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  • Help Mexico: Legalize Pot

    Mexico is disintegrating. Bombings, kidnappings, assassinations, and shootings are now common. Recently, the mayor of Tancitaro Mexico was stoned to death. Mexican corruption is so rampant that United States law enforcement officials are reluctant to work with their Mexican counterparts out, fearing perverse results.

    The crimes are perpetuated by ruthless criminals whose depravity cannot be overstated. These are after all, people for whom torture, rape, and beheadings are normal parts of their business, and they show little reluctance to commit these atrocities against children. This link needs a strong-stomach warning.

    Most of Mexico’s violence and corruption has as much to do with our war on drugs than anything indigenous. It is thus preventable with a change of U.S. policy. This is not only in Mexico’s interest but ours as well: the drug-related violence has already begun to spill over into the United States.

    This cannot be avoided. The United States provides the customer base and the distribution network for Mexican drugs necessarily permeates the country. Increasingly, the product is produced in the United States. Travel in less-frequented California and Arizona wildernesses and parks is already dangerous. The problem is so pervasive that a fishing magazine, California Flyfisher, had an article in its October 2010 issue on how to avoid violent encounters with marijuana growers while fishing. The article documents how widespread and serious the problem is in California.

    The most immediate impact of Mexico’s violence’s will be felt along our common border. It’s already a violent place. It will become even more violent. However, the impacts will eventually be felt throughout the United States, challenging prison officials and law enforcement everywhere. Eventually, the corruption will infect our government and police, and the violence will impact everyone. For those who doubt that it can happen here, I recommend reviewing the history of prohibition in the United States.

    There will be other less direct implications of continued drug violence in Mexico. Immigration from Mexico will increase, but the composition of the immigrants will likely change. To date, our Mexican immigrants have mostly been relatively young, low-human-capital workers. As Mexican property rights—and what property rights can exist if your life is not reasonably secure?—decline, the middle and upper-middle class will be looking for alternatives. Many of them will see the United States as an attractive option.

    This can only be good for America. We should welcome these people, the wealth, the human capital, and the physical capital they will bring. They will provide a vigorous stimulus to our economy and our communities. These benefits, however, will not outweigh the costs of the crime and corruption.

    If we want to avoid the crime and corruption, we really need to abandon prohibition. We have a precedent.

    America’s 13-year nightmare of alcohol prohibition was initially popular. The eighteenth constitutional amendment creating prohibition passed both houses of congress with votes of 65 to 20 in the Senate and 282 to 128 in the House. It was ratified by 36 of the then 48 states in only 13 months. Eventually, 46 states ratified the amendment with only Connecticut and Rhode Island rejecting it.

    Ironically, the 21st amendment repealing prohibition was at least as popular as the 18th amendment that created prohibition. It passed the Senate with a vote 63 to 21 and the House by a vote of 289 to 121. Ratification by the necessary 36 states was achieved in only ten months, through State Ratifying Conventions. To date, the repeal of prohibition is the only constitutional amendment ratified by state conventions rather than by state legislatures.

    In only 13 years, prohibition went from being popular to being so unpopular that the amendment repealing it was ratified in 10 months. Something had changed. Prohibition had sparked an upsurge in crime and expanded the Mafia into a national powerhouse. Enforcement costs had soared. Government revenues had declined, and many officials corrupted. John D. Rockefeller summarized America’s change of heart:

    When Prohibition was introduced, I hoped that it would be widely supported by public opinion and the day would soon come when the evil effects of alcohol would be recognized. I have slowly and reluctantly come to believe that this has not been the result. Instead, drinking has generally increased; the speakeasy has replaced the saloon; a vast army of lawbreakers has appeared; many of our best citizens have openly ignored Prohibition; respect for the law has been greatly lessened; and crime has increased to a level never seen before.

    Today, alcohol still imposes huge personal and social costs, but we know that those costs are less than what we paid for prohibition. Drugs also impose huge personal and social costs, and the costs could increase in the event of legalization. The impacts of alcohol and drugs abuse on the abuser and those around him are terrible. The impacts of prohibition are worse.

    Continuation of drug prohibition will result in increased crime, increased corruption, and ever more of our public lands being diverted to illegal production. Thousands of people will continue die in the United States, Mexico, and other countries. The numbers of bombings, kidnappings, assassinations, and shooting will continue to increase. Thousand more will survive with diminished lives, a result of wounds, the loss of property, the loss of loved ones, or a life dominated by fear.

    Californians, by voting for Proposition 19, have to opportunity to take the first step in reducing the costs of prohibition. Despite the heartache and loss that drug abuse brings, voting for Proposition 19 is the humane thing to do, and it is one way that California can restore its now beleaguered reputation as a national thought leader.

