New Geography

Category: Small Cities

  • Root Causes of the Financial Crisis: A Primer

    It is not yet clear whether we stand at the start of a long fiscal crisis or one that will pass relatively quickly, like most other post-World War II recessions. The full extent will only become obvious in the years to come. But if we want to avoid future deep financial meltdowns of this or even greater magnitude, we must address the root causes.

    In my estimation two critical and related factors created the current crisis. First, profligate lending which allowed many people to buy overpriced properties that they could not, in reality, afford. Second, the existence of excessive land use regulation which helped drive prices up in many of the most impacted markets.

    Profligate lending all by itself would not likely have produced the financial crisis. It took a toxic connection with excessive land-use regulation. In some metropolitan markets, land use restrictions, such as urban growth boundaries, building moratoria and large areas made off-limits to development propelled house prices to unprecedented levels, leading to severely higher mortgage exposures. On the other hand, where land regulation was not so severe, in the traditionally regulated markets, such as in Texas, Georgia and much of the US Midwest and South there were only modest increases in relative house prices. If the increase in mortgage exposures around the country had been on the order of those sustained in traditionally regulated markets, the financial losses would have been far less. Here is a primer on the process:

    1. The International Financial Crisis Started with Losses in the US Housing Market: There is general agreement that the US housing bubble was the proximate cause for the most severe financial crisis (in the US) since the Great Depression. This crisis has spread to other parts of the world, if for no other reason than the huge size of the American economy.
    2. Root Cause #1 (Macro-Economic): Profligate Lending Led to Losses: Profligate lending, a macro-economic factor, occurred throughout all markets in the United States. The greater availability of mortgage funding predictably led to greater demand for housing, as people who could not have previously qualified for credit received loans (“subprime” borrowers) and others qualified for loans far larger than they could have secured in the past (“prime” borrowers). When over-stretched, subprime and prime borrowers were unable to make their mortgage payments, the delinquency and foreclosure rates could not be absorbed by the lenders (and those which held or bought the “toxic” paper). This undermined the mortgage market, leading to the failures of firms like Bear Stearns and Lehman Brothers and the virtual failures of Fannie Mae and Freddie Mac. In this era of interconnected markets, this unprecedented reversal reverberated around the world.
    3. Root Cause #2 (Micro-Economic): Excessive Land Use Regulation Exacerbated Losses: Profligate lending increased the demand for housing. This demand, however, produced far different results in different metropolitan areas, depending in large part upon the micro-economic factor of land use regulation. In some metropolitan markets, land use restrictions propelled prices and led to severely higher mortgage exposures. On the other hand, where land regulation was not so severe, in the traditionally regulated markets, there were only modest increases in relative house prices. If the increase in mortgage exposures around the country had been on the order of those sustained in traditionally regulated markets, the financial losses would have been far less. This “two-Americas” nature of the housing bubble was noted by Nobel Laureate Paul Krugman more than three years ago. Krugman noted that the US housing bubble was concentrated in areas with stronger land use regulation. Indeed, the housing bubble is by no means pervasive. Krugman and others have identified the single identifiable difference. The bubble – the largest relative housing price increases – occurred in metropolitan markets that have strong restrictions on land use (called “smart growth,” “urban consolidation,” or “compact city” policy). Metropolitan markets that have the more liberal and traditional land use regulation experienced little relative increase in housing prices. Unlike the more strongly regulated markets, the traditionally regulated markets permitted a normal supply response to the higher market demand created by the profligate lending. This disparate price performance is evidence of a well established principle of economics in operation – that shortages and rationing lead to higher prices.

      Among the 50 metropolitan areas with more than 1,000,000 population, 25 have significant land use restrictions and 25 are more liberally regulated. The markets with liberal land use regulation were generally able to absorb from the excess of profligate lending at historic price norms (Median Multiple, or median house price divided by median household income, of 3.0 or less), while those with restrictive land use regulation were not.

      Moreover, the demand was greater in the more liberal markets, not the restrictive markets. Since 2000, population growth has been at least four times as high in the traditional metropolitan markets as in the more regulated markets. The ultimate examples are liberally regulated Atlanta, Dallas-Fort Worth and Houston, the fastest growing metropolitan areas in the developed world with more than 5,000,000 population, where prices have remained within historic norms. Indeed, the more restrictive markets have seen a huge outflow of residents to the markets with traditional land use regulation (see: http://www.demographia.com/db-haffmigra.pdf).

    4. Toxic Mortgages are Concentrated Where there is Excessive Land Use Regulation: The overwhelming share of the excess increase in US house prices and mortgage exposures relative to incomes has occurred in the restrictive land use markets. Our analysis of Federal Reserve and US Bureau of the Census data shows that these over-regulated markets accounted for upwards of 80% of “overhang” of an estimated $5.3 billion in overinflated mortgages.
    5. Without Smart Growth, World Financial Losses Would Have Been Far Less: If supply markets had not been constrained by excessive land use regulation, the financial crisis would have been far less severe. Instead of a more than $5 Trillion housing bubble, a more likely scenario would have been at most a $0.5 Trillion housing bubble. Mortgage losses would have been at least that much less, something now defunct investors and the market probably could have handled.

      While the current financial crisis would not have occurred without the profligate lending that became pervasive in the United States, land use rationing policies of smart growth clearly intensified the problem and turned what may have been a relatively minor downturn into a global financial meltdown.

    Never Again: All of the analyst talk about whether we are “slipping into a recession” misses the point. For those whose retirement accounts have been wiped out, or stock in financial companies has been made worthless, those who have lost their jobs and homes, this might as well be another Great Depression. These people now have little prospect of restoring their former standard of living. Then there is the much larger number of people whose lives are more indirectly impacted – the many households and people toward the lower end of the economic ladder who have far less hope of achieving upward mobility.

    All of this leads to the bottom line. It is crucial that smart growth’s toxic land rationing policies be dismantled as quickly as possible. Otherwise, there could be further smart growth economic crises ahead, or, perhaps even worse, a further freezing of economic opportunity for future generations.

    Wendell Cox is a Visiting Professor, Conservatoire National des Arts et Metiers, Paris and the author of “War on the Dream: How Anti-Sprawl Policy Threatens the Quality of Life”

  • Localism – What’s the Attraction?

