New Geography

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  • Industry And The Urge To Cluster

    What drives industry to locate in one region and not in the next?

    Economic geography – the distribution of economic activity over physical space – has always been central to economic development. Policy-makers trying to encourage economic activity to locate in under-developed regions want answers: Is it infrastructure? Fiscal incentives? Good business environment? Or could it be agglomeration – the compounding effect of industry clustering in a particular location?

    And if the key factor is indeed this critical mass, can the effect run from one type of industry to another? Do existing, more traditional manufacturing clusters attract newer services industry?

    The question of where and how services firms decide to locate themselves has become exceedingly central to understanding economic growth and development. Services, and especially knowledge-based services, now account for a greater proportion of advanced-country GDPs, and increasingly so for emerging economies.

    New Economic Geography (NEG) theory would argue that agglomeration advantages lock business activity into core regions. The core also supports the existence of intermediate industry in the periphery, and so specialized input-suppliers co-locate close by. For instance, think of Detroit’s production of automobiles and the auto-parts manufacturers who locate in geographically proximate Michigan, Ohio and Indiana.

    The theoretical business-economics literature would also argue that manufacturing and services are intricately linked in the production chain. For example, marketing services add the finishing touches in the final stages of a manufacturing process, or research and development services result in increased production within the “real” economy. Service inputs into production, such as design, technological refinements, and branding, account for a major part of value added in manufacturing industries. The result is that it is becoming difficult to identify where the product ends and where the service begins.

    These theories have been challenged by claims that services, as compared to manufacturing, are liberated from the tyranny of space, owing to advances in information and communication technologies. In addition, the ability to splice the service production chain more thinly, goes the argument, means that proximity may cease to be an important factor with regard to these industries.

    But some empirical research suggests that agglomeration forces may actually be stronger in the case of services – that service industries actually tend to cluster more strongly and more closely to existing urban or manufacturing agglomerations.

    How do we know this? It is true that while the interest in urban, regional and spatial economic theory has grown dramatically in the last few decades, empirical research has followed in fits and starts. Some historical evidence shows that manufacturing does indeed precede services, specifically producer services, in a city or city-region. Research in the United States in the mid-1990s, and then more recently, also demonstrates that financial and professional services firms often chose to locate themselves in geographic proximity to established manufacturing industrial areas.

    More macro-level North-South models of development also seem to lend credence to the idea that services cluster close to existing manufacturing companies. Research on firm location in Sweden has shown that producer services locate themselves close to manufacturing industry to benefit from accessibility to their customers, but that many producer services also look to supply other service industries. Similar research in Denmark shows that manufacturing and services can be so intricately linked in their production chains that firms across both types may decide simultaneously to choose one location over another.

    And there is yet another possibility. Research in Japan’s urban areas revealed that the presence of a large and growing service sector in an existing urban cluster could lead to the displacement of manufacturing units.

    There are two basic causes of clustering. The first is regional endowments such as land, climate, and waterways. The second is circularity in location choice, implying that firms want to be where large markets are, and large markets are where many firms are located.

    This logic may seem obvious now, but, as economist Paul Krugman notes, that wasn’t really the case before 1991. In the latter half of the 19th century, the emergence of the manufacturing belt in the United States was a turning point in the economic geography of the country. The belt – mainly New England, Middle Atlantic and east-North-Central regions – contained the majority of manufacturing employment up until the first half of the 20th century. It was a classic example of how concentration of firms in one region increased local demand and thus made the area attractive for other firms. Services industries, catering to both final consumption and to manufacturing, soon followed.

    What does all this tell us about how governments should focus their energies? If the whole point of policy were to encourage industrial growth in regions that were not previously favored by economic activity, then a multitude of factors would need to be considered: investments in educational infrastructure, and training and development of skilled labor are just some examples.

    If policy was aimed at the development of producer services industries, then it seems that a healthy manufacturing sector is vital to a healthy services sector. There is, however, an ongoing blurring of the distinction between what constitutes manufacturing and what constitutes services, and this transformation has stimulated new support functions that feed the production processes of both.

    If so, and if the different types of industry do simultaneously co-locate, then…the discussion is akin to going round the Mulberry bush.

