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  • The Toto Strategy: How Kansas Can Save Barack Obama’s Presidency

    Here’s an idea that could save Barack Obama’s presidency: Give up those troubling Chicago roots and get back to Kansas. If, as Dorothy observed in the Wizard of Oz, “We’re not in Kansas anymore,” get the Wizard to send you back there soon.

    Barack Obama owes much to Kansas–and the Great Plains in general–something he used to acknowledge often enough. Not only was he largely raised by products of that region (his mother and grandmother hail  from  the Sunflower State), but also his remarkable victory over Hillary Clinton during the presidential primaries was built largely by winning first in the Iowa caucuses, followed by surprising victories in Kansas, North Dakota, Minnesota and Illinois.

    But the midterm elections saw much of the central region’s Congressional Democratic contingent “annihilated,” using Ron Brownstein’s word. Stalwart senators like Byron Dorgan of North Dakota politely gave up without a fight, and the Democrats lost House seats in both of the Dakotas, Minnesota and Kansas. They lost four in Illinois. The political imperative for Obama to shift his focus to the Heartland has never been clearer.

    By embracing  his mother’s families historic heartland roots–as he did in the early part of the primary campaign–Obama could energize a listless presidency increasingly disconnected from much of mainstream America.  This would help the president and his party emerge from their coastal redoubts, college towns and big cities like Chicago–which is crucial since there aren’t enough electoral votes in these areas in win re-election, particularly after the reapportionment coming following the census.

    A Kansas–or “Toto”–strategy would provide the economic focus or bringing the country out of the recession. Illinois teeters on the edge bankruptcy, but Kansas and most Plains states remain fiscally healthy  states.  Although hardly a high flier, Kansas’ unemployment rate — a mere 6.6% — stands well below the national average; of the ten states with the lowest unemployment rates, five are in the Plains, including Kansas, Iowa, Minnesota and the Dakotas. Over the past decade, the region between Texas and the Dakotas has created more jobs per capita than the Northeast, the West Coast, the Great Lakes or the Southeast.

    Kansas and the rest of Great Plains also represent the part of America best positioned to benefit from changes in the global economy. Much is made about the “new economy” based on high-end intellectual products like software and biotechnology, venture capital and tech companies. Kansas is widely seen as falling way beyond coastal states like Massachusetts, Washington and Maryland, according to a recent survey by the Kansas City-based Kaufmann Foundation.

    But our country’s economic future may rely even more on more mundane fields, notably agriculture, manufacturing and energy, than the increasingly competitive information economy. Kansas ranks seventh among the nation’s agricultural states; Plains states Iowa, Texas, Nebraska, Illinois and Minnesota also rank in the top 10.  Growing demand for food from China, India and other developing countries places this part of the country in a fortuitous position. The U.S. agricultural trade balance jumped from roughly $5 billion in 2005 to $35 billion in 2008. This year’s corn crop, notes North Dakota State business professor Debora  Dragseth, could be the largest in the nation’s history. Overall the U.S. produces almost two-thirds of the world’s product of this much sought-after commodity.

    Of course, the Plains has its share of the large corporate farms detested among blue-state intellectuals, but most are family owned, including a growing number of smaller, specialized and organic producers. Due to strong demand from around the world, notes Creighton University economist Ernie Goss, the Plains’ “rural Main Street economy“ has picked up steam both in terms of jobs and income over the past year.

    The Plains also figures prominently in the country’s critical energy future.  Energy constitutes the largest component by far in our persistent trade deficit, accounting for roughly half the total. Texas has become a national leader in wind-driven energy, while the whole region has been described as “the Saudi Arabia of wind.”

    But wind, like solar power, is not a game-changer in the short run–in the Plains or anywhere else for that matter. For one it depends on huge subsidies roughly five times per kilowatt hour those for fossil fuels . More troubling still the industries associated with them–the supposed sources of miraculous numbers of “green jobs”–also are increasingly dominated by China.

    For the foreseeable future fossil fuels, which generate 84% of our power (all but 1% or 2% of the rest comes from nuclear or hydro-electrical power), will be more pertinent to our economic resurgence than renewables;  by 2035, according to federal Energy Information Administration, they will still account for roughly 75%.

    Unlike green energy, in which China and Europe remain stronger, the U.S. remains the world leader in fossil fuel technology. The industry’s global hub is in Houston, but many Plains cities, like Dallas, Oklahoma City, Tulsa and Bismarck, play important roles. Kansas ranks eighth among oil producers; Texas, Oklahoma, North Dakota and Montana also stand among the nation’s top 10 oil-producing states. More important, unlike carbon-crazed California, which still ranks third in total oil production, these states seem in favor of producing more of the gooey stuff.

    The Plains are also emerging as big players in what should be the key energy source of the next decade: natural gas. The country’s reserves of natural gas have grown rapidly; it is widely estimated we have 100 years supply of the stuff. Far cleaner than either coal or oil, our nation’s natural gas reserves are so great that energy executives in Texas are now talking about the possibility of becoming an energy exporter again.

    Kansas, for its part, is among the top 10 gas producers–along with Texas and Oklahoma. Colorado, New Mexico and Wyoming, other top ten producers, inhabit the western end of the Plains. A shift to natural gas for everything from electrical generation to fuel for trucks, cars and buses would do more to improve the country’s sagging finances than anything else on the horizon. It will also generate a lot of both high-end engineering and skilled blue collar jobs.

    Finally, the Plains are becoming the new frontier of America’s still potent manufacturing capacity. This is the region where, over the past year, goods-producing jobs have been growing fastest.   A steady, relatively well-educated workforce–North Dakota now ranks just behind Washington, D.C., and Massachusetts for percentage of people 25 and 34 with a college degree–is becoming a major lure.

    As a born-again Kansan, President Obama can rebuild his reputation and our economy. Rather than being dissed as a taciturn intellectual, he can be respected as reticent, self-controlled Plainsman, a Gary Cooper, if you will. And he wouldn’t be out of place: Kansas is far less homogeneous than when Obama’s grandparents left there. Whites are already a minority in four Kansas counties, with immigrants coming from places as diverse as Mexico, Myanmar, Ethiopia, Sudan and Somalia.