    As I drive to work here in Wisconsin Rapids, I cross the bridge where the view of the river is stunningly peaceful, with the mystical morning mist rising off the calm water reflecting the warm early morning sunlight as it surrounds the pristine wooded islands. It takes me all of five minutes by car to make my journey to work – one of the beauties of living in a smaller community. I can get to most places in town within five minutes.

    It does not mean, however, that I lack access to the same amenities that an urban dweller has. When I’m looking for my arts and culture fix, I don’t need to go far; there is a new show opening at Alexander House, one of the local galleries which regularly features accomplished artists with local ties. The local theatre productions rival professional quality, as several of the key performers and producers are professionals, who choose to live in an area that offers a better educational experience and quality of life for their families.

    You can get the local word on “what’s happening” by heading to the local coffee shop, pub or walking to the post office and greeting other “locals,” drinking in the character of the community. In a flash, I can be at the airport, and be on my way to countries around the world. Although the airport is 45 miles away, I can actually get there in less time (under 45 minutes), than someone living in Chicago or Minneapolis can get to the airport in those cities. I might pass a total of 25 cars in my entire drive to the airport, and at the airport a long line to check in at the kiosks might be two people ahead of me. Air fare from our central Wisconsin airport, even to international locations, is usually cheaper than if I fly from any of the surrounding big metropolitan airports.

    Five years ago, I purchased my three-bedroom 1300 square foot ranch home two blocks from the seven-mile Riverwalk trails for $75,000. My neighbor, the previous mayor, mows my lawn and does odd jobs for me. I have the beauty of woods and water that is easily accessible and safe to go alone and enjoy. I am tapped into the world and information super-highway with redundant high-speed internet access. I live the good life without the long lines, high costs or hassles of the city. It also offers me an opportunity to be civically engaged and give back to the community, as well. This is why I choose to live in the heart of Wisconsin. I want “where I live” to offer exceptional quality to enhance my life, and it does here in America’s Heartland.

    The pace of our lives increased exponentially in the last half century, and continues to escalate at a rate that is staggering. During this evolution, we went through the period of being caught up in this fast pace and trying to “keep up with the Jones” and the speed of technology advancement. We were attracted to the fast lane and glitz of urban lifestyle, which symbolized chic and sophisticated. The Baby Boomers, in their career primetime, driven to succeed, gravitated to the coasts and large metropolitan areas to be where it was “happening.” As a result, housing costs in these regions skyrocketed, the highways became unbearable during commuting hours, adding hours on both ends of the already longer work day necessary to keep up with the increasing global competition and faster and faster pace. Crime rates soared. People became numbers and life was about mass production, cookie cutter franchises, big box shopping and having the most goods – a popular Calvin and Hobbes cartoon reflected this fad, “He who dies with the most toys wins!”

    Now as the Baby Boomers are entering retirement and their children are having children, we are noticing a trend that may bring new life to the Midwest and the patchwork quilt character that rural communities offer. No longer does the rat race of the urban life style hold a compelling calling. A resurgence of wanting something more real, more balanced, more representative of our agricultural roots and our rural heritage, which made the country rich in Americana, seems to be calling. The new trend that is emerging is localism – the desire to have a strong sense of place and connection to where we live, what we eat, how we participate in civic engagement.

    As Baby Boomers look to wind down, they are seeking a more relaxed atmosphere and authentic sense of place. This is also the demographic that is beginning to drive the trend towards self-employment, often using their acquired professional expertise from their high powered career investment as the product, and seizing the opportunity that technology and mobility provide to be located in a place that appeals to their quality of life factors. Their children, who are entering that phase of life, where they are having children, are seeking that housing affordability, safe neighborhoods, beautiful natural landscape and good public education system for their kids, often found in the upper Mid-west. This generation that is now beginning to make an impact in the workforce, exhibits a high level of civic responsibility in its decision making. Put that together with the Baby Boomers growing sense of awareness that our past actions of ignoring our affects on our environment must change and that starts with changing our own habits and choices in what we buy and how we live, creates relatively large movement towards “local.”

    An article, by Marian Burros, in the New York Times, published on Aug. 6, 2008, stated,
    “One of the biggest brand names in food this summer doesn’t carry a trademark. It’s the word ‘local,’ which has entered the language as a powerful symbol of high quality and goodness.”

    So, what is the “local” appeal? It is the character and quality of life that provides a sense of place – a reminiscence feeling of authenticity and knowing the source of where things come from, who made it and how it was grown. There is a desire to make the personal connection and create an experience in the purchase of a product. That experience often equates to wanting to have that sense of place association. The sense of place character is one that has a unique quality, a distinction and flavor that brings out the emotional response which translates to being an experience of culture and belonging.

    As we have come to grips with growing fuel prices and climate change, a sense of social responsibility has grown. We see a growing social movement to also protect the character of our communities by revitalizing downtowns, curtailing big box retail development, seeking non-franchise purchasing experiences, and patronizing local specialty shops, geared toward sustaining that sense of unique character and experience that a community offers. Even in urban areas, the sense of neighborhood culture and pride is having a resurgence.

    As we experience the personal economic affects of globalization and the resulting loss of jobs due to sending our production work overseas, we have seen a rising understanding of the connection and benefit that demanding “local” provides, to our area economies, our own families, our neighbors and friends. Supporting “local” gives people the good feeling of “making a difference” and playing a responsible role in the sustainability of our communities, while also stimulating that sense of pride and authenticity. It says we have a choice in the matter, and that choice matters. “Localism” is not only good for our economy, it represents a sense of social responsibility and desire to sustain our patchwork quilt of Americana that represents our country’s heritage and character.

    Connie Loden is the Executive Director for Heart of Wisconsin Business & Economic Alliance that coordinates community economic development projects in Central Wisconsin. Connie is an internationally recognized leader in rural development, holding leadership roles with the Community Development Society and National Rural Development Partnership.

  • Turns Out There’s Good News on Main St.

