such as "structurally deficient" bridges. The following day, the House Committee on Transportation and Infrastructure held a hearing on "The Federal Role in America’s Infrastructure," focusing on the importance of infrastructure for the U.S. economy and the federal role in its preservation and expansion. The same day, the U.S. Chamber held a "Transportation Infrastructure Summit," a day-long gathering to explore "transportation infrastructure challenges and promising solutions" with prominent industry representatives. Yet another meeting, this one convened by Rep. Rosa DeLauro (D-NY), a longtime proponent of a National Infrastructure Bank, will explore innovative strategies for financing infrastructure in a March 18 forum on Capitol Hill.

    Two recent reports have added to a sense of urgency about America’s deteriorating infrastructure. The Building America’s Future coalition has published a report, Falling Apart and Falling Behind, urging development of a long-term national infrastructure strategy, establishing a National Infrastructure Bank and lifting restrictions on tolling. The American Society of Civil Engineers (ASCE) has released a report, Failure to Act: The Impact of Current Infrastructure Investment on America’s Future, warning that if the investment gap is not addressed, the economy is likely to suffer $1 trillion in lost business and a loss of 3.5 million jobs.  ASCE’s 2013 Report Card for America’s Infrastructure, a detailed analysis of the performance and condition of America’s infrastructure  to be  released on March 19, may be expected to reinforce this gloomy forecast (a previous  "report card," issued in 2009, gave the U.S. infrastructure an unflattering grade of D.)     

    What kind of impact this flood of warnings and advocacy efforts will have on public opinion and on congressional attitudes and fiscal decisions remains to be seen. They come at a time of severe budget pressures and intense Republican efforts to curb excessive discretionary spending. To be successful, the pro-infrastructure campaign must persuade fiscally conservative lawmakers that there are urgent reasons for a boost in spending on public works that override the imperative to reduce the deficit and get the nation’s fiscal house in order. 

    Further, infrastructure advocates must convince the nation’s  taxpayers— who see no visible signs of  "crumbling infrastructure"— that spending more  on transportation will not be wasted but will result in concrete benefits in the form of reduced congestion or shorter commutes. Infrastructure alarmists also must contend with a public that lately has grown skeptical about warnings of catastrophic consequences of minor cuts in spending.  

    Lastly, the advocacy campaign must overcome a cynical perception that pressures to increase funding for transportation are nothing more than special interest pleadings of interest groups that stand to profit from higher levels of public spending.  As one transportation advocate at a recent conference observed, "there is an enormous disconnect between us and the American public" — a disconnect that may not be easy to overcome.

    Significantly, improving the nation’s infrastructure was not a topic of discussion at the President’s meeting with Senate Republicans, according to Sens. Roger Wicker (R-MS) and Orrin Hatch (R-UT), as reported in POLITICO.  The President must have come to a conclusion that his $50 billion infrastructure plan stands no chance of winning a favorable Senate vote —not to mention being an anathema with the House Republicans.

    A Reasoned Approach

    No one disputes the infrastructure advocates’ claim that some of America’s transportation facilities are reaching the limit of their useful life and need replacing. Nor does anyone disagree about the need to expand infrastructure to meet the needs of a growing population. But fiscal conservatives among these advocates (and we count ourselves among them) contend that this does not rise to the level of a national crisis requiring a $50 billion crash program as proposed by the President, or a two trillion dollar infrastructure investment program over fifteen years as recommended  by ASCE . 

    The condition of infrastructure varies widely from state to state as studies by the transportation research group TRIP and by the Reason Foundation have shown. Most states maintain their transportation assets in a state of good repair and only a few need extensive modernization. "There are still plenty of problems to fix, but our roads and bridges aren’t cumbling," said David Hartgen, lead author of the Reason study. "The overall condition of the public road system is getting better and you can actually make the case that it has never been in better shape." Hartgen’s conclusion is backed by a detailed study of the condition of America’s roads and bridges. The study is based on a variety of sources, primarily from the states themselves as reported to the federal government from 1989 through 2008. ( "Are Highways Crumbling? State and U.S. Highway Performance Trends, 1989-2008, Reason Policy Study 407, February 2013).