    The culture of the Plains produced the mother who bore our president, and the grandmother who raised him. He certainly owes more to Kansas than to Kenya or Indonesia–or maybe even Illinois. A revival of Obama Kansasness may not thrill all his coastal fans, but it could help the President and his party find a way out of the political wilderness.

    This article originally appeared at Forbes.com.

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

    Photo by earlycj5

  • Rasputin’s Tunnel?

    First, New Jersey Governor Chris Christie cancelled the proposed intercity and suburban rail tunnel between New Jersey and Manhattan because of the financial obligations its out-of-control costs could impose on the state’s taxpayers. Then he delayed the final decision, under pressure from Secretary of Transportation Ray LaHood and other supporters of the tunnel. In the end, the proponents were unable to provide the financial guarantees necessary to keep New Jersey from having to pay more than it had committed and Christie cancelled the tunnel for good. Or so it appeared.

    Now, the tunnel may be back. Mayor Michael Bloomberg of New York City has studies underway that could lead to extending subway Line 7 from a station at 34th Street and 11th Avenue to New Jersey instead.

    Early press reports suggest the line can be built for $5.3 billion, which is approximately one-half the cost of the previous proposal. It is more likely that Governor Christie will buy the Brooklyn Bridge with tax money than this amount is in the “ball park.” The subway tunnel would be only four blocks (15 percent) shorter than the cancelled tunnel.

    The previous tunnel had the less than attractive name, “Access to the Regional Core.” Given the back and forth history of this project, a more appropriate name might be “Rasputin’s Tunnel,” after the Russian mystic whose enemies failed in multiple attempts to murder (though in the end, they succeeded).

  • The Overdue Debate: Smart Growth Versus Housing Affordability

    American households face daunting financial challenges. Even those lucky enough not to have suffered huge savings and retirement fund losses in the Great Recession seem likely to pay more of their incomes in taxes in the years to come, as governments attempt pay bills beyond their reasonable financial ability. Beyond that, America’s declining international competitiveness and the easy money policies of the Federal Reserve Board could well set off inflation that could discount further the wealth of households.

    In this environment, the last thing governments need do is to raise the cost of anything. It is bad enough that taxes may have to rise and that a dollar will probably buy less. America’s standard of living could stagnate or it could even decline.

    The Choice: Smart Growth or Affordability

    The Washington Examiner, however, succinctly put the choices that face the nation, states and localities with respect to the largest element of household expenditure — housing. In an editorial entitled “Take Your Pick: Smart Growth or Affordable Housing,” the Examiner noted:

    “No matter how much local politicians yammer about how much they support affordable housing, they are the principal cause of the problem via their land use restrictions, such as the urban growth boundary in Montgomery County and large-lot zoning in Loudoun County.”

    The editorial was in response to our Demographia Residential Land & Regulation Cost Index, which estimated the extent to which the land to construction ratio had risen in metropolitan regions. The principal finding was that the share of land and regulatory costs to new house prices had risen only with the impostion of more restrictive land use policies. This is principally because strategies such as urban growth boundaries, suburban large lot zoning and geographical growth steering (such as allowing state financial assistance only in areas meeting smart growth criteria) makes land for housing unnecessarily scarce, raising its price just as surely as OPEC’s oil rationing raises the price of gasoline.

    Urban planner and mayor of Ventura, California Bill Fulton objected to our attributing these increases to land and regulation, instead suggesting that smart growth increases homes prices much less than we claimed although, he admits, “at least a little“ . The pro-smart growth study Costs of Sprawl — 2000 concedes that a number of smart growth strategies can increase house prices (See Table 15-4). Thus, the debate is not about whether more restrictive land use policies raise the price of housing, but rather by how much.

    More often, however, proponents of more restrictive land use regulations have avoided and even denied that the inconvenient truth linking their policies with higher housing costs. Rarely, if ever, have proponents of such policies fully disclosed to elected or appointed officials that more restrictive land use policies would lead to higher house prices. It is doubtful that any urban planning department ever sent representatives to an NAACP chapter to explain how fewer African-Americans would be able to own their own homes, despite already having a one-third lower home ownership rate than non-Hispanic whites. Similarly, the planners probably never told La Raza chapters that Hispanic households, also with a one third less home ownership rate, would find home ownership more costly. Nor was the message delivered to the religious organizations concerned with improving the standard of living for lower income households.

    Pervasive Evidence

    Yet the evidence that smart growth boost prices substantially seems incontrovertible. An early 1970s research effort led by renowned urbanologist Peter Hall quantified the impacts of the restrictive Town and Country Planning Act of 1947, which brought smart growth measures to England. The result, The Containment of Urban England revealed how strict regulations on development had driven the price of land for development from five to ten times the value of comparable on which development was not permitted, but might be permitted in the future. More recently, Bank of England Monetary Policy Committee member Kate Barker, was commissioned by the Blair Labour government to review housing affordability and land regulation. She attributed England’s more steeply rising house prices relative to continental Europe to its more restrictive land use regulations.

    The same effect is evident in the United States. Dartmouth’s William Fischel noted that California house prices were similar to those in the rest of the nation as late as 1970. By 1990, however, California house prices had escalated well ahead of the nation. Fischel found that the higher prices could not be explained by higher construction cost increases, demand, the quality of life, amenities, the property tax reform initiative (Proposition 13), land supply or water issues. His conclusion was that the expansion of land use restrictions were the culprit.

    Let Them Eat Cake?

    The disregard at least some smart growth proponents show about house prices may be characterized, for example, in a comment on the Planetizen website:

    “… smart growth can lead to more expensive housing. So what? At least it’s REAL value, generated by a higher quality of life, easier commutes, more transit options, walkability and a more enriched cultural experience…” (emphasis in original)

    Perhaps it never occurred to the proponents of more restrictive land use policies that not all households have the benefit of incomes typical of urban planners or new urbanist architects. One has to question the “REAL values” of smart growth since most housing consumers place their highest emphasis on things like privacy, security and good schools, not always available at a decent price in urban areas.