    As the financial crisis takes down Wall Street, the regular folks on Main Street are biting their nails, watching the toxic tsunami head their way. But for all our nightmares of drowning in a sea of bad mortgages, foreclosed homes and shrunken retirement plans, the truth is that the effects of this meltdown won’t be all bad in the long run. In one regard, it could offer our society a net positive: Forced into belt-tightening, Americans are likely to strengthen our family and community ties and to center our lives more closely on the places where we live.

    This trend toward what I call “the new localism” has been underway for some years, driven by changing demographics, new technologies and rising energy prices. But the economic downturn will probably accelerate it as individuals and corporations look not to the global stage but closer to home, concentrating and congregating on the Main Streets where we choose to live – in the suburbs, in urban neighborhoods or in small towns.

    In his 1972 bestseller, “A Nation of Strangers,” social critic Vance Packard depicted the United States as “a society coming apart at the seams.” He was only one in a long cavalcade of futurists who have envisioned an America of ever-increasing “spatial mobility” that would give rise to weaker families, childlessness and anonymous communities.

    Packard and others may not have been far off for their time: In 1970, nearly 20 percent of Americans changed their place of residence every year. But by 2004, that figure had dropped to 14 percent, the lowest level since 1950. Americans born today are actually more likely to reside near their place of birth than those who lived in the 19th century. Part of this is due to our aging population, because older people are far less likely to move than those under 30. But more limited economic options may intensify this phenomenon while bringing a host of social, economic and environmental benefits in their wake.

    For one thing, they may strengthen those long-weakening family ties. We’re already seeing signs of that. American family life today may not look like “Ozzie and Harriet,” with its two-parent nuclear family, but it reflects a pattern of earlier generations, when extended networks helped families withstand the dislocations of the westward expansion or of immigration.

    With a majority of married women now working, parents are frequently sharing child-rearing duties, and other family members are getting into the act. Grandparents and other relatives help provide care for roughly half of all preschoolers in the country. As the cost of living rises, this trend could accelerate.

    At the same time, difficulty in getting reasonable mortgages and the realities of diminished IRAs will force baby boomers and Generation Xers both to prolong their parental responsibilities and to delay their retirements. This, too, is already happening: According to one study, one-fourth of Gen-Xers still receive help from their parents. And as many as 40 percent of Americans between 20 and 34, according to another survey, live at least part-time with their parents.

    This clustering of families, after decades of dispersion, will spur more localism, which has a simple premise: The longer people stay in their homes and communities, the more they identify with and care for those places.

    This is evident in everything from the mushrooming of farmers markets in communities nationwide to burgeoning suburban cultural institutions. Since the 1980s, suburbs outside such cities as Chicago, Atlanta, Washington and Los Angeles have been building or contemplating new town centers – their own Main Streets, if you will, village squares intended to foster a unique local identity and community focus. Scores of suburban towns have established local orchestras and built playhouses and symphony halls – Strathmore Hall in Bethesda is one example. All this activity has dispelled some of the view of suburbs as strongholds of middle-class torpor.

    “This used to be a place where people went to sleep,” says Patricia Jones, president of the Arts Alliance, a group that helps raise funds for the sprawling, $63 million Civic Arts Plaza in the Los Angeles suburb of Thousand Oaks. “Now it’s a place where people live, work and find their entertainment. It’s a totally different environment. It’s not boring anymore.”

    Not only that, it’s probably more interconnected than ever before. In suburbs and cities from Los Angeles to New York, Web-based community newsletters have sprung up to keep residents informed of goings-on in their neighborhoods and to provide a sense of connectedness. “There’s an attempt in this neighborhood to break down the city feel and to see this more as a kind of a small town,” says Ellen Moncure, who edits the Flatbush Family Network Web site in New York. “It may be in the city, but it’s a community unto itself, a place where you can stay and raise your children.”

    Bolstering the trend are today’s higher energy prices, which make Americans’ old nomadic patterns less economically viable in more ways than one. Take recreation. More and more, says Tim Schneider, publisher of a magazine specializing in sports travel, people are sticking close to home instead of trekking far and wide in search of fun things to do. “Stay cations,” or vacations near home, are taking the place of trips to exotic distant locales. This means tougher times for such traditional tourist hot spots as Las Vegas and Hawaii, both of which have seen a drop-off in flight arrivals due to airline cutbacks. But there’s a moral for cities, says Schneider: Instead of counting on convention centers and arts and cultural facilities to attract outside tourists, most would do better to promote local “place-branding” events such as festivals, rodeos, sports tournaments and the like.

    Higher energy prices may also refocus local economies in unexpected ways. For generations, most Americans have been buying their food from distant corporate providers. But with shipping costs – and food-safety concerns – on the rise, the trend to buy local is moving into the mainstream. In Maryland, the number of farmers markets has grown from 20 in 1991 to 84 today. In 1977, California had four such markets; today it has more than 500. Higher energy costs could also benefit local manufacturers, bringing, say, clothing manufacture back to the Los Angeles garment district from China.

    The final factor driving the localist trend is technology, which has led to a rapid expansion of home-based work and to companies’ setting up work locations closer to where their employees live. The number of home-based workers has doubled twice as quickly in this decade as in the last and is now about 9 million. Nationwide, 13 million people telecommuted at least one day a week in 2007, a 16 percent leap from 2004. And more than 22 million people run home-based businesses.

    A recent study suggests that more than one-quarter of the U.S. workforce could eventually participate full- or part-time in this new work pattern. And over time, it will accelerate localism. Commuting – which became common only over the past century – has cut workers off from the places where they live. Home-based work, by contrast, gives people more choice about where they work and more time to spend with their families and communities.

    Telecommunication allows people who want privacy, low-density neighborhoods and good schools to live in small towns in a way never before possible. It also allows a firm such as Renaissance Learning, a leading educational software company, to set up headquarters in Wisconsin Rapids, Wis., a city of 17,500 whose small-town feeling, broad river and wooded countryside appeal to many workers. “We don’t have any trouble recruiting people here,” says Mark Swanson, the firm’s technical director.

    Yet the desire to stay in the local community isn’t limited to small towns or suburbs. I see it where I live, in California’s San Fernando Valley, or in parts of my mother’s native Brooklyn, where lots of people employed in fields such as the arts, consulting and design work at home or nearby and crowd the coffee shops, restaurants and stores of streets such as Ventura Boulevard in Studio City or once-decayed but now bustling Cortelyou Road in Flatbush.