    Megha Mukim is currently reading for a Ph.D at the London School of Economics. Prior to this she was a visiting fellow at the MacMillan Center for International and Area Studies at Yale University.

  • Bill Watkins

  • Thundermutt

  • A Tale of Two Blizzards

    January 1979 saw one of the worst blizzards in city history hit Chicago, dumping 20 inches of snow, closing O’Hare airport for 46 hours, and paralyzing traffic in the city for days. Despite the record snowfall, the city’s ineffectual response was widely credited for the defeat of Mayor Michael Bilandic in his re-election bid, leading to Jane Bryne becoming the city’s first female mayor.

    In January 1978, a similar blizzard had struck the city of Indianapolis, also burying the city in a record 20 inches of snow. Mayor Bill Hudnut stayed awake nearly two days straight, coordinating the response and frequently updating the city on the snow fighting efforts through numerous media appearances. Nevertheless, the airport closed and it was several days before even major streets were passable. But when it was all over, Hudnut emerged a folk hero and went on to become arguably the most popular mayor in city history, serving four terms before voluntarily stepping aside.

    While major snow is much less frequent in Indianapolis than Chicago, and Hudnut’s response certainly bettered Bilandic’s, these twin blizzards illustrate a powerful difference in citizen expectations between these two cities, reflecting two of the broad approaches to urban service provision in America today.

    People in Chicago expect and demand high quality public services. Chicago is the “City that Works”, and woe be to the mayor when it doesn’t. That’s why every mayor since Bilandic has treated snow clearance like a military operation, deploying a division of armored snow trucks to assault the elements at the merest hint of a flake, often leaving more salt than snow in their wake. If Chicagoans pay relatively higher taxes than the rest of the country, at least its citizens know that they are getting something for their money, whether it be snow clearance, garbage collection, street lighting, landscaped boulevards, or bike lanes.

    In Indianapolis, by contrast, public services are not the main concern. People gripe if snow is not cleared, but are not outraged. No Indianapolis mayor ever lost his job for failing to deliver good services. Rather, taxes have always been the primary issue. Nothing illustrates this better than the most recent mayoral election. Buoyed by an emerging demographic super-majority, a large campaign war chest, and the support of almost every establishment figure of both parties, Mayor Bart Peterson confidently raised city income taxes by 0.65 percentage points shortly on the heels of a major property tax jump. In the fall, however, he lost his re-election bid to political neophyte Greg Ballard, who ran on a taxpayers first platform. Ballard won without significant backing from his own Republican party, supported only by a collection of grass roots activists, bloggers, and his own relentless door-knocking campaign.

    The divergent citizen and policy preferences of both cities continue to the present, amply illustrated by this very winter. Mayor Daley, facing a recession-induced budget gap, decided to save money by ordering that residential streets not be cleared by workers clocking overtime. Citizen unhappiness over the state of the streets during December snows led even the widely popular Daley to backtrack on this experiment, reverting to the traditional all out assault for the balance of winter.

    In Indianapolis, after 12.5 inches blanketed the city this January, crews took several days to clear its snow routes and, as per its standard operating procedure, did not plow residential streets at all. The local media carried tales of people’s laments, but ultimately the city government knows that the response to the snow will be forgotten soon after it melts. Higher tax bills, by contrast, are long remembered. In an inverse situation to Chicago, people in Indianapolis sleep at night knowing that, if services haven’t been all that great, they at least have more money in their pockets.

    While both cities have long seemed happy pursuing their respective courses, storm clouds are gathering over both strategic models of operation.

    Backing down from a high service stance in government is almost impossible. Government spending only ever seems to go one way. Faced with that logic, and the clear expectations of its citizens, Chicago in effect decided to double down. With the much celebrated resurgence of urbanism, Chicago put its chips on a soaring Loop economy driven by an emerging status as one of the top global cities, a real estate boom, and a series of tax and fee increases. It embarked on a civic transformation epitomized by community showplaces like Millennium Park, miles of top quality streetscape improvements, a new terminal at Midway Airport and the start of a multi-billion dollar O’Hare modernization, one of the nation’s best bicycling infrastructures, and perhaps most ambitiously, a bid for the 2016 Olympic Games.

