New Geography

Category: Politics

  • Goodbye, Chicago

    Odd as it may seem for someone known as The Urbanophile, I actually grew up in the countryside. I spent most of my childhood on a country road about four miles outside the town of Laconia, Indiana, population 50.  I always used to get confused when John Cougar sang about living in a small town, because I knew he was from Seymour, and with over 15,000 people that seemed a big town in my book.

    Today I still laugh at these urbanites who brag about their green ways like having “rain barrels” to catch reclaimed rainwater from the roof for watering their yard.  For many years that’s what I drank growing up, as we didn’t have city water supplies and had to rely on our cistern.

    After graduating high school I went to Indiana University. Then armed with my bachelors it was on to Chicago, the result of an accident: that’s where my job offer came from.  I had no strong feelings on where to live other than that I didn’t want to go back to my home town. In Chicago I ended up, like many young professionals, in the Lincoln Park neighborhood on the North Side. Though this too was pretty much an accident. I had relatives who lived there and invited me to stay with them when looking for an apartment.

    For many people from small town or suburban environments, going to college is a time of tremendous personal transformation and growth. I didn’t have that experience. For me, the great transformation came from moving to Chicago. Exiting the L in the Loop on my first day going to work, wearing a suit, surrounded by tall buildings and crowds of people, I felt like I was on the set of a movie. It was an almost surreal experience.

    Though urban life was new to me, I fell in love with it. And I was transformed by the experience. I knew nothing about culture, food, fashion, architecture, actually relating to people with different backgrounds from me, traveling, or how to get around in anything other than a car.  Beyond merely learning how to go to work every day, living in Chicago provided a non-stop stream of stimulating and educational experiences that helped me grow as a person.

    But it wasn’t just me who was being  transformed. The urban renaissance of Chicago was underway by the time I arrived in 1992, but it was very early in the process. I recall recruiters for the company I worked for bragging about how Chicago was now an outpost of that uber-hip coffee chain Starbucks. The gentrified areas were still largely confined to a narrow strip along the north Lakefront. Many of the places that later became yuppie playgrounds were then ethnic enclaves or undeveloped. Some were still close to slums.  On the outer reaches of Lincoln Park itself, streetwalkers openly plied their trade along North Ave.

    The 90s were heady a heady decade for  Chicago. The city, like select other major urban metros around the country, exploded with new growth and attracted many new migrants. Chicago experienced perhaps the largest urban condo building boom in America, transforming huge tracts of the city.  The quality on offer improved radically.  The population increased, and the city even added more jobs than Houston. It was a great time to be a Chicagoan, and I enjoyed every minute of it.

    But come the 2000s, the condo boom continued but an economic and political malaise  had clearly set in. Even new mayor Rahm Emanuel has labeled it a lost decade. As the decade ended, I had increasingly made up my mind to leave the city, now the place where I’d spend nearly as many years as my native Indiana. Early this year, I left Chicago behind.

    What made me decide to leave?  There are a few factors, some more personal than others.

    The first is that I simply had done Chicago. The Chicago experience had been transformational when I got there, but after nearly 20 years it was getting stale. It was just more of the same. It was time for new challenges.

    I was also motivated by the bleak economy. I owned a condo, an  anchor that left me at great risk of getting marooned in the city, a phenomenon recently written about by Crain’s Chicago Business. I was willing to sell near the bottom of the market to avoid the risk of getting stranded. There is no clear sense of an imminent major turnaround. There are huge unfunded liabilities at all levels of government in the region and state. The city’s economy seems to have lost a clear raison d’etre. No longer the “city of big shoulders”, it is losing out to urban areas with stronger economic identities — New York, San Francisco, Los Angeles, Washington and, even emerging cities like Houston.  So in the end I decided it was worth paying a “breakup penalty” to get out. Interestingly, no one, not even my alderman, suggested I was wrong in this.

    Lastly, I no longer saw Chicago as a good platform for my personal ambitions. The city likes to see itself as occupying a “sweet spot” as a legitimate urban oriented big city with a lower price tag and higher quality of life. Yet for me Chicago was a “sour spot” that offered neither the opportunities of say a New York, Washington, or San Francisco, but still came with a high price tag. I would rather live in a small city that’s dirt cheap where I can have more impact, or in a place like New York where the cost of living might be greater, but the opportunities are matchless.

    That is ultimately where the city will stand or fall. I’m but one example, but it’s a decision repeated with various results day after day: is this where I’ll plant my flag, seek my fortune and dreams, raise my family, or build my business?  Chicago has to be seen as a success platform for both people and businesses. The demographic and economic results of the 2000s suggest it is losing that battle for the moment, though given the 90s results, it is certainly possible to think that might change again tomorrow.

    As for me, Chicago will always hold a special place in my heart and I’ll treasure my experiences there.   But for now it’s on to new adventures.

    Aaron M. Renn is an independent writer on urban affairs and the founder of Telestrian, a data analysis and mapping tool. His writings appear at The Urbanophile.

    Chicago skyline photo by Bigstockphoto.com.

  • The Myth of the Republican Party’s Inevitable Decline

    The map is shifting, and Democrats see the nation’s rapidly changing demography putting ever more states in play—Barack Obama is hoping to compete in Arizona this year, to go along with his map-changing North Carolina and Indiana wins in 2008—and eventually ensure the party’s dominance in a more diverse America, as Republicans quite literally die out.

    Ruy Teixeira and others have pointed to the growing number of voters in key groups that have tilted Democratic: Hispanics, single-member households, and well-educated millennials. Speaking privately at a closed-door Palm Beach fundraiser Sunday, Mitt Romney said that polls showing Obama with a huge lead among Hispanic voters “spell doom for us.”

    But, as the fine print says, past results do not guarantee future performance—and there are some surprising countervailing factors that could upset the conventional wisdom of Republican decline.

    Let’s start with Hispanics. Straight-line projections suggest an ever-increasing base, as the Latino population shot up (PDF) from 35 million in 2000 to more than 50 million in 2010, accounting for half of all national population growth over the decade. Exit polls showed Democrats winning the vote in each election cycle over that stretch, with Republicans never gaining more than 40 percent of the vote. And the problem is getting worse: a recent Fox News Latino poll showed Obama trouncing Romney, 70–14, among Hispanic voters—even leading among Latinos who backed John McCain in 2008.

    But longer term, Hispanic population growth is likely to slow or even recede, and Republicans are likely to do better with the group (in part because it would be hard to do much worse), as assimilation increases and immigration becomes less volatile an issue.

    Rates of Hispanic immigration, particularly from Mexico, are down and are likely to continue declining. In the 1990s, 2.76 million Mexicans obtained legal permanent-resident status. That number fell by more than a million in the 2000s, to 1.7 million, according to the Department of Homeland Security. A key reason, little acknowledged by either nativists or multiculturalists, lies in the plummeting birth rate in Mexico, which is mirrored in other Latin American countries. Mexico’s birth rate has declined from 6.8 children per woman in 1970 to about 2 children per woman in 2011.

    Plummeting birth rates suggest there will be fewer economic migrants from south of the border in coming decades. In the 1990s Mexico was adding about a million people annually to its labor force. By 2007 this number declined to about 800,000 annually, and it is projected to drop to 300,000 by 2030.

    These changes impacted immigration well before the 2008 financial crisis. The number of Mexicans legally coming to the United States plunged from more than 1 million in 2006 to just over 400,000 in 2010, in part because of the 2008 financial crisis here. Illegal immigration has also been falling. Between 2000 and 2004, an estimated 3 million undocumented immigrants entered the country; that number fell by more than two thirds over the next five years, to under 1 million between 2005 and 2009.

    Increasingly, our Latino population—almost one in five Americans between 18 and 29—will be made up of people from second- and third-generation families. Between 2000 and 2010, 7.2 million Mexican-Americans were born in the U.S., while just 4.2 million immigrated here.

    This shift could spur the faster integration of Latinos into mainstream society, leaving them less distinct from other groups of voters, like the Germans or the Irish, whose ethnicity once seemed politically determinative. A solid majority of Latinos, 54 percent, consider themselves white, according to a recent Pew study, while 40 percent do not identify with any race. Most reject the umbrella term “Latino.” Equally important, those born here tend to use English as their primary language (while just 23 percent of immigrants are fluent in English, that number shoots up to 90 percent among their children).

    To be sure, most Latinos these days vote Democratic. But they also tend to be somewhat culturally conservative. Almost all are at least nominally Christian, and roughly one in four is a member of an evangelical church. They also have been moving to the suburbs for the past decade or more—a trend that is of great concern to city-centric Democratic planners.

    A more integrated, suburban, and predominantly English-speaking Latino community could benefit a GOP (assuming it eschews stridently nativist platform). After all, it wasn’t so long ago that upward of 40 percent of Latinos voted for the likes of George W. Bush, who won a majority of Latino Protestants.