    In the end, localism is neither urban nor anti-urban. At its heart, it represents something larger: a historic American tradition that sees society’s smaller units as vital and the proper focus of most people’s lives. This made the United States different from Europe, which, as Alexis de Tocqueville noted, has long tended toward centralization of power and decision-making.

    The expansion of the European welfare state has further fostered this trend. But it’s also true that Europeans tend to move less than Americans. And the powerful resistance to the most intrusive forms of European Union integration, such as a continent-wide constitution, suggest that strong localist elements remain imbedded in European communities.

    But if Europe is joining the trend, the United States is likely to be the leader in pushing decentralization. What most impressed Tocqueville wasn’t our large cities but the vitality of our many smaller towns and communities. “The intelligence and the power are dispersed abroad,” he wrote, “and instead of radiating from a point, they cross each other in every direction.”

    Today’s localist revival reflects this tradition, but with the benefit of the great access to the larger world that technology provides. It offers the prospect of an America that, rather than being “a nation of strangers,” can aspire again to be a nation of neighbors . . . in places that we choose for ourselves.

    This article originally appeared in the Washington Post.

    Joel Kotkin is a presidential fellow at Chapman University and executive editor of www.newgeography.com. He is finishing a book on the American future.

  • Beyond The Bailout: What’s Next in the Housing Market?

    The Emergency Economic Stabilization Act of 2008 (we’ll call it the “Bail Out”) was signed into law on October 3rd. This, combined with the new reality in capital markets and current economic conditions, will result in some major shifts in the outlook for housing over the next few years. It is always possible that the federal government will try to do even more to fix what will be an agonizing housing problem over the next few years, but seems unlikely even Bernake, Paulson or their appointed successors will be able to change the basic story line.

    The Credit Market
    Let’s set up the dynamics. The era of easy credit, especially in terms of mortgages and home equity lines, is over. The 2002 through early 2006 period will turn out to be an aberration in history. During that period, about all a person needed to do to qualify for a mortgage was to be healthy. For the foreseeable future, we will see the return of such requirements as a down payment and the ability to repay your loan based on income, along with a good credit history, that will allow a person to qualify. The tighter credit and the slow down of the economy already is making it difficult for all but the best borrowers to get mortgage loans. Thus, the housing market will remain under significant pressure and the excess supply will be absorbed only slowly.

    The Consumer
    Consumers have accumulated far too much debt; they don’t have much in the way of traditional savings; are faced with job declines and declines in hours worked and are also facing a reverse wealth affect (i.e. people tend to spend more when they feel richer and less when they feel poorer). In the 1990s, consumers felt wealthier because the stock market did very well. Studies of the wealth effect indicate that people spend about five cents out of every dollar of increased net worth from stock and housing price appreciation over about a three to five year period of time. In the early part of this decade, not only were housing prices rising rapidly, but, almost unbelievably (in retrospect), easy credit allowed people to use their house as a credit card. The result was a boom in retail spending and home buying. In fact, the rate of homeownership in the U.S. went from a long term average of about 65% in 2002, to a high of nearly 69% in 2006. The percentage of people who bought homes, as a percent of total households, reached a record level.

    Supply and Demand
    Today, there are roughly two million more homes for sale in the nation than normal (4.3 million new and resale listings versus the long-term average of 2.3 million homes for sale). In addition, foreclosures are skyrocketing and are likely to stay high for quite some time. Many recent buyers simply were not financially ready for home ownership’s financial realities. Basic demand has diminished significantly as the number of prospects who can qualify has declined. Put all of these things together and you will have a period where not only will there be fewer homes purchased, but there will be high levels of foreclosures, a decline back to the normalized level of homeownership. There will be fewer people moving (i.e. if you can’t sell your house in California, Michigan or Pennsylvania, you are not moving to Arizona). What this implies is that the demographic demand for housing will be lower than normal over the next few years until the excess supply is absorbed.

    How long will this take? Analysis suggests that it is two to four years away nationally and longer in the bubble states: Arizona, California, Florida and Nevada. All this suggests that as the homeownership rate comes down, more people will be moving to apartments, people will “double up” or move back home. As a result much of the housing demand will be absorbed by foreclosures and the excess existing housing inventory, mitigating the need for significant new housing in the near term.

    If you add this all up, this also means slower growth in what were normally rapid growing areas (like Phoenix) where a full recovery could take four to five years for housing. As the home-ownership – including condos – rate moves back to its long term trends there will be a shift back to apartments.

    Overall, there will be fewer single family homes demanded, more apartments demanded, and the homes that are demanded will be more affordable. The most affordable areas will continue to be at the edge of town. In addition, given how difficult it has been to get the entitlements necessary for new apartment construction in areas like Phoenix over the past several years along with the number of condos that are being converted back to multi-family rentals, rents are likely to increase past 2009 or 2010 as the excess supply of rental single family homes, condos and apartments are absorbed.

    Overall homeownership will still be the American dream, but that dream will not again be something people think about until housing prices stop declining and start recovering. It’s going to be a tough ride, particularly in Sunbelt ‘boomtowns’ like Phoenix.

    Elliott D. Pollack is Chief Executive Officer of Elliott D. Pollack and Company in Scottsdale, Arizona, an economic and real estate consulting firm established in 1987, which provides a broad range of services, specializing in Arizona economics and real estate.

  • The Geography of Inequality

    The global financial crisis has drawn greater attention to the world of the super rich and to the astounding increases in inequality since 1980, returning the country to a degree of inequality last seen in 1929 or perhaps even 1913. In the year 2006 alone, Wall Street executives received bonuses of $62 billion. Financial services increased from 10 percent of all business profits in 1980 to 40 percent in 2007, an obscene and indefensible development that now threatens the rest of the ‘real economy’.

    Here’s what happened to income and wealth between 1970 and 2005

    These figures reveal an inexorably growing concentration of income and wealth, which has taken place under both Democratic and Republican regimes. Conversely, given inflation over the last 35 years, lower and middle classes receive smaller shares. Only the affluent – the top 10% – and the rich – the top 1% – have gained ground.