    This model is increasingly showing signs of strain, however. Many taxes and fees, including the nation’s highest sales tax at 10.25%, appear to be close to maxed out. The real estate crunch hit hard at Chicago’s transfer tax revenue, another key source of city funds. This, in combination with a weak economy, has hammered the city’s budget, leaving Daley with tough, often unpopular choices to make. The CTA recently raised fares. City parking meter rates will be quadrupling under a privatization plan recently signed, hopefully plugging operating budget holes – something Daley had previously resisted. As with New York City, Chicago may be faced with the cold reality of both service cuts and tax increases.

    More importantly, as with the dot-com bubble before it, there are real questions as to whether the financial and real estate driven economy that fueled Chicago’s boom will come back in full force any time soon. In the meantime, the economy and cost of living in the city are squeezing the middle class harder by the day, and despite perhaps America’s biggest condo boom, the city’s population is slowly shrinking. All this leaves Mayor Daley, although still very popular, with perhaps the toughest leadership challenge of his tenure.

    Meanwhile Indianapolis faces problems of its own. It too has budget challenges, just as years of deferred investment are finally catching up with the city. Indianapolis has a $900 million unfunded backlog of curb and sidewalk repairs alone. It is the 13th largest municipality in America, but has the 99th largest transit system. And, more troubling, the city now finds itself outflanked by its own suburbs.

    At one time Indianapolis could comfortably decide to purchase bronze-level services while other cities paid more for gold. But now its own suburbs are offering silver, and at a lower price point in taxes than the city is selling bronze. Many of its suburbs today not only have better schools and safer streets than the central city, they feature fully professional fire departments, large park acreage, lavishly landscaped parkways exceeding city standards, and even better snow removal. In the recent storm, upscale north suburban Carmel finished plowing its cul-de-sacs before Indianapolis finished its main arteries. When people can pay less and get more just by moving to the collar counties, that’s what they do. Tens of thousands of people have left the merged central city-county in recent years. Only a large influx of the foreign born has kept Indianapolis from losing population.

    The current economy is exposing the long term structural weaknesses of both civic strategies. Chicago and Indianapolis show that both higher service and lower service models face big challenges and that neither approach represents a safe harbor in the current economic storm.

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

  • The U.S. is Inherently Prosperous

    Obama’s $800 billion stimulus bill has both policy makers and the public wondering what the bill will actually manage to stimulate. Yet, somewhat surprisingly, a recent study shows that left to fend for itself, the United States is inherently prosperous.

    The Legatum Prosperity Index recently released a study of the most prosperous nations, measuring economic growth and quality of life. The study found that the U.S. – despite its current economic situation – ranks fourth out of 104 nations.

    The amount of wealth and sense of well-being enjoyed by U.S. citizens is higher than any among large countries, with no other country with more than 100 million inhabitants ranking above the top 10.

    The Index measures nations overall by “how well they foster the practices, institutions, and habits that create competitive economies, stable and free political institutions, and social capital.”

    When looking at prosperity in this fashion, America and its ability to foster both economic and non-economic progress is what puts it so high on the scale. The US still rewards innovation and entrepreneurship to an extent seen in few other countries. This opportunistic culture provides the basis for successful growth of commerce even in an otherwise weak environment.

    The U.S. bests the other top 10 countries on personal income by 40 percent. It scores 38 percent higher than the rest of the world in its ability to “commercialize innovation through patents.”

    On the flip side, the US ranks just 7th in economic competitiveness and below average on promoting international trade and investment. The stimulus bill could offer some jolt to the weak economy, but given access to capital, Americans might prove adept in finding their own path to prosperity.

  • Don’t Politicize the Census Bureau

    The recent decision by the Obama Administation to place the Census under the control of the White House represents a danger – not only to the integrity of the process but to the underlying assumptions that drive policy in a representative democracy. It is something that smacks of the worst anti-scientific views of the far right, or the casual political manipulation of the facts one expects in places like Russia or Iran.

    Let me be clear: I love the Bureau of the Census. I have been an avid consumer of its data since the second grade. I used to wait with anticipation for the decennial results – the 10 year population counts for states, counties and cities. Anyone who has spent any time on the Demographia websites knows the respect with which I treat Census data.

