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  • A Washington, D.C. Arts & Innovation District: “Sonya’s Neighborhood”

    A recent widely-read piece in the Washington Post, “The Height of Power,” noted the great prospects of Washington’s rise to the top, not only in politics but in publishing, media, business and the arts. In this way, it said, Washington’s evolution will follow the pattern of other great capitals like London, New York, Paris or Tokyo.

    As a seventh-generation Washingtonian, born here and baptized in the National Cathedral, this is a prediction I am delighted to hear. I spent almost ten years producing avant garde experimental theater in the US and on tour in Europe, but I was based in San Francisco, not in Washington; my Washington artistic presence consisted of my last production, Actual Shō, playing the Kennedy Center Opera House in 1988. As an MIT bachelor of science graduate (in architecture), I know and greatly appreciate the spirit of innovation and experimentation that is at the core of America’s entrepreneurial, adventurous approach to life.

    There are many reasons why America needs Washington to enter the first rank of innovative cultural centers. Dearest to me is that playwrights, screenwriters, novelists, and all the artists who take on the portrayals of politicians, politics, and power will become part of the same milieu as the political leaders. The result will be that members of each group develop a more sophisticated understanding of the other.

    The key to transforming Washington into a center of cultural and scientific innovation is to establish a stimulating neighborhood, such as New York city’s SoHo/Tribeca, that attracts creative people who cross-fertilize each other, and who become part of the everyday social circle both of the political leadership and of the city’s African-American core community.

    Where should Washington build the creative, innovative neighborhood it needs to accomplish this? I know just the place: A parcel of some 100 acres, now occupied by wholesale grocery and souvenir warehouses, light industry, a federal Park Service truck maintenance yard, and little-used, dilapidated municipal facilities. Its bare, windswept hilltop is the last unoccupied “commanding height” in the city. It doesn’t have any residences (and thus no residents to oppose the project), yet it’s within just a mile of the Capitol Dome.

    I’m a member of a family that has been present in Washington for more than 200 years. Our family lands included this property, which was a large woodland estate, started in about 1800. It included all the land west of today’s Gallaudet University to the railroad tracks (plus some land on the other side of the tracks), north of Florida Avenue, and, on the north, included not only the ground on which today New York Avenue lies, but also the railroad yards north of New York Avenue.

    Just south of New York Avenue, the land rises steeply to a hilltop, and then falls away gently. This hilltop is now home to a National Park Service maintenance yard and the Brentwood Reservoir, but from about 1811 to 1915 it was the site of a mansion built by Congressman Joseph Pearson (Federalist – NC) for his second wife, Eleanor, daughter of the first mayor of Washington, Robert Brent. From the 1820s through the 1880s the Brentwood Mansion was a social center of Washington, scene of many a dinner and ball as horse-drawn carriages conveyed the wealthy and powerful up the hill, through the well-kept forest to the mansion. For aficionados of Jane Austen’s Pride and Prejudice, it was the closest thing Washington ever had to the fictional Pemberly of Mr. Darcy – and it was built in precisely the era of Jane Austen. Now the site is strewn with rusting machine parts and Park Service dumpsters. Sic transit gloria mundi (“so passes worldly glory”).

    As the city grew it surrounded the estate, but the estate itself was never developed. The city took pieces of it, built New York Avenue over part of it, and put railroad tracks on one side. As the city developed, the isolated, aging mansion never gained access to modern utilities, and the family moved away and neglected it. Eventually, in the early 1920s, my grandfather developed a wholesale food market and managed the land until his death in 1948. One of his brothers died in 1951; a third lived far away; the fourth tried to manage the property from his home in Connecticut but gave up and sold it all.

    This large parcel that once was our family land is now again in disrepair. The city government and owners of various pieces of it are hoping to develop it: the usual mix of office-buildings and townhouses, with no particular theme or vision of a unique, exciting neighborhood.

    What I propose is to develop this entire large area – not just the parts subject to the present plans, but almost all of the former family property, including the mix of federal and DC-government land – as a neighborhood specifically dedicated to be stimulating and exciting for creative people. The property offers an ideal place to create an “arts and innovation district,” a kind of SoHo or San Francisco in DC. It’s large, contiguous, and self-contained. It already has an institution of higher learning, Gallaudet, along one side, and a Metro stop at one corner.

    Since the property is south of New York Avenue, I think of it as SoNYA = Sonya = “Sonya’s Neighborhood,” which sets the tone for the concept as personal and human, rather than the bureaucratic feel of calling it a “district” or “zone.” This large-scale project would be a major job-generator, exactly in-line with the new Stimulus Bill, and the existing federal and DC-government ownership means that it is an ideal public-works project for President Obama and Mayor Adrian Fenty to promote.

    The fact that the site includes a prominent hilltop gives the project a glittering opportunity to achieve instant national and international status. If you fly into Washington, you will see a prominent hilltop gothic cathedral, the National Cathedral. It symbolizes the importance of religion in American life. And, of course, anyone coming to Washington sees the Capitol Dome, which symbolizes democratic government, and sees the monuments to the Presidents – Washington, Lincoln, Jefferson – that symbolize the importance of history.