    The generally acceptable condition of the nation’s transportation infrastructure in most places, argues for a more selective approach. Rather than launching a new massive national public works program in the name of "fix-it-first," state-level efforts should be targeted specifically at aging facilities that are in a demonstrable need of replacement or modernization.  "The nation simply cannot afford blindly to throw money at the problem," in the words of one senior congressional Republican. "We have learned from the Administration’s $8 billion high-speed rail fiasco that scattering resources in an unfocused manner in order to satisfy demands for geographic equity, leads to imprudent, irresponsible and often downright wasteful spending."     

    To the extent that large-scale multi-year megaprojects demanding billions of dollars still figure on the drawing boards of state DOTs,  they can—indeed, they will —be financed through public-private partnerships, tolling and credit instruments such as TIFIA and state infrastructure banks. They include the I-495 Beltway Hot lanes project in Virginia, New York’s Tappan Zee Bridge replacement, the San Francisco Bay Bridge Eastern Span replacement, the I-5 Columbia River Crossing, the Highway 520 floating bridge in Seattle, the Miami Port Tunnel, the Midtown Tunnel linking Norfolk and Portsmouth VA, and two Ohio River bridges in Louisville, a joint undertaking of the Indiana and Kentucky DOTs. All of the above projects will be financed with long-term obligations rather than funded on a pay-as-you-go basis through annual congressional appropriations.

    A transition from funding to financing of major transportation infrastructure projects was also the preferred approach of the financial practitioners and analysts assembled at the October 2012 conference on Public-Private Partnerships convened by the American Road and Transportation Builders Association (ARTBA). The most practical way to build future transportation megaprojects, these experts concluded, will be through project financing and public-private partnerships.

    In sum, the Highway Trust Fund no longer can serve as a source of capital for new infrastructure, and funding large capital-intensive projects with current user fee revenues on a pay-as-you-go basis is no longer feasible. Instead, look for the states to assume responsibility for remedial "fix-it-first" activities, and for a shift from funding to financing for multi-year construction megaprojects. This may turn out to be the only practical long-term solution to our transportation funding dilemma.

  • Is Hawaii the Bellwether for California?

    California used to consider itself the leading state and the bellwether for the entire country. Now that the entrepreneurial initiative has mostly switched to Texas and other such places, and Texas’s infrastructure has pulled ahead of California’s in its quality (I lived in Texas in the 1970s, and it was not so then!), California is, at the very least, still thought of as a bellwether for the whole country, if perhaps a dystopian one. But there is a state that even Californians look to for popular cultural leadership, visit frequently, and admire. And, while it is often said that California became the first “majority-minority” state, it is not true. This other state, which lies far to the southwest of California, has always been “majority-minority.” It is, of course, Hawai’i. (The apostrophe is a letter in Hawaiian, and it is pronounced.) It has wrestled with “multicultural” issues for longer than it has been part of the United States. And one born in Hawai’i is now President of the United States.

    The majority of the residents of Hawaii are Asian, the largest number being of Japanese descent with some Chinese and Filipinos and a few Koreans, though Koreans have mostly preferred California. President Obama is exceptional; people of African descent have never been numerous in Hawai’i. Five to ten percent of the people have some percentage of native Hawaiian blood, though there are almost no pure-blood Hawaiians.

    On the mainland, whites and blacks are moving out of areas flooded by immigration; in Hawaii, whites (including retirees) and even a few minimum-wage Mexicans, are moving in on a net basis. It is important to note, however, that Hawaii’s Asians are not mostly recent immigrants; they are descended from people who came over in the late nineteenth and early twentieth centuries. Today’s immigrants have generally preferred California, which had a more vibrant entrepreneurial economy, and on some fronts still does. (The maker of computer chips is probably itching to move to Texas; less so the programmer.) The reason for all this is that Hawaii was so long dominated by the “Big Five” corporations.