    More than race, family orientation may prove the real dividing line in American politics. Single, never-married women have emerged as one of the groups most devoted to the Democratic party, trailing only black voters, according to Gallup. Some 70 percent of single women voted Democratic in 2008, including 60 percent of white single women.

    While the gender gap has been exaggerated, a chasm is emerging between traditional families, on the one hand, and singles and nontraditional families on the other. Married women, for example, still lean Republican. But Democrats dominate in places like Manhattan, where the majority of households are single, along with Washington, D.C., San Francisco, and Seattle.

    In recent years Republican gains, according to Gallup, have taken place primarily among white families. Not surprisingly, Republicans generally do best where the traditional nuclear family is most common, such as in the largely suburban (and fairly affordable) expanses around Houston, Dallas, and Salt Lake City.

    To be sure, Democrats can take some solace, at least in the short run, from the rise in the number of singletons. Over the past 30 years the proportion of women in their 40s who have never had children has doubled, to nearly one in five. Singles now number more than 31 million, up from 27 million in 2000—a growth rate nearly twice that of the overall population. And only one in five millennials is married, half that of their parents’ generation.

    Yet as with Latino immigration, the trend toward singlehood is unlikely to continue unabated. Demographic analyst Neil Howe notes that living alone has been more pronounced among boomers (born 46–64) than millennials (born after 1980) at similar ages. Assuming marriage is delayed rather than dropped, it remains to be seen if the former singletons will maintain their liberal allegiance.

    Varying birth rates also suggest that the Democrat-dominated future may be a pipe dream. Since progressives and secularists tend to have fewer children than more religiously oriented voters, who tend to vote Republican, the future America will see a greater share of people raised from fecund groups such as Mormons and Orthodox Jews. Needless to say, there won’t be as many offspring from the hip, urban singles crowd so critical to Democratic calculations.

    And millennials are already more nuanced in their politics than is widely appreciated. They favor social progressivism, according to Pew, but not when it contradicts community values. Diversity is largely accepted and encouraged, but lacks the totemic significance assigned to it by boomer activists. They are environmentally sensitive but, contrary to new urbanist assertions, are more likely than their boomer parents to aspire to suburbia as their “ideal place” to live.

    Some economic trends favor Republicans. Households, for example, are increasingly more dependent on self-employment, and the number relying on a government job is dropping as deficits and ballooning pension obligations force cuts in government payrolls. Republicans would do well to focus on these predominately suburban, private-sector-dependent families.

    All this suggests that if they can achieve sentience, Republicans could still compete in a changing America continues changing. But first the party must move away from the hard-core nativist, authoritarian conservatism so evident in the primaries. Rather than looking backward to the 1950s, the GOP needs to reinvent itself as the party of contemporary families, including minority, mixed-race, gay, and blended ones.

    This piece originally appeared in The Daily Beast.

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

    Voter sign photo by BigStockPhoto.com.

  • Millennial Generation Safe at Home

    Each emerging American generation of adolescents and young adults tends to have a distinctive relationship with its parents. For the Baby Boomers of the 1960s and 1970s, that relationship was often conflicted, even adversarial. For Generation X in the 1980s and 1990s it was frequently distant and disrespectful. By contrast, the interactions with their parents of most of today’s Millennial Generation (born 1982-2003) are close, loving, and friendly. That’s a very good thing because, to a far greater extent than for the previous two or three generations, Millennials in their twenties live with their parents, and even grandparents, in multigenerational households.  To the surprise of many members of older generations, most Millennials—and their parents—believe the experience is beneficial and even enjoyable. It may even help America in the years ahead.

    A Pew survey conducted last December indicated that nearly two-thirds (63%) of young adults 25-34 knew someone who had recently moved back in with their parents.   Almost three in ten (29%) said that they were currently living with their parents. That is nearly three times the percentage of those of that age who lived with their parents in 1980 (11%). Multigenerational households, once seen as a lagging trend, have been growing as a share of households since 1980, rising from 12 to 16 percent over the past three decades.

    More recently, the powerful and disproportionately large impact of the Great Recession on young Americans appears to have further accelerated this trend toward multigenerational households. According to Pew, in 2011, the unemployment rate for 18-24 year olds (16.3%) and 25-29 year olds (10.3%) was well above that of those 35-64 (7%).

    But the growth in multigenerational households represents more than simply the result of economic stress. It also reflects how Millennials were raised and the value both they and their parents place on family life.  According to Pew, the large majority of young adults who now live with their parents are both satisfied with this arrangement (78%) and optimistic about their future (77%). In fact, more than a third (34%) of them actually believe that living with their parents at this stage of life has been good for their relationship with their parents, about twice the number who say it has been bad (18%). From the parents’ perspective, those who say an adult child of theirs has moved back home recently are just as satisfied with their family life and housing situation as are those parents whose adult children have not returned home. In this regard, these upbeat parents resemble Cliff and Clair Huxtable, the original TV role models for the proper rearing of Millennials on “The Bill Cosby Show,” who outwardly complained, but inwardly seemed pleased, every time one of their children (and sometimes grandchildren) “boomeranged” back to the family’s home.

    Furthermore, both the adult Millennials who are living with their parents as well as their parents seem to be benefitting from this arrangement. This contradicts the notion, popular among Boomers, that living with parents after one becomes an adult represents some sort of personal failure or lack of initiative. Nearly three-fourths (72%) of the adult children say that living with their parents has had a positive impact on their own personal finances. Young adults who live with their parents also contribute to the household in a variety of ways. Nearly all (96%) say they do chores around the house. Three-quarters contribute to paying household expenses such as groceries or utility bills. More than a third (35%) pay rent to their parents. Given all this, it is not surprising that multigenerational households have become increasingly common with so little complaint from any of the generations involved.

    However, many pundits have expressed a concern about what this trend means for America in the decades ahead. For example, in a recent New York Times article Todd and Victoria Buchholz wrote disparagingly of the “go-nowhere generation” that refuses to take risks, bestir itself from the insulation of home and “go on the road” to seek a better future. Along the way, the Buchholzes praise the Greatest Generation [which] “signed up to ship out to fight Nazis in Germany or the Japanese imperial forces in the Pacific,”  almost seeming to imply that the GI’s fought the battles of Normandy and Iwo Jima  simply to demonstrate their rugged individualism by leaving the parental home.

    History tells a different story. Like Millennials, the GI Generation (born 1901-1924) was of a type labeled “civic” by those who study generational change. Like the Millennial Generation, the GI Generation was raised in a protected manner by its parents and even tended to stay with their parents well into adulthood; multi-generational households according to Pew, after all, were far more common—nearly one in four in 1940—than today. This led to complaints about the generation that later became known as the Greatest Generation which sound strikingly like what is said about Millennials today. According to William Strauss and Neil Howe, the creators of generational theory, early in World War II, Army psychiatrists even fretted about “how badly Army recruits had been over-mothered in the years before the war.”

    Perhaps as a result of this protected upbringing, the GI Generation also was a “stay-at-home” cohort when its members were young adults. A Pew analysis of US Census data from 1940 indicates that when this generation were all 25-34 year olds about 28% of them lived in multigenerational households, a number almost identical to that of Millennials today. As a result, members of the GI Generation married and had children later than previous or subsequent generations, just as Millennials are doing today. However, once the pressures of depression and war were behind them, the GI Generation more than caught up. It parented the Baby Boom Generation, the largest in American history before Millennials came along. Aided by favorable governmental policies such as the GI Bill and the Federal Housing Administration, it grew the American economy to unprecedented heights, and expanded the American middle class, homeownership, and enjoyed en masse the chance to escape crowded cities for more bucolic suburbs.   

    There is every reason to expect achievements from America’s newest civic generation, just as we have seen from previous cohorts of this kind. As was the case with their GI Generation great-grandparents before them, almost all negative social indicators—youthful crime, substance abuse, and out of wedlock teen pregnancy—have fallen to some of the lowest levels in modern history. Meanwhile, positive indicators, such as school test scores and educational achievement, have risen to the highest levels in decades. No less than other generations, Millennials value being good parents, home ownership, having a successful marriage, and helping others in need.  Perhaps the alarmists are wrong. Maybe being “safe at home” especially during times of adversity, is a good thing for young adults, their parents, and the nation.

    Morley Winograd and Michael D. Hais are co-authors of the newly published Millennial Momentum: How a New Generation is Remaking America and Millennial Makeover: MySpace, YouTube, and the Future of American Politics and are fellows of NDN and the New Policy Institute.

    Mother and son photo by Bigstockphoto.com.