    The hilltop where the family mansion stood is a place where Presidents, Senators, Cabinet Members, Justices, and Representatives dined, drank, and danced long ago. It should now be the site of a highly-visible, signature building of innovative design to serve as an Arts & Innovation Center. The ground is at an elevation of 175 feet above sea level. Any tall building placed on this “commanding height” not only will have commanding views down across the city, it will also “be seen” from many places around the city, as are the National Cathedral, the Capitol, and the Washington Monument. This prominent building will symbolize the importance to America of innovation and creativity. As core tenants, I propose the federal agencies the National Endowment for the Arts and the National Endowment for the Humanities, who would move their headquarters from the Old Post Office. The building could also house a Washington branch of the new Singularity University based in Silicon Valley (see http://singularityu.org/.)

    This building would serve as the keynote for the entire development, which would spread-out to the south on the slope below it, down towards Florida Ave. “Sonya’s Neighborhood” should be mixed-use, residential and office, with the ambience of New York’s SoHo or of San Francisco’s denser neighborhoods, and a feel similar to Venice, Italy – lots of narrow pedestrian-only streets, with bistros, art galleries, clubs, etc. – a place where creative people like to hang out.

    A local surface transit system can connect from the Metro stop through all of the development up to the hilltop Arts & Innovation Center building. It could extend into the Gallaudet campus, and to the nearby Ivy City neighborhood as it is redeveloped.

    There is much more to the proposal, including relocation of the grocery and souvenir wholesalers, and the Park Service maintenance facilities, to a new facility built overtop of the railroad yard north of New York Avenue (as in Manhattan, where Park Avenue is built overtop of railroad lines running to Grand Central Terminal). I encourage anyone who is interested to contact me via e-mail at sissoed@hotmail.com (no “n” in “sissoed”) to learn more.

    Edward Sisson is a Washington D.C.-based attorney. If there is sufficient interest in developing the Arts & Innovation Building and Sonya’s Neighborhood, he expects to take a leading role as “producer” of that exciting project, utilizing his unique background in Washington, in architecture, in the arts and the sciences, and in law to solve the many hurdles and obstacles that will confront the project.

  • Wall Street Brain Drain May Not Be All Bad

    President Obama’s recent executive compensation plan comes on the heels of the revelation that Wall Street firms awarded over $18 billion in bonuses last year. The plan will create a $500,000 pay cap for executives at companies receiving substantial taxpayer bailout money.

    While the Wall Street salary cap – certainly well intentioned – mirrors public sentiment nationwide, the Masters of the Universe and their friends are not so pleased. Some feel it is a “killer for New York.” Kathryn Wilde of the Partnership for New York argues the lower salaries on Wall Street will lead to a “critical brain drain” in the industry and “lower tax revenues for the city and state.”

    But in the longer run, is this all bad? The so-called “brain drain” of high priced talent – the same folks who got us in trouble in the first place – could be fortuitous if more creative and innovative professionals now arrive on Wall Street. A new breed of Wall Streeter might have the potential to create a sustainable industry rather than the current casino culture. What may be a superficial wound on NYC in the short term may benefit the country as a whole – and even New York – in long run.

  • Housing Price Bubble: Learning from California

    In a letter to The Wall Street Journal (February 6) defending California’s greenhouse gas (GHG) emissions policies, Governor Arnold Shwarzenegger’s Senior Economic Advisor David Crane noted that California’s high unemployment is the result of “a bust of the housing bubble fueled by easy money.” He is, at best, half right.

    The “bust of the housing bubble” occurred not only because of “easy money,” but also because of the very policies California has implemented for decades and is extending in its battle against GHG emissions.

    The nation has never had a housing bubble like occurred in California. The Median Multiple (median house price divided by median household income) in California’s coastal metropolitan areas had doubled and nearly tripled over a decade. Housing costs relative to incomes reached levels twice as high as those experienced in the early 1990s housing bubble, which was bad enough.

    This is all the more remarkable because even before the bubble the Median Multiple in the Los Angeles, San Francisco, San Diego and San Jose metropolitan areas was already elevated at 1.5 times the historic norm.

    “Easy money,” by itself, does not explain what caused the unprecedented housing bubble in California. If “easy money” were the sole cause, then similar house price escalation relative to incomes would have occurred throughout the country.

    Take, for example, Atlanta, Dallas-Fort Worth and Houston. These are the three fastest growing metropolitan areas in the developed world with more than 5,000,000 population. Since 2000, these metropolitan areas have grown from three to 15 times as fast as Los Angeles, San Francisco, San Diego and San Jose. While 1,800,000 people have moved out of the four coastal California metropolitan areas to other parts of the country, 700,000 have moved to Atlanta, Dallas-Fort Worth and Houston from other parts of the country. This is where the demand would have been expected to produce the bubble. But it did not. House prices remained at or near historic norms and average house prices rose one-tenth that of the California coastal metropolitan areas.