    Bill Watkins is a professor at California Lutheran University and runs the Center for Economic Research and Forecasting, which can be found at clucerf.org.

    Photo by Troy Holden

  • Joel Kotkin for Politico.com discussing the midterm elections!

    Be sure to catch Executive Editor Joel Kotkin’s take on the 2010 midterm elections! He sheds light on not only how the national electorate is structured, but also on the disparity between the influential suburban voter and the policies that affect the suburbs. Why might suburbanites be feeling some “buyer’s remorse” this year? Don’t miss Joel’s answer to this important question and more.

    Suburban nation, but urban policies

  • Governor Christie Cancels Under-Construction Tunnel in Unprecedented Move

    New Jersey governor Chris Christie reaffirmed his decision to cancel the “access to the regional core” tunnel across the Hudson River from New Jersey to New York. Christie had suspended his previous decision pending discussion of alternatives with the US Department of Transportation.

    In the final analysis, according to Christie, none of the alternatives would have capped New Jersey’s liability at its present level, which assumed a project cost of $8.7 billion. Christie told the Moorestown Community House, “No more blank checks from the taxpayers of New Jersey, not on my watch.”

    Current estimates for the project have range from $9.8 billion to more than $12 billion, which would require New Jersey to pay an additional $1.1 billion to $3.3 billion, since under the funding agreement approved by former governor John Corzine, New Jersey was responsible for any cost overruns. In fact, based upon the experience with other projects (such as Boston’s Big Dig), New Jersey could have seen its bill run to another $10 billion or more.

    Christie’s decision is unprecedented. This may be the first time in decades that a major infrastructure project already under construction has been cancelled because its costs had spiraled out of control. Such cost performance has been the rule, rather than the exception. Major research by Oxford University professor Bent Flyvbjerg, Nils Bruzelius (a Swedish transport consultant) and Werner Rottenberg (University of Karlsruhe and former president of the World Conference on Transport Research) covering 80 years of infrastructure projects found routine under-estimation of costs and over-estimation of ridership and revenue (Megaprojects and Risk: An Anatomy of Ambition ).

  • The Privatization-Industrial Complex

    “I think this is just the latest way for people to make money off state and local governments. This is the new way the investment banks, their lawyers, and consultants squeeze the taxpayers….They’re going around making these deals, and it’s very lucrative. It’s like a circus coming to town.” – Clint Krislov

    Privatization has long been advocated by many conservatives as a good government measure. Traditionally, privatization was used a tool that subjects government monopolies to competition from the marketplace, driving down costs and improving quality of service. Privatization pioneer Steve Goldsmith, former mayor of Indianapolis and now deputy mayor of New York City, used to apply what he called the “Yellow Pages test.” If he could open the Yellow Pages and find several companies providing a service, he wondered why government should be in that business.

    As Mayor, Goldsmith privatized dozens of city services in Indianapolis, saving the city an estimated $120 million the process. This ranged from contracting out services, to forming a public/private partnership to implement a $500 million infrastructure improvement plan to hiring private managers to run – but not own or lease – the airport and water utility.

    Today, sadly, privatization is less about Goldsmith style operational effectiveness and more about providing jackpots for financiers who stand at the core of a growing privatization-industrial complex. Cities and states salivate over ways to sell or lease off underperforming public asset for large payouts. With local governments cash-strapped and the public unwilling to pay more in taxes, it is politically difficult to even bring user fees to a market rate. Combined with the potential billions in payoffs – Indiana received $3.9 billion for its toll road and Chicago $1.1 billion for its parking meter system – the appeal is obvious.

    But these transactions differ markedly from the Goldsmith-style privatization. They are driven not by efficiencies but by an investment banker mindset focus on money and narrow parameters of the asset operations. They also provide enormous temptation to elected officials to grab the money now even at the expense of future generations. They are also rife with potential conflicts of interest and incentive problems.

    One major source of conflict comes with the professional advisors that drive the deals. Since long term leases involve so much money and are so complex, they require millions of dollars of services from investment banks, lawyers, financial advisors, etc. Unlike for typical government transactions such as issuing bonds or contracting out services like printing, building maintenance, or call centers, for which cities have some experience, the vast majority of cities have little in house expertise for complex financial transactions.

    Thus local officials are at the mercy of these out of town experts to give them the best advice they need to defend the public’s interest. But what advice can we expect from these firms, who have a stake on highly leveraged deals? The people in the firm may be technically competent and possess the highest levels of personal integrity, but still are prisoners of a structural conflict of interest in promoting privatization transactions.

    Consider Morgan Stanley. An arm of Morgan Stanley was the winning bidder on the Chicago parking meter lease. That deal is widely seen as a disaster, giving the idea privatizing meters a black eye, and engendering such headlines as “Morgan Stanley’s $11 billion makes Chicago taxpayers cry (Bloomberg) and “Company [Morgan Stanley] Piles Up Profits from City’s Parking Meter Deal” (NY Times).