    In fact, higher priced housing reduces the discretionary income that is crucial to an acceptable standard of living to many households. Millions of households will not be in the market for “a more enriched cultural experience” until they can afford the housing they desire.

    Housing Affordability and the Cost of Living

    It is not accidental that the cost of living is higher (both in nominal terms and relative to incomes) in metropolitan regions where land use regulation is the strongest, such as San Diego, Washington-Baltimore, Seattle or Boston. Nor is it accidental that house prices have escalated to 40 percent above historic norms in Portland, Oregon, where planners have skimped on geographical urban growth boundary expansions, choosing instead to look skyward, seeking higher densities. California’s aspiration under Senate Bill 375 for new housing at 20 units to the acre offers a more than Jakarta level of density (residential densities above 30,000 per square mile) that could escalate the unprecedented exodus of people and businesses.

    Higher Housing Costs: The Poverty Connection

    The acknowledged relationship between more restrictive land use regulation and higher house prices also applies to standards of living, which are sent lower, and poverty rates, which must inevitably be pushed higher. This constitutes a second inconvenient truth: as discretionary income drops, more households fall into poverty. This creates a difficulty for proponents of more restrictive land use regulation, because there is no constituency for increasing poverty. It is no wonder they have generally discounted, ignored or even denied the nexus between smart growth and higher housing costs.

    Considering the financial uncertainty American households face, it is long past time that the choice between smart growth and housing affordability be seriously debated.

    —-

    Photograph: “Low density” smart growth development adjacent to the urban growth boundary (Hillsboro) in suburban Portland (by author)

    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”

  • Australian Local Governments Stop Forced Amalgamation

    Local government consolidations are often proposed by a wide range of interests, often out of the belief that they will produce more efficient (less costly) governments. Much of the academic literature supports this view. However, the evidence indicates that material savings routinely fail to occur from such amalgamations. The claimed $300 million annual savings in Toronto’s megacity quickly became higher costs and a larger bureaucracy.

    As in the Canadian provinces of Ontario and Quebec the Australian state governments of New South Wales (Sydney is the capital), Victoria (Melbourne is the capital) and Queensland (Brisbane is the capital) have been aggressive in forcing municipalities to merge over the last two decades. Often these attempts have met with opposition from residents. A forced amalgamation in Montreal was so unpopular that a new provincial government established mechanisms to “demerge.” Despite formidable barriers, 15 cities chose independence.

    Sometimes amalgamations are proposed for much smaller jurisdictions than 2.5 million population Toronto or even the 1990s merger that created the 90,000 population city of Melbourne, which is the core city of the Melbourne metropolitan area.

    In July, the New South Wales government announced intentions to amalgamate three jurisdictions ranging with a total population of 35,000. The city of Armidale-Dumaresque, Uralla Shire and Gyura Shire are located in the “New England” region of New South Wales, one-half way between Sydney and Brisbane. The amalgamation would have replaced the local governments with the New England Regional Council, a mega-jurisdiction of 5,000 square miles (13,000 square kilometers), a land area approximately equal in size to the area of the states of Delaware, Rhode Island and the province of Prince Edward Island (Canada) combined.

    The proposal met with determined opposition, from citizens and from the local governments. For example, the Uralla Shire Council submittal to the state Local Government Boundaries Commission, cited pitfalls of local government consolidations, relying on both Australian and international research. The Armidale Express reported that two former Guyra Shire council members mobilized that community against the amalgamation. There were substantial concerns. One was an interest in preserving historic communities, and the nearly universal aversion to moving city hall farther away. Errors were claimed in state government analyses that led to the amalgamation proposal and fiscal concerns were raised.

    In the end, the Local Government Boundaries Commission recommended against the proposed amalgamation. Minister for Local Government, Barbara Perry made the announcement on November 17. Uralla, Guyra and Armidale-Dumaresque will not be forced to amalgamate.

    The decision brought immediate positive responses from local leaders. Uralla Shire Mayor Kevin Ward said that he couldn’t be happier with the decision. Guyra Shire Mayor Hans Heitbrink said that the decision not to merge the three councils speaks volumes about the spirit of the communities who fought to save their separate local government areas. Armidale-Dumaresq Mayor, Peter Ducat, spoke of the stress that the decision will relieve for council staff and the community.

    They have reason to be pleased. Rarely, if ever, in recent decades have Australian jurisdictions retained their communities and their local democracies in the face of state amalgamation proposals.

    November 22, 2010

  • JSW

  • Will Ideology or Pragmatism Rule American Politics?

    Now that the dust from the midterm elections has settled, America remains just as divided as before on what type of governing approach it favors. As the LA Times’ Gregory Rodriguez, points out, if the United States “was a cartoon character, it would be a cheerful fellow with his head in the clouds and his feet planted squarely on the ground.”

    To win the support of the public, America’s next governing consensus must encompass the nation’s highest ideals, while presenting realistic solutions to today’s challenges. In the short run, the ideological orientation of each party’s congressional representation will push both parties toward their ideological poles. Flush with victory, top House Republicans and strategists said, they saw “little distinction between incumbent members and those who would be joining them as freshman…both benefited from the Tea Party activism that helped them trounce Democrats” and said that “the support deserved to be rewarded”. Congressional Democrats, especially in the U.S. House of Representatives, are also more ideologically uniform than previously. Virtually all of the members of the Congressional Progressive Caucus (75 of 79) were reelected in 2010, as were a clear majority (40 of 68) of the centrist New Democrats. By contrast, a majority of the conservative Blue Dog Coalition (29 of 54) were either defeated or saw their open seats won by Republicans. Together, these changes meant that, for the first time since these organizations were formed in the 1990s, the Congressional Progressive Caucus was larger than the Blue Dogs and New Democrats combined.