    These three metropolitan areas were not alone. Throughout much of the nation, in metropolitan areas growing both faster and slower in population than coastal California, house prices simply did not explode relative to household incomes.

    In touting “smart land use” as a strategy for greenhouse gas emissions, Crane misses the other half of the equation. Indeed, it is so-called “smart land use” (“smart growth”) that intensified the housing bubble in California. “Smart land use” involves planners telling the market where development will and will not occur. In the process it ignores the price signals of the market. Owners of land on which development is permitted naturally and rationally raise their asking prices, while owners of land not so favored can expect little more than agricultural value when they sell. The result is that the land element of housing prices exploded, fueling the unprecedented bubble. Restrictions on supply naturally lead to higher prices, whether in gasoline, housing or anything else.

    California has placed restrictions on development with a vengeance. For nearly four decades, California has woven a tangled web of land use restrictions that have made the state unaffordable. When the demand rose in response to the “easy money” the land use planning systems were unable to respond and a rapid escalation in housing prices followed. The same thing occurred in other areas with excessive land use regulation, such as Las Vegas, Phoenix, Seattle, Portland, New York, Washington and Miami, though the house price escalation was not so extreme as in coastal California.

    On the other hand, where land use still allowed a free interplay of buyers and seller (consistent with rational environmental requirements), the housing bubble was largely avoided. Average house prices in Atlanta, Dallas-Fort Worth and Houston rose only one-tenth that of Los Angeles, San Francisco, San Diego and San Jose.

    When the bubble burst, the far higher house prices naturally tumbled more than in other areas. The price was paid well beyond California and the other “smart land use” markets around the nation. From Washington to Wall Street to Vladimir Putin and Chinese Premier Wen at Davos, everyone knows that the international finance crisis was precipitated by the US mortgage meltdown.

    It all might not have occurred if there had been no “smart land use” markets with their exorbitant and concentrated losses. Overall, the “smart land use” markets represent little more than 30 percent of the nation’s owned housing stock, yet produce more than 85 percent of the housing bubble values at their peak. California style “smart land use” intensified the overall mortgage losses by more than five times. If the losses had been more modest, there might not have been anything like the current mortgage meltdown. With more modest losses, the world financial system might have been able to handle the damage without catastrophe, just as it did with the “dot-com” bubble earlier in the decade. The many households that have lost much of their life savings or retirement income would not be facing the future with fear. And even personally frugal taxpayers of the world would not be the principal stockholders in failing banks.

    California needs to wake up and face the reality. The intensity of the housing bubble was of its own making. More “smart land use” is just what California does not need. This is the lesson the rest of the nation needs to learn rather than repeat.

    Sources:
    David Crane letter to the editor: http://online.wsj.com/article/SB123381050690451313.html
    Domestic migration data: http://www.demographia.com/db-metmic2004.pdf
    Analysis of the housing bubble: http://www.heritage.org/Research/Economy/wm1906.cfm
    House price losses by peak Median Multiple: http://www.demographia.com/db-usahs2008y.pdf
    Las Vegas Land Market Analysis: http://www.demographia.com/db-lvland.pdf
    Phoenix Land Market Analysis: http://www.demographia.com/db-phxland.pdf

    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.”

  • The Pleasure of Their Company

    Executives from banks including Goldman Sachs, JP Morgan Chase, and Bank of America (who bought Merrill Lynch) have been called to Capitol Hill to explain what they did with their shares of the $750 billion bailout. (You can watch it live or read transcripts here.)

    Here’s a good question to put to those executives: how much did you spend on whores?

    According to a story by 20/20 aired on ABC on February 6, 2009, Wall Street executives and bankers used company credit cards to pay for prostitutes. When the head of the prostitution ring was arrested, her list of clients included bank executives who used company credit cards and disguised the charges as “computer consulting, construction expenses” and “roof repair on a warehouse”.

    This raises their behavior to the level of a felony: committing fraud to hide a crime. Soliciting prostitutes is still a crime – even if it is rarely enforced. Disguising whoring as a tax-deductible business expense certainly qualifies as fraud. Making it even worse, if the ABC story is true, several of the bankers paid for their pleasure with our money. Included in the roster are:

    • an investment banker at Goldman Sachs who spent $27,000
    • an investment banker at JP Morgan Securities who spent $41,600
    • a managing director from Merrill Lynch

    Anyone who has spent time on Wall Street, as I did during the 1980s and 1990s, knows that paying prostitutes as entertainment goes on all the time. They fool themselves into thinking that they deserve it, or that everyone does it so it must be ok, or that no one is getting hurt.

    Yet this is a pattern that goes well beyond buying women. I taught business ethics at New York University and the Stern School of Business for many years; ethics and economics is one of the field specializations in my Ph.D. Many people who paid for prostitutes with what amounts to the public’s money already rationalized other unethical decisions, like, for example, misleading a client on a stock because it will inflate your bonus. Or giving a AAA rating to a mortgage-backed security that looks dodgy but will earn a big fee.

    So, if you have already taken the plunge in other areas, when you have a choice to spend $41,000 of the company’s money on a prostitute, you don’t consider the ethics. You already have made that decision before; you may have done it a thousand times before.