    Now Morgan Stanley is back, this time advising Pittsburgh and Indianapolis on potential parking meter privatizations. Morgan Stanley has a huge structural incentive to want those deals to go through. It would restart the market for parking meter privatization, and position the firm as the preferred advisor to cities. Even where they were not the city’s advisor, a restarted parking meter market means they could potentially bid on many more assets.

    If you make money on privatization transactions, then no deals means no money. So obviously these firms have every reason in the world to promote privatization and see deals go through regardless of whether any particular deal is good or not. This doesn’t mean they are crooks, it’s just the reality. These firms now form of the core of the “privatization-industrial complex” with an incentive to cheerlead for leading public assets because that’s how they make their money. They need deal flow, the more transactions the better.

    This was picked up on by Harrisburg, PA. Facing bankruptcy, the state offered an $850K grant to hire Scott Balice Strategies of Chicago, one of the nation’s top privatization financial advisors. The city council turned it down. As one city councilor noted, “Their recommendation is always the same: ‘sell assets’”.

    Many of these investment banks, operators, financial advisers, and law firms also have tight links with each other, and participate on deals together, often as partners, other times as opponents. The Pittsburgh Post-Gazette noted how many of these firms have ties to Chicago’s earlier round of privatization. “When Pittsburgh proposed leasing its public parking facilities, the city became a magnet for a passel of firms – many of them connected to Chicago by blood, politics or business – that pursues similar deals around the country. The firms may be partners in one city, rivals or referees in the next.” The winning bidder on the Pittsburgh parking transaction is actually Morgan Stanley’s partner in the Chicago deal, for example.

    These potential conflicts make it very difficult for cities to know they are making a good deal, especially since they lack the experience necessary to independently judge it. Right now, they often are at the mercy of their advisors. And ask yourself this: when was the last time a city or state looked seriously at one of these deals and their advisors told them not to do it?

    This is frequently combined with traditional clout driven contracting. Many of the Chicago parking meter firms had tight links to the Daley administration. Similarly, in Indianapolis a city-paid chief advisor to the office of the mayor is conveniently also a registered lobbyist for the winning bidder. This combination is a recipe for disaster, resulting in very long term deals that could be very bad for the public.

    Long term lease deals can still make sense – if they are done right. The Chicago Skyway and Indiana Toll Road deals were both home runs, for example. But given the enormous risks if something goes wrong, governments must put into a place a robust process for protecting the public, with a full airing and mitigation plan for the bad incentives that populate so many areas of this field.

    Aaron M. Renn is an independent writer on urban affairs based in the Midwest. His writings appear at The Urbanophile.

    Photo by ehfisher

  • Suburban Nation, but Urban Political Strategy

    Ideologues may set the tone for the national debate, but geography and demography determine elections.

    In America, the dominant geography continues to be suburbia – home to at least 60 percent of the population and probably more than that portion of the electorate. Roughly 220 congressional districts, or more than half the nation’s 435, are predominately suburban, according to a 2005 Congressional Quarterly study. This is likely to only increase in the next decade, as Millennials begin en masse to enter their 30s and move to the periphery.

    Now the earth is shaking under suburban topsoil — in ways that could be harmful to Democratic prospects. “The GOP path to success,” according to a recent Princeton Survey Research Associates study of suburban attitudes, “goes right through the suburbs.”

    The connection between suburbs and political victory should have been clear by now. Middle- and working-class suburbanites keyed the surprising election win of Republican Sen. Scott Brown in Massachusetts in January. Suburban voters were also crucial to the 2009 Republican gubernatorial victories in Virginia and New Jersey, two key swing states.

    Nationally, suburban approval for the Democrats has dropped to 39 percent this year, from 48 percent two years ago. Disapproval for President Barack Obama is also high — nearly 48 percent of suburbanites disapprove, compared to only 35 percent of urbanites. Even Obama’s strong support among minority suburbanites, a fast-growing group, has declined substantially.

    Many suburban voters, notes Lawrence Levy, executive director of the National Center for Suburban Studies at Hofstra University, appear to be undergoing “buyer’s remorse” for backing Obama and the Democrats last time around .

    Much of the suburban distress, of course, stems from the still perilous state of the economy. Obama’s mix of fiscal and monetary policies has provided much succor to Wall Street, where stock prices have soared 30 percent, and to big corporations, whose profits have risen by 42 percent. This has been great for Manhattan plutocrats — but not particularly helpful for the suburban middle class.

    Indeed the indicators most important to suburbanites – private sector employment, weekly earnings, home prices and disposable income – have all stagnated or even fallen since Obama took office. Fifty-three percent of suburban residents, according to the Princeton study, described their financial situation as “bad.” The vast majority have either lost their job or know someone who has lost theirs. Almost 40 percent have either lost their home or know someone who did – up from 27 percent in 2008.