    The United States established one of the first regular censuses and it has been conducted every 10 years since 1790. The United Kingdom followed in 1801 and France in 1807, though both nations suspended their counts during World War II.

    Over the past couple of decades, the Bureau of the Census has made annual estimates widely available, so it was no longer necessary to wait for the 10 year results. This was an important step in the right direction for people interested in demographics. But, there was a more basic purpose than amusing people who make their living with numbers. As federal programs that allocate money to local jurisdictions based upon their population have become more widespread, interim annual census estimates became a necessity.

    Before the interim estimates, all sorts of “cheerleading” estimates were published, like the more than 1,000,000 population estimate I discovered for Washington, DC in the 1950s (the city never exceeded 800,000 by much). The great thing about the Bureau of the Census was that you could trust the numbers.

    Trust and accuracy were precisely what the framers had in mind when they wrote the regular decennial Census enumeration (count) into the US Constitution. The principal purpose, of course, was to apportion seats in the House of Representatives. A genuine democracy depends on ensuring all are represented equally and thus depends upon the integrity of its census.

    Recently, however, the process has become ever more politicized. The Bureau of the Census has allowed counties, cities and other local jurisdictions to challenge their annual census estimates. The incentive, of course, is that if the challenge results in a higher population estimate (and it can be expected that no jurisdiction challenges an estimate it feels is too high), more federal money is the reward.

    I became aware of the problem in watching the recently developing annual challenge ritual by the nearby city of St. Louis, which has lost more of its population than any city since the Romans sacked Carthage. No large local jurisdiction in the world, not even New Orleans, has lost as much of its population as St. Louis, which has experienced a 60 percent decline since 1950.

    So not surprisingly, the city of St. Louis has become a frequent challenger. St. Louis has successfully challenged the Bureau of the Census estimate of its population five of the seven years from 2001 to 2007 (the most recent estimate). The total of additions from census challenges adds up to 43,000 people. This is a not insubstantial 12.4 percent relative to the approximately 348,000 2000 Census count for the city.

    I began to wonder what the success rate was in census challenges. I asked the appropriate Bureau of the Census officials for a list of rejected challenges. The quick and polite response was “We do not have a list of the rejected challenges.” This seemed a strange answer, since the Bureau of the Census website lists all of the successful challenges. Moreover, my internet search for news stories about rejections of census challenge rejections yielded nothing.

    I performed an analysis of the successful challenges posted on the internet. Approximately 200 general purpose local jurisdictions have filed challenges. Nearly 40,000 have not.

    Many of the upheld challenges are in large urban cores, such as 236,000 in the city of New York and more than 100,000 in Atlanta’s core Fulton County. Among the larger jurisdictions, Fulton County added the largest to its 2000 population by challenges, at 13.5 percent.

    However, the challenges are by no means limited to urban cores. Salt Lake City suburbs West Valley City, West Jordan and Sandy challenged their counts, but not core city Salt Lake City. Nearby Provo, no urban jungle, had the largest addition to its population of any jurisdiction over 100,000 population, at 15.2 percent. The Bureau of the Census missed about 2,000 residents between Skokie and Hoffman Estates, headquarters of Sears Roebuck, but not a one in nearby Chicago, which has 25 times as many people as the two suburban jurisdictions combined.

    Overall, 47 jurisdictions with more than 100,000 population in 2000 have successfully challenged census estimates, many in more than one year. The total population addition from these challenges is 1.24 million, though there may be some duplication in city and county numbers. Overall, the census challenges have added a total of nearly 1,600,000 people, which is likely, with duplications, to exceed the population of two Congressional districts. All of the challenging jurisdictions combined had a population of less than 35 million in 2000, or less than 15 percent of the population.

    All of this raises questions. Beyond the questions about rejected challenges, if there have been any, are fundamental questions about Bureau of the Census methods. How can it be that the Census misses by so many people? Why did it presumably miss 15 percent of the population in Provo, 3 percent in New York City and 30 percent in Bazine City, Kansas, while apparently being so accurate in the remaining 85 percent of the nation that no one was missed?

