Blog

The Sick Man Of Europe Is Europe

The recent near breakup of the United Kingdom — something inconceivable just a decade ago — reflects a deep, pervasive problem of identity throughout the EU. The once vaunted European sense of common destiny is decomposing. Other separatist movements are on the march, most notably in Catalonia, Flanders and northern Italy.

Throughout the continent, public support for a united Europe fell sharply last year. Opposition to greater integration has emerged, with anti-EU parties gaining support in countries as diverse as the United Kingdom, Greece, Germany and France.

The new reality is epitomized by France’s ascendant far-right political figure, Marine Le Pen, who is now leading in many polls to win the next presidential election. “The people have spoken loud and clear … they no longer want to be led by those outside our borders, by EU commissioners and technocrats who are unelected,” she declared recently. “They want to be protected from globalization and take back the reins of their destiny.”

These attitudes suggest that the EU could be devolving from a nascent super-state to something that increasingly resembles the Holy Roman Empire, a fragmented landscape of small, unimportant states wrapped in a unitary, but ephemeral crepe. This challenges the view of some Americans, particularly but not only on the left, who see Europe as a role model for the U.S.

Not long ago progressive authors like Jeremy Rifkin could project the European Union to be one of the world’s great and admirable powers. Today, Rifkin’s 2005 tome “The European Dream,” and a host of similar tracts, seem absurd amid growing political unrest and spreading economic stagnation.

Economic Decline

Some pundits, such as Paul Krugman, routinely describe Europe’s approach to economic, environment and social policy as more enlightened than America’s. Wherever possible, progressives push for European-style action in areas such as curbing carbon emissionsand rapidly converting to “green” energy.

Yet these policies are not working. The one large relatively fast-growing economy in Europe (excluding Turkey) is Poland.

Several years ago Germany and the Netherlands were exemplars as opposed to the much-disdained PIGS (Portugal, Italy, Greece and Spain). But German growth rates have plummeted, going negative in the last quarter, along with France and Italy. More stagnation is likely as energy costs surge and key export markets, notably in Russia and China, begin to contract. Today, the “sick man” of Europe is not any one country, or collection of countries; the “sick man of Europe” is Europe.

Europe’s poor economy stems in large part from policy. The strong welfare state so admired by progressives here has also made Europe a very expensive place to do business. High taxes and welfare costs, long tolerable in an efficient economy like Germany, have a way of catching up with companies and countries. This has been particularly notable after the financial crisis; since 2008 the unemployment rate has shot up 5 percentage points while dropping steadily in the Untied States.

The European-wide embrace of “green” energy policies has been tough particularly for manufacturers. Under Chancellor Merkel, Germany has embraced a massive shift to green energy that has helped raise electricity costs for companies by 60% over the past five years to double the rates in the United States.

The Russians, Europe’s one relatively inexpensive energy source, may have calculated that, in the long run, China may prove a better customer than the Europeans. Ironically, some European countries, including Germany, have been forced to boost their use of coal, certainly not much of a climate change win, to make up for shortfalls created by shuttering nuclear plants and overreliance on often erratic green energy.

Ultimately, high energy prices tend to fall most painfully on the middle and working classes in the form of higher electricity bills. Some may see their jobs threatened as European employers look forlower-cost alternatives, such as in the energy rich South and middle of the United States.

Demographic Disasters

The young are arguably the biggest losers in Europe’s decline. Even though birthrates are very low throughout much of Europe from Germany, Italy and Spain to the eastern countries, those now coming into the workforce face extraordinarily high levels of unemployment, topping 50% in some places. It’s no wonder that some are dubbing them a “lost generation.”

The combination of low birth rates and declining prospects contribute to rising concerns about immigration. Immigration has always been a more contentious issue in Europe, where many countries are dominated by a single ethnic group and the residents prefer something closer to homogeneity. This nativism has been painfully evidenced in recent decades from everything from the violent breakup of Yugoslavia and the far more civilized dismantling of Czechoslovakia to assaults on the Roma in France, the Czech Republic, Greece and other countries.

In Britain, the anti-immigrant and anti-EU U.K. Independence Party’s recent strong showing in the European Parliament elections reflected this concern. Diversity in London, which by some counts has the world’s largest concentration of immigrants, thrills London’s media and business communities but stirs great resentment, particularly among working and middle-class voters. The fact that by some estimates that most new jobs generated in the recovery have gone to immigrants has not warmed sentiments.

A Region Without Meaning

Chancellor Merkel has noted that “multi-culturalism” in Germany has “utterly failed.” Muslims in Europe drifting to ISIS is just one reflection of the continent’s weakness. The slow integration of immigrants into the economy, even in relatively prosperous, enlightened countries like Sweden, reflects also the inability of Europeans to integrate the newcomers who could help provide a workforce and consumer base in the future.

Perhaps the greatest challenge to Europe is not demographics, economics or energy, but one of identity. In highly secularized Europe, Christianity, which bound the continent around some similar values, is increasingly rarely practiced or believed. More Czechs, for example, believe in UFOs than in God. Outside of some vaguely anti-American, neo-druid communitarianism among some, there’s not much holding Europeans together.

All this suggests that Americans would do better than look to Europe for future solutions to our own problems. However attractive the European model may seem to our pundit class, the reality on the ground shows something more to be avoided than embraced.

This piece originally appeared at Forbes.

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

September 25, 2014
New Climate Report Misses Point on US Cities

The doubtful claim that low density US cities impose a cost to the economy of $400 billion is countered by their being the most affluent in the world. Nine of the top 10 cities in GDP per capita are in the US and more than 70% of the top 50. The highest GDP per capita city in the world is one of the least compact, Hartford, with an urban population density among the bottom 10 out of more the than 900 urban areas larger than 500,000 (See here and here).

Mobility is an important driver of economic performance. US cities have less traffic congestion, and shorter work trip travel times than their international peers (Los Angeles has the shortest work trip travel times of any megacity for which there is data). The key to this productivity is more dispersed residential and employment locations (less than 10% of jobs are downtown) and the less intense traffic congestion that is associated with such development. In the US, just as in Western Europe, commuting by car is much faster than by transit. The coming fuel efficiency improvements will narrow or eliminate the gap between personal vehicle and transit GHG emissions per passenger kilometer. US fuel efficiency standards are projected to reduce gross car GHG emissions by more than a quarter by 2040, according to the US Department of Energy. That’s before any de-carbonization.