    Given the stubbornness of this recession, neither the current administration or Congress gets credit for improving conditions. Barely 10 percent of suburbanites polled think the stimulus helped, one-third thought it hurt and the rest said it made little difference.

    But there may be other, perhaps more nuanced, reasons for the administration’s suburban disconnect. Many of the administration’s most high-profile initiatives have tended to reflect the views of urban interests – roughly 20 percent of the population – rather than suburban ones.

    When the president visits suburban backyards, it sometimes seems like a visit from a “president from another planet.” After all, as a young man, Obama told The Associated Press: “I’m not interested in the suburbs. The suburbs bore me.”

    More recently, Obama made clear that he is more interested in containing suburbia than enhancing it. In Florida last February, the president declared, “the days of building sprawl” are “over.”

    Much of the Obama policy agenda – from mass transit and high-speed rail to support for “smart growth” policies – appeals to city planners and urbanistas. Transportation Secretary Ray LaHood has spoken openly of “coercing” Americans out their cars and the Department of Housing and Urban Development is handing out grants to regions which support densification strategies that amount to forced urbanization of suburbs.

    This is a problem since the vast majority of Americans – consistently more than 80 percent – do not prefer to live in dense big cities. Most want a house rather than being forced to live in an apartment. And for all but a handful, a car, not a bus or train, remains not only the preferred way to get to work, but often the only feasible means to get work — mostly in the suburbs.

    If the Democrats want to mount an electoral comeback in suburbia, they need to take these realities into account . There are just not enough votes in core cities, upscale close-in suburbs or college towns to knit together a majority.

    Recovering suburbia s is not impossible for Democrats. Obama himself proved this in 2008, by essentially tying for the suburban vote — a remarkable achievement. Bill Clinton won in 1992 and especially 1996 by competing well in suburbs and exurbs. In the last two election cycles, the shift of suburbanites to the Democrats keyed the party’s steady gains in the Congress – accounting for, according to GOP sources, as many as 24 seats in the last two congressional elections.

    Most important, suburbanite identification with the Republican Party has continued to erode over the past two years, according to the Princeton survey. Instead the big winners have been independents, who have grown to 36 percent from 30 percent of the suburban electorate.

    These voters, for the most part, also tend to be less strident in their cultural views than either secular urbanites or rural evangelicals. More than one in five suburbanites is an ethnic minority — which could also help the Democrats.

    But to win even these suburban voters, the Democrats must offer solutions to suburbanites that go beyond devising their forced conversion to dense urbanity. They could refocus their efforts on climate change to suburbs-friendly strategies like telecommuting — perhaps the cheapest, quickest and most socially acceptable way to cut down on greenhouse gas emissions.

    Outside of greater New York, which has half the nation’s transit users, there are already about as many telecommuters as transit riders. Why not work to expand this phenomena, so well suited to the vast majority of the country?

    These suburb friendly approaches should be examined as the Democrats reflect on what many expect to be midterm electoral setbacks. They can only compete successfully on a national basis by jettisoning their apparent disdain toward the aspirations of suburban homeowners and begin treating them with respect.

    This article originally appeared at Politico.

    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 Caesar Sebastian

  • Prosperity Index Shows That Democracy Still Works Best

    With the Cold War well behind us, the real choice between systems lies in a growing variation in the form of capitalisms. Choices now range from the Chinese Leninist model – essential centrally planned exploitation of the greed gene – to various kleptocracies, divergent Anglo-American systems and varied forms of European capitalism.

    None of these systems are likely to excite the most rabid Hayekian, especially now that the once free market haven Hong Kong is being integrated into the Chinese command and control system. But still, according a new study by my colleagues at the Legatum Institute, when it comes to delivering the best economic environment for people and families various forms of liberal capitalism still perform best.

    The Legatum Prosperity Index found that all the more prosperous places – not only by income, but by quality of life, environment, education and health care – almost exclusively are democratic states. “Prosperity,” the report concludes, “is found in entrepreneurial democracies that have strong social fabrics.”

    This is a critical point given the current focus and admiration for the more centralized, state-controlled models emerging in places like Russia, China and Brazil. As an emerging country, China may enjoy the highest rate of growth but overall still does not provide most of its citizens anything close to what we might consider the “good life.” China, the Legatum study found, still lags behind in a host of factors besides democracy, ranging from poor health care and a degraded environment to an overweening state role in the private sector.