  • A Little Snooki in the French Presidential Campaign

    As a reality television series, it’s hard to beat the prime-time adventures of the French presidential election; as endless as the Republican primaries, but racier than Snooki’s antics on “Jersey Shore”. This ought to give pause to anyone who is relying on Parisian politics to save the European Union.

    To ensure that the Élysée Palace is inhabited occasionally by bigamists (François Mitterand), megalomaniacs (Charles de Gaulle), diamond smugglers (Valéry d’Estaing), or influence peddlers (Jacques Chirac), the presidential electoral system works like this: In the first round on April 22nd, candidates from a diverse number of parties across the spectrum will face off. If none of the candidates get more than 50 percent of the vote (unlikely), a runoff is then held two weeks later, featuring the top two finishers of round one.

    In the current cycle, the major candidates are President Nicolas Sarkozy (right of center; best imagined as a tough detective on “Law and Order”), François Hollande (socialist; looks like Seinfeld’s friend George Costanza), Marine Le Pen (far-right nationalist; uses the word deportation as a noun, verb, adjective, and term of endearment), François Beyrou (centrist; keen on the moral purity of centrism), and Jean-Luc Mélenchon (far left; speaks for those whom Le Pen would deport).

    According to the latest polls, which are notoriously inaccurate, Sarkozy should pull the most votes in the first round—followed by Hollande, Mélenchon, Le Pen, and Bayrou—but not enough to win outright.

    Enthusiasm for Hollande is tepid, and hardline voters, fearing he is a margarine socialist, might ditch him to vote for the florid, far left candidate, Mélenchon, although it is doubtful that Mélenchon would ever place second. In the runoff, if Sarkozy were to face Hollande, the forecasts are that the socialist candidate would beat the standing president, 54 – 46 percent.

    Campaigning in France takes place on nightly news programs that feature breathless, non-stop reports about the day’s political events. Sarkozy loves big indoor rallies in halls that look like Madison Square Garden, where only his supporters are admitted. They madly wave “La France Forte” placards (“For a Strong France”), while he denounces illegal immigration, Islamic terrorists, and economic stagnation. He has even campaigned against himself, saying, if re-elected, he would be “a different president.”

    The mundane facts of the campaign don’t explain why the election has become a prime-time drama, with most talk shows spending hours on the candidates’ love lives or on the scandal of the week.

    When he ran for president in 2007, Sarko was married to Cécelia Sarkozy. They met when, as mayor of Neuilly in Paris, he officiated at her first wedding. Three years later, they were a couple.

    During the presidential campaign in 2007, however, she told one interviewer that perhaps she might not vote. After her husband won, she acted bored at the thought of moving into the Élysée Palace (“all those rooms and servants…”), and famously blew off a Bush family cookout at Kennebunkport when she found out that it would involve spending the day with her husband.

    Those Sarkozys divorced. Cécelia said Sarko conceived of political office as a platform on which to seduce women, including some not dressed up as brides. Sarko brooded for about an afternoon and then took up with the singer, songwriter, and supermodel fashionista Carla Bruni, who sees herself as this generation’s Jacqueline Kennedy.

    Not to be outdone on “How the President Met Your Mother,” François Hollande has four children with Ségolène Royal, the socialist party candidate for president in 2007. Imagine a relationship—they never officially married—in which both partners want to be president of France? Ségo lost to Sarko in 2007. During that election it turned out that life-partner Hollande was “campaigning” with a Madame de Pompadour-like magazine journalist, who now might become the first official live-in girlfriend at the Élysée Palace.

    Although France is not a country that bores easily on the subject of sex, when voters are looking for other electoral diversions (why dwell on recession, illegal immigrants, angry Arabs, or the Greek invoice?), the newspapers are ready with a host of tabloid scandals.

    The mud sticking to the sides of Sarko’s Nixonian smile is his relationship with the rich heiress of the L’Oréal fortune, Liliane Bettencourt, who is suspected of having financed his 2007 campaign with envelopes that were stuffed from a Swiss bank account. Her bagman has been arrested, and the accountant is singing to the judges, but as a sitting president Sarkozy is immune from prosecution. Nor, until he leaves office, does he even have to answer questions about the bulging envelopes.

    Were the Bettencourt scandal a Burgundy wine, the review notes on the shelf might read, “Lush hints of the Swiss alps, with just the right amount of perfume and hidden pleasure, yet classically French. Drink now or hold until the election.”

    Because the socialists don’t want to go into pre-election prime-time sweeps without a scandal of their own, they can always rely on former party chief Dominque Strauss-Kahn, the excommunicated head of the International Monetary Fund, who on a slow day for news can be counted on to harass women, cavort with prostitutes, or land in jail, with each headline reminding the French that, save for the odd rape charge, he could well have been their next president.

    The latest DSK charges involve call girls who provided pleasures at a Lille hotel, and whom, when the mood and cash were right, flew off to far-flung DSK soirées. There, the president-in-waiting together with some (socialist?) corporate donors would loosen their chains and unite with these workers. (Marx would have approved.)

    In court, DSK’s lawyer claimed his client didn’t know the ladies were escorts because he only saw them in a natural state, when it’s harder to discern the “provenance” of the “goods,” which is how Strauss-Kahn referred to the women.

    Alas, scandals are included in a French presidential election only for entertainment. Neither sacks of cash nor tales of sexual escapades will determine how people vote. The working classes, based in large cities, vote for the left. Agrarian, conservative France guards its pocketbook and votes for the right. Centrism isn’t a French concept.

    Sarko’s chance is that he appeals to the middle right, a law-and-order president angry at Islam who has the backs of shopkeepers and farmers, all of whom are tired of strikes and lazy functionaries.

    Hollande — if he makes it to the second round, where he could well beat Sarkozy — can point to an incumbent who is presiding over a stagnating economy with high unemployment. But Hollande’s sonorous campaign might make voters long for someone more passionate, even Sarko, who each day reminds the electorate of some new red scare.

    Marine Le Pen, for her part, has made it clear that she would not put up with any more nonsense—not with rioting Algerians, not with bankrupt Greeks, not with German alliances.

    Still, nonsense and naughtiness might be exactly what the French are looking for, and that raises this question: Are the French toast?

    Photo: Nicolas Sarkozy at Davos, 2011; copyright World Economic Forum

    Matthew Stevenson is the author of Remembering the Twentieth Century Limited, a collection of historical travel essays, and recently edited Rules of the Game: The Best Sports Writing from Harper’s Magazine. His next book is Whistle-Stopping America.

  • Enjoying the Kool-Aid in Omaha

    I left Santa Monica for Omaha less than 3 months before the collapse of the global financial infrastructure in September 2008. The impending problems in housing and credit markets – obvious from early 2007 and exacerbated by the pile-on effect of derivatives gone wild – were increasingly in the bank of my mind. I made the decision to leave the dense urban population center of southern California and head to a place where —as recently described in an episode of The Walking Dead – there is a small population and lots of guns. I figured if the world was going to fall apart (something short of being over-run by zombies but worse than a minor recession) I’d rather not be sitting with my back to the ocean and no boat.

    Omaha has turned out to be blessed. The farm economy is strong. It is home to 5 of the Fortune 500: ConAgra, Berkshire Hathaway, Union Pacific, Peter Kiewit Sons’ and Mutual of Omaha Insurance all call Omaha home. Best of all, Omaha is home to Warren Buffett – the Oracle of Omaha and financial genius of Wall Street, one of the world’s richest men, head of legendary Berkshire Hathaway and, best of all for me, patron of the arts, humanities, community and politics in Nebraska.

    We all hail Uncle Warren’s beneficence but we may not want to look too closely at where the money comes from – like the 15 percent return he’s earning on the $5 billion investment he made in Goldman Sachs the week before they got a $10 billion bailout; or the fact that Berkshire Hathaway was the largest shareholder in American Express Co. when they received $3.4 billion from Uncle Sam. Nebraska may be a red state but Buffett has chosen Democrats, like retiring Senator Ben Nelson, to service his economic agenda. According to data from the Federal Election Commission, Uncle Buffett’s political contributions go almost exclusively to Democrats. I could write a whole story just on what Ben Nelson has done for Nebraska, but to conserve space, let me just say “Cornhusker Kickback” – you get the picture. We have more roads, bridges, and military contractors than can likely be required in a state with a population of 2 million – about the same as the population of Manhattan. This in a place where rush hour means there is a car in front of you and you can see more than 12 cars on either side of the road – compare that to Los Angeles (see photos above). The one electoral vote from Nebraska that went to Obama in 2008 is the one that includes Uncle Buffett’s house.