    The magnitude of the Republican victory was impressive, but constituted more of a continuation of the type of partisan political volatility the country experiences during periods of great generational change than a massive shift of America to the GOP and conservatism. A Pew survey taken just before the election indicated that the distribution of party identification within the electorate was little different in 2010 (49% Democratic to 39% Republican) than it was in either 2008 (51% to 36%) or 2006 (47% to 38%), two years in which Democrats won sweeping victories at the polls.

    Nor did Election Day exit polls show a clear endorsement of GOP positions on key issues. Only half of the voters (48%) called for repeal of the Democratic healthcare reform law. About the same number (47%) wanted the law left as is or even expanded. Only four in ten voters (39%) favored extending the Bush-era tax cuts to all Americans, including those with incomes greater than $250,000. By contrast, a majority endorsed either the Obama administration’s position of extending the tax cuts to only those with incomes below that level (37%), or the even more liberal position of letting the tax cuts expire for everyone (15%).

    Moreover, exit polls indicated that although the Democrats lost some ground among almost all demographics, the composition of the two party’s coalitions remained largely unchanged. The votes of Millennials (57% Democratic to 40% Republican), African-Americans (90% to 9%), and Hispanics (64% to 34%) were only slightly altered from what they had been in 2006 and 2008. The Northeast (53% to 45%), the West (49% to 48%), and the nation’s cities (56% to 41%) provided a firewall that helped the Democrats to retain control of the Senate.

    The GOP did strengthen its position within its core constituencies, winning solidly among men (56% Republican to 42% Democratic), as well as in the South, in rural areas, and among senior citizens, all of which voted Republican by about 1.5:1 margins. The Republicans were also able to split the women’s vote which they had lost in previous elections, primarily due to massive support from female senior citizens who voted 57% to 41% in favor of the GOP, even as younger women retained their Democratic allegiance. Geographically, Republican gains came predominantly in the Great Lakes watershed where the GOP won at least 25 new House seats, or about 40 percent of their pickups.

    The Republicans also made major gains in America’s suburbs, where the greatest number of Americans of all ethnicities and generations, including Democratic-leaning Millennials, African-Americans, and Hispanics, now live. Obama narrowly won the suburbs, 50% to 48%. In 2010, the GOP carried them even more decisively, 55% to 42%. Democratic losses in the suburbs were particularly great among white voters who had not completed college and were among those who had been most hurt by the Great Recession. The party able to win over suburban voters with a message that is both ideologically and pragmatically appealing will gain the strategic high ground in the battle over the nation’s political direction in 2012 and beyond.

    One of the reasons for this shift in the makeup of the 2010 electorate was a drop in the contribution from Millennials. Turnout among those 18 to 29 years of age was comparable to previous midterm elections: 21 percent of all Millennials eligible to vote did so, about the same percentage as in 2002 but less than the 24 percent turnout in the 2006 midterm elections. Those Millennials that did vote preferred Democratic candidates in almost all contested elections and approved of Barack Obama’s handling of his job as president by a 60% to 40% margin. In contrast to all other generations, Millennials remain overwhelmingly Democratic and liberal in their political orientation.

    If the 2008 election was a victory for young Millennials, the 2010 midterms represented a triumph for senior citizens. A big part of the increase in votes for Republican candidates was inspired by the Tea Party movement’s older supporters. A solid plurality (40%) of 2010 voters claimed to be Tea Party supporters and nearly nine in ten (87%) of them voted for Republican house candidates. The GOP’s clear emphasis on ideological themes, built around concerns about the nature and scope of government, inspired its frightened and frustrated base to turn out in record numbers to prevent what it perceived to be a dangerous drift toward liberal hegemony.

    In the end, however, most of those who voted in 2010 had little good to say about either party. Almost identical majorities among those who voted had an unfavorable opinion of the Democratic and Republican Parties. Reflecting the opinions of some of their Tea Party supporters, even one-fourth of Republican voters expressed a negative perception of the GOP

    So, in spite of the internal structural forces impelling both the Democrats and Republicans toward ideological uniformity, the new ruling party will be the one that most effectively integrates their party’s ideology with the country’s demands for solutions that work. That party will need to appeal both to those who embrace the ideals of individual freedom but also understand the need for a pragmatic program of collective action, integrating national purpose with individual choice. Shaped by some of the most profound demographic changes in American history, the key to future success for both the Democrats and Republicans will lie in synthesizing these two strands of America’s political DNA. The party that most effectively accomplishes that goal will be the dominant political force in the Millennial Era for the next four decades.

    Morley Winograd and Michael D. Hais are fellows of the New Democrat Network and the New Policy Institute and co-authors of Millennial Makeover: MySpace, YouTube, and the Future of American Politics (Rutgers University Press: 2008), named one of the 10 favorite books by the New York Times in 2008.

    Photo by hjl

  • Divining The Stock Market’s Future

    Like the rest of us, I pick over the stock market’s runic inscriptions to find meaning in earnings reports, ratios, analyst reports, and trend lines, hoping to divine the traces of an orderly world—something it clearly is not.

    In modern nations, especially the United States, the averages of stock exchanges have, at least psychologically, become synonymous with the national pulse and well-being. America was a happier and more prosperous country when the Dow Jones industrial average was above 14,000, as opposed to its current levels of around 10,000. To be more precise, the country is about thirty percent less happy than before the crash of 2008.

    What has accounted for the changes in the market, not to mention the selloff in the national psyche?

    A favorite book about the market psychology of the U.S. economy, Clement Juglar’s “A Brief History of Panics,” was published in 1916. It makes the point that since the founding of the republic, the country has experienced booms and busts roughly every ten years, and that the market has three phases: Panic, when assets get dumped; Liquidation, a period of deflation, where we are now; and Prosperity, when credit is easy, people buy things, and stocks go up.