    In contrast, without exception, the most prosperous states are not so much the fastest-growing economies but those democracies that have been able adjust successfully to the emerging reality. At the top of the list are the northern democracies, led by Scandinavian countries Norway (#1), Denmark (#2), Finland (#3) and Sweden (#6). These are joined by other small, compact cold-weather states such as the Netherlands (#9) and Switzerland (#8). Rounding out the top 9 on the list are three resource-rich Anglo-American states, (#4) Australia, (#5) New Zealand and (#7) Canada.

    All these countries sell either resources – Norway, Australia and Canada – to emerging Asian super-powers or expertise and services. Most countries possess powerful niches that drive their economies and promote exports to developing countries. These include green technology (Denmark), motor vehicles, telecommunications, pharmaceuticals and forestry (Sweden), information technology (Finland), engineering and finance (Switzerland), business services , chemicals and plant science (Netherlands). The tiny Netherlands, for example, is China’s second largest European trading partner.

    The ability to shift gears also can be seen in Germany which improved its ranking to 15 due in part to rising industrial exports to emerging economies. Like the Scandinavian countries, Germany economy has also become significantly less regulated in the past decade. They are no longer the ultra generous social welfare states imagined by some liberals , but increasingly adapted to a tougher global marketplace.

    In this sense these northern states resemble the old Hanseatic trading cities of 13th century northern Europe, which created, in the words of historian Fernand Braudel, a “common civilization created by trading” from England to Russia. At its peak the League included dozens of cities across Northern Europe. Like the old Hansa, today’s version share largely Germanic or Nordic cultural roots, and have found their niche by selling high value goods, to distant burgeoning markets in Russia China, and India.

    This strong performance contrasts dramatically with the emergence of what might called ”a second Europe” made up of what I call the Olive Republics. These countries – Spain, Portugal, Italy, and Greece – remain functioning democracies but without the kind of effective governance found in their better managed, more fiscally responsible northern neighbors. These states have all fallen in over the past year in the Legatum rankings , falling into the 20s and even 30s – something very rare for long established European economies.

    Once again, the critical issue lies with adjustment. In contrast to the northern powers, the Olive Republics do not appear to be adjusting well to the general shift of global demand to the east. After all, besides a great history and culture, how much do these countries have to sell the Chinese, Indians and Brazilians ? Trips to Barcelona or expensive Italian food may be popular among the new rich of Shanghai or Singapore, but its Volvos, Mercedes, BMWs, not Fiats, that crowd the streets. In high tech, increasingly dominated by the U.S. and Asian countries like India and South Korea, the only big player along the Mediterranean is now greater Tel-Aviv.

    What about the other big Western democracies? Most rank between the ascendant Hansa and the depressed Olive Republics. The mega-giant of the liberal democracies, the U.S., ranks 10th, followed by the 13th ranked United Kingdom, 18th ranked Japan and 19th ranked France. All these countries retain strong technological prowess and entrepreneurial savvy, but have proven more adept at consuming goods and services from the rising Asian powers than selling to them. Governance, particularly fiscal management, also generally has been less impressive than among the Hansa states.

    But perhaps the best proof that democracy remains an economic asset can be found not in Europe or North America, but among the developing economies. China may dominate the world’s current trajectory through its huge population and expanding economy but its level of prosperity still lags that of democratic Australia and New Zealand. It also ranks well below demonstrably more democratic countries (albeit imperfectly liberal) like #17 Singapore, #22 Taiwan and #27 South Korea. These are emerging as the Hansa of Asia, selling high-technology products and services to the emerging Asian powers . If China ever could achieve some level of democratic governance say of South Korea, the world would need to really watch out.

    Similar patterns can be found across the rest of the developing world.In the Middle East, the relatively tolerant United Arab Emirates (#30) that leads the list. The only legitimate constitutional democracy in the region, Israel (#36), soars way ahead of repressive but oil-rich Saudi Arabia (#49) not to mention such stark autocracies as Syria (#83), Iran (#92) and Yemen (#105).

    In sub-Saharan Africa, democracies such as Botswana (#52) and (#66) South Africa generally lead the pack, while resource rich, but dictatorship ridden Zimbabwe ranks a meager 110. In Latin America, liberal democracies such as #28 Uruguay, #32 Chile and #33 Costa Rica sit on top while minerals rich but autocratic Venezuela (#75) and Bolivia (#82) sink closer to the bottom.

    Of course, it’s fashionable today in some circles to toast autocracy – particularly among our growing ranks of Sinophiles on both right and left. But the Legatum study suggests that democracy, not top-down dictatorship, remains the surest way to build a prosperous society. True, sometimes a dictatorship can spark faster growth in the short and even medium run but only democracies have proven capable of steering countries beyond rapid growth and into true, sustained prosperity. For this reason, democratic capitalist countries remain at the apex of the global economy outperforming challengers by the measure that most matters: delivering a secure, healthy and affluent life to the vast majority of their citizens.