    This pattern of inequality also has a geography with variations across the country between different places (here counties). Generally between 1970 and 2000 the greatest inequality has developed in the largest metropolitan regions and their suburbs.


    Large metropolitan core counties are by far the most likely to have higher inequality. In contrast other geographies have much lower inequality, with small metropolitan, small city and rural counties near the national average. In other words, core metropolitan counties are skewed toward greater inequality (higher shares of very rich and of very poor), while suburban and exurban areas generally exhibit lower inequality (values bunched centrally, with fewer extremely rich or poor households).

    Overall the greatest inequality lies in the very largest metropolitan cores (Los Angeles, Chicago, New York, Houston, etc), areas with large racial or ethnic minorities (e.g., in FL, TX, CA and much of the South), as well as in selected large northeastern metropolises (suburb as well as core, as in Chicago, Cleveland, Pittsburgh, New York, Philadelphia, and Washington DC) and across the southern half of the country more generally. Lower inequality occurs mainly in suburban or small metropolitan counties, and mainly in the north.

    Among smaller metropolitan (< 50,000 households) and non-metropolitan counties there emerges a truly dramatic north-south cleavage just around the Iowa border and along the Ohio River divide. A more mixed pattern prevails in the west and in the northeast, where intermediate levels of inequality are common. Especially high rates of inequality characterize racial and ethnic minority areas and Appalachia, as could be expected, but also many environmental amenity areas, especially in the west. Low inequality is fairly extensive in the hinterlands of selected Great Lakes and upper Midwest metropolises, like Omaha, Minneapolis and Chicago. Generally more egalitarian areas boast higher incomes, female labor force participation, more shares in manufacturing, greater incidence of husband-wife families, of whites, of home ownership, but lower percentages of government and service jobs, fewer residents with less than a 9th grade education, people 18-24, singles, single parent families, and less Blacks and Hispanics. High levels of inequality are generally the opposite of the egalitarian areas: more minorities, single parent families, less manufacturing and dependence on government as well as service sector jobs. Inequality varies by both kinds of settlement geography and by the social and economic character of areas. The most obvious and visible attributes that signify greater inequality are social characteristics: racial and ethnic minorities, low levels of education, low proportions of traditional husband-wife families (partly because of fewer earners), and high dependency (many of the very young and very old). Unequal places tend to be those with low concentrations of manufacturing and higher shares of both managerial-professional occupations and service jobs. Geographic impacts vary. Most rural, newer suburban and exurban areas tend to have lower inequality because they tend to maintain middle income homogeneity. Yet rural areas that are isolated and have weak economies, like Appalachia, suffer high inequality. Large metropolitan areas with the highest inequality also tend to have large concentrations of racial minorities and of non-families, especially young singles Overall it is clear that inequality has been on the rise since 1970. This was a time when the nation was prosperous, manufacturing was strong, as were unions, income taxes fairly progressive, while “war on poverty” legislation had helped those at the bottom, the baby boom was still on and families dominant. But if the extent of inequality has grown, its geography has changed far less. Large metropolitan cores had the highest inequality in 1970 and 2000, and metropolitan suburbs and exurbs the lowest, with small cities in between. Yet inequality grew fastest in large metropolitan cores and suburbs. Small metropolitan areas (many were small cities in 1970) had the next highest increase (80 percent) and rural small town areas the lowest (69 percent). Sadly, only a few counties had decreases in inequality. Many were military base counties, mainly in the south. Another group of counties with lower inequality are new suburban counties, which have become more uniformly middle class as a result of significant urban growth, mainly in the South with more rapid urban and industrial growth. Overall, the change in inequality between 1970 and 2000 was substantial and wide ranging. The causes for this tend to be national and structural, including deindustrialization, the rise of a service economy, the decline of the traditional family and tax changes favoring the very wealthy. Areas that traditionally were most unequal – notably the great global cities – have simply become more so. It is here, in the command and communication centers of the economy, that the greatest wealth has been accumulated and where we can see the rise of a new aristocracy nevertheless dependent on a large low wage service class. The next Administration and Congress should start to address these trends or the traditional American dream will become, for most citizens, no more than that. Richard Morrill is Professor Emeritus of Geography and Environmental Studies, University of Washington. His research interests include: political geography (voting behavior, redistricting, local governance), population/demography/settlement/migration, urban geography and planning, urban transportation (i.e., old fashioned generalist)

  • Resources and Resourcefulness – Welcome to The Real Economy

    By Delore Zimmerman

    The orchard-laden foothills of North Central Washington’s Wenatchee Valley are resplendent at this time of year. The apple and pear harvest is in full swing. The warm golden hues, the crisp mountain air and the bustle of trucks carrying produce to markets near and far provide a stark and welcome contrast to the daily barrage of bad news about the downward spiral of the nation’s financial markets.

    In places like New York, Chicago and San Francisco we can see the result of the demise of once-vaunted vapor traders. They created nothing but debts and are leaving whole economies in shambles.

    But in the Wenatchee Valley one can clearly see the fruits – both tangible and figurative – of the real economy. Over the course of almost ten years a determined coalition of community and business leaders has been working hard and working together to build an economy of substance and promise. The results of their efforts include a picturesque and vital downtown, a thriving and growing fruit and wine industry, a riverfront soon to be animated with housing and community recreation facilities, and a Yahoo data service center.

    These diverse elements make for an economy whose benefits are substantial and meaningful for the people of that region. The City of Wenatchee and the Port of Chelan County are the driving forces behind these initiatives. But the Wenatchee Valley’s success also can be traced directly to the investments and commitment of numerous private and government partners from within the region and from the outside. The Chelan County Public Utility District, for example, operates three hydro projects that deliver clean, renewable, low-cost energy to local residents and to other utilities that serve 7 million residents of the Pacific Northwest. The PUD operates a utility system that now includes local water, wastewater and wholesale fiber-optic services in addition to electricity.

    To capitalize further on its hydro power resources leaders in the Valley are aggressively pursuing an Advanced Vehicle Innovations (AVI) initiative. The AVI Consortium was conceived by the Port of Chelan County in 2005 to establish North Central Washington as a catalyst and center for development, demonstration, and deployment of flex-fuel plug-in hybrid electric vehicles. These are vehicles propelled by a combination of electricity-from-the-grid and bio-fuels (i.e., bio-diesel, ethanol). Both of these energy resources are in plentiful supply in the region.