The US has some of the best housing affordability in the world (excluding cities like San Francisco and Portland, where politically correct policies raise prices, lowering the standard of living and increasing poverty). The miniscule reductions from favored urban policies are exceedingly expensive per tonne and incapable of making a serious contribution to GHG emission reduction.

Maintaining the standard of living and reducing poverty requires cities that are mobile and affordable. It is important that GHG emissions reductions be chosen for their cost effectiveness, rather than consistency with expensive academic theories that long predate GHG emissions reduction concerns.

This piece was posted to comments at The Economist.

September 25, 2014
Will Lindsay Lohan Save Greece?

It’s September, but island beaches from the Aegeans to Zante are still buzzing in Greece. Mykonos has been the summer’s Go-To spot for superstars and supermodels; the mainland and cities are also seeing the British and Europeans coming back.

Greece’s reemergence on the tourist circuit and the celebrity-watch sites has brought travel revenue, which accounted for 12 billion euros through April, actually above the previous peak in 2008. And, based on arrivals, the national tourism agency predicts that visitors will account for 13 billion euros this year.

So did the appearance of Lindsay Lohan and friends in the Greek isles signify, as one newspaper put it, a template for Greece’s economic recovery?

It didn’t. It’s even still possible that Greece’s economic troubles have yet to hit bottom — no one really knows. There is one definite, though. Even with a dramatic increase in its significant tourism industry, the dance floor under Greece’s summer parties has been resting on a breathtakingly shaky foundation.

The debt-ridden economy has now endured 24 quarters of negative output. Young Greeks continue to flee, straining the country’s pension system.

Extreme austerity regime policies — fiscal tightening — have resulted in the most extreme unemployment rate in Europe, 27 percent.

Private investment remains in a free fall, with a decline of more than 10 percent over 2013. Financial institutions are barely lending. The gross total of doubtful and nonperforming loans by major banks is up from 5 percent to 25 percent since 2010.

And, while tourists are crowing about Greece’s fantastic bargains, those low prices are partly a reflection of the salary squeeze on Greek workers. Wage deflation is at a pace never before experienced in a post-WWII era developed country, even as household taxes continue to rise.

Those facts are just shorthand — an almost random selection from the reams of data we’ve compiled and analyzed at the Levy Economics Institute that document the continued precariousness of the economy.

This isn’t the first time in recent months that a seemingly positive sign in Greece has been wrongly celebrated as the start of a recovery. The country’s return to the bond markets in April was cheered as the end of a four-year exile. But the exercise was a public relations play. Demand for the bonds reflected the state of excess global liquidity, not investor confidence in Greece as a good risk. (Not to mention that the bonds were implicitly guaranteed by the European Central Bank.)

The improvement in tourism isn’t a sham like the bond market show. It’s real — but it’s such a small portion of the overall picture that it’s having only a minimal impact on the terrible employment problem, and on Greece’s balance of payments.

Millions of tourists may keep landing at Greece’s airports. I hope they do. But don’t expect ordinary Greeks to be planning their own luxury vacations anytime soon.

Dimitri Papadimitriou is president of the Levy Economics Institute of Bard College. The publications, conferences, workshops and congressional testimony of the institute have a wide international audience.

Flickr photo by efilpera: Clouds over Mykonos, September 2014.

September 25, 2014
Millennials: A Powerful, Suburban Living Generation

The latest survey data on the living preferences of the Millennial generation (born 1982-2003) once again validates the picture of a cohort that, contrary to urban legend, actually prefers the suburbs, even as they prepare to shape the suburbs in their own image. We and others have previously made this data-based point on this website. The results of the survey challenges the often wishful thinking of academics and ideologues who yearn for a more urbanized, denser America.

The Demand Institute commissioned the Nielsen company, to survey 1000 Millennial households about where and how they plan to live over the next five years, The results suggest a major transformation of the country’s housing markets is about to take place that will benefit those who know and understand Millennials and respond to their desires.

There are 13.3 million households headed by Millennials today. During the next five years that number is projected by the Demand Institute to increase by over 60% to 21.6 million as many Millennials take their first steps toward marriage and family formation. While only 30% of the 18-29 year olds interviewed were now married, seven out of ten said they expected to be within the next five years. A majority (55%) also anticipate becoming parents during this period. As a result, 71% of those interviewed said, that over the next five years, they planned on moving to a better home or apartment; about half expect to “own, not rent” their new home.

This burst of family formation, of course, is quite typical for thirty-year olds, a plateau that millions of Millennials will reach in the next half-decade. And, rather than diverge from the pattern, Millennials are following it in their own way. This is good news long term for the economy since their major lifestyle changes will lead to a burst of spending by Millennials. The Demand Institute’s report suggests that, between now and 2018 the generation will spend $1.6 trillion on home purchases and $600 billion in rent. The big questions are where will they spend all that money and what will they spend it on?

The Suburbs is the clear answer to the first question. Forty-eight percent of the Millennials interviewed said they planned on moving to the suburbs, while only 38% said they would be moving into large urban areas. A scant 14% planned to move to rural environments.

The type of suburban living these Millennials favor, however, is a little different than many of the developments builders are planning to offer. Sixty-one percent say they are looking for more space in their next home than they currently enjoy. An additional 24% want at least the same amount of space. A mere 15% express a desire to live in less space, something often assumed by retro-urbanists, in a presumably more crowded urban environment. Furthermore, although substantial numbers prefer having major amenities within walking distance, most Millennials say they are willing to take a “short drive” to restaurants (54%), grocery stores (61%), and even shopping centers (57%). This suggests that new “walkable” suburbs, including large planned developments on the fringe and Millennial-“gentrified” close in suburbs, all with single family homes, are likely to be the places that benefit most from this wave of Millennial family formation and spending on housing.