    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 Rob Boudon

  • Shifting Voter Demographics: America is a Different Country

    As we head to the unpredictable 2010 elections, many pundits have been left scratching their heads and admitting that they really have no idea how this election is going to turn out. Nate Silver, today’s most careful analyst of election statistics and forecasting, examined a variety of indicators and concluded that there were more closely contested and hard-to-predict congressional races this election than ever before.

    The biggest reason for this uncertainty lies in the fact that America’s electorate is changing as fast as the country’s demographic and generational characteristics, and in the process these changes overturn old assumptions about how politics works – and too often doesn’t work – in America.

    In 1965 the nation was 89% white and 11% black, about the same as it had been during the previous century. Since then, high levels of Asian and Latin immigration have produced an America today which is 66% white and 33% “people of color,” a tripling of the minority population in only four decades. Remarkably, 10% of Americans are of Mexican descent and about 5% of the electorate speaks primarily Spanish. For the first time in US history a president of mixed race, although one who considers himself to be African-American, resides in the White House.

    The second big demographic change is the emergence of the largest, most diverse generation in American history: the Millenials. Like it or not, this generation will dominate the political and cultural life of 21st century America as much as the Boomers did in the late 20th century. The Millennial Generation, born from 1982-2003, is sometimes condescendingly referred to as the “youth vote,” but it should be more accurately recognized as the biggest and most important new voting cohort in America. There are about 95 million Millennials, about half of whom are now of voting age. One out of four eligible voters in 2012 will come from this generation. That will expand to more than one out of three voters by 2020.

    This is the fundamental driver of American political change: Every two years the percentage of non-whites and Millennials increases, a trend likely to continue in the decades ahead. Non-whites will grow from 33% of the population today to as much 50% by 2042. There will also be a rapid increase in the “mixed race” population, which might further complicate matters.

    As these populations grow, a new political reality will take hold in areas most immediately affected, especially in the Southwest and coastal areas of the country. The power of these population shifts to upend conventional political wisdom was demonstrated by Barack Obama’s victories over heavily favored establishment candidates in both the Democratic primary and the general election in 2008

    These demographic transformations are changing the political loyalties and beliefs of the American electorate. Democrats now have their largest lead in national party identification since the early 1960s. In the most recent Pew survey, only 15% of Americans claimed to be completely unaffiliated independent voters, while about half (48%) identify with the Democratic Party and 37% with the Republican Party. By contrast, in 1994, the last time in which a newly elected Democratic president faced a midterm election against an aroused GOP, the two parties were tied in party identification at 44% each. This Democratic advantage is due in large part to Millennials and Hispanics who identify as Democrats by a 2:1 margin over Republicans.

    Survey data also shows that most Americans continue to favor using government to address their economic concerns and societal challenges. This summer, in a survey conducted for the progressive think tank NDN, a clear majority (54% vs. 31%) of Americans favored a government that actively tries to solve societal and economic problems rather than one that takes a hands-off approach.

    These numbers virtually unchanged since Barack Obama’s inauguration. More recently, only 29% of those surveyed this fall told Pew they wanted all of the Bush-era tax cuts to remain in place, while a majority (57%) preferred either that those on the wealthy should be allowed to expire or that all of the Bush tax cuts should end. Forty percent of adults told an Associated Press survey they didn’t think the new health care law went far enough, while only 20% felt the federal government shouldn’t be involved in healthcare at all. These pro-government attitudes are likely to grow as more and more Millennials enter the electorate. By a 60% to 36% margin the generation favors a bigger government providing more services over a smaller government providing fewer services.

    Rather than being surprised every two years by the changing politics of a nation altered by a rapidly changing demography, pundits would be wiser to anticipate that American politics is going to keep changing and evolving every two years, and will never again look like the politics of the 20th century. In the shorter run, the operative question in this year’s midterm elections is the extent to which the rising elements in the electorate make their presence felt at the polls in November. President Obama, who is concentrating his final campaigning efforts on college campuses and minority neighborhoods, clearly recognizes the challenge—but also the rare opportunity—presented by the 21st century electorate. His success in energizing these newest members of the Democratic Party’s base will determine the still uncertain outcome of the midterm elections.

    But the longer term direction of American politics will clearly continue to be driven by the demographic and generational changes now sweeping the country. And unless the Republican Party finds a way to appeal to the emerging groups, they may find themselves enjoying only the most fleeting kind of renaissance.

    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.

  • Portland’s Runaway Debt Train

    Tri-Met, the operator of Portland’s (Oregon) bus and light rail system has been in the news lately, and in less than auspicious ways. For decades, the Portland area’s media – as well as much of the national press – has been filled with stories about the national model that Tri-Met has created, especially with its five light rail lines.