    So here’s a lesson for our nation’s next stab at building a prosperous national economy. Put the money in the hands of those who can harness local and regional resources and make something useful out of them. It can be fruit, a manufactured product, or a service like data processing. The result is a community that, although not immune to the Wall Street tsunami, retains tangible assets that will survive the current storm.

    This real economy is working right now in the Wenatchee Valley. It also exists in many other communities and regions throughout the nation, from the Dakota plains to the energy corridor around Houston, and the growing industrial districts of the Southeast. These places represent the bright face of America’s future economy. If only they were taken more seriously by those – our nation’s leaders and so-called financial wizards – who are now driving us towards an era of darker expectations.

    Delore Zimmerman is President of Praxis Strategy Group and Publisher of NewGeography.com

  • Why Omaha?

    I lived in or near cities for 30 years because that’s where the jobs are. I left southwestern Pennsylvania in 1977 as the closing of coal mines and steel mills wrecked the local economy. It cost almost $1,000 per semester to attend the state college, many times that for the state university. There were no opportunities for a young person. I moved to California where residents received free tuition at state universities. I earned 2 college degrees in California and advanced my career from Prudential Insurance through the Federal Reserve Bank and to the Pacific Stock Exchange. When the stock exchange closed my subsidiary, I was hired by the Depository Trust Company and moved to New York. Working in the city gave me the opportunity to further advance my career and my education. In 2000 I graduated with a PhD in economics and was hired by a think-tank in Santa Monica. In 30 years, I moved cross-continent 3 times, worked in 5 countries on 4 continents, and earned 3 college degrees.

    In 2004, I started my own business in Santa Monica to provide research and consulting in economics and finance. I attended a lot of local networking meetings for the financial services industry, chambers of commerce, economic development groups, etc. After 3 years, my business was proving quite successful, but I didn’t have any clients in Southern California. My clients were in Houston, New York, Washington DC, Chicago, London, Cairo and Taiwan. It occurred to me that I didn’t need to live in or near a city anymore. I might be able to work from anywhere that had phones and internet access.

    In May 2007, I went to Honolulu for 5 days. The time difference allowed me to work in the morning, answering emails and writing research reports. In the afternoon, I took conference calls on the beach and set up business meetings in DC for the end of the month. Pretty cool. In August 2007, I considered a job in Santa Barbara and that was the jumping off point. I didn’t take the job but I realized I could leave Santa Monica. I spent five or six months looking around in Southern California before I realized I couldn’t afford to expand there. I couldn’t increase revenue without getting more office space and bringing on staff; and I couldn’t afford the office space and staff without increasing the revenue. Call it the SoCal Catch-22: it’s just too expensive to do business there.

    In December 2007 I started looking around for a city with a lower cost base and an educated workforce. I have relatives and siblings spread around the country, so it could be any one of a dozen cities that have universities, military bases and research hospitals. I was looking for a city that understands that small-businesses are the fundamental driver of economic development. I found it in Omaha. Because my clients are outside the area, my small business also provides a layer of insulation to the local economy.

    Omaha has several universities, including the University of Nebraska and Creighton University. Offutt Air Force Base, home of Strategic Command (and the bunker where they secured the President on 9/11) is in Sarpy County, just twenty minutes to the south. Omaha ranked #22 by CNNMoney for best places to live and launch a business. The “Nebraska Advantage” tax incentives reach down to businesses of my size. By investing $75,000 and creating 2 jobs, my business receives tax incentives that can be used to recover sales tax and/or to offset my personal income taxes.

    Instead of a 6 hour flight from Los Angeles, I can reach my New York clients with a non-stop flight under three hours. I’m still only twenty minutes from the airport. For what I was paying just for a residence in Santa Monica, I have a residence, a 3-office suite and 2 assistants in Omaha. That means I can grow my business. As my business grows, the local economy will come with it.

  • Restless Americans: Migration and Population Change, 2000-2007

    Americans may be less mobile than in the past, but millions since 2000 have continued to be on the move, reshaping the landscape and economy of the nation. Three maps will be briefly discussed: one of population change by county, 2000-2007, one of net internal migration by county, and one of net immigration from abroad. We will then focus on the “extremes”, unusually large levels or intensities of net internal migration and of immigration.

    Overall population growth

    As was true in the 1990s, big growth has concentrated overwhelmingly in selected metropolitan regions — and within them, primarily in their suburbs and exurbs. The big growth areas are concentrated in Texas (Houston, Dallas-Fort Worth, San Antonio, Austin), greater Atlanta, North Carolina (Charlotte-Raleigh), most of Florida, the Virginia and Maryland suburbs of Washington-Baltimore, the desert Southwest (Riverside-San Bernardino, Las Vegas, Phoenix, Tucson). Substantial exurban or spillover growth was common, with the Bay Area extending into California Central Valley, in far exurban New York and Pennsylvania as well as in largely once rural counties around such places as Salt Lake City, Denver, Portland, Seattle, Minneapolis, Chicago, Kansas City, Nashville, Indianapolis and Columbus.

    Many smaller metropolitan areas grew, especially in the south and west. Many counties with universities appear to have also grown, notably in the South. Many rural or small-town counties with substantial growth boasted environmental amenities and a strong ‘quality of life’ appeal.

    The only big population losses were New Orleans and vicinity, but there were also vast rural small town areas with small losses, characterized by continuing out-migration, but often also by natural decrease, more deaths than births (870 counties), and covering the Great Plains, but also much of the Midwest, Appalachia and the Northeast.

    Overall the population grew by 20 million, 12 million from natural increase, and 8 million from immigration. Around 80 million Americans “migrated” (moved across a county line), 28 percent of the population, resulting in net gains of over 10 million in gaining areas, and net losses of the same 10 million to losing areas.

    Immigration

    Net immigration into the US was almost 8 million in seven years, raising the legal/known share of the foreign born to almost 12 percent of the population. There were hundreds of counties — rural, small town and small metropolitan — where immigrants landed to take agricultural and industrial jobs or to work in service jobs or in construction. This trend is exemplified by a set of counties in far southwestern Kansas (which also had high internal out-migration—mostly Hispanics moving to meat-packing jobs) and to environmental amenity ski-resort counties in Colorado (construction, service).