    Author Peter Schweizer (Reason March 2012) describes Buffett using a “bootleggers and Baptists” comparison that’s too close to Immanuel Kant’s “Private vice, public virtue” dichotomy to be accurate. I think Uncle Buffett is much more open about his vices. He does his good works in public but clearly   publically influences his politicians. Buffett made that $5 billion investment in Goldman Sachs on September 23, 2008 – a week before Senator Nelson voted “aye” on the bailout that greatly enhanced Goldman’s value and protected it from the massive losses which would have resulted from the need to raise capital by liquidating assets at collapsing market prices. The Wall Street Bailout not only gave Goldman Sachs an infusion of capital but it also covered the credit default swap payments that Goldman Sachs demanded from American International Group (AIG) as it was going into bankruptcy.  Goldman’s share of the AIG bailout was $2.5 billion in credit default swap payments, plus $5.6 billion in payments from the Federal Reserve Bank of New York and another $4.8 billion as “vig” for lending securities to AIG. That’s enough to cover the dividend payments to Buffett for 14 years with enough left over to pay back the principle. Ten percent rate of return with zero risk – not the risk/reward tradeoff I learned about in college.

    Most Omaha residents know Buffett’s political savvy and appreciate his understated style. Ben Nelson does. He bragged at a Chamber of Commerce meeting that he took advice from Warren before he voted for the Wall Street Bailout. He completely ignored the irony: a Senator asks a banker for advice on a bank bailout, the banker encourages the senator to payout $750 billion of taxpayer money to banks. This is something much less benign than drinkin’ likker on Saturday night and singin’ in the choir on Sunday morning.

    Ben Nelson is among the members of congress who invested in shares of Berkshire Hathaway before passing the Bailout that Benefited Buffett – a move that would probably have gotten them fired from Berkshire Hathaway. The very fact that Buffett was reported as saying something so banal as “I’d never be so brave as to try to influence congress” is all you need to hear to know that he’s not telling the truth. According the Congressional testimony of former- Special Inspector General for the Troubled Asset Relief Program (SigTARP) Neil Barofsky, and a report from the Government Accountability Office, the TARP bailout program was rigged. Firms with “political connections,” were more likely to get TARP funds. This was reported to Congress at hearings and reported here in 2009:

    “Treasury, the New York Federal Reserve and even Presidential Economic Advisor Larry Summers may be passing information to their friends that can be used for financial gain, giving positions in bailout programs to business associates, and engaging in ‘too cordial relationships’ with bailout recipients.”

    We may object to Warren Buffet’s manipulations on moral ground but residents of Omaha and Nebraska get to enjoy his largess. The procession of bailouts is anathema to many here. Uncle Buffett may live halfway from Wall Street but he is an insider in the classic sense. His huge bets on municipal bonds mean he needs to work to keep cities and counties from bankruptcy. In March 2008, just months after credit markets began to seize up, Buffett told CNBC he had “written 206 transactions in the last three weeks” which were default swaps on municipal bonds – the financing used by cities, counties and states to fund everything from building schools to running services. Since that means Buffett will have to payout if the municipalities experience “credit events” (like missing bond payments), he has the incentive to push for another bailout. The virtue? The bailout will also benefit the millions of people who live and work in places like Detroit, Illinois, and Jefferson County, Alabama. The vice? He controls enough bank stock to have managed a refinance for those municipalities without siphoning off significant premiums for profit. Buffett is willing to pay to get a government that caters to profligate cities and offers bailouts to companies in his industry, too. Buffett hosts a fundraiser for Obama’s political campaign and Obama names a tax-reform after Buffett – one hand washes the other, all done in the bright sunshine of Sunday morning.

    There is no denying that Buffett is smart with his money. In the same way, it would be foolish to suggest that he does this for some personal gratification instead of for profit. His long-hailed strategy of “value investing” has now gone by the wayside in favor of a strategy that can only be described as “grab the profit while you can but don’t stray too far from the government teat.”  When the music stops Uncle Buffett will get bailed out, again, by his good friend Uncle Sam.

    So I’m not disagreeing with the point being made by Shweitzer and others that “America’s favorite billionaire plays politics to make money.” I’m not even disagreeing that this is bad for America. In fact, I side with Nebraska’s Republican Governor Dave Heineman when it comes to the doings of Buffett and Nelson: If it’s bad for America in the short run, it can’t be good for Nebraska long term. I don’t agree with what Buffett and Nelson have been doing for Nebraska but I am enjoying the benefits. And maybe that’s your answer – move into their neighborhoods, enjoy the protection, but whatever you do – don’t drink the Kool-Aid.*

    *Wikipedia cites a reporter from the Washington Post who wrote about seeing “’packets of unopened Flavor Aid’ scattered in the dust in Guyana….”, not actual Kool-Aid. (Source: Krause, Charles A. (Dec. 17, 1978). "Jonestown Is an Eerie Ghost Town Now.") As an aside, Kool-Aid was invented in the 1920s by a Nebraska mail-order entrepreneur.

    Susanne Trimbath, Ph.D. is CEO and Chief Economist of STP Advisory Services. Dr. Trimbath’s credits include appearances on national television and radio programs and the Emmy® Award nominated Bloomberg report Phantom Shares. She appears in four documentaries on the financial crisis, including Stock Shock: the Rise of Sirius XM and Collapse of Wall Street Ethics and the newly released Wall Street Conspiracy. Dr. Trimbath was formerly Senior Research Economist at the Milken Institute. She served as Senior Advisor on United States Agency for International Development capital markets projects in Russia, Romania and Ukraine. Dr. Trimbath teaches graduate and undergraduate finance and economics.

    Lead Photo: 7:15pm May 21, 2011, Santa Monica Freeway, Eastbound © STP Advisory Services, LLC

  • ‘Protestant Ethic’ 2.0: The New Ways Religion Is Driving Economic Outperformance

    In this season when most Americans are more concerned than usual with spiritual matters, it may be time to ask whether religion still matters. Certainly religiosity’s worst side has been amply on display in recent years, from the fanaticism of Islamic terrorists to the annoying sanctimoniousness of Rick Santorum.

    On the surface, religion appears to be losing some of its historic influence. For the first time in a decade, according to a survey by the Pew Research Center, more Americans — excepting the Santorum base — want their politicians to talk less about faith as opposed to more.

    Organized religion in particular may be losing its appeal, particularly among the young. According to recent surveys, religious affiliation in the United States appears to be declining somewhat and secularism is on the rise; over the past 40 years the percentage professing no religious affiliation has grown over 140 percent while the percentage of the deeply faithful dropped 15%. The share of the population who claim “no religion” has risen to 15% overall and 22% of those between 18 and 29, notes a 2009 study by researchers at Trinity College. If these trends continue, the non-affiliated could represent a larger part of our population than the largest denomination, the Catholic Church.

    In large parts of the high-income world, notably Europe and parts of East Asia, the decline of religion is even more pronounced. Half of all Europeans, for example, have never attended a religious service, compared to just 20% of Americans. Roughly 60% of Americans, notes the Pew survey, consider religion important, twice the rate of Koreans, Japanese, Britons or even Canadians.

    Given that some of these countries have performed about as well or better than the U.S. in recent years, one might conclude that the historic link between religious faith and material progress — so central to the work of Max Weber – has been irretrievably broken. Yet in reality, the religious connection with economic growth may be still far more important than is commonly supposed.

    Many in the pundit class identify religion as something of a regressive tendency, embraced by the less enlightened, the less skilled, intelligent and educated. Yet some scholars, such as Charles Murray, point out that religious affiliation is weakening most not among the middle and upper classes but among the poorer and less educated who traditionally looked to churches for succor and moral instruction. Secularism may have not hurt the uber-rich or the academic overclass so far, but it appears to have helped expand our lumpenproleteriat.

    Some might be surprised to learn that religious affiliation grows with education levels. A new University of Nebraska study finds that with each additional year of education, the odds of attending religious services increased by 15%. The educated, the study found, may not be eschewing religion, as social science has long maintained, even if their spiritual views tend to be less narrow, and less overtly tied to politics, than among the less schooled.

    Overall the most cohesive religious groups — such as Mormons and Jews — still outperform their religious counterparts both in educational achievement and income. Both Jews and Mormons focus on helping their co-religionists, providing a leg up on those who depend solely on the charity of others or the state. In countries with a substantial historical Protestant influence such as Germany, Denmark, Sweden and the Netherlands continue to outperform economic the heavily Catholic nations like Italy, Ireland and Spain, according to a recent European study. The difference, they speculate, may be in Protestant traditions of self-help, frugality and emphasis on education. None of this, of course, would have been surprising to Max Weber.

    Religious people also tend to live longer and suffer less disabilities with old age, as author Murray notes. Researchers at Harvard, looking at dozens of countries over the past 40 years, demonstrated that religion reinforces the patterns of personal virtue, social trust and willingness to defer gratification long associated with business success.