    This is the kind of lapse that allows someone like John Thain to spend $1 million to redecorate his office while taking public funds. Or for a supposed public icon like Robert Rubin to defend his role in the Citicorp destruction by saying he could have made even more money working somewhere else.

    And believe or not, it’s still going on. Another bailout baby, J.P. Morgan Chase is still completing a renovation of its New York headquarters at a reported cost of $250 million. They started their project in June 2007. Citigroup started their renovation of the executive offices in New York in September 2008, just as Congress was approving the first bailout package.

    The good news is not everyone gives into the temptation. I know guys who walked away; guys who refused to take part in it even when their Wall Street boss offered to pass along the prostitute who was giving everyone in the office oral sex that afternoon. These guys wanted to wake up the next morning and look into their daughter’s eyes without remorse. Guys who decided to create a business environment in which they would want those daughters to live and work.

    These are the guys who would take responsibility for their misjudgments in business and say no to a bonus in a year when their clients have been devastated. Sadly, many of those guys left Wall Street a long time ago. They probably are not the guys who are lined up for bailout money. This is not the kind of problem you stick around to fight to change. The problem with winning a gutter fight is that you are still in the gutter. Sometimes it’s better to just walk away.

    According to the Associated Press, nine out of ten senior executives still at the banks that took federal bailout money were there to play a role in creating the crisis. Far too few have been thrown out for incompetence. So far none has been thrown in prison for fraud or theft. Most probably will take their nice vacations, count their sick days accumulated, and keep that vital company credit card for entertaining. This is not the case, of course, for the 100,000 bank employees who lost their jobs between 2006 and 2008.

    As the newest shareholders in these banks, the US taxpayers should have some say in all this. Shareholders should be able to oust the Board and the executives who led their firms, and the country, into this morass. We have bailed these miscreants out but without taking any control. So we end up paying for the pleasure of their company while they go out and use our money to pay for someone else’s. On Wall Street, or here in Omaha, that’s called getting screwed.

    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.

  • More than Two-thirds of the Nation Still Lives in Their Home State

    In which states do folks tend to stay home? Here’s a look at Americans still living in their birth states. New York and Louisiana top the list. Upwards of 82% of the US-born residents living in New York and Louisiana were born there. Looking at the map, you can see that the highest numbers reside in the rust belt and northeast. The most transplants tend to live in natural amenity rich western states, except for California.

    More than 72% of US born Californians were born in the state. That number is over 74% in LA county, but only about 60% in San Diego. Other high transplant areas include New Hampshire and Vermont in the northeast, and not surprisingly the Washington DC area, Florida, and Nevada.

    Only 41.7% of US born Alaskans were born there. I suppose if you are living in Alaska, you’ve come there for good reason.

    Take a look at an extension of this analysis: Does a low number of home staters mean everyone has left?

    Percent of Native Population Born in their Current State of Residence
    Geographic area Percent Margin of Error
    New York 82.1 +/-0.1
    Louisiana 82 +/-0.2
    Michigan 80.6 +/-0.1
    Pennsylvania 79.6 +/-0.1
    Ohio 77.8 +/-0.1
    Illinois 77.4 +/-0.1
    Iowa 75.4 +/-0.3
    Wisconsin 75.3 +/-0.2
    Massachusetts 74.7 +/-0.2
    Minnesota 73.8 +/-0.2
    Kentucky 73.6 +/-0.2
    Mississippi 73.4 +/-0.3
    Alabama 73.2 +/-0.3
    West Virginia 72.9 +/-0.3
    Texas 72.3 +/-0.1
    North Dakota 72.1 +/-0.4
    California 71.8 +/-0.1
    Indiana 71.4 +/-0.2
    Nebraska 69.7 +/-0.3
    Missouri 68.9 +/-0.2
    Utah 68.5 +/-0.3
    Rhode Island 67.9 +/-0.6
    South Dakota 67.5 +/-0.5
    United States 67.3 +/-0.1
    Maine 66.5 +/-0.5
    Hawaii 65.6 +/-0.5
    New Jersey 65.4 +/-0.2
    Tennessee 65 +/-0.2
    Oklahoma 64.8 +/-0.2
    North Carolina 64.1 +/-0.2
    Connecticut 64 +/-0.3
    Arkansas 63.8 +/-0.3
    South Carolina 63.4 +/-0.3
    Kansas 62.7 +/-0.3
    Georgia 61.5 +/-0.2
    New Mexico 57 +/-0.4
    Virginia 56.3 +/-0.2
    Montana 55.3 +/-0.5
    Maryland 54.6 +/-0.3
    Vermont 54.5 +/-0.5
    Washington 53.7 +/-0.2
    Oregon 50.2 +/-0.3
    Delaware 50 +/-0.6
    Idaho 48.7 +/-0.4
    Colorado 46.9 +/-0.3
    District of Columbia 45.5 +/-0.7
    New Hampshire 44.4 +/-0.4
    Wyoming 43.3 +/-0.8
    Alaska 41.7 +/-0.6
    Arizona 41.7 +/-0.3
    Florida 41.4 +/-0.1
    Nevada 27.8 +/-0.4

    Source: U.S. Census Bureau, 2005-2007 American Community Survey

  • Stimulus Plan Caters to the Privileged Public Sector

    Call it the Paulson Principle, Part Deux.