    The historical reasons for the Big Five, and for Hawaii’s other oddities, are interesting. In the 19th century, a large percentage of Hawaii’s land and economy fell into the hands of a few white (haole) families, like Bishop, Dillingham, Baldwin, and Parker, who sometimes did marry into the local noble (ali’i) caste. The corporations they founded were eventually known as the Big Five. (Some of this heritage is chronicled in the recent film The Descendants.) They brought large numbers of Asians in as contract labor to work the vast fields of pineapple and sugar cane. California had its counterparts, the Irvines, O’Neills, Bixbys, Millers, Hearsts, and more, but they only controlled part of the land and exercised little control of the commercial economy. The rest of the Mexican grants were broken up into smaller farms and ranches soon after the American conquest. (It is where the grants remained intact until recently, such as south Orange County, that you have the notorious “planned communities.”)

    Japan was the first main source of Asian labor, but the Japanese came largely from the Ryukyus, Kyushu, and the less developed south of Japan, and were often part of the Eta undercaste that in Japan had butchered animals and cleaned toilets. China, the Azores, and later the Philippines were also sources of labor, but the majority of Hawaiian Asians are of Japanese descent.

    In the 1940s and 1950s, culminating in 1954, there was a labor and political movement by which the predominantly Asian workers took control of the territory from the Big Five. They could regulate the Big Five, they could unionize the Big Five, but they did not have legal authority to break up the Big Five (only the federal government could have done that); so both right and left in Hawai’i retained a corporatist rather than an entrepreneurial mentality. The establishment had been Republican, so the workers were Democrats, and Hawai’i entered a long era of Democratic dominance, which continues to this day. The plantation experience is one major reason why most of Hawai’i’s Asians, unlike Asian Californians until recently, have been Democrats.

    An interesting fact about Hawai’i is that there are only four functioning local governments, the counties.  There had been a fifth, the Hansen’s Disease (Leper) colony on Kalaupapa Peninsula, which was the lifework of Saint Damien, canonized in 2009. While the counties are divided into “judicial districts” that are marked on some maps, the judicial districts do not have governments. Each county has a “mayor,” but there are no incorporated cities as they are known in other states.

    Another force influencing the Hawaiian culture and worldview is the Native Hawaiians. There are almost no pure blooded Native Hawaiians (other than on Ni’ihau), but up to ten percent of the population has some Hawaiian blood. The old pre-Christian culture had some brutal elements. While on the one hand there was premarital sexual freedom, on the other a woman could be killed instantly for eating a banana or a coconut, and a commoner could be killed instantly for letting his shadow fall on a chief. Infanticide was employed in population control and human sacrifices were offered to Madame Pele, the volcano goddess. They had no system of writing. In the days before it became unfashionable to distinguish between “civilized” and “uncivilized,” they were therefore considered “uncivilized.” However they did build permanent stone structures as temples and as “cities of refuge,” places where people who had broken, or were accused of breaking, a kapu (taboo) could go to save their lives. Also there was a vast lore of herbal healing, which survives.

    Between 1790 and 1810, Kamehameha the Great united the islands into a single kingdom, and established a monarchy that lasted until 1893, long after Hawai’i had been modernized, Westernized, and largely Christianized, and had already received large numbers of immigrants. It was not any crowned head of Europe that was the first monarch to have his voice recorded, and to travel around the world, but King David Kalaka’ua of Hawai’i. All this is far different from how it was for American Indians of the mainland! Another uniqueness is that the Hawaiian language, spoken daily by hardly a thousand people, a tiny fraction of those who speak, say, Navajo, has nonetheless become part of the culture; a language which has left a long list of words in Hawaiian English, a language in which much locally popular music is recorded, and a tourist attraction in its own right. Its status is in some way similar to that of Irish Gaelic in Ireland. (By comparison, in Palm Springs I have never heard music sung in Cahuilla.)