    But perhaps the most important difference over time may be the impact of religion on family formation, with weighty fiscal implications. In virtually every part of the world, religious people tend to have more children than those who are unaffiliated. In Europe, this often means Islamic families as opposed to increasingly post-Christian natives. Decline in religious affiliation — not just Christian but also Buddhist and Confucian — seems to correlate with the perilously low birthrates in both Europe and many East Asian countries.

    Singapore-based pastor Andrew Ong sees a direct connection between low birthrates and weakened religious ties in advanced Asian countries. As religious ideas about the primacy of family fade, including those rooted in Confucianism, they are generally supplanted by more materialist, individualistic values. “People don’t value family like they used to,” he suggests. “The values are not there. The old values suggested that you grow up. The media today encourages people not to grow up and take responsibility. They don’t want to stop being cool. When you have kids, you usually are less cool.”

    Religious people, prepared to be seen as uncool, are more likely to seek to produce more offspring. In the United States 47% of people who attend church regularly see the ideal family size as three or more children compared to barely one quarter of the less observant. Mormons have many more children than non-Mormons; observant Jews more than secular. “Faith,” the demographer Phil Longman concludes, “is increasingly necessary as a motive to have children.”

    This pattern is reflected in the geography of childbearing. Where churches are closing down, most particularly in core urban areas such as Boston or Manhattan, as well as their metropolitan regions, singletons and childless couples are increasing. In more religiously oriented metropolitan areas like Houston, Dallas-Fort Worth, Salt Lake City and Phoenix, the propensity to have children is 15% to nearly 30% higher (as measured by the number of children under the age of 5 per woman of child bearing age– 15-49).

    In the future, many high-income societies, whether in East Asia, Europe or North America, may find that religious people’s fecundity is a necessary counterforce to rapid aging and eventual depopulation of the more secular population . The increasingly perilous shape of public finance in almost all advanced countries — largely the result of rapid aging and diminished workforces — can be ascribed at least in part to secularization’s role in falling birthrates.

    There may be other positive fiscal effects of religiosity. Religious people donate on average far more to charities than their secular counterparts, including those unaffiliated with a religion. Nearly 15% of the religious volunteer every week compared to just 10% among the secular.

    Social networks, much celebrated among the single, might provide people with voices, but religious organizations actually do something about meeting real human needs. Organized religion provides a counterweight to the European notion that we must rely on government for everything. Poor people educated or fed by the charities of mosques, churches, and synagogues relieves some of the burden faced by our variously tottering states and shredding social welfare nets. Aging baby boomers, notes author Ted Fishman, may be forced to rely more on the “kindness of strangers” from religious backgrounds to take care of them in their old age.

    Sadly few prominent religious leaders deliver this message effectively, often preferring to scold non-believers. This is unfortunate since what the faithful do in the real world, at home and in their communities, may prove ever more crucial to the viability of our societies in the future.

    This piece originally appeared in Forbes.com.

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

    Church near Wall Street photo by Flickr user Roger Schultz.

  • The Next Public Debt Crisis Has Arrived

    In July of 2009, while the smoke from the global financial bonfire was still thick in the air, I wrote for this website about another crisis of massive proportions just looming on the horizon: the Global Crisis in Public Debt.

    Three years later, the news of defaults, bankruptcies, debt forgiveness requests, receiverships, and bailouts are in the news every day. Across the globe, sovereign entities – from US cities to European nations – are suffering under staggering debt loads, decimated revenues and intense pressure from the very capital markets that they should be able to turn to for refuge. Last month, Jefferson County, the largest in Alabama, moved forward with their bankruptcy proceedings over the objections of the Wall Street banks. Suffolk County in New York declared a financial emergency. The Financial Times has an interactive map showing all but 12 U.S. states with budget shortfalls for 2012. Eleven U.S. cities, counties and villages have filed bankruptcy since 2008, plus 21 municipal non-government entities (e.g., utilities, hospitals, schools, etc.), according to the Pew Center on the States.

    This crisis for cities, states and nations, like so many other financial crises, has its root in the free flow of credit that existed during the preceding economic boom years. The market prices of assets rose steadily. Rising valuations, especially based on improving revenues from robust economic activity, led to rising income streams for governments. This encouraged governments to borrow more, perhaps often to expand services – and the bureaucracy required to deliver them – and sometimes to improve infrastructure and make capital investments.

    At the same time, rising market prices for financial assets encouraged more savers and investors into the market. In the US, the flow of cash to Wall Street was further encouraged by favorable tax treatment for the earnings on retirement savings and municipal bonds. The steady influx of new money produced an increasing supply of investable funds, which drove demand for sovereign and municipal debt (in addition to the mortgage-backed securities).

    This process was driven more by the financial services industry than the real economy. As of March 5, 2012, the Federal Reserve Bank of New York reported more than $5,000,000,000,000 ($5 trillion) in overnight securities financing – that’s money that makes money but nothing else – that’s more than 20% of US GDP sitting around, not creating jobs, not building infrastructure, just sitting. Since the investment of securities financing is virtually all done electronically, it creates very few jobs. What it does produce is a boost in revenues for bankers – which they can translate into often lavish bonuses.

    The financial sector also adds to its profits from issuance fees, trading fees, underwriting fees, etc. Then there’s “Market Risk Trading,” a euphemism for letting anyone buy a contract to gamble on the probability that Greece won’t be able to repay their debt or that you will miss a mortgage payment. Anyone can buy that contract, even the arsonist next door who has a say in whether or not Greece gets access to capital. In the end it is the borrowers who will suffer the consequences because they will be unable to refinance their debt and the gamblers who will win by withholding financing in anticipation of the insurance payout.

    At the end of June 2009, only Italy, Turkey and Brazil were covered by more credit default swap contracts than JP Morgan Chase and Bank of America.   Goldman Sachs, Morgan Stanley, and Wells Fargo Bank all had more credit derivate coverage than the Philippines.   

    Entered the Top 1,000 for credit default swaps after 2009

    Reference Entity

    Debt as %GDP

    CDS* as %Debt

    Australia

    30.3%

    11.2%

    New Jersey

    7.8%

    11.2%

    New Zealand

    33.7%

    8.6%

    Illinois

    6.8%

    8.2%

    Texas

    3.4%

    6.6%

    Kingdom of Saudi Arabia

    9.4%

    3.8%

    Lebanese Republic

    137.1%

    2.4%

    Arab Republic of Egypt

    85.7%

    1.0%

    *CDS are credit default swaps, financial contracts that pay off if the named (reference) entity experiences a credit event like a ratings downgrade or a missed payment.
    [Abu Dhabi also appears in the 2012 list of the top 1,000 entities named in credit default swaps at DTCC, but debt and GDP data are not available.]

    What was a potential default problem in 2009 has become reality in 2012. In 2009, gross credit default swaps outstanding for the debt of Iceland were equal to 66 percent of GDP, and around 18 percent for Portugal. As these countries struggle with their debt, the global banks – primarily the US banks – sell credit derivatives and stand to collect enormous payments – whether or not the defaulting countries receive any support or bailouts from international donor organizations. The reason is that most credit derivatives contracts pay out on “credit events.” A “credit event” can be something as simple as a downgrade from Moody’s or Standard and Poor’s – whose managers testified before Congress that credit rating changes can be bought. Standard & Poor’s executives admitted in 2008 that they were being forced to relax rating requirements to improve revenues. If, for example, $69 billion worth of credit derivative payoffs are available on a Greek default then how much could the owner of a credit swap afford to pay for a rating change?

    The absurdity of rating Egypt more credit worthy than Australia is only part of the story. The sad fact is that Wall Street banks can sell more credit risk protection than there is credit risk. If all the public debt of a country is $1 billion, it means that country has borrowed $1 billion in public capital markets.  But   Wall Street banks are buying and selling more credit risk insurance than there is credit risk. This is the same problem I wrote about in 2008 that we saw in the Treasury bond market – when you sell more bonds than exist these trades are called “naked” sales or “phantoms”. A similar problem in stocks contributed to the 2008 crash.

    There are more cities, counties, states and nations in financial trouble   According to the Bank for International Settlements, there were $615 trillion in Over-The-Counter (OTC) derivatives contracts outstanding worldwide at the end of 2009. That’s about 9 times global GDP.  In other words, the entire world would have to work for 9 year just to produce enough to pay off the derivatives – before we had a dime left over to pay off the original debts.

    In this environment, the sovereign debt crises may produce something scarier than anything we have experienced in the past. The use of credit derivate products has increased the chance of a default turning into a global catastrophe. It won’t be enough to pay off the debt owed by one of these sovereigns. That payoff will be magnified by the value of the credit derivatives. These derivatives will have a multiplier effect on every sovereign debt default or “credit event.” The table at the end of this article only includes the credit derivatives warehoused with the Depository Trust and Clearing Corporation in the US – there is no source of information on the real magnitude.