    For the moment, the stock market, like the economy at large, is in Liquidation. Few investors wake up in the morning with the idea of acting on a tip that they heard whispered at a club dinner. Buying stocks is something that your grandfather did, probably in a drab suit and a kind of Jack Ruby hat.

    Are stocks a good deal? The overall exchange is in the doldrums — real estate is bust, the only new employer is the Census Bureau, banks are black holes. Dow Theorist Richard Russell advises his subscribers, “We’re now in the process of building one of the largest tops in stock market history. The result, I think, will be the most disastrous bear market since the ’30s, and maybe worse.”

    But unless you are a gold bug, even now stocks are better deals than the alternatives: lending your money to a wobbly government (T-bills and bonds to insolvent nations), leaving it on deposit at a bank (zero return, and bank balance sheet risk), or flipping condos in Miami (do you really want to be a landlord?).

    I still believe there are quality stocks that are cheap enough to buy, and, chosen well, stocks throw off cash, offer an inflation hedge (those that can reprice their products easily), and can be bought in any amount. In high school I invested $180 in an obscure company my father had never heard of, Toyota. Wish I still had it.

    The reason stocks are languishing, however, is that most investors feel burned by the collapse. They bought things that their brokers, their friends, or their golf buddies suggested, and those financial instruments went up and then down, for reasons few understand.

    Take GE. When it was $57 a share, and growing at twenty percent a year, CEO Jack Welch was a genius and writing books with modest titles like “Leadership” or “Winning.” The company was “well positioned,” and, according to most brokers, a client’s portfolio “needed a little” for the long term. Anyone who had it made money.

    Now it’s $15, and is probably a better company than when it was at $57, but nobody wants any of it. Welch is remembered as just another guy who raked in millions in stock options, treated the company like a honey pot, and dumped his wife for a hot editor.

    Even at $15, however, GE is still expensive to buy. It’s price-earnings ratio is twelve times (meaning you give them $12 for every $1 you get back in earnings), and the yield is 3.2 % (what you earn while holding the share). GE would actually be a good deal when the stock price drops to $10, the P/E is eight, and the yield is 5.4 %. From that low entry point, you will stay “in the money” for a long time.

    What ruined the stock market in 2008? I would argue that the government’s demand for funding collapsed the pyramid schemes on which modern investment banks, not to mention stock markets, were built. In Juglar’s phrase, it was a panic of liquidity.

    The federal demand to fund the U.S. deficit and the suspicious balance sheets of Fannie Mae and Freddie Mac dried up the easy money that had previously allowed the Lehman brothers to party on in commercial real estate. In turn, the stock market ran up on the fumes of bank and personal leverage, much drawn from home equity. Now that money is propping up mattresses.

    Much of the stock market collapse, however, is because buyers will only pay a low premium for shares. A stock that once traded at twenty times it earnings, but is now trading at twelve times earning, will have lost almost half its market value. Ironically, the underlying fundamentals of such a company may be little changed.

    Look at Johnson & Johnson. Most of its key ratios have improved steadily over the last ten years, yet at the same time it’s stock price is down, because investors will not pay the multiple that they paid previously to own it.

    In 2007, J&J earned $3.63 a share, when it traded around $67 (that’s a P/E of eighteen). Now it brings in about $4.84 a share, yet the company’s stock price is $58. It still sells for a premium of twelve times, which is low for Johnson & Johnson, but not the kind of bargain that would tempt Warren Buffett, who wants the companies he buys to sell for a P/E under ten.

    To make money in the stock market, forget about “market sentiment,” “investor psychology,” or Jim Kramer’s “Mad Money.” Instead, think of the stock market as a mall that has high-priced boutiques, discounters, mom and pop stores, and even Wal-Mart. Who in America doesn’t understand malls?

    When you buy from the elegant boutiques (stocks in favor, selling at high premiums, with brands that everyone wants, like Google), know that you are indulging an impulse, fashion buy, and that someday you may be trying sell the equivalent of last year’s Gucci loafers on eBay. (“Common stock, hardly used, a lot of buzz about this co., you pay shipping.”)

    In the stock-market mall, however, there are other shops, with companies that no one wants or has heard off, that will let you share in their profits, treat your money with respect, and even pay you dividends while you own them. Search for companies that have a sustained record of profitability, regularly increase their dividends, have relatively low debt relative to their capital, employ drab managers who drive Buicks, and have diverse products with broad appeal.

    Never buy a stock that has naming rights to a professional stadium.

    It helps if this company, for reasons beyond its control, has been “beaten up” in the stock market and if it trades at a historic low premium. In summer 1982, GE traded at a P/E of five times its earnings. When I started in banking, banks sold for less than book value, and a P/E of about seven times. At their peak, some traded at 32X earnings.

    If you are nervous about owning stocks, only buy a few, in companies that you can study and understand. Sell them the moment they reach your “selling price,” which is almost the moment when you look at your statement and think, “That’s doing okay.”

    In looking at the cycle of the American economy and its markets, Juglar saw Panic lasting a few months to a few years, Liquidation going on for several years, and Prosperity running five to seven years.

    Think roughly of the bull markets between 1982-89, and 1996-2001, and 2003-2008, and they reasonably track Juglar’s timetables. Yes, the current phases of Panic and Liquidation are no fun, but the pattern was familiar in 1916.

    Juglar’s investment advice: “Buy when the decline caused by a panic has produced such liquidation that discounts and loans, after steady and long-continued diminution, either become stationary for a period, or else increase progressively coincident with a steady increase in available funds; and sell for converse reasons.”

    I prefer the more shorthand market expression: “The only time to buy a stock is when you feel like throwing up.”

    Photo by roadsidepictures of Psychic World, Las Vegas, Nevada, built in 1938.

    Matthew Stevenson is the author of Remembering the Twentieth Century Limited, winner of Foreword’s bronze award for best travel essays at this year’s BEA. He is also editor of Rules of the Game: The Best Sports Writing from Harper’s Magazine. He lives in Switzerland.