    What, then, of Hawai’i today? There is an active Christian minority, but Pele, the goddess who supposedly lives at Kilauea Crater, regularly gets offerings of flowers and gin. “Haoles” are wary of getting into fights with “locals.” The culture values the ohana, or extended family, but it is hardly Confucian. One might mention at this point Will Durant on later ancient Rome:

    “But most of the inflowing peoples had literally been de-moralized by uprootage from their native surroundings, cultures, and codes; … and daily friction with groups of different customs had worn away still more of their custom-made morality.” (Caesar and Christ, p. 366.)

    This sort of multiculturalism, however, had nothing to do with the fact that Hawai’i was the first state where same-sex marriage was seriously proposed? No, it was, I believe, a case of imperial judiciary, and same-sex marriage was voted down two to one in November of 1998. If democratic processes continue and are not overridden by judicial fiat, Hawai’i will be one of the last states outside the South to adopt same-sex marriage. And in California, it was the votes of people of color, who would never think of becoming Republicans, that won Proposition 8 and delayed same-sex marriage for some years. It makes me think that the Republican party should be replaced by two new ones; one socially conservative, pro-voucher, fiscally moderate to liberal, and led by people of color; the other, a more semi-libertarian party. Neither, preferably, should bear the name Republican Party.

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

  • Should California Governor Jerry Brown Take a Victory Lap?

    "Memento Mori" – "Remember your mortality" – was whispered into the ears of Roman generals as they celebrated their great military triumphs. Someone should be whispering something similar in the ear of Gov. Jerry Brown, who has been quick to celebrate his tax and budget "triumph" and to denounce as "declinists" those who threaten to rain on the gubernatorial parade.

    Brown speaks about California’s "rendezvous with destiny" and the state’s "special destiny… more vibrant and more stunning in its boldness." His pitch certainly has persuaded much of the mainstream media to add their horns to the triumph.

    Yet right now, despite its many blessings, our state remains more on a collision course with mediocrity – at best– than with any such manifest destiny. California may not be a "death-spiral state" as some conservatives suggest, but Brown’s triumphs – the Proposition 30 tax increases, the marginalization of the GOP as well as his Democratic rivals – have been more political than substantial and have done little to address the state’s major long-term challenges.

    Let’s check this out. Unemployment remains the third-highest among the states; we still have one-third of the nation’s welfare recipients; the highest poverty rate in the country, with one in five of California’s diminishing ranks of children living in poverty, including more than a third of children in Fresno. Our education system, with new dollars or not, continues to fail young people and our economy.

    Critically, the three key elements typically invoked to promote the comeback meme – budget relief, the genius of Silicon Valley alchemists and "green" jobs – are themselves suspect. Even Brown, who suggested that we could create 500,000 jobs from his climate change agenda, isn’t speaking much about it. In California, and across the nation, "green jobs" have failed to materialize enough to offset the higher costs imposed on the rest of the economy, the high public subsidies and parade of failed ventures associated with these policies.

    Yet, Brown is so dogmatically loyal to this agenda that he remains committed to massive regulation of the economy, which is slowing growth. And he shows – despite his occasional bouts of fiscal sanity – no signs of backing away from his financially troubled bullet-train fantasy.

    If green economics are failing, can Silicon Valley bail out the state? Reporters anxious to celebrate our deep-blue state’s comeback almost always genuflect to the tech industry. They rarely bother to look at the fact that, even with considerable growth in the tech sector over the past two years, the valley has not even recovered the job levels of a decade ago.

    More troubling still, Silicon Valley is becoming less an exemplar of capitalism than the beneficiary of an insider game that relies on access to capital and contacts more than on innovation. It is also becoming increasingly dependent on government largesse: No one bet more on subsidized "green" companies than the venture-capital elite. Prospects are also dimming for social media, the valley’s latest signature industry. User interest in Facebook is slipping, notes Pew, and the industry now sees its next great opportunity, of all socially worthless things, in online gambling.