    A crisis in sovereign debt would cause problems not just within those nations, states or cities but also for the global financial institutions who sell default protection through the credit derivatives markets. The bankruptcy of Jefferson County (AL) threatens to take down muni-bond insurer Syncora Guarantee (who, by the way, is suing JPMorgan Chase over losses in mortgage-backed securities saying that JPMorgan Chase misrepresented the loans to obtain the insurance). Another such institution was Ambac Financial Group, Inc., which I described in an article published here months before the original prediction of the global crisis in public debt. Ambac – like Berkshire Hathaway – was in the business of guaranteeing the payments of public debt (and mortgage backed securities). Ambac filed for bankruptcy in November 2010.  With Ambac gone, Berkshire is next in line to pay because of Warren Buffett’s credit default swaps.

    Policy makers have had few options available across the globe to combat this crisis. The European Union Commission is attempting to control the amount of credit insurance being sold by limiting the sale of “naked” credit default swaps.  A proposal was approved by the European Parliament on November 15, 2011 to restrict the sale of credit insurance to any buyer who “does not have ownership of the underlying government debt.”    The limited regulation passed by the EU Parliament allows the sale if the buyer has ownership in something vaguely related to the sovereign debt – like allowing the purchase of swaps on Italian government debt if the buyer owns shares of an Italian bank. French President Sarkozy said in January that he would propose “special levies on naked credit default swaps.”  The imposition of fines or taxes (levies) has not eliminated similar activity in stock and bond markets in the US, though it is at least a start which is more than US regulators have done.

    Meanwhile, Federal Reserve Chairman Ben Bernanke and Treasury Secretary Timothy Geithner continue to load the helicopter with dollar bills to finance the payouts with freshly-minted U.S. dollars. They sell us the fantasy of free-market capitalism while laying down a labyrinth of financial rules and regulations allowing a dozen or so politically connected banks to reap the rewards while avoiding the risk of failing, US financial institutions have been placing losing bets through unregulated derivatives markets only to be bailed out as “systemically important” – a euphemism for “too politically connected to fail.” The rest of the world is taking steps to stop the damage. When will the US government step up to the plate?

    Sovereigns named in most credit default protection*
    2009 2012 2009 2012
    Sovereign Entity Debt % GDP Debt % GDP CDS % Debt CDS % Debt CDS change 2008 to 2012*** Region
    REPUBLIC OF ICELAND 23.0% 130.1% 315.2% 40.4% -2,322,155,904 Europe
    REPUBLIC OF ESTONIA 3.8% 5.8% 206.7% 193.4% 844,012,716 Europe
    UKRAINE 10.0% 44.8% 194.5% 28.9% -23,102,981,592 Europe
    REPUBLIC OF KAZAKHSTAN 9.1% 16.0% 144.0% 57.5% -3,440,253,859 Europe
    REPUBLIC OF BULGARIA 16.7% 17.5% 100.6% 112.5% 4,163,215,975 Europe
    REPUBLIC OF LATVIA 17.0% 44.8% 92.4% 62.3% 3,369,945,521 Europe
    BOLIVARIAN REPUBLIC OF VENEZUELA 17.4% 38.0% 80.7% 45.9% 5,646,959,440 Americas
    STATE OF QATAR 6.0% 8.9% 76.4% 55.4% 5,040,787,988 Europe
    RUSSIAN FEDERATION 6.8% 8.7% 72.7% 55.7% 4,966,368,803 Europe
    REPUBLIC OF TURKEY 37.1% 42.4% 56.1% 32.5% -43,726,859,566 Europe
    REPUBLIC OF LITHUANIA 11.9% 37.7% 42.7% 28.8% 3,438,691,822 Europe
    REPUBLIC OF PANAMA 46.4% 41.7% 36.7% 37.1% 989,207,525 Americas
    REPUBLIC OF THE PHILIPPINES 56.5% 49.4% 36.6% 28.8% -10,157,402,334 Asia Ex-Japan
    REPUBLIC OF PERU 24.1% 21.9% 34.1% 41.1% 7,324,285,482 Americas
    ROMANIA 14.1% 34.0% 31.2% 20.6% 6,566,917,982 Europe
    REPUBLIC OF CHILE 3.8% 9.4% 30.9% 21.2% 2,719,694,915 Americas
    IRELAND 31.5% 209.2% 28.2% 22.5% 27,767,560,886 Europe
    UNITED MEXICAN STATES 20.3% 37.5% 23.7% 20.2% 50,658,161,703 Americas
    REPUBLIC OF SLOVENIA 22.0% 45.5% 22.5% 23.0% 3,206,639,043 Europe
    REPUBLIC OF HUNGARY 73.8% 76.0% 21.6% 47.1% 37,403,179,311 Europe
    REPUBLIC OF SOUTH AFRICA 29.9% 35.6% 21.5% 24.6% 17,010,145,334 Europe
    ARGENTINE REPUBLIC 51.0% 42.9% 18.7% 17.2% -2,448,737,614 Americas
    FEDERATIVE REPUBLIC OF BRAZIL 40.7% 54.4% 18.2% 13.0% 14,703,918,548 Americas
    PORTUGUESE REPUBLIC 64.2% 72.1% 15.9% 25.2% 39,897,746,989 Europe
    REPUBLIC OF COLOMBIA 48.0% 45.6% 15.9% 14.9% 1,221,052,625 Americas
    SLOVAK REPUBLIC 35.0% 44.5% 12.8% 19.3% 5,533,166,393 Europe
    KINGDOM OF SPAIN 37.5% 68.2% 11.9% 16.9% 101,554,412,387 Europe
    REPUBLIC OF KOREA 32.7% 22.9% 11.8% 20.0% 22,088,912,724 Asia Ex-Japan
    REPUBLIC OF CROATIA 48.9% 60.5% 11.5% 19.9% 5,612,474,098 Europe
    HELLENIC REPUBLIC (Greece) 90.1% 165.4% 11.1% 13.6% 34,488,989,840 Europe
    REPUBLIC OF INDONESIA 30.1% 24.5% 11.0% 16.1% 13,723,880,843 Asia Ex-Japan
    MALAYSIA 42.7% 57.9% 9.7% 7.8% 4,044,633,137 Asia Ex-Japan
    KINGDOM OF DENMARK 21.8% 46.9% 9.3% 17.2% 12,665,229,924 Europe
    STATE OF FLORIDA 3.2% 17.9% 8.1% 16.8% 2,787,096,121 Americas
    REPUBLIC OF AUSTRIA 58.8% 103.3% 7.9% 21.3% 38,904,764,846 Europe
    REPUBLIC OF ITALY 103.7% 120.1% 7.9% 14.6% 171,818,588,038 Europe
    KINGDOM OF THAILAND 42.0% 45.6% 7.1% 6.5% 1,675,447,429 Asia Ex-Japan
    SOCIALIST REPUBLIC OF VIETNAM 38.6% 54.5% 6.4% 5.9% 3,717,696,305 Asia Ex-Japan
    CZECH REPUBLIC 29.4% 39.9% 6.0% 11.5% 7,793,110,452 Europe
    REPUBLIC OF POLAND 41.6% 56.7% 5.9% 9.7% 25,523,188,448 Europe
    REPUBLIC OF FINLAND 33.0% 49.0% 5.7% 17.3% 12,868,084,419 Europe
    THE CITY OF NEW YORK ** 7.5% 4.3% 8.4% 3,555,950,000 Americas
    STATE OF NEW YORK 4.2% 24.8% 4.3% 5.3% 1,215,398,707 Americas
    KINGDOM OF SWEDEN 36.5% 36.8% 4.1% 15.0% 15,665,446,384 Europe
    KINGDOM OF BELGIUM 80.8% 99.7% 3.9% 15.1% 49,607,728,521 Europe
    STATE OF ISRAEL 75.7% 74.0% 3.4% 7.0% 7,093,224,168 Europe
    STATE OF CALIFORNIA 3.9% 18.3% 3.2% 12.7% 8,068,160,000 Americas
    FEDERAL REPUBLIC OF GERMANY 62.6% 81.5% 2.1% 4.5% 75,770,481,300 Europe
    KINGDOM OF NORWAY 52.0% 48.4% 1.6% 6.3% 5,953,647,323 Europe
    KINGDOM OF THE NETHERLANDS 43.0% 64.4% 1.6% 5.3% 19,494,129,128 Europe
    PEOPLE’S REPUBLIC OF CHINA 15.7% 16.3% 1.5% 3.7% 49,294,027,432 Asia Ex-Japan
    FRENCH REPUBLIC 67.0% 85.5% 1.5% 6.8% 108,226,300,245 Europe
    UNITED KINGDOM OF GREAT BRITAIN
    & NORTHERN IRELAND    		 47.2% 79.5% 1.2% 3.6% 51,470,774,560 Europe
    JAPAN 170.4% 208.2% 0.1% 0.8% 67,160,972,268 Japan
    UNITED STATES OF AMERICA 60.8% 69.4% 0.1% 0.2% 19,471,174,892 Americas
    *List from Depository Trust and Clearing Corporation. [www.dtcc.com] Dubai was also on this list, but debt and GDP data were not available.
    **2012 GDP for City of NY was calculated by subtracting all other MSA output from state GDP.
    *** Lower totals may indicate that some credit default swap contracts have been paid off.
    Countries in Italics had not failed to meet their debt repayment schedules before 2008 (Reinhart and Rogoff 2008); Thailand and Korea received IMF assistance to avoid default in the 1990s.