    The reality is less impressive. After spending an extra $5 billion over the past quarter century, public transit’s share of work trip travel in Portland is less than it was before. Moreover, the Portland has now become the 38th of the major metropolitan areas (over 1,000,000 population) in which more people work at home (such as telecommuting) than ride transit to work.

    Tri-Met’s more recent notoriety also reveals some serious concerns about financial management . Auditors recently finished their annual report, and it indicates that that Tri-Met has run up some rather large bills that it may be hard-pressed to pay.

    Unfunded Pension Liabilities: Unfunded liabilities on Tri-met’s employee pension funds have grown to more than $260 million. This deficit has developed because Tri-Met can not meet its obligation to pay into the pension funds on a current basis. Indeed, at the rate Tri-Met paid the pension funds for fiscal year 2010 (ended June 30), they would be more than eight years delinquent. Overall, the pension funds are nearly 50 percent under funded.

    Other Post-Employee Benefits: “Other Post-Employee Benefits” (OPEB), made up principally of retiree health care, pose a much bigger problem. As of the end of the fiscal year, the unfunded liability for these benefits was $817 million, up $185 million in just one year. Underfunding is an even greater problem. The retiree benefits are 100 percent under funded. Tri-Met has simply put no money aside for these benefits. Tri-Met has achieved world class status in underfunding its OPEB. The Los Angeles MTA, which carries nearly five times as much travel volume as Tri-Met had unfunded OPEB liabilities of only $730 million (still a huge figure) in 2009, which is the last data available.

    When challenged on the huge unfunded liability and its growth, Tri-Met General Manager Neil McFarlane responded to KATU-TV: “That’s adding apples, oranges and grapefruits together to get a completely unreasonable number.” One wonders what kind of complications the chief executive office of a publicly traded Fortune 500 company would face for similarly dismissing inconvenient data in its annual report (whether from the Securities and Exchange Commission, the board of directors or the stockholders).

    The auditor, Moss-Adams, LLP appended a standard opinion, to the effect that “… the financial statements … present fairly, in all material respects, the financial position of the District as of June 30, 2010…” At another point the auditors note their obligation to perform the audit to “obtain reasonable assurance about whether the financial statements are free of material misstatement.” As far as McFarlane is concerned, there may be some disagreement on whether the financial statements are “free of material misstatement, “given that they include a “completely unreasonable number.”

    A Train of Debt: Other Tri-Met woes come from its frequent bonds issues, which to date have been approved with little oppostion. The present bonded indebtedness is more than $250 million. The agency is asking the electorate for approval of another $125 million in bonds at the November 2 election. The Oregonian, which has been a friend to nearly everything Tri-Met has done, is recommending a “no” vote on the bonds, pointing out that they would not be necessary if Tri-Met had saved sufficiently for vehicle replacement. Further, Tri-Met is searching hard for more money to fund a deficit in its proposed light rail line to suburban Milwaukie in Clackamas County, which seems a questionable project given the agency’s inability to keep fares under control and maintain service levels.

    Bloated Benefits: John Charles, President of the Cascade Policy Institute raised eyebrows when he noted that Tri-Met’s employee benefits expense is by far the highest in the nation. Charles looked at 20 large transit agencies and found that employee benefits were equal to 152 percent of the wage bill, approaching double that of the next highest, San Francisco’s Bay Area Rapid Transit District and Washington’s Metropolitan Transit Authority. With their above 80 percent employer-paid benefits ratios, albeit lower than Tri-Met’s 152 percent, these agencies have nothing to be proud of. In the private sector, employer-paid benefits tend to be less than 25 percent of wages. Tri-Met’s 152 percent is six times that.

    Bloated Compensation: With a benefits ratio of 152 percent, payroll expense per employee is a stratospheric $115,000 annually (assumes the 2008 staffing ratio, later data not identified). In contrast, the average private sector employee in the Portland metropolitan area is compensated at approximately $55,000 annually, which includes wages and a 22 percent extra for benefits (Figure 1).

    Employees Ahead of Customers: Tri-Met implemented a fare increase in September and reduced bus service by 5.8 percent and light rail service by 3.5 percent. In the last 10 years, the basic bus fare has risen 71 percent, well above the 27 percent inflation rate (Figure 2). The fare increases and service cuts are imposing substantial hardship on many Tri-Met riders, who have limited incomes and no access to cars. The above inflationary fare increases represent a financial management failure of fundamental proportions.

    Yet while it was raising fares, Tri-Met also increased union employee compensation by three percent and covered increases of 7.5 percent to 22.5 percent on two employee health care programs. Tri-Met has admitted that these increases were not legal obligations (could this be a gift of public funds?). The cost of the non-obligatory wage increase was more than double the amount Tri-Met expects to raise from the September fare increase. Some discontinued service could have been financed with the rest of the wage increase money and the non-obligatory health care premium increases.