    The largest immigration flows continued to flow to metropolitan areas, including many large core central counties, many of which were losing heavily among domestic migrants to their suburban and exurban fringe counties. The 21 largest losing counties lost a net of 4.7 million, but gained 3.5 million immigrants. Some 40 percent of the 8 million immigrants were destined for just 8 metropolitan cores, most notably Los Angeles-San Diego, New York City, Miami-Fort Lauderdale, San Francisco-Oakland-San Jose, Chicago, Dallas-Fort Worth and Houston.

    Internal Migration

    The story of gains and losses from internal migration is a little more complex. Gaining counties attracted around 45 million migrants and sent out around 35 million, for a net gain of over 10 million. One obvious feature from the maps is the “donut” phenomenon, the prevalence of large central county net out-migration, surrounded by a ring of substantial suburban and exurban net in-migration (about two-thirds of which is from the central core counties).

    This pattern is particularly marked in Houston, Dallas, Miami, Minneapolis, Washington, DC., Atlanta, Denver, Portland, Kansas City, Memphis, Nashville, and Indianapolis. In the cases of Los Angeles, San Francisco, Seattle, New York and Philadelphia, the ring of growth has pushed beyond the suburban counties to adjacent areas – as to the Central Valley of California or to NE Pennsylvania and Delaware.

    Some core areas did gain, mostly and Southern communities such as Phoenix, Las Vegas, San Antonio, Charlotte and Raleigh, NC, and Knoxville, TN — southern and of more recent importance. In many of these areas the “core” county also includes many areas which might be considered suburban. In this sense, the fastest “urban growth” took place in relatively low-density, auto-dominated regions as opposed to traditional urban cores. Finally, and most obvious on the map, is the continuing high growth of central Florida across most counties.

    In contrast there are places so hurt by de-industrialization that the entire (or most) of the metropolitan areas have substantial out-migration. These include places like Detroit, Cleveland, Pittsburgh, Buffalo, Rochester, and Boston. In some places, notably Pittsburgh, even suburban areas are losing population.

    Rural and small towns also show their own dynamics. There is also continued net-out-migration for almost half of rural small –town counties in all parts of the country, but especially in the Great Plains and Midwest and in the Mississippi delta. But on the other hand, we can see continuing f net in-migration to environmentally attractive areas, often for retirement or recreation, notably in parts of the west, but also in the Ozarks and other areas in the south, upper Midwest and Northeast.

    Conclusion

    The constants here are (1) the restless mobility of the population, (2) the dominance of suburban growth; and (3) the continuing decline of more than half of rural small-town counties. Prominent in recent years, but uncertain in the longer run are (4) our strong dependence on immigration (40 percent of net national growth), (5) the locus of fastest growth in exurbia, (6) the decline of northeastern and Midwestern industrial regions; (7) the rapid growth or rural environmental amenity counties and (8) the specific set of fast-growing metropolitan areas.

    Given the severity of economic conditions, immigration could begin to slow as a result of declining employment opportunities or political opposition. Similarly exurban expansion could slow because of the housing credit collapse. It is not impossible that older industrial areas could partially recover (ample plant and housing stock) while environmental amenity areas could be hurt by recession and the housing collapse. This could also apply to some of the fastest gaining areas 2000-2005 — notably Florida and southern California — that have been the hardest hit in the 2007 on housing debacle.

    But I believe American society is resilient, and even with needed constraints on excessive housing finance abuses, and even if we are indeed approaching the era of “peak oil,” the geographic settlement pattern of recent decades most likely will persist. People will continue to migrate for the same reasons they have for decades — in search of cheaper, larger houses, for jobs, warmer weather or scenic beauty. So we can expect, as the financial crisis gradually recedes, continued growth in suburban, exurban and satellite zones of metropolitan areas, and a net flow southward and to amenity areas.

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

  • A Grand Alliance: Fostering a North American Central Economic Region

    Given current economic trends, the time may be ripe to consider as a concept, an economic region straddling the middle of the North American continent – a North American Central Economic Region (NACER). These cross-border economic regions spanning Northwestern Ontario, Manitoba, North and South Dakota and Minnesota, already share infrastructure, production facilities and research and development capacity. A North American Central Economic Region (NACER) would build on these existing relationships, as well as historic patterns of cultural exchange, cross-border trade, and travel.

    Governments with fixed territorial boundaries do not always effectively address the need for cross-border regional economic partnerships and co-operation. Often created under radically different conditions, borders can result in transactions costs that limit interaction and opportunity.

    The concept of cross-border regions in North America is not new. Joel Garreau’s Nine Nations of North America describes cross-border regions that share similar economic, social and cultural characteristics. Other concepts for cross-border economic regions include Cascadia on the west coast and Atlantica on the east coast. Atlantica is more formally known as the Atlantic International Northeast Economic Region (AINER) and is currently the focus of advocacy and research on the part of the Atlantic Institute for Market Studies based in Halifax and the Eastern Maine Advocacy Corporation. The AINER concept comprises the Canadian Atlantic provinces as well as Maine, Vermont and the northern part of New York State bordering Lake Ontario.

    Cascadia has been nurtured by a government funded cross-border advocacy group initiative known as the Pacific Northwest Economic Region or PNWER. PNWER defines a region of the Pacific Northwest that includes British Columbia, Alberta, the Yukon, Alaska, Idaho, Montana, Oregon and Washington with a total population of about 20 million people. The PNWER provides a forum to address important cross-border issues in trade, transportation, the environment and energy. The 18th annual summit of the PNWER was held in Vancouver in July 2008 and discussions focused on marketing the Pacific Northwest in advance of the Vancouver Olympics, trade and travel across the Canada-U.S. border.

    In a similar manner, a North American Central Economic Region (NACER) could span Northwestern Ontario, Manitoba, North and South Dakota and Minnesota. This region stands at the cross-roads of the North American continent and essentially comprises the north-central portion of Garreau’s “Breadbasket Nation.” As a region, NACER covers 1.8 million square kilometers with a population of nearly 8 million people and a GDP (US$) of about 370 billion dollars. This economic region contains agricultural production activities, food processing, forestry, petroleum, coal, mineral and hydroelectric resources as well as substantial manufacturing and service capacity.