     

    Susanne Trimbath, Ph.D. is CEO and Chief Economist of STP Advisory Services. Dr. Trimbath’s credits include appearances on national television and radio programs and the Emmy® Award nominated Bloomberg report Phantom Shares. She appears in four documentaries on the financial crisis, including Stock Shock: the Rise of Sirius XM and Collapse of Wall Street Ethics and the newly released Wall Street Conspiracy. Dr. Trimbath was formerly Senior Research Economist at the Milken Institute. She served as Senior Advisor on United States Agency for International Development capital markets projects in Russia, Romania and Ukraine. Dr. Trimbath teaches graduate and undergraduate finance and economics.

    Treasury Department photo by BigStockPhoto.com.

  • Transportation Aborted

    Like most Americans, I was bombarded by sound-bites and blog-bytes surrounding an amendment to an Act of Congress that would require a woman to submit to and review the results of a trans-vaginal ultrasound before receiving an abortion. This amendment was covered ad nauseam by everyone from the Huffington Post to the nightly news on broadcast television. I don’t mind admitting that I’m past the age where this Act of Congress would have an effect on me personally.

    What really bothered me was that no one talked about the core problem of how deranged our political process has become in Washington. The real issue here that impacts all of us is that this amendment was attached to a transportation funding bill – TRANSPORTATION, not a Health Care Bill or a Health Insurance Bill or even an Equal Opportunity Employment Bill but a TRANSPORTATION funding bill.

    All of these journalists are as at fault over the issue as the bunch of Congressmen who tried – once again – to slip one past the balance of powers and our democratic form of government. The guilty parties in Washington DC start with:

    In the House of Representatives, Mr. Fortenberry (NE), Mr. Boren (OK), Mrs. McMorris Rodgers (WA), Mr.Scalise (LA), Mr. Tiberi (OH), Mr. CONAWAY (TX), Mr. Lamborn (CO), Mr. Walberg (MI), and Mr. Lipinski (IL) who introduced  “H.R.1179 — Respect for Rights of Conscience Act of 2011” on March 17, 2011. By the time the bill was attached as an amendment to the highway funding bill, the number of co-sponsors had risen from 8 to 221.

    In the Senate, Mr. Blunt (MO), Mr. Rubio (FL), and Ms. Ayotte (NH)) introduced S. 1467 on August 2, 2011. The cosponsors in the Senate went from 2 to 37.

    That’s a total of 260 elected representatives who will be responsible for the continuing deterioration of highway infrastructure in the United States. The current Federal authorization for funding surface transportation programs ends March 30, 2012.

    The current funding authorization is just the most recent in a long line of temporary extensions that have been strung together since the last 5-year plan expired in 2009. The highway funding bill in question – to which this healthcare amendment is being attached – would authorize funding of $109 billion over 2 years. If nothing is done by March 30, if no action is taken to fund US highway infrastructure, the Department of Transportation (DoT) will have to furlough workers and stop paying contractors, according to Humberto Sanches of Roll Call. Last summer, DoT sent home 4,000 FAA employees and 70,000 private-sector workers because Congress failed to act on funding.

    The process for highway funding is already convoluted and inefficient – watching the current Congress add abortion amendments to the funding bill gives us a peek into how it got that way. In the meantime the United States’ infrastructure is crumbling and the rest of the world is getting ahead of us. No wonder we’re deranged.

  • The Expanding Wealth Of Washington

    Throughout the brutal and agonizingly long recession, only one large metropolitan area escaped largely unscathed: Washington, D.C. The city that wreaked economic disasters under two administration last year grew faster in population than any major region in the country, up a remarkable 2.7 percent. The continued steady growth of the Texas cities, which dominated the growth charts over the past decade, pales by comparison.

    Boom times in the capital — particularly amidst a weak recovery elsewhere — are driving this growth. Since 2007, notes Stephen Fuller at George Mason University, the D.C. region’s economy has expanded 14 percent compared to a mere 3 percent for the rest of the country. Washington’s unemployment never scaled over 7 percent, well below the national average, and is now down to around 5.5 percent, about the lowest of any major metropolitan area. Unemployment of course is much higher, reaching 25 percent, in some of the district’s poorer neighborhoods.

    This prosperity is rooted largely in the steady growth of the federal workforce, as federal spending accounts for one-third of the region’s economy. Over the past decade 50,000 bureaucratic jobs have been added in the area while local federal spending grew 166 percent. The D.C. region, with but 5 percent of the nation’s population, garners more than three times that percentage in payroll and more than four times that percentage in procurement dollars.

    This debt-financed gusher has helped expand the economy beyond simply federal workers. You think California is the biggest beneficiary of the current tech boom? Think again. Washington’s tech sector employment , according to an analysis by Economic Modeling Systems Inc., has expanded by over 5 percent since 2009, more than twice the national and California average of barely 2 percent. California may have Facebook, Google and Apple, but Washington tech has federal agencies, the defense establishment, a growing media sector and the lobbying industry to feed upon.

    Washington also ranks fourth in middle-income job growth, with employment in that category expanding at four times the national average over the past two years. The relatively higher salaries — and far better benefits — propel even modestly educated workers into middle incomes. The recession may have been brutal for the middle class, but not those who work for Uncle Sam. Not surprisingly, according to Gallup, Washingtonians are the most optimistic in the country about the improvements in the economy.

    This, of course, did not start with the Obama administration’s relentless expansion of federal power. The Washington region has been growing steadily — well ahead of all major eastern regions — for a generation. The expansion of defense spending under President Ronald Reagan and then again under George W. Bush helped create wealthy suburbs around the city; four of the nation’s five wealthiest counties (the other is in suburban New Jersey) and nine of the top 15 are located in the Virginia and Maryland suburbs around the capital. These counties all enjoy median house incomes over $100,000, twice the national average.

    But the biggest change has occurred in the district itself, which last led the nation in population growth in the early 1940s. The hopelessly dysfunctional, crime-ridden city of the era of four-term Mayor Marion Barry in the 1970s and ‘80s has been left behind like the much-maligned 19th century swamp town that aspired to be the next Paris but was widely regarded by diplomats as a hardship posting. Barely three decades after its founding, the city had “not a single great mercantile house,” a foreign dignitary observed in 1811-12, according to “The Age of Federalism,” by Stanley Elkins and Eric McKittrick, and had “a total absence of all sights, smells, or smells of commerce.”

    Washington may still not be a great center of real commerce, where people make things or risk their livelihoods on ideas. But it thrives as the marketplace for the collusional capitalist state that has been growing for decades and may now be at its apex. Offices fill with well-paid lobbyists and lawyers, and their service help, as they protect the interests of investment banks, real estate interests and unions that are increasingly influenced by Washington. The central area has been revived by new condo, hotel and office developments. It may still not be Paris, or even Chicago’s Gold Coast, but it’s a fair bit better than the drab, dangerous place of 30 years ago.

    No one should ever disparage the success of a region, but there is something disturbing in D.C.’s recent rise. Most expansions of the federal region came to meet a perceived national challenge: the Depression, the Second World War, the Cold War, the Space Race and the Civil Rights movement. Since the Depression, Washington’s “good times” usually have paralleled that of the rest of the country. Only now do we see a “new normal” where Washingtonians, like the pigs in Orwell’s Animal Farm, seem “a bit more equal” than the rest of us.

    Will this trend continue? The outcome of the election may prove determinative. In a second Obama term – which should bolster the power of agencies such as the EPA, Energy and Justice – the federal grip on daily life will expand. This could greatly expand the appeal of being close to the capital. When everything from zoning and the location of industrial plants and healthcare is under Washington’s control, the capital could conceivably even emerge as a challenger to New York’s two century reign as the country’s most important city.

    Yet as the Washington Post’s Steve Pearlstein points out, this ascendency could be curtailed. Even under a second Obama administration, he notes, “the federal gravy train” could be derailed, with inevitable cuts in spending. Steve Cochrane at Moody Analytics suggests that the Washington as “the leader in terms of job growth and economic strength are really over.”