The single biggest barrier to the country enjoying this burst of new spending remains the Millennial generation’s unique burden of student debt. While three-fourths of Millennials believe home ownership is both an important long term goal and a good investment, only 36% believe they will be able to buy their next home, rather than rent. The impact of student debt on this purchasing decision can clearly be seen in the current behavior of 30-35 year old Millennials. Only half of those with student debt now own homes, while two-thirds of those lucky enough to graduate college without such debt are home owners. This clearly indicates that student debt reform is the single most important issue facing realtors and home builders future success. It should be their priority in Washington.

In the meantime, there may be some creative ways to confront this problem; 69% of the four-in-ten Millennials who believe they could not qualify for a traditional mortgage are open to leasing a new home with an option to buy it later.

The results of this survey make it clear that the nation’s housing future remains in its suburbs. Those communities which can offer Millennials the type of lifestyle they desire will be rewarded with growth. Those that cling to outdated notions of what constitutes urban or suburban living will find it difficult to compete for the Millennial generation’s housing dollar and the vibrant economic activity that will flow from their choices.

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

September 24, 2014

Metro Area Gross Domestic Product

The Bureau of Economic Analysis is out with the preliminary numbers for 2013 metro area GDP (see the press release). Here is a spreadsheet with per capita GDP data for all large metros.

We’ve now got enough data that it’s worthwhile to start tracking the trend vs. a 2010 base instead of 2000. With that, here are the top ten large metros by real per capita GDP:

Rank	Metro Area	2013
1	San Jose-Sunnyvale-Santa Clara, CA	100,115
2	San Francisco-Oakland-Hayward, CA	78,844
3	Seattle-Tacoma-Bellevue, WA	74,701
4	Boston-Cambridge-Newton, MA-NH	74,643
5	Washington-Arlington-Alexandria, DC-VA-MD-WV	73,461
6	Houston-The Woodlands-Sugar Land, TX	72,258
7	New York-Newark-Jersey City, NY-NJ-PA	69,074
8	Portland-Vancouver-Hillsboro, OR-WA	68,810
9	Hartford-West Hartford-East Hartford, CT	66,870
10	Salt Lake City, UT	62,008

San Jose cracks the $100,000 barrier, though that’s in part to the Bay Area being split into two metros, and the base year for constant dollar calculations getting switched from 2005 to 2009. But still impressive.

This list is similar to what we’ve seen before. But how are things changing? Let’s look at the top ten large metros for percent change in their real per capita GDP from 2010 to 2013:

Rank	Metro Area	2010	2013	Pct Change
1	Houston-The Woodlands-Sugar Land, TX	63,816	72,258	13.23%
2	San Jose-Sunnyvale-Santa Clara, CA	89,806	100,115	11.48%
3	Portland-Vancouver-Hillsboro, OR-WA	63,025	68,810	9.18%
4	Columbus, OH	50,370	54,493	8.19%
5	Grand Rapids-Wyoming, MI	41,248	44,482	7.84%
6	Charlotte-Concord-Gastonia, NC-SC	51,819	55,802	7.69%
7	Oklahoma City, OK	45,993	49,441	7.50%
8	Salt Lake City, UT	57,790	62,008	7.30%
9	Nashville-Davidson–Murfreesboro–Franklin, TN	50,464	54,112	7.23%
10	Detroit-Warren-Dearborn, MI	46,314	49,653	7.21%

A full map of this metric is below.

Percent change in real per capita GDP, 2010-2013.

Houston’s #1 showing is very impressive. This is a per capita value remember, so they aren’t on top just by virtue of adding lots of people. And they are in the top ten for 2013 per capita, so it’s not like they started on a low base or something.

Portland and San Jose continues their strong showing in this metric (more on these metros to come next week). Two metros in Michigan made the top ten, though some of that I’d speculate must come from the auto industry recovery, meaning it’s cyclical in nature.

I’ll throw in the total real GDP figures as well, but obviously these heavily align to population. Here are the ten biggest metro GDPs in 2013 (amounts in millions of dollars):

Row	Geography	2013
1	New York-Newark-Jersey City, NY-NJ-PA	1,377,989
2	Los Angeles-Long Beach-Anaheim, CA	775,967
3	Chicago-Naperville-Elgin, IL-IN-WI	550,793
4	Houston-The Woodlands-Sugar Land, TX	456,177
5	Washington-Arlington-Alexandria, DC-VA-MD-WV	437,085
6	Dallas-Fort Worth-Arlington, TX	413,627
7	Philadelphia-Camden-Wilmington, PA-NJ-DE-MD	358,091
8	San Francisco-Oakland-Hayward, CA	356,081
9	Boston-Cambridge-Newton, MA-NH	349,652
10	Atlanta-Sandy Springs-Roswell, GA	288,175

And the top ten in total real GDP growth percentage, 2010-2013.

Rank	Metro Area	2010	2013	Pct Change
1	Houston-The Woodlands-Sugar Land, TX	379,595	456,177	20.17%
2	San Jose-Sunnyvale-Santa Clara, CA	165,435	192,184	16.17%
3	Austin-Round Rock, TX	86,546	98,126	13.38%
4	Portland-Vancouver-Hillsboro, OR-WA	140,717	159,266	13.18%
5	Charlotte-Concord-Gastonia, NC-SC	115,229	130,318	13.09%
6	Oklahoma City, OK	57,856	65,246	12.77%
7	Nashville-Davidson–Murfreesboro–Franklin, TN	84,572	95,124	12.48%
8	Dallas-Fort Worth-Arlington, TX	368,015	413,627	12.39%
9	Salt Lake City, UT	63,090	70,719	12.09%
10	San Antonio-New Braunfels, TX	80,101	89,463	11.69%

Richard Florida posted some thoughts on this data over at City Lab. I’m less bothered than he is by Washington, DC’s poor performance, however. Much like Detroit’s cyclical upswing, I think short term turbulence in DC from the sequester and fiscal challenges was to be expected.

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

September 23, 2014

Why Suburbia Irks Some Conservatives

For generations, politicians of both parties – dating back at least to Republican Herbert Hoover and Democrat Franklin Roosevelt – generally supported the notion of suburban growth and the expansion of homeownership. “A nation of homeowners,” Franklin Roosevelt believed, “of people who own a real share in their land, is unconquerable.”