    Why was the Bureau of the Census estimate so erroneous in New York, Boston and San Francisco, yet so accurate in Los Angeles, Philadelphia and Phoenix, where there were no errors?

    Then there is the more fundamental question – have there been any rejections?

    It is possible that everything is on the “up and up” with respect to the Bureau of the Census challenge program. On the other hand, there appears to be plenty of potential for mischief, as some jurisdictions have become experts at challenging and the Bureau may find rejections difficult, given the pressure that could be received from members of Congress.

    But politicization of the Census is a terrible risk. That’s why the Obama administration’s decision to move authority for the Census to the White House from the Department of Commerce is so concerning. It is hard to imagine a function of government so crucial to the genuine working of democracy becoming subject to the whims of people like White House chief of staff, Rahm Emmanuel – or down the road to a similarly partisan figure in the other party, like a Karl Rove.

    The good news is that a bill introduced by New York Democratic Congresswoman Carolyn B. Maloney would assure the census’s integrity. Last year, she introduced the “Restoring the Integrity of American Statistics Act of 2008,” with co-sponsors Henry Gonzales of Texas, Henry Waxman of California and William Clay of Missouri. Congresswoman Maloney’s bill would remove the Bureau of the Census from the Department of Commerce and establish it as an independent federal agency, insulated from the political process. According to the Congresswoman:

    This action will be a clear signal to Americans that the agency they depend upon for unbiased monthly economic data as well as the important decennial portrait of our nation is independent, fair, and protected from interference

    The bill has been endorsed by all seven living former directors of the Bureau of the Census, appointed by Presidents Nixon, Ford, Carter, Reagan, Clinton and both Bushes.

    This is the direction we need to go. The Administration has made much of its commitment to science and open inquiry. Preserving the sanctity of the census process would seem to confirm that commitment. In contrast, putting it under the control of White House political operatives represents a brazen act of political gamesmanship and a shameful turn in the wrong direction. It is to be hoped that the rising political firestorm and the recent withdrawal of Senator Judd Gregg from consideration for the post of Commerce Secretary might lead to a policy reversal.

    Successful Census Estimate Challenges: 2001 to 2007
    State Jurisdiction
    2000 Census Popuation
    Total Population Added in Census Challenges
    Percentage
    OVER 100,000
    NY New York City                   8,008,278                 236,120 2.9%
    TX Houston                    1,954,848                   84,364 4.3%
    NY Suffolk County                   1,419,369                   58,503 4.1%
    NY Nassau County                   1,334,544                   46,528 3.5%
    TX Dallas                    1,188,580                   25,873 2.2%
    MI Detroit                        951,270                   47,728 5.0%
    NY Westchester County                       923,459                     6,912 0.7%
    MD Montgomery County                       873,341                   10,678 1.2%
    AZ Pima County                       843,746                   29,504 3.5%
    GA Fulton County                       816,006                 109,983 13.5%
    CA San Francisco County                       776,733                   34,209 4.4%
    MD Baltimore                        651,154                   75,410 11.6%
    NJ Monmouth County                       615,301                     5,891 1.0%
    WI Milwaukee                        596,974                   29,424 4.9%
    MA Boston                        589,141                   51,540 8.7%
    DC District of Columbia                       572,059                   31,528 5.5%
    TN Davidson County                       545,524                   32,152 5.9%
    LA Orleans Parish                       484,674                   48,989 10.1%
    LA Jefferson Parish                       455,466                   16,819 3.7%
    GA Atlanta                        416,474                   12,440 3.0%
    UT Utah County                       368,536                   25,814 7.0%
    FL Miami                        362,470                   14,943 4.1%
    MO St. Louis                        348,189                   43,012 12.4%
    OH Cincinnati                        331,285                   22,582 6.8%
    OH Toledo                        313,619                   21,822 7.0%
    NY Rockland County                       286,753                     3,208 1.1%
    TX Lubbock County                       242,628                     1,678 0.7%
    VA Norfolk                        234,403                     9,720 4.1%
    VA Arlington County                       189,453                   15,634 8.3%
    NC Winston-Salem                        185,775                     8,184 4.4%
    TN Knoxville                        173,890                     4,317 2.5%
    MA Worcester                        172,648                     1,555 0.9%
    AL Huntsville                        158,216                         424 0.3%
    TN Chattanooga                        155,554                   13,103 8.4%
    MA Springfield                        152,082                     1,404 0.9%
    VA Alexandria                        128,283                   11,687 9.1%
    SD Sioux Falls                        123,975                     5,848 4.7%
    NY Jefferson County                       111,738                   11,631 10.4%
    IL Springfield                        111,454                     1,020 0.9%
    WA Bellevue                        109,569                     4,442 4.1%
    UT West Valley                        108,896                     6,011 5.5%
    UT Provo                        105,166                   16,003 15.2%
    PA Erie                        103,717                     2,608 2.5%
    Subtotal                 28,595,240             1,241,245 4.3%
    Smaller Jurisdictions                 345,025
    All Jurisdictions             1,586,270