    Under the now thankfully-departed Treasury secretary, we got the first bailout for the undeserving – essentially, members of his own Wall Street class.

    Now comes the Democratic codicil to the P. Principle. It’s a massive bailout and expansion of the public-sector workforce as well as quasi-government workers in fields like health and education. Not so well-rewarded – except for expanded unemployment benefits – will be those suffering the brunt of the downturn, such as construction and manufacturing workers, whose unemployment is now heading north of 10%.

    Indeed, a close look at the current stimulus plan shows that as little as 5% of the money is going toward making the country more productive in the longer run – toward such things as new roads, bridges, improved rail and significant new electrical generation. These are things, like the New Deal’s many construction projects, that could provide a needed boost to our sagging national morale.

    Instead, we are focusing once again on those who have been getting the best deal for doing the least. The Bureau of Labor Statistics reports state and local government workers get paid 33% more than their private sector counterparts. If you add in the pensions and other benefits, the difference is over 40%. In New York alone, public-sector wages and benefits since 2000 have grown twice as fast as those of the average private-sector worker.

    Egregious stories of overpaid public workers are legion. In suburban Chicago, for example, some school administrators are making over $400,000 with benefits and incentives. Recent reports out of Boston suggest hundreds of firefighters and police officers make well in excess of $100,000 a year. And of course, there are the California prison guards who can make upwards of $300,000 a year with overtime.

    Of course, most public sector employees are not so lucky. But, for the most part, these workers enjoy protections, like health care for life, that most others could only dream about. Many also have pensions that allow them to retire in their 50s, while some of us will be hod-carrying well into our 70s.

    This all means that the potential price tag for swelling the public workforce could ultimately run into the trillions, a number Washington and Wall Street now use the way we used to talk about billions. At very least, we should be asking new public workers, or those whose jobs are being bailed out by the stimulus package, to make the kind of sacrifices demanded, say, of those working at General Motors. We could, for example, make them wait ’til age 60 or even 65 to retire.

    To no one’s surprise, much of this favoritism has to do with party politics. The basic truth is that auto and other industrial workers, like those in construction, have become somewhat expendable in the eyes of some Democrats – in part because they do not always follow the party line. In contrast, public-employee unions are the politically correct rock upon which much of the party now rests.

    This oversized influence is relatively recent. Yet as private-sector unions have waned, those in the public sector have waxed. They have been able to extort enormous benefits out of City Halls, counties, states and, of course, Congress.

    In the process, they have become – like the Wall Street financiers before them – a kind of privileged class. In the case of some Chicago garbage men, they often don’t work anything near 40 hours a week but are paid as if they did. Others engage in elaborate schemes to take advantage of injuries, real or imagined. Who would have thought that punching tickets for the Long Island Rail Road would be so hazardous that many retired employees use these “injuries” to collect disability money – in order to play golf or take another job?

    This can all get very expensive, especially given the poor immediate prospects that the stock market can finance these additional pensions. Some day the millennial generation should initiate a class action suit for placing this unconscionable burden on them.

    Right now, though, there’s little reason to expect President Obama and the majority Democrats will change direction. The public sector unions are often among the largest contributors to Democratic campaigns. They have also cultivated strong ties with the Washington media – some of whom, like The Washington Post’s Harold Meyerson, have argued over the years that these public workers are increasingly synonymous with the future middle class.

    There’s certain logic to this. Insulated from global competition, public employees have the ability to ratchet up their demands almost without serious limit. After all, even the most radical Republicans are not proposing to have the postal system transferred to Vietnam. We certainly don’t want to outsource our police services to China or Russia.

    So what’s not to like? Well, nothing – if the Roman Empire or China’s Qing Dynasty is your idea of a historical role model. Those regimes epitomize what happens when most of a nation’s wealth goes to support an ever-expanding bureaucracy and associated private-sector rent-seekers at the expense of both private commerce and public infrastructure. Look in the dictionary under the word decline.

    We can already see its early signs. Across the country, cities are being forced to choose between maintaining their basic infrastructure and honoring the medical, retirement and other pension obligations owed to retired public workers. The head of the Atlanta Fire Fighters’ Pension fund described groups like his as “the 800-pound gorilla in the room.” This primate has the power to stomp on the ability of states, cities and counties to put money into improving much of anything or even considering lowering taxes.

    Over time, though, one can hope President Obama will adjust his course. At some point, the middle- and working-class stiffs in the private sector – unionized or not – will question a stimulus that neglects their aspirations at the expense of protecting the imagined rights of yet another privileged class. Individually, public employees may not be as noxious as John Thain, but there are more of them. And over time, they could cost us even more.