Support for suburban growth, however, has ebbed dramatically, particularly among those self-styled progressives who claim FDR’s mantle. In California, greens, planners and their allies in the development community have supported legislation that tends to price single-family homes, the preference of some 70 percent of adults, well beyond the capacity of the vast majority of residents.

Less well-noticed is that opposition to suburbs – usually characterized as “sprawl” – has been spreading to the conservative movement. Old-style Tories like author-philosopher Roger Scruton do not conceal their detestation of suburbia and favor, instead, European-style planning laws that force people to live “side by side.” Densely packed Paris and London, he points out, are clearly better places to visit for well-heeled tourists than Atlanta, Houston or Dallas.

There may be more than a bit of class prejudice at work here. British Tories long havedisliked suburbs and their denizens. In a 1905 book, “The Suburbans,” the poet T.W.H. Crossland launched a vitriolic attack on the “low and inferior species,” the “soulless” class of “clerks” who were spreading into the new, comfortable houses in the suburbs, mucking up the aesthetics of the British countryside.

Not surprisingly, many British conservatives, like Scruton, and his American counterparts frequently live in bucolic settings, and understandably want these crass suburbanites and their homes as far away as possible. Yet, there is precious little concern that – in their zeal to protect their property – they have also embraced policies that have engendered huge housing inflation, in places like greater London or the San Francisco Bay Area, that is among the most extreme in the high-income world.

Of course, the conservative critique of suburbia does not rest only on aesthetic disdain for suburbs, but is usually linked to stated social and environmental concerns. “There’s no telling how many marriages were broken up over the stress of suburb-to-city commutes,” opines conservative author Matt Lewis in a recent article in The Week. In his mind, suburbs are not only aesthetically displeasing but also anti-family.

What seems clear is that Lewis, and other new retro-urbanist conservatives, are simply parroting the basic urban legends of the smart-growth crowd and planners. If he actually researched the issue, he would learn that the average commutes of suburbanites tend to be shorter, according to an analysis of census data by demographer Wendell Cox, than those in denser, transit-oriented cities. The worst commuting times in America, it turns out, to be in places such as Queens and Staten Island, both located in New York City.

Other conservatives also point to the alleged antisocial aspect of conservatism, a favored theme of new urbanists everywhere. A report co-written by the late conservative activist Paul Weyrich supported forcing “traditional designs for the places we live, work and shop,” which “will encourage traditional culture and morals,” such as community and family.

Once again, however, a serious examination of research – as opposed to recitation of planners’ cant – shows that suburbanites, as University of California researchers found, tend to be more engaged with their neighbors than are people closer to the urban core. Similarly, a 2009 Pew study recently found that, among the various geographies in America, residents in suburbia were more “satisfied” than were either rural or urban residents.

In working against suburbia, these conservatives are waging a war on middle-class America, not necessarily a smart political gambit. Overall, conventional suburban locations are home to three-quarters of the metropolitan population. And even this number is low, given that large parts of most large American cities – such as Los Angeles, Phoenix, Dallas, Kansas City and Houston – are themselves suburban in character, with low transit use and a housing stock primarily made up of single-family residences built during the auto-dominated postwar period. Only approximately 15 percent of residents in major metropolitan areas actually live in dense, transit-oriented communities.

Given these numbers, one might think conservatives would take issue with progressive plans to circumvent preferences and market forces by constraining suburban and single-family home growth. They might spot a strategic opening to secure the urban periphery, the one area still up for grabs in American politics. In contrast, the blue core cities and red countryside have, for the most part, chosen sides, and both return huge consistent majorities to their preferred party.

Lured by their own class prejudice, some conservatives nevertheless seem willing to abandon market forces, a supposed conservative virtue. In reality, imposing Draconian planning is not even necessary for the growth of density. In places that are have both liberal planning regimes and economic growth, such as Houston and Dallas, there has been a more rapid increase in multifamily housing than in such cities such as Boston, Los Angeles, San Francisco or New York. The cost is just much lower.

Unfortunately, few mainstream conservatives apparently bother to study such things, and, as prisoners of the conventional wisdom, embrace the notion that, on economic grounds, suburbs are becoming irrelevant. Some, such as the libertarian economist Tyler Cowen, suggest that a stagnating post-recession America has to adjust to what has been described as a “new normal” of declining expectations.

With middle-class opportunity seen as largely moribund, many financial interests see America becoming a “rentership” society; for these rent-seeking capitalists, the death of suburbs would be not only morally correct, but also economically advantageous.

It’s hard for me, even as a nonconservative, to see how this trajectory works for the Right.

Renters, childless households, highly educated professionals, as well as poor service workers, clustering in dense cities are not exactly prime Republican voters. Without property, and with no reasons to be overly concerned with dysfunctional schools, the new urban population tilts increasingly, if anything, further to the left.

Meanwhile, the middle-class homeowner, and those who aspire to this status, increasingly find themselves without a party or ideology that champions their interests. In exchange for the approval of the cognitive elites in the media, in academia and among planners, conservatives will have, once again, missed a chance to build a broad popular coalition that can overcome the “upstairs, downstairs” configuration that increasingly dominates the Democratic Party.

Yet, there remains a great opportunity for either party that will appeal to, and appreciate, the suburban base. Conservative figures such as Ronald Reagan and Margaret Thatcher understood the connection between democracy and property ownership and upward mobility. Much the same could be said for traditional Democrats, from Roosevelt and Harry Truman, all the way to Bill Clinton.

For all their faults, suburbs represent the epitome of the American Dream and the promise of upward mobility. That they can be improved, both socially and environmentally, is clear. This is already happening in new, mostly privately built, developments where the “ills” of suburbia – long commute distances, overuse of water and energy – are addressed by building new town centers, bringing employment closer to home, the use of more drought-resistant landscaping, promoting home-based business and developing expansive park systems. This seems more promising than following a negative agenda that seeks simply to force ever-denser housing and create heat-generating concrete jungles.

The abandonment of the suburban ideal represents a lethal affront to the interests and preferences of the majority, as well as their basic aspirations. The forced march towards densification and ever more constricted planning augurs not a return to old republican values, as some conservatives hope, but the transformation of America from a broadly based property-owning democracy into something that more clearly resembles feudalism.