    Even under the best of circumstances, Silicon Valley is neither robust enough nor predisposed to help solve the state’s long-term fiscal challenges. In fact, the high-tech darlings of the progressives, such as Google and Apple, are turning out to be as adept in not paying taxes as are Mitt Romney or General Electric. For its part, Facebook now appears to have paid no income taxes at all last year.

    In fact, the only thing bailing out California is not growing tech firms, but the enormous legacy of wealth, including inherited wealth, that has built up in our state over the past 30 years. California is still rich in rich people, whose stock and real estate holdings are gaining value. As long as Uncle Ben’s printing press hands out free money, California could collect enough in state income taxes to perhaps balance its annual budget for a spell.

    None of this places, to say the least, California on a firm footing. So at the risk of engendering some gubernatorial ire, here’s my memento mori suggestions for restoring California’s promise. This starts with the assumption that the elements of a true revival exist and that, if Brown would shed some of his dogma, he may end up deserving his current plaudits.

    • Get real on the budget.Asset bubbles may rescue the state from annual budget woes, but the state’s long-term prospects remain cloudy, due largely to mounting government employee pension costs. Attempts to revise the game for new employees are not sufficient to scale the state’s mounting "wall of debt"; Californians per capita now owe almost five times as much to Wall Street as residents of our chief rival, Texas. Analyst Joe Matthews suggests we need more drastic fixes, such as cutting off retirees’ health benefits after they reach Medicare age.

    • Redirect the climate-change jihad. California can keep leading in conservation but needs to adopt a more pragmatic people-friendly approach, such as by encouraging telecommuting and energy-saving technologies. In contrast, the current high-density housing diktats and ultra-expensive "green" energy will force up prices for housing and electricity rates way out of proportion to national norms. This damages the middle and working class even if it won’t impinge on the lifestyles of Brown’s rich and famous friends.

    • Focus on basic industry. Tech and entertainment can never drive enough jobs or wealth to support this huge state. But California is blessed with the country’s richest soil and huge fossil-fuel reserves. These could bring in new revenue to the state and create new jobs for a broad number of Californians, particularly in the hard-pressed interior. Particularly critical is the state of the water system, which once again faces large cutbacks because of pressure from environmentalists. Brown has spoken in favor of a peripheral canal; solving the water problem may leave him with a greater legacy than the dodgy bullet train.

    • Reform the education system. More money alone won’t save the schools, but may be used only to prop up the pensions of teachers and administrators. Some kind of radical reform – perhaps school choice, vouchers, mass use of charters – must be the price of any increase in money to education. Brown has made some reformist noises with the University of California, but he remains tethered to the teachers unions on K-12 schools.

    • Invest in economically needed infrastructure. Besides the peripheral canal, Brown should look at expanding the state’s energy supply by permitting the construction of low-polluting, economically efficient gas-fired power plants. Rather than waste money on a "train to nowhere," he should be looking at fixing roads, bridges, ports – the sinews of a modern economy – and improving existing inter-city trains (and buses), particularly in high-volume corridors in the Bay Area/Sacramento and across Southern California.

    • Prioritize blue-collar opportunities. California’s greatest challenges lie with a widening class divide. Bolstering manufacturing, which is in a secular decline here, and restarting construction could create new opportunities for blue-collar workers. Port expansion would create lots of jobs in everything from warehousing to assembly and business services. This can be meshed with revitalized training programs for the skilled trades. In simple terms: California needs more skilled machinists, electricians and irrigation technicians and likely fewer marginally employable ethnic-studies or humanities grads from second- and third-tier schools.

    One can understand why our governor, at age 74, wants to enjoy his triumph. But to deserve the laurel wreath, he first needs to make the major changes that can bring this greatest of states back to its historic potential.

    Joel Kotkin is executive editor of NewGeography.com and a 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.

    This piece originally appeared in the Orange County Register.

    Jerry Brown photo by Bigstock.