    The recent rise in commodity, food and energy prices has demonstrated the increasing strategic importance of the NACER zone in the long run. As well, the major centers of Minneapolis-St. Paul and Winnipeg are already locations for numerous corporate head offices, health, educational, research and government services. In addition, NACER contains vital road, rail and airport hubs that would be complemented by three ocean-going ports – Churchill, Duluth and Thunder Bay as well as the Mississippi route down to the Gulf of Mexico.

    The similarities and geographic proximity of the provincial and state economies of this region create a conjunction of common interests and possibilities for economic growth. For example, Manitoba and Northwestern Ontario have abundant hydroelectric resources and would benefit from increased exports to meet growing American power needs. Given current trends in energy prices, NACER has the potential to be a 21st century energy export giant rooted in agricultural and forest bio-fuels and hydro-electricity. In particular, the potential of Northwestern Ontario as a forest bio-refining energy center and hydro-electric producer would be enhanced by sharing of expertise with Manitoba and Minnesota.

    Another specific example of economic interests coinciding can be seen in the conjunction between the aerospace program at the University of North Dakota and Winnipeg’s aerospace manufacturing sectors. As well, Manitoba and Minnesota both provide large adjacent markets for goods and services for firms in North and South Dakota.

    As a further example of common economic interests, Minnesota has robust growth and a tight labor market and some of its firms could benefit from setting up operations in nearby Northwestern Ontario which suffer a surplus of highly skilled surplus labor and capacity due to the forest sector downturn. Moreover, recent economic development initiatives announced for northeastern Minnesota could also provide opportunities for Northwestern Ontario firms. As well, improvements to the highway, road and border-crossing network in the NACER region could also generate benefits for increased regional partnerships.

    This economic region requires a sense of common vision in order to grow and prosper during the 21st century. Leaders in this region need to facilitate cross-border commerce and activity in the areas of cross-border employment and business opportunities, better relationships between producers and suppliers, improving cross-border transportation infrastructure, cross-border environmental and nature conservation, and tourism promotion. At the very least, a regular regional forum between Chambers of Commerce and political leaders to examine common economic problems and solutions would be a worthwhile endeavor.

    Institutionalizing a regular set of meetings as has been done in the Pacific Northwest would be a good start. Furthermore, developing a regional vision and set of common statistics that could be used to lobby both federal governments could also help, particularly when border issues threaten the role of the border as a zone of interaction.

    The time is indeed ripe for a North American Central Economic Region (NACER). This cross-border region shares common economic interests and is strategically positioned at the heart of the North American continent. Key immediate priorities for this region involve research and industrial partnerships, common tourism marketing and steps to reduce congestion and streamline flows of legitimate trade and travel. The next step is for interested parties and stakeholders to come together and establish a cross-border institutional framework to promote this alliance, identify issues, set priorities and most importantly, mobilize resources on both sides of the border.

    Livio Di Matteo is Professor of Economics at Lakehead University in Thunder Bay and specializes in economic history, public policy and health economics.

  • A Local Graduation: How Small Towns Can Come Back

    Pick anytown, USA. You were born there; went to school there; made your living there; had your children and grandchildren and ended your life there. Headstones, like many, tell the story of who came and who went and they helped make the town a unique place.

    And so, for a moment, I lamented at how much of that we had lost in the changes we have witnessed over the decades. Here we are in the biggest financial crisis in history, or at least since the Great Depression. What do we do?

    Towns not on interstates cannot make it we are told, towns that are not hip and exciting are dead. And so, our young people leave — with at least a casual observance that those left behind are falling to the drug culture. In a recent focus group of young males in one eastern Kentucky town one participant stated, “Sure I sell drugs — it’s easy money and I don’t have the connections to get a job even at Wal-Mart.”

    How can we recapture that faith in ourselves in American communities? We must if we are going to move forward in a global economy.

    Maybe the solution lies in focusing on ourselves. “Localism” has been linked with everything from economic development to environmentalism, but at its core and at its best, it reflects a desire to make the best with what you’ve got.

    What you need to build is an intentional city. The intentional city is the middle way — where both the need to attract creative people and the need to sustain traditional economic and social bases co-exist.

    It’s okay, after all, not to be the coolest place ever. Why? Well, because most of us aren’t all that cool. But the majority of us still need jobs, fun things to do, people we like and ways to be successful. We need what ‘bell curve’ mixed communities — with the whole spectrum of skills and talents — can give.

    Take Newton, Iowa. The closure of the Maytag plant and the loss of 1,800 jobs attracted attention from Presidential candidates. But, as is so often the case, only part of the story was told. Though the loss of Maytag was a severe setback, Newton prepared itself for a successful rebound. The town collaborated with state and other nearby cities to attract several wind-turbine manufacturers. Maytag’s previous facilities already possessed the machinery needed for large-scale turbine manufacturing. The available facilities also were situated adjacent to interstate rail lines.

    This economic recovery was possible because the town’s people (many of them former Maytag employees) were interested in more than just their own jobs. They cared about Newton. These engaged citizens took a more active role in planning for their city’s future. They knew change had to come from the grassroots and move up from there.

    I believe this form of American ingenuity is at work in many small towns and cities. This requires a focus not only on high-tech and “creative” jobs but maintaining more traditional types of work that is equally important to a city’s health.

    This kind of effort requires more than sounding off online. Covert citizenship – yelling across the internet — isn’t real. Sustaining communities requires involvement.

    Like the people in Newton, we need to take interest in our own community and intentionally helping it flourish with its own best assets. Just as communities in tropical climates are recovering from hurricanes so can tired and waning cities recovery from malaise and a sense of inferiority.

    We need to embrace what we’ve got and not try so hard to be something we’re not. We need to graduate to the current reality but understand also that our greatest advantage lies with what we had to start with.

    Sylvia L. Lovely is the Executive Director/CEO of the Kentucky League of Cities and president of the NewCities Institute. She currently serves as chair of the Morehead State University Board of Regents.