This piece originally appeared at The Orange County Register.

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

September 22, 2014
Apocalypse Soon? Uneasiness with The Economy

Seven in 10 Americans say the country is on the wrong track. Americans are unhappy, worried and pessimistic, and their spending is down according to a University of Michigan report. But the same report shows that consumer sentiment is up. Consumer confidence is up, according to the Conference Board, and our own Consumer Demand Index indicates that spending plans are up.

What accounts for this dichotomy? Perhaps it could be the normalcy bias, a desire for “normalcy” so strong as to feed a willingness to overlook contrary evidence. Or perhaps our uneasiness is an example of the “wisdom of crowds”, James Surowiecki’s theory that in aggregate, opinions of a wide cross-section of people are more accurate than those of experts.

Frankly, I’m uneasy, unhappy, worried, and pessimistic.

The protracted and uneven recovery from the Great Recession has led most Americans to conclude that the US economy has undergone a permanent change for the worse, according to a new national study by scholars at Rutgers University. Seven in 10 Americans now say the recession’s impact is permanent, up from half in 2009 when the recession officially ended.

Despite sustained job growth and lower levels of unemployment, most Americans do not think the economy has improved in the last year or that it will in the next. Just one in six Americans believe that job opportunities for the next generation will be better than theirs have been; five years ago, four in 10 held that view.

Much of the pessimism is rooted in direct experience. Fully one-quarter of the public says there has been a major decline in their quality of life owing to the recession, and 42% say they have lower salary and less savings than when the recession began, while just 30% say they have more.

The public also paints an extremely negative picture of American workers as unhappy, underpaid, highly stressed, and insecure about their jobs. Americans are also pessimistic about the future, and sharply critical of Washington policymakers. Only a quarter think economic conditions in the United States will get better in the next year, and just 40% believe their family’s finances will get better over the next year.

The Economy gets a downgrade: The updated budget and economic outlook recently released by the nonpartisan Congressional Budget Office (CBO) contained good news about
corporations, but bad news about the rest of the economy. According to Harry Stein of the Center for American Progress, the CBO now estimates that the economy will grow even more slowly than it expected in its previous economic outlook. It now expects that wages and salaries will comprise a smaller portion of that reduced economic pie.

The report suggests that troubling long-term trends in our economy are getting worse. Those trends include the stagnation of middle-class wages, which has gone on for over a decade. In addition, during the last 50 years overall employee compensation – including health and retirement benefits – has fallen to its lowest share of national income in more than 50 years, while corporate profits have climbed to their highest share.

Yet corporations are paying a much smaller portion of the total federal tax burden than they did in the past: about 10% today, vs. 30% in 1953.

While this is not an immediate emergency, since the annual budget deficit is very low right now, deficits will become unsustainable in the future, according to the CBO.

But there is a crisis for middle-class and low-income families right now: stagnant wages are not keeping up with rising expenses. American productivity has increased, but those gains are not making it to low- and-middle wage workers.

There has not been a real deleveraging: For several years, media headlines have been filled with references to a “deleveraging,” or a reduction in the level of US debt. But while the US financial system and banks are better capitalized, there has been no deleveraging in the broader economy. Consider these three points, courtesy of BlackRock investment strategist Russ Koesterich:

• US household debt remains high: Thanks to a significant write-off of mortgage debt, the debt burden of US consumers has been modestly reduced. By most measures, however, household debt levels are still too high. The past several years have witnessed a huge surge in student and auto loans. Overall, US household debt still stands at 103% of disposable income.

• Fueled by cheap credit, corporations have been adding new debt. Since the third quarter of 2010, corporate debt has increased every quarter. Over the past six quarters, corporate debt has been growing at an average annualized rate of around 9.5%, well above the pre-crisis average of 7.5%.

• Federal government debt has exploded. Outside of debt held by the Social Security Trust Fund, federal debt has risen by roughly $7.3 trillion over the past six years, an increase of 140%.

The net result is that non-financial debt has actually risen significantly since the financial crisis. Six years ago, notes Koesterich, non-financial debt was around 227% of GDP. Today, it’s at a record 250%.

Does rising non-financial debt matter for the economy and for investors? Long-term, the answer is yes: implications include slower growth, a persistent headwind for consumers and vulnerability to even a modest rise in interest rates (this is particularly true for the federal government).

This is not a real economic recovery: Wages have been stagnant since the start of the supposed recovery. Real household income has fallen by 7%.

• The S&P 500 has increased 196% in five years; stock market valuations have been higher only three times in history: 1929, 1999, and 2007. But average Americans are not participating in the markets’ gains. They have instead parked record levels of cash ($10.8 trillion) in no-interest bank and money market accounts.

• The economy has added a few million jobs, but 11 million people have permanently left the labor market.

• The Federal Reserve balance sheet was $900 billion before the 2008 financial crisis; today it stands at $4.4 trillion. The correlation between that increase and the stock bubble is self-evident. So is the true purpose of quantitative easing: to save Wall Street, not Main Street.

• The housing market is worse for real people than it was in 2009. The national home price increase — 25% just since 2012 — has been centered in the usual speculative markets, aided and abetted by the Fed’s easy money, managed by the Wall Street hedge funds, and exacerbated by late-arriving flippers, who now account for 34% of all home sales. Mortgage rates have been falling for the past year, home builders have been reporting soaring confidence about the future, and the National Association of Realtors keeps predicting a surge in home buying any minute now.

Yet as analyst James Quinn points out, mortgage applications are in free fall, new home sales are at 1991 levels, and existing home sales are falling. Home prices have peaked and are beginning to roll over.. Home sales will be stagnant for the next decade, he predicts.

This will not end well: Crashes are coming, concludes Quinn. Quantitative easing will cease come October, unless the Fed and Wall Street can manufacture a new crisis to cure by printing more money. By every valuation measure, he writes, stocks are overvalued by at least 50%. By historical measures, home prices are overvalued by at least 30%.