  • Top GOP Budget Officials Call for Investigation of Xpress West High Speed Train from Victorville to Los Angeles

    Congressman Paul Ryan, chairman of the House of Representatives Budget Committee and Sen. Jeff Sessions, Ranking Member of the Senate Budget Committee have expressed serious reservations on the proposed taxpayer loan to the Xpress West high-speed rail line that would operate two thirds of the way between Los Angeles and Las Vegas (from Victorville).

    A joint letter dated March 7 to United States Secretary of Transportation Ray LaHood called the taxpayer risks untenable. They asked for a Government Accounting Office investigation of the project and asked Secretary LaHood to suspend final determination on the taxpayer loan until the GAO investigation is completed.

  • The Age of Bernanke

    To many presidential idolaters, this era will be known as the Age of Obama. But, in reality, we live in what may best be called the Age of Bernanke. Essentially, Obamaism increasingly serves as a front for the big-money interests who benefit from the Federal Reserve’s largesse and interest rate policies; progressive rhetoric serves as the beard for royalist results.

    Overall, the impacts of ultralow interest rate, cash-machine policies of Fed Chairman Ben Bernanke trump everything else. The presidential stimulus was, at best, modestly effectively, and certainly did little to turn around the fortunes of most Americans or spark much economic growth. Unemployment remains stuck at around 8 percent and 8.5 million workers have exited the labor force.

    But the Bernanke policies have succeeded in reshaping the economic landscape in ways that, while good for the plutocracy and Wall Street, are not particularly positive for the vast majority of Americans.

    Economic Losers

    Many of the biggest losers in the Bernanke era are key Democratic constituencies, such as minorities and the young, who have seen their opportunities dim under the Bernanke regime. The cruelest cuts have been to the poor, whose numbers have surged by more than 2.6 million under a president who has promised relentlessly to reduce poverty.

    Things, of course, have not too great for the middle-age and middle-class – more of them now supporting both aging parents and underemployed children. Median income in America is down 8 percent from 2007, and dropping. Things, in reality, are not getting better for anyone but the most affluent.

    A particular loser has been small business. As we enter the sixth year since the onset of the Great Recession, and nearly four years after the "recovery" officially began, small business remains in a largely defensive mode. Critically, start-up rates are well below those than following previous downturns in 1976 and 1983. The number of startup jobs per 1000 – a key source of job growth in the past – over the past four years is down a full 30 percent from the Bush and Clinton eras. New firms – those five years or younger – now account for less than 8 percent of all companies, down from 12 percent to 13 percent in the early 1980s, another period following a deep recession.

    With demand and growth still weak, small business enters the new year with among the lowest expectations of any large economic sector. As Gallup points out, one in five small companies expects to lower its employee count, one in three expect to decrease capital spending and almost as many expect to be in more severe cash-flow troubles by the end of the year.

    This decline of small-business sentiment constitutes arguably the biggest reason for our poor job-creation numbers. If small business had come out of the recession maintaining just the rate of start-ups generated in 2007, notes McKinsey, the U.S. economy would today have almost 2.5 million more jobs than it does.

    Smaller Banks

    One source for this decline lies in the difficulties faced by smaller community banks, which tend to be those most likely to lend to entrepreneurial firms. Jeff Ball, chairman-elect of the California Bankers Association and founder of Whittier-based Friendly Hills Bank, suggests the Fed’s policies – as well as growing regulatory policies – has led to an unprecedented concentration of financial assets in the hands of a few large "too big to fail banks" while the number of smaller community banks has been shrinking.

    "Everywhere you turn there’s a ‘gotcha’ from the regulators," Ball notes. "The big banks can deal with the regulations far more easily than the community banks. And because some banks are perceived as ‘too big to fail,’ there’s easier access to credit, and they are perceived to be better to invest in."

    So, who have been the big winners in the Age of Bernanke? The very people who were supposed to be the bête noires of the age of Obama: the large financial institutions. In 2013, the top four banks controlled more than 40 percent of the credit markets in the top 10 states, up by 10 percent from 2009 and roughly twice their share in 2000. At the same time, since the passage of the Dodd-Frank financial regulations, there are some 330 fewer small banks. Under the current regime, the oligopolization of the credit markets will continue apace, as much, or even more, than if Mitt Romney had won the presidency.