  • How Liberalism Self-destructed

    Democrats are still looking for explanations for their stunning rejection in the midterms — citing everything from voting rights violations and Middle America’s racist orientation to Americans’ inability to perceive the underlying genius of President Barack Obama’s economic policy.

    What they have failed to consider is the albatross of contemporary liberalism.

    Liberalism once embraced the mission of fostering upward mobility and a stronger economy. But liberalism’s appeal has diminished, particularly among middle-class voters, as it has become increasingly control-oriented and economically cumbersome.

    Today, according to most recent polling, no more than one in five voters call themselves liberal.

    This contrasts with the far broader support for the familiar form of liberalism forged from the 1930s to the 1990s. Democratic presidents from Franklin D. Roosevelt to Bill Clinton focused largely on basic middle-class concerns — such as expanding economic opportunity, property ownership and growth.

    Modern-day liberalism, however, is often ambivalent about expanding the economy — preferring a mix of redistribution with redirection along green lines. Its base of political shock troops, public-employee unions, appears only tangentially interested in the health of the overall economy.

    In the short run, the diminishment of middle-of-the-road Democrats at the state and national level will probably only worsen these tendencies, leaving a rump party tied to the coastal regions, big cities and college towns. There, many voters are dependents of government, subsidized students or public employees, or wealthy creative people, college professors and business service providers.

    This process — driven in large part by the liberal attachment to economically regressive policies such as cap and trade — cost the Democrats mightily throughout the American heartland. Politicians who survived the tsunami, such as Sen. Joe Manchin in West Virginia, did so by denouncing proposals in states where green policies are regarded as hostile to productive local industries that are major employers.

    Populism, a traditional support of liberalism, has been undermined by a deep suspicion that President Barack Obama’s economic policy favors Wall Street investment bankers over those who work on Main Street. This allowed the GOP, a party long beholden to monied interests, to win virtually every income segment earning more than $50,000.

    Obama also emphasized an urban agenda that promoted nationally directed smart growth, inefficient light rail and almost ludicrous plans for a national high-speed rail network. These proposals appealed to the new urbanist cadre but had little appeal for the vast majority of Americans who live in outer-ring neighborhoods, suburbs and small towns.

    The failure of Obama-style liberalism has less to do with government activism than with how the administration defined its activism. Rather than deal with basic concerns, it appeared to endorse the notion of bringing the federal government into aspects of life — from health care to zoning — traditionally controlled at the local level.

    This approach is unpopular even among “millennials,” who, with minorities, represent the best hope for the Democratic left. As the generational chroniclers Morley Winograd and Michael Hais point out, millennials favor government action — but generally at the local level, which is seen as more effective and collaborative. Top-down solutions from “experts,” Winograd and Hais write in a forthcoming book, are as offensive to millennials as the right’s penchant for dictating lifestyles.

    Often eager to micromanage people’s lives, contemporary liberalism tends to obsess on the ephemeral while missing the substantial. Measures such as San Francisco’s recent ban on Happy Meals follow efforts to control the minutiae of daily life. This approach trivializes the serious things government should do to boost economic growth and opportunity.

    Perhaps worst of all, the new liberals suffer from what British author Austin Williams has labeled a “poverty of ambition.” FDR offered a New Deal for the middle class, President Harry S. Truman offered a Fair Deal and President John F. Kennedy pushed us to reach the moon.

    In contrast, contemporary liberals seem more concerned about controlling soda consumption and choo-chooing back to 19th-century urbanism. This poverty of ambition hurts Democrats outside the urban centers. For example, when I met with mayors from small, traditionally Democratic cities in Kentucky and asked what the stimulus had done for them, almost uniformly they said it accomplished little or nothing.

    A more traditional liberal approach might have focused on improvements that could leave tangible markers of progress across the nation. The New Deal’s major infrastructure projects — ports, airports, hydroelectric systems, road networks — transformed large parts of the country, notably in the West and South, from backwaters to thriving modern economies.

    When FDR commissioned projects such as the Tennessee Valley Authority, he literally brought light to darkened regions. The loyalty created by FDR and Truman built a base of support for liberalism that lasted for nearly a half-century.

    Today’s liberals don’t show enthusiasm for airports or dams — or anything that may kick up some dirt. Deputy Assistant Secretary of the Interior Deanna Archuleta, for example, promised a Las Vegas audience: “You will never see another federal dam.”

    Harold Ickes, FDR’s enterprising interior secretary, must be turning over in his grave.

    The administration would have done well to revive programs like the New Deal Works Progress Administration and Civilian Conservation Corps. These addressed unemployment by providing jobs that also made the country stronger and more competitive. They employed more than 3 million people building thousands of roads, educational buildings and water, sewer and other infrastructure projects.

    Why was this approach never seriously proposed for this economic crisis? Green resistance to turning dirt may have been part of it. But undoubtedly more critical was opposition from public- sector unions, which seem to fear any program that threatens their economic privileges.

    In retrospect, it’s easy to see why many great liberals — like FDR and New York City Mayor Fiorello LaGuardia — detested the idea of public-sector unions.

    Of course, green, public-sector-dominated politics can work — as it has in fiscally challenged blue havens such as California and New York. But then, a net 3 million more people — many from the middle class — have left these two states in the past 10 years.

    If this defines success, you have to wonder what constitutes failure.

    This article originally appeared in Politico.

    Joel Kotkin is executive editor of NewGeography.com and is a distinguished presidential fellow in urban futures at Chapman University and an adjunct fellow with the Legatum Institute in London. He is author of The City: A Global History. His newest book is The Next Hundred Million: America in 2050, released in February, 2010.

    Photo: Tony the Misfit

  • The Other Chambers of Commerce

    The recent political conflict between the Obama Administration and the U.S. Chamber of Commerce has thrown a new spotlight on an old communication problem. Local chambers of commerce, although they predate the U.S. Chamber by nearly a century and a half, often are assumed to be part of the U.S. Chamber, or otherwise under its direction. They aren’t. They are independent.