Ten-year Treasuries are yielding 2.4%, while true inflation is north of 5%. With real interest rates deep in negative territory, the bond market is even more overvalued than stocks or houses. These simultaneous bubbles have been created by the Federal Reserve in a desperate attempt to keep this debt laden ship afloat. Their solution to a ship listing from too much debt has been to load it down with trillions more in debt. The ship is taking on water rapidly.

We had a choice, says Quinn: “We could have bitten the bullet in 2008 and accepted the consequences of decades of decadence, frivolity, materialism, delusion and debt accumulation. A steep sharp depression which would have purged the system of debt and punishment of those who created the disaster would have ensued. The masses would have suffered, but the rich and powerful bankers would have suffered the most. Today, the economy would be revived… Instead, the Wall Street bankers won the battle and continue to pillage and loot the national wealth while impoverishing the masses.

Discontent among the masses grows by the day. When the stock, bond and housing bubbles all implode simultaneously, all hell will break loose in this country. It will make Ferguson, Missouri look like a walk in the park.”

I fear he may be right; so like I said, I’m uneasy.

Dr. Roger Selbert is a trend analyst, researcher, writer and speaker. “Growth Strategies” is his newsletter on economic, social and demographic trends. He is economic analyst, North American representative and Principal for the US Consumer Demand Index, a monthly survey of American households’ buying intentions.

Flickr photo by Brendan Murphy, The last sunset on earth, taken “somewhere close to the ends of the earth – White Cliffs in NSW”.

September 19, 2014
Paving Over Hunan? The Portland Model for China

For two centuries, people have crowded into urban areas, seeking higher standards of living than prevail in the rural areas they abandoned. Nowhere is this truer than in China. In just four decades, it has risen from 17.4 percent to 55.6 percent urban, adding nearly 600 million city residents. This has been accomplished while lifting an unprecedented number of people out of poverty.

Yet in the future, China faces tough urbanization challenges. The United Nations forecasts that another 200 million residents will be added to the cities by 2035, increasing the urban population by nearly another one-third.

Los Angeles Style Suburbs in China?

For years, western planners have sought to impose their visions of the future on China’s cities (see: China Should Send the Western Planners Home). There are more recent rumblings from Britain. Writing in The Guardian, Bianca Bosker finds considerable fault with Chinese cities. In criticizing China’s perceived copying of US and European models, her article conveys an impression that detached housing (called "villas in China) makes up a large part of China’s suburbs, as in the United States ("Why Haven’t China’s Cities Learned from America’s Mistakes?" with an intriguing subtitle "Faceless estates. Sprawling suburbs. Soulless financial districts … are in vogue in China").

Having traveled widely within all but two of China’s 25 largest cities, I would have to disagree. You have to look hard to find detached housing in China. This is quite unlike the case in US suburbs, as well as those of Japan, Britain, France, Germany, Canada, Australia and elsewhere.

In fact, the suburban areas of Chinese cities are largely high-rise and mid-rise multi-family buildings, with their attendant high densities. Detached housing has accounted for between 4 and 6 percent of new housing floor space. The actual percentage of detached units is probably smaller, since their average floor space of detached housing is greater. The type of housing in the photographs at the bottom of the article (Figures 2 through 6) is typical of China’s suburbs.

Bosker also criticizes about China’s "towers in the park" high-rise development, noting that "The desire to escape sardine conditions in these superblocks, where greenery often consists of sickly shrubs gasping between six-lane roads, has in turn multiplied the number of land-devouring compounds like Rancho Santa Fe." In fact, villa developments like Rancho Santa Fe, nearby Shanghai’s Honquiao Airport, are very high income enclaves, and small. Rancho Santa Fe itself occupies less than 90 acres and the gross average lot size is approximately one-quarter acre (1/10 hectare), smaller than the average middle income suburban lot in the United States. No ordinary “tower in the park" resident can afford to move to the pricey villa developments.

California’s High Urban Densities

The article also condemns the "urban sprawl" of Los Angeles and California (this is nothing new). However, the reality is that Los Angeles is the most dense major urban area in the United States (and thus the least sprawling) and nearly as dense as Toronto. Further, California has the highest urban density of any state, leading even New York. The average urban density of the state and even that of smaller California cities, such as Fresno, Stockton, Modesto and Salinas, is more than that of urban planning Nirvana Portland (below).

Los Angeles: Land of Gridlock?

The article calls Los Angeles the "land of gridlock," and there is no doubt that its traffic is intense. Yet, Los Angeles ranks only in a 20th place tie with Paris out of 125 cities in the latest Tom Tom Traffic Index. Traffic is worse in Brussels and Rome, almost as bad in London and far worse in places like Moscow, Istanbul, Rio de Janeiro, Mexico City and Sao Paulo. In spite of the traffic congestion, Los Angeles has the shortest work trip travel times of any world megacity for which there is data, the result of its dispersed residential and employment pattern (call it "sprawl" if you like).

In Los Angeles, suburban residents have shorter work travel times than people living in the urban cores, which is the general situation among US major metropolitan areas (more than 1,000,000 population). This is to be expected, since lower densities are associated with less traffic congestion and shorter travel times.

Paving Over Hunan?

Ms. Bosker suggests that China may be poised to follow the "Portland model." A planner is quoted: “Portland is a really great model.” That, I would suggest, depends on your perspective.

The Portland model has its philosophical roots in the British Town and Country Planning Act of 1947. As early as 1973, Sir Peter Hall and his colleagues characterized the Act having had the "reverse effect" an important policy goal, to benefit less affluent households, by virtue of the house price escalation that ensued.

Portland has drawn an urban growth boundary around the city beyond which development is generally prohibited, and within which there is insufficient space to maintain competitive land prices. Portland has also has sought to attract people out of their cars by both building an extensive light rail system and loath to provide new highway capacity to meet demand.

After more than 30 years of its urban containment ("smart growth") policy, Portland’s urban density remains at only 1,350 per square kilometer (3,500 per square mile), less than one-quarter that of China’s cities with more than 500,000 population (5,750 per square kilometer/14,900 per square mile). Los Angeles is twice as dense as Portland. Portland’s urban density is closer to that of the world’s most sprawling large urban area, Atlanta, than it is to that of Los Angeles. Planning whipping boy Houston is only 15 percent less dense than Portland.