    Higher Profits

    Under these circumstances, it’s not surprising that large financial institutions and hedge fund have enjoyed close-to-record profits under Obama. This fall, for example, Wells Fargo and JP Morgan announced record profit. And despite widespread condemnation their executives have continued to enjoy outsized compensation, often greater than under George W. President Bush.

    Unlike smaller firms, or the middle class, the big financial institutions have feasted like pigs at the trough, with the six largest banks borrowing almost a half-trillion dollars from Uncle Ben Bernanke’s printing press. While millions of Americans have lost homes and much of their net worth, there has been not a single high-level prosecution by the Obama administration of the grandees of the very financial giants at the heart of the mass misery.

    Even the nascent housing recovery – which could create wealth for the middle class – appears largely to be creating opportunities for wealthy investors. In California, as well as other hard-hit real estate markets, such as in Florida, Arizona and Nevada, private investors constitute a large portion of buyers. The big private-equity firm Blackstone recently announced plans to buy $100 million in homes every week.

    These wildly divergent results between the hoi polloi and the financial elites do not seem to bother our "organizer in chief," particularly with re-election behind him. Instead, the Bernanke regime seems to be cementing a strong alliance of convenience between the government sector – which needs low interest rates to keep funding itself – and those with the easiest access to cheap money.

    Some observers, such as former Clinton Administration advisor Bill Galston, suggest we could see the emergence of a closer political alliance between big business and the public sector interests. Democrats, he suggests, have a natural alliance with larger firms, not only in the financial industry, while small-business lobbies remain "a building-block of the Republican base."

    New Corporatism

    This new corporatism that is becoming an integral part of the supposedly middle-class oriented Democratic Party. Close Obama advisers, like disgraced investment banker and political fixer Steven Rattner, Obama’s czar for the auto bailout, justify collusional capitalism, both in China and in America’s "too big to fail" regime.

    The reality remains that, rhetoric aside, corporate cronyism remains at the core of this administration and, sadly, the once-proudly populist Democratic Party. After his confirmation, we can expect former Citigroup profiteer Jacob Lew to follow Treasury Secretary Timothy Geithner, working along with Bernanke, to make sure the big Wall Street firms continue to thrive – even if the rest of us don’t.

    All this is reminiscent of something out of the declining days of the Roman Empire. The masses get bread (food stamps) and circuses, with virtually all of Hollywood and much of the media ready to perform on cue. The majority, losers in the Bernanke economy, lack the will and, maybe, the attention span to realize what is happening to them.

    "The Roman people are dying and laughing," the fifth-century Christian writer Salvian wrote. Like America today, entertainment-mad Rome suffered from a declining middle class, mass poverty and domination by a few wealthy patricians, propped up by a compliant government. Unless Americans of both left and right wake up to reality, our civilization could suffer a similar inexorable decline in the Age or Bernanke.

    Joel Kotkin is executive editor of NewGeography.com and a 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.

    This piece originally appeared in the Orange County Register.

  • Gentrification and its Discontents: Cleveland Needs to Go Beyond Being Creatively Classed

    “Indeed, we have the know-how, but we do not have the know-why, nor the know-what-for”—Erich Fromm, social psychologist.

    The question of how you “become” as a city has been weighing on me lately. Is it enough to get people back into the emptiness? Is it enough to pretty the derelict? I mean, is the trajectory of Cleveland’s success simply a collection of micro-everythings, start-ups, and occupancy rates? That is, is Cleveland’s reward simply the benefit of being creatively classed?

    I hope not. It won’t work. Here is why.