    As a charismatic leader with strong union support, Obama could try to pull a “Nixon in China” and insist on reforming the benefits enjoyed by public workers as a condition of federal help. He wouldn’t be the only leader attempting a return to sanity. The idea of challenging public sector privilege has gained some currency in Ireland and France, as well as among the Liberal Democrats in the U.K.

    Such a bold initiative would earn President Obama not only gratitude from private sector workers but also posterity. But it would take courage, too; the mere suggestion of reform could result in a rash of strikes (as in Greece) and ceaseless yammering from union lobbyists and their allies on Capitol Hill.

    Of course, public-sector unions and their supporters will argue that they constitute an important part of the nation’s middle class and that their benefits are therefore sacrosanct. Yet it’s increasingly evident that this strata of middle-class workers live in a different reality than typical private sector shmoes. As George Orwell suggested in Animal Farm, it seems some animals are more equal than others.

    This article originally appeared at Forbes.

    Joel Kotkin is executive editor of NewGeography.com and is a presidential fellow in urban futures at Chapman University. He is author of The City: A Global History and is finishing a book on the American future.

  • Edward Sisson

  • This Perp Walk Needs Handcuffs

    Do many of us truly understand the scale of one trillion dollars? The following executives have been called to Capitol Hill to explain what they did with their shares of the $750 billion bailout:

    – Mr. Lloyd C. Blankfein, Chief Executive Officer and Chairman, Goldman Sachs & Co.
    – Mr. James Dimon, Chief Executive Officer, JPMorgan Chase & Co.
    – Mr. Robert P. Kelly, Chairman and Chief Executive Officer, Bank of New York Mellon
    – Mr. Ken Lewis, Chairman and Chief Executive Officer, Bank of America
    – Mr. Ronald E. Logue, Chairman and Chief Executive Officer, State Street Corporation
    – Mr. John J. Mack, Chairman and Chief Executive Officer, Morgan Stanley
    – Mr. Vikram Pandit, Chief Executive Officer, Citigroup
    – Mr. John Stumpf, President and Chief Executive Officer, Wells Fargo & Co.

    The panel was called in by the house Committee on Finance. (You can watch it live at house.gov on February 11, 2009, 10:00 a.m. Eastern.) The House events are more exciting than the Senate, whose members take decorum too seriously to ask direct questions and raise their voices when they don’t get answers.

    These guys (no women) are being called in to answer questions about what they did with the $750 billion bailout. Most people don’t really understand what a billion dollars is, let alone a number of billions that equals three-quarters of a trillion dollars. Let me try to bring it home.

    Most people know what a million dollars is – it’s been popularized in TV programs like “Who Wants to be a Millionaire?” and “Joe Millionaire”. Most state lotteries have minimum prizes of a few million dollars. Angelina Jolie and other very popular actors reportedly receive $20 million for making one movie. Blockbuster movies can have more than $100 million in ticket sales on a good opening weekend. There are about 130 million housing units (homes, condos, trailers, etc.) in the U.S. The population of the US is a little over 300 million. We’re working our way up to $1 billion if we think of $3 or $4 per person. $1 billion is about equal to the annual income of 16,555 Americans. The entire population of Nebraska earns about $120 billion in a year. The population of California would earn about $150 billion in a month.

    The U.S. Treasury and Federal Reserve paid $150 billion for an 80-percent stake in American International Group (AIG) in a bailout announced on September 16, 2008. On September 22, just days after receiving this bailout, AIG spent $443,000 on a spa outing at the luxurious St. Regis Resort in Monarch Beach, California, including $23,000 in spa treatments. AIG visited the Hill on October 7, 2008 where its CEO defended the spending as “necessary to maintain business.”

    When they left the Hill, they threw a second party for themselves at another luxury hotel, this time $86,000 at a New England hunting retreat. They canceled 160 events after Congress and the press complained, but they still went on to spend $343,000 on a three-day event at Arizona’s Pointe Hilton Squaw Peak Resort in November. This time they made sure there were no AIG signs on the premises – three months later I still can’t figure out why no one is in jail for fraud.

    Treasury, so far, has refused to tell us where much of the money went, beyond paying for pricey canapés and comfy beds. Not surprisingly, Fox Business Network ran a half-page ad in USA Today on February 3 to announce that they “sued the Treasury and the Federal Reserve” to find out where the TARP and FRB-NY money went. The Senate is considering subpoenas to get Treasury to tell them where it all went. Talk about imperial government!

    Let’s keep going, because the numbers get bigger. The Treasury passed out $750 billion in their bailout. Treasury Secretary Henry Paulson and Fed Chief Ben Bernanke said that “The initiative is aimed at removing the devalued mortgage-linked assets at the root of the worst credit crisis since the Great Depression.” (Bloomberg, September 19, 2008.) There were about 3,000,000 homes in foreclosure at the end of 2008.

    But who was really being bailed out? For $750 billion you could buy all of them outright and still have more than $100 billion left over to make car loans, student loans, small business loans – or pay bonuses to all the Wall Street and Bank executives in 2008. California had the most foreclosure of any state in 2008 – 523,624. $750 billion would have saved all of them – three times over.