To equal Portland’s density, Chinese cities would need to expand their footprints by 210,000 square kilometers (80,000 square miles). This would require the equivalent of paving over Hunan province (Figure 1), the state of Minnesota or the combination of England and Scotland.

Portland is no model to copy, unless all you care about is inputs (like light rail and not building freeways and suburban housing). The outputs tell a completely different story. In 1980 (the last data before the first light rail line was opened) 65.1 percent of commuters drove alone to work. By 2012, that figure had increased to 70.8 percent. Transit was down from 8.4 percent to 6.0 percent. Approximately one-quarter as many people worked at home as commuted by transit in 1980 (2.2 percent). By 2012, more people in the Portland metropolitan area worked at home than rode transit (6.4 percent).

This is not surprising. Portland’s "model" transit system (now with five light rail lines) can get the average commuter to only 8 percent of the jobs in 45 minutes. This is not very attractive in contrast to travel by automobiles, which provides access to virtually 100 percent of the jobs in less time (30 minutes).

Meanwhile, Portland’s anti-highway policies have been rewarded with some of the most rapidly increasing traffic congestion in the United States. In the early 1980s, Portland ranked 47th worst out of the 101 US urban areas ranked by the Texas A&M Transportation Institute. By 2011, Portland’s traffic congestion had deteriorated to sixth worst, a stunning failure for a city with a population that doesn’t even rank the top 20. Meanwhile, Houston, castigated for its wide freeways, has improved from the worst traffic congestion in the middle 1980s to four positions better than Portland (10th), despite adding having added three times as many new residents as Portland.

American Cities

If outputs are more important than inputs (which I suggest is true), then US cities do very well. They have the highest incomes in the world, occupying 36 of the top 50 positions in gross domestic product per capita. They have some of the most affordable housing in the world, if cities following the Portland model are excluded. They have shorter work trip commutes and less traffic congestion than their peers in other high income world nations. And, they are poised for huge progress in environmental protection. The US Department of Energy forecasts large reductions in gross greenhouse gas emission from the national automobile fleet in the coming decades.

Overwhelmingly, the growth of cities happened because rural residents sought higher standards of living and an escape from lower incomes and poverty, in rural areas. Few, if any moved to cities for wise urban planning, for "soulful financial districts" or to commute by light rail. Overall, US city outputs correspond very well with the purpose of cities — which is why they attracted residents.

China: Setting its Own Course

No one could have predicted China’s urban progress that was to follow in the decades following Deng Xiao Ping’s assumption of power. China’s cities have provided for their growing number of citizens. By that standard, both Chinese and American cities have done very well. China has charted its own urbanization course and seems likely to do so in the future. It is unlikely to seek to follow the advice of western critics whose plans fail the needs of their own citizens, much those in a complex, rapidly changing place like China.

Top photograph: Suburban development, Changsha, Hunan. (All photographs by author).

Wendell Cox is principal of Demographia, an international public policy and demographics firm. He is co-author of the “Demographia International Housing Affordability Survey” and author of “Demographia World Urban Areas” and “War on the Dream: How Anti-Sprawl Policy Threatens the Quality of Life.” He was appointed to three terms on the Los Angeles County Transportation Commission, where he served with the leading city and county leadership as the only non-elected member. He was appointed to the Amtrak Reform Council to fill the unexpired term of Governor Christine Todd Whitman and has served as a visiting professor at the Conservatoire National des Arts et Metiers, a national university in Paris.

September 17, 2014
Brooklyn is Getting Poorer

I’m trying to make more of an effort, whenever I write or talk about gentrification, to point out that the real issue is larger: that gentrification is only one aspect of income segregation – specifically, the part where the borders between rich and poor neighborhoods shift – and that the real problem is that we have such sharply defined rich and poor neighborhoods to begin with.

I might also throw in that income segregation used to be m uch less severe.

Anyway, one problem with our obsession with gentrification as the end-all of urban equity issues is that it discourages us from talking about other important things happening in our cities. In some instances, gentrification has become such a dominating narrative that it has completely erased broader trends that we really ought to be concerned about.

Case in point: Brooklyn is getting poorer.

Does that shock you? Were you under the impression that all of Brooklyn was in the process of becoming one giant pickle boutique? That would be forgivable, given that nearly every article filed from Brooklyn for a decade or so has been about gentrification. But no.

I recently ran across a post from data-crunching blog extraordinaire Xenocrypt, which noted that from 1999 to 2011, median household income in Brooklyn fell from $42,852 to $42,752. That’s not a huge drop, obviously. The national median income fell from $56,000 to $50,000, so Brooklyn is actually catching up, sort of, to the country as a whole. But it still got poorer in absolute terms.

Moreover, if you map (as Xenocrypt did) the borough’s neighborhoods by change in median income, you get a really striking picture:

Credit: Xenocrypt.blogspot.com

…which is that, indeed, a good three-fifths or so of Brooklyn is actually getting poorer. Have you read any articles about that? No, I will wager that you have not. Neither have I. I strongly suspect that is because they don’t exist – at least not in any outlet that might be considered mainstream.

And what about housing prices?

Credit: http://www.citylimits.org/

So in large parts of Brooklyn, real estate prices are falling.

I have nothing particularly intelligent to say about this – these maps were news to me – except that it’s maybe the most dramatic example I’ve seen yet of just how limiting our fixation on gentrification is. I mean that both in a sort of journalistic sense, in that we’re being deprived of an accurate sense of what is actually going on in our cities, as well as from an advocate’s perspective: how can we claim to be working for fairer, more equitable, etc., cities, if we’re ignorant of their most basic economic and demographic changes?

This post originally appeared in City Notes on May 3, 2014. Daniel Hertz is a masters student at the Harris School of Public Policy at the University of Chicago.

Lead photo: “BK” by Theeditor93 – Own work. Licensed under CC BY-SA 3.0 via Wikimedia Commons.

September 16, 2014
Southern California Becoming Less Family-Friendly

The British Talmudic scholar Abraham Cohen noted that, throughout history, children were thought of as “a precious loan from God to be guarded with loving and fateful care.” Yet, increasingly and, particularly, here in Southern California, we are rejecting this loan, and abandoning our role as parents.