    The election certainly will determine which part of the Washington ox get gored. If Democrats rule, one can expect these cuts to come in large part at the expense of defense firms, which, after all, now tilt to the Republicans. This could be particularly tough on the suburbs, where many military contractors reside.

    More dangerous still would be a Republican sweep, which would bring a budget-cutting mentality back to the White House, particularly on the social spending and regulatory apparatus dear to many Democrats . These jobs tend to be in the district. Even a renewal of the current balance of power threatens federal expansion since the House still holds the appropriation purse strings. The oxygen that sustains Washington seems likely to be cutback in any case.

    None of this, however, means that D.C. is about to slip back to its dystopian past, much less its swampy roots. The region boasts the nation’s wealthiest and best-educated population. This could give it a leg up on other areas in the tech and business service job markets. Many millennials may find a steady career in the bureaucracy safer, and even more satisfying, than finding places in a slow-growing, hyper-regulated private sector economy.

    Yet the key lies to Washington’s future may lie with the fate of the national economy. Eighty years of relentless federal expansion has created a relentless parasite that knows how to feed on its host. But if that host weakens, so too will the federal state. To sneak an early pick for this scenario, hop a flight to Madrid, Rome or Athens, where being tied to the bureaucracy no longer provides exemption from the vicissitudes of economic struggle.

    This piece originally appeared in Forbes.com.

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

    Washington, DC photo by Bigstockphoto.com.

  • Rick Santorum’s Ugly Appeal to Rural Voters

    Not all of them are “clinging to guns and religion,” as Barack Obama famously said in 2008, but Rick Santorum has catapulted to the top of the Republican field by connecting with a bitter streak among rural voters. This is bad news for the Republican party and for rural America, which in fact has some pretty good reasons to be optimistic.

    Urbanites, Santorum told South Carolinians in January, have “a whole different value structure…They’re not going to be participating in small-town life. They’re not going to be connected to mainstream America or to God and his creation.”

    Those voters have returned the contempt, with Mitt Romney consistently winning in larger metropolitan areas. Rick Santorum, by contrast, has from his campaign’s modest beginnings in the small towns of Iowa drawn the bulk of his support from the least-populated counties.

    “I kept saying, you just stick with us, you go out and vote for your values and trust what you know,” Santorum said after his victory in the Kansas caucuses in March. “Because you don’t live in New York City. You don’t live in Los Angeles. You live like most Americans in between those two cities, and you know the values you believe in.”

    Santorum—who last I checked lived in swank, suburban Washington—has become the candidate of rural and small-town inertia, representing the isolated, aging, often modestly educated and overwhelming white residents nostalgic for a fading past. The Santorum worldview, following a tradition that well precedes Sarah Palin, portrays a wholesome, small-town middle America fighting a desperate battle against corrupt coastal big-city “elites.”

    The problem for the party if he somehow emerges as the Republican nominee is that most voters live in metropolitan areas. Just 16 percent of Americans live on farms, small hamlets, and villages. The problem for those rural Americans is that Santorum’s campaign of complaint appeals to and reinforces the worst stereotypes of rural life, while overlooking the brighter future already emerging in much of the hinterland.

    Rural America, particularly the vast region known as the Great Plains, appears to be on the verge of an economic and cultural renaissance. I live in Los Angeles, but have witnessed a remarkable change in both on the ground reality and mood during numerous visits to and studies of rural areas over the past decade. When I first starting going to Fargo, North Dakota, it seemed just a listless prairie town; today it is full of high-tech firms and boasts a downtown bustling with a vibrant, youthful population of attractive, largely Nordic revelers.

    To be sure, many small towns in the Plains and elsewhere are shrinking and some will disappear entirely in the coming decades. But larger towns like Fargo, Bismarck, Sioux Falls, Omaha, as well as many smaller ones, now boast the strongest economies in the country—with low unemployment and strong job and income growth. Most of these cities enjoy positive in-migration not only from the rural hinterland, but from the densely packed coastal areas. The Plains’ population growth is already outpacing the national average, and is even further ahead of the urban core cities so celebrated in the media.

    Santorum seems to have missed something in his travels back in time. He may appeal to an imagined, largely self-contained rural Eden—but he’s mostly ignored the global economics that have fueled the rural resurgence.

    Start with the basics: the production of food and fiber, which is fundamental not only to the Plains but to the Midwest, central California and the cotton-growing regions of the Southeast, Arizona, and west Texas. It’s the global demand for these products that has created good times in small towns. In 2011, the U.S. exported a record $135 billion in food and fiber, with a net positive balance of $47 billion, the highest in nominal dollars since the 1980s. Santorum as a senator opposed NAFTA and now talks about engaging in a trade “war” with China. Yet developing countries constitute rural America’s fastest-growing market. Many nations lack the water and land resources to feed themselves at a higher per-capita level of consumption; Beijing has acknowledged this by effectively dropping the old Maoist goal of self-sufficiency.

    Foreign investment flows have also benefited rural communities, particularly in the Southeast and the Plains. Firms are investing in critical sectors such as manufacturing and energy that benefit rural communities. Industrial investment rose $30 billion just between 2009 and 2010, while investment in the energy sector more than tripled to $20 billion.

    Japanese, German, and Korean manufacturers are primary players laying the foundation for a rural and small-town resurgence across the long-suffering rural Southeast.  Last year, Mercedes, whose largest U.S. plant is in Tuscaloosa, Ala., invested $350 million in the facility. Arch competitor Volkswagen last year announced it will build a new assembly plant in Chattanooga, Tenn. Nissan, Toyota and Kia have all announced major new plant openings or expansions in the region, mostly in small rural towns (and, it’s worth mentioning, in “right-to-work” states that don’t allow closed union shops). When Toyota recently announced plans to establish a plant for the Prius near Tupelo, Mississippi (the birthplace of Elvis), they received 35,000 applications for 1,300 positions.

    At the same time, increased fossil-fuel demand in global markets has sparked energy giants from China, France, and Spain to take up stakes in fields in Ohio, Mississippi, Colorado, and Michigan. A smart, globally minded Republican would be pushing these investments, which are already creating boom from North Dakota to south Texas. President Obama’s urbane academician’s obsession with subsidizing renewable energy and barely disguised disdain for fossil fuels represents a threat to the continued prosperity of many rural communities and small towns.

    Critically, Santorum’s regressive social views—his tone of resentment as much as the particulars—belies the kind of openness needed for a full-scale rural revival. In the real world, rural America is becoming increasing diverse and dependent on immigrant labor.

    Plains towns like Grand Island, Nebraska, are filling up with Mexican or Honduran restaurants. The percentage of foreign-born Nebraskans has more than tripled since 1990. The GOP electorate in the Cornhusker State may be overwhelmingly white, but the demographic trends suggest this won’t always be the case—so long as the party can avoid alienating these new arrivals.

    In many places Hispanics constitute the major counterforce to wholesale depopulation. Every county except one in the western half of Kansas suffered depopulation of non-Hispanic whites during the past decade, while Hispanics have offset or even exceeded the decline in white population—filling schools and opening businesses in the process. Hispanic residents have pushed from hubs like nearby Dodge City, Garden City, and Liberal into ever smaller communities, buying property on the cheap, enticed, many say, by the opportunity to live quiet lives in communities more similar to those in which they were raised. 

    Of course many people—notably some of the older white voters flocking to Santorum—are hostile to these realities.  And in the short run, appealing to anti-immigrant sentiments may pay off in the Republican primary. But over time, if they are to survive, many rural communities will either adjust to diversity or simply disappear.

    But perhaps the worst betrayal of rural America lies in denying the aspirations of these places to shed off the historic isolation and overdependence on natural resources that have long dogged them. Santorum may consider a college education “elitist,” and see public schools as akin to “factories,” but in many parts of the Great Plains and elsewhere excellent public schools are cherished by Republicans and Democrats alike. A core competitive advantage of many rural states lies in their surplus of  highly educated young people. Students in Nebraska, the Dakotas, Montana, and Idaho tend to perform better in school than those in more metropolitan ones (as measured by graduation rates, college attendance, and enrollment in upper-level science and education programs).

    These educational advantages are being bolstered by in-migration now tilted toward younger families seeking opportunity, affordable housing, greater social cohesion and better schools. And with generally stronger fiscal balance sheets, due largely to the booming agriculture and energy sectors fueled by international demand, many rural states are expanding their public university systems even as states like California are cutting theirs.

    By appealing to perceived deficiencies in rural communities, Rick Santorum downplays all these positive forces. Much of rural America is already booming, and, connected by the Internet, investment, and trade, can play an important role in the American future. Appealing to nostalgia about a past fading into history is not the way to get there.

    This piece originally appeared in The Daily Beast.

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

    Rick Santorum Image by Bigstockphoto.com.