    During the pre-election controversy this year, it was clear that many people, including many chamber members, did not know this fact. They believe that U.S. Chamber President Tom Donohue and his colleagues on H Street directly or indirectly control all that local chambers do. But Donohue and his staff don’t exercise such control, nor do they want to.

    Few people think about what chambers do locally. For example, who knows that Elliot Tiber, president of the Bethel, N.Y., Chamber of Commerce, secured the permit for Woodstock?

    It was also a local chamber – the Business Men’s League of Atlantic City – that came up in 1920 with the idea of a festival to keep tourists in town after Labor Day. Pretty women in beachwear would turn out to be the centerpiece of the annual event. We have that business group (now called the Greater Atlantic City Chamber) to thank for the Miss America Contest.

    Was Charles Lindbergh’s plane called The Spirit of Enterprise (the U.S. Chamber’s tag line)? No, the flying bucket of bolts was, of course, The Spirit of St. Louis. The president of the St. Louis Chamber came up with the name in order to promote the great river city. And why should Lindbergh object? The chamber president also raised most of the money for the aircraft.

    And who sent out the promotional brochure that enticed the first movie producer to southern California in 1907? It was the Los Angeles Chamber of Commerce. In nearby Hollywood a chamber was later active as well, helping re-fashion the famous Hollywood sign out of a decaying advertisement for a real estate development called “Hollywoodland.”

    Moreover, there’s a guy in a suit present next to the glamorous celebrities who get their photos taken when their stars are set in the Hollywood sidewalk. Who is that business man? It’s Leron Gubler, president of the Hollywood Chamber of Commerce, which invented and maintains the Walk of Fame.

    Most of the thousands of things that local chambers have done and do are far removed from the big national issues that embroil the U.S. Chamber. Sure, most of the chambers in the country agree with and support the lion’s share of the U.S. Chamber’s positions. Although the goals are often the same, the priorities, issues, methods, leadership and, importantly, ownership are not.

    Local chambers have shown themselves perfectly able to get into fights of their own, without orders from a non-existent chamber of commerce command center.

    Was it the national chamber’s president who financed the Florida and Alabama, the ships that terrorized Union merchants during the Civil War? No, it was George Trenholm, one of the most active members of the Charleston (SC) Chamber of Commerce. As president of the chamber, Trenholm had asked for a thorough federal charting of the waterways around the Charleston harbor. The survey provided valuable navigation information that became critical when Trenholm emerged a decade later not only as privateer king of the Confederacy but also as chief sponsor of blockade runners. (Some believe he was a model for Rhett Butler in Gone with the Wind.)

    But it wasn’t as if all chambers were Confederates. It was the New York Chamber of Commerce that furnished a cash reward of $25,000 to the captain and crew of the Kearsarge, which finally sank the Alabama.

    There have been other times when local chambers have performed roles worthy of national headlines. During Prohibition, a liquor wholesaler named Al Capone was seen as bad for business by the president of the Chicago Association of Commerce, Colonel Robert Isham Randolph. In an act of some courage, Randolph personally warned Capone and created a chamber subcommittee, popularly called the “Secret Six,” that engineered Capone’s downfall. The Six hired a consultant named Alexander Jamie to gather information, especially financial information, on Capone. Jamie brought in his brother-in-law, Eliot Ness, to help. Capone later credited the Secret Six with taking him down.

    Of course the local chambers have made their share of mistakes over the years. The St. Louis Chamber of Commerce once tried to stop the first railroad bridge across the Mississippi, but was stymied in court by the common sense and careful research of a folksy lawyer named Abraham Lincoln. And the New Orleans Chamber of Commerce successfully pushed for easing the quarantine regulations on ships in its harbor, after which a yellow fever-laden ship travelled up the Mississippi and nearly wiped out Memphis in 1878.

    But if you take some water and add a chamber, the result can be a megalopolis. Starting in 1840, the Houston Chamber with single-minded determination pushed for the removal of snags and mud from the Buffalo Bayou, which trickled on a circuitous 50-mile path to the sea. In the late 1800s, rain melted the salt on a barge on the bayou, and the Galveston News cackled that Houston finally had a salt-water port. But the laughing stopped on September 8, 1900, when a hurricane flattened Galveston.

    Houston overnight became a critical port for Texas, just in time for the Spindletop oil bonanza of January 10, 1901. The chamber would continue to push for improvements on what became the Houston Ship Channel, guaranteeing decades of future growth. Today, the chamber, now called the Greater Houston Partnership, is anticipating the shipping/economic impact of the opening of the second Panama Canal.

    Some national change in the country’s economic model has sprung directly from the actions of chambers. The Chicago Board of Trade, a chamber founded in 1848, revolutionized how its members bought and sold farm commodities, becoming so successful that by 1859 it essentially left the traditional chamber business. Instead, the Board of Trade continued to plow the virgin soil of this new financial field, inventing futures contracts and modern commodities trading.

    And so it goes. The Birmingham (AL) Chamber of Commerce belatedly, but successfully, broke the power of segregationist Bull Connor and promoted integration of the downtown, while the Atlanta Chamber of Commerce president negotiated the accord that, in a celebrated speech, Martin Luther King defended by saying, “If anyone breaks this contract, let it be the white man.” Segregation, especially racial conflict and the resulting negative publicity, was bad for business, and chambers took the side of peaceful integration in many (although not all) cities throughout the South.

    So much of what we think of as America was facilitated or aided by those often forgotten, always resourceful groups known as local chambers of commerce. Whether it’s the Golden Gate Bridge, Great Smoky Mountains National Park, the statue of Vulcan over Birmingham, commission and city manager forms of government, United Way-style giving, Baltimore’s Inner Harbor, and so much more – it was local chambers that led the way. The U.S. Chamber was fighting for business and free enterprise principles in Washington, but it was local chambers working “on the ground” that helped plant so many of these seeds across the nation.

    Each of the local chambers is vastly smaller than the U.S. Chamber, but collectively they have had a large impact. As in so many things, it has been the local organizations, not merely the national ones, that have shaped this country’s enterprise culture.