    For $750 billion you could buy 3,507,951 single-family homes in the US. That’s equivalent to every home built in the US in 2006 and 2007. You could buy about 3% of all the homes standing today in the US.

    $750 billion would buy you 1,524,390 single-family homes in LA County, or 83% of the total. With $750 billion you could buy all the land in private hands in Los Angeles County (but not the buildings on it) and still have enough left over ($185 billion) to buy all the buildings and structures in Los Angeles city.

    Now, Congress is working on a stimulus package that is approaching $1 trillion. Not to rush you through the math, but if you got this far, then you are already three-quarters of the way there. Apparently, Los Angeles is $1 trillion: That’s about the value of all the residential, commercial and industrial property in LA County. (Actually, $1.109 trillion, but what’s a hundred billion among friends?)

    A stimulus package of $819 billion should give $6,306 to every household. It won’t, of course. But it should.

    So what’s my conclusion? This bailout plan has little to do with addressing the root problems of the housing crisis, or helping hard-pressed Americans. It’s about bailing out the big banks and financial institutions from the consequences of their own miscalculations.

    NOTE: calculations use median home prices and median incomes. Unless specified as “single-family homes” the housing numbers refer to all units which include condominiums, manufactured housing, apartments, etc.

    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.

  • Wisconsin Checks Out The Finland Club

    Our Central Wisconsin delegation journeyed to Finland in October, 2008. We definitely learned a few lessons that we’ll apply here at home, with the hope of moving our ability to compete globally to a much higher level.

    “Finland is not a country, it is a club” stated one of the many presenters we heard during our study tour. This perspective of how Finns see themselves says something valuable about what they believe it will take for them to compete in the changing global economy: a whole lot of cooperation, strong relationships and inter-connectedness!

    The notion of a “club” is that a group comes together around a common interest and finds value in the network, which the club provides by further fostering that common interest. This is what we found was happening in Finland. Similar in size to Wisconsin, the country rallies together to be competitive on a global scale. They view themselves as a club, in the context of bringing bright people together as a key to innovation and commercialization. They have developed, and continue to further develop, systems in their “club” to allow this to happen.

    Although Nokia is definitely the poster child in Finland’s quest to become a top performer in global competition, the country’s business community is not resting on its laurels. Instead, there’s a very clear, shared vision of the future of the country, with a focus on the investments that can make this future a reality.

    One example is the Oulu region’s concept of a Triple Helix to foster business development and innovation. The Triple Helix intertwines business, education and government in cooperation and collaboration to deliver a support system that fosters innovation for business development. We heard presentations from about 15 agencies, government departments, educational institutions, and business associations. Each one succinctly communicated the common vision of the Triple Helix and the plan for the region to compete globally and grow its economy. Within this shared vision, everyone understood their particular agency’s role, and knew what role others played.

    Our small, rural Central Wisconsin community has had a Finnish connection since 2000, when Stora Enso Oy purchased the Fortune 500 Wisconsin Rapids-based paper company conglomerate, Consolidated Papers. This sale shook up the century-long paternalistic culture and insulated economy. And the loss of more than 4,000 jobs made the community immediately face the reality of global competition.

    In response to the crisis, the Heart of Wisconsin Business & Economic Alliance, in partnership with the Community Foundation of South Wood County, kicked off the Community Progress Initiative, which incorporates systemic approaches similar to the Triple Helix model, and uses common vision as a compelling inspiration to actively engage the community in moving forward collaboratively, kind of like a “club.” The approach has had some proven success, with opportunities for bigger breakthroughs yet to come. Our Study Tour Team is comprised of representatives from business, government, education (K-12, technical college and university levels), engineering, sustainability, philanthropy, and economic development. We are all focused on implementing the concepts on innovation and project learning gained on the tour.

    Outaniemi Technology Hub, in Espoo, provides another example of a “club” type of approach to fostering innovation to compete globally. It bridges innovation and business, uniting academia, startups, SMEs (Small and Medium Enterprises) and anchor businesses in a meaningful way to market and promote technology business development. Outaniemi comprises the biggest concentration of R&D (research and development) and innovation services, facilities and hi-tech infrastructure in the Nordic Region. It links these entities together to create cooperative productivity that is greater than the sum of its parts. The Outaniemi linkage of 32,000 people – 16,000 students, 16,000 hi-tech professionals – 600 companies, and several world headquarters, together with world class research, has resulted in a highly functioning and successful ”innovation club.”

    How did Finland develop this ”club” culture? In the 1990’s, after suffering a serious recession, Finland applied Michael Porter’s industry cluster theory to look at their industries and areas of potential competitive advantage. In Porter’s book, Competitive Advantage of Nations, he had argued that successful firms are seldom alone. Frequently, a company’s dominant market share and accelerated growth are supported by a unique combination of firms tied together by knowledge and production flows. According to Porter, competitiveness originates from these unique combinations, clusters or development blocks. Their typical features are numerous interconnections between firms, technological spillovers, and externalities.