    The problem with most city revitalization these days relates to its playbook: there are the investors who have the capital, and then the political power from which finance flows. Here, money not only talks, it builds, with investors’ wishes transcribed in how a city looks, feels, and functions. That said, the main interest of the investors is to make money, and so people are seen as consumers as opposed to citizens. Consumers that fill up real estate space. Consumers that salivate over tastes. Consumers of art and design, with the attraction to beauty meant to establish a “vibrancy for profit” mindset as opposed to experiencing beauty for the value of beauty’s sake. Come to think of it, the creative class is really just the consumer class, just like the rest of us. Yet they are anointed in status by city makers because they are thought to have more spending power than their working- and service-class counterparts.

    “Follow the creative community, and property values will rise,” states one recent article in a real estate publication. “You have given real estate developers the playbook”, echoes Albert Ratner, head of Cleveland-based Forest City, on his reading of “The Rise of the Creative Class”. The motivations, as such, are quite blatant.

    Now, why is this a problem?

    Because developers have extraordinary amounts of pull in directing where finances goes (this is particularly true in Cleveland), which means investment can get skewed to a select demographic. As such, the gap between the haves and have not’s grows and the geographic disparities begin to cement social inequities into the city’s fabric. Cracks then show: drug use, murders, alienation and disenfranchisement, growing pockets of continued disinvestment, and it won’t stop because research has consistently shown that inequity is an endless source of social ills. The only thing left to do is to compartmentalize our shadows, with “bad” kept in places away from the spots of our “hope”. This is not unique to Cleveland or to this era. It is just the way things have been, which leads me to wonder if Cleveland’s recent comeback is just a carousel in which progress is simply rearranging the broken deckchairs.

    But while the future is uncertain, failure need not be inevitable. Yet what can be done in Cleveland and other Rust Belt cities to ensure we don’t waste our opportunity? Unfortunately, little outside of a radical shift in how cities think about themselves, particularly as it relates to the notion of “revitalization”.

    This is where the concept of “Rust Belt Chic” comes in, which—when it is boiled down—is really just a process of collectively “knowing thyself” (an in depth description of Rust Belt Chic economic development will be delineated in a subsequent post). Specifically, by becoming aware of who we are as “Cleveland” we know who we are not, or more exactly: what we don’t need to be. This is important as it relieves the temptation of Cleveland trying to copy some other city’s so-called success which, in the end, is counterproductive, as such efforts—like the historic Columbia Building demolition for a Vegas-style “look”—ultimately eliminates those things like history and architecture which ties us together.

    columbia building

    The historic Columbia Building being demolished. Courtesy of the Cleveland Kid.

    This is all to say that Cleveland need not be “brochured” for the so-called creative class. That is simply objectifying your city as a product as opposed to a people, which is crude, and such posturing and posing is hardly Cleveland, besides.

    Instead, a hammering down of who we are in our process of becoming is needed. We are Clevelanders. We care and fight for this city, endlessly. We swear, shake hands, bleed, heal, work, fight, and pray—all in an environment molded more so by the reality of Mickey Rourke than the donning of Ashton Kutcher. And so while repopulating the core is needed, we also must engage in building the productive capacity of people as opposed to simply relying on a capacity to spend. Specifically, squeezing out price per sq. feet at the expense of community fabric is not true economic growth. It is mountains turned to coal.

    I cannot emphasize enough how important community development is to Cleveland’s future. For as creative classification goes main stream, more and more cities will begin looking and feeling the same, and more and more cities will be turned to products to be gobbled up by those with stars in their eyes. But this kind of thing is not for everyone, or even for most. It is for a slice, a finicky slice. And so I gather creative classification will go the way of the fad, like all styles do. Some cities will be stuck left to look at the cartoon tattoos that dot their body, while the people left longing will decompress to find something a little more real.

    Then—if we do it right—people will turn to Cleveland not because we faked the place as attractive, but because Cleveland made an effort to turn to its people.

    This post originally appeared at Cool Cleveland.

    Richey Piiparinen is a writer and policy researcher based in Cleveland. He is co-editor of Rust Belt Chic: The Cleveland Anthology. Read more from him at his blog and at Rust Belt Chic.

    Lead photo: Don’t call him creative classed. A Cleveland artist, Mac, and his rooster, Morty.