    Chris Mead is senior vice president of the American Chamber of Commerce Executives. He is working on a history of local chambers of commerce in the United States.

    Photo by Rob Shenk

  • Car Wars: Should Autos Rule The Road? Part II

    We have a severe drug problem, we’ve been told, that mostly affects suburbanites. The dangerous drug is not taken by mouth, nor by injection, yet it is used daily by every family member and must be stopped before we, as a nation, are utterly destroyed. According to many experts, our “dependence” on cars must stop.

    Internet rumors abound that we are about to be legislated out of our stupor, and be taxed into high density, inner core cities. Should this rumor become fact, let’s look at what effect it will have on our economy, and, quite frankly, on the American Dream of home ownership.

    Today, the housing market is still dealing with the disaster of plummeted prices. Since 80% of the new home market this past decade has been suburban, it would be safe to say that 80% of Americans that bought in this century are the hardest hit, because these new homes have dropped to pre-boom pricing. It has been young families, generally, that have driven out to the suburbs to find new homes, the promise of lower density, and newer safe schools. In addition, many (most) of these families believed that their homes were a source of income; after all, values were increasing 10% or more annually, and that equity could be tapped in loans, (both suburban and urban).

    While many think of the suburbs as pure white, that is no longer true. The suburbs today, in general, are intermixed with all races. But the new race being ridiculed by many is the “suburbanite”. The suburbanite yearning for his or her daily fix of the car, consuming our fuel, and spewing carbon into our atmosphere must be eradicated at all costs.

    So how do we eradicate this vermin? There are rumors of a carbon tax that will place a financial burden on those vehicular junkies. Who cares that this major portion of America’s population is under the most financial pressure since the depression. If we tax these infidels, that will surely bring them to their senses , and we can cure their dependence on Chevys, Fords, and Mini-vans. Let’s break their backs once and for all, so that these families will abandon what is left of the suburbs and be forced back to the inner core. If reason does not work, we can just legislate it.

    Let’s imagine this new future filled with promise of a new America. In this fantasy, we visit the Smith family, who moved from their 10,000 foot suburban lot into the urban core. Adam Smith, the father, now must take the bus to the train station for the new light rail line that goes to Edenville, his job out in the suburb as a plant manager (it seems that his place of employment did not make the move). With connections, he can make it to work within an hour, whereas his 10 mile commute from suburb to suburb took 20 minutes.

    Lilly Smith (his new wife, as the old one refused to move into a 20 story inner city high-rise) works at Bester Buy on the edge of the city. She needs two bus connections to get there Having a car is not an option, since parking costs are prohibitive in the city. Luckily, the kids are old enough to be left alone; Josh is 8 years old, Jane is 12, and Joey, who is 15, watches over the siblings. Today is a holiday and they are home from school, but the cold rainy day keeps them inside, along with hundreds of other kids who play in the vast corridors.

    Lilly arrives at work, only to remember that Jane had a dentist appointment which she forgot about. She shivers, thinking about the old days, and the warm comfort of the Mini-van she once relied on to take her kids to appointments. She breaks out into a sweat and falls into a stupor. Her fellow workers recognize the symptoms, as they too have been weaned of their dependence upon personal vehicles. Her manager, Ralph, lets her take a week of sick leave to get help.

    Ralph is lucky. He lives in a single family neighborhood on the edge of the city. He has his own large lot, a spacious 35 feet wide and 90 feet long. He and his wife each posses a car. His luxury two story home, setback five feet from the sidewalk, is 25 feet wide and 50 feet deep; the house itself is a massive 2,500 square feet, over twice as large as the Smiths inner city apartment. He also has three children who enjoy the privacy of their back yard. The garage adjacent to the 12 foot wide alley consumes 440 square feet of their remaining 1,200 square foot rear yard. Still, with 760 square feet of green space, the kids are lucky.

    Ralph and his wife, Mary, both drive electric cars. Mary has the larger vehicle, with a 50 mile range per charge on a warm day. Their daughter wants to play with a cousin who still lives in the suburbs, 20 miles away. This is a cold day, which reduces the range of the vehicle to 35 miles, and their cousins do not have a charging station, so their 11 years old daughter is driven to the Light Rail station, a mile away.

    A week later, back at the Smith apartment, an argument starts between Adam and Lilly about her desire to get out of the city. Even if they did move out to near Adam’s plant, they would need Lilly’s paycheck to make ends meet, so she would need the light rail and two bus connections to get to work. Lilly begins to sweat and shake again… When Josh asks what is wrong with Mommy, Adam explains about the days when Americans were drugged out on their cars, the days when people were free to go when and where they wanted. As he describes those terrible times, he too yearns for those days. Adam and Lilly dream of moving out to a place with space, if only the carbon tax on moving out of the city could allow it, but alas, it’s only a dream that only the wealthy can now afford.

    A fantasy? Here is what I’m experiencing as a planner. When I met with a city official a few weeks ago I was admonished for a proposal that included attached garages. I explained that attaching the garage reduces 40 feet of exterior wall to be built, and here in Minnesota, an attached garage means you do not have to shovel snow between the home and the garage, nor slip on the ice. Why would I detach a garage, I asked? The city official explained that according to his planning staff, the space between the garage and the home is a social gathering spot where neighbors can stop and talk about their day. I had thought that’s what that large front porch we are proposing on the homes was for.

    There is a movement to prevent the toxic drug — the car — from infecting our lives. For me, no way you are taking me off my ERPT — Extremely Rapid Personal Transport — dependence.

    This is the second of a two-part series in which different authors examined the centrality of the autombile in urban and suburban life.

    Photo by Rick Harrison of the author’s ERPT — his Porsche.

    Rick Harrison is President of Rick Harrison Site Design Studio and Neighborhood Innovations, LLC. He is author of Prefurbia: Reinventing The Suburbs From Disdainable To Sustainable and creator of Performance Planning System. His websites are rhsdplanning.com and performanceplanningsystem.com.