    While many of the connections are of an economic nature, social and environmental benefits are important as well. Defining formal boundaries for these clusters may be cumbersome and even irrelevant; the main feature of a cluster is interaction and interplay among the participants. The Finnish refer to this as “co-petition.” Through cooperation — working together in industry micro-clusters that interface with other micro-clusters — they become more effective at competing in a global marketplace. The “club” concept cross pollinates the clusters to inspire innovation.

    Here in Wisconsin, our Community Progress Initiative integrated a comprehesive system of community and economic development programs to develop relationships and a synergy across the community. This sparked interest in developing an entrepreneurial and small business support system and in forming industry cluster networks. Spinning out of the industry clusters has been the Ideas Incubator and Innovation Think Tank as vehicles through which to foster innovation for business applications. We are still at the infant stage in this process, although, with the foundation set, we are poised to advance our efforts. Lessons from Finland’s experience are guiding us to results. We’ve learned to grab that low hanging fruit and take steps towards long-term gains and bold innovative wins for our ”club.”

    A successful club has the belief and willingness to invest in making itself better. Finland is doing this, supporting innovation and entrepreneurship in public policy, and investing in R&D to the tune of more than $3200 Euros (that’s over $4,000 USD) per capita in some regions. The government investment arm, TEKES, grants money to private firms exploring innovation with good business model applications. Finland invests in its bread and butter, small business, concentrating on growth sector businesses of 20-100 employees. Some of the firms receiving investment from TEKES are not Finnish owned. For example, a Wisconsin Rapids-area firm could set up a Finnish branch office and apply for TEKES R&D funding. Hmmm, I think this could be worth exploring….

    The business of fostering innovation is long-term work. Finland has been successful at fast-tracking the moves that hold the competitive edge in technology innovation, and at applying the results to build economic prosperity. The country’s innovation system successfully converts R&D and educational capacity into industrial strengths.

    By applying some of these lessons learned in Finland to the impressive foundation we have laid through the Community Progress Initiative in our region, we hope to be as successful as they have been. We, too, are now working to foster innovation that assists our businesses, to work together in co-petition, and to grow our region’s economy.

    Anyone want to come join our club?

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

  • Seattle Joins the Recession

    At the time of the election, less than 3 months ago, Seattle seemed to be riding above the fray, escaping the worst features of the recession, such as mass layoffs, even despite weakness in the housing market. Seattle area voters even approved a series of huge tax measures, including $30 billion for rail rapid transit, befitting what folks here like to consider a world-class city.

    The story recently is much more somber, reeling somewhat from a series of high-level hits to the economy. In contrast to neighboring Oregon, unemployment is not yet severe, about 6.3% for the metropolis, but there remains a degree of denial that the Emerald City is in for an actual decline! Giant Amazon actually did well over the holiday season and Costco reasonably well, considering its dependence on national consumption.

    The largest layoff, reminiscent of past recessions, was to Boeing which might drop as many as 10,000 jobs, and a yet unknown number to PACCAR, maker of Kenworth and Peterbilt trucks and the stalwarts of Seattle’s unionized and well-paid manufacturers. Starbucks is closing many stores and contracting at the headquarters. Mighty Microsoft will not occupy expected space, as it has also been hit by the recession and will experience selective layoffs.

    The decline in the housing market and new construction, residential and commercial, has collectively impacted hundreds of firms in finance, architecture, and construction. The Seattle housing market, like that of Portland, which held up longer than California’s now may experience serious declines.

    Perhaps the biggest loss, however, is the collapse of WAMU (Washington Mutual), a pacesetter in the bad practices that brought on the recession. WAMU’s demise is hurting many local investors, charities, tax revenues, as well as employment at all levels, probably leading to a downtown job loss of 20,000.

    Another casualty is the port business. A substantial part of Seattle’s growth and wealth is tied up in international trade. Container traffic has slowed markedly and is at further risk, especially if there is a rise in protectionism in Congress. Overall, the eventual losses in the in the finance, housing and perhaps even high-tech sectors of the “new economy” may be greater than the more visible problems of Boeing, PACCAR and even Starbucks, whose output and income will recover as the world economy recovers (but not until). Hard times are coming not just for Joe the Plumber, but the vaunted “creative class” as well.

    Other soft indicators are that 30 percent of homes are selling at a net loss, and that the current forecast for the next three months is for a 3-percent decline in regional product and a loss of 50,000 jobs. The recession is viewed as having “officially arrived in Seattle” in December 2008, following the layoff plans of Seattle’s iconic firms and recognition that construction employment has dropped like a “piece of concrete,” in the words of Dick Conway, a well-known Puget Sound Economic Forecaster.

    The imminent closure of the Seattle Post-Intelligencer fits into this bleak picture. This is the story of an economy that is decelerating after convincing itself it was all but recession-proof. In Detroit or even LA, they expect hard times. Up here we have all but forgotten that our economy is also cyclical, and has much vulnerability. The question is will we see again the famous billboard erected in the 1973 recession, which asked “Will the Last person leaving SEATTLE – Turn out the lights.”

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