    Wendell Cox is a Visiting Professor, Conservatoire National des Arts et Metiers, Paris. He was born in Los Angeles and was appointed to three terms on the Los Angeles County Transportation Commission by Mayor Tom Bradley. He is the author of “War on the Dream: How Anti-Sprawl Policy Threatens the Quality of Life.”

  • Megha Mukim

  • Alex Lotz

  • NGVideo: East St. Louis (Part I)

    The first in a series of videos about the economic, political, and cultural history and future of East St. Louis, Illinois.

    Part II gives views of downtown today, shows how its history can be seen in the city, and explains why the city could still be a good place for new development.

    Michael R. Allen is the Assistant Director at Landmarks Association of St. Louis. He edits the blog Ecology of Absence, “a voice for historic preservation and a chronicle of architectural change in St. Louis, Missouri and its region”.

    Alex Lotz is an undergraduate film student in his final year at Chapman University.

  • Fool Me Once, Geithner, Shame on You, Fool Me Twice…

    Treasury Secretary Timothy Geithner revealed the new “Financial Stability Plan” on February 10, 2009. It’s thick with “why we need it” and thin on “exactly what it is.” He told Congress that he would open a website to disclose where all the bailout money was going. When asked if he would reveal where the first $350 billion went, he was a little vague on the details.

    Senator Grassley (R-IA) asked him at the confirmation hearings about the Maiden Lane LLCs and the money he passed out to private, non-regulated companies. His written response then was “Confidentiality around the specific characteristics and performance of individual loans in the portfolio is maintained in order to allow the asset manager the flexibility to manage the assets in a way that maximizes the value of portfolio and mitigates risk of loss to the taxpayer.” In other words, he wouldn’t say. When asked “What specific additional disclosure would you support?” Tim’s response was “If confirmed, I look forward to working with you and with Chairman Bernanke on ways to respond to your suggestions and concerns.” Variations on the “If confirmed, I look forward to working on it” answer was cut and pasted into his 102 page written responses 104 times, or more than once per page.

    Back in 2008 when the big bailout bucks were being passed around, we (and Congress) were led to believe that this was all being done to fix problems in housing and mortgage markets. Speaker of the House Nancy Pelosi (D-CA) said this in her speech on the floor before the vote: “We’re putting up $700 billion; we want the American people to get some of the upside. …[we] insisted that we would have forbearance on foreclosure. If we’re now going to own that [mortgage-backed securities] paper, that we would then have forbearance to help responsible homeowners stay in their home.” Three million homes went into foreclosure last year.

    Speaker Pelosi went on to tell us that the bill would include “an end to the golden parachutes and a review and reform of the compensation for CEOs.” Excuse my cynicism but Tim Geithner took a $500,000 walk-away bonus when he left the Federal Reserve Bank of New York, the maximum earnings allowed under President Obama’s suggested compensation cap; but that was on top of his $400,000 salary which would put him over the limit. Obama appointee Deputy Secretary of State Jacob Lew took home just under $1.1 million last year as a managing director at Citi Alternative Investments, a unit of Citigroup, which so far took $45 billion in bailout money.

    So, let’s add this up. Tim hides $330 billion from us while he’s at the Fed, refuses to tell Congress who it went to, refuses to tell Congress who Paulson gave the money to, and takes more than his share of compensation.