    Rising Costs: The question for Portland and Tri-Met remains whether this financial house of cards is sustainable. Operating and capital costs have, not surprisingly, skyrocketed. In fiscal year 2010, it is estimated that costs per passenger mile rose to more than $1.35. This is a full 40 percent above the the national transit average. This is more than five times the per passenger mile – full cost of cars and sport utility vehicles including all user costs and the portion of road expenditures (principally local streets) paid for by taxes – of less than $0.25.

    Fiscal Imprudence: Past and Future: There is some too-little, too-late good news for riders. Tri-Met has told the union that it will not cover health care benefits increases in 2011, nor will there be another non-obligatory wage increase. In its editorial opposing approval of the bond issue The Oregonian spoke of “past fiscal imprudence.” In appears that the mecca of transit is becoming less a role model and more a cautionary tale.

    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”

    Photo: Mount Hood in exurban Portland (by author)

  • Rob Johnson

  • The Urban Bike Tribes of Los Angeles

    A recent Los Angeles Times article chronicled a showdown between drivers and bicyclists, inspired by the installation of bike lanes and — more significantly — the reduction of auto traffic lanes on a San Fernando Valley boulevard. The change was clearly intended to encourage cyclists, but I had to wonder: Which ones? In a city as diverse as Los Angeles, even the bike riders are divided, loosely, into different tribes.

    On a San Andreas Fault tour, on the San Francisco Peninsula skirting Silicon Valley, my friends and I passed large numbers of people riding back and forth on bicycles. They had brought their bicycles up into the Santa Cruz Mountains in the backs of their SUVs, and were riding back and forth, exercising their legs. Most of them were dressed in bicycle helmets, and costumes that looked like a cross between a surfer’s short wetsuit and a ballet tutu. It did not seem to me that this sort of activity was really going to replace the automobile for any serious purpose, and anyway, they were not commuting..

    In my own Orange County “paleo-urbanist” community we have the people of the helmets and ballet tutus, who use the streets. But we also have regular folks, who dress in shorts and often T-shirts. These ordinary adults and children use the sidewalk, not the street. I hear that many parents forbid their kids to ride in the street, especially when the street is Pacific Coast Highway. It is actually, as I understand it, illegal to ride a bicycle on most sidewalks. It is also against the law to drive more than 65 miles per hour on the freeway, to drink alcohol if you’re under 21, or (at least till November) to possess or smoke marijuana. As the young folks like to say, Bwahaha.

    I’ve heard about (I think there was an LA Times story some years ago) what I would like to call Los Midnight Riders – those who ride bicycles to work for economic reasons, not ecological ones, because they A) have jobs that don’t pay enough to support owning a car and B) have jobs with hours or locations that preclude using public transit; it either doesn’t run to where they’re going, or it shuts down long before they can go home. These people are the real bike commuters. They often cannot, alas, afford proper front and rear night lights, which makes them a hazard. And they live in parts of town that may not be the best equipped with bike lanes, bike lanes being a rather bourgeois-bohemian interest.

    I taught myself to ride a bicycle at college when I was 21, not having had much opportunity or daring to learn earlier. There was a campus fad for bike riding at the time, but there were no ballet tutus or anything resembling them – ordinary shorts and the like were the costume for our rides. I felt incredibly self-righteous. For some time afterward I used the bicycle once in a while for local trips. But I did so less and less as time wore on. I still have a bicycle, and still use it occasionally, but bikes need to be kept in working order, and being of a certain age I fear I must confess that yes, yes, I do walk my bike up long or steep hills. I don’t wear a tutu, though when I get off a bike I often understand why other people do: My “privates” have gone to sleep, and when I dismount they begin to wake up with a tingling that is about as different as can be from titillation.

    Will bicycles ever become a transit option for masses of commuters? Office dress and decorum has not yet deteriorated to the point where bicycle commuting will be practical without a locker room. One would arrive at the office a sweaty mess and need to shower and change, I’d think, which could be as much of a hassle as going to a health club, and just as time-consuming.

    About a month from now I will be in Copenhagen. There, bike paths run between the street and the sidewalk, including right in front of hotels. Anyone getting out of a car must keep this in mind, for bicyclists are moving past at very high speeds! They seem to be dressed, for the most part, in long pants, and even in business suits. Not having spent a lot of time meeting with Danish bankers and lawyers, I don’t know whether or not they reek of sweat, or if their offices include huge locker rooms.

    But three factors should be noted: A) Copenhagen is a very flat city, so a cyclist might not work up that much of a sweat, B) The weather is not very warm most of the time, so there’s less opportunity to work up a sweat anyway, and C) They’re Danish. I don’t know if they have different tribes of bicyclists, but they may have a different metabolism.

    Photo by Buz Carter of bicyclists crossing the Seventh Street Bridge in Los Angeles.

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