This, of course, is a process seen around the high-income world, and even in some developing countries. But, here in America, some regions are moving in this post-familial direction faster than others, and, sadly, Southern California, for the most part, is leading the trend.

Historically, Southern California, as a lure first for domestic migrants and, later, for foreign immigrants, has been an incubator of families. As recently as 2000, the proportion of population ages 5-14 in Los Angeles and Orange counties stood at 16 percent, the sixth-highest level among the nation’s 52 largest metropolitan areas. Thirteen years later, that proportion had dropped to 12.8 percent, ranking 33rd. The area experienced a 20 percent drop in its share of youngsters, the largest decline among U.S. metro areas.

Of course, not everywhere in Southern California has experienced such a precipitous shift. The Inland Empire, which stands apart in census data, remains a relative bastion of familialism, with 15.3 percent of the population between ages 5-14. Yet even the Inland Empire is slipping somewhat, from having the highest percentage of children to a ranking of fourth, and experiencing a 17 percent decline in children’s share of the population, the fourth-largest percentage drop in the nation.

If we try to focus even more closely, the patterns of decline, and the few bright spots, become more clear. Using 2010 U.S. Census data for specific regions (more up-to-date numbers are not yet available at the local level), it’s clear where much of this loss is concentrated.

The most precipitous declines have been in the inner city, notably Central Los Angeles, which experienced a net loss of 87,000 youngsters from 2000-10. Although their rate of loss was not as severe as in the core, other, once family-rich parts of the region – the San Fernando and San Gabriel valleys, Santa Ana/Anaheim, Long Beach and Whittier-Southeast Los Angeles County – all posted double-digit percentage drops in children.

Only a few areas of Southern California experienced growth in the number of children. Much of the growth was in the vast, outer suburbs and exurbs – places such as the Victor Valley, San Bernardino, Perris-Temecula, Santa Clarita-Antelope Valley and Riverside-Moreno Valley, as well as decidedly more upscale Irvine-South Orange County.

In a sense, these numbers tell several stories. To be sure, high housing prices seem to have a direct impact on family formation, pushing people further out to the periphery or, in some cases, out of the region entirely. Overall, according to recent analysis of census data, high-cost areas tend to repel families; almost all the most expensive areas in the country, such as the Bay Area, New York and Boston, have all experienced strong drops in numbers of children.

This has resulted, as demographer Ali Modarres has demonstrated, in a gradual emptying out of families from the poor, but still expensive, inner core of Los Angeles. These areas tend to be heavily immigrant, and once were seen as the generators of a new generation of Angelenos. Now, however, as Modarres suggests, these areas are also “getting old,” with grandparents remaining but the new generation headed to other locales within or beyond the region. This process, he notes, has been accelerated by a decline in immigration to the region, particularly among Latinos, who long settled in these areas.

Housing prices are not the only determinant. Prices are even higher in the Bay Area, which has seen a falling number of children, but not as severe as in Los Angeles.

One likely explanation is the Southland’s relatively weak economy, which continues to create jobs sluggishly, and an unemployment rate, particularly in Los Angeles County, well above the state and national averages. High prices repel families, but this is particularly true in a region generating relatively little economic opportunity.

There are other factors, particularly for middle-class families, who tend to have more choice where to locate. One seems to be education. For example, Irvine-South Orange County does well in this regard, but its housing costs are beyond the budgets of most other than upper-middle-income households, which tend to be Asian or non-Hispanic white. Irvine has a national reputation for excellent schools, a major lure to families who wish to avoid the expense of private education.

For some in Southern California, particularly those pushing high-density and rental housing, these shifts may be considered a boon. After all, households with children, even more than most people, tend to prefer single-family homes and tend to embrace the notion of ownership. Single people are more likely to choose – by preference or because of cost – rental properties. The vision of Southern California as primarily dominated by high-density rentals correlates with requirements of state law and plans of the Southern California Association of Governments.

At the same time, the economic languor of this region may make many of these bold designs untenable. People without decent – or any – employment do not make ideal tenants any more than they constitute potential homeowners. Given the high costs of high-density construction, this suggests that many units will be rentable only by aging former homeowners or by several families sharing a unit.

Sadly, the decline in homeownership and the single-family housing market may contribute long term to the region’s continued relative economic eclipse. Single-family home construction is among the most reliable contributors to local economic growth and job creation. In contrast, each multifamily unit constructed contributes 60 percent less to the GDP.

More important still, the loss of families presages a future that we can already see in many European and east Asian countries. There is the development of an aging, inner core, made up largely of retirees, both poor and affluent, sprinkled among areas dominated by young, mostly childless, people. Over time, this leads to a less-dynamic region, as the workforce and consumer base shrinks, and politics shift emphasis from economic growth to redistribution. Meanwhile, many of the poor and working-class families are forced out toward the furthest periphery, often far from employment and relatives.

Can this process be reversed? Certainly a stronger economy, with more middle-wage jobs, might encourage people to have families, and give them the incentive, as well as the wherewithal, to buy a house. It would provide parents, and potential parents, with the notion that they can create a new generation with reasonable economic prospects.

The other key factor is a radical reordering of our education systems. It is clear from the data that areas with good schools, such as Irvine, continue to attract families, even at very high housing price points. If middle-class families feel they can access a decent public education in the older, settled areas, such as the San Fernando Valley, L.A.’s Westside or North Orange County, they might be more willing to put down roots in these places, which would help create the greater stability generally associated with families, especially homeowners.

Sadly, political leadership in most of Southern California and Sacramento seems blissfully unaware of these trends, or the potential danger to the area’s economic, as well as its demographic, vitality. Perhaps a region dominated by aging populations, and fewer families, by nature tends to look backward and neglect the kind of infrastructure investment, including in education, that families and business require.

A resurgent hipster economy may not require much economic growth, or changes in the political system, but the region’s families need a thorough reversal in course if this region hopes to retain its appeal as an incubator of future generations.

This piece originally appeared at The Orange County Register.

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

Baby photo by Bigstock.

September 15, 2014