    Now he wants us to believe that Treasury can “require all Financial Stability Plan recipients to participate in foreclosure mitigation plans.” Fool me once, shame on you. Fool me twice, shame on me. I, personally, don’t believe a word of it. And neither should you. It’s all baloney, bogus, phantom. They are paying lip service to the American taxpayers so you won’t send those faxes to Congress or throw shoes at the new President. They are passing the money to the same Democratic big wigs that paid for their election campaigns – just as they did in the past to the Republicans. Tim is shoveling more money to the same private companies that he previously sent freshly-printed Federal Reserve notes. Now he can also pass out Congressionally-approved money. While Congress struggled with spending $800 billion to directly stimulate economic activity in the US, Tim thumbed his nose at them by presenting a plan to spread around more than $2.5 trillion that won’t require their approval. That’s the way it is and I think it would be a very bad idea to stop him.

    Yes, you read that right. I said it would be a bad idea to stop. I’m a fan of NASCAR racing. When a driver begins to lose control of the car and is sailing head first into a concrete wall at 190 miles per hour there is only one way to save it – stand on the gas. Your every instinct is to hit the brakes, to stop the car before you slam into the wall. But if you hit the brakes you’ll lose traction and control. By pressing down on the gas, you put power to the wheels which (hopefully) are still in contact with the track – with traction comes control and you can steer away from the wall. Oh, but it isn’t easy! Every cell in your monkey-cousin brain will scream: “Slam on the brakes!”

    So, it’s like the economy is heading for the wall. And Tim has decided to hit the gas – another $100 billion for the banks, $1 trillion for private capital to put in junk bonds, $1 trillion for private investors to spend on junk loans, $600 billion for Fannie and Freddie’s debt – yet only $50 billion to reduce mortgage payments for “middle class homes” in foreclosure.

    But even if we avoid hitting the wall, that doesn’t mean we don’t need to change the course. For years I have argued we need to fix the race track and improve the aerodynamics of the cars so they won’t head into the wall in the first place. I would insist that broker dealers have to deliver what they sell. I would prohibit the sale of derivatives in excess of the underlying assets. But that’s technical stuff, like requiring roof flaps in NASCAR (little flaps that come up when the car spins backwards to keep it from going airborne). It would prevent the really bad wrecks, but then no one would tune in on Sunday if there weren’t any wrecks, right?

    Enjoy the show as Tim tries to keep from crashing into the wall. But don’t be fooled that he is fixing anything. Even if he pulls the economy out this time, the track is still broken and the cars are still not aerodynamically sound. They’ll wreck it again – as they did in 1981 (inflation so high that Treasury bonds paid 19%), in 1987 (October stock market crash of 23% was worst of all time), in 1991 (junk bond collapse and credit crunch) and in 2000 (the dot.com bust).

    This will keep happening until we take the time to understand the real causes and put in real solutions. The solution is not now and has never been to throw money at it. This is the “junkie cousin” approach that Amy Poehler (Saturday Night Live) compared to the Original Bailout package: “It’s like you lend $100 to your junkie cousin to pay his rent. And when you run into him at the racetrack next week, you lend him another $50.”

    At what point do you “get it” that your cousin is gambling away the money you lent him for the rent, that this is not really helping your cousin to kick junk? The solution is not throwing money around but accounting for all the money already out there (including the stocks, bonds and derivatives). It’s not more regulation, it’s enforcing rules that are already on the books. Real solutions take real work. I’m not hopeful that the US government and markets are willing to do the work. So, I’ll make sure I’m wearing a helmet with my seat-belt buckled for the next crash, say just around 2017.

    Susanne Trimbath, Ph.D. is CEO and Chief Economist of STP Advisory Services. Her training in finance and economics began with editing briefing documents for the Economic Research Department of the Federal Reserve Bank of San Francisco. She worked in operations at depository trust and clearing corporations in San Francisco and New York, including Depository Trust Company, a subsidiary of DTCC; formerly, she was a Senior Research Economist studying capital markets at the Milken Institute. Her PhD in economics is from New York University. In addition to teaching economics and finance at New York University and University of Southern California (Marshall School of Business), Trimbath is co-author of Beyond Junk Bonds: Expanding High